As filed with the Securities and Exchange Commission on December 28, 2020.
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
QUALTRICS INTERNATIONAL INC.
(Exact name of Registrant as specified in its charter)
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Delaware
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7372
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47-1754215
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(State or other jurisdiction of incorporation or organization)
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(Primary Standard Industrial Classification Code Number)
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(I.R.S. Employer Identification No.)
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333 West River Park Drive
Provo, Utah 84604
385-203-4999
(Address, including zip code and telephone number, including area code, of Registrant’s principal executive offices)
Zig Serafin
Chief Executive Officer
Qualtrics International Inc.
333 West River Park Drive
Provo, Utah 84604
385-203-4999
(Name, address, including zip code, and telephone number, including area code, of agent for service)
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Copies to:
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Daniel Mitz
Lona Nallengara
Richard Alsop
Kristina Trauger
Shearman & Sterling LLP
599 Lexington Avenue
New York, New York 10022
212-848-4000
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Blake Tierney
General Counsel
Qualtrics International Inc.
333 West River Park Drive
Provo, Utah 84604
385-203-4999
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Mary Beth Hanss
Senior Vice-President, General Counsel and Corporate Secretary
SAP America, Inc.
3999 West Chester Pike
Newtown Square, Pennsylvania 19073
610-661-1000
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Anthony J. McCusker
Bradley C. Weber
John G. Casnocha
Goodwin Procter LLP
601 Marshall Street
Redwood City, California 94063
650-752-3100
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Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. ☐
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
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☐
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Accelerated filer
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☐
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Non-accelerated filer
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☒
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Smaller reporting company
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☐
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Emerging growth company
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☒
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
CALCULATION OF REGISTRATION FEE
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Title of Each Class of Securities to be Registered
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Proposed Maximum Aggregate Offering Price(1)
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Amount of Registration Fee(2)(3)
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Class A Common Stock, par value $0.0001 per share
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$100,000,000
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$10,910
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(1)Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act. Includes the offering price of any additional shares that the underwriters have the option to purchase.
(2)Calculated pursuant to Rule 457(o) under the Securities Act based on an estimate of the proposed maximum aggregate offering price.
(3)Pursuant to Rule 457(p) under the Securities Act, the filing fee for this registration statement has been offset in full by fees totaling $60,041 paid in connection with the Registration Statement on Form S-1 (File No: 333-227892) filed by the Registrant. Such registration statement was withdrawn pursuant to Form RW filed on January 22, 2019. Such registration statement was not declared effective and no securities were sold thereunder.
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
PROSPECTUS (Subject to Completion)
Issued , 2021
Shares
CLASS A COMMON STOCK
Qualtrics International Inc. is offering shares of its Class A common stock. This is our initial public offering, and no public market currently exists for our shares. We anticipate that the initial public offering price will be between $20.00 and $24.00 per share.
We have applied to list our Class A common stock on the Nasdaq Global Select Market, or Nasdaq, under the symbol “XM.”
SAP America, Inc., or SAP America, a wholly owned subsidiary of SAP SE, together with its consolidated subsidiaries other than us, SAP, currently owns 98.6% of our outstanding common stock and, following this offering, SAP America will continue to be our controlling stockholder. Upon completion of this offering, we will have two classes of common stock outstanding: Class A common stock and Class B common stock. SAP America will own all 423,170,610 shares of Class B common stock, representing approximately % of our total outstanding shares of common stock. The rights of the holders of Class A and Class B common stock are identical, except with respect to voting and conversion rights, certain actions that require the consent of holders of Class B common stock and other protective provisions as set forth in this prospectus. Each share of Class A common stock is entitled to one vote and each share of Class B common stock is entitled to ten votes. Therefore, SAP America will hold approximately % of the combined voting power of our outstanding common stock upon completion of this offering (or approximately % if the underwriters exercise in full their option to purchase additional shares). This means that, for the foreseeable future, investors in this offering and holders of our Class A common stock will not have a meaningful voice in our corporate affairs and that the control of our company will be concentrated with SAP. See “Risk Factors—Risks Related to Ownership of Our Class A Common Stock and this Offering” for additional information.
Following this offering, we will be a “controlled company” within the meaning of the corporate governance rules of Nasdaq. See “Management—Controlled Company.”
Funds affiliated with Silver Lake Technology Management, L.L.C. have agreed to purchase $550 million of shares of our Class A common stock in a concurrent private placement transaction. The transaction is contingent upon, and is expected to close immediately following, the closing of this offering as well as the satisfaction of customary closing conditions. See “Recent Developments.”
We are an “emerging growth company” as defined under the federal securities laws and, as such, may elect to comply with certain reduced public company reporting requirements for this and future filings. Investing in our Class A common stock involves risk. See “Risk Factors” beginning on page 22.
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Price to Public
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Underwriting Discounts and Commissions (1)
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Proceeds to Qualtrics
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Per Share
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$
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$
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$
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Total
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$
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$
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$
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______________
(1)See “Underwriters” for a description of the compensation payable to the underwriters.
We have granted the underwriters the right to purchase up to an additional shares of Class A common stock.
The Securities and Exchange Commission and state regulators have not approved or disapproved of these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The underwriters expect to deliver the shares of Class A common stock to purchasers on , 2021.
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MORGAN STANLEY
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J.P. MORGAN
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BofA SECURITIES
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BARCLAYS
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DEUTSCHE BANK SECURITIES
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GOLDMAN SACHS & CO. LLC
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HSBC
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CITIGROUP
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BMO CAPITAL MARKETS
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TRUIST SECURITIES
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CANACCORD GENUITY
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EVERCORE ISI
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JMP SECURITIES
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OPPENHEIMER & CO.
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PIPER SANDLER
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RAYMOND JAMES
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WILLIAM BLAIR
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LOOP CAPITAL MARKETS
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RAMIREZ & CO., INC.
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R. SEELAUS & CO., LLC
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, 2021
TABLE OF CONTENTS
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 dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.
We have not authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. We and the underwriters take no responsibility for, and can provide no assurance as to, the reliability of any other information that others may give you. We are offering to sell, and seeking offers to buy, shares of Class A common stock only in jurisdictions where offers and sales are permitted. 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 the Class A common stock.
For investors outside the United States: Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside 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 Class A common stock and the distribution of this prospectus outside of the United States.
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in our Class A common stock, you should carefully read this entire prospectus, including our consolidated financial statements and the related notes included elsewhere in this prospectus and the information set forth under the sections titled “Risk Factors,” “Special Note Regarding Forward-Looking Statements,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Unless the context otherwise requires, we use the terms “Qualtrics,” “company,” “our,” “us,” and “we” in this prospectus to refer to Qualtrics International Inc. and its consolidated subsidiaries and “SAP” to refer to SAP SE and its consolidated subsidiaries other than us. Our fiscal year ends December 31.
QUALTRICS INTERNATIONAL INC.
Overview
We have pioneered a new category of software, experience management, or XM, which enables organizations to succeed in today’s experience economy. Our XM Platform helps organizations both design and improve the experiences that turn their customers into fanatics, employees into ambassadors, products into obsessions, and brands into religions.
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(1)All figures are presented as of, or for the indicated period ending, September 30, 2020. Please refer to the “We Are Qualtrics” graphic on the inside cover of this prospectus and review the entirety of this prospectus for additional information on figures and estimates presented.
Why It Matters:
The rise of the experience economy has changed the way businesses compete and organizations operate. The cost of switching products or services has become so low that over 70% of consumers are likely to switch brands due to a single poor experience. Over two-thirds of the workforce is disengaged. And while the majority of companies believe they are delivering a superior experience, few of their customers agree.
This is called the experience gap.
Experience management is the business discipline of finding and fixing experience gaps. These gaps––the difference between what businesses believe is happening and what is actually happening––are where poor experiences live. Left unresolved, experience gaps result in failed product launches, customer churn, employee attrition, and eventually, brand irrelevance.
The global pandemic, which has altered the way people work and interact with each other, has surfaced new experience gaps and changed nearly every expectation we have on businesses. Restaurants will need to reinvent. Live events and user conferences will need to be completely overhauled. Face-to-face meetings, sales calls, and employee all-hands will need to be entirely reworked. Organizations that fail to design and deliver a new set of experiences that address the rapidly evolving preferences of customers and employees will struggle to compete in a post-COVID-19 digital world.
The Qualtrics XM Platform is a mission-critical software system that enables breakthrough design and continuous improvement of customer, employee, product, and brand experiences — the four core experiences of every organization. Qualtrics allows all four experiences to be managed on a single, connected platform:
•CustomerXM –– decrease churn, increase engagement, and expand customer lifetime value, or LTV, by listening to customers across all channels and taking action on their feedback.
•EmployeeXM –– drive retention, increase engagement, and improve productivity by continuously listening to employees and delivering better workplace experiences.
•ProductXM –– design products people love, decrease time to market, and increase share of wallet by uncovering and acting on user needs, desires, and expectations.
•BrandXM –– create a bedrock of loyal followers, acquire new customers, and increase market share by ensuring that your brand resonates at each critical touchpoint and attracts target buyers.
Unfortunately, most “experience” offerings in the market do one thing –– use surveys to collect post-transaction feedback to monitor trends in satisfaction scores. The problem with these measurement tools is that they simply report on data about where and when to apologize, resulting in organizations that focus on reacting to complaints instead of designing better experiences and proactively closing experience gaps.
Measurement is not the ultimate goal.
Qualtrics is dramatically different from companies who simply help organizations measure satisfaction scores. Our platform was built from inception as a system of action –– a system that guides users with specific instructions for improvement and automated actions to close experience gaps. It provides each individual employee in an organization a powerful, easy-to-use interface that creates everyday habits to find and close experience gaps. It has the power to change organizational behavior and create a culture of action.
The Qualtrics XM Platform allows organizations to both (i) design new breakthrough experiences and (ii) continuously improve broken experiences through identifying issues, addressing the root cause, and then overhauling processes before they manifest as lower trending satisfaction scores.
How It Works:
Qualtrics XM is a system of action that allows organizations to manage all four core experiences on a single platform. It gives organizations a powerful set of tools to design and continuously improve customer, employee, product, and brand experiences, and uses a collection of smart features and capabilities that make feedback collection, analysis, and action-taking simple enough for any employee to use.
Listening Engine: Capture sentiment across all channels and touchpoints
Qualtrics provides easy-to-use tools to listen to both solicited and unsolicited customer, employee, product, and brand sentiment across any channel, including chat, text, Facebook Messenger, WhatsApp, IoT devices such as Alexa or a smartwatch, or from third-party systems, including survey vendors, and operational systems such as customer relationship management, or CRM, human capital management, or HCM, or enterprise resource planning, or ERP. Organizations can run real-time topic and sentiment analysis during a phone call or automatically analyze video-based feedback at scale.
XM Directory: Centralize all collected experience data in one place
The Qualtrics XM Directory gives the ability to log, organize, access, manage, and update all experience data for the entire organization –– in one place. By centralizing all experience data, organizations can create individual experience profiles that represent the emotions, needs, interests, and expectations of customers and employees––helping organizations provide highly personalized experiences at critical moments in the customer and employee journey.
iQ Smart Analysis: Surface alerts and recommend actions
Our powerful analytics suite, Qualtrics iQ, analyzes each piece of feedback collected using deep statistical analysis and machine learning, then generates recommended actions, ensuring teams focus on the changes that drive the highest return on investment.
Experience Workflows (xFlow): Eliminate experience gaps by assigning and routing actions to the people in the best position to drive improvement using workflow automation
The Qualtrics XM Platform can automatically route recommended actions to the people in the best position to close experience gaps or close the loop with customers or employees automatically using experience workflow automation. Employees can log into a role-based account and receive alerts relevant to their role and be given specific actions to drive improvement. The system tracks issues, progress, and next steps to help monitor progress and keep managers informed.
Ecosystem: Robust ecosystem of integrations for automating and connecting entire experience management
With Qualtrics, teams are empowered with the ability to build and save experience workflows that can be shared and scaled across departments, retail locations, or global deployments. Built with a completely open API architecture, our highly configurable platform provides a robust ecosystem of integrations for automating and connecting the entire experience management process––from collecting experience feedback from any third-party channel, to uncovering hidden trends using native or third-party analysis, to driving activities and action using any operational system that employees already use as part of their existing routines. These automated, expert-built solutions are available out of the box, purpose-built for specific industries, departments, and geographies.
As of September 30, 2020, the Qualtrics XM Platform is trusted by more than 12,000 customers of all sizes, including 85% of the Fortune 100. The broad adoption of our platform is facilitated by a multi-pronged go-to-market model comprised of highly productive inside and field sales teams, joint solution selling with SAP, and our growing Qualtrics Partner Network, or QPN, of over 200 global member companies.
For the years ended December 31, 2018 and 2019, our revenue was $401.9 million, and $591.2 million, respectively, representing year-over-year growth of 47%. For the years ended December 31, 2018 and 2019, our net loss was $37.3 million and $1,007.6 million, respectively, and our free cash flow was $15.1 million and $(404.1) million, respectively. The results of our operations for the years ended December 31, 2018 and 2019 were impacted by equity and cash settled stock-based compensation expense and advisory and legal costs related to the 2018 IPO and the SAP Acquisition. See “Summary Consolidated Financial and Other Data” for additional discussion.
Industry Trends in Our Favor
Experiences Drive Differentiation and Competitive Advantage
Today, the value of any organization is dictated by the experiences of its customers, employees, and other constituencies. We now live in a world where those experiences can be shared and amplified globally and instantaneously through digital channels, and brand perception and reputation can shift quickly and profoundly.
Industries are being transformed by companies that deliver superior experiences. Organizations that thoughtfully shape interactions with their customers and employees to create differentiated experiences are in the best position to win.
Experience Gaps Create Challenges for Organizations
Experience is all-important in winning and retaining customers and employees; however, actual experiences often fall short of expectations. The difference between the experience an organization believes they are delivering and the actual experience delivered is the “experience gap.” Experience gaps are common in business and lead to lost customers, lower spend, employee turnover, employee disengagement, poor performance, and product failures.
Traditional Operational Systems Fail to Explain Why Experience Gaps Exist
Organizations rely on systems of record, such as CRM, ERP, HCM, Customer Service, and Marketing Automation systems, for gathering and reporting operational data, or O-data. While these systems are useful for reporting what is happening as of a certain date, they are not designed to explain why something is happening.
Most organizations are O-data rich and X-data poor. X-data is the human factor data — the beliefs, emotions, and intentions that tell you why things are happening and, more importantly, what is going to happen. X-data is fragmented, often unstructured, and needs to be collected across all engagement methods, including e-mail, SMS, chat, phone, website, and in-app links. Together, X-data and O-data can provide differentiated and related insights to understand where experience gaps exist and how to address them.
Insight from Direct Feedback and the Ability to Take Action Drives Value
Direct, timely, and authentic data about the sentiment and experiences of all constituents is needed to drive growth, competitiveness, and value in today’s economy. Direct commerce models have allowed businesses to create multiple touchpoints with customers and garner data that allows them to rapidly evolve and improve their offerings and operations. Companies without this direct customer connectivity, including those that operate via indirect channels, find themselves at an increasing disadvantage.
Gathering direct feedback alone, however, is not enough for an organization. An organization’s ability to both uncover hidden insights and patterns and take action in real-time is critical to increase productivity and drive desired business results.
Delivering Immediate Action Requires Self-Service Tools
Traditional methods of relying on customer service agents to report issues, or hiring consultants or other third parties to analyze data about customers and employees, are not effective at providing immediate action. The increasing centrality, complexity, and nuances of delivering great experiences have compelled executives to own experiences in-house. Organizations need systems that can be adapted and scaled across departments for specific use cases, and contain the ability to provide ‘in the moment’ response to experiences. Self-service adoption for every employee is a central requirement for delivering immediate action.
Organizations Need to Manage Experiences Across Customers, Employees, Product, and Brand
The success of organizations today depends on the quality of the experiences that they deliver to constituents across four critical areas: customer experience, employee experience, product experience, and brand experience.
Organizations must be able to manage all four of these experiences and understand the impact that these interconnected experiences have upon each other. Organizations able to manage these experiences in an integrated manner create a competitive advantage that drives increased organizational success and shareholder value.
Organizations Need a Holistic Experience Management Platform
Experience management capabilities need to be available to everyone throughout an organization, from C-level executives who are accountable for results down to those on the front lines best positioned to respond to feedback. To measure experiences, organizations have used a combination of various processes and tools for specific uses:
•Third-Party Market Research Firms and Consultants: This is a labor-intensive approach to researching a specific topic at a particular point in time. These firms can be effective at answering certain questions using
sampling panels from their large networks. However, their methods of data collection and analysis lack a software-driven approach that can span across broad use cases in a timely manner.
•Point Solutions: Services-intensive point solutions require a high level of system integration and human involvement to interpret results, are not available broadly to employees, and lack applicability across all vital signs of an organization.
•Survey Tools: Survey tools are useful for broad sampling across thousands of subjects, but lack the ability to combine data in different formats across different channels, correlate with O-data, and apply the analytical rigor needed to determine what actions need to be taken to improve results.
A comprehensive experience management platform that empowers organizations to identify, assess, and close experience gaps needs the following capabilities: comprehensive data collection, address experience holistically, powerful analytics, real-time insights, automated action, easy to use, self-service configurability, scalable to serve the largest organizations, and provide robust privacy and security.
The Qualtrics XM Platform
Our XM Platform serves as a business operating system for Experience Management and consists of purpose-built solutions to design and improve Customer Experience, Employee Experience, Product Experience, and Brand Experience.
Key benefits of our platform include:
•Ability to Address Experience Holistically. We provide specific solutions across the key areas that have the highest impact on an organization: customers, employees, product, and brand. Our XM Platform analyzes experiences within each of these areas individually and correlates data across areas to provide insight into how they impact each other.
•Integrated Analytical Capabilities. Our platform is powered by a proprietary analytics engine that organizations of all types use to address some of the most demanding research projects. Our XM Platform leverages the latest in artificial intelligence, natural language processing, and neural networks. These capabilities are incorporated into our platform through Qualtrics iQ, enabling advanced analytical features to make statistical analysis and insights available to everyone.
•Built for Action. Qualtrics xFlow enables organizations to automate experience workflows to drive action natively or by integrating with systems that an organization already uses. In this way, our platform not only helps to identify issues, but also serves as a system of action by automatically directing feedback and recommended actions to the teams that are in the best position to make improvements. Or the system can bypass the need for employees to resolve issues and instead automate service recovery so customer or employee issues do not slip through the cracks. xFlow works across our platform and provides automatic notifications, raises tickets and closes experience gaps immediately.
•Comprehensive Data Collection. Our XM Platform enables organizations to personalize their communication with customers, employees, and partners and interact with these groups through the most effective channels. We enable customers to collect data through both active and passive ingestion from a wide variety of channels, including SMS, e-mail, voice, web, in-app, social, chat, and operational systems. Our comprehensive data collection methods allow customers to understand the sentiment of their end users across every engagement point so they can tailor relevant and personalized actions for any situation.
•Real-time Insight. Our XM Platform is able to extract real-time feedback and provide insights and analysis when and to whom it matters most. This timeliness is necessary to affect outcomes, including reducing churn, increasing sales, preventing employee turnover, increasing engagement, and enhancing brand among others.
•Flexible Configuration to Meet Specific Needs. Our customers have configured our platform to meet diverse needs. Through an intuitive and elegant interface, users can design programs that implement
complex logic and advanced workflows. Users can also design, deploy, and alter these programs without help from professional services or IT, leading to faster and more impactful insights.
•Democratization of Experience Management Across All Users. We designed our platform so every knowledge worker can make decisions and take actions based on customer and employee input. Users can design a customer and employee feedback program in minutes using simple drag and drop functions with the platform generating easy to consume analysis. This allows every employee in the organization the ability to participate in finding and closing experience gaps for their respective areas of ownership.
•Enterprise Ready. Our XM Platform is scalable and secure with customers depending on our ‘always-on’ infrastructure. As an example of our scalability, up to one million healthcare providers within the Aetna network link customer digital behavior with net promoter score, or NPS, and customer satisfaction, or CSAT, across their 22 million customers. Our XM Platform adheres to the highest standards of security and privacy demanded by the largest organizations in the world, and customers own and retain all their data gathered on our platform.
Market Opportunity
In today’s experience economy, we believe that experience management is more critical to improving customer experience than CRM, more influential upon employee experience than HCM systems, and more important to enhancing brand experience than Marketing Automation. Consequently, we believe that experience management represents a vast, rapidly growing, and underpenetrated market opportunity today, and we estimate our total addressable market to be approximately $60 billion in 2020.
What Sets Us Apart
Our approach to architecting solutions and how we bring those solutions to our customers has enabled us to strengthen our lead in the experience management category. We have several distinguishing advantages:
•Recognized Leader in Experience Management. We pioneered the experience management category nearly two decades ago and remain a recognized market leader in the category today. We are the leading and largest pure-play XM provider in the market, with broad traction across more than 12,000 customers and 85% of the Fortune 100. Our brand is synonymous with experience management and associated with quality and usability, providing us an advantage with attracting new customers.
•Single Platform. Qualtrics is the only technology offering that allows all four experiences to be managed on a single, connected platform. Organizations power experience management programs across their customers, employees, products, and brands, monitor the health of their entire businesses through robust analytics and dashboards, and drive action across their entire organizations from one common interface.
•XM Directory. The value our XM Platform delivers to our customers compounds with its use. Our customer data management layer, XM Directory, enables organizations to build a 360 degree view of every customer, or employee interaction, capturing feedback, interactions, demographics, operational indicators, and other attributes in a single, unified profile. XM Directory helps to intelligently segment these profiles based on behavior or preferences, provide intelligent analytics on customer journeys, prioritize experience improvements based on deep customer insights, and use those insights to deliver personalized and automated customer outreach at the right moment, with the right message, and via the right channels.
•xFlow. Our platform helps organizations build a culture of action through a software layer called xFlow. These experience workflows allow organizations to use a low code / no-code interface to create automated workflows to close experience gaps at scale.
•Easy Adoption and Rapid Time to Value. Our technology is designed to be easy to deploy, configure, use, and scale. By making the complex capabilities of our XM Platform simple to use, we allow customers of all types and sizes to generate value quickly. In addition, the modularity of our platform allows our customers
to deploy one or more of our solutions initially and then adopt additional modules and functionality as their use cases grow and evolve and the value of their X-data and generated insights compounds over time.
•Powerful and Multi-Pronged Go-to-Market Model. Our powerful go-to-market model enables us to land both small and large customers initially and expand those relationships significantly over time. The broad adoption of our platform is facilitated by a multi-pronged go-to-market model comprising highly productive field and inside-sales teams, a joint development and solution selling partnership with SAP, and our robust and growing QPN of over 200 global member companies.
Our Growth Strategies
Key elements of our growth strategies include:
•Drive New Customer Sales. We believe that our market opportunity remains largely underpenetrated. We will continue to invest aggressively in our direct and indirect sales and marketing capabilities to continue to acquire new customers, including continued growth in the number of enterprise customers. We plan to continue to acquire new customers with our powerful multi-pronged go-to-market model.
•Expand Within Existing Customers. Our customer base of more than 12,000 organizations as of September 30, 2020 represents a significant growth opportunity for us. There is opportunity to expand both the number of users and use cases within an organization. As evidence of our ability to expand within existing customers, our net retention rate has consistently been above 120% in each of the past eight quarters.
•Expand Our Global Presence. A key focus of our company is to continue to penetrate unaddressed global markets. To penetrate markets outside North America, we have developed a hub-and-spoke sales model, comprised of centralized inside-sales teams surrounded by regional direct sales groups. For the nine months ended September 30, 2020, 28% of our revenue came from markets outside the United States.
•Continue to Innovate and Enhance Our Platform. We use our technology to draw insights and ensure that we are best serving our customers’ needs and continually innovate. These innovations, such as XM Benchmarks, XM Automated Actions, and improvements to our iQ engine, lead to a greater value proposition for our customers and increased adoption of our XM Platform by both new and existing customers.
•Grow Revenue from Key Industry Verticals. While our XM Platform is industry-agnostic, we have made a number of industry-specific investments that will accelerate our adoption within certain verticals, including government, education, healthcare, technology, and financial services. We have developed Certified XM Solutions, leveraging partners’ expertise, and embedding industry-specific content into our products.
•Further Develop Our Partner Network. We have developed a network of leading content and consulting partners, delivery partners, and technology partners who enrich our offerings, scale our coverage, and help us reach a broader audience than we would be able to reach on our own. Since the launch of QPN in 2018, we have entered into many impactful partnerships with over 200 global member companies, including Accenture, Ernst & Young, Deloitte, IBM, J.D. Power, and Kantar.
•Jointly Develop, Market, and Sell our Solutions with SAP. As part of SAP we have been able to utilize our partnership to add new customers and expand existing customers. We will continue to jointly develop, market, and sell our solutions with SAP. Our go-to-market motion has greater enterprise reach through SAP’s global customer base across 180 countries, allowing Qualtrics to be sold through our solution selling partnership, which will continue after this offering.
Our Relationship with SAP
We were acquired by SAP on January 23, 2019, which we refer to as the SAP Acquisition, and prior to this offering and the investment by Q II, LLC, or Q II, an entity controlled by Ryan Smith, described below in “Recent Developments,” we operated as a wholly owned subsidiary of SAP. As a result, in the ordinary course of our
business, we have received various services provided by SAP, including tax, accounting, treasury, legal, human resources, compliance, insurance, sales, and marketing services. SAP has also provided us with the services of a number of its executives and employees prior to this offering and will continue to do so after this offering.
SAP Will Be Our Controlling Stockholder
Immediately following this offering, SAP will hold all of our Class B common stock, representing approximately % of our outstanding common stock and % of the combined voting power of our outstanding common stock (or approximately % of our outstanding common stock and % of the combined voting power of our outstanding common stock if the underwriters exercise in full their option to purchase additional shares). For as long as SAP continues to control more than 50% of the combined voting power of our common stock, SAP will be able to direct the election of all the members of our board of directors, and, so long as SAP beneficially owns at least 20% of the total outstanding shares of our common stock, the prior affirmative vote or written consent of SAP will be required for certain corporate actions, including any determinations with respect to mergers or other business combinations involving us, the acquisition or disposition of assets, the incurrence of indebtedness, the issuance of any additional common stock or other equity securities, and the payment of dividends with respect to our common stock. Similarly, SAP will have the power to determine matters submitted to a vote of our stockholders without the consent of our other stockholders, will have the power to prevent a change in control of us and will have the power to take other actions that might be favorable to SAP, including by written consent without a meeting and without prior notice to other shareholders. As a result, SAP’s controlling interest may discourage a change of control that the holders of our Class A common stock may favor.
SAP is not subject to any contractual obligation to retain any of its common stock, except that it has agreed not to sell or otherwise dispose of any of our common stock for a period of 180 days from the date of this prospectus without the prior written consent of the representatives of the underwriters, as described in “Underwriting.”
Agreements Between SAP and Us
In connection with this offering, we will enter into certain agreements with SAP governing various interim and ongoing relationships between us. The terms of these agreements have been determined by SAP in preparation for this offering and are intended to be consistent with the terms that we could have negotiated with unaffiliated third parties. However, they may actually be more or less favorable. For a description of these agreements and the other agreements that we will enter into with SAP, read “Certain Relationships and Related Party Transactions—Relationship with SAP and the Agreements Between SAP and Us.”
In addition to the above agreements that govern our future relationship with SAP, we and SAP may also enter into agreements pursuant to which we and SAP would continue to be customers for each other’s products and services.
Recent Developments
On December 8, 2020, Q II, an entity controlled by Ryan Smith, agreed to purchase 6,000,000 shares of our Class A common stock, representing approximately 1% of the total shares of our common stock to be outstanding following the completion of this offering, at $20.00 per share for an aggregate purchase price of $120 million. This transaction, which we refer to as the Q II investment, was completed on December 21, 2020. The shares owned by Q II will represent approximately % of our outstanding common stock and % of the combined voting power of our outstanding common stock (or approximately % of our outstanding common stock and % of the combined voting power of our outstanding common stock if the underwriters exercise in full their option to purchase additional shares).
On December 23, 2020, funds affiliated with Silver Lake Technology Management, L.L.C., or Silver Lake, agreed to purchase $550 million of shares of our Class A common stock, comprising (a) 15,018,484 shares at $21.64 per share and (b) $225 million of shares at the initial public offering price, in a concurrent private placement transaction, which we refer to as the Silver Lake investment. Assuming an initial public offering price of $22.00, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, this would result in a total of 25,245,756 shares of our Class A common stock purchased. The Silver Lake investment is
contingent upon, and is expected to close immediately following, the closing of this offering as well as the satisfaction of customary closing conditions. The shares owned by Silver Lake will represent approximately % of our outstanding common stock and % of the combined voting power of our outstanding common stock (or approximately % of our outstanding common stock and % of the combined voting power of our outstanding common stock if the underwriters exercise in full their option to purchase additional shares). We have agreed to appoint Egon Durban, a representative of Silver Lake, to our Board upon the closing of the Silver Lake investment.
In our stockholders’ agreement, we will agree to grant certain registration and other rights to Q II and Silver Lake, which are described below under “Certain Relationships and Related Party Transactions—Relationship with SAP and the Agreements Between SAP and Us—Agreements Between SAP and Us—Stockholders’ Agreement.” Pursuant to their respective Class A common stock purchase agreements, each of Q II and Silver Lake has agreed with us not to sell or transfer such shares for a period of 12 months and 24 months, respectively, after the effectiveness of the registration statement of which this prospectus forms a part. See “Shares Eligible for Future Sale.”
Risk Factors
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 are:
•Our rapid growth makes it difficult to evaluate our future prospects and may increase the risk that we will not continue to grow at or near historical rates.
•We may not be able to sustain our revenue growth rate or achieve or maintain profitability in the future.
•If we fail to effectively manage our growth, our business and results of operations could be harmed.
•The experience management software category is relatively new and rapidly changing, and if we do not compete effectively, our business, results of operations, and financial condition could be harmed.
•The impact of the COVID-19 pandemic has adversely affected and could continue to adversely affect our business, financial condition, and results of operations.
•If we are unable to retain customers at existing levels or sell additional functionality to our existing customers, our revenue growth will be adversely affected.
•If the experience management software category does not develop further, develops more slowly, or develops in a way that we do not expect, our business may be adversely affected.
•If we are not able to develop new solutions and enhancements to our existing solutions that achieve market acceptance and that keep pace with technological developments, or if we are not able to deliver these new or enhanced solutions so that they can be easily and consistently deployed by our customers, our business and results of operations would be harmed.
•If our security measures are breached or unauthorized access to data is otherwise obtained, our XM Platform may be perceived as insecure, we may lose existing customers or fail to attract new customers, our reputation may be harmed, and we may incur significant liabilities.
•Our business could be harmed by any significant disruption of service on our XM Platform or loss of content.
•If we fail to offer high quality customer support, our business and reputation could suffer.
•We invest significantly in research and development, and to the extent our research and development investments do not translate into new solutions or material enhancements to our current solutions, or if we do not use those investments efficiently, our business and results of operations would be harmed.
•Our business depends on a strong brand, and if we are not able to maintain and enhance our brand, our ability to expand our number of customers will be impaired and our business, results of operations, and financial condition will be harmed.
•Failure to effectively expand our sales and marketing capabilities could harm our ability to increase our customer base and achieve broader market acceptance of our XM Platform.
•We rely on the performance of highly skilled personnel, including our management and other key employees, and the loss of one or more of such personnel, or of a significant number of our team members, could harm our business.
•If we are unable to develop and maintain successful relationships with certain partners, our business, results of operations, and financial condition could be harmed.
•Our sales cycle with enterprise, government, and international customers can be long and unpredictable.
•As long as SAP controls us, your ability to influence matters requiring stockholder approval will be limited.
•Our historical financial information as a business segment of SAP may not be representative of our results as an independent public company.
•SAP’s ability to control our board of directors and company may make it difficult for us to recruit high-quality independent directors and employees.
•We will be a “controlled company” within the meaning of the corporate governance rules of Nasdaq and, as a result, will rely on exemptions from certain corporate governance requirements that provide protection to stockholders of other companies.
Exchange Offer
In connection with this offering, we are conducting a voluntary exchange offer pursuant to which we are offering our eligible employees, including our executive officers, the ability to exchange their existing Qualtrics Rights and SAP RSUs, both as described under “Executive Compensation—Equity-Based Compensation Plans—Equity-Based Compensation Prior To The Offering,” for awards with underlying shares of our Class A common stock at an exchange ratio, which will be expressed as a fraction, the numerator of which will be the “VWAP” and the denominator of which will be the initial public offering price; provided, that for Qualtrics Rights granted before January 1, 2018 and for Qualtrics Rights that are based on awards originally granted as options, the number of shares of Class A common stock issued will be equal to the value of the applicable award divided by the initial public offering price. The exchange ratio is designed to preserve the intrinsic value of the Qualtrics Rights and SAP RSUs that will be tendered. In this prospectus, we refer to this voluntary exchange offer as the “exchange offer.”
The VWAP is the volume-weighted average price per share of SAP stock on Xetra over the final five full trading days (calculated as the average (arithmetic mean) of the VWAP on those five days) prior to the expiration date of the exchange offer during the period beginning at 9:00 a.m., Central European Time (or such other time as is the official open of trading on Xetra on the applicable date) and ending at 5:30 p.m., Central European Time (or such other time as is the official close of trading on Xetra on the applicable date), as reported by Bloomberg Financial LP and converted to U.S. dollars at an exchange rate equal to the exchange rate as published by the Wall Street Journal for the date preceding the expiration date of the exchange offer. This means that if the expiration date is January 27, 2021, the VWAP would be calculated using the average (arithmetic mean) of the volume-weighted average price per share of SAP stock on January 20, 2021, the volume-weighted average price per share of SAP stock on January 21, 2021, the volume-weighted average price per share of SAP stock on January 22, 2021, the volume-weighted average price per share of SAP stock on January 25, 2021 and the volume-weighted average price per share of SAP stock on January 26, 2021, and then will be converted to U.S. dollars at an exchange rate, which shall be the exchange rate as published by the Wall Street Journal for January 26, 2021 (unless the exchange offer is extended).
We and SAP are commencing the exchange offer on December 28, 2020, prior to the effectiveness of the registration statement of which this prospectus is a part, in accordance with Rule 162 of the Securities Act and Rule 13e-4(e)(2) of the Exchange Act, such that the exchange offer will expire concurrently with the pricing of shares in this offering, unless the local laws in a jurisdiction require the delay of the commencement and expiration of the exchange offer. We are making the exchange offer available to eligible employees for compensatory purposes. We believe that ownership by our employees of awards with underlying shares of our Class A common stock received in the exchange offer will serve as an effective tool to further align participants with Qualtrics’ stockholders’ interests by enabling participants to have an economic stake in our success from the time we become a public company. Unless otherwise required by the local laws in a jurisdiction, the exchange offer will expire at 2:00 p.m. Eastern Time on January 27, 2021.
All of our employees in the United States and all of our employees in certain other jurisdictions who hold Qualtrics Rights and SAP RSUs are eligible to participate in the exchange offer. As of December 23, 2020, there were approximately 3,100 employees eligible to participate in the exchange offer. Based on an assumed SAP share price of $126.50 per share (which was the closing price of SAP’s ordinary shares on Xetra on December 23, 2020, converted into U.S. dollars using the exchange rate as published by the Wall Street Journal for that date and rounded to the nearest half dollar) and an assumed initial public offering price of $22.00 per share (the midpoint of the estimated offering price range set forth on the cover page of this prospectus), a maximum of approximately 18.8 million shares of our Class A common stock underlying Qualtrics Rights and SAP RSUs granted would be issued pursuant to the exchange offer, if all eligible employees tendered all of their Qualtrics Rights and SAP RSUs. Qualtrics employees who elect not to tender their awards in the exchange offer, or who cannot exchange their awards due to local law restrictions, will continue to hold their Qualtrics Rights and SAP RSUs, which will remain subject to their existing terms. See “Executive Compensation—Equity-Based Compensation Plans—Exchange Offer.”
Channels for Disclosure of Information
Investors, the media and others should note that, 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 and public conference calls and webcasts.
Corporate Information
We were formed in 2002 as Qualtrics Labs, Inc. In 2012, Qualtrics, LLC, a Delaware limited liability company, was established as a new parent company for our operating business. In September 2014, we incorporated Qualtrics International Inc. in Delaware. Through a corporate restructuring in September 2014, Qualtrics, LLC became a wholly owned subsidiary of Qualtrics International Inc. In January 2019, we were acquired by SAP, a multinational corporation that is headquartered in Walldorf, Germany. Our principal executive offices are located at 333 West River Park Drive, Provo, Utah 84604, and our telephone number is 385-203-4999. Our website address is www.qualtrics.com. Information contained on, or that can be accessed through, our website does not constitute part of this prospectus and inclusions of our website address in this prospectus are inactive textual references only.
“Qualtrics” and our other registered or common law trade names, trademarks, or service marks appearing in this prospectus are our property. Other trademarks and trade names referred to in this prospectus are the property of their respective owners.
Implications of Being an Emerging Growth Company
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012. We will remain an emerging growth company until the earlier of (1) December 31, 2026 (the last day of the fiscal year following the fifth anniversary of our initial public offering), (2) the last day of the fiscal year in which we have total annual gross revenue of at least $1.07 billion, (3) the last day of the fiscal year in which we are deemed to be a “large accelerated filer”, as defined in the rules under the Exchange Act, and (4) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. We refer to the Jumpstart Our Business Startups Act of 2012 herein as the “JOBS Act,” and any reference herein to “emerging growth company” has the meaning ascribed to it in the JOBS Act.
An emerging growth company may take advantage of reduced reporting requirements that are otherwise applicable to public companies. These provisions include, but are not limited to:
•being permitted to present only two years of audited financial statements and only two years of related “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this prospectus;
•not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act;
•reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements, including in this prospectus; and
•exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
We have elected to take advantage of certain of the reduced disclosure obligations in this prospectus and may elect to take advantage of other reduced reporting requirements in our future filings with the SEC. As a result, the information that we provide to our stockholders may be different than you might receive from other public reporting companies in which you hold equity interests.
The JOBS Act also provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. We have elected to avail ourselves of this exemption and, accordingly, our financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards.
THE OFFERING
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Class A common stock offered by us
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shares
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Underwriters’ option to purchase additional shares
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shares
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Class A common stock to be outstanding after this offering
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shares (or shares if the underwriters exercise in full their option to purchase additional shares), in each case including 6,000,000 shares issued to Q II and an estimated 25,245,756 shares to be issued to Silver Lake.
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Class B common stock to be outstanding after this offering
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423,170,610 shares, all of which will be owned by SAP America.
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Total Class A and Class B common stock to be outstanding after this offering
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shares
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Use of proceeds
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We estimate that the net proceeds from the sale of shares of our Class A common stock in this offering will be approximately $ (or approximately $ if the underwriters exercise in full their option to purchase additional shares), based upon the assumed initial public offering price of $22.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
We currently intend to use the net proceeds from this offering to repay $ million of intercompany indebtedness that will be owed to SAP America, incurred to fund a dividend to SAP America, and the remainder for working capital and other general corporate purposes, including to finance our growth, develop new businesses, products, services or technologies, and fund capital expenditures. We may also use a portion of the net proceeds from this offering to acquire or make investments in businesses, products, services or technologies. However, we do not have any agreements or commitments for any specific acquisitions or investments at this time. See “Use of Proceeds” for additional information.
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Voting rights
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Upon completion of this offering, we will have two classes of common stock outstanding: Class A common stock and Class B common stock. The rights of the holders of Class A and Class B common stock are identical, except with respect to voting, conversion rights, certain actions that require the consent of holders of Class B common stock and other protective provisions as set forth in this prospectus. Each share of Class A common stock is entitled to one vote and each share of Class B common stock is entitled to ten votes. Subject to any rights of any series of preferred stock to elect directors, the holders of Class A common stock and the holders of Class B common stock, voting together as a single class, are entitled to elect all directors to our board of directors. If, prior to the occurrence of any Distribution (as defined below), SAP transfers shares of our Class B common stock to any party that is not beneficially owned by SAP, those shares would automatically convert into Class A common stock.
Generally, all matters to be voted on by stockholders must be approved by a majority of the votes entitled to be cast at a meeting by all shares of Class A common stock and Class B common stock present in person or represented by proxy, voting together as a single class, subject to any voting rights granted to holders of any preferred stock.
See “Principal Stockholders” and “Description of Capital Stock” for additional information.
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Controlled company
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We are a “controlled company” within the meaning of the corporate governance rules of Nasdaq. Upon completion of this offering, SAP will hold approximately % of our total outstanding shares of common stock and % of the combined voting power of our outstanding common stock (or approximately % and %, respectively, if the underwriters exercise in full their option to purchase additional shares). See “Management—Controlled Company.”
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Directed share program
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At our request, the underwriters have reserved for sale, at the initial public offering price, up to 1% of the shares of our Class A common stock offered hereby for certain senior sales personnel of SAP. See the section titled “Underwriters” for additional information.
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Proposed Nasdaq trading symbol
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“XM”
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The number of shares of our Class A common stock and Class B common stock that will be outstanding after this offering is based on (i) the offering of shares of our Class A common stock pursuant to this offering (assuming no exercise of the underwriters’ option to purchase additional shares), (ii) 6,000,000 shares of Class A common stock acquired by Q II (as described above under “—Recent Developments”), (iii) 25,245,756 shares of Class A common stock to be acquired by Silver Lake (assuming an initial public offering price of $22.00, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus) (as described above under “—Recent Developments”), and (iv) 423,170,610 shares of our Class B common stock, and excludes:
•up to 101,829,390 shares of our Class A common stock reserved for future issuance under our equity compensation plans, which will become effective prior to the completion of this offering, consisting of:
◦up to 89,829,390 shares of our Class A common stock reserved for future issuance under our 2021 Qualtrics Employee Omnibus Equity Plan, or the 2021 Plan, which will become available for issuance effective upon the effectiveness of the registration statement of which this prospectus is a part, as well as any automatic increases in the number of shares of our common stock reserved for future issuance under such plan (which amount includes (1) approximately shares to be covered by new equity awards that we currently intend to grant in , 2021 following the completion of this offering and (2) approximately 18.8 million shares of our Class A common stock deliverable upon the vesting of restricted stock units, or RSUs, granted pursuant to the terms of the exchange offer, assuming full participation in the exchange offer by all eligible employees, an applicable SAP share price of $126.50 per share (which was the closing price of SAP’s ordinary shares on Xetra on December 23, 2020, converted into U.S. dollars using the exchange rate as published by the Wall Street Journal for that date and rounded to the nearest half dollar) and an initial public offering price of $22.00 per share (the midpoint of the estimated offering price range set forth on the cover page of this prospectus)), and
◦12,000,000 shares of our Class A common stock reserved for future issuance under our 2021 Qualtrics Employee Stock Purchase Plan, or ESPP, which will become available for issuance effective upon the effectiveness of the registration statement of which this prospectus is a part, as well as any automatic increases in the number of shares of our common stock reserved for future issuance under such plan.
Our 2021 Plan and ESPP will each provide for annual automatic increases in the number of shares reserved thereunder and our 2021 Plan also will provide for increases to the number of shares of Class A common stock that may be granted thereunder based on shares underlying any awards under our 2021 Plan that expire, are forfeited, or are otherwise terminated, as more fully described in the section titled “Executive Compensation—Equity-Based Compensation Plans.”
Except as otherwise indicated, all information in this prospectus assumes the following as of September 30, 2020:
•the filing and effectiveness of our amended and restated certificate of incorporation in Delaware and the effectiveness of our amended and restated bylaws, each of which will occur immediately prior to the completion of this offering; and
•no exercise by the underwriters of their option to purchase additional shares.
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
The following tables present our summary consolidated financial and other data. We have derived the summary consolidated statements of operations data for the years ended December 31, 2018 and 2019 and our summary consolidated balance sheet data as of December 31, 2019 from our audited consolidated financial statements included elsewhere in this prospectus. We have derived the summary consolidated statements of operations data for the nine months ended September 30, 2019 and 2020 and our summary consolidated balance sheet data as of September 30, 2020 from our unaudited interim consolidated financial statements included elsewhere in this prospectus. The unaudited interim consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and reflect, in the opinion of management, all adjustments of a normal, recurring nature that are necessary for a fair statement of the unaudited interim consolidated financial statements. Our historical results are not necessarily indicative of the results that may be expected in the future, and the results for the nine months ended September 30, 2019 or 2020 are not necessarily indicative of the results to be expected for the full year or any other future period. The following summary consolidated financial and other data should be read in conjunction with the sections titled “Selected Consolidated Financial and Other Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included elsewhere in this prospectus.
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Year Ended
December 31,
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Nine Months Ended
September 30,
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2018
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2019
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2019
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2020
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In thousands (except share amount)
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Consolidated Statements of Operations Data:
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Revenue:
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Subscription
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$
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295,528
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$
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430,038
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$
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309,562
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$
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415,000
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Professional services and other
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106,380
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161,117
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108,786
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134,956
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Total revenue
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401,908
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591,155
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418,348
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549,956
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Cost of revenue(1)(2):
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Subscription
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35,785
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67,982
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51,563
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46,974
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Professional services and other
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66,929
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117,509
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80,692
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100,060
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Total cost of revenue
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102,714
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185,491
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132,255
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147,034
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Gross profit
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299,194
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405,664
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286,093
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402,922
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Operating expenses(1)(2):
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Research and development
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65,925
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242,124
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183,466
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168,985
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Sales and marketing
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192,142
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440,325
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327,454
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322,775
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General and administrative
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74,248
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717,363
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624,342
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155,225
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Total operating expenses
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332,315
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1,399,812
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1,135,262
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646,985
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Operating loss
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(33,121)
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(994,148)
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(849,169)
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(244,063)
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Other non-operating income (expense), net
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169
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(486)
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(666)
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(483)
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Loss before income taxes
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(32,952)
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(994,634)
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(849,835)
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(244,546)
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Provision for income taxes
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4,356
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12,999
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10,528
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13,481
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Net loss
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$
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(37,308)
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$
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(1,007,633)
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$
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(860,363)
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$
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(258,027)
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January 23, 2019 through December 31, 2019
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January 23, 2019 through September 30, 2019
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Nine Months Ended September 30, 2020
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Net loss per share attributable to common stockholder basic
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$
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(1.76)
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$
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(1.41)
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$
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(0.61)
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Weighted-average shares used in computing net loss per share attributable to common stockholder, basic
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423,170,610
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423,170,610
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423,170,610
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Pro forma net loss per share attributable to common stockholder, basic (3)
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Weighted-average Class A and Class B shares used in computing pro forma net loss per share attributable to common stockholder, basic
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|
________________
(1)Includes equity and cash settled stock-based compensation expense, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
Nine Months Ended
September 30,
|
|
|
2018
|
|
2019
|
|
2019
|
|
2020
|
|
|
(In thousands)
|
|
Cost of subscription revenue
|
$
|
4
|
|
|
$
|
24,136
|
|
|
$
|
20,947
|
|
|
$
|
3,809
|
|
|
Cost of professional services and other revenue
|
144
|
|
|
17,168
|
|
|
13,937
|
|
|
6,193
|
|
|
Research and development
|
2,228
|
|
|
130,809
|
|
|
107,134
|
|
|
63,165
|
|
|
Sales and marketing
|
708
|
|
|
115,581
|
|
|
94,088
|
|
|
34,933
|
|
|
General and administrative
|
1,516
|
|
|
588,532
|
|
|
514,015
|
|
|
109,949
|
|
|
Total stock-based compensation expense, including cash settled(a)
|
$
|
4,600
|
|
|
$
|
876,226
|
|
|
$
|
750,121
|
|
|
$
|
218,049
|
|
_______________
(a)As a result of the SAP Acquisition, our stock based compensation expense reflects the recognition of both equity classified awards and liability classified awards. Liability classified awards are settled in cash in accordance with SAP’s employee equity compensation programs. 2018 stock-based compensation expense consisted entirely of equity-classified awards. 2019 stock-based compensation expense consisted of $185.8 million of equity-classified awards and was recognized as a result of the SAP Acquisition, and $690.4 million of liability-classified awards, of which $312.8 million were settled in cash in 2019. For the nine months ended September 30, 2019 and 2020, stock-based compensation expense consisted of $185.8 million, and $0.0 million, respectively, of equity-classified awards recognized as a result of the SAP Acquisition, and $564.3 million and $218.0 million, respectively, of liability-classified awards. During the nine months ended September 30, 2019 and 2020, awards of $213.2 million and $284.0 million, respectively, were settled in cash. Liability-classified awards are recorded according to mark-to-market accounting.
(2)Includes amortization of acquired intangible assets as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
Nine Months Ended
September 30,
|
|
|
2018
|
|
2019
|
|
2019
|
|
2020
|
|
|
(In thousands)
|
|
Cost of subscription revenue
|
$
|
703
|
|
|
$
|
1,160
|
|
|
$
|
878
|
|
|
$
|
797
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
145
|
|
|
204
|
|
|
153
|
|
|
153
|
|
|
General and administrative
|
201
|
|
|
114
|
|
|
87
|
|
|
141
|
|
|
Total amortization of acquired intangible assets
|
$
|
1,049
|
|
|
$
|
1,478
|
|
|
$
|
1,118
|
|
|
$
|
1,091
|
|
(3)Unaudited pro forma per share data gives effect, in the weighted average shares used in the calculation, to the additional million shares of common stock, which, when multiplied by the assumed initial public offering price of $22.00 per share (the midpoint of the range set forth on the cover page of this prospectus), and after giving effect to a pro rata allocation of offering costs, would have been required to be issued to generate proceeds sufficient to pay the portion of the $ million dividend declared in that exceeded the most recent twelve months’ earnings.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2020
|
|
|
Actual
|
|
Pro Forma(2)
|
|
Pro Forma As Adjusted(3)
|
|
Consolidated Balance Sheet Data:
|
(In thousands)
|
|
Cash and cash equivalents
|
$
|
87,500
|
|
|
|
|
|
|
Working capital deficit(1)
|
$
|
(82,377)
|
|
|
|
|
|
|
Total assets
|
$
|
706,221
|
|
|
|
|
|
|
Total deferred revenue
|
$
|
381,213
|
|
|
|
|
|
|
Accumulated deficit
|
$
|
(1,384,292)
|
|
|
|
|
|
|
Total equity (deficit)
|
$
|
(397,095)
|
|
|
|
|
|
________________
(1)Working capital is defined as current assets less current liabilities, excluding current deferred revenue. See our audited consolidated financial statements and related notes included elsewhere in this prospectus for further details regarding our current assets and current liabilities.
(2)The pro forma balance sheet data gives effect to (i) the declaration of a $ million dividend payable to SAP America in the form of two promissory notes (see “Certain Relationships and Related Party Transactions—Relationship with SAP and the Agreements Between SAP and Us—Dividend to SAP America and Intercompany Indebtedness”), (ii) our issuance and sale of 6,000,000 shares of Class A common stock to Q II for $120 million (see “—Recent Developments” above), (iii) our issuance and sale of 25,245,756 shares of our Class A common stock to Silver Lake for an aggregate purchase price of $550 million (assuming an initial public offering price of $22.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus) (see “—Recent Developments” above).
(3)The pro forma as adjusted balance sheet data gives effect to the pro forma adjustments set forth above and (i) the sale and issuance by us of shares of our Class A common stock in this offering, based upon the assumed initial public offering price of $22.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us and (ii) the repayment by us of $ million of principal amount on the promissory notes we incurred to fund a dividend to SAP America. See “Use of Proceeds.”
Non-GAAP Financial Measures
In addition to our results determined in accordance with U.S. generally accepted accounting principles, or GAAP, we believe several non-GAAP measures are useful in evaluating our operating performance: non-GAAP gross profit and margin, non-GAAP operating income (loss) and margin, and free cash flow. We use the following non-GAAP financial information to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance. However, non-GAAP financial information is presented for supplemental informational purposes only, has limitations as an analytical tool, and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP. In particular, free cash flow is not a substitute for cash used in operating activities and it does not represent the total increase or decrease in our cash balance for a given period. In addition, other companies, including companies in our industry, may calculate similarly-titled non-GAAP measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP. Investors are encouraged to review the related
GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures, and not to rely on any single financial measure to evaluate our business.
Non-GAAP Gross Profit and Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
Nine Months Ended
September 30,
|
|
|
2018
|
|
2019
|
|
2019
|
|
2020
|
|
|
(In thousands)
|
|
GAAP gross profit
|
$
|
299,194
|
|
|
$
|
405,664
|
|
|
$
|
286,093
|
|
|
$
|
402,922
|
|
|
Add: Stock-based compensation expense, including cash settled
|
148
|
|
|
41,304
|
|
|
34,884
|
|
|
10,002
|
|
|
Add: Amortization of acquired intangible assets
|
703
|
|
|
1,160
|
|
|
878
|
|
|
797
|
|
|
Non-GAAP gross profit
|
$
|
300,045
|
|
|
$
|
448,128
|
|
|
$
|
321,855
|
|
|
$
|
413,721
|
|
|
Non-GAAP gross margin
|
75
|
%
|
|
76
|
%
|
|
77
|
%
|
|
75
|
%
|
We calculate non-GAAP gross profit, as GAAP gross profit excluding equity and cash settled stock-based compensation expense and amortization of acquired intangible assets allocated to cost of revenue. Non-GAAP gross margin is calculated as non-GAAP gross profit divided by total revenue.
Non-GAAP Operating Income (Loss) and Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
Nine Months Ended
September 30,
|
|
|
2018
|
|
2019
|
|
2019
|
|
2020
|
|
|
(In thousands)
|
|
GAAP operating loss
|
$
|
(33,121)
|
|
|
$
|
(994,148)
|
|
|
$
|
(849,169)
|
|
|
$
|
(244,063)
|
|
|
Add: Stock-based compensation expense, including cash settled(1)
|
4,600
|
|
|
876,226
|
|
|
750,121
|
|
|
218,049
|
|
|
Add: Amortization of acquired intangible assets
|
1,049
|
|
|
1,478
|
|
|
1,118
|
|
|
1,091
|
|
|
Add: Advisory and legal costs related to the 2018 IPO and the SAP Acquisition
|
31,100
|
|
|
66,992
|
|
|
66,992
|
|
|
—
|
|
|
Non-GAAP operating income (loss)
|
$
|
3,628
|
|
|
$
|
(49,452)
|
|
|
$
|
(30,938)
|
|
|
$
|
(24,923)
|
|
|
Non-GAAP operating margin
|
1
|
%
|
|
(8)
|
%
|
|
(7)
|
%
|
|
(5)
|
%
|
________________
(1)As a result of the SAP Acquisition, our stock based compensation expense reflects the recognition of both equity classified awards and liability classified awards. Liability classified awards are settled in cash in accordance with SAP’s employee equity compensation programs. 2018 stock-based compensation expense consisted entirely of equity-classified awards. 2019 stock-based compensation expense consisted of $185.8 million of equity-classified awards and was recognized as a result of the SAP Acquisition, and $690.4 million of liability-classified awards, of which $312.8 million were settled in cash in 2019. For the nine months ended September 30, 2019 and 2020, stock-based compensation expense consisted of $185.8 million, and $0.0 million, respectively, of equity-classified awards recognized as a result of the SAP Acquisition, and $564.3 million and $218.0 million, respectively, of liability-classified awards. During the nine months ended September 30, 2019 and 2020, awards of $213.2 million and $284.0 million, respectively, were settled in cash. Liability-classified awards are recorded according to mark-to-market accounting.
We calculate non-GAAP operating income (loss), as GAAP operating loss excluding equity and cash settled stock-based compensation expense, amortization of acquired intangible assets, and advisory and legal costs related to our initial public offering process conducted in 2018 that was ultimately withdrawn, or the 2018 IPO, and the SAP Acquisition. Non-GAAP operating margin is calculated as non-GAAP operating income (loss) divided by total revenue.
Free Cash Flow and Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
Nine Months Ended
September 30,
|
|
|
2018
|
|
2019
|
|
2019
|
|
2020
|
|
|
(In thousands)
|
|
Net cash provided by (used in) operating activities
|
$
|
36,404
|
|
|
$
|
(370,904)
|
|
|
$
|
(245,955)
|
|
|
$
|
(312,229)
|
|
|
Less: Capital expenditures
|
(21,321)
|
|
|
(33,181)
|
|
|
(26,469)
|
|
|
(43,054)
|
|
|
Free cash flow
|
15,083
|
|
|
(404,085)
|
|
|
(272,424)
|
|
|
(355,283)
|
|
|
Free cash flow margin
|
4
|
%
|
|
(68)
|
%
|
|
(65)
|
%
|
|
(65)
|
%
|
As a result of the SAP Acquisition, we incurred significant cash outflows in connection with the settlement of liability classified, stock-based awards in accordance with SAP’s employee equity compensation programs. We calculate free cash flow as net cash provided by operating activities less capital expenditures. Our free cash flow for the year ended December 31, 2018 and 2019 and for the nine months ended September 30, 2019 and 2020 includes $31.1 million, $379.8 million, $280.2 million and $284.0 million, respectively, in cash outflows related to the settlement of liability-classified, stock-based awards and advisory and legal costs related to the 2018 IPO and SAP Acquisition. Free cash flow margin is calculated as free cash flow divided by total revenue.
RISK FACTORS
Investing in our Class A common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this prospectus, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes, before making a decision to invest in our Class A common stock. The risks and uncertainties described below may not be the only ones we face. If any of the risks actually occur, our business, financial condition, results of operations and prospects could be materially and adversely affected. In that event, the market price of our Class A common stock could decline, and you could lose part or all of your investment.
Risks Related to Our Business and Industry
Our rapid growth makes it difficult to evaluate our future prospects and may increase the risk that we will not continue to grow at or near historical rates.
We have been growing rapidly over the last several years, and as a result, our ability to forecast our future results of operations is subject to a number of uncertainties, including our ability to effectively plan for and model future growth. Our recent and historical growth should not be considered indicative of our future performance. We have encountered in the past, and will encounter in the future, risks and uncertainties frequently experienced by growing companies in new and rapidly changing markets. If our assumptions regarding these risks and uncertainties, which we use to plan and operate our business, are incorrect or change, or if we do not address these risks successfully, our operating and financial results could differ materially from our expectations, our growth rates may slow and our business would suffer.
We may not be able to sustain our revenue growth rate or achieve or maintain profitability in the future.
In future periods, our revenue could grow more slowly than in recent periods or decline for a number of reasons, including any reduction in demand for our XM Platform, increase in competition, limited ability to, or our decision not to, increase pricing, contraction of the experience management software category, or our failure to capitalize on growth opportunities. In addition, our revenue from subscription and professional services and other may grow at different rates than in recent periods or decline for a number of reasons, including those described above. Our results of operations for 2019 included a significant expense increase related to the recognition of equity and cash settled stock-based compensation as a result of the SAP Acquisition. Excluding the impact of equity and cash settled stock-based compensation, we expect expenses to increase in the near term, particularly as we continue to make significant investments in research and development and technology infrastructure, expand our operations globally and develop new solutions and features for, and enhancements of, our XM Platform. In addition, in connection with operating as an independent public company, we will incur additional legal, accounting and other expenses that we did not incur as a wholly owned subsidiary of SAP. While we have achieved profitability in prior fiscal years, as a result of these factors we were not profitable in the year ended December 31, 2019, we do not expect to achieve profitability for the year ended December 31, 2020, and we may not be able to achieve profitability in future periods. In addition, the added expenses we will incur may not lead to sufficient additional revenue to maintain historical revenue growth rates or achieve or maintain profitability in the future.
If we fail to effectively manage our growth, our business and results of operations could be harmed.
We have experienced, and may continue to experience, rapid growth, which has placed, and may continue to place, significant demands on our management and our operational and financial resources. For example, our headcount has grown from 2,026 employees as of December 31, 2018 to 3,370 employees as of September 30, 2020. In addition, we operate globally, sell subscriptions to more than 12,000 customers in more than 100 countries, and have employees in the United States, Australia, Canada, France, Germany, Ireland, Japan, the Netherlands, Poland, Singapore, Spain, Sweden and the United Kingdom as well as SAP employees we work with in numerous other countries. We plan to continue to expand our international presence in the future, which will place additional demands on our resources and operations. Additionally, we continue to increase the breadth and scope of our XM Platform and our operations and continue to develop our partner network. Even with the support of SAP, in order to successfully manage our future growth we will need to continue to improve our IT and financial infrastructures, our
operating and administrative systems, and our ability to manage headcount, capital, and internal processes in an efficient manner and deepen our industry experience in key verticals. Our organizational structure is also becoming more complex as we grow our operational, financial, and management infrastructure and we must continue to improve our internal controls as well as our reporting systems and procedures. We intend to continue to invest to expand our business, including investing in technology, sales and marketing operations, developing new solutions and features for our existing solutions, hiring additional personnel, and upgrading our infrastructure. These investments will require significant capital expenditures and the allocation of management resources, and any investments we make will occur in advance of experiencing the benefits from such investments, making it difficult to determine in a timely manner if we are efficiently allocating our resources. If we do not achieve the benefits anticipated from these investments, or if the achievement of these benefits is delayed, our results of operations may be adversely affected.
The experience management software category is relatively new and rapidly changing, and if we do not compete effectively, our business, results of operations, and financial condition could be harmed.
The experience management software category is relatively new and rapidly changing and has relatively low barriers to entry compared to some categories. While we do not believe that any of our competitors currently offer a full suite of experience management solutions that competes with our entire XM Platform, we do have numerous competitors who offer products and services that compete with certain features of our XM Platform. For more information about our competition, see “Business—Competition.” While we have reasons to believe we compete favorably against these competitors, some of our existing competitors and potential future competitors are larger and have greater brand name recognition, longer operating histories, larger marketing budgets, established marketing relationships, access to larger customer bases, and significantly greater resources for the development of their offerings. These competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards, or customer requirements.
With the introduction of new technologies, the evolution of our solutions, and new market entrants, we expect competition to intensify in the future. We also anticipate that potential competition may come in the future from incumbent software providers. For example, as we expand our focus into new use cases or other solutions beyond our existing solutions, we expect competition to increase. Pricing pressures from competitors undercutting our prices, and increased competition generally could result in reduced sales, reduced margins, losses, or the failure of our solutions to achieve or maintain more widespread market acceptance, any of which could harm our business, results of operations, and financial condition. Furthermore, our actual and potential competitors may establish cooperative relationships among themselves or with third parties, or consolidate through acquisitions or be sold to our competitors with greater resources than we have, that may further enhance their resources and offerings in the market we address and may increase the likelihood of our competitors offering bundled or integrated products with which we cannot compete effectively. Additionally, some current and potential customers and partners, particularly large organizations, have elected, and may in the future elect, to develop or acquire their own internal experience management software tools that would reduce or eliminate the demand for our solutions. For all of these reasons and others we do not or cannot anticipate today, we may not be able to compete successfully against our current and future competitors, which could harm our business, results of operations, and financial condition.
The impact of the COVID-19 pandemic has adversely affected and could continue to adversely affect our business, financial condition and results of operations.
The COVID-19 pandemic is widespread across the United States and around the globe, creating significant uncertainty and economic disruption as businesses and federal, state, and local governments have taken broad actions to mitigate this public health crisis. In response, we have implemented, among other measures, a COVID-19 task force, a temporary work from home policy across all offices globally, new operating guidelines for our offices based on local conditions, restrictions on work-related travel, and additional wellness benefits for employees, all of which have the potential to result in a significant disruption to how we operate our business. We may take further actions as required by government entities or that we determine are in the best interests of our employees, customers, partners, and suppliers.
As a result of the COVID-19 pandemic, we have experienced, and may continue to experience, an adverse impact on certain parts of our business. The conditions caused by the pandemic have adversely affected or may in the future adversely affect, among other things, demand, spending by new customers, renewal and retention rates of existing customers, the length of our sales cycles, the value and duration of subscriptions, collections of accounts receivable, our IT and other expenses, our ability to recruit, and the ability of our employees to travel, all of which could adversely affect our business, results of operations, and financial condition. Due to our subscription-based business model, the effect of the COVID-19 pandemic may not be fully reflected in our revenue until future periods. Our customers, suppliers, and partners have similarly been impacted. Certain customers have and may continue to fail to renew subscriptions, request to renegotiate current contracts, reduce their usage, and/or fail to expand their usage of our XM Platform within their organizations.
Given the uncertainty, we do not yet know the full extent of potential impacts on our business or operations and cannot reasonably estimate the impact on our future results of operations, cash flows, or financial condition. The global impact of COVID-19 continues to rapidly evolve, and we will continue to monitor the situation and the effects on our business and operations closely. Although we believe our business is well-suited to navigate the current environment, the ultimate duration and extent of the COVID-19 pandemic cannot be accurately predicted at this time, and the direct or indirect impact on our business, results of operations, cash flows, and financial condition will depend on future developments that are highly uncertain. The potential impacts of COVID-19 could also have the effect of heightening other risks described in this “Risk Factor” section.
If we are unable to retain customers at existing levels or sell additional functionality to our existing customers, our revenue growth will be adversely affected.
To increase our revenue, we must retain existing customers, convince them to expand their use of our solutions across their organizations and for a variety of use cases, and expand their subscriptions on terms favorable to us. If we are not able to renew our agreements with existing customers or attract new business from existing customers on favorable terms, this could have an adverse effect on our business, revenue, gross margins, and other operating results, and accordingly on the value of our common stock. The rate at which our customers purchase new or enhanced solutions from us, as well as the expansion of use of our solutions across organizations, depend on a number of factors, including general economic conditions, customer specific conditions, competitive pricing, integration with existing technologies, and satisfaction and market acceptance of our XM Platform generally. If our efforts to sell additional functionality and solutions to our customers are not successful, our business and growth prospects may suffer. Our customers have no obligation to renew their subscriptions for our solutions after the expiration of their initial subscription period, and a majority of our subscription contracts were one year in duration for the year ended December 31, 2019.
If the experience management software category does not develop further, develops more slowly, or develops in a way that we do not expect, our business may be adversely affected.
We generate, and expect to continue to generate, revenue from the sale of subscriptions to our XM Platform. As a result, widespread acceptance and use of experience management solutions in general, and our XM Platform in particular, is critical to our future growth and success. If the experience management software category fails to grow or grows more slowly than we currently anticipate, demand for our XM Platform could be negatively affected.
Changes in user preferences for experience management may have a disproportionately greater impact on us than if we offered multiple platforms or a variety of products. Demand for experience management solutions in general, and our XM Platform in particular, is affected by a number of factors, many of which are beyond our control. Some of these factors include:
•awareness of the experience management category generally;
•availability of products and solutions that compete with ours;
•ease of adoption and use;
•features, performance and overall platform experience;
•brand;
•security and privacy;
•accessibility across several devices, operating systems, and applications;
•customer support;
•continued innovation; and
•pricing.
The experience management software category is subject to rapidly changing user demand and trends in preferences. If we fail to successfully predict and address these changes and trends, meet user demands, or achieve more widespread market acceptance of our XM Platform, our business, results of operations, and financial condition could be harmed.
If we are not able to develop new solutions and enhancements to our existing solutions that achieve market acceptance and that keep pace with technological developments, or if we are not able to deliver these new or enhanced solutions so that they can be easily and consistently deployed by our customers, our business and results of operations would be harmed.
Our ability to attract new customers and increase revenue from existing customers depends in large part on our ability to enhance and improve our existing solutions and to introduce compelling new solutions. The success of any enhancement to our solutions depends on several factors, including timely completion and delivery, competitive pricing, adequate quality testing, integration with other technologies and our XM Platform, and overall market acceptance. Any new solution that we develop may not be introduced in a timely or cost-effective manner, may contain errors, vulnerabilities or bugs, or may not achieve the market acceptance necessary to generate significant revenue. If we are unable to successfully develop new solutions, enhance our existing solutions to meet customer requirements, or otherwise gain market acceptance, our reputation, business, results of operations, and financial condition would be harmed.
Our ability to attract new customers and increase revenue from existing customers also depends on our ability to deliver enhancements and new solutions to our customers in a format where they can be easily and consistently deployed by most or all users without significant customer support. If our customers believe that deploying our enhancements and new solutions would be overly time-consuming, confusing, or technically challenging, then our ability to grow our business would be substantially harmed. We need to deliver a repeatable, user-friendly, prescriptive approach to deployment that allows users of all kinds to effectively and easily deploy our solutions, and if we fail to do so, our business and results of operations would be harmed.
Our success also depends on our ability to identify important and emerging use cases for our customers and quickly develop new and effective solutions to address those use cases. For example, prior to 2017, we did not offer a solution specifically tailored for either Product Experience or Brand Experience. We developed solutions for these specific use cases because we were able to identify that many of our customers were using our existing tools for those purposes. If we are unable to identify similar emerging use cases or applications of our XM Platform in a timely manner and innovate in a way that allows us to address these emerging use cases or applications, and also present them to our customers in a compelling package that differentiates those solutions from our existing capabilities, then we may lose customers to more innovative competitors or alternative solutions, and we will experience difficulties in attracting new customers and expanding revenue from existing customers.
If our security measures are breached or unauthorized access to data is otherwise obtained, our XM Platform may be perceived as insecure, we may lose existing customers or fail to attract new customers, our reputation may be harmed, and we may incur significant liabilities.
Unauthorized access to, or other security breaches of, our XM Platform or the other systems or networks used in our business, including our own systems as well as those of our vendors, contractors, partners or those with which we have strategic relationships, could result in the unauthorized disclosure, loss, compromise, exfiltration,
destruction or corruption of customer or other personal data, including sensitive data, loss of business, reputational damage adversely affecting customer or investor confidence, regulatory investigations and orders, class action or other litigation, indemnity obligations, damages for contract breach, penalties for violation of applicable laws or regulations, notification obligations, significant costs for remediation, and other liabilities. We have errors and omissions insurance coverage for certain security and privacy damages and claim expenses, but this coverage may be insufficient to compensate us for the type or quantity of liabilities that we may incur.
Our XM Platform and the other systems or networks used in our business are also at risk for breaches as a result of third-party action, or employee, contractor, vendor, partner or customer error or malfeasance. Security incidents have occurred in the past, and may occur in the future, resulting in unauthorized access to, loss or destruction of or unauthorized disclosure of information, regulatory enforcement actions, litigation, indemnity obligations, and other possible liabilities, as well as negative publicity, which could damage our reputation or customer satisfaction, impair our sales, and harm our business. Cyberattacks and other malicious activity continue to increase in frequency and complexity, and cloud-based platform providers of services have been and are expected to continue to be targeted. In addition to traditional computer “hackers,” malicious code (such as viruses and worms), employee theft or misuse, phishing, social engineering, denial-of-service attacks and human error, sophisticated criminal, nation-state and nation-state supported actors now regularly engage in attacks (including advanced persistent threat intrusions). Despite significant efforts to implement security designed to protect against such threats, it is impossible for us to entirely protect against or mitigate these risks. If our security measures are compromised, for example, as a result of third-party action, employee or customer error, malfeasance, stolen or fraudulently obtained log-in credentials or otherwise, our reputation or customer satisfaction could be damaged, our business, including our delivery of services, may be harmed, and we could incur significant liability. We have not always been able in the past and may be unable in the future to anticipate or prevent techniques used to obtain unauthorized access or to compromise our systems, in part because they are continuously evolving and changing, and may not be known or detected until after an incident has occurred. Concerns regarding data privacy and security may cause some of our customers to stop using our solutions and fail to renew their subscriptions. This discontinuance in use or failure to renew could substantially harm our business, operating results, and growth prospects. Further, as we rely on third-party and public-cloud infrastructure, we will depend in part on third parties’ security measures to protect against unauthorized access, cyberattacks, and the mishandling of customer data. Failures to meet customers’ expectations with respect to security and confidentiality of their data and information could damage our reputation and affect our ability to retain customers, attract new customers, and grow our business. In addition, a cybersecurity event could result in significant increases in costs, including costs for remediating the effects of such an event, legal and advisor fees, and legal claims; lost revenue due to network downtime and decrease in customer trust; increases in insurance premiums and coverage; and damage to our reputation.
Our business could be harmed by any significant disruption of service on our XM Platform or loss of content.
Our brand, reputation, and ability to attract, retain, and serve our customers are dependent upon the reliable performance of our XM Platform, including our underlying technical infrastructure. Our technical infrastructure may not be adequately designed with sufficient reliability and redundancy to avoid performance delays or outages that could be harmful to our business. If our XM Platform is unavailable when users attempt to access it, or if it does not load as quickly as they expect, users may not use our XM Platform as often in the future, or at all.
As our user base and the amount and types of information stored and shared on our XM Platform continue to grow, we will need an increasing amount of technical infrastructure, including network capacity and computing power, to continue to satisfy the needs of our users. Further, as we continue to grow and scale our business to meet the needs of our users, we may overestimate or underestimate our infrastructure capacity requirements, which could adversely affect our results of operations. We regularly evaluate our short- and long-term infrastructure capacity requirements to ensure adequate capacity for new and existing users while minimizing unnecessary excess capacity costs. If we overestimate the demand for our XM Platform and therefore secure excess infrastructure capacity, our operating margins could be reduced. If we underestimate our infrastructure capacity requirements, we may not be able to service the expanding needs of new and existing users, and our hosting facilities, network, or systems may fail. In some cases, our contracts with our customers stipulate a minimum uptime availability of our XM Platform, and to the extent we do not meet these obligations, we may be subject to penalties, refunds or other contractual
claims from our customers. If any of these events occur, our reputation, business, and financial condition would be harmed.
As a subsidiary of SAP, we have relied on administrative and other resources of SAP to operate our business. In connection with this offering, we will enter into various service agreements with SAP to retain the ability for specified periods to use these SAP resources. See “Certain Relationships and Related Party Transactions—Relationship with SAP and the Agreements Between SAP and Us.” These services may in the future not be provided at the same level, and we may not be able to obtain the same benefits as compared to prior to this offering. These services may also not be sufficient to meet our needs, and after these arrangements with SAP expire, we may not be able to replace these services at all or obtain these services at prices and on terms as favorable as we currently have with SAP. We will need to create our own administrative and other support systems or contract with third parties to replace SAP’s systems. In addition, we have received informal support from SAP which may not be adequately addressed in the agreements we will enter into with SAP and the level of this informal support may diminish over time as we become a more independent company. Any failure or significant downtime in our own administrative systems or in SAP’s administrative systems during the transitional period could result in unexpected costs, impact our results and/or prevent us from paying our suppliers or employees and performing other administrative services on a timely basis. See “Certain Relationships and Related Party Transactions—Relationship with SAP and the Agreements Between SAP and Us” for a description of these services.
If we fail to offer high quality customer support, our business and reputation could suffer.
Our customers rely on our customer support teams to resolve technical and operational issues if and when they arise. We may be unable to respond quickly enough to accommodate short-term increases in customer demand for customer support. We also may be unable to modify the nature, scope, and delivery of our customer support to compete with changes in customer support services provided by our competitors or to adapt to product and industry developments. Increased customer demand for customer support, without corresponding revenue, could increase costs and harm our results of operations. In addition, as we continue to grow our operations and reach a large global customer base, we need to be able to provide efficient customer support that meets our customers’ needs globally at scale. The number of our customers has grown significantly, and that growth has and will continue to put additional pressure on our support organization. As our business scales, we may need to engage third-party customer support service providers, which could negatively impact the quality of our customer support if such third parties are unable to provide customer support that is as effective as that we provide ourselves. Our sales are highly dependent on our business reputation and on positive recommendations from our existing customers. Accordingly, high quality customer support is important for the renewal and expansion of our agreements with existing customers and any failure to maintain such standards of customer support, or a market perception that we do not maintain high quality customer support, could harm our reputation, our ability to sell product to existing and prospective customers, and our business, results of operations, and financial condition.
We invest significantly in research and development, and to the extent our research and development investments do not translate into new solutions or material enhancements to our current solutions, or if we do not use those investments efficiently, our business and results of operations would be harmed.
A key element of our strategy is to invest significantly in our research and development efforts to develop new solutions and rapidly introduce new technologies, features and functionality of our existing solutions. For the years ended December 31, 2018 and 2019 and for the nine months ended September 30, 2019 and 2020, our research and development expenses were 16%, 41%, 44% and 31% of our revenue, respectively. If we do not spend our research and development budget efficiently or effectively on compelling innovation and technologies, our business may be harmed and we may not realize the expected benefits of our strategy. Moreover, research and development projects can be technically challenging and expensive. The nature of these research and development cycles may cause us to experience delays between the time we incur expenses associated with research and development and the time we are able to offer compelling solutions and generate revenue, if any, from such investment. Additionally, anticipated customer demand for a solution or solutions we are developing could decrease after the development cycle has commenced, and we would nonetheless be unable to avoid substantial costs associated with the development of any such solution or solutions. If we expend a significant amount of resources on research and development and our
efforts do not lead to the successful introduction or improvement of solutions that are competitive in our current or future markets, it would harm our business and results of operations.
Our business depends on a strong brand, and if we are not able to maintain and enhance our brand, our ability to expand our number of customers will be impaired and our business, results of operations, and financial condition will be harmed.
We believe that our brand identity and awareness have significantly contributed to our success and have helped fuel our efficient go-to-market model. We also believe that maintaining and enhancing our Qualtrics brand and our other brands, as well as our reputation generally, is critical to expanding our number of customers. We anticipate that, as our market becomes increasingly competitive, maintaining and enhancing our brand may become increasingly difficult and expensive. The perception of our brand by our customers, prospective customers, and partners has likely evolved as a result of our acquisition by SAP and will likely continue to evolve as a result of this offering, including in ways that may be unforeseeable or unfavorable to us. Any unfavorable publicity or consumer perception of our XM Platform, or even a competitor’s platform in the experience management software category generally, could adversely affect our reputation and our ability to attract and retain customers on our XM Platform, and diminish customer interest in the experience management market generally. Additionally, if we fail to promote and maintain the Qualtrics brand, or if we incur excessive expenses in this effort, our business, results of operations, and financial condition will be materially and adversely affected. As an SAP company, we also face the risk that unfavorable publicity or negative consumer perception of SAP may adversely affect our business and brand.
Failure to effectively expand our sales and marketing capabilities could harm our ability to increase our customer base and achieve broader market acceptance of our XM Platform.
Our ability to broaden our customer base, particularly our business customer base, and achieve broader market acceptance of our XM Platform will depend to a significant extent on the ability of our sales and marketing organizations to work together to drive our sales pipeline and cultivate customer and partner relationships to drive revenue growth. As an SAP company, we have been able to utilize our partnership to grow and enhance our business. We will continue to jointly develop, market and sell our solutions with SAP, and SAP’s global footprint has allowed us to reach new geographies and expand our international presence faster. If we are unable to effectively leverage our partnership with SAP to drive sales, increase our customer base and achieve broader market acceptance, our growth plans could be adversely affected.
We have invested in and plan to continue to invest aggressively to expand our sales and marketing organizations, both domestically and internationally. Identifying, recruiting, and training sales personnel will require significant time, expense, and attention. In addition to our partnership with SAP, we have also developed a network of leading content and consulting partners, delivery partners, and technology partners who enrich our offerings, scale our coverage, and help us reach a broader audience than we would be able to reach on our own. If we are unable to recruit, hire, develop, and retain talented sales or marketing personnel, if our new sales or marketing personnel and partners are unable to achieve desired productivity levels in a reasonable period of time, or if our sales and marketing programs are not effective, our ability to broaden our customer base and achieve broader market acceptance of our XM Platform could be harmed. In addition, the investments we make in our sales and marketing organization will occur in advance of experiencing benefits from such investments, making it difficult to determine in a timely manner if we are efficiently allocating our resources in these areas.
We also plan to dedicate significant resources to sales and marketing programs, including user conferences (such as our annual X4 Summit), online advertising, webinars, blogs, corporate communications, white papers, and case studies. We were unable to hold our in-person X4 Summit event in 2020 due to the COVID-19 pandemic and may be unable to do so in future years as a result of this pandemic or changes in the public’s perception of live events resulting therefrom. To the extent that we are unable to hold in person events such as user conferences due to the COVID-19 pandemic or fewer users choose to attend, our efforts to achieve broader market acceptance of our XM Platform may be adversely affected.
We rely on the performance of highly skilled personnel, including our management and other key employees, and the loss of one or more of such personnel, or of a significant number of our team members, could harm our business.
Our success and future growth depend upon the continued services of our management team and other key employees. In particular, Ryan Smith, our Founder, Executive Chair and Director, and Zig Serafin, our Chief Executive Officer, are both critical to our vision, strategic direction, culture, and offerings. From time to time, there may be changes in our management team, including those resulting from the hiring or departure of executives and key employees, which could disrupt our business. For example, Ryan Smith recently transitioned from Chief Executive Officer to Executive Chair and Zig Serafin recently transitioned from President to Chief Executive Officer. Given the recency of these transitions, we cannot yet know the impact they will have on our business. We also are dependent on the continued service of our existing employees, in part because of the complexity of our solutions. Our senior management and key employees are employed on an at-will basis. In general, we may terminate our employees’ employment at any time, and any employee may resign at any time, with or without cause. The loss of one or more of our senior management or other key employees could harm our business, and we may not be able to find adequate replacements. We cannot ensure that we will be able to retain the services of any members of our senior management or other key employees. In particular, recruiting and hiring senior product engineering personnel has been, and we expect to continue to be, challenging given the intense competition in the software industry for skilled product engineering talent. In addition, as our business grows and scales, including internationally, we will need to continue to find and attract talented experience managers both in the United States and internationally. If we are unable to hire talented personnel, we may be unable to scale our operations or release new products in a timely fashion and, as a result, customer satisfaction with our products may decline. Additionally, many of our employees and members of our management team may receive significant proceeds from sales of our equity in the public markets after this offering, which may reduce their motivation to continue to work for us.
If we are unable to develop and maintain successful relationships with certain partners, our business, results of operations, and financial condition could be harmed.
In addition to our sales force and our joint go-to-market strategy with SAP, we work with certain strategic partners to help grow and develop our sales and distribution channels and implement our XM Platform. We believe that continued growth in our business is dependent upon identifying, developing, and maintaining strategic relationships with our existing and potential partners that can drive substantial revenue and provide additional solutions to our customers. We engage certain partners to generate customer acquisition opportunities, certain other partners to implement our XM Platform with our existing customers, and certain other partners to participate in our Qualtrics Developer Platform. In some cases, we do not yet have sufficient data or feedback regarding the effectiveness of these partnerships. If we are unable to develop and maintain successful relationships with these partners, or if they otherwise fail to succeed in the objectives of our relationships with them, our business, results of operations, and financial condition could be harmed.
Our sales cycle with enterprise, government, and international customers can be long and unpredictable.
The timing of our sales with our enterprise, government, and international customers and related revenue recognition is difficult to predict because of the length and unpredictability of the sales cycle for these customers. We sell to United States federal, state and local, as well as foreign, governmental agency customers, and government demand and payment for our offerings are affected by public sector budgetary cycles and funding authorizations, with funding reductions or delays adversely affecting public sector demand for our offerings. We are often required to spend significant time and resources to better educate and familiarize these potential customers with the value proposition of paying for our solutions. The length of our sales cycle for these customers, from initial evaluation to payment for our offerings, is often significantly longer for other customers, and can vary substantially from customer to customer, and thus it is difficult to predict whether and when a sale will be completed.
Our ability to sell subscriptions to our XM Platform could be harmed by real or perceived material defects or errors in our platform.
The software technology underlying our XM Platform is inherently complex and may contain material defects or errors, particularly when first introduced or when new features or capabilities are released. We have from time to time found defects or errors in our XM Platform, and new defects or errors in our existing XM Platform or new software may be detected in the future by us or our users. There can be no assurance that our existing XM Platform and new software will not contain defects. Any real or perceived errors, failures, vulnerabilities, or bugs in our XM Platform could result in negative publicity or lead to data security, access, retention, or other performance issues, all of which could harm our business. The costs incurred in correcting such defects or errors may be substantial and could harm our results of operations and financial condition. Moreover, the harm to our reputation and legal liability related to such defects or errors may be substantial and could harm our business, results of operations, and financial condition.
We also utilize hardware purchased or leased, and software and services licensed, from third parties to host and provide security over our XM Platform. Our customers may also seek to integrate our XM Platform with other software systems developed by third parties. Any defect in, or unavailability of, our or third-party software, services or hardware, or problems with integrating our XM Platform with third-party software that causes interruptions to the availability of our XM Platform, loss of data, or performance issues could, among other things:
•cause a reduction in revenue or delay in market acceptance of our XM Platform;
•require us to issue refunds to our users or expose us to claims for damages;
•cause us to lose existing users and make it more difficult to attract new users;
•divert our development resources or require us to make extensive changes to our XM Platform, which would increase our expenses;
•increase our technical support costs; and
•harm our reputation and brand.
If we cannot maintain our company culture as we grow, we could lose the innovation, teamwork, passion, and focus on execution that we believe contribute to our success and our business may be harmed.
We believe that a critical component to our success has been our company culture. Our company is aligned behind our culture and key values, and we have invested substantial time and resources in building our team within this company culture. Our company culture has evolved as a result of the SAP Acquisition and will likely continue to evolve as a result of this offering, including in ways that may be unforeseeable or unfavorable to us. As we increase the size of our employee base, grow and develop the infrastructure of a public company, transition from wholly owned subsidiary to majority-owned subsidiary of, or acquire other companies, we may find it difficult to maintain our company culture. Any failure to preserve our culture could harm our future success, including our ability to retain and recruit personnel, innovate and operate effectively, and execute on our business strategy.
We are continuing to expand our operations outside the United States, where we may be subject to increased business and economic risks that could impact our results of operations.
A key focus of our company is to continue to expand our operations outside of the United States. In order to do so, we use a hub-and-spoke sales model, comprised of a centralized inside-sales team surrounded by regional direct sales efforts. We have invested significant effort to building and optimizing our international growth. For the nine months ended September 30, 2020, 28% of our revenue is from outside the United States, and we have continued to add employees and offices in new countries. We expect to continue to expand our international operations, which may include opening additional offices in new jurisdictions and providing our XM Platform in additional languages. Any new markets or countries into which we attempt to sell subscriptions to our XM Platform may not be receptive. For example, we may not be able to expand further in some markets if we are not able to satisfy certain government- and industry-specific requirements. If we are not successful in converting our investments in international expansion
to additional revenue, our business and results of operations may be harmed. In addition, our ability to manage our business and conduct our operations internationally requires considerable management attention and resources and is subject to the particular challenges of supporting a rapidly growing business in an environment of multiple languages, cultures, customs, legal and regulatory systems, alternative dispute systems, and commercial markets. International expansion has required, and will continue to require, investment of significant funds and other resources. In addition, in certain ways it was easier for us to expand internationally as a wholly owned subsidiary of SAP, given SAP’s significant global presence, than it will be as a majority-owned subsidiary of SAP. Operating internationally subjects us to new risks and may increase risks that we currently face, including risks associated with:
•recruiting and retaining talented and capable employees outside the United States and maintaining our company culture across all of our offices;
•providing our XM Platform and operating our business across a significant distance, in different languages and among different cultures, including the potential need to modify our XM Platform and features to ensure that they are culturally appropriate and relevant in different countries;
•compliance with applicable international laws and regulations, including laws and regulations with respect to privacy, data protection, consumer protection, and unsolicited email, and the risk of penalties to our users and individual members of management or employees if our practices are deemed to be out of compliance;
•management of an employee base in jurisdictions that may not give us the same employment and retention flexibility as does the United States;
•operating in jurisdictions that do not protect intellectual property rights to the same extent as does the United States;
•compliance by us and our business partners with anti-corruption laws, import and export control laws, tariffs, trade barriers, economic sanctions, and other regulatory limitations on our ability to provide our XM Platform in certain international markets;
•foreign exchange controls that might require significant lead time in setting up operations in certain geographic territories and might prevent us from repatriating cash earned outside the United States;
•political and economic instability;
•double taxation of our international earnings and potentially adverse tax consequences due to changes in the income and other tax laws of the United States or the international jurisdictions in which we operate; and
•higher costs of doing business internationally, including increased accounting, travel, infrastructure, and legal compliance costs.
Compliance with laws and regulations applicable to our global operations substantially increases our cost of doing business in international jurisdictions. We may be unable to keep current with changes in laws and regulations as they change. Although we have implemented policies and procedures designed to support compliance with these laws and regulations, there can be no assurance that we will always maintain compliance or that all of our employees, contractors, partners, and agents will comply. Any violations could result in enforcement actions, fines, civil and criminal penalties, damages, injunctions, or reputational harm. If we are unable to comply with these laws and regulations or manage the complexity of our global operations successfully, our business, results of operations, and financial condition could be adversely affected.
We may acquire other companies or technologies which could divert our management’s attention, result in additional dilution to our stockholders, and otherwise disrupt our operations and harm our results of operations.
As we have in the past, we may in the future seek to acquire or invest in businesses, people, or technologies that we believe could complement, expand, or enhance our XM Platform or otherwise offer growth opportunities. The
pursuit of potential acquisitions may divert the attention of management and cause us to incur various expenses in identifying, investigating, and pursuing suitable acquisitions, whether or not they are ultimately consummated.
Any integration process may result in unforeseen operating difficulties and require significant time and resources and, we may not be able to integrate the acquired personnel, operations, and technologies successfully or effectively manage the combined business in connection with any future acquisition. Our prior acquisitions have been relatively small, and thus we are relatively inexperienced in effectively implementing an integration process. We may also not achieve the anticipated benefits from the acquired business due to a number of factors, including, among others:
•costs or liabilities associated with the acquisition;
•diversion of management’s attention from other business concerns;
•inability to integrate or benefit from acquired content, technologies, or solutions in a profitable manner;
•harm to our existing relationships with customers and partners as a result of the acquisition;
•difficulty integrating the accounting systems, operations, and personnel of the acquired business;
•difficulty converting the customers of the acquired business onto our XM Platform and contract terms;
•the potential loss of key employees;
•use of resources that are needed in other parts of our business; and
•the use of substantial portions of our available cash or equity to consummate the acquisition.
In the future, if our acquisitions do not yield expected returns, we may be required to take charges for the write-down or impairment of amounts related to goodwill and acquired intangible assets, which could negatively impact our results of operations. We may issue additional equity securities in connection with any future acquisitions that would dilute our existing stockholders, use cash that we may need in the future to operate our business, incur debt on terms unfavorable to us or that we are unable to pay, incur large charges or substantial liabilities, and become subject to adverse tax consequences, substantial depreciation, or deferred compensation charges. These challenges could adversely affect our business, financial conditions, results of operations, and prospects.
Privacy, data protection, and information security concerns, and data collection and transfer restrictions and related domestic or foreign regulations, may limit the use and adoption of our XM Platform and adversely affect our business.
Use of our XM Platform involves the storage, transmission, and processing of data from our customers and their users, employees or other personnel, including certain personal or individually identifying information. Personal privacy, information security, and data protection are significant issues in the United States, including at the individual state level, Europe, and many other jurisdictions where we offer our XM Platform. As a global software and service provider, we are required to comply with local laws of various countries and jurisdictions. The regulatory frameworks governing the collection, processing, storage, and use of business information, particularly information that includes personal data, are rapidly and continuously evolving across multiple jurisdictions, which may introduce conflicts between compliance obligations or other uncertainties. Any failure or perceived failure to comply with applicable privacy, security, or data protection laws, regulations and/or contractual obligations may adversely affect our business. Such evolving regulations and new laws globally (such as the California Consumer Privacy Act and the EU’s proposed ePrivacy Regulation) regarding data protection and privacy or other standards increasingly aimed at the use of personal information, such as for marketing purposes and the tracking of individuals’ online activities. We may have additional burdens imposed on us due to increasing compliance standards that could restrict the use and adoption of our products and services and make it more challenging and complex to meet customer expectations.
The United States federal and various state and foreign governments have adopted or proposed requirements regarding the collection, distribution, use, security, and storage of, and individual rights relating to, personally identifiable information and other data relating to individuals, and federal and state consumer protection laws are also commonly applied to investigate and enforce companies’ statements regarding their collection, use, dissemination and other treatment of data, as well as security measures implemented to protect data. Under the laws of every state and numerous foreign jurisdictions, companies are obligated to notify individuals of security breaches involving certain personal information, which may result from breaches of our own systems, but could also result from breaches experienced by our vendors, our contractors, or organizations with which we have formed strategic relationships. Even though we may have contractual protections with such vendors, contractors, or other organizations, notifications and follow-up actions related to a security breach could impact our reputation, cause us to incur significant costs, including legal expenses, harm customer confidence, hurt our expansion into new markets, result in regulatory investigations or enforcement actions, instigate class action or other litigation, cause us to incur remediation costs, and cause us to lose existing customers.
Further, many foreign countries and governmental bodies, including the EU, where we conduct business, have laws and regulations concerning the collection and use of personal data obtained from their residents or by businesses operating within their jurisdictions. These laws and regulations are often more wide-ranging and more restrictive than those in the United States. Laws and regulations in these jurisdictions apply broadly to the collection, use, storage, disclosure, and security of data that identifies or may be used to identify or locate an individual, such as names, email addresses and Internet Protocol addresses. Further, European data protection laws prohibit the transfer of personal data from the European Economic Area, or EEA, and Switzerland to other countries, including the United States, unless adequate protections are provided for personal data in such recipient countries.
With regard to transfers of personal data from our European employees and customers to the United States, we historically relied on our adherence to the United States Department of Commerce’s Safe Harbor Privacy Principles and compliance with the EU-U.S. and Swiss-U.S. Safe Harbor Frameworks as agreed to and set forth by the United States Department of Commerce, the EU, and Switzerland, which established means for legitimizing the transfer of personal data from the EEA or Switzerland to the United States. The EU-U.S. Safe Harbor Framework was deemed an invalid method of compliance with EU restrictions on data transfers in a ruling by the Court of Justice of the European Union in October 2015. Following this ruling, we implemented certain measures in order to certify our adherence to the EU-U.S. and Swiss-U.S. Privacy Shield Frameworks, programs established by EU, Swiss, and U.S. authorities to provide mechanisms for companies to transfer EEA and Swiss personal data to the United States in the absence of the EU-U.S. and Swiss-U.S. Safe Harbor Frameworks. In addition, we have relied on standard contractual clauses approved by the European Commission for this purpose. In July 2020, the EU-U.S. Privacy Shield Framework was invalidated by the Court of Justice of the European Union as a means of assuring adequate safeguards for personal data transferred to the United States. Since the invalidation of the EU-U.S. Privacy Shield Framework, we have sought to implement other measures to permit transfers of personal data from the EEA and Switzerland to the United States, including continuing to rely on the standard contractual clauses approved by the European Commission for this purpose. The standard contractual clauses are also subject to challenges, however, and it is uncertain whether the standard contractual clauses will also be invalidated by the European courts. In addition to the present uncertainty as to valid means to assure adequate safeguards of EEA and Swiss personal data transferred to the United States, we expect to be impacted by future changes in law as a result of a further reviews of transfer mechanisms by European regulators, as well as challenges to these mechanisms in the European courts. There are also questions of whether and by what mechanisms personal data may be transferred from the EEA and Switzerland to the United Kingdom, post-Brexit.
International privacy and data security regulations may become more complex and have greater consequences. For instance, as of May 2018, the General Data Protection Regulation, or GDPR, has replaced the Data Protection Directive with respect to the collection and use of personal data of data subjects in the EU. The GDPR applies extraterritorially and imposes several stringent requirements for controllers and processors of personal data, including, for example, higher standards for obtaining consent from individuals to process their personal data, more robust disclosures to individuals and a strengthened individual data rights regime, shortened timelines for data breach notifications, limitations on retention of information, increased requirements pertaining to special categories of personal data and pseudonymized (i.e., key-coded) data and additional obligations when we contract third-party
processors in connection with the processing of the personal data. The GDPR provides that EU member states may make their own further laws and regulations limiting the (i) processing of personal data, including special categories of special data (e.g., racial or ethnic origin, political opinions, religious or philosophical beliefs), and (ii) profiling and automated individual decision-making of individual; which could limit our ability to use and share personal data or other data and could cause our costs to increase, and harm our business and financial condition. Noncompliance with the GDPR can trigger steep fines of up to €20 million or 4% of global annual revenue, whichever is higher. Separate EU laws and regulations (and member states’ implementations thereof) govern the protection of consumers and of electronic communications.
The implementation of the GDPR has led other jurisdictions to amend, or propose legislation to amend, their existing data protection laws to align with the requirements of the GDPR with the aim of obtaining an adequate level of data protection to facilitate the transfer of personal data from the EU. Accordingly, the challenges we face in the EU will likely also apply to other jurisdictions outside the EU that adopt laws similar in construction to the GDPR or regulatory frameworks of equivalent complexity. For example, the United Kingdom may enact data privacy laws similar to the GDPR following Brexit, in order to maintain harmony with GDPR requirements, but this is not yet settled. In addition, in 2018, the State of California adopted the California Consumer Privacy Act of 2018, or the CCPA, which came into effect January 1, 2020.
The CCPA has been characterized as the first “GDPR-like” privacy statute to be enacted in the United States because it mirrors certain provisions of the GDPR, including an extraterritorial application. However, the CCPA establishes a new privacy framework for covered businesses with expansive definitions of “personal information” and the “sale” of personal information, and by establishing new data privacy rights for consumers in the State of California, imposing special rules on the collection of consumer data from minors, requiring businesses to provide consumers in the State of California a means of opt-out from the sale of personal information and creating a new and potentially severe statutory damages framework for violations of the CCPA and for businesses that fail to implement reasonable security procedures and practices to prevent data breaches. As with the GDPR, enforcement priorities and interpretation of certain provisions of the CCPA are still unclear. And to comply with the rules imposed by CCPA we may be required to put in place additional mechanisms ensuring compliance and other substantial expenditures. This may be onerous and adversely affect our business, financial condition, results of operations, and prospects.
These new requirements, together with laws and regulations that may be passed in the future, could reduce demand for our XM Platform, increase our costs, impair our ability to grow our business, restrict our ability to store and process data, subject us to liability, or, in some cases, impact our ability to offer our XM Platform in some locations. Further, in view of new or modified federal, state, or foreign laws and regulations, industry standards, contractual obligations, and other legal obligations, or any changes in their interpretation, we may find it necessary or desirable to fundamentally change our business activities and practices or to expend significant resources to modify our XM Platform and otherwise adapt to these changes. We may be unable to make such changes and modifications in a commercially reasonable manner, or at all, and our ability to develop new content and features could be limited. Further, failure to comply with the GDPR, the CCPA and other privacy or data security-related laws, rules or regulations of jurisdictions in which we do business could result in material fines and other penalties imposed by regulators, affect our compliance with client contracts and have an adverse effect on our business, financial condition, and results of operations. Our activities could also result in mandatory disclosures of breaches to affected individuals, customers, and data protection supervisory authorities, as well as investigations and administrative measures by data protection supervisory authorities, such as the instruction to alter or stop non-compliant data processing activities, including the instruction to stop using non-compliant subcontractors.
Our XM Platform allows our customers to communicate through email, SMS, and other means. We generally require that communications sent though our XM Platform include an unsubscribe or opt-out function; however, users who elect to unsubscribe are typically unsubscribed only from one particular customer’s communications and not from all communications sent via our XM Platform. From time to time, consumers have complained to us after receiving communications via our platform from one customer despite having opted out of communications from another customer. Consumers must unsubscribe from each customer on an individual basis. Similarly, consumers have complained to us after receiving communications sent directly to them by our customers, outside of our XM Platform, after mistakenly believing they were sent via our platform. If consumers do not understand this process or
do not believe we are following the appropriate rules and regulations in their respective jurisdictions, or if we fail to build and maintain our XM Platform in a manner that complies with relevant laws and rules relating to unsubscribe and opt-out capabilities, then consumers may complain to us or to our regulators and could seek to take legal or regulatory action against us or our customers.
Any failure to protect our intellectual property rights could impair our ability to protect our proprietary technology and our brand.
Our success and ability to compete depends in part upon our intellectual property and other proprietary rights. We primarily rely on a combination of patent, copyright, trade secret and trademark laws, trade secret protection and confidentiality or license agreements with our employees, contractors, customers, partners, suppliers and others to protect our intellectual property rights. However, the steps we take to protect our intellectual property rights may be insufficient, and our intellectual property may still be challenged, invalidated, disclosed, or subject to other attacks from competitors or former employees. We cannot guarantee that any of our pending applications will be approved or that our existing and future intellectual property rights will be sufficiently broad to protect our proprietary technology. For example, competitors may try to use brand names confusingly similar to ours for similar products and services in order to benefit from our brand’s value. Others, including our competitors, may independently develop similar technology, duplicate our services or design around our intellectual property and, in such cases, we may not be able assert our intellectual property rights against such parties. Further, our contractual arrangements may not effectively prevent disclosure of our confidential information or provide an adequate remedy in the event of unauthorized disclosure of our confidential information, and we may be unable to detect the unauthorized use of, or take appropriate steps to enforce, our intellectual property rights.
We hold a number of patents and patent applications in the United States and a number of international patent applications that we may use to pursue patents and patent applications in other foreign jurisdictions. We make business decisions about when to seek patent protection for a particular technology and when to rely upon trade secret protection, and the approach we select may ultimately prove to be inadequate. Even in cases where we seek patent protection, there is no assurance that the resulting patents will effectively protect every significant feature of our solutions, technology, or proprietary information, or provide us with any competitive advantages. Moreover, we cannot guarantee that any of our pending patent applications will issue or be approved. The United States Patent and Trademark Office and various foreign governmental patent agencies also require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process and after a patent has issued. There are situations in which noncompliance can result in abandonment or lapse of the patent, trademark or application, resulting in partial or complete loss of rights in the relevant jurisdiction. If this occurs, our competitors might be able to enter the market, which would have a material adverse effect on our business. In addition, we believe that the protection of our trademark rights is an important factor in Qualtrics’ recognition, protecting our brand, and maintaining goodwill. If we do not adequately protect our rights in our trademarks from infringement, any goodwill that we have developed in those trademarks could be lost or impaired, which could harm our brand and our business. Furthermore, we may not always detect infringement of our intellectual property rights, and any infringement of our intellectual property rights, even if successfully detected, prosecuted and enjoined, could be costly to deal with and could harm our business. In any event, in order to protect our intellectual property rights, we may be required to spend significant resources to monitor and protect these rights. Litigation may be necessary in the future to enforce our intellectual property rights and to protect our trade secrets.
Effective trademark, copyright, patent, and trade secret protection may not be available in every country in which we conduct business. In addition, many foreign countries limit the enforceability of patents or other intellectual property against third parties, including government agencies or government contractors, or have patent and intellectual property laws that are less developed or less enforceable than in the United States. In these countries, patents and other intellectual property may provide limited or no benefit. Further, intellectual property law, including statutory and case law, particularly in the United States, is constantly developing, and any changes in the law could make it harder for us to enforce our rights.
Litigation brought to protect and enforce our intellectual property rights, has been in the past, and could be in the future, costly, time consuming and distracting to management. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and counter-suits attacking the validity and
enforceability of our intellectual property rights, which could result in the impairment or loss of portions of our intellectual property rights. An adverse determination of any litigation proceedings could put our intellectual property at risk of being invalidated or interpreted narrowly and could put our related pending patent applications at risk of not issuing. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential or sensitive information could be compromised by disclosure in the event of litigation. In addition, during the course of litigation, there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. Our failure to secure, protect, and enforce our intellectual property rights could delay further implementation of our XM Platform, impair functionality of our XM Platform, delay introductions of new products and services, result in our substituting inferior or more costly technologies into our XM Platform or harm our brand and our business. Further, we may not always successfully monitor and detect infringement of our intellectual property rights, and defending our intellectual property rights, even if successfully detected, prosecuted, enjoined, or remedied, could result in the expenditure of significant financial and managerial resources.
Moreover, a portion of our intellectual property has been acquired from one or more third parties. While we have conducted diligence with respect to such acquisitions, because we did not participate in the development or prosecution of much of the acquired intellectual property, we cannot guarantee that our diligence efforts identified and/or remedied all issues related to such intellectual property, including potential ownership errors, potential errors during prosecution of such intellectual property, and potential encumbrances that could limit our ability to enforce such intellectual property rights.
We may be sued by third parties for alleged infringement or misappropriation of their proprietary rights.
There is considerable patent and other intellectual property development activity in our industry. Our future success depends in part on not infringing upon or misappropriating the intellectual property rights of others. From time to time, our competitors or other third parties have claimed in the past, and may claim in the future, that we are infringing upon or misappropriating their intellectual property rights, and we may be found to be infringing upon or misappropriating such rights. We may not be successful in defending against any such challenges, securing settlements, or obtaining licenses to avoid or resolve any intellectual property disputes.
In a patent infringement claim against us, we may assert, as a defense, that we do not infringe the relevant patent claims, that the patent is invalid, or both. The strength of our defenses will depend on the patents asserted, the interpretation of these patents, the state of the law, and our ability to invalidate the asserted patents. However, we could be unsuccessful in advancing non-infringement and/or invalidity arguments in our defense. In the United States, issued patents enjoy a presumption of validity, and the party challenging the validity of a patent claim must present clear and convincing evidence of invalidity, which is a high burden of proof. Conversely, the patent owner need only prove infringement by a preponderance of the evidence, which is a lower burden of proof. We may be unaware of the intellectual property rights of others that may cover some or all of our technology, or technology that we obtain from third parties. Because patent applications can take years to issue and are often afforded confidentiality for some period of time there may currently be pending applications, unknown to us, that later result in issued patents that could cover one or more of our products. Any claims or litigation (with or without merit) could cause us to incur significant expenses and, if successfully asserted against us, could require that we pay substantial damages or ongoing royalty payments, prevent us from offering our solutions or using certain technologies, require us to implement expensive work-arounds, or require that we comply with other unfavorable terms. In the case of infringement or misappropriation caused by technology that we obtain from third parties, any indemnification or other contractual protections we obtain from such third parties, if any, may be insufficient to cover the liabilities we incur as a result of such infringement or misappropriation. We may also be obligated to indemnify our customers or business partners in connection with any such claims and litigation and to obtain licenses, modify our solutions, or refund fees, which could further exhaust our resources. In addition, we may incur substantial costs to resolve claims or litigation, whether or not successfully asserted against us, which could include payment of significant settlement, royalty, or license fees, modification of our solutions or refunds to customers of fees, which would negatively impact our financial performance. Even if we were to prevail in the event of claims or litigation against us, any claim or litigation regarding our intellectual property could be costly and time-consuming and divert the attention of
our management and other employees from our business operations and disrupt our business or harm our brand and reputation.
Moreover, our intellectual property acquired from one or more third parties may have previously been the subject of one or more intellectual property infringement suits and/or allegations. While we have conducted diligence with respect to such acquisitions, we cannot guarantee that our diligence efforts identified and/or remedied all issues related to such intellectual property infringement suits and/or allegations. Moreover, we cannot guarantee that we understand and/or have complied with all obligations related to the settlement of such intellectual property suits and/or the resolution of such intellectual property allegations.
We use open source software in our XM Platform that may subject our XM Platform to general release or require us to re-engineer our XM Platform, which may harm our business.
We use open source software in our XM Platform and expect to continue to use open source software in our platform in the future. There are uncertainties regarding the proper interpretation of and compliance with open source software licenses. Moreover, we cannot assure you that our processes for controlling our use of open source software in our XM Platform have been or will be effective. Our current or future use of open source software could result in claims of copyright infringement, the subjecting of our proprietary software to general release, forced changes to and re-engineering of our XM Platform, reputational harm and harm to our business and results of operations. In addition, if the license terms for the open source software we utilize change, we may be forced to incur additional costs to comply with the changed license terms or to replace the affected open source software. Although we have implemented policies and tools to regulate the use and incorporation of open source software into our XM Platform, we cannot be certain that we have not incorporated open source software in our XM Platform in a manner that is inconsistent with such policies and the relevant open source licenses.
Responding to any infringement claim, regardless of its validity, or discovering unknown or improper use of open source software code in our XM Platform could harm our business, operating results, and financial condition, by, among other things:
•resulting in time-consuming and costly litigation;
•diverting management’s time and attention from developing our business;
•requiring us to pay monetary damages or enter into royalty and licensing agreements that we would not normally find acceptable;
•causing delays in the deployment of our XM Platform;
•requiring us to stop selling certain of our XM Platform;
•requiring us to redesign certain components of our XM Platform using alternative non-infringing or non-open source technology or practices, which could require significant effort and expense;
•requiring us to disclose our software source code, the detailed program commands for our software; and
•requiring us to satisfy indemnification obligations to our customers.
Indemnity provisions in various agreements potentially expose us to substantial liability for intellectual property infringement and other losses.
Our agreements with customers, suppliers, partners and other third parties may include indemnification or other provisions under which we agree to indemnify or otherwise be liable to them for losses suffered or incurred as a result of claims of intellectual property infringement, damages caused by us to property or persons, data and security breaches, and other liabilities relating to or arising from our software, services, acts or omissions. The term of these contractual provisions often survives termination or expiration of the applicable agreement. Large indemnity payments or damage claims from contractual breach could harm our business, results of operations and financial condition. Although in some cases we contractually limit our liability with respect to such obligations, we do not
always do so, and in the future we may still incur substantial liability related to them. Any dispute with a customer with respect to such obligations could have adverse effects on our relationship with that customer and other current and prospective customers, reduce demand for our solutions, and harm our business, results of operations, and financial condition.
Our business is subject to a variety of United States and international laws and regulations that could subject us to claims, increase the cost of operations, or otherwise harm our business, including due to changes in such laws, changes in the interpretations of such laws, greater enforcement of such laws, or investigations into compliance with such laws.
Our business is subject to laws and regulations from various federal, state, local, and foreign governments and agencies, including those relating to copyright, labor and employment, workplace safety, consumer protection, privacy and data protection, anti-bribery and anti-corruption, import and export controls, sanctions, securities, and tax. In certain foreign jurisdictions, these regulatory requirements may be more stringent than, or otherwise different from, those in the United States. These laws and regulations are subject to change over time, and thus we must continue to monitor and dedicate resources to ensure continued compliance. Non-compliance with applicable laws, regulations or requirements could subject us to investigations, sanctions, enforcement actions, disgorgement of profits, fines, damages, civil and criminal penalties, and injunctions, any of which could adversely affect our business, operating results, and financial condition. In addition, responding to any action could result in a significant diversion of management’s attention and resources and an increase in professional fees.
We are also subject to consumer protection laws that may impact our sales and marketing efforts, including laws related to subscriptions, billing, and auto-renewal. These laws, as well as any changes in these laws, could make it more difficult for us to retain existing customers and attract new ones.
We are subject to governmental export and import controls, economic sanctions, and anti-corruption laws and regulations that could impair our ability to compete in international markets and subject us to liability if we are not in full compliance with applicable laws.
Our business activities are subject to various restrictions under United States export controls and other similar laws and regulations, including the United States Department of Commerce’s Export Administration Regulations, or the EAR, and various economic and trade sanctions regulations administered by the United States Treasury Department’s Office of Foreign Assets Controls, or OFAC. The United States export control laws and United States economic sanctions laws include restrictions or prohibitions on the sale or supply of certain products and services to United States embargoed or sanctioned countries, governments, persons and entities. In addition, various countries regulate the import of certain technology and have enacted or could enact laws that could limit our ability to provide our customers access to our XM Platform or could limit our customers’ ability to access or use our XM Platform in those countries.
While we take precautions to prevent our products and services from being exported in violation of these laws, including geoblocking and other screening checks, we cannot guarantee that the precautions we take will prevent violations of export control and sanctions laws. If we are found to be in violation of U.S. economic sanctions or export control laws in the future, it could result in substantial fines and penalties for us and for the individuals working for us. We may also be adversely affected through other penalties, reputational harm, loss of access to certain markets, or otherwise.
In addition, in July 2018, we filed initial notifications of Voluntary Self-Disclosure with OFAC regarding the provision of services to some customers in apparent violation of U.S. economic sanction laws, and the U.S. Department of Commerce’s Bureau of Industry and Security, or BIS, regarding the export of software to some customers prior to submitting required filings to BIS. We supplemented the initial notifications with final reports to OFAC and BIS in December 2018. In August 2019, BIS notified us that it had completed its review and closed the matter with the issuance of a warning letter. In December 2019, OFAC notified us that it had completed its review and closed the matter with the issuance of a cautionary letter. Although no monetary penalties or other sanctions were imposed by either agency in connection with their investigations, our compliance history, including the
issuance of a warning letter or cautionary letter, may be considered an aggravating factor in any future investigations by or disclosures to these agencies.
In addition, various countries regulate the import and export of certain encryption and other technology, including by imposing permitting and licensing requirements, and have enacted laws that could limit our ability to distribute our platform or could limit our users’ ability to access our products and services in those countries. Changes in our products or services, or future changes in export and import regulations may prevent our users with international operations from utilizing our products and services globally or, in some cases, prevent the export or import of our products and services to certain countries, governments, or persons altogether. Any change in export or import regulations, economic sanctions, or related legislation, or change in the countries, governments, persons, or technologies targeted by such regulations, could result in decreased use of our products and services by, or in our decreased ability to export or sell subscriptions to our platform to, existing or potential users with international operations. Any decreased use of our products or services or limitation on our ability to export or sell our products or services would likely adversely affect our business, results of operations, and financial results.
We are also subject to various domestic and international anti-corruption laws, such as the United States Foreign Corrupt Practices Act and the U.K. Bribery Act, as well as other similar anti-bribery and anti-kickback laws and regulations. These laws and regulations generally prohibit companies and their employees and intermediaries from authorizing, offering, providing, or accepting improper payments or benefits for improper purposes. These laws also require that we keep accurate books and records and maintain compliance procedures designed to prevent any such unlawful activities. Although we take precautions to prevent violations of these laws, our exposure for violating these laws increases as our international presence expands and as we increase sales and operations in foreign jurisdictions.
Our quarterly and annual results of operations may vary and may be difficult to predict. If we fail to meet the expectations of investors or securities analysts, our stock price and the value of your investment could decline.
Our quarterly and annual billings, revenue, and results of operations have fluctuated in the past and may vary in the future due to a variety of factors, many of which are outside of our control. Our financial results in any one quarter should not be relied upon as indicative of future performance. We may not be able to accurately predict our future billings, revenue, or results of operations. Factors that may cause fluctuations in our quarterly results of operations include, but are not limited to, those listed below:
•fluctuations in the demand for our XM Platform, and the timing of sales;
•our ability to attract new customers or retain existing customers;
•the budgeting cycles and internal purchasing priorities of our customers;
•the payment terms and subscription term length associated with our XM Platform sales and their effect on our billings and free cash flow;
•our ability to anticipate or respond to changes in the competitive landscape, including consolidation among competitors;
•the timing of expenses and recognition of revenue;
•the timing of our recognition of equity and cash settled stock-based compensation expense for our equity awards, particularly in cases where awards covering a large number of our shares are tied to a specific date;
•the amount and timing of operating expenses related to the maintenance and expansion of our business, operations, and infrastructure;
•the timing and success of new product features and solutions by us or our competitors;
•actual or perceived security breaches;
•changes in laws and regulations that impact our business; and
•general economic and market conditions.
In 2019 we recorded $876.2 million in equity and cash settled stock-based compensation expenses compared to $4.6 million in 2018. This increase was a result of the vesting of performance based awards that were triggered as a result of the SAP Acquisition and the modification of remaining awards to cash settled awards, which resulted in fair value accounting for these awards. As a result of this increase in equity and cash settled stock-based compensation, our cost of revenue, research and development, sales and marketing, and general and administrative costs increased significantly in absolute dollars and as a percentage of revenue during 2019 compared to 2018.
If our billings, revenue, or results of operations fall below the expectations of investors or securities analysts in a particular quarter, or below any guidance that we may provide, the price of our Class A common stock could decline. Our quarterly and annual financial results may fluctuate due to these or other factors, and we do not believe that our financial results in any one quarter or any other period should be relied upon by investors as indicative of our future financial performance.
Our subscription or pricing models may not accurately reflect the optimal pricing necessary to attract new customers and retain existing customers as the market matures.
As the market for our solutions matures, or as competitors introduce new solutions that compete with ours, we may be unable to attract new customers at the same price or based on the same pricing models as we have used historically. We provide our software on a subscription basis priced on the number of solutions and level of functionality required by customers and the number of users and level of interactions through our software, and therefore, pricing decisions may also impact the mix of adoption among our subscription plans and negatively impact our overall revenue. Further, pricing pressures and increased competition generally could result in reduced sales, reduced margins, losses, or the failure of our products to achieve or maintain more widespread market acceptance, any of which could harm our business, results of operations, and financial condition. In the future we may be required to reduce our prices or develop new pricing models, which could adversely affect our revenue, gross margin, profitability, financial position, and cash flow.
Interruptions or delays in service from our data center facilities could impair the delivery of our XM Platform and harm our business.
We currently serve our customers both from our co-location data center facilities in the United States, Australia, Canada, and Germany, and from public cloud data center facilities located in the United States, Australia, Canada, Germany, and Ireland. Any damage to, or failure of, our systems generally could result in interruptions in our XM Platform. As we continue to add new data centers, add capacity in our existing data centers and transition existing data centers from a managed service hosting model to a co-location model, we may move or transfer our data and our customers’ data. Despite precautions taken during this process, any unsuccessful data transfers may impair the use of our XM Platform. Any damage to, or failure of, our XM Platform, or those of our third-party data centers, could result in interruptions in use of our XM Platform. Impairment of or interruptions in customers accessing our XM Platform may reduce our revenue, cause us to issue credits or pay penalties, subject us to claims and litigation, cause our customers to terminate their subscriptions and adversely affect our renewal rates and our ability to attract new customers. We have experienced interruptions and delays in service in the past, and we may experience interruptions and delays in service in the future. Our business will also be harmed if our customers and potential customers believe our XM Platform is unreliable.
We do not control, or in some cases have limited control over, the operation of the data center facilities we use, and they are vulnerable to damage or interruption from earthquakes, floods, fires, power loss, telecommunications failures and other similar events. They may also be subject to break-ins, sabotage, attacks, intentional acts of vandalism and similar misconduct, and to adverse events caused by operator error. We cannot rapidly switch to new data centers or move customers from one data center to another in the event of an adverse event. Despite precautions taken at these facilities, the occurrence of a natural disaster, an act of terrorism or other act of malfeasance, a decision to close the facilities without adequate notice or other problems at these facilities could result in lengthy interruptions in accessing our XM Platform and the loss or exposure of customer data.
We may transition from managed co-location data center facilities to public cloud alternatives, which could impact our gross margins and our financial results.
We currently rely primarily on managed co-location data center facilities. We have made and will continue to make substantial investments in new equipment to support growth at our data centers and provide enhanced levels of service to our customers. This may include increases in network bandwidth, CPU, storage, power or other elements of our hosting operations. We anticipate that we may move some of our data centers away from co-location facilities to public cloud options in the next five years. As we make this transition, we anticipate that it would impact margins, particularly as we move our spend from capital expenditures to operating expenses. Additionally, to the extent that we are required to add data center capacity to accommodate customer demands, we may need to significantly increase the bandwidth, storage, power or other elements of our hosting operations, and the costs associated with adjustments to our data center architecture could also harm our margins and operating results.
We recognize revenue from subscriptions ratably over the term of our customer contracts, and as such our reported revenue and billings may differ significantly in a given period, and our revenue in any period may not be indicative of our financial health and future performance.
We recognize revenue from subscriptions ratably over the subscription term of the underlying customer contract, which is generally one year. Our billings are recorded upon invoicing for access to our XM Platform, and thus a significant portion of the billings we report in each quarter are generated from customer agreements entered and invoiced during the period. As a result, much of the revenue we report each quarter is derived from contracts that we entered into with customers in prior periods. Consequently, a decline in new or renewed subscriptions in any quarter will not be fully reflected in revenue or other results of operations in that quarter but will negatively affect our revenue and other results of operations across future quarters. It is difficult for us to rapidly increase our revenue from additional billings in a given period. Any increases in the average term of subscriptions would result in revenue for those contracts being recognized over longer periods of time with little impact on our results of operations in the near term. Our professional services and certain other revenue is recognized upon completion of the performance or as the service is rendered. Accordingly, our revenue in any given period may not be an accurate indicator of our financial health and future performance.
If we fail to integrate our solutions with a variety of operating systems, software applications, platforms, and hardware that are developed by others, our solutions may become less marketable, less competitive, or obsolete, and our results of operations could be harmed.
Our customers and prospective customers expect that our solutions integrate with a variety of network, hardware, and software platforms, and we need to continuously modify and enhance our solutions to adapt to changes in hardware, software, networking, browser, and database technologies. We have developed our solutions to be able to integrate with third-party SaaS applications through the interaction of application programming interfaces, or APIs. In general, we rely on the fact that the providers of such software systems continue to allow us access to their APIs to enable these custom integrations. We are subject to the standard terms and conditions of such providers, or other agreements we may have with them, which govern the distribution, operation, and fees of such software systems, and which may be subject to change by such providers. Certain of our current and future potential integrations are with organizations that compete with us or with SAP, and which may have incentives to limit or prohibit our ability to integrate with them. We may not successfully build, deploy or offer the integrations we need to as a result of limits or prohibitions by other parties, unacceptable terms, technical difficulties, our failure to recognize the demand for them, or for other reasons. If we fail to offer a variety of integrations or the integrations that our customers and prospective customers expect and demand, then our solutions may become less marketable, less competitive, or obsolete, and our results of operations could be harmed.
Our business could be adversely impacted by changes in internet access for our users or laws specifically governing the internet.
Our XM Platform depends on the quality of our users’ access to the internet. Certain features of our XM Platform require significant bandwidth and fidelity to work effectively. Internet access is frequently provided by
companies that have significant market power that could take actions that degrade, disrupt, or increase the cost of user access to our XM Platform, which would negatively impact our business.
In December 2017, the Federal Communications Commission, or the FCC, voted to repeal its “net neutrality” Open Internet rules, effective June 2018. The rules were designed to ensure that all online content is treated the same by internet service providers and other companies that provide broadband services. The FCC’s new rules, which took effect on June 11, 2018, repealed the neutrality obligations imposed by the Open Internet rules and granted providers of broadband internet access services greater freedom to make changes to their services. Such changes may cause us to incur greater operating expenses, make it more difficult for us to provide our products and services, or discriminate against or harm our business, all of which could have an adverse effect on our business operations.
As the internet continues to experience growth in the number of users, frequency of use, and amount of data transmitted, the internet infrastructure that we and our users rely on may be unable to support the demands placed upon it. The failure of the internet infrastructure that we or our users rely on, even for a short period of time, could undermine our operations and harm our results of operations.
In addition, there are various laws and regulations that could impede the growth of the internet or other online services, and new laws and regulations may be adopted in the future. These laws and regulations could, in addition to limiting internet neutrality, involve taxation, tariffs, privacy, data protection, information security, content, copyrights, distribution, electronic contracts and other communications, consumer protection, and the characteristics and quality of services, any of which could decrease the demand for, or the usage of, our XM Platform. Legislators and regulators may make legal and regulatory changes, or interpret and apply existing laws, in ways that require us to incur substantial costs, expose us to unanticipated civil or criminal liability, or cause us to change our business practices. These changes or increased costs could materially harm our business, results of operations, and financial condition.
Our international operations subject us to potentially adverse tax consequences.
We are subject to income taxes as well as non-income-based taxes, such as payroll, sales, use, value-added, property, and goods and services taxes, in both the United States and various foreign jurisdictions. Our domestic and international tax liabilities are subject to various jurisdictional rules regarding the timing and allocation of revenue and expenses. Additionally, the amount of income taxes paid is subject to our interpretation of applicable tax laws in the jurisdictions in which we file and to changes in tax laws. Significant judgment is required in determining our worldwide provision for income taxes and other tax liabilities. From time to time, we may be subject to income and non-income tax audits by U.S. and non-U.S. taxing authorities. While we believe we have complied with all applicable income tax laws, there can be no assurance that a governing tax authority will not have a different interpretation of the law and assess us with additional taxes. Should we be assessed with additional taxes, there could be a material adverse effect on our business, results of operations, and financial condition.
Our future effective tax rate may be affected by such factors as changes in tax laws, regulations, or rates, changing interpretation of existing laws or regulations, the impact of accounting for equity-based compensation, the impact of accounting for business combinations, changes in our international organization, and changes in overall levels of income before tax. In addition, in the ordinary course of our global business, there are many intercompany transactions and calculations where the ultimate tax determination is uncertain. Although we believe that our tax estimates are reasonable, we cannot ensure that the final determination of tax audits or tax disputes will not be different from what is reflected in our historical income tax provisions and accruals.
We may have exposure to greater than anticipated tax liabilities and may be affected by changes in tax laws or interpretations, any of which could adversely impact our results of operations.
We are subject to income taxes in the United States and various jurisdictions outside of the United States. Our effective tax rate could fluctuate due to changes in the mix of earnings and losses in countries with differing statutory tax rates. Our tax expense could also be impacted by changes in non-deductible expenses, changes in excess tax benefits of equity-based compensation, changes in the valuation of deferred tax assets and liabilities and our ability to utilize them, the applicability of withholding taxes, effects from acquisitions, and the evaluation of new information that results in a change to a tax position taken in a prior period. A successful assertion by a country,
state, or other jurisdiction that we have an income tax filing obligation could result in substantial tax liabilities for prior tax years.
Our tax position could also be impacted by changes in accounting principles, changes in U.S. federal, state, or international tax laws applicable to corporate multinationals, other fundamental law changes currently being considered by many countries, including the United States, and changes in taxing jurisdictions’ administrative interpretations, decisions, policies, and positions. Any of the foregoing changes could have an adverse impact on our results of operations, cash flows, and financial condition.
Additionally, the Organization for Economic Co-Operation and Development has released guidance covering various topics, including transfer pricing, country-by-country reporting, and definitional changes to permanent establishment that could ultimately impact our tax liabilities as it is implemented in various jurisdictions.
Our results of operations may be harmed if we are required to collect sales or other related taxes for our subscription solutions in jurisdictions where we have not historically done so.
We collect sales and similar value-added taxes as part of our customer agreements in a number of jurisdictions. Sales and use, value-added, and similar tax laws and rates vary greatly by jurisdiction. One or more states or countries may seek to impose additional sales, use, or other tax collection obligations on us, including for past sales by us. Furthermore, in June 2018, the Supreme Court held in South Dakota v. Wayfair, Inc. that states could impose sales tax collection obligations on out-of-state retailers even if those retailers lack any physical presence within the states imposing the sales taxes. Under Wayfair, a person requires only a “substantial nexus” with the taxing state before the state may subject the person to sales tax collection obligations therein. An increasing number of states (both before and after the publication of Wayfair) have considered or adopted laws that attempt to impose sales tax collection obligations on out-of-state retailers. The Supreme Court’s Wayfair decision has removed a significant impediment to the enactment and enforcement of these laws, and it is possible that states may seek to tax out-of-state retailers on sales that occurred in prior tax years. A successful assertion by a state, country, or other jurisdiction that we should have been or should be collecting additional sales, use, or other taxes on our XM Platform could, among other things, result in substantial tax liabilities for past sales, create significant administrative burdens for us, discourage customers from purchasing our XM Platform, or otherwise harm our business, results of operations, and financial condition.
We are subject to tax examinations of our tax returns by the Internal Revenue Service, or IRS, and other tax authorities. An adverse outcome of any such audit or examination by the IRS or other tax authority could have a material adverse effect on our results of operations, financial condition, and liquidity.
We are, and expect to continue to be, subject to regular review and audit by the IRS and other tax authorities in various jurisdictions. As a result, we have received, and may in the future receive, assessments in multiple jurisdictions on various tax-related assertions. Taxing authorities may in the future challenge our tax positions and methodologies on various matters, including our positions regarding the collection of sales and use taxes and the jurisdictions in which we are subject to taxes, which could expose us to additional taxes. We regularly assess the likelihood of adverse outcomes resulting from ongoing tax examinations to determine the adequacy of our provision for income taxes. These assessments can require considerable estimates and judgments. The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a variety of jurisdictions. There can be no assurance that our tax positions and methodologies or calculation of our tax liabilities are accurate or that the outcomes from ongoing and future tax examinations will not have an adverse effect on our operating results and financial condition. A difference in the ultimate resolution of tax uncertainties from what is currently estimated could have an adverse effect on our operating results and financial condition.
The nature of our business requires the application of complex revenue and expense recognition rules, and any significant changes in current rules could affect our financial statements and results of operations.
The accounting rules and regulations that we must comply with are complex and subject to interpretation by the Financial Accounting Standards Board, or the FASB, the SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. Recent actions and public comments from the FASB and the SEC have focused on the integrity of financial reporting and internal controls over financial reporting. In addition, many
companies’ accounting policies and practices are being subjected to heightened scrutiny by regulators and the public. The accounting rules and regulations are continually changing, and may change in the future in ways that could materially impact our financial statements. In addition, if we were to change our critical accounting estimates, including those related to the recognition of subscription revenue and other revenue sources or the period of benefit for deferred contract acquisition costs, our results of operations could be significantly affected.
If our judgments or estimates relating to our critical accounting policies are based on assumptions that change or prove to be incorrect, our results of operations could fall below expectations of securities analysts and investors, resulting in a decline in our stock price.
The preparation of our financial statements in conformity with GAAP requires management to make judgments, estimates, and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the results of which form the basis for making judgments about the carrying values of assets, liabilities, and equity, and the amount of revenue and expenses that are not readily apparent from other sources. Our results of operations may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our results of operations to fall below the expectations of securities analysts and investors, resulting in a decline in the trading price of our Class A common stock. Significant judgments, estimates, and assumptions used in preparing our consolidated financial statements include, or may in the future include, those related to revenue recognition, deferred contract acquisition costs, the period of benefit generated from deferred contract acquisition costs, equity and cash settled stock-based compensation expense, goodwill and intangible assets, and accounting for income taxes, including deferred tax assets and liabilities.
If we fail to maintain an effective system of internal controls, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired.
As a public company, we will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, and the rules and regulations of the listing standards of Nasdaq. We expect that the requirements of these rules and regulations will continue to increase our legal, accounting, and financial compliance costs, make some activities more difficult, time-consuming, and costly, and place significant strain on our personnel, systems, and resources. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. We are continuing to develop and refine our disclosure controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we will file with the SEC is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and that information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our principal executive and financial officers. We are also continuing to improve our internal control over financial reporting. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we have expended, and anticipate that we will continue to expend, significant resources, including accounting-related costs and significant management oversight.
Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business. Further, weaknesses in our disclosure controls and internal control over financial reporting may be discovered in the future. Any failure to develop or maintain effective controls or any difficulties encountered in their implementation or improvement could harm our results of operations or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods. Any failure to implement and maintain effective internal control over financial reporting also could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that we will eventually be required to include in our periodic reports that will be filed with the SEC. Ineffective disclosure controls and procedures and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which could have a negative effect on the trading price of our Class A common stock. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on Nasdaq. We are not currently required to comply with the SEC rules that implement Section 404 of the Sarbanes-Oxley Act and are
therefore not required to make a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. As a public company, we will be required to provide an annual management report on the effectiveness of our internal control over financial reporting commencing with our second Annual Report on Form 10-K.
Our independent registered public accounting firm is not required to attest to the effectiveness of our internal control over financial reporting until after we are no longer an “emerging growth company” as defined in the JOBS Act. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our internal control over financial reporting is documented, designed, or operating. Any failure to maintain effective disclosure controls and internal control over financial reporting could have a material and adverse effect on our business and results of operations and could cause a decline in the price of our Class A common stock.
We might require additional capital to support our growth, and this capital might not be available on acceptable terms, if at all.
We intend to continue to make investments to support our growth and may require additional funds to respond to business challenges, including the need to develop new features or enhance our existing XM Platform or acquire complementary businesses, technologies, and content. While we expect that SAP, as our majority owner, may continue to support our growth, SAP may be unable or unwilling to address particular financial needs or may prefer that we look to other funding sources in the first instance. Accordingly, we may need to engage in equity or debt financings to secure additional funds. If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences, and privileges superior to those of holders of our common stock. Any debt financing secured by us in the future could involve restrictive covenants relating to our capital-raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. In addition, we may not be able to obtain additional financing from SAP or in the capital markets on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our growth and to respond to business challenges could be significantly impaired.
Certain estimates of market opportunity, forecasts of market growth, and our operating metrics 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. The estimates and forecasts in this prospectus relating to the size and expected growth of our target market may prove to be inaccurate. 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, if at all. These estimates are calculated using internal data and are subject to a number of assumptions and extrapolations, and as a result, the actual market opportunity and growth forecasts may be different than our disclosed numbers.
We may face exposure to foreign currency exchange rate fluctuations.
Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Euro, British Pound sterling, and Australian Dollar. We have not instituted a hedging program. We expect our international operations to continue to grow in the near term, and we regularly monitor our foreign currency exposure to determine when we should begin a hedging program. Today, our international contracts are denominated in either U.S. dollars or local currency, while our international operating expenses are often denominated in local currencies. Additionally, as we expand our international operations, a larger
portion of our operating expenses will be denominated in local currencies. Therefore, fluctuations in the value of the U.S. dollar and foreign currencies may affect our results of operations when translated into U.S. dollars.
Catastrophic events may disrupt our business.
Natural disasters or other catastrophic events may cause damage or disruption to our operations, international commerce, and the global economy, and thus could harm our business. In the event of a major earthquake, hurricane, fire, cyber-attack, war, terrorist attack, disease, such as the COVID-19 pandemic, power loss, telecommunications failure, or other catastrophic events, we may be unable to continue our operations, in part or in whole, and may endure reputational harm, delays in developing our XM Platform and solutions, breaches of data security and loss of critical data, all of which could harm our business, results of operations and financial condition.
Additionally, we rely on our network and third-party infrastructure and applications, internal technology systems, and our websites for our development, marketing, operational support, hosted services, and sales activities. If these systems were to fail or be negatively impacted as a result of a natural disaster or other event, our ability to deliver solutions to our customers would be impaired.
As we grow our business, the need for business continuity planning and disaster recovery plans will grow in significance. If we are unable to develop adequate plans to ensure that our business functions continue to operate during and after a disaster, and successfully execute on those plans in the event of a disaster or emergency, our business and reputation would be harmed.
Adverse economic conditions could negatively impact our business.
Our results of operations may vary based on the impact of changes in our industry or the global economy on us or our customers. Our business depends on demand for business software applications generally and for experience management software solutions in particular. In addition, the market adoption of our solutions and our revenue is dependent on the number of users of our solutions. To the extent that weak economic conditions reduce the number of personnel overseeing customer experience, employee experience, or other experience matters or that limit the available budgets within organizations for software solutions, demand for our solutions may be harmed. If economic conditions deteriorate, our customers and prospective customers may elect to decrease their information technology budgets, which would limit our ability to grow our business and harm our results of operations.
Risks Related to Our Relationship with SAP and Being a “Controlled” Company
As long as SAP controls us, your ability to influence matters requiring stockholder approval will be limited.
After this offering, SAP will own all 423,170,610 shares of Class B common stock, representing approximately % of the total outstanding shares of common stock (or approximately % of total outstanding shares of common stock if the underwriters exercise in full their option to purchase additional shares) or % of the voting power of outstanding common stock (or approximately % of the voting power of outstanding common stock if the underwriters exercise in full their option to purchase additional shares). The rights of the holders of Class A and Class B common stock differ in a number of ways, including with respect to voting and conversion rights, certain actions that require the consent of holders of Class B common stock and other protective provisions as set forth in this prospectus. Holders of our Class B common stock will be entitled to ten votes per share of Class B common stock, and the holders of our Class A common stock will be entitled to one vote per share of Class A common stock. Subject to any rights of any series of preferred stock to elect directors, the holders of Class A common stock and the holders of Class B common stock, voting together as a single class, are entitled to elect all directors to our board of directors. If, prior to the occurrence of any Distribution, SAP transfers shares of our Class B common stock to any party that is not beneficially owned by SAP, those shares would automatically convert into Class A common stock. For so long as SAP beneficially owns shares of our common stock representing at least a majority of the votes entitled to be cast by the holders of outstanding voting stock, SAP will be able to elect all of the members of our board of directors.
In addition, until such time as SAP beneficially owns shares of our common stock representing less than a majority of the votes entitled to be cast by the holders of outstanding voting stock, SAP will have the ability to take
stockholder action without the vote of any other stockholder and without having to call a stockholder meeting, and investors in this offering will not be able to affect the outcome of any stockholder vote during this period. As a result, SAP will have the ability to control all matters affecting us, including:
•the composition of our board of directors and, through our board of directors, any determination with respect to our business plans and policies;
•any determinations with respect to mergers, acquisitions and other business combinations;
•our acquisition or disposition of assets;
•our financing activities;
•changes to our amended and restated certificate of incorporation and amended and restated bylaws;
•changes to the agreements providing for our transition to becoming a public company;
•corporate opportunities that may be suitable for us and SAP;
•determinations with respect to enforcement of rights we may have against third parties, including with respect to intellectual property rights;
•the payment of dividends on our common stock;
•the number of shares available for issuance under our stock plans for our prospective and existing employees; and
•the strategy, direction, and objectives of our business.
Our amended and restated certificate of incorporation and the stockholders’ agreement will also contain provisions that require that as long as SAP beneficially owns at least 20% or more of the outstanding shares of our common stock, the prior affirmative vote or written consent of SAP as the holder of the Class B common stock is required (subject in each case to certain exceptions) in order to authorize us to:
•adopt or implement any stockholder rights plan or similar takeover defense measure;
•consolidate or merge with or into any other entity;
•permit any of our subsidiaries to consolidate or merge with or into any other entity, with certain exceptions;
•acquire the stock or assets of another entity for consideration in excess of $100 million except in connection with acquisitions of securities pursuant to portfolio investment decisions in the ordinary course of business to which the company and one or more of our wholly owned subsidiaries are the only parties;
•issue any stock or other equity securities except to our subsidiaries or pursuant to this offering or to our employee benefit plans;
•conduct any business other than the business of enterprise software and related businesses;
•create, incur, assume or permit to exist any indebtedness or guarantee any indebtedness in excess of $100 million;
•make any loan to or purchase any debt securities of any person in excess of $50 million;
•take any actions to dissolve, liquidate or wind-up our company;
•declare dividends on our stock;
•redeem, purchase or otherwise acquire or retire for value any equity securities of the company except repurchases from employees, officers, directors or other service providers upon termination of employment or through the exercise of any right of first refusal;
•enter into any joint venture or any exclusive or exclusionary arrangement with a third party; and
•amend, terminate or adopt any provision inconsistent with certain provisions of our amended and restated certificate of incorporation or amended and restated bylaws.
If SAP does not provide any requisite consent allowing us to conduct such activities when requested, we will not be able to conduct such activities and, as a result, our business and our operating results may be harmed.
SAP’s voting control and its additional rights described above may discourage transactions involving a change of control of us, including transactions in which you as a holder of our Class A common stock might otherwise receive a premium for your shares over the then-current market price. SAP is not prohibited from selling a controlling interest in us to a third party and may do so without your approval and without providing for a purchase of your shares of Class A common stock. Accordingly, your shares of Class A common stock may be worth less than they would be if SAP did not maintain voting control over us or have the additional rights described above.
SAP’s interests and objectives as a stockholder may not align with, or may even directly conflict with, your interests and objectives as a stockholder. For example, SAP may be more or less interested in us entering into a transaction or conducting an activity due to the impact such transaction or activity may have on SAP as a company, independent of us. In such instances, SAP may exercise its control over us in a way that is beneficial to SAP, and you will not be able to affect the outcome so long as SAP continues to hold a majority of the shareholder votes.
In the event SAP is acquired or otherwise undergoes a change of control, any acquiror or successor will be entitled to exercise the voting control and contractual rights of SAP, and may do so in a manner that could vary significantly from that of SAP.
By becoming a stockholder in our company, you will be deemed to have notice of and have consented to the provisions of our amended and restated certificate of incorporation and the stockholders’ agreement to be executed with respect to the limitations that are described above.
Our business and that of SAP overlap, and SAP is not prohibited from competing with us, which could reduce our market share.
SAP and we are both software companies providing products that help companies succeed. There can be no assurance that SAP will not engage in increased competition with us in the future. In addition, the intellectual property matters agreement that we will enter into with SAP in connection with this offering will provide SAP the right to use our intellectual property, which, subject to limitations, it may use to produce certain products that compete with ours. SAP’s rights in this regard extend to its majority-owned subsidiaries, which could include joint ventures where SAP may hold a majority position and one or more of our competitors may hold minority positions.
SAP could assert control over us in a manner which could impede our growth or our ability to enter new markets or otherwise adversely affect our business. Further, SAP could utilize its control over us to cause us to take or refrain from taking certain actions, including entering into relationships with channel, technology and other marketing partners, enforcing our intellectual property rights or pursuing corporate opportunities or product development initiatives that could adversely affect our competitive position, including our competitive position relative to that of SAP in markets where we compete with them. In addition, SAP maintains relationships with certain of our competitors, which SAP or those competitors could use in ways that could adversely affect our competitive position. If any of these scenarios were to materialize, our market share could be reduced, which could have an adverse impact on our results of operations.
SAP’s competition in certain markets may affect our ability to build and maintain relationships with partners, suppliers, and customers.
Our existing and potential relationships with partners, suppliers, and customers may be affected by our relationship with SAP. We partner with, purchase from, and sell to a number of companies that compete with SAP. SAP’s majority ownership in us might affect our ability to develop and maintain relationships with these companies, including because SAP may require us to limit our relationships with them or not work with them at all. Likewise, these companies may be less willing or unwilling to develop and maintain relationships with us, and may favor our competitors or may view us as competitors, because of our relationship with SAP.
SAP competes with certain of our significant channel, technology and other marketing partners as well as certain of our customers and suppliers. Pursuant to our amended and restated certificate of incorporation and certain agreements that we will enter into with SAP in connection with this offering, SAP may have the ability to impact our relationship with these companies, which could have a material adverse effect on our results of operations or our ability to pursue opportunities which may otherwise be available to us.
Our historical financial information as a business segment of SAP may not be representative of our results as an independent public company.
The historical financial information we have included in this prospectus does not necessarily reflect what our financial position, results of operations or cash flows would have been had we been an independent entity during the historical periods presented. The historical costs and expenses reflected in our consolidated financial statements include an allocation for certain corporate functions historically provided by SAP, including tax, accounting, treasury, legal, human resources, compliance, insurance, sales, and marketing services. The historical financial information is not necessarily indicative of what our results of operations, financial position, cash flows or costs and expenses will be in the future. We have not made pro forma adjustments to reflect many significant changes that will occur in our cost structure, funding and operations as a result of our transition to becoming a public company, including changes in our employee base, potential increased costs associated with reduced economies of scale and increased costs associated with being a publicly traded, standalone company. For additional information, see “Selected Consolidated Financial and Other Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical consolidated financial statements and notes thereto.
After this offering, we will be a smaller company relative to SAP, which could result in increased costs because of a decrease in our purchasing power and difficulty maintaining existing customer relationships and obtaining new customers.
Prior to this offering, we were able to take advantage of SAP’s size and purchasing power in procuring goods, technology and services, including insurance, employee benefit support and audit and other professional services. While this may continue in some ways with SAP as a majority shareholder, we are a smaller company than SAP, and we cannot assure you that once we become public we will have access to financial and other resources comparable to those available to us prior to the offering. As a standalone company, we may be unable to obtain office space, goods, technology and services at prices or on terms as favorable as those available to us prior to this offering, which could increase our costs and reduce our profitability. Likewise, we may find it more difficult to attract and retain high quality employees as a smaller company than it was as a wholly owned subsidiary of SAP, which could impact our results of operations. Our future success also depends on our ability to develop and maintain relationships with customers. Our reduced relationship with SAP and our smaller relative size after this offering may make it more difficult to develop and maintain relationships with customers, which could adversely affect our prospects.
In order to preserve the ability for SAP to distribute its shares of our Class B common stock on a tax-free basis for U.S. federal income tax purposes, we may be prevented from pursuing opportunities to raise capital, to effectuate acquisitions or to provide equity incentives to our employees, which could hurt our ability to grow.
Beneficial ownership of at least 80% of the total voting power and 80% of each class of non-voting capital stock is required in order for SAP to effect a spin-off of Qualtrics that is tax-free for U.S. federal income tax purposes. This applies to both an internal spin-off of Qualtrics by SAP America to SAP SE that is tax-free for U.S. federal
income tax purposes, which we refer to as an Internal Distribution, and an external spin-off of Qualtrics by SAP SE that is tax-free for U.S. federal income tax purposes, which we refer to as an External Distribution with any of an Internal Distribution or an External Distribution, being referred to as a Distribution. SAP has advised us that it does not have any present intention or plans to undertake any Distribution. However, SAP currently intends to preserve its ability to engage in an Internal Distribution or an External Distribution following an Internal Distribution. We have agreed that we will not knowingly take or fail to take any action that could reasonably be expected to preclude SAP’s ability to undertake a Distribution. Additionally, under our amended and restated certificate of incorporation and the stockholders’ agreement to be executed, until such time as SAP ceases to own at least 20% or more of the outstanding shares of our common stock, we must obtain the consent of SAP as the holder of our Class B common stock to issue stock or other equity securities except to our subsidiaries or pursuant to this offering or to our employee benefit plans. SAP’s intention to retain its ability to effectuate a Distribution may cause SAP to not consent to such stock or securities issuances. This could cause us to forgo capital raising or acquisition opportunities that would otherwise be available to us. See “Certain Relationships and Related Party Transactions—Relationship with SAP and the Agreements Between SAP and Us.” As a result, we may be precluded from pursuing certain growth initiatives.
We will be required to indemnify SAP for any taxes imposed on SAP related to our status as a “controlled foreign corporation” or “passive foreign investment company” for German tax purposes that are attributable to SAP’s ownership of us, which may prevent us from pursuing certain strategic, internal restructuring or financing transactions or taking other actions, that would otherwise be beneficial to us.
Following this offering, we (including certain of our subsidiaries) will continue to be treated as a “controlled foreign corporation” with respect to SAP for German tax purposes. Further, in the event that we cease to be treated as such a controlled foreign corporation, we (including certain of our subsidiaries) may be treated as a “passive foreign investment company” with respect to SAP for German tax purposes. As a result, SAP may be subject to German taxation, which we refer to as CFC/PFIC Taxes, on certain of our income regardless of whether such income is received by SAP. The tax sharing agreement will provide that we will be required to indemnify SAP for any CFC/PFIC Taxes imposed on SAP that are attributable to SAP’s ownership of us. Prior to entering into any agreement or engaging in any transaction, we intend to evaluate whether, and to what extent, such agreement or transaction would subject SAP to CFC/PFIC Taxes for which we would be responsible under the tax sharing agreement. We may be discouraged from taking any such action that could reasonably be expected to subject SAP to CFC/PFIC Taxes. Further, we cannot predict any future changes to the German tax rules governing controlled foreign corporations or passive foreign investment companies. As a result, this indemnification obligation could cause us to forgo certain strategic, internal restructuring or financing transactions or other actions, that would otherwise be beneficial to us.
Third parties may seek to hold us responsible for liabilities of SAP, which could result in a decrease in our income.
Third parties may seek to hold us responsible for SAP’s liabilities. Likewise, our relationship with SAP, as a much larger company and our majority shareholder, may make us more of a target for litigation than we otherwise would be on our own. Under our master transaction agreement to be entered into with SAP in connection with the offering, we will indemnify SAP for claims and losses relating to liabilities related to our business and not related to SAP’s business, and SAP will indemnify us for claims and losses relating to liabilities related to SAP’s business and not related to our business. However, if those liabilities are significant and we are ultimately held liable for them, we cannot assure you that we will be able to recover the full amount of our losses from SAP.
Although we intend to enter into a tax sharing agreement with SAP under which our tax liabilities generally will be determined as if we were not part of any consolidated, combined or unitary tax group that includes SAP and/or any of its subsidiaries, we nonetheless could be held liable for the tax liabilities of other members of these groups.
Since the SAP Acquisition we have been, and expect that immediately following this offering we will continue to be, included in SAP America’s consolidated group for U.S. federal income tax purposes, which we refer to as a U.S. Consolidated Group, as well as in certain other consolidated, combined or unitary groups that include SAP SE
or SAP America and/or certain of their subsidiaries, any such group being referred to as a SAP Tax Group. We intend to enter into a tax sharing agreement in connection with this offering. Pursuant to the tax sharing agreement, SAP will file with the relevant tax authority with respect to a SAP Tax Group, and, for taxable periods beginning after December 31, 2020, we will make tax sharing payments to SAP. The amount of our tax sharing payments with respect to SAP America’s U.S. Consolidated Group will be determined, subject to certain adjustments (including with respect to the use of tax attribute carryforwards), as if we and each of our subsidiaries included in SAP America’s U.S. Consolidated Group filed our own U.S. federal consolidated income tax return for the relevant taxable period. The amount of a tax sharing payment with respect to SAP Tax Groups relating to U.S. state or local income taxes will be calculated using certain simplifying conventions.
We will be included in SAP America’s U.S. Consolidated Group so long as SAP America owns at least 80% of the total voting power and value of our outstanding stock. Each member of a U.S. Consolidated Group during any part of a consolidated return year is jointly and severally liable for tax on the consolidated return of such year and for any subsequently determined deficiency thereon. Similarly, in some jurisdictions, each member of a consolidated, combined or unitary group for state, local or non-U.S. income tax purposes is jointly and severally liable for the state, local or non-U.S. income tax liability of each other member of the consolidated, combined or unitary group. Accordingly, for any period in which we are included in a SAP Tax Group, we could be liable in the event that any income tax liability was incurred, but not discharged, by any other member of any such group.
Our inability to maintain a strong relationship with SAP, or to resolve favorably any disputes that may arise between us and SAP, could result in a significant reduction of our revenue.
Maintaining a strong relationship with SAP and its management team will be important to our success for at least as long as SAP remains a majority shareholder. Disputes may arise between SAP and us in a number of areas relating to our ongoing relationship, including:
•our strategy, direction, and objectives as a business;
•labor, tax, employee benefit, indemnification and other matters arising from our separation from SAP;
•employee retention and recruiting;
•business combinations involving us;
•our ability to engage in activities with certain customers, suppliers, and partners;
•sales or dispositions by SAP of all or any portion of its ownership interest in us;
•the nature, quality and pricing of services SAP has agreed to provide us;
•business opportunities that may be attractive to both SAP and us; and
•product or technology development or marketing activities which may require the consent of SAP.
We may not be able to resolve any potential conflicts between us and SAP. Assuming we are able to resolve such a potential conflict, we intend for such resolution to be comparable to the resolution that we would reach with an unaffiliated party. However, the resolution that we actually reach may be less favorable than if we were dealing with an unaffiliated party.
The agreements we will enter into with SAP may be amended upon agreement between the parties. While we are controlled by SAP, we may not have the leverage to negotiate agreements or amendments to these agreements, if required, on terms as favorable to us as those we would negotiate with an unaffiliated third party.
The arrangement we make with SAP in connection with this offering may not be adequate and could harm our operation and performance.
We are the first and only subsidiary of SAP to conduct an initial public offering. We have made various transition arrangements with SAP. However, given the rare structure of the transaction and lack of precedents, we
cannot be certain that such arrangements will fully and adequately encompass all of our needs as a standalone company after the offering. If the arrangements we have made with SAP are not comprehensive enough to meet our needs as a standalone company, our operation and financial performance may be adversely impacted.
The agreements we are putting in place with SAP in connection with this offering are being entered into while we are a majority-owned subsidiary of SAP with relatively little negotiating power. The agreements were not negotiated at arm’s length and contain terms that we would not have agreed to with an independent third party. For example, we are providing SAP an irrevocable, royalty-free license to all of our patents and certain other intellectual property that will remain in place perpetually, even after SAP is no longer a majority shareholder. As another example, SAP does not give us the ability to control the investigation, negotiation and settlement of certain government investigations but requires us to pay for all expenses associated therewith. These and other terms of our agreements with SAP may put us at a disadvantage relative to our competitors and peer companies and could adversely impact our operations and financial performance. For more information about these agreements, see “Certain Relationships and Related Party Transactions—Relationship with SAP and the Agreements Between SAP and Us—Agreements Between SAP and Us.”
We cannot know how the market will react over time to our unique arrangements with SAP or how those arrangements will develop if our relationship with SAP evolves. We are making careful preparation for the separation from SAP, but due to the unique structure we are employing, there may be many foreseeable and unforeseeable adverse effects on us if the expected benefits of our arrangements with SAP do not realize.
Some of our directors and executive officers own cash-settled restricted stock units that fluctuate in accordance with the value of SAP's share price or hold management positions with SAP, which could cause conflicts of interest that could result in us not acting on opportunities we otherwise may have.
Some of our directors and executive officers own cash-settled restricted stock units that fluctuate in accordance with the value of SAP's share price. In addition, some of our directors are executive officers and/or directors of SAP. Ownership of cash-settled restricted stock units that fluctuate in accordance with the value of SAP’s share price by our directors and officers after this offering and the presence of executive officers or directors of SAP on our board of directors could create, or appear to create, conflicts of interest with respect to matters involving both us and SAP that could have different implications for SAP than they do for us. Provisions of our amended and restated certificate of incorporation and the stockholders’ agreement will address corporate opportunities that are presented to our directors or officers that are also directors or officers of SAP. We cannot assure you that the provisions in our amended and restated certificate of incorporation will adequately address potential conflicts of interest, that potential conflicts of interest will be resolved in our favor or that we will be able to take advantage of corporate opportunities presented to individuals who are officers or directors of both us and SAP. As a result, we may be precluded from pursuing certain growth initiatives, which could adversely affect our business.
SAP’s ability to control our board of directors and company may make it difficult for us to recruit high-quality independent directors and employees.
So long as SAP beneficially owns shares of our common stock representing at least a majority of the votes entitled to be cast by the holders of outstanding voting stock, SAP can effectively control and direct our board of directors and our company generally. Further, the interests of SAP and our other stockholders may diverge. Under these circumstances, persons who might otherwise accept our invitation to join our board of directors or become our employees may decline.
We will be a “controlled company” within the meaning of the corporate governance rules of Nasdaq and, as a result, will rely on exemptions from certain corporate governance requirements that provide protection to stockholders of other companies.
After the completion of this offering, SAP will own more than 50% of the total voting power of our common shares and we will be a “controlled company” within the meaning of the corporate governance rules of Nasdaq. As a
controlled company, certain exemptions under the Nasdaq standards free us from the obligation to comply with certain Nasdaq corporate governance requirements, including the requirements:
•that a majority of our board of directors consists of independent directors;
•that we have a corporate governance and nominating committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities;
•that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and
•for an annual performance evaluation of the nominating and governance committee and compensation committee.
As a result of our use of the “controlled company” exemptions, you will not have the same protection afforded to stockholders of companies that are subject to all of the corporate governance rules of Nasdaq.
Risks Related to Ownership of Our Class A Common Stock and this Offering
An active trading market for our Class A common stock may never develop or be sustained.
We have applied to list our Class A common stock on Nasdaq, under the symbol “XM.” However, there has been no prior public trading market for our Class A common stock. Accordingly, we cannot assure you that an active trading market for our Class A common stock will develop on that exchange or elsewhere or, if developed, that any market will be sustained, or the liquidity of any trading market, your ability to sell your shares of our Class A common stock when desired, or the prices that you may obtain for your shares.
The market price of our Class A common stock may be volatile or may decline regardless of our operating performance, and you may not be able to resell your shares at or above the initial public offering price.
The trading price of our Class A common stock is likely to be volatile and could fluctuate widely regardless of our operating performance. 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:
•actual or anticipated fluctuations in our results of operations;
•the financial projections we may provide to the public, any changes in these projections, or our failure to meet these projections;
•failure of securities analysts to initiate or maintain coverage of our company, changes in financial estimates or ratings changes by any securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors;
•media reports and coverage of our operations, industry, employees, and company;
•announcements by us or our competitors of significant technical innovations, acquisitions, strategic partnerships, joint ventures, or capital commitments;
•changes in operating performance and stock market valuations of other technology companies generally, or those in our industry in particular;
•price and volume fluctuations in the overall stock market;
•trends and factors in the economy generally, both in the U.S. and globally;
•changes in accounting standards, policies, guidelines, interpretations, or principles;
•actual or anticipated developments in our business or our competitors’ businesses or the competitive landscape generally;
•announced or completed acquisitions of businesses or technologies by us or our competitors;
•developments or disputes concerning our intellectual property or our solutions, or third-party proprietary rights;
•new laws or regulations, new interpretations of existing laws, or the new application of existing regulations to our business;
•any major change in our board of directors or management;
•any actions or conduct by our employees, directors, or management that could impact our reputation;
•additional Class A common stock being sold into the market by us or our existing stockholders or the anticipation of such sales;
•changes in operating performance and stock market valuations of technology companies in our industry;
•lawsuits threatened or filed against us; and
•other events or factors, including those resulting from war, incidents of terrorism, disease, global pandemics such as COVID-19 or responses to these events.
In addition, the stock markets, and in particular the market on which our Class A common stock will be listed, have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many technology companies. Stock prices of many technology companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, stockholders have instituted securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from operating our business, and harm our business, results of operations, and financial condition.
If securities or industry analysts do not publish research or reports about our business, or if they downgrade our common stock, the price of our Class A common stock could decline.
The trading market for our Class A common stock depends, in part, on the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts. If one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. In addition, if our results of operations fail to meet the forecast of analysts, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our Class A common stock could decrease, which might cause our stock price and trading volume to decline.
We may invest or spend the proceeds of this offering in ways with which you may not agree or in ways which may not yield a return.
We intend to use the net proceeds from this offering to repay $ million of intercompany indebtedness that will be owed to SAP America, incurred to fund a dividend to SAP America, and the remainder for working capital and other general corporate purposes, including to finance our growth, develop new businesses, products, services or technologies, and fund capital expenditures.
We may also use a portion of the net proceeds from this offering to acquire or make investments in businesses, products, services or technologies. However, we do not have any agreements or commitments for any specific acquisitions or investments at this time. Our management will have considerable discretion in the application of the net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used effectively. The net proceeds may be invested with a view towards long-term benefits for our stockholders and this may not increase our operating results or market value. The failure by our management to apply these funds effectively may adversely affect the return on your investment. See “Use of Proceeds” for additional information.
Purchasers in this offering will immediately experience substantial dilution in net tangible book value.
We anticipate the initial public offering price of our Class A common stock will be substantially higher than the pro forma net tangible book value per share of our Class A common stock immediately following this offering. Therefore, if you purchase shares of our Class A common stock in this offering, you will experience immediate dilution of $ per share, based on the initial public offering price of $22.00 per share (which is the midpoint of the estimated offering price range set forth on the cover page to this prospectus), the difference between the price per share you pay for our Class A common stock and the pro forma net tangible book value per share as of , after giving effect to the issuance of shares of our Class A common stock in this offering. See “Dilution” for additional information.
Substantial future sales of our Class A common stock could cause the market price of our Class A common stock to decline.
The market price of our Class A common stock could decline as a result of substantial sales of our Class A common stock, particularly sales by our directors, executive officers, and significant stockholders, a large number of our Class A common stock becoming available for sale or the perception in the market that holders of a large number of shares intend to sell their shares. Immediately upon the completion of this offering, we will have a total of shares outstanding of Class A common stock (or shares if the underwriters exercise in full their option to purchase additional shares) and 423,170,610 shares outstanding of Class B common stock, all of which will be owned by SAP. This includes the Class A common stock offered in this offering, which may be resold in the public market immediately, except that any shares purchased in this offering by our affiliates, as that term is defined in Rule 144 under the Securities Act, would only be able to be sold in compliance with Rule 144 under the Securities Act. Additionally, shares of our Class A common stock received by our employees (including our executive officers) upon vesting of equity awards received in the exchange offer will be freely tradable upon issuance, subject to compliance with Rule 144, as applicable, and are not subject to any lock-up restriction. Shares of Class A common stock issued to Q II, or to be issued to Silver Lake, are or will be, respectively, deemed “restricted securities” as defined in Rule 144 under the Securities Act and, pursuant to their respective Class A common stock purchase agreements, each of Q II and Silver Lake has agreed with us not to sell or transfer such shares for a period of 12 months and 24 months, respectively, after the effectiveness of the registration statement of which this prospectus forms a part. The remaining outstanding shares of our Class A and all of our Class B common stock will be deemed “restricted securities” as defined in Rule 144. These restricted securities, and the shares of Class A common stock into which the outstanding shares of our Class B common stock are convertible, may be sold in the public market only if they are registered or if they qualify for an exemption from registration under the Securities Act. See “Shares Eligible for Future Sale” for a more detailed description of sales that may occur in the future.
Sales of our Class A common stock as these restrictions end may make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. These sales also could cause the market price of our Class A common stock to fall and make it more difficult for you to sell our Class A common stock.
We will enter into a stockholders’ agreement with SAP, Q II and Silver Lake which, among other things, will provide for specified registration rights relating to the shares of our Class A common stock and Class B common stock owned by SAP, Q II and Silver Lake. See “Certain Relationships and Related Party Transactions—Relationship with SAP and the Agreements Between SAP and Us,” “Certain Relationships and Related Party Transactions—Relationship with Q II” and “Shares Eligible for Future Sale—Registration Rights.” Registration of those shares under the Securities Act would permit SAP, Q II, Silver Lake and their permitted transferees registration rights agreement to sell their respective shares into the public market.
Silver Lake’s pending purchase of our Class A common stock may not be consummated, and as a result, our stock price may be negatively impacted.
The closing of Silver Lake’s purchase of $550 million of shares of our Class A common stock is subject to the satisfaction of customary closing conditions, including the absence of a material adverse change. We cannot assure you that the Silver Lake investment will close. This offering is not conditioned on the closing of the Silver Lake investment, and if the Silver Lake investment does not close, our stock price may be negatively impacted.
We will be obligated to pay cash to settle any Qualtrics Rights or SAP RSUs that are not tendered in the exchange offer.
In connection with this offering, we are conducting a voluntary exchange offer pursuant to which we are offering eligible employees, including our executive officers, the ability to exchange their existing Qualtrics Rights and SAP RSUs for awards with underlying shares of our Class A common stock. According to the existing award terms, upon vesting we will be obligated to pay cash to settle any Qualtrics Rights and SAP RSUs that are not tendered in the exchange offer. While the dividend we expect to pay to SAP America in the form of promissory note 1 (as defined herein) will be reduced by an amount equal to the cash required to settle any outstanding Qualtrics Rights and SAP RSUs based on the estimated liabilities for such awards at the expiration of the exchange offer, such dividend and promissory note 1 will not be further reduced to reflect any increase in such liabilities subsequent to the expiration of the exchange offer. For example, the cash liabilities for such awards may increase if SAP’s share price increases following the expiration of the exchange offer. See “Executive Compensation—Equity-Based Compensation Plans—Exchange Offer” and “Certain Relationships and Related Party Transactions—Relationship with SAP and the Agreements Between SAP and Us—Dividend to SAP America and Intercompany Indebtedness.”
We will incur increased costs and demands upon management as a result of complying with the laws and regulations affecting public companies, particularly after we are no longer an “emerging growth company,” which could adversely affect our business, financial condition, and results of operations.
As a public company, and particularly after we cease to be an “emerging growth company,” we will incur greater legal, accounting, and other expenses than we incurred as a private company. We are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, and the rules and regulations of Nasdaq. These requirements have increased and will continue to increase our legal, accounting, and financial compliance costs and have made, and will continue to make, some activities more time-consuming and costly. For example, we expect these rules and regulations to make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to maintain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as our executive officers. After we are no longer an “emerging growth company,” we expect to incur significant expenses and devote substantial management effort toward ensuring compliance with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. In that regard, we will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge.
Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of our company more difficult, limit attempts by our stockholders to replace or remove our current board of directors, and limit the market price of our Class A common stock.
Provisions in our amended and restated certificate of incorporation and amended and restated bylaws will have the effect of delaying or preventing a change of control or changes in our management. Our amended and restated certificate of incorporation and amended and restated bylaws include provisions that:
•authorize our board of directors to issue, without further action by the stockholders, shares of undesignated preferred stock with terms, rights, and preferences determined by our board of directors that may be senior to our common stock;
•require that any action to be taken by our stockholders be effected at a duly called annual or special meeting and not by written consent, if such action occurs after SAP ceases to be the beneficial owner of a majority of votes entitled to be cast by the holders of Class A common stock and the holders of Class B common stock, voting together as a single class, such date being referred to as the Written Consent Threshold Date;
•until the Written Consent Threshold Date, allow our stockholders to act by written consent, without a meeting and without prior notice;
•specify that special meetings of our stockholders may only be called by (1) SAP, until the Written Consent Threshold Date, (2) our Executive Chair or Chief Executive Officer or (3) a majority of directors then in
office. No business other than that stated in the notice of a special meeting may be transacted at such special meetings;
•provide for a dual-class common stock structure in which holders of our Class B common stock have the ability to control the outcome of certain matters requiring stockholder approval, even if they own significantly less than a majority of the aggregate 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;
•establish an advance notice procedure for stockholder proposals to be brought before an annual meeting, including proposed nominations of persons for election to our board of directors;
•prohibit cumulative voting;
•provide that any vacancy on the board of directors that results from an increase in the number of directors may be filled only by a majority of the board of directors then in office, provided that a quorum is present, and any other vacancy occurring in the board of directors may be filled only by a majority of directors then in office, even if less than a quorum, or by a sole remaining director. However, until the Written Consent Threshold Date, any vacancy caused by the removal of a director by our stockholders may be filled only by our stockholders;
•require that certain provisions of our amended and restated certificate of incorporation, including those relating to (i) corporate opportunities and conflicts of interest between us and SAP, (ii) the consent of SAP as the holder of our Class B common stock, (iii) our amended and restated bylaws, (iv) our board of directors and (v) the indemnification of our directors and officers, may be amended by the affirmative vote of at least 80% of the votes entitled to be cast thereon subject to the rights of holders of our Class B common stock to withhold their consent to the amendment, of the provisions of our amended and restated certificate of incorporation relating to corporate opportunities and conflicts of interest between our company and SAP. All other provisions of our amended and restated certificate of incorporation may be amended by the affirmative vote of a majority of the votes entitled to be cast thereon; and
•allow our board of directors to amend, supplement or repeal our amended and restated bylaws upon the vote of a majority of the board of directors. Our amended and restated certificate of incorporation will provide that, after the Written Consent Threshold Date, the sections of our amended and restated bylaws related to the removal of directors and the required advance notice related to stockholder proposals and nomination of directors by stockholders may only be amended by the affirmative vote of shares representing at least 80% of the votes entitled to be cast by the outstanding common stock, voting as a single class, subject to any voting rights granted to any holders of any preferred stock.
As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation Law, or the DGCL, which imposes certain restrictions on mergers, business combinations, and other transactions between us and holders of 15% or more of our outstanding common stock. Any provision of our amended and restated certificate of incorporation, amended and restated bylaws or Delaware law that has the effect of delaying, preventing or deterring a change in control or changes in our management could limit the opportunity for our stockholders to receive a premium for their shares of our common stock and could also affect the price that some investors are willing to pay for our Class A common stock.
Our amended and restated bylaws designate a state or federal court located within the State of Delaware as the exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or other employees.
Our amended and restated bylaws provide that, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, or other employees or our stockholders to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provisions of the
DGCL, our amended and restated certificate of incorporation or our amended and restated bylaws or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware, or (iv) any action asserting a claim governed by the internal affairs doctrine shall be, to the fullest extent permitted by law, the Court of Chancery of the State of Delaware. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and consented to this provision. Our amended and restated bylaws also provide that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act; provided, however, that our stockholders cannot and will not be deemed to have waived our compliance with the U.S. federal securities laws and the rules and regulations thereunder. This provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction.
Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all such Securities Act actions. Accordingly, both state and federal courts have jurisdiction to entertain such claims. To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, our amended and restated bylaws provide that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. While the Delaware courts have determined that such choice of forum provisions are facially valid, a stockholder may nevertheless seek to bring a claim in a venue other than those designated in the exclusive forum provisions. In such instance, we would expect to vigorously assert the validity and enforceability of the exclusive forum provisions of our amended and restated bylaws. This may require significant additional costs associated with resolving such action in other jurisdictions and there can be no assurance that the provisions will be enforced by a court in those other jurisdictions.
These choice of forum provisions may limit a stockholder’s 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. Alternatively, if a court were to find the choice of forum provision in our amended and restated bylaws 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, results of operations, and financial condition.
We do not expect to declare dividends in the foreseeable future.
We currently anticipate that we will retain future earnings for the development, operation, and expansion of our business, and do not anticipate declaring or paying any cash dividends for the foreseeable future. Any return to stockholders will therefore be limited to the increase, if any, of our share price, which may never occur.
We are an “emerging growth company” and the reduced disclosure requirements applicable to emerging growth companies may make our Class A common stock less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced financial disclosure obligations, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and any golden parachute payments not previously approved. Pursuant to Section 107 of the JOBS Act, as an emerging growth company, we have elected to use the extended transition period for complying with new or revised accounting standards until those standards would otherwise apply to private companies. As a result, our consolidated financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies.
We are permitted to take advantage of these provisions until we are no longer an “emerging growth company.” We would cease to be an “emerging growth company” upon the earliest to occur of: (i) the last day of the fiscal year in which we have more than $1.07 billion in annual revenue; (ii) the date we qualify as a large accelerated filer, with at least $700 million of equity securities held by non-affiliates; (iii) the issuance, in any three-year period, by us of
more than $1.0 billion in non-convertible debt securities; and (iv) the last day of the fiscal year ending after the fifth anniversary of this offering.
We may choose to take advantage of some but not all of these reduced reporting requirements. If we take advantage of any of these reduced reporting requirements in future filings, the information that we provide our security holders may be different than the information you might get from other public companies in which you hold equity interests. We cannot predict if investors will find our Class A common stock less attractive because we may rely on these exemptions.
Risks Related to Our Organizational Structure
Our principal asset is our interest in Qualtrics, LLC, and we are, and expect to continue to be, dependent upon the results of operations and cash flows of Qualtrics, LLC and its consolidated subsidiaries and distributions we receive from Qualtrics, LLC.
Qualtrics International Inc. is, and we expect to continue to be, a holding company with no material assets other than our ownership of the capital stock of Qualtrics, LLC and other subsidiaries, which we control. As such, Qualtrics International Inc. will have no independent means of generating revenue or cash flow, and our ability to pay our taxes and operating expenses or declare and pay dividends in the future, if any, will be dependent upon the results of operations and cash flows of Qualtrics, LLC and other subsidiaries, and distributions we receive therefrom. There can be no assurance that our direct and indirect subsidiaries will generate sufficient cash flow to distribute funds to us or that applicable state law and contractual restrictions, including negative covenants in any future debt instruments, will permit such distributions. In addition, in the event that the board of directors and stockholders of Qualtrics International Inc. were to approve a sale of all of our direct and indirect interests in Qualtrics, LLC and other subsidiaries, your equity interest would be in a holding company with no material assets other than those assets and other consideration received in such transaction.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of the federal securities laws, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this prospectus include, but are not limited to, statements about:
•our future financial performance, including our revenue, cost of revenue, gross profit, operating expenses, ability to generate positive cash flow, and ability to be profitable;
•our ability to grow at or near historical growth rates;
•anticipated technology trends, such as the use of and demand for experience management software;
•our ability to attract and retain customers to use our products;
•our ability to respond to and overcome challenges brought by the COVID-19 pandemic;
•our ability to attract enterprises and international organizations as customers for our products;
•our ability to expand our network with content consulting partners, delivery partners, and technology partners;
•the evolution of technology affecting our products and markets;
•our ability to introduce new products and enhance existing products and to compete effectively with competitors;
•our ability to successfully enter into new markets and manage our international expansion;
•the attraction and retention of qualified employees and key personnel;
•our ability to effectively manage our growth and future expenses and maintain our corporate culture;
•our anticipated investments in sales and marketing and research and development;
•our ability to maintain, protect, and enhance our intellectual property rights;
•our ability to successfully defend litigation brought against us;
•our ability to maintain data privacy and data security;
•the sufficiency of our cash and cash equivalents to meet our liquidity needs;
•our ability to comply with modified or new laws and regulations applying to our business;
•our reduced ability to leverage resources at SAP after we become an independent company from SAP;
•the increased expenses associated with being an independent public company; and
•our use of the net proceeds from this offering.
We caution you that the foregoing list may not contain all of the forward-looking statements made in this prospectus.
You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this prospectus primarily on our current expectations and projections about
future events and trends that we believe may affect our business, financial condition, results of operations, and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in the section titled “Risk Factors” and elsewhere in this prospectus. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this prospectus. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.
The forward-looking statements made in this prospectus relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this prospectus to reflect events or circumstances after the date of this prospectus or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make.
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, levels of activity, performance, and events and circumstances may be materially different from what we expect.
MARKET AND INDUSTRY DATA
This prospectus contains statistical data, estimates, and forecasts from various sources, including independent industry publications and other information from our internal sources. This information is based upon a number of assumptions and limitations, and you are cautioned not to give undue weight to such information. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the sections titled “Risk Factors” and “Special Note Regarding Forward-Looking Statements,” that could cause results to differ materially from those expressed in these publications and reports.
The source of certain statistical data, estimates, and forecasts contained in this prospectus are the following independent industry publications or reports:
•How to Excel at Strategy and Execution: A Marketing Perspective, December 2019, Gartner, Inc.
•Historic Drop in Employee Engagement Follows Record Rise, July 2, 2020, Gallup Inc.
•The Powerful Relationship Between Employee Engagement and Team Performance, March 2020, Gallup Inc.
•The Loyalty Economy – Managing for Customer Value, January 2020, Rob Markey.
•2019 Deloitte Global Human Capital Trends, April 11, 2019, Deloitte.
•State of Customer Service Experience 2019, November 2019, The Northridge Group.
Industry publications, surveys, and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but such information may not be accurate or complete. We have not independently verified any of the data from third-party sources nor have we ascertained the underlying economic assumptions relied on therein.
The Gartner Report described herein, or the Gartner Report, represents research opinion or viewpoints published, as part of a syndicated subscription service, by Gartner, Inc., or Gartner, and are not representations of fact. Each Gartner Report speaks as of its original publication date (and not as of the date of this prospectus) and the opinions expressed in the Gartner Report are subject to change without notice.
Certain information included in this prospectus concerning our industry and the markets we serve, including our market share, are also based on our good-faith estimates derived from management’s knowledge of the industry and other information currently available to us.
USE OF PROCEEDS
We estimate that the net proceeds to us from the sale of shares of our Class A common stock in this offering will be approximately $ , based upon the assumed initial public offering price of $22.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters’ option to purchase additional shares is exercised in full, we estimate that the net proceeds to us would be approximately $ , after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
Each $1.00 increase or decrease in the assumed initial public offering price of $22.00 per share would increase or decrease, as applicable, the net proceeds that we receive from this offering by approximately $ , assuming the underwriters do not exercise their option to purchase additional shares and assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase or decrease of 1.0 million in the number of shares offered by us would increase or decrease, as applicable, the net proceeds that we receive from this offering by approximately $ , assuming an initial public offering price of $22.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
We currently intend to use the net proceeds from this offering:
•to repay $ million of intercompany indebtedness that will be owed to SAP America; and
•the remainder for working capital and other general corporate purposes, including to finance our growth, develop new businesses, products, services or technologies, and fund capital expenditures.
The intercompany indebtedness we intend to repay was incurred to fund a $ million dividend paid to SAP America in the form of two promissory notes, which we refer to as the promissory notes. See “Certain Relationships and Related Party Transactions—Relationship with SAP and the Agreements Between SAP and Us—Dividend to SAP America and Intercompany Indebtedness.” The dividend will be declared to facilitate the return of capital from us to SAP America. The terms of the promissory notes were determined by considering our then-existing cash position, our historic and future ability to generate cash flows from operations and the likelihood that we would be able to pay the promissory notes pursuant to their terms while still having sufficient cash to meet our operating needs. We have chosen to use a portion of the proceeds from this offering, along with the proceeds from the Q II investment and Silver Lake investment, to repay a portion of one of the promissory notes because our expected cash position following the offering will allow us to pay down a portion of such note while still having sufficient cash to meet our anticipated operating needs.
We may also use a portion of the net proceeds from this offering to acquire or make investments in businesses, products, services or technologies. However, we do not have any agreements or commitments for any specific acquisitions or investments at this time.
We cannot specify with certainty the particular uses of the net proceeds that we will receive from this offering. Accordingly, we will have broad discretion in using these proceeds. Pending the use of proceeds from this offering as described above, we plan to invest the net proceeds that we receive in this offering in short-term and long-term interest-bearing obligations, including government and investment-grade debt securities and money market funds.
DIVIDEND POLICY
We currently do not anticipate declaring any cash dividends in the foreseeable future. Any future determination to declare cash dividends will be made at the discretion of our board of directors, subject to applicable laws and the consent of the holders of our Class B common stock pursuant to our amended and restated certificate of incorporation, and will depend on a number of factors, including our financial condition, results of operations, capital requirements, contractual restrictions, general business conditions, and other factors that our board of directors may deem relevant. Holders of our Class A common stock and our Class B common stock will share equally on a per share basis in any dividend declared on our common stock by our board of directors. See “Description of Capital Stock—Class A Common Stock and Class B Common Stock—Dividend Rights.”
CAPITALIZATION
The following table sets forth cash and cash equivalents, as well as our capitalization, as of September 30, 2020 as follows:
•on an actual basis;
•on a pro forma basis, giving effect to (i) the declaration of a $ million dividend payable to SAP America in the form of two promissory notes (see “Certain Relationships and Related Party Transactions—Relationship with SAP and the Agreements Between SAP and Us—Dividend to SAP America and Intercompany Indebtedness”); (ii) our sale of 6,000,000 shares of Class A common stock to Q II for $120 million (see “Prospectus Summary—Recent Developments”) and (iii) our sale of 25,245,756 shares of our Class A common stock to Silver Lake for an aggregate purchase price of $550 million (assuming an initial public offering price of $22.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus) (see “Prospectus Summary—Recent Developments”); and
•on a pro forma as adjusted basis, giving effect to the pro forma adjustments set forth above and (i) the sale and issuance by us of shares of our Class A common stock in this offering, based upon the assumed initial public offering price of $22.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us; and (ii) the repayment by us of $ million of principal amount on the promissory notes we incurred to fund a dividend to SAP America. See “Use of Proceeds.”
You should read this table, which contains unaudited information, together with our consolidated financial statements and related notes, and the sections titled “Selected Consolidated Financial and Other Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” that are included elsewhere in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2020
|
|
|
Actual
|
|
Pro Forma
|
|
Pro Forma As Adjusted(1)
|
|
|
(In thousands except share and per share data)
|
|
Cash and cash equivalents
|
$
|
87,500
|
|
|
$
|
|
$
|
|
Long-term debt:
|
|
|
|
|
|
|
Total debt
|
—
|
|
|
$
|
|
$
|
|
Stockholders’ (deficit) equity:
|
|
|
|
|
|
|
Preferred stock, par value $0.0001 per share: 100,000,000 shares authorized, no shares issued and outstanding, actual, pro forma and pro forma as adjusted(2)
|
—
|
|
|
|
|
|
|
Class A common stock, par value $0.0001 per share: 2,000,000,000 shares authorized, no shares issued and outstanding, actual; 2,000,000,000 shares authorized, shares issued and outstanding, pro forma; and 2,000,000,000 shares authorized, shares issued and outstanding, pro forma as adjusted(2)
|
—
|
|
|
|
|
|
|
Class B common stock, par value $0.0001 per share: 1,000,000,000 shares authorized, 423,170,610 shares issued and outstanding, actual, pro forma and pro forma as adjusted(2)
|
42
|
|
|
|
|
|
|
Additional paid-in capital
|
986,631
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss)
|
524
|
|
|
|
|
|
|
Accumulated deficit
|
(1,384,292)
|
|
|
|
|
|
|
Total stockholders’ (deficit) equity
|
(397,095)
|
|
|
|
|
|
|
Total capitalization
|
$
|
(397,095)
|
|
|
$
|
|
$
|
________________
(1)Each $1.00 increase or decrease in the assumed initial public offering price of $22.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, the amount of each of our pro forma as adjusted cash and cash equivalents, additional paid-in capital, total stockholders’ deficit, and total capitalization by $ , assuming the underwriters do not exercise their option to purchase additional shares and assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase or decrease of 1.0 million shares in the number of shares offered by us would increase or decrease, as applicable, the amount of each of our pro forma as adjusted cash and cash equivalents, additional paid-in capital, total stockholders’ deficit, and total capitalization by $ , assuming an initial public offering price of $22.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
(2)On December 21, 2020, the Company amended its restated certificate of incorporation to create new classes of preferred stock, Class A and Class B common stock. The Company’s previously outstanding shares of common stock issued on January 23, 2019, were converted into shares of Class B common stock. The capitalization of the Company, including all share and per share data has been retroactively adjusted back to January, 23, 2019, the date of the SAP acquisition, to reflect the recapitalization. See “Description of Capital Stock.”
If the underwriters’ option to purchase additional shares is exercised in full, pro forma as adjusted cash and cash equivalents, additional paid-in capital, total stockholders’ equity, total capitalization and shares of Class A common stock outstanding as of September 30, 2020 would be $ , $ , $ , $ , and , respectively.
The number of shares of our Class A common stock and Class B common stock that will be outstanding after this offering is based on (i) the offering of shares of our Class A common stock pursuant to this offering (assuming no exercise of the underwriters’ option to purchase additional shares), (ii) 6,000,000 shares of Class A common stock acquired by Q II (see “Prospectus Summary—Recent Developments”), (iii) 25,245,756 shares of Class A common stock to be acquired by Silver Lake (assuming an initial public offering price of $22.00, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus) (see “Prospectus
Summary—Recent Developments”), and (iv) 423,170,610 shares of our Class B common stock outstanding as of September 30, 2020, and excludes:
•up to 101,829,390 shares of our Class A common stock reserved for future issuance under our equity compensation plans, which will become effective prior to the completion of this offering, consisting of:
◦up to 89,829,390 shares of our Class A common stock reserved for future issuance under our 2021 Plan, which will become available for issuance effective upon the effectiveness of the registration statement of which this prospectus is a part, as well as any automatic increases in the number of shares of our common stock reserved for future issuance under such plan (which amount includes (1) approximately shares to be covered by new equity awards that we currently intend to grant in , 2021 following the completion of this offering and (2) approximately 18.8 million shares of our Class A common stock deliverable upon the vesting of RSUs granted pursuant to the terms of the exchange offer, assuming full participation in the exchange offer by all eligible employees, an applicable SAP share price of $126.50 per share (which was the closing price of SAP’s ordinary shares on Xetra on December 23, 2020, converted into U.S. dollars using the exchange rate as published by the Wall Street Journal for that date and rounded to the nearest half dollar) and an initial public offering price of $22.00 per share (the midpoint of the estimated offering price range set forth on the cover page of this prospectus)), and
◦12,000,000 shares of our Class A common stock reserved for future issuance under our ESPP, which will become available for issuance effective upon the effectiveness of the registration statement of which this prospectus is a part, as well as any automatic increases in the number of shares of our common stock reserved for future issuance under such plan.
Our 2021 Plan and ESPP will each provide for annual automatic increases in the number of shares reserved thereunder and our 2021 Plan also will provide for increases to the number of shares of Class A common stock that may be granted thereunder based on shares underlying any awards under our 2021 Plan that expire, are forfeited, or are otherwise terminated, as more fully described in the section titled “Executive Compensation—Equity-Based Compensation Plans.”
DILUTION
If you invest in our Class A common stock in this offering, your ownership interest will be diluted to the extent of the difference between the initial public offering price per share of our Class A common stock and the pro forma as adjusted net tangible book value per share of our Class A common stock immediately after this offering. Net tangible book value dilution per share to new investors represents the difference between the amount per share paid by purchasers of shares of our Class A common stock in this offering and the pro forma as adjusted net tangible book value per share of our Class A common stock immediately after completion of this offering.
Net tangible book value per share is determined by dividing our total tangible assets (total assets less contract acquisition costs, intangible assets, goodwill, and capitalized offering costs) less our total liabilities by the number of shares of our common stock outstanding. Our historical net tangible value as of September 30, 2020 was $ , or $ per share. Our pro forma net tangible book value as of September 30, 2020 was $ , or $ per share, based on the total number of shares of our common stock outstanding as of September 30, 2020, after giving effect to (i) the declaration of a $ million dividend payable to SAP America in the form of two promissory notes, (iii) our sale of 6,000,000 shares of our Class A common stock to Q II for $120 million and (iii) our sale of 25,245,756 shares of our Class A common stock to Silver Lake for an aggregate purchase price of $550 million (assuming an initial public offering price of $22.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus).
After giving effect to the sale by us of shares of our Class A common stock in this offering at the assumed initial public offering price of $22.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of September 30, 2020 would have been $ , or $ per share. This represents an immediate increase in pro forma net tangible book value of $ per share to our existing stockholders and an immediate dilution in pro forma net tangible book value of $ per share to investors purchasing shares of our Class A common stock in this offering at the assumed initial public offering price. The following table illustrates this dilution:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed initial public offering price per share
|
|
|
$
|
22.00
|
|
|
Pro forma net tangible book value per share as of September 30, 2020
|
$
|
|
|
|
Increase in pro forma net tangible book value per share attributable to sale of Class A common stock to Q II
|
|
|
|
|
Increase in pro forma net tangible book value per share attributable to sale of Class A common stock to Silver Lake
|
|
|
|
|
Pro forma net tangible book value per share before this offering
|
|
|
|
|
Increase in pro forma net tangible book value per share attributable to new investors in this offering
|
|
|
|
|
Pro forma net tangible book value per share, as adjusted to give effect to this offering
|
|
|
|
|
Dilution in pro forma net tangible book value per share, as adjusted to new investors in this offering
|
|
|
$
|
Each $1.00 increase or decrease in the assumed initial public offering price of $22.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, our pro forma as adjusted net tangible book value to new investors by $ , and would increase or decrease, as applicable, dilution per share to new investors in this offering by $ , assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase or decrease of 1.0 million shares in the number of shares offered by us would increase or decrease, as applicable, our pro forma as adjusted net tangible book value by $ per share and increase or decrease, as applicable, the dilution to new investors by $ per share, assuming an initial public offering price of
$22.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
If the underwriters’ option to purchase additional shares is exercised in full, the pro forma as adjusted net tangible book value per share of our Class A common stock, as adjusted to give effect to this offering, would be $ per share, and the dilution in pro forma net tangible book value per share to new investors in this offering would be $ per share.
The following table presents the differences between SAP America, Q II, Silver Lake and the new investors purchasing shares of our Class A common stock in this offering with respect to the number of shares purchased from us, the total consideration paid or to be paid to us, which includes net proceeds received from the issuance of our common stock and the sale of our Class A common stock to Q II and Silver Lake and the average price per share paid or to be paid to us at the assumed initial public offering price of $22.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, before deducting underwriting discounts and commissions and estimated offering expenses payable by us:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased
|
|
Total Consideration
|
|
Average Price Per Share
|
|
|
Number
|
|
Percent
|
|
Amount
|
|
Percent
|
|
|
SAP America
|
423,170,610
|
|
|
%
|
|
$
|
|
%
|
|
$
|
|
Q II
|
6,000,000
|
|
|
%
|
|
$
|
120,000,000
|
|
|
%
|
|
$
|
20.00
|
|
|
Silver Lake(1)
|
25,245,756
|
|
|
%
|
|
$
|
550,000,000
|
|
|
%
|
|
$
|
21.79
|
|
|
New investors
|
|
|
%
|
|
$
|
|
%
|
|
$
|
22.00
|
|
|
Total
|
|
|
100
|
%
|
|
$
|
|
100
|
%
|
|
|
________________
(1)Number of shares purchased and average price per share for Silver Lake assume an initial public offering price of $22.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus.
Each $1.00 increase or decrease in the assumed initial public offering price of $22.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, each of the total consideration paid by new investors and total consideration paid by all stockholders by approximately $ , assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
Except as otherwise indicated, the above discussion and table assume no exercise of the underwriters’ option to purchase additional shares. If the underwriters’ option to purchase additional shares is exercised in full, our existing stockholder would own % and our new investors would own % of the total number of shares of our common stock outstanding upon completion of this offering.
The number of shares of our Class A common stock and Class B common stock that will be outstanding after this offering is based on (i) the offering of shares of our Class A common stock pursuant to this offering (assuming no exercise of the underwriters’ option to purchase additional shares), (ii) 6,000,000 shares of Class A common stock acquired by Q II (see “Prospectus Summary—Recent Developments”), (iii) 25,245,756 shares of Class A common stock to be acquired by Silver Lake (assuming an initial public offering price of $22.00, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus) (see “Prospectus Summary—Recent Developments”), and (iv) 423,170,610 shares of our Class B common stock, and excludes:
•up to 101,829,390 shares of our Class A common stock reserved for future issuance under our equity compensation plans, which will become effective prior to the completion of this offering, consisting of:
◦up to 89,829,390 shares of our Class A common stock reserved for future issuance under our 2021 Plan, which will become available for issuance effective upon the effectiveness of the registration statement of which this prospectus is a part, as well as any automatic increases in the number of shares of our common stock reserved for future issuance under such plan (which amount includes (1) approximately shares to be covered by new equity awards that we currently intend to grant
in , 2021 following the completion of this offering and (2) approximately 18.8 million shares of our Class A common stock deliverable upon the vesting of RSUs granted pursuant to the terms of the exchange offer, assuming full participation in the exchange offer by all eligible employees, an applicable SAP share price of $126.50 per share (which was the closing price of SAP’s ordinary shares on Xetra on December 23, 2020, converted into U.S. dollars using the exchange rate as published by the Wall Street Journal for that date and rounded to the nearest half dollar) and an initial public offering price of $22.00 per share (the midpoint of the estimated offering price range set forth on the cover page of this prospectus)), and
◦12,000,000 shares of our Class A common stock reserved for future issuance under our ESPP, which will become available for issuance effective upon the effectiveness of the registration statement of which this prospectus is a part, as well as any automatic increases in the number of shares of our common stock reserved for future issuance under such plan.
Our 2021 Plan and ESPP will each provide for annual automatic increases in the number of shares reserved thereunder and our 2021 Plan also will provide for increases to the number of shares of Class A common stock that may be granted thereunder based on shares underlying any awards under our 2021 Plan that expire, are forfeited, or are otherwise terminated, as more fully described in the section titled “Executive Compensation—Equity-Based Compensation Plans.”
To the extent that any equity-based compensation awards are granted under our equity compensation plans, or we issue additional equity securities or convertible debt, there will be further dilution to investors participating in this offering.
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following tables present our selected consolidated financial and other data. We have derived the selected consolidated statements of operations data for the years ended December 31, 2018 and 2019 and our selected consolidated balance sheet data as of December 31, 2018 and 2019 from our audited consolidated financial statements included elsewhere in this prospectus. We have derived the selected consolidated statements of operations data for the nine months ended September 30, 2019 and 2020 and our selected consolidated balance sheet data as of September 30, 2020 from our unaudited interim consolidated financial statements included elsewhere in this prospectus. The unaudited interim consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and reflect, in the opinion of management, all adjustments of a normal, recurring nature that are necessary for a fair statement of the unaudited interim consolidated financial statements. Our historical results are not necessarily indicative of the results that may be expected in the future, and the results for the nine months ended September 30, 2019 or 2020 are not necessarily indicative of the results to be expected for the full year or any other future period. The following selected consolidated financial and other data should be read in conjunction with the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included elsewhere in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
Nine Months Ended
September 30,
|
|
|
2018
|
|
2019
|
|
2019
|
|
2020
|
|
Consolidated Statements of Operations Data:
|
(In thousands, except share data)
|
|
Revenue:
|
|
|
|
|
|
|
|
|
Subscription
|
$
|
295,528
|
|
|
$
|
430,038
|
|
|
$
|
309,562
|
|
|
$
|
415,000
|
|
|
Professional services and other
|
106,380
|
|
|
161,117
|
|
|
108,786
|
|
|
134,956
|
|
|
Total revenue
|
401,908
|
|
|
591,155
|
|
|
418,348
|
|
|
549,956
|
|
|
Cost of revenue(1)(2):
|
|
|
|
|
|
|
|
|
Subscription
|
35,785
|
|
|
67,982
|
|
|
51,563
|
|
|
46,974
|
|
|
Professional services and other
|
66,929
|
|
|
117,509
|
|
|
80,692
|
|
|
100,060
|
|
|
Total cost of revenue
|
102,714
|
|
|
185,491
|
|
|
132,255
|
|
|
147,034
|
|
|
Gross profit
|
299,194
|
|
|
405,664
|
|
|
286,093
|
|
|
402,922
|
|
|
Operating expenses(1)(2):
|
|
|
|
|
|
|
|
|
Research and development
|
65,925
|
|
|
242,124
|
|
|
183,466
|
|
|
168,985
|
|
|
Sales and marketing
|
192,142
|
|
|
440,325
|
|
|
327,454
|
|
|
322,775
|
|
|
General and administrative
|
74,248
|
|
|
717,363
|
|
|
624,342
|
|
|
155,225
|
|
|
Total operating expenses
|
332,315
|
|
|
1,399,812
|
|
|
1,135,262
|
|
|
646,985
|
|
|
Operating loss
|
(33,121)
|
|
|
(994,148)
|
|
|
(849,169)
|
|
|
(244,063)
|
|
|
Other non-operating income (expense), net
|
169
|
|
|
(486)
|
|
|
(666)
|
|
|
(483)
|
|
|
Loss before income taxes
|
(32,952)
|
|
|
(994,634)
|
|
|
(849,835)
|
|
|
(244,546)
|
|
|
Provision for income taxes
|
4,356
|
|
|
12,999
|
|
|
10,528
|
|
|
13,481
|
|
|
Net loss
|
$
|
(37,308)
|
|
|
$
|
(1,007,633)
|
|
|
$
|
(860,363)
|
|
|
$
|
(258,027)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 23, 2019 through December 31, 2019
|
|
January 23, 2019 through September 30, 2019
|
|
Nine Months Ended September 30, 2020
|
|
Net loss per share attributable to common stockholder, basic
|
|
|
$
|
(1.76)
|
|
|
$
|
(1.41)
|
|
|
$
|
(0.61)
|
|
|
Weighted-average shares used in computing net loss per share attributable to common stockholder, basic
|
|
|
423,170,610
|
|
|
423,170,610
|
|
|
423,170,610
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net loss per share attributable to common stockholder, basic (3)
|
|
|
|
|
|
|
|
|
Weighted-average Class A and Class B shares used in computing pro forma net loss per share attributable to common stockholder, basic
|
|
|
|
|
|
|
|
________________
(1)Includes equity and cash settled stock-based compensation expense, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
Nine Months Ended
September 30,
|
|
|
2018
|
|
2019
|
|
2019
|
|
2020
|
|
|
(In thousands)
|
|
Cost of subscription revenue
|
$
|
4
|
|
|
$
|
24,136
|
|
|
$
|
20,947
|
|
|
$
|
3,809
|
|
|
Cost of professional services and other revenue
|
144
|
|
|
17,168
|
|
|
13,937
|
|
|
6,193
|
|
|
Research and development
|
2,228
|
|
|
130,809
|
|
|
107,134
|
|
|
63,165
|
|
|
Sales and marketing
|
708
|
|
|
115,581
|
|
|
94,088
|
|
|
34,933
|
|
|
General and administrative
|
1,516
|
|
|
588,532
|
|
|
514,015
|
|
|
109,949
|
|
|
Total stock-based compensation expense, including cash settled(a)
|
$
|
4,600
|
|
|
$
|
876,226
|
|
|
$
|
750,121
|
|
|
$
|
218,049
|
|
________________
(a)As a result of the SAP Acquisition, our stock based compensation expense reflects the recognition of both equity classified awards and liability classified awards. Liability classified awards are settled in cash in accordance with SAP’s employee equity compensation programs. 2018 stock-based compensation expense consisted entirely of equity-classified awards. 2019 stock-based compensation expense consisted of $185.8 million of equity-classified awards and was recognized as a result of the SAP Acquisition, and $690.4 million of liability-classified awards, of which $312.8 million were settled in cash in 2019. For the nine months ended September 30, 2019 and 2020, stock-based compensation expense consisted of $185.8 million, and $0.0 million, respectively, of equity-classified awards recognized as a result of the SAP Acquisition, and $564.3 million and $218.0 million, respectively, of liability-classified awards. During the nine months ended September 30, 2019 and 2020, awards of $213.2 million and $284.0 million, respectively, were settled in cash. Liability-classified awards are recorded according to mark-to-market accounting.
(2)Includes amortization of acquired intangible assets as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
Nine Months Ended
September 30,
|
|
|
2018
|
|
2019
|
|
2019
|
|
2020
|
|
|
(In thousands)
|
|
Cost of subscription revenue
|
$
|
703
|
|
|
$
|
1,160
|
|
|
$
|
878
|
|
|
$
|
797
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
145
|
|
|
204
|
|
|
153
|
|
|
153
|
|
|
General and administrative
|
201
|
|
|
114
|
|
|
87
|
|
|
141
|
|
|
Total amortization of acquired intangible assets
|
$
|
1,049
|
|
|
$
|
1,478
|
|
|
$
|
1,118
|
|
|
$
|
1,091
|
|
(3)Unaudited pro forma per share data gives effect, in the weighted average shares used in the calculation, to the additional million shares of common stock, which, when multiplied by the assumed initial public offering price of $22.00 per share (the midpoint of the range set forth on the cover page of this prospectus), and after giving effect to a pro rata allocation of offering costs, would have been required to be issued to generate proceeds sufficient to pay the portion of the $ million dividend declared in that exceeded the most recent twelve months’ earnings.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
December 31,
2018
|
|
As of
December 31,
2019
|
|
As of
September 30,
2020
|
|
Consolidated Balance Sheet Data:
|
(In thousands)
|
|
Cash and cash equivalents
|
$
|
115,443
|
|
|
$
|
42,467
|
|
|
$
|
87,500
|
|
|
Working capital (deficit)(1)
|
$
|
228,633
|
|
|
$
|
(111,203)
|
|
|
$
|
(82,377)
|
|
|
Total assets
|
$
|
378,513
|
|
|
$
|
603,284
|
|
|
$
|
706,221
|
|
|
Total deferred revenue
|
$
|
284,222
|
|
|
$
|
386,784
|
|
|
$
|
381,213
|
|
|
Accumulated deficit
|
$
|
(118,632)
|
|
|
$
|
(1,126,265)
|
|
|
$
|
(1,384,292)
|
|
|
Total equity (deficit)
|
$
|
22,266
|
|
|
$
|
(540,520)
|
|
|
$
|
(397,095)
|
|
________________
(1)Working capital (deficit) is defined as current assets less current liabilities, excluding current deferred revenue. See our audited consolidated financial statements and related notes included elsewhere in this prospectus for further details regarding our current assets and current liabilities.
Non-GAAP Financial Measures
In addition to our results determined in accordance with U.S. generally accepted accounting principles, or GAAP, we believe several non-GAAP measures are useful in evaluating our operating performance: non-GAAP gross profit and margin, non-GAAP operating income (loss) and margin, and free cash flow. We use the following non-GAAP financial information to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance. However, non-GAAP financial information is presented for supplemental informational purposes only, has limitations as an analytical tool, and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP. In particular, free cash flow is not a substitute for cash used in operating activities and it does not represent the total increase or decrease in our cash balance for a given period. In addition, other companies, including companies in our industry, may calculate similarly-titled non-GAAP measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures, and not to rely on any single financial measure to evaluate our business.
Non-GAAP Gross Profit and Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
Nine Months Ended
September 30,
|
|
|
2018
|
|
2019
|
|
2019
|
|
2020
|
|
|
(In thousands)
|
|
GAAP gross profit
|
$
|
299,194
|
|
|
$
|
405,664
|
|
|
$
|
286,093
|
|
|
$
|
402,922
|
|
|
Add: Stock-based compensation expense, including cash settled
|
148
|
|
|
41,304
|
|
|
34,884
|
|
|
10,002
|
|
|
Add: Amortization of acquired intangible assets
|
703
|
|
|
1,160
|
|
|
878
|
|
|
797
|
|
|
Non-GAAP gross profit
|
$
|
300,045
|
|
|
$
|
448,128
|
|
|
$
|
321,855
|
|
|
$
|
413,721
|
|
|
Non-GAAP gross margin
|
75
|
%
|
|
76
|
%
|
|
77
|
%
|
|
75
|
%
|
We calculate non-GAAP gross profit, as GAAP gross profit excluding equity and cash settled stock-based compensation expense and amortization of acquired intangible assets allocated to cost of revenue. Non-GAAP gross margin is calculated as non-GAAP gross profit divided by total revenue.
Non-GAAP Operating Income (Loss) and Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
Nine Months Ended
September 30,
|
|
|
2018
|
|
2019
|
|
2019
|
|
2020
|
|
|
(In thousands)
|
|
GAAP operating loss
|
$
|
(33,121)
|
|
|
$
|
(994,148)
|
|
|
$
|
(849,169)
|
|
|
$
|
(244,063)
|
|
|
Add: Stock-based compensation expense, including cash settled(1)
|
4,600
|
|
|
876,226
|
|
|
750,121
|
|
|
218,049
|
|
|
Add: Amortization of acquired intangible assets
|
1,049
|
|
|
1,478
|
|
|
1,118
|
|
|
1,091
|
|
|
Add: Advisory and legal costs related to 2018 IPO and the SAP Acquisition
|
31,100
|
|
|
66,992
|
|
|
66,992
|
|
|
—
|
|
|
Non-GAAP operating income (loss)
|
$
|
3,628
|
|
|
$
|
(49,452)
|
|
|
$
|
(30,938)
|
|
|
$
|
(24,923)
|
|
|
Non-GAAP operating margin
|
1
|
%
|
|
(8)
|
%
|
|
(7)
|
%
|
|
(5)
|
%
|
________________
(1)As a result of the SAP Acquisition, our stock based compensation expense reflects the recognition of both equity classified awards and liability classified awards. Liability classified awards are settled in cash in accordance with SAP’s employee equity compensation programs. 2018 stock-based compensation expense consisted entirely of equity-classified awards. 2019 stock-based compensation expense consisted of $185.8 million of equity-classified awards and was recognized as a result of the SAP Acquisition, and $690.4 million of liability-classified awards, of which $312.8 million were settled in cash in 2019. For the nine months ended September 30, 2019 and 2020, stock-based compensation expense consisted of $185.8 million, and $0.0 million, respectively, of equity-classified awards recognized as a result of the SAP Acquisition, and $564.3 million and $218.0 million, respectively, of liability-classified awards. During the nine months ended September 30, 2019 and 2020, awards of $213.2 million and $284.0 million, respectively, were settled in cash. Liability-classified awards are recorded according to mark-to-market accounting.
We calculate non-GAAP operating income (loss), as GAAP operating loss excluding equity and cash settled stock-based compensation expense, amortization of acquired intangible assets, and advisory and legal costs related to the 2018 IPO and SAP Acquisition. Non-GAAP operating margin is calculated as non-GAAP operating income (loss) divided by total revenue.
Free Cash Flow and Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
Nine Months Ended
September 30,
|
|
|
2018
|
|
2019
|
|
2019
|
|
2020
|
|
|
(In thousands)
|
|
Net cash provided by (used in) operating activities
|
$
|
36,404
|
|
|
$
|
(370,904)
|
|
|
$
|
(245,955)
|
|
|
$
|
(312,229)
|
|
|
Less: Capital expenditures
|
(21,321)
|
|
|
(33,181)
|
|
|
(26,469)
|
|
|
(43,054)
|
|
|
Free cash flow
|
15,083
|
|
|
(404,085)
|
|
|
(272,424)
|
|
|
(355,283)
|
|
|
Free cash flow margin
|
4
|
%
|
|
(68)
|
%
|
|
(65)
|
%
|
|
(65)
|
%
|
As a result of the SAP Acquisition, we incurred significant cash outflows in connection with the settlement liability classified awards in accordance with SAP’s employee equity compensation programs. We calculate free cash flow as net cash provided by operating activities less capital expenditures. Our free cash flow for the year ended December 31, 2018 and 2019 and for the nine months ended September 30, 2019 and 2020 includes $31.1 million, $379.8 million, $280.2 million and $284.0 million, respectively, in cash outflows related to the settlement of liability-classified, stock-based awards and advisory and legal costs related to the 2018 IPO and SAP Acquisition. Free cash flow margin is calculated as free cash flow divided by total revenue.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the section titled “Selected Consolidated Financial and Other Data” and the consolidated financial statements and related notes thereto included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. 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
We created the first experience management platform to manage customer, employee, product, and brand experiences. Our platform serves as a business operating system for Experience Management. The Qualtrics Experience Management Platform, or Qualtrics XM, is a system of action that helps companies design and improve the experiences they provide to their many constituents across these four core experiences.
We have built a thriving global business with more than 12,000 customers, including 85% of the Fortune 100 as of September 30, 2020. Our revenue was $401.9 million and $591.2 million for the years ended December 31, 2018 and 2019, respectively, representing year-over-year growth of 47%. For the years ended December 31, 2018 and 2019, our net loss was $37.3 million and $1,007.6 million, respectively, and our free cash flow was $15.1 million and $(404.1) million, respectively. The results of our operations for the years ended December 31, 2018 and 2019 were impacted by equity and cash settled stock-based compensation expense and advisory and legal costs related to the 2018 IPO and the SAP Acquisition (See Page 18 in Summary Consolidated Financial and Other Data for additional discussion).
The following graphic highlights key milestones since our founding in 2002.
We generate revenue by selling subscriptions to our XM Platform and integrated solutions, as well as professional services. Over 99% of our contracts have a subscription period of one year or longer, and we primarily bill annually in advance. Subscription revenue comprised over 75% of our total revenue for the nine months ended September 30, 2020. We have a diversified customer base consisting of organizations of various sizes across
virtually all industries. Our largest customer accounted for less than 2% of revenue in 2019, and our largest industries by annual recurring revenue, or ARR, as of September 30, 2020 were financial services, professional and business services, education, technology, government and healthcare. ARR is calculated by annualizing subscription revenue in the last month of a period.
We price and package our software subscriptions solutions based on the capacity, use case and functionality needs of our customers. This pricing and packaging includes volume of expected responses, number of users accessing our platform, number of employees, and level of functionality provided, such as dashboards, iQ functionality, and integrations. We have also recently begun to offer use case pricing that simplifies pricing for customers seeking to address specific needs. Our customers often expand their subscriptions as they increase volume of responses, add solutions and integrations, grow users and employees, and increase features and workflows within each solution.
Our professional services consist primarily of research services, though our DesignXM offering, which allows customers to gain market intelligence by procuring a curated group of respondents and returning tangible results, while conforming to best-practice design and methodology, as well as implementations, configurations, integration and engineering services to help customers deploy our XM Platform. Other professional services revenue consists of consulting and training fees.
Key Factors Affecting Our Performance
We believe that the growth and future success of our business depends on many factors. While each of these factors presents significant opportunities for our business, they also pose important challenges that we must successfully address in order to sustain our growth and improve our results of operations.
Customer Acquisition and Expansion
We are focused on continuing to acquire new customers to support our long-term growth. We have invested, and expect to continue to invest, heavily in our sales and marketing efforts to drive customer acquisition. As of September 30, 2020, we had more than 12,000 customers, including 85% of the Fortune 100. Our customers include businesses of all sizes, academic institutions, and government organizations. We define the number of customers at the end of any particular period as the number of parties or individual legal entities that have entered into a separate subscription contract with us. For avoidance of doubt, international subsidiaries of parent entities are not separately counted, but business units, brands, and academic institutions are counted if they are distinct legal entities. A single organization or customer may have multiple paid business accounts.
Our business model relies on rapidly and efficiently landing new customers and expanding our relationship with them over time. We have a history of attracting new customers, driving expanded use through upselling our XM Platform across the enterprise, and cross-selling through the subsequent deployment of additional solutions throughout the enterprise. Our relationship with SAP has resulted in greater access to enterprise customers and increased cross-sell opportunities through SAP’s base of over 400,000 customers in more than 180 countries. The chart below illustrates the total subscription billings of each cohort over the periods presented with each cohort representing customers who made their first purchase from us in a given fiscal year. For example, the 2016 cohort includes all customers that purchased their first subscription from us between January 1, 2016 and December 31, 2016. Our subscription billings from customers for the 2014 cohort, 2015 cohort, 2016 cohort, 2017 cohort, and
2018 cohort in 2019 represent an increase over each cohort’s initial aggregate subscription billings by 1.7x, 1.8x, 1.7x, 1.4x, and 1.2x, respectively.
Note: 2013 cohort represents billings from 2013 and prior years.
We continue to increase the number of customers who have entered into larger subscriptions with us. We had 1,206 customers with ARR of $100,000 or more as of September 30, 2020, increased from 720 and 1,026 as of December 31, 2018 and 2019, respectively. Further, as of September 30, 2020, we had 64 customers with ARR of $1 million or more, up from 27 and 43 as of December 31, 2018 and 2019, respectively. The number of customers with ARR of $100,000 or more indicates the strategic importance of our platform for enterprise customers and our ability to both initially land significant accounts and grow them over time.
Investing for Growth
Our investment for growth encompasses multiple critical areas, including international growth, enterprise sales, and product expansion.
Our revenue outside of the United States represented 23%, 26%, 25%, and 28% of our total revenue in the years ended December 31, 2018 and 2019 and for the nine months ended September 30, 2019 and 2020, respectively. We initially started our expansion outside of the United States in English-speaking countries, such as Ireland, the United Kingdom, Canada and Australia, as we were able to leverage our core technologies and go-to-market motion. Since opening our first international office in Dublin, Ireland in 2013, we now have 27 sales offices in countries around the globe.
We continue to evolve our technology to ensure that we are best serving our customers’ needs. We believe this will lead to continued increased retention and positive customer referrals that will continue to generate expansion within current customer organizations and business from new customers. Since 2015, we have established offices in Seattle and Poland to expand our engineering headcount. We continue to invest in research and development to drive product innovation and development.
Strategic Partnerships
In 2018, we announced the launch of QPN. Since then, we have built out our partner network to include over 200 global member companies partnering with us on our platform to help drive breakthrough business outcomes for joint customers. Since the SAP Acquisition in 2019, we have also developed joint go-to-market and product integrations with SAP. We expect our partnerships to extend our sales reach and provide implementation leverage
both domestically and internationally, as well as product and technology integrations that will accelerate our product roadmap.
Key Business Metrics
We review a number of operating and financial metrics, including the following key metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions.
Large Customers
We define our large customers as those spending more than $100,000 in ARR on our XM Platform. We believe that our ability to increase the number of large customers is an indicator of our market penetration, strategic demand for our platform, the growth of our business, and our potential future business opportunities. Increasing awareness of our platform and its broad range of capabilities, coupled with the mainstream adoption of cloud-based technology, has expanded the diversity of our large customer base to include organizations of different sizes across virtually all industries.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Growth Rate
|
|
|
December 31,
|
|
September 30,
|
|
December 31,
|
|
September 30,
|
|
|
2018
|
|
2019
|
|
2019
|
|
2020
|
|
2019
|
|
2020
|
|
Large customers
|
720
|
|
|
1,026
|
|
|
933
|
|
|
1,206
|
|
|
43
|
%
|
|
29
|
%
|
Net Retention Rate
We calculate our dollar-based net retention rate to measure our ability to retain and expand subscription revenue from our existing customers and is an indicator of the value our platform delivers to customers and our future business opportunities. Our net retention rate compares our subscription revenue from the same set of customers across comparable periods and reflects customer renewals, expansion, contraction and churn.
We calculate our net retention rate on a trailing four-quarter basis. As of September 30, 2020, our net retention rate was 122%, and it has been greater than 120% in each of the last eight quarters. Our net retention rate was 122% and 125% as of December 31, 2018 and 2019, respectively.
To calculate our net retention rate, we first calculate the subscription revenue in one quarter from a cohort of customers that were customers at the beginning of the same quarter in the prior fiscal year, or cohort customers. We repeat this calculation for each quarter in the trailing four-quarter period. The numerator for net retention rate is the sum of subscription revenue from cohort customers for the four most recent quarters, or numerator period, and the denominator is the sum of subscription revenue from cohort customers for the four quarters preceding the numerator period.
SAP Acquisition
Since the SAP Acquisition in January 2019 and until the sale of 6,000,000 shares of our Class A common stock to Q II, we have operated as a wholly owned subsidiary of SAP. Accordingly, our financial results for the year-ended December 31, 2019 differ in comparison to the year-ended December 31, 2018 primarily with respect to sales and marketing expenses and equity and cash settled stock-based compensation expense.
During the year ended December 31, 2019 and the nine months ended September 30, 2019 and 2020, we recorded $15.2 million, $11.7 million and $10.8 million, respectively, of sales and marketing costs incurred by SAP for our indirect benefit, such as salaries and benefits of SAP’s sales staff. During the year ended December 31, 2019 and the nine months ended September 30, 2019 and 2020, these expenses were partially offset by $8.7 million, $2.4 million, and $8.8 million in charges to SAP for indirect benefits we provided, such as salaries and benefits of Qualtrics’ sales staff to support SAP. We expect these indirect benefits and the related costs to continue in the near
future. These amounts may fluctuate from period to period based on the nature and extent of the indirect benefits received and provided.
In 2019 we recorded $876.2 million in equity and cash settled stock-based compensation expense compared to $4.6 million in 2018. This increase was due to performance based awards that were recognized as a result of the SAP Acquisition and the modification of unvested awards, at the time of the SAP Acquisition, to liability-classified awards to be settled in cash, which resulted in mark-to-market accounting for these awards.
Our 2018 stock-based compensation expense of $4.6 million consisted entirely of equity-classified awards. Our 2019 stock-based compensation expense of $876.2 million consisted of $185.8 million of equity-classified awards recognized as a result of the SAP Acquisition and $690.4 million of liability-classified awards, of which $312.8 million were settled in cash in 2019 and $377.6 million are expected to be settled in future periods.
As a result of this increase in equity and cash settled stock-based compensation, our cost of revenue, research and development, sales and marketing, and general and administrative costs increased significantly in absolute dollars and as a percentage of revenue during the year ended 2019 compared to 2018. These changes are described in additional detail within our results of operations.
SAP Segment Reporting
Since the SAP Acquisition, certain of our financial results have been presented as an operating segment within SAP’s publicly reported financial results. These Euro-reported financial results are prepared under International Financial Reporting Standards, or IFRS, and presented on a non-IFRS basis. The SAP segment results differ from our standalone financial results primarily due to: differences in reporting currency, differences between IFRS and GAAP, differences in the reporting of certain related party transactions between Qualtrics and SAP, SAP’s reporting of expenses related to certain corporate overhead functions, and differences in the reporting related to the SAP Acquisition.
Response to COVID-19
In response to the COVID-19 pandemic, we have taken broad actions to mitigate the impact of this public health crisis on our business. In response, we have implemented, among other measures, a COVID-19 task force, a temporary work from home policy across all offices globally, new operating guidelines for our offices based on local conditions, restrictions on work-related travel, and additional wellness benefits for employees, all of which have the potential to result in a significant disruption to how we operate our business. Our customers and partners have similarly been impacted. Our XM Platform enables customers to focus on managing their customer, employee, product and brand experiences, which is increasingly important in a digitally connected world. Although we believe our business is well-suited to navigate the current environment, the ultimate duration and extent of the COVID-19 pandemic cannot be accurately predicted at this time, and the direct or indirect impact on our business, results of operations, and financial condition will depend on future developments that are highly uncertain. We have experienced, and may continue to experience, an adverse impact on certain parts of our business. The conditions caused by the pandemic have adversely affected or may in the future adversely affect, among other things, demand, spending by new customers, renewal and retention rates of existing customers, the length of our sales cycles, sales productivity, the value and duration of subscriptions, collections of accounts receivable, our IT and other expenses, our ability to recruit, and the ability of our employees to travel, all of which could adversely affect our business, results of operations, and financial condition.
We have also experienced, and may continue to experience, certain positive impacts on other aspects of our business, including an increase in sales of our platform to state, local and federal governments and non-profit organizations to help them navigate through the pandemic. Moreover, we have seen a reduction in certain operating expenses due to reduced business travel, deferred hiring for some positions, and the virtualization or cancellation of customer and employee events. At our virtual event Work Different this year, we explored how successful organizations are listening to and taking action on the feedback from their customers and employees to reimagine the future of work. Additionally, we believe that the COVID-19 pandemic could also accelerate customer transformation into digital businesses, which we expect will generate additional opportunities for us in the future.
The global impact of COVID-19 continues to rapidly evolve, and we will continue to monitor the situation and the effects on our business and operations closely. We do not yet know the full extent of potential impacts on our business or operations. In particular, due to our subscription-based business model, the effect of the COVID-19 pandemic may not be fully reflected in our revenue until future periods. Given the uncertainty, we cannot reasonably estimate the impact on our future results of operations, cash flows, or financial condition. For additional details, see “Risk Factors.”
Components of Our Results of Operations
Revenue
We generate revenue from sales of subscriptions to our XM Platform and related professional services.
Subscription revenue is recognized ratably over the related contractual term, generally beginning on the date that our XM Platform is made available to our customer. Our subscription agreements generally have annual contractual terms, with a growing number having multi-year contractual terms. Our agreements generally cannot be canceled with refund. We primarily bill in advance for our annual contracts and annually in advance for our multi-year contracts. Amounts that have been billed are initially recorded as deferred revenue until the revenue is recognized. Subscription revenue as a percentage of total revenue may fluctuate period to period.
Professional services and other revenue consists primarily of research services, implementation services, and engineering services. Research services revenue is recognized upon completion of the project. Our agreements generally cannot be canceled with refund. We typically bill in advance for research services projects, with a significant number of customers purchasing annual retainers to fund future projects. Amounts that have been billed are initially recorded as deferred revenue until the revenue is recognized. Implementation services and engineering services include fees associated with new and expanding customers requesting implementation, integration, customization, consulting, and other services. We price these services on a fixed fee basis. Our agreements generally cannot be canceled with refund. We typically bill in advance for professional services and other revenue. Amounts that have been billed are initially recorded as deferred revenue until the revenue is recognized. We continue to increase deployment of partners to fulfill certain of these services, especially implementation services, and we generally expect professional services and other revenue to decrease as a percentage of total revenue in the long term, although this percentage may fluctuate from period to period.
Cost of revenue and gross margin
Cost of revenue. Our cost of subscription revenue includes expenses related to operating our XM Platform in data centers, depreciation of our data center equipment, and the amortization of our capitalized internal-use software and acquired technology. Subscription cost of revenue also includes employee-related costs associated with our customer support and XM Platform operations organizations. Our cost of professional services and other revenue includes vendor costs and employee-related costs associated with the delivery of these services. Additionally, we make allocations of certain overhead costs, primarily based on headcount, to each of these costs of revenue. Allocated overhead includes costs such as facilities, including rent, utilities, depreciation on leasehold improvements, and shared information technology costs. We expect our cost of revenue will increase in absolute dollars in future periods as we continue to invest in our business.
Gross margin. Gross margin is gross profit expressed as a percentage of revenue. Our gross margin may fluctuate from period to period based on the timing of capital expenditures and the related depreciation expense, or other changes in equity and cash settled stock-based compensation, employee-related costs, infrastructure costs, revenue mix, timing of completion of professional services projects, as well as revenue fluctuations. Excluding the impact of equity and cash settled stock-based compensation expense, we generally expect our gross margin to remain relatively consistent in the near term and to increase modestly in the long term, although our gross margin may fluctuate from period to period depending on the interplay of all of these factors.
Operating expenses
Research and development. Our research and development expenses consist primarily of employee-related costs for our engineering, product, and design teams, and allocated overhead.
We plan to continue to hire employees for our engineering, product, and design teams to support our efforts to enhance the functionality and improve the reliability, availability, and scalability of our XM Platform. Excluding the impact of equity and cash settled stock-based compensation expense, we expect our research and development expenses to increase in absolute dollars in future periods, to remain relatively consistent as a percentage of our revenue in the near term, and to decrease as a percentage of our revenue over the long term, although our research and development expenses may fluctuate as a percentage of our revenue from period to period due to the timing and extent of these expenses.
Sales and marketing. Our sales and marketing expenses relate to both inside and outbound sales activities, as well as expansion efforts with our current customers. The expenses consist primarily of employee-related costs, marketing programs and events, including our X4 Summit, lead generation fees, indirect benefits received from SAP net of indirect benefits we provide to SAP, and allocated overhead. Sales commissions earned by our sales team and the related payroll taxes, that we consider to be incremental and recoverable costs of obtaining a contract with an organization, are deferred and amortized over an estimated period of benefit of five years.
We plan to continue to invest in sales and marketing to grow our customer base and increase our brand awareness. The trend and timing of sales and marketing expenses will depend in part on the timing of marketing campaigns. Excluding the impact of equity and cash settled stock-based compensation expense, we expect that sales and marketing expenses will increase in absolute dollars in future periods; however, we expect our sales and marketing expenses to decrease as a percentage of our revenue over the long term, although our sales and marketing expenses may fluctuate as a percentage of our revenue from period to period due to the timing and extent of these expenses.
General and administrative. Our general and administrative expenses consist primarily of employee-related costs for our finance, legal, people operations, and other administrative teams, as well as certain executives. In addition, general and administrative expenses include allocated overhead, outside legal, accounting and other professional fees, and non-income based taxes.
We expect to incur additional general and administrative expenses to support our growth as well as our transition to being a publicly traded company. Excluding the impact of equity and cash settled stock-based compensation expense, we expect that general and administrative expenses will increase in absolute dollars in future periods. Our general and administrative expenses may fluctuate as a percentage of our revenue from period to period due to the timing and extent of these expenses.
Other income (expense), net
Other income (expense), net consists of other non-operating gains or losses, including those related to interest income and foreign currency transaction gains and losses.
Provision for income taxes
Provision for (benefit from) income taxes consists primarily of income taxes related to the U.S. and other foreign jurisdictions in which we conduct business. We maintain a full valuation allowance against our U.S. deferred tax assets as we have concluded that it is not more likely than not that the deferred tax assets will be realized. Our effective tax rate is affected by tax rates in foreign jurisdictions and the relative amounts of income we earn in those jurisdictions, as well as non-deductible expenses, such as share-based compensation, and changes in our valuation allowance.
Income taxes as presented in our consolidated financial statements attribute current and deferred income taxes of SAP to our standalone financial statements in a manner that is systematic, rational and consistent with the asset and liability method prescribed by FASB ASC Topic 740: Income Taxes, or ASC 740. Accordingly, our income tax
provision was prepared following the separate return method. The separate return method applies ASC 740 to the standalone financial statements of each member of the consolidated group as if the group members were a separate taxpayer and a standalone enterprise. As a result, actual transactions included in the consolidated financial statements of SAP may not be included in our separate consolidated financial statements. Similarly, the tax treatment of certain items reflected in our consolidated financial statements may not be reflected in the consolidated financial statements and tax returns of SAP. Therefore, such items as net operating losses, credit carry-forwards and valuation allowances may exist in the standalone financial statements that may or may not exist in SAP’s consolidated financial statements. As such, our income taxes as presented in these consolidated financial statements may not be indicative of the income taxes that we will generate in the future.
As described above, we have calculated the income taxes in our consolidated financial statements on a separate return basis. However, we were in actuality included in the consolidated, combined or unitary U.S. federal and state income tax returns with SAP America and its affiliates. As a result, a portion of our net operating loss and credit carryforwards would not be available for our use in future tax periods as the net operating losses, or underlying deductions, and credits have already been partially absorbed by SAP America.
Results of Operations
The following table sets forth our results of operations for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
Nine Months Ended
September 30,
|
|
|
2018
|
|
2019
|
|
2019
|
|
2020
|
|
|
(In thousands)
|
|
Revenue:
|
|
|
|
|
|
|
|
|
Subscription
|
$
|
295,528
|
|
|
$
|
430,038
|
|
|
$
|
309,562
|
|
|
$
|
415,000
|
|
|
|
|
|
|
|
|
|
|
|
Professional services and other
|
106,380
|
|
|
161,117
|
|
|
108,786
|
|
|
134,956
|
|
|
Total revenue
|
401,908
|
|
|
591,155
|
|
|
418,348
|
|
|
549,956
|
|
|
Cost of revenue(1)(2):
|
|
|
|
|
|
|
|
|
Subscription
|
35,785
|
|
|
67,982
|
|
|
51,563
|
|
|
46,974
|
|
|
|
|
|
|
|
|
|
|
|
Professional services and other
|
66,929
|
|
|
117,509
|
|
|
80,692
|
|
|
100,060
|
|
|
Total cost of revenue
|
102,714
|
|
|
185,491
|
|
|
132,255
|
|
|
147,034
|
|
|
Gross profit
|
299,194
|
|
|
405,664
|
|
|
286,093
|
|
|
402,922
|
|
|
Operating expenses(1)(2):
|
|
|
|
|
|
|
|
|
Research and development
|
65,925
|
|
|
242,124
|
|
|
183,466
|
|
|
168,985
|
|
|
Sales and marketing
|
192,142
|
|
|
440,325
|
|
|
327,454
|
|
|
322,775
|
|
|
General and administrative
|
74,248
|
|
|
717,363
|
|
|
624,342
|
|
|
155,225
|
|
|
Total operating expenses
|
332,315
|
|
|
1,399,812
|
|
|
1,135,262
|
|
|
646,985
|
|
|
Operating loss
|
(33,121)
|
|
|
(994,148)
|
|
|
(849,169)
|
|
|
(244,063)
|
|
|
Other non-operating income (expense), net
|
169
|
|
|
(486)
|
|
|
(666)
|
|
|
(483)
|
|
|
Loss before income taxes
|
(32,952)
|
|
|
(994,634)
|
|
|
(849,835)
|
|
|
(244,546)
|
|
|
Provision for income taxes
|
4,356
|
|
|
12,999
|
|
|
10,528
|
|
|
13,481
|
|
|
Net loss
|
$
|
(37,308)
|
|
|
$
|
(1,007,633)
|
|
|
$
|
(860,363)
|
|
|
$
|
(258,027)
|
|
________________
(1)Includes equity and cash settled stock-based compensation expense, as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
Nine Months Ended
September 30,
|
|
|
2018
|
|
2019
|
|
2019
|
|
2020
|
|
|
(In thousands)
|
|
Cost of subscription revenue
|
$
|
4
|
|
|
$
|
24,136
|
|
|
$
|
20,947
|
|
|
$
|
3,809
|
|
|
Cost of professional services and other revenue
|
144
|
|
|
17,168
|
|
|
13,937
|
|
|
6,193
|
|
|
Research and development
|
2,228
|
|
|
130,809
|
|
|
107,134
|
|
|
63,165
|
|
|
Sales and marketing
|
708
|
|
|
115,581
|
|
|
94,088
|
|
|
34,933
|
|
|
General and administrative
|
1,516
|
|
|
588,532
|
|
|
514,015
|
|
|
109,949
|
|
|
Total stock-based compensation, including cash settled(a)
|
$
|
4,600
|
|
|
$
|
876,226
|
|
|
$
|
750,121
|
|
|
$
|
218,049
|
|
_________________
(a)As a result of the SAP Acquisition, our stock based compensation expense reflects the recognition of both equity classified awards and liability classified awards. Liability classified awards are settled in cash in accordance with SAP’s employee equity compensation programs. 2018 stock-based compensation expense consisted entirely of equity-classified awards. 2019 stock-based compensation expense consisted of $185.8 million of equity-classified awards and was recognized as a result of the SAP Acquisition, and $690.4 million of liability-classified awards, of which $312.8 million were settled in cash in 2019. For the nine months ended September 30, 2019 and 2020, stock-based compensation expense consisted of $185.8 million, and $0.0 million, respectively, of equity-classified awards recognized as a result of the SAP
Acquisition, and $564.3 million and $218.0 million, respectively, of liability-classified awards. During the nine months ended September 30, 2019 and 2020, awards of $213.2 million and $284.0 million, respectively, were settled in cash. Liability-classified awards are recorded according to mark-to-market accounting.
(2)Includes amortization of acquired intangible assets as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
Nine Months Ended
September 30,
|
|
|
2018
|
|
2019
|
|
2019
|
|
2020
|
|
|
(In thousands)
|
|
Cost of subscription revenue
|
$
|
703
|
|
|
$
|
1,160
|
|
|
$
|
878
|
|
|
$
|
797
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
145
|
|
204
|
|
153
|
|
153
|
|
General and administrative
|
201
|
|
114
|
|
87
|
|
141
|
|
Total amortization of acquired intangible assets
|
$
|
1,049
|
|
|
$
|
1,478
|
|
|
$
|
1,118
|
|
|
$
|
1,091
|
|
The following table sets forth our results of operations for the periods presented as a percentage of our total revenue for those periods:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
Nine Months Ended
September 30,
|
|
|
2018
|
|
2019
|
|
2019
|
|
2020
|
|
|
(as a % of revenue)
|
|
Revenue:
|
|
|
|
|
|
|
|
|
Subscription
|
74
|
|
|
73
|
|
|
74
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
Professional services and other
|
26
|
|
|
27
|
|
|
26
|
|
|
25
|
|
|
Total revenue
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
Subscription
|
9
|
|
|
11
|
|
|
12
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
Professional services and other
|
17
|
|
|
20
|
|
|
19
|
|
|
18
|
|
|
Total cost of revenue
|
26
|
|
|
31
|
|
|
31
|
|
|
27
|
|
|
Gross profit
|
74
|
|
|
69
|
|
|
69
|
|
|
73
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Research and development
|
16
|
|
|
41
|
|
|
44
|
|
|
31
|
|
|
Sales and marketing
|
48
|
|
|
74
|
|
|
78
|
|
|
59
|
|
|
General and administrative
|
18
|
|
|
121
|
|
|
149
|
|
|
28
|
|
|
Total operating expenses
|
82
|
|
|
236
|
|
|
271
|
|
|
118
|
|
|
Operating loss
|
(8)
|
|
|
(167)
|
|
|
(202)
|
|
|
(45)
|
|
|
Other non-operating income, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Loss before income taxes
|
(8)
|
|
|
(167)
|
|
|
(202)
|
|
|
(45)
|
|
|
Provision for income taxes
|
1
|
|
|
2
|
|
|
3
|
|
|
2
|
|
|
Net loss
|
(9)
|
%
|
|
(169)
|
%
|
|
(205)
|
%
|
|
(47)
|
%
|
Comparison of the nine months ended September 30, 2019 and 2020
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
2019
|
|
2020
|
|
$ Change
|
|
% Change
|
|
|
(In thousands)
|
|
|
|
Subscription revenue
|
$
|
309,562
|
|
|
$
|
415,000
|
|
|
$
|
105,438
|
|
|
34
|
%
|
|
Professional services and other revenue
|
108,786
|
|
|
134,956
|
|
|
26,170
|
|
|
24
|
%
|
|
Total revenue
|
$
|
418,348
|
|
|
$
|
549,956
|
|
|
$
|
131,608
|
|
|
31
|
%
|
Subscription revenue increased by $105.4 million, or 34%, for the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019. This increase was due primarily to increased demand for our solutions from new and existing customers. Of the increase in subscription revenue for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, approximately $67.5 million was attributable to existing customers and approximately $37.9 million was attributable to new customers. The increase in revenue from existing customers was driven by upgrades of current subscription solutions and the purchase of additional solutions within our platform. Pricing changes were not material to the increase in revenue. Professional services and other revenue increased $26.2 million, or 24%, for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. This increase was primarily due to the growth of our research services offering, as well as an increase in revenue from large customers, who generally require more services.
Cost of revenue, gross profit, and gross margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
2019
|
|
2020
|
|
$ Change
|
|
% Change
|
|
|
(In thousands)
|
|
|
|
Cost of subscription revenue
|
$
|
51,563
|
|
|
$
|
46,974
|
|
|
$
|
(4,589)
|
|
|
(9)
|
%
|
|
Cost of professional services and other revenue
|
80,692
|
|
|
100,060
|
|
|
19,368
|
|
|
24
|
%
|
|
Total cost of revenue
|
132,255
|
|
|
147,034
|
|
|
14,779
|
|
|
11
|
%
|
|
|
|
|
|
|
|
|
|
|
Subscription gross profit
|
257,999
|
|
|
368,026
|
|
|
110,027
|
|
|
43
|
%
|
|
Professional services and other gross profit
|
28,094
|
|
|
34,896
|
|
|
6,802
|
|
|
24
|
%
|
|
Total gross profit
|
$
|
286,093
|
|
|
$
|
402,922
|
|
|
$
|
116,829
|
|
|
41
|
%
|
|
|
|
|
|
|
|
|
|
|
Subscription gross margin
|
83
|
%
|
|
89
|
%
|
|
|
|
|
|
Professional services and other gross margin
|
26
|
%
|
|
26
|
%
|
|
|
|
|
|
Total gross margin
|
68
|
%
|
|
73
|
%
|
|
|
|
|
Cost of subscription revenue decreased $4.6 million, or 9%, for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019, while subscription revenue grew 34% over the same period. This decrease was driven by a $17.1 million decrease in equity and cash settled stock-based compensation expense, partially offset by a $7.3 million increase in employee-related costs from headcount growth, a $3.9 million increase in server costs, and a $1.3 million increase in amortization of internal-use software. Cost of professional services and other revenue increased $19.4 million, or 24%, for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019. This increase was driven by a $16.0 million increase in employee-related costs from headcount growth and a $11.1 million increase in professional services vendor costs, offset partially by a $7.7 million decrease in equity and cash settled stock-based compensation expense,
Our gross margins increased from 68% during the nine months ended September 30, 2019 to 73% during the nine months ended September 30, 2020, due primarily to an decrease in equity and cash settled stock-based compensation expense of $24.9 million, as described above.
Operating Expenses
Research and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
2019
|
|
2020
|
|
$ Change
|
|
% Change
|
|
|
(In thousands)
|
|
|
|
Research and development
|
$
|
183,466
|
|
|
$
|
168,985
|
|
|
$
|
(14,481)
|
|
|
(8)
|
%
|
Research and development expenses decreased $14.5 million, or 8%, for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019. This decrease was driven by a $44.0 million decrease in equity and cash settled stock-based compensation expense, partially offset by a $27.3 million increase in employee-related costs from headcount growth as we continue to add to and enhance our products, and a $3.3 million increase in allocated overhead costs.
Sales and marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
2019
|
|
2020
|
|
$ Change
|
|
% Change
|
|
|
(In thousands)
|
|
|
|
Sales and marketing
|
$
|
327,454
|
|
|
$
|
322,775
|
|
|
$
|
(4,679)
|
|
|
(1)
|
%
|
Sales and marketing expenses decreased $4.7 million, or 1%, for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019. The decrease in sales and marketing was primarily driven by a $59.2 million decrease in equity and cash settled stock-based compensation expense and a $6.5 million decrease in travel-related expenses resulting from the COVID-19 pandemic, partially offset by a $54.2 million increase in employee-related costs from headcount growth and a $5.3 million increase in allocated overhead costs.
General and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
2019
|
|
2020
|
|
$ Change
|
|
% Change
|
|
|
(In thousands)
|
|
|
|
General and administrative
|
$
|
624,342
|
|
|
$
|
155,225
|
|
|
$
|
(469,117)
|
|
|
(75)
|
%
|
General and administrative expenses decreased $469.1 million, or 75%, for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019. The decrease in general and administrative expenses was primarily driven by a $404.1 million decrease in equity and cash settled stock-based compensation expense and a $67.0 million decrease in advisory and legal costs related to 2018 IPO and SAP acquisition.
Other non-operating income (expense), net
Other non-operating income (expense), net increased $0.2 million for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019. This immaterial change for the periods results from immaterial changes in interest income due to differences in average cash balances and interest rates and immaterial changes in foreign currency transactions gains and losses.
Provision for income taxes
Provision for income taxes increased $3.0 million for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019, due to our growth internationally and increases in tax reserves.
Our effective tax rate decreased to (5.5)% for the nine months ended September 30, 2020, as compared to (1.2)% for the nine months ended September 30, 2019. The decrease was primarily driven by differences in our effective tax rate for the respective years, as described below.
Our effective tax rate for the nine months ended September 30, 2020 was (5.5)%. The difference between the U.S. statutory rate of 21% and our effective tax rate is primarily driven by rate increases due to tax reserves, foreign taxes, and the impact of valuation allowances recorded against current year losses in the United States.
Our effective tax rate for the nine months ended September 30, 2019 was (1.2)%. The difference between the U.S. statutory rate of 21% and our effective tax rate is primarily driven by rate adjustments due to tax reserves, non-deductible stock compensation, foreign taxes, and the impact of valuation allowances recorded against current year losses in the United States.
Comparison of the years ended December 31, 2018 and 2019
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2018
|
|
2019
|
|
$ Change
|
|
% Change
|
|
|
(In thousands)
|
|
|
|
Subscription revenue
|
$
|
295,528
|
|
|
$
|
430,038
|
|
|
$
|
134,510
|
|
|
46
|
%
|
|
Professional services and other revenue
|
106,380
|
|
|
161,117
|
|
|
54,737
|
|
|
51
|
%
|
|
Total revenue
|
$
|
401,908
|
|
|
$
|
591,155
|
|
|
$
|
189,247
|
|
|
47
|
%
|
Subscription revenue increased by $134.5 million, or 46%, for the year ended December 31, 2019 as compared to the year ended December 31, 2018. This increase was due primarily to increased demand for our solutions from new and existing customers. Of the increase in subscription revenue for the year ended December 31, 2019 compared to the year ended December 31, 2018, approximately $84.0 million was attributable to existing customers and approximately $50.5 million was attributable to new customers. The increase in revenue from existing customers was driven by upgrades of current subscription solutions and the purchase of additional solutions within our platform. Pricing changes were not material to the increase in revenue. Professional services and other revenue increased $54.7 million, or 51%, from the year ended December 31, 2018 to the year ended December 31, 2019. This increase was primarily due to the growth of our research services offering, as well as an increase in revenue from large customers, who generally require more services.
Cost of revenue, gross profit, and gross margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2018
|
|
2019
|
|
$ Change
|
|
% Change
|
|
|
(In thousands)
|
|
|
|
Cost of subscription revenue
|
$
|
35,785
|
|
|
$
|
67,982
|
|
|
$
|
32,197
|
|
|
90
|
%
|
|
Cost of professional services and other revenue
|
66,929
|
|
|
117,509
|
|
|
50,580
|
|
|
76
|
%
|
|
Total cost of revenue
|
102,714
|
|
|
185,491
|
|
|
82,777
|
|
|
81
|
%
|
|
|
|
|
|
|
|
|
|
|
Subscription gross profit
|
259,743
|
|
|
362,056
|
|
|
102,313
|
|
|
39
|
%
|
|
Professional services and other gross profit
|
39,451
|
|
|
43,608
|
|
|
4,157
|
|
|
11
|
%
|
|
Total gross profit
|
$
|
299,194
|
|
|
$
|
405,664
|
|
|
$
|
106,470
|
|
|
36
|
%
|
|
|
|
|
|
|
|
|
|
|
Subscription gross margin
|
88
|
%
|
|
84
|
%
|
|
|
|
|
|
Professional services and other gross margin
|
37
|
%
|
|
27
|
%
|
|
|
|
|
|
Total gross margin
|
74
|
%
|
|
69
|
%
|
|
|
|
|
Cost of subscription revenue increased $32.2 million, or 90%, for the year ended December 31, 2019, as compared to the year ended December 31, 2018, while subscription revenue grew 46% over the same period. This increase was driven by a $24.2 million increase in equity and cash settled stock-based compensation expense, a $4.4 million increase in employee-related costs from headcount growth, a $2.5 million increase in amortization of internal-use software, and a $1.1 million increase in server costs. Cost of professional services and other revenue increased $50.6 million, or 76%, for the year ended December 31, 2019, as compared to the year ended December 31, 2018. This increase was driven by a $23.1 million increase in employee-related costs from headcount growth, a $17.0 million increase in equity and cash settled stock-based compensation expense, and a $10.5 million increase in professional services vendor costs.
Our gross margins decreased from 74% in 2018 to 69% in 2019, due primarily to an increase in equity and cash settled stock-based compensation expense of $41.2 million, as described above.
Operating Expenses
Research and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2018
|
|
2019
|
|
$ Change
|
|
% Change
|
|
|
(In thousands)
|
|
|
|
Research and development
|
$
|
65,925
|
|
|
$
|
242,124
|
|
|
$
|
176,199
|
|
|
267
|
%
|
Research and development expenses increased $176.2 million, or 267%, for the year ended December 31, 2019, as compared to the year ended December 31, 2018. This increase was driven by a $128.6 million increase in equity and cash settled stock-based compensation expense, a $39.4 million increase in employee-related costs from headcount growth as we continue to add to and enhance our products, and a $7.1 million increase in allocated overhead costs, partially offset by a $3.2 million increase in capitalized internal-use software.
Sales and marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2018
|
|
2019
|
|
$ Change
|
|
% Change
|
|
|
(In thousands)
|
|
|
|
Sales and marketing
|
$
|
192,142
|
|
|
$
|
440,325
|
|
|
$
|
248,183
|
|
|
129
|
%
|
Sales and marketing expenses increased $248.2 million, or 129%, for the year ended December 31, 2019, as compared to the year ended December 31, 2018. The increase in sales and marketing was primarily driven by a $114.9 million increase in equity and cash settled stock-based compensation expense, $118.9 million in employee-related costs from headcount growth and sales costs incurred by SAP, including increased sales commission expenses due to increased billings. Additional increases include $14.4 million in marketing campaign expenses.
General and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2018
|
|
2019
|
|
$ Change
|
|
% Change
|
|
|
(In thousands)
|
|
|
|
General and administrative
|
$
|
74,248
|
|
|
$
|
717,363
|
|
|
$
|
643,115
|
|
|
866
|
%
|
General and administrative expenses increased $643.1 million, or 866%, for the year ended December 31, 2019, as compared to the year ended December 31, 2018. The increase in general and administrative expenses was primarily driven by a $587.0 million increase in equity and cash settled stock-based compensation expense, a $35.9 million increase in acquisition-related costs, and a $13.5 million increase in employee-related costs driven by headcount growth to support expansion of the business.
Other non-operating income (expense), net
Other non-operating income (expense), net decreased $0.7 million for the year ended December 31, 2019, as compared to the year ended December 31, 2018, primarily due to a decrease in interest income of $0.6 million resulting from lower average cash balances throughout 2019 compared to 2018.
Provision for income taxes
Provision for income taxes increased $8.6 million for the year ended December 31, 2019, as compared to the year ended December 31, 2018, due to our growth internationally.
The decrease in our effective tax rate to (1.3)% for the year ended December 31, 2019, as compared to (13.2)% for the year ended December 31, 2018, was primarily driven by differences in our effective tax rate for the respective years, as described below.
Our effective tax rate for the year ended December 31, 2019 was (1.3)%. The difference between the U.S. statutory rate of 21% and our effective tax rate is primarily driven by rate increases due to equity compensation (8.4%), foreign and state taxes (4.5%), and tax credits (3.1%). These increases to our effective tax rate are partially offset by rate decreases due to changes of the valuation allowance (36.7%). Our valuation allowance increased to offset increases in our deferred tax assets primarily driven by additional net operating loss carryforward. The effective tax rate increase related to equity compensation is due to deductible compensation payments for tax purposes greater than the expense recorded for book purposes.
Our effective tax rate for the year ended December 31, 2018 was (13.2)%. The difference between the U.S. statutory rate of 21% and our effective tax rate is primarily driven by rate adjustments due to changes in the valuation allowance (45.4%), which was partially offset by a rate adjustment due to tax credits (27.6%). Our valuation allowance increased to offset increases in our deferred tax assets primarily driven by additional net operating loss carryforwards.
Quarterly Results of Operations
The following table sets forth our unaudited quarterly statements of operations data for each of the last eight quarters ended September 30, 2020. The information for each of these quarters has been prepared on the same basis as the audited annual financial statements included elsewhere in this prospectus and, in the opinion of management, includes all adjustments, which includes only normal recurring adjustments, necessary for the fair statement of the results of operations for these periods. This data should be read in conjunction with our audited consolidated financial statements and related notes thereto included elsewhere in this prospectus. These quarterly results of operations are not necessarily indicative of our future results of operations that may be expected for any future period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Dec. 31,
|
|
March 31,
|
|
June 30,
|
|
Sept. 30,
|
|
Dec. 31,
|
|
March 31,
|
|
June 30,
|
|
Sept. 30,
|
|
|
2018
|
|
2019
|
|
2019
|
|
2019
|
|
2019
|
|
2020
|
|
2020
|
|
2020
|
|
|
(In thousands)
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription
|
$
|
86,309
|
|
|
$
|
96,612
|
|
|
$
|
102,453
|
|
|
$
|
110,497
|
|
|
$
|
120,476
|
|
|
$
|
128,265
|
|
|
$
|
138,476
|
|
|
$
|
148,259
|
|
|
Professional services and other
|
27,157
|
|
|
32,923
|
|
|
34,379
|
|
|
41,484
|
|
|
52,331
|
|
|
47,799
|
|
|
42,567
|
|
|
44,590
|
|
|
Total revenue
|
113,466
|
|
|
129,535
|
|
|
136,832
|
|
|
151,981
|
|
|
172,807
|
|
|
176,064
|
|
|
181,043
|
|
|
192,849
|
|
|
Cost of revenue(1)(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription
|
9,573
|
|
|
24,231
|
|
|
13,396
|
|
|
13,936
|
|
|
16,419
|
|
|
13,716
|
|
|
16,896
|
|
|
16,362
|
|
|
Professional services and other
|
17,572
|
|
|
24,111
|
|
|
27,017
|
|
|
29,564
|
|
|
36,817
|
|
|
34,208
|
|
|
33,178
|
|
|
32,674
|
|
|
Total cost of revenue
|
27,145
|
|
|
48,342
|
|
|
40,413
|
|
|
43,500
|
|
|
53,236
|
|
|
47,924
|
|
|
50,074
|
|
|
49,036
|
|
|
Gross profit
|
86,321
|
|
|
81,193
|
|
|
96,419
|
|
|
108,481
|
|
|
119,571
|
|
|
128,140
|
|
|
130,969
|
|
|
143,813
|
|
|
Operating expenses(1)(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
20,653
|
|
|
87,980
|
|
|
53,376
|
|
|
42,110
|
|
|
58,658
|
|
|
35,489
|
|
|
71,431
|
|
|
62,065
|
|
|
Sales and marketing
|
55,006
|
|
|
137,279
|
|
|
97,045
|
|
|
93,130
|
|
|
112,871
|
|
|
107,095
|
|
|
112,672
|
|
|
103,008
|
|
|
General and administrative
|
44,366
|
|
|
427,504
|
|
|
137,816
|
|
|
59,022
|
|
|
93,021
|
|
|
22,487
|
|
|
72,007
|
|
|
60,731
|
|
|
Total operating expenses
|
120,025
|
|
|
652,763
|
|
|
288,237
|
|
|
194,262
|
|
|
264,550
|
|
|
165,071
|
|
|
256,110
|
|
|
225,804
|
|
|
Operating loss
|
(33,704)
|
|
|
(571,570)
|
|
|
(191,818)
|
|
|
(85,781)
|
|
|
(144,979)
|
|
|
(36,931)
|
|
|
(125,141)
|
|
|
(81,991)
|
|
|
Other non-operating income (expense), net
|
(107)
|
|
|
(25)
|
|
|
(228)
|
|
|
(413)
|
|
|
180
|
|
|
485
|
|
|
(412)
|
|
|
(556)
|
|
|
Loss before income taxes
|
(33,811)
|
|
|
(571,595)
|
|
|
(192,046)
|
|
|
(86,194)
|
|
|
(144,799)
|
|
|
(36,446)
|
|
|
(125,553)
|
|
|
(82,547)
|
|
|
Provision for (benefit from) income taxes
|
1,421
|
|
|
3,981
|
|
|
2,226
|
|
|
4,321
|
|
|
2,471
|
|
|
8,389
|
|
|
1,951
|
|
|
3,141
|
|
|
Net loss
|
$
|
(35,232)
|
|
|
$
|
(575,576)
|
|
|
$
|
(194,272)
|
|
|
$
|
(90,515)
|
|
|
$
|
(147,270)
|
|
|
$
|
(44,835)
|
|
|
$
|
(127,504)
|
|
|
$
|
(85,688)
|
|
____________________
(1)Includes stock-based compensation expense as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Dec. 31,
|
|
March 31,
|
|
June 30,
|
|
Sept. 30,
|
|
Dec. 31,
|
|
March 31,
|
|
June 30,
|
|
Sept. 30,
|
|
|
2018
|
|
2019
|
|
2019
|
|
2019
|
|
2019
|
|
2020
|
|
2020
|
|
2020
|
|
|
(In thousands)
|
|
Cost of subscription revenue
|
$
|
—
|
|
|
$
|
15,506
|
|
|
$
|
3,384
|
|
|
$
|
2,057
|
|
|
$
|
3,189
|
|
|
$
|
169
|
|
|
$
|
2,915
|
|
|
$
|
725
|
|
|
Cost of professional services and other revenue
|
145
|
|
|
4,480
|
|
|
5,779
|
|
|
3,678
|
|
|
3,231
|
|
|
89
|
|
|
3,522
|
|
|
2,582
|
|
|
Research and development
|
660
|
|
|
67,298
|
|
|
26,943
|
|
|
12,893
|
|
|
23,675
|
|
|
1,964
|
|
|
37,282
|
|
|
23,919
|
|
|
Sales and marketing
|
149
|
|
|
57,731
|
|
|
24,732
|
|
|
11,625
|
|
|
21,493
|
|
|
3,783
|
|
|
19,064
|
|
|
12,086
|
|
|
General and administrative
|
543
|
|
|
346,224
|
|
|
124,784
|
|
|
43,007
|
|
|
74,517
|
|
|
6,497
|
|
|
58,642
|
|
|
44,810
|
|
|
Total stock-based compensation
|
$
|
1,497
|
|
|
$
|
491,239
|
|
|
$
|
185,622
|
|
|
$
|
73,260
|
|
|
$
|
126,105
|
|
|
$
|
12,502
|
|
|
$
|
121,425
|
|
|
$
|
84,122
|
|
(2)Includes amortization of acquired intangible assets as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Dec. 31,
|
|
March 31,
|
|
June 30,
|
|
Sept. 30,
|
|
Dec. 31,
|
|
March 31,
|
|
June 30,
|
|
Sept. 30,
|
|
|
2018
|
|
2019
|
|
2019
|
|
2019
|
|
2019
|
|
2020
|
|
2020
|
|
2020
|
|
|
(In thousands)
|
|
Cost of subscription revenue
|
$
|
240
|
|
|
$
|
308
|
|
|
$
|
285
|
|
|
$
|
285
|
|
|
$
|
282
|
|
|
$
|
266
|
|
|
$
|
266
|
|
|
$
|
265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
51
|
|
|
51
|
|
|
51
|
|
|
51
|
|
|
51
|
|
51
|
|
|
51
|
|
|
51
|
|
|
General and administrative
|
43
|
|
|
32
|
|
|
28
|
|
|
27
|
|
|
27
|
|
|
47
|
|
|
47
|
|
|
47
|
|
|
Total amortization of acquired intangible assets
|
$
|
334
|
|
|
$
|
391
|
|
|
$
|
364
|
|
|
$
|
363
|
|
|
$
|
360
|
|
|
$
|
364
|
|
|
$
|
364
|
|
|
$
|
363
|
|
Quarterly Revenue Trends
Our revenue increased sequentially in each of the quarters presented primarily due to increases in the number of customers and expansion with existing customers. We generally experience seasonality in billings with our customers, and we typically record a higher percentage of billings in our fourth quarter. However, because we recognize subscription revenue ratably over the terms of our subscription agreements, a substantial portion of the subscription revenue that we report in each period is attributable to the recognition of remaining performance obligations relating to agreements that we entered into during previous periods. Consequently, increases or decreases in new or renewal billings in any one period may not be immediately reflected as subscription revenue for that period. For the three months ended March 31, 2020, June 30, 2020, and September 30, 2020, professional services and other revenue decreased as a percentage of total revenue due largely to customer delays in completing research services projects following the COVID-19 pandemic.
Quarterly cost of revenue and gross margin trends
Beginning in 2019, our quarterly subscription cost of revenue fluctuated mainly due to equity and cash settled stock-based compensation expense. Cash settled stock-based compensation expense follows mark-to-market accounting, which results in changes in quarterly periods due to changes in the underlying price of SAP’s stock. Excluding the impacts of stock-based compensation expense, margins have been consistent throughout the quarterly periods shown. Beginning in 2019, our quarterly professional services and other cost of revenue fluctuated mainly due equity and cash settled stock-based compensation expense. We generally expect our subscription and total gross margin to remain relatively constant in the near term and to increase modestly in the long term as subscription revenue becomes a bigger percentage of our overall revenue. Our subscription and total gross margin may fluctuate from period to period depending on the interplay of all of these factors.
Quarterly operating expense trends
Beginning in the fourth quarter of 2018, our quarterly operating expenses fluctuated mainly due to equity and cash settled stock-based compensation expense and advisory and legal costs related to the 2018 IPO and the SAP Acquisition. Excluding the impacts of stock-based compensation expense and costs related to the 2018 IPO and SAP acquisition, our overall total quarterly operating expenses generally increased sequentially in the quarters presented primarily due to headcount growth in connection with the expansion of our business.
Liquidity and Capital Resources
As of September 30, 2020, we had cash and cash equivalents of $87.5 million. Our cash and cash equivalents consist primarily of cash and money market funds. As of September 30, 2020, we had $13.1 million of our cash and cash equivalents held by our foreign subsidiaries.
We have financed our operations primarily through cash generated from our operations, equity issuances, and proceeds from capital contributions received from SAP in conjunction with the SAP Acquisition and funding of cash settled stock-based compensation expense. Our principal uses of cash in recent periods have been funding our operations, making capital expenditures, and settling equity-based awards.
We believe our existing cash and cash equivalents, together with cash provided by operations and funding obligations from SAP, will be sufficient to meet our needs for at least the next 12 months. Our future capital requirements will depend on many factors, including our revenue growth rate, subscription renewal activity, the timing and extent of spending to support further infrastructure development and research and development efforts, the timing and extent of additional capital expenditures to invest in existing and new office spaces, the satisfaction of tax withholding obligations for the settlement of future share-based awards, the expansion of sales and marketing and international operation activities, the introduction of new product capabilities and enhancement of our XM Platform, and the continuing market acceptance of our platform. With respect to the funding of tax withholding and remittance obligations related to the settlement of share-based awards, we may use a significant portion of our existing cash, including funds raised in this offering. If we elect not to fully fund tax withholding and remittance obligations through cash or if we are unable to do so, we may choose to sell equity or debt securities, or rely on a combination of these alternatives. We have based this estimate on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. We may in the future enter into arrangements to acquire or invest in complementary businesses, services, and technologies, including intellectual
property rights. We may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, results of operations, and financial condition would be materially and adversely affected.
Our cash flow activities were as follows for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
Nine Months Ended September 30,
|
|
|
2018
|
|
2019
|
|
2019
|
|
2020
|
|
|
(In thousands)
|
|
Net cash flows provided by (used in) operating activities
|
$
|
36,404
|
|
|
$
|
(370,904)
|
|
|
$
|
(245,955)
|
|
|
$
|
(312,229)
|
|
|
Net cash used in investing activities
|
(32,686)
|
|
|
(33,181)
|
|
|
(26,469)
|
|
|
(43,054)
|
|
|
Net cash flows (used in) provided by financing activities
|
(531)
|
|
|
329,793
|
|
|
214,793
|
|
|
400,000
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
(1,179)
|
|
|
1,316
|
|
|
1,164
|
|
|
316
|
|
|
Net increase (decrease) in cash and cash equivalents
|
$
|
2,008
|
|
|
$
|
(72,976)
|
|
|
$
|
(56,467)
|
|
|
$
|
45,033
|
|
Operating activities
Our largest source of operating cash is cash collections from our paying customers for subscriptions to our XM Platform. Our primary uses of cash from operating activities are for employee-related costs, infrastructure-related expenditures, and marketing expenses. Net cash provided by operating activities is impacted by our net loss adjusted for certain non-cash items, including depreciation and amortization expenses and equity and cash settled stock-based compensation, as well as the effect of changes in operating assets and liabilities.
Net cash used in operating activities during the nine months ended September 30, 2020 was $312.2 million, which resulted from net loss of $258.0 million, adjusted for $218.0 million in stock-based compensation expense, including cash settled of $284.0 million, additional non-cash charges of $56.1 million and net cash inflow of $44.3 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of $18.6 million for depreciation and amortization expense and $22.4 million for amortization of deferred contract acquisition costs. The net cash inflow from changes in operating assets and liabilities was primarily the result of a $31.8 million decrease in accounts receivable and a $63.3 million increase in deferred contract acquisition costs as our sales commission payments increased due to addition of new customers and expansion of our existing customer subscriptions,
Net cash used in operating activities during the nine months ended September 30, 2019 was $246.0 million, which resulted from net loss of $860.4 million, adjusted for $750.1 million in stock-based compensation expense, including cash settled of $213.2 million, additional non-cash charges of $29.5 million and net cash outflow of $48.0 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of $14.1 million for depreciation and amortization expense, and $13.9 million for amortization of deferred contract acquisition costs, offset by $3.4 million in deferred income tax. The net cash inflow from changes in operating assets and liabilities was primarily the result of a $14.5 million decrease in accounts receivable and a $34.7 million increase in deferred contract acquisition costs as our sales commission payments increased due to addition of new customers and expansion of our existing customer subscriptions,
For the year ended December 31, 2019, net cash flows used in operating activities was $370.9 million, which resulted from net loss of $1,007.6 million, adjusted for $876.2 million in stock-based compensation expense, including cash settled of $312.8 million, additional non-cash charges of $42.9 million, net cash inflow of $30.3 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of $19.7 million for depreciation and amortization expense, $19.5 million of amortization of deferred contract acquisition costs, and $563.4 million of equity classified and liability classified stock-based compensation expense. The inflow from operating assets and liabilities was primarily due to an increase of $102.6 million in deferred revenue from advance
invoicing in accordance with our revenue contracts, $51.9 million aggregate increase in accrued liabilities and accounts payable, partially offset by $54.3 million increase in accounts receivable due to billings growth and timing of collections, $47.7 million increase in deferred contract acquisition costs as our sales commission payments increased due to addition of new customers and expansion of our existing customer subscriptions, and $15.7 million increase in prepaid and other assets.
For the year ended December 31, 2018, net cash provided by operating activities was $36.4 million, which resulted from net loss of $37.3 million, adjusted for non-cash charges of $32.9 million and net cash inflow of $40.8 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of $14.8 million for depreciation and amortization expense, $13.4 million of amortization of deferred contract acquisition costs and $4.6 million for equity classified stock-based compensation expense. The inflow from operating assets and liabilities was primarily due to an increase of $99.1 million in deferred revenue from advance invoicing in accordance with our customer contracts, $29.6 million aggregate increase in accrued liabilities and accounts payable, partially offset by $57.8 million increase in accounts receivable due to billings growth and timing of collections, $27.1 million increase in deferred contract acquisition costs as our sales commission payments increased due to addition of new customers and expansion of our existing customer subscriptions, and $3.5 million increase in prepaid and other assets.
Investing activities
Net cash used in investing activities is primarily impacted by purchases of property and equipment, particularly for capital expenditures for our data centers, capitalized software, improvements to existing and new office spaces, and business combinations.
Net cash used in investing activities during the nine months ended September 30, 2019 and 2020 of $26.5 million, and $43.1 million, respectively, resulted primarily from capital expenditures for our XM Platform and office build-outs.
Net cash used in investing activities during the years ended December 31, 2018 and 2019 of $32.7 million, and $33.2 million, respectively, resulted primarily from capital expenditures for our XM Platform and office build-outs and the cash paid for business combinations in 2018.
Financing activities
Net cash provided by financing activities of $214.8 million during the nine months ended September 30, 2019 was due to $754.5 million in proceeds from a capital contribution from SAP offset by $539.7 million related to the settlement of equity-based awards. Net cash provided by financing activities of $400.0 million during the nine months ended September 30, 2020 was due to $400.0 million in proceeds from a capital contribution from SAP.
Net cash provided by financing activities of $329.8 million during the year ended December 31, 2019 was due to $869.5 million in proceeds from a capital contribution from SAP offset by $539.7 million related to the settlement of equity-based awards.
Net cash used in financing activities of $0.5 million during the year ended December 31, 2018 was primarily due to the repurchase of our class B common stock.
On December 8, 2020, we entered into a stock purchase agreement with Q II, pursuant to which Q II agreed to purchase 6,000,000 shares of our Class A common stock, representing approximately 1% of the total shares of our common stock to be outstanding following the completion of this offering, at a price of $20.00 per share for an aggregate purchase price of $120 million, which transaction was completed on December 21, 2020. The shares are redeemable at the option of the Company for the 60-day period following June 30, 2021 unless the following conditions have been met: (i) the closing of our underwritten public offering shall have occurred prior to that date and (ii) Ryan Smith shall remain employed by us on that date or his employment shall have been terminated prior to that date by us without cause or by him with good reason. If such conditions do not occur, we will have 60 days following June 30, 2021 to repurchase the shares. The stock purchase agreement also restricts Q II’s right to sell or transfer the shares of our Class A common stock acquired pursuant to the purchase agreement for a period of 12 months after the effectiveness of the registration statement. Pursuant to Q II’s investment in our Class A common
stock, we will grant Q II certain rights under our stockholders’ agreement, including “piggyback” registration rights with respect to our Class A common stock that may be exercised after the date that is 18 months after the effectiveness of the registration statement, subject to standard cutback provisions imposed by underwriters which will be applied pro rata with other holders exercising such rights.
On December 23, 2020, Silver Lake agreed to purchase $550 million of shares of our Class A common stock, comprising (a) 15,018,484 shares of our Class A common stock at $21.64 per share and (b) $225 million of shares of our Class A common stock at the initial public offering price, in a concurrent private placement. Assuming an initial public offering price of $22.00, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, this would result in a total of 25,245,756 shares of our Class A common stock purchased. The Silver Lake investment is contingent upon, and is expected to close immediately following, the closing of this offering as well as the satisfaction of customary closing conditions. The Class A common stock purchase agreement also restricts Silver Lake’s right to sell or transfer the shares of our Class A common stock acquired pursuant to the purchase agreement for a period of 24 months after the effectiveness of the registration statement. Pursuant to the Silver Lake investment, we will grant Silver Lake certain rights under our stockholders’ agreement, including demand registration rights and “piggyback” registration rights with respect to our Class A common stock that may be exercised after the date that is 24 months after the effectiveness of the registration statement, subject to cutback provisions. We have also agreed to appoint Egon Durban, a representative of Silver Lake, to our Board upon the closing of the Silver Lake investment.
Remaining Performance Obligations
Remaining performance obligations represent the amount of contracted future revenue that has not yet been recognized, including both deferred revenue and non-cancelable contracted amounts that will be invoiced and recognized as revenue in future periods. Amounts of a customer contract’s transaction price that are allocated to the remaining performance obligations represent contracted revenue that has not yet been recognized. They include amounts recognized as contract liabilities and amounts that are contracted but not yet due. The aggregate transaction price of remaining performance obligations is expected to be recognized as revenue as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Next 12 Months
|
|
Thereafter
|
|
Total
|
|
As of December 31, 2018
|
$
|
303,275
|
|
|
$
|
67,662
|
|
|
$
|
370,937
|
|
|
As of December 31, 2019
|
$
|
434,121
|
|
|
$
|
208,562
|
|
|
$
|
642,683
|
|
|
As of September 30, 2020
|
$
|
494,073
|
|
|
$
|
320,072
|
|
|
$
|
814,145
|
|
These amounts are based on our best judgment, as it needs to consider estimates of possible future contract modifications. The amount of transaction price allocated to the remaining performance obligations, and changes in this amount over time, are impacted by, among others, currency fluctuations and the contract period of our cloud contracts remaining at the balance sheet date and thus by the timing of contract renewals.
Contractual Obligations
The following table summarizes our contractual obligations as of December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
Total
|
|
Less than 1 year
|
|
1 - 3 years
|
|
3 - 5 years
|
|
More than 5 years
|
|
|
(In thousands)
|
|
Operating lease commitments
|
$
|
310,497
|
|
|
$
|
15,513
|
|
|
$
|
48,789
|
|
|
$
|
49,462
|
|
|
$
|
196,733
|
|
|
Non-cancelable purchase obligations
|
36,595
|
|
|
16,105
|
|
|
16,801
|
|
|
3,689
|
|
|
—
|
|
|
Total
|
$
|
347,092
|
|
|
$
|
31,618
|
|
|
$
|
65,590
|
|
|
$
|
53,151
|
|
|
$
|
196,733
|
|
The contractual commitment amounts in the table above are associated with agreements that are enforceable and legally binding. Obligations under contracts that we can cancel without a significant penalty are not included in the
table above. Purchase orders issued in the ordinary course of business are not included in the table above, as our purchase orders represent authorizations to purchase rather than binding agreements. Tax contingencies are not included in the table above as the period in which payment is due cannot be determined.
Off-Balance Sheet Arrangements
As of September 30, 2020, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Critical Accounting Policies and Judgments
The preparation of financial statements in conformity with GAAP requires us to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the balance sheet date, as well as reported amounts of revenue and expenses during the reporting period. Our most significant estimates and judgments involve revenue recognition with respect to the determination of the standalone selling prices for our services, valuation of our equity and cash settled stock-based compensation, including the underlying deemed estimated fair value of our common stock, valuation of deferred income tax assets and liabilities, uncertain tax positions, and contingencies and litigation. Actual results could differ from those estimates. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations, and cash flows will be affected.
On January 1, 2017, we early adopted the requirements of Accounting Standards Update, or ASU, No. 2014-09, Revenue from Contracts with Customers, or Topic 606. Topic 606 establishes a principle for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. Topic 606 also includes Subtopic 340-40, Other Assets and Deferred Costs-Contracts with Customers, which requires the deferral of incremental costs of obtaining a contract with a customer. Collectively, references to Topic 606 used herein refer to both Topic 606 and Subtopic 340-40. We adopted Topic 606 with retrospective application to the beginning of the earliest period presented. The adoption of Topic 606 resulted in changes to our accounting policies for revenue recognition and deferred commissions. The primary impact of adopting Topic 606 relates to the deferral of incremental costs of obtaining customer contracts and the amortization of those costs.
We believe that the accounting policies described below involve a greater degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations.
Revenue recognition
We recognize revenue from its service/product lines when control is transferred to its customers, in an amount that reflects the consideration we expect to be entitled to in exchange for the services. Sales and other taxes collected from customers to be remitted to government authorities are excluded from revenue. In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) and Subtopic 340-40, Other Assets and Deferred Costs—Contracts with Customers (Subtopic 340-40). We account for revenue contracts with customers by applying the requirements of Topic 606, which includes the following steps:
•Identification of the contract, or contracts, with a customer
•Identification of the performance obligations in a contract
•Determination of the transaction price
•Allocation of the transaction price to the performance obligations in the contract
•Recognition of revenue when, or as, performance obligations are satisfied
Classes of Revenue
We derive revenue from two service/product lines:
Subscription Revenue. We generate revenue primarily from sales of subscriptions to access our XM Platform, together with related support services to our customers. Arrangements with customers do not provide the customer with the right to take possession of the software operating the XM Platform at any time. Instead, customers are granted continuous access to the XM Platform over the contractual period.
Our subscription contracts generally have annual contractual terms while some have multi-year contractual terms. We generally bill annually in advance with net 30 payment terms. Our agreements generally cannot be canceled with refund.
Professional Services and Other Revenue. Professional services and other revenue mainly includes two types of services: research services and professional services. Research services is a solution provided to existing subscription customers with arrangements, which are distinct from subscription revenue services. In addition, we provide professional services associated with new and expanding customers requesting implementation, integration services, and other ancillary services. These services are distinct from subscription revenue services.
Identification of a Contract
For accounting purposes, we treat multiple contracts entered into with the same customer as a single contract if they are entered into at or near the same time and are economically interrelated. We do not combine contracts with closing days more than three months apart because we do not consider them being entered into near the same time. Judgment is required in evaluating whether various contracts are interrelated, which includes considerations as to whether they were negotiated as a package with a single commercial objective, whether the amount of consideration on one contract is dependent on the performance of the other contract, or if some or all goods in the contracts are a single performance obligation.
New arrangements with existing customers can be either a new contract or the modification of prior contracts with the customer. Our respective judgment in making this determination considers whether there is a connection between the new arrangement and the pre-existing contracts, whether the goods and services under the new arrangement are highly interrelated with the goods and services sold under prior contracts, and how the goods and services under the new arrangement are priced. In determining whether a change in transaction price represents a contract modification or a change in variable consideration, we examine whether the change in price results from changing the contract or from applying unchanged existing contract provisions.
Identification of Performance Obligations
Some contracts with customers contain multiple performance obligations. For these contracts, we account for individual performance obligations separately, if they are distinct. Typically, the products and services outlined in the Classes of Revenue section qualify as separate performance obligations and the portion of the contractual fee allocated to them is recognized separately. Judgment is required, however, in determining whether a good or service is considered a separate performance obligation. In particular for our professional services and implementation activities, judgment is required to evaluate whether such services significantly integrate, customize, or modify the subscription service to which they relate. In this context, we consider the nature of the services and their volume relative to the volume of the subscription service to which they relate. In general, the implementation services for our subscription services go beyond pure setup activities and qualify as separate performance obligations. Non-distinct goods and services are combined into one distinct bundle of goods and services (combined performance obligation).
In rare instances, customers have the option to purchase additional subscription and support services at a stated price. These options generally do not provide a material right as they are priced at standalone selling price, or SSP. We apply judgment in determining whether such options provide a material right to the customer that the customer would not receive without entering into that contract (material right options). In this judgment, we consider, for
example, whether the options entitle the customer to a discount that exceeds the discount granted for the respective goods or services sold together with the option.
Determination of Transaction Price
We apply judgment in determining the amount to which we expect to be entitled in exchange for transferring promised goods or services to a customer. This includes estimates as to whether and to what extent subsequent concessions or payments may be granted to customers and whether the customer is expected to pay the contractual fees. In this judgment, we consider our history both with the respective customer and more broadly.
If our services do not meet certain service level commitments, certain customers are entitled to receive service credits, and in certain cases, refunds, each representing a form of variable consideration. Historically, we have not experienced any significant incidents affecting the defined levels of reliability and performance as required by our subscription contracts. Accordingly, any estimated refunds related to these agreements in the consolidated financial statements is not material during the periods presented.
We applied the practical expedient in Topic 606 and did not evaluate contracts of one year or less for the existence of a significant financing component. We determined that no significant financing component existed on our multi-year contracts, as these contracts were structured for purposes other than obtaining financing from customers. Additionally, prices are generally fixed at contract inception; therefore, our contracts do not contain a significant amount of variable consideration.
Allocation of Transaction Price
The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. We determine standalone selling prices considering market conditions and based on overall pricing objectives such as observable standalone selling prices, and other factors, including the value of contracts, types of services sold, customer demographics, and the number and types of users within such contracts. We have established a hierarchy to identify the standalone selling prices that we use to allocate the transaction price of a customer contract to the performance obligations in the contract:
•Where standalone selling prices for an offering are observable and reasonably consistent across customers (that is, not highly variable), our standalone selling price estimates are derived from our respective pricing history.
•Where sales prices for an offering are not directly observable or highly variable across customers, we use estimation techniques. For renewable offerings with highly variable pricing, these techniques consider the individual contract’s expected renewal price as far as this price is substantive. Typically, our subscription offerings follow this approach. For our professional and other services, these estimations typically follow a cost-plus-margin approach.
Judgment is required when estimating standalone selling prices. To judge whether the historical pricing of our goods and services is highly variable, we have established thresholds of pricing variability. For judging whether contractual renewal prices are substantive, we have established floor prices that we use as standalone selling prices whenever the contractual renewal prices are below these floor prices. In judging whether contracts are expected to renew at their contractual renewal prices, we rely on our respective renewal history. We review the standalone selling prices periodically or whenever facts and circumstances change to ensure the most objective input parameters available are used.
Recognition of Revenue
Access to our XM Platform represents a series of distinct services as we continually provide access to and fulfill our obligation to the end customer over the subscription term. The series of distinct services represents a single performance obligation that is satisfied over time. Accordingly, the fixed consideration related to subscription revenue is generally recognized on a straight-line basis over the contract term, beginning on the date that the service is made available to the customer.
Revenue from professional services and other revenue related to research services is recognized upon completion because completion and delivery of the results is considered a separate performance obligation satisfied at a point in time. Revenue from professional services and other revenue related to customized software coding is recognized upon completion, because the customer consumes the intended benefit and assumes control upon final completion of the custom coding. Revenue from professional services and other revenue related to implementation and other ancillary services is recognized as the services are performed, because the customer consumes the benefit as the services are provided.
Judgment is required to determine whether revenue is to be recognized at a point in time or over time. For performance obligations satisfied over time, we need to measure progress using the method that best reflects Qualtrics’ performance.
All judgments and estimates mentioned above can significantly impact the timing and amount of revenue to be recognized.
Stock-based compensation, including cash settled
Equity Awards
We measure and recognize compensation expense for stock-based payment awards, including restricted stock awards, or RSAs, restricted stock units, or RSUs, and stock options granted to employees and advisors, based on the grant date fair value of the awards. Awards that will be settled in cash are marked-to-market each quarter. The grant date fair value of stock options is estimated using a Black-Scholes option pricing model. The fair value of stock-based compensation for stock options is recognized on a straight-line basis over the period during which services are provided in exchange for the award. The grant date fair value of RSAs and RSUs is estimated based on the fair value of the underlying common stock. Awards which contain both service-based and performance conditions are recognized using the accelerated attribution method.
As discussed in detail in Note 13, we issue two types of RSAs, one-tier and two-tier. One-tier RSAs vest solely on a service-based condition. For these awards, we recognize stock-based compensation expense on a straight-line basis over the vesting period. Two-tier RSAs contain both a service-based condition and performance condition, defined as the earlier of (i) an acquisition or change in control of the Company or (ii) upon the occurrence of an initial public offering by the Company. A change in control event and effective registration event are not deemed probable until consummated; accordingly, no expense is recorded related to two-tier RSAs until the performance condition becomes probable of occurring. Awards which contain both service-based and performance conditions are recognized using the accelerated attribution method once the performance condition is probable of occurring.
As discussed in detail in Note 13, all of our RSUs contain both a service-based condition and performance condition, defined as the earlier of (i) an acquisition or change in control of the Company or (ii) upon the occurrence of an initial public offering by the Company. A change in control event and effective registration event are not deemed probable until consummated; accordingly, no expense is recorded related to RSUs until the performance condition becomes probable of occurring. Awards which contain both service-based and performance conditions are recognized using the accelerated attribution method once the performance condition is probable of occurring.
With the SAP Acquisition, the performance condition of two-tier RSAs and RSUs was deemed to be met in January 2019.
In conjunction with the SAP Acquisition, under the terms of the acquisition agreement, unvested RSAs, RSUs, and options held by our employees were exchanged into liability-classified, stock-based awards to be settled in cash, or Qualtrics Rights. Approximately $858 million of the purchase price was related to RSAs, RSUs, and options that were to vest after the SAP Acquisition, contingent upon continued service from employees. The price realized by employees for these time-based awards is $35.00 per share, if the award was granted before January 1, 2018 or if the award was originally granted as an option; provided, that the fixed amount will be reduced by the original exercise price for any Qualtrics Rights that were originally granted as options. If the award was granted on or after January 1, 2018, the amount realized is $35.00 per share, adjusted for changes in the five-day average price of SAP stock for
the period immediately preceding the close of the SAP Acquisition compared to SAP’s stock price on the vesting date.
Cash Awards
We measure and recognize compensation expense for cash settled stock-based awards based on the fair value of the awards each quarter until settlement. The fair value of stock-based compensation cash awards that vest solely on a service-based condition is recognized on a straight-line basis over the period during which services are provided in exchange for the award. The fair value is estimated based on the fair value of the underlying stock price or some are valued by $35.00. Awards which contained both service-based and performance conditions are recognized using the accelerated attribution method once the performance condition is probable of occurring.
After the SAP Acquisition, certain executives and employees were granted SAP RSUs, which are virtual shares representing a contingent right to receive a cash payment determined by the SAP share price and the number of share units that ultimately vest. SAP RSUs have a service-based vesting condition over a three-year period. These awards have a cliff vesting period of one year and continue to vest annually thereafter. We began granting SAP RSUs in March 2019. We recognize compensation expense associated with these RSUs ratably on a straight-line basis over the requisite service period. All awards are paid out in cash upon vesting. There were no SAP RSUs that vested and therefore no cash settlements for the year ended 2019.
We account for forfeitures as they occur; therefore, equity and cash settled stock-based compensation expense for the years ended December 31, 2018 and 2019 has been calculated based on actual forfeitures in our consolidated statements of operations.
Recent Accounting Pronouncements
Refer to Note 2 to our consolidated financial statements included elsewhere in this prospectus for more information about other recent accounting pronouncements.
Quantitative and Qualitative Disclosures about Market Risk
We have operations in the United States and internationally, and we are exposed to market risk in the ordinary course of our business.
Interest rate risk
We had cash and cash equivalents of $87.5 million as of September 30, 2020. We hold our cash and cash equivalents for working capital purposes. Our cash and cash equivalents are held in cash deposits and money market funds. The primary objectives of our investment activities are the preservation of capital, the fulfillment of liquidity needs, and the control of cash and investments. We do not enter into investments for trading or speculative purposes. Due to the short-term nature of these instruments, we believe that we do not have any material exposure to changes in the fair value of our investment portfolio as a result of changes in interest rates. Decreases in interest rates, however, would reduce future interest income.
We do not have any long-term debt or financial liabilities with floating interest rates that would subject us to interest rate fluctuations.
A hypothetical 10% change in interest rates during any of the periods presented would not have had a material impact on our financial statements.
Foreign currency exchange risk
Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates relative to U.S. dollars, our reporting currency. Our revenue is primarily generated in U.S. dollars, Euros, Australian dollars, British pounds sterling, Canadian dollars, New Zealand dollars, Japanese yen, and Singapore dollars. A portion of our operating expenses are incurred outside the United States, denominated in foreign currencies and subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the
Euro, British pound sterling, and Australian dollar. Additionally, fluctuations in foreign currency exchange rates may cause us to recognize transaction gains and losses in our consolidated statements of operations. As the impact of foreign currency exchange rates has not been material to our historical operating results, we have not entered into derivative or hedging transactions, but we may do so in the future if our exposure to foreign currency becomes more significant.
We recorded $1.1 million in net foreign currency transaction losses in the year ended December 31, 2018, and $0.9 million in net foreign currency transaction losses in the year ended December 31, 2019. A hypothetical 10% change in foreign currency rates would not have resulted in material gains or losses for the years ended December 31, 2018 and 2019.
Inflation risk
We do not believe that inflation has had a material effect on our business, results of operations, or financial condition. Nonetheless, if our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs. Our inability or failure to do so could harm our business, results of operations, or financial condition.
OUR STORY
Writing Our Own Story
The Qualtrics story started nearly 20 years ago, and it’s been nothing but unique from the very beginning. We launched in a basement in Provo, Utah. We focused on the academic market for the first few years, a segment no one would have bet on. Against all conventional wisdom, we chose to bootstrap the business for the first decade and went on to build a billion-dollar business without any outside capital. When we finally raised money—$400 million from VCs—we didn’t need any of it, because we were cash flow positive from inception to acquisition. Nearly four years ago, we created and launched the Experience Management (XM) category, and a short while later we chose to partner with SAP to accelerate our ability to take XM to the world.
As we said, our story has been nothing but unique from the beginning. This next step of taking Qualtrics public is no different. In fact, it’s completely on brand for who we are and how we roll.
XM Is Mission Critical
XM is mission critical to every organization. It is the business discipline of seeking out and closing the gaps found in each of the four core experiences of businesses — customer, employee, product, and brand. Qualtrics is the only company in the world that can close these gaps on one single technology platform. That’s why organizations that leverage our platform are able to curate experiences that lead to customers who buy more, employees who stay longer, products that people love, and brands with a tribal following. In short, XM makes it possible for organizations to manage from the outside in, rather than the inside out.
No category is more mission critical than XM, and no category will play a bigger role in determining which companies succeed and which companies do not. That’s why we’re picking up right where we left off: with the ticker symbol XM and with a seasoned executive team that has led Qualtrics for many years.
When we created the XM category, we knew that experience is the future of business. Too many organizations have developed cultures of measurement, but measurement is just the first step. XM moves organizations from cultures of measurement to cultures of action. In a world where everyone is competing on experience--whether they realize it or not--having the ability to listen, understand, and take action is essential.
The XM category is vast and rapidly-growing. In 2018, we estimated the XM category to be $44 billion. Just two years later, we believe it is at least $60 billion. XM continues to redefine how companies operate, how organizations run, and how governments understand and interact with the world. Experience-led organizations are winning.
Taking XM to the World
When we chose to join forces with SAP, our goal was simple: take XM to the world. We’re excited to continue that relationship while being an independently-operated company. In partnership with SAP, over the past two years we have increased our deal sizes, broadened and deepened our geographic footprint, and continued to build an exceptional team. Leveraging the success we have had with SAP, we intend to continue growing Qualtrics into one of the biggest and most valuable enterprise software companies in the world. Going public will give us the speed, agility, and autonomy necessary to continue accelerating our leadership of the XM category.
As a public company, we intend to continue developing the best platform on the market, grow the XM ecosystem, explore our own acquisition strategy, and continue building the greatest team in tech.
Developing the Best Platform
When we created this category, we set and raised the bar. Legacy vendors and glorified survey providers have simply not been able to keep up with the emergence of XM and the power of the XM Platform. Qualtrics has the only platform that is a system of action organizations can leverage to design and improve across the four core experiences of business. We are investing more in R&D than anyone else in the experience management industry and will continue to lead with the best, most innovative platform to power the experience economy.
Growing the XM Ecosystem
Qualtrics and the XM Platform are the hub of the entire XM ecosystem. As the XM category continues growing, so will the ecosystem of companies built around Qualtrics. By becoming an independently-operated company, we can more efficiently and effectively build out the XM ecosystem in a way that fundamentally transforms how organizations operate.
Exploring Independent Acquisitions
Going public also gives us the ability to execute on our own acquisition strategy. While we will continue to build and partner as we expand the XM ecosystem, we will also engage strategically in M&A where it will help us better serve our customers, enhance product applications, and accelerate the global adoption of XM.
Building the Greatest Team
We believe in and compete on the strength of our team, which has nearly doubled since we joined forces with SAP. The team ranges from world-class engineers to eminent data scientists to award-winning customer support representatives to an exceptional go-to-market team. As an independently-operated company, we will continue to accelerate our ability to recruit, retain, and build the best team in tech.
How We Roll
Everyone who interacts with Qualtrics knows the core values upon which this company was built. They are a testament to the strength of our culture. Each individual at Qualtrics — from the executive team to the newest intern — is immersed in them and they serve as a continuous reminder of what we stand for. We call them TACOS:
•Transparency. We are a meritocracy and hold ourselves accountable. We reward the competent over the confident.
•All in. We bet on Qualtrics, and Qualtrics bets on us. This is our company. We deliver whatever it takes.
•Customer obsessed. If a customer is upset, we failed. Period. We learn, and we fix it.
•One team. There is only one team at Qualtrics. We hunt as a pack. We win and lose together and never say, "that's not my job."
•Scrappy. We're smart, resourceful and find a way. We write our own story instead of following others.
We are relentless in our determination to live up to these values every single day.
What We Believe
Given the state of the world, there are two things we feel the need to make explicit in this letter: we play the long game and we believe in our responsibility to use business, and our positions, to drive positive change.
Playing the Long Game
We are committed to powering the experience economy for the long-term, and that means building a business that will outlast any individual, thrive in any market condition, and help customers overcome any challenge. That is how Qualtrics has always operated and always will. By betting early on the academic market, millions of students have been trained on Qualtrics and they have taken the platform with them to countless businesses after they graduated. By bootstrapping our business, we were able to grow the way we knew was best and to pick the investors and partners that were right for our business. By joining forces with SAP, we developed a model for building out the XM ecosystem to become the most impactful in the world. We will continue to take this approach by running the company for the gain of long-term stockholders, not short-term speculators.
Our responsibility to drive positive change
This paragraph from our original Founder Letter in our 2018 S-1 bears repeating word for word:
“Qualtrics will be a force for good. We will lead where governments lag and be vocal when others are quiet. We are determined to create positive experiences in everything we do. With strong views on diversity and inclusion, immigration, wage equality, and the universality of human rights—without regard to race, color, creed, gender, or sexual orientation. We will not be quiet, but will amplify these views on behalf of our employees and organization. We know and embrace our responsibility to use business as a source for good.”
As 2020 has taught us more than ever before, experiences matter. While we may never know exactly what’s around the corner, we know that the organizations that listen carefully and act effectively are the ones that employees and customers will always want to bet on. For almost 20 years, we have been helping organizations across the world create breakthrough experiences that directly impact people’s lives. As our technology has scaled from people and companies to communities and governments, we’re helping close experience gaps in ways we never dreamed possible — from helping communities curb the spread of COVID-19 to creating community engagement solutions that help build public trust. What’s become clearer than ever is the enormous responsibility that comes with that influence and technology.
Our vision has always been for Qualtrics to be a force for good. Many of the world’s most pressing problems occur from a lack of understanding and uncertainty about what actions to take — and those are problems we can solve. As the creators of the experience management category, we promise to work hard and smart to deliver the best experience to our investors. We hope you will join us on this journey as we continue to apply our beliefs and implement our mission to shape the future of the experience economy.
Sincerely,
The Qualtrics Team
BUSINESS
Overview
We have pioneered a new category of software, experience management, or XM, which enables organizations to succeed in today’s experience economy. Our XM Platform helps organizations both design and improve the experiences that turn their customers into fanatics, employees into ambassadors, products into obsessions, and brands into religions.
Why It Matters:
The rise of the experience economy has changed the way businesses compete and organizations operate. The cost of switching products or services has become so low that over 70% of consumers are likely to switch brands due to a single poor experience. Over two-thirds of the workforce is disengaged. And while the majority of companies believe they are delivering a superior experience, few of their customers agree.
This is called the experience gap.
Experience management is the business discipline of finding and fixing experience gaps. These gaps––the difference between what businesses believe is happening and what is actually happening––are where poor experiences live. Left unresolved, experience gaps result in customer churn, employee attrition, failed product launches, and eventually, brand irrelevance.
The global pandemic, which has altered the way people work and interact with each other, has surfaced new experience gaps and changed nearly every expectation we have on businesses. Restaurants will need to reinvent. Live events and user conferences will need to be completely overhauled. Face-to-face meetings, sales calls, and employee all-hands will need to be entirely reworked. Organizations that fail to design and deliver a new set of experiences that address the rapidly evolving preferences of customers and employees will struggle to compete in a post-COVID-19 digital world.
The Qualtrics XM Platform is a mission-critical software system that enables breakthrough design and continuous improvement of customer, employee, product, and brand experiences — the four core experiences of every organization. Qualtrics allows all four experiences to be managed on a single, connected platform:
•CustomerXM –– decrease churn, increase engagement, and expand customer lifetime value, or LTV, by listening to customers across all channels and taking action on their feedback.
•EmployeeXM –– drive retention, increase engagement, and improve productivity by continuously listening to employees and delivering better workplace experiences.
•ProductXM –– design products people love, decrease time to market, and increase share of wallet by uncovering and acting on user needs, desires, and expectations.
•BrandXM –– create a bedrock of loyal followers, acquire new customers, and increase market share by ensuring that your brand resonates at each critical touchpoint and attracts target buyers.
Unfortunately, most “experience” offerings in the market do one thing –– use surveys to collect post-transaction feedback to monitor trends in satisfaction scores. The problem with these measurement tools is that they simply report on data about where and when to apologize, resulting in organizations that focus on reacting to complaints instead of designing better experiences and proactively closing experience gaps.
Measurement is not the ultimate goal.
Qualtrics is dramatically different from companies who simply help organizations measure satisfaction scores. Our platform was built from inception as a system of action –– a system that guides users with specific instructions for improvement and automated actions to close experience gaps. It provides each individual employee in an
organization a powerful, easy-to-use interface that creates everyday habits to find and close experience gaps. It has the power to change organizational behavior and create a culture of action.
The Qualtrics XM Platform allows organizations to both (i) design new breakthrough experiences and (ii) continuously improve broken experiences through identifying issues, addressing the root cause, and then overhauling processes before they manifest as lower trending satisfaction scores.
How It Works:
Qualtrics XM is a system of action that allows organizations to manage all four core experiences on a single platform. It gives organizations a powerful set of tools to design and continuously improve customer, employee, product, and brand experiences, and uses a collection of smart features and capabilities that make feedback collection, analysis, and action-taking simple enough for any employee to use.
Listening Engine: Capture sentiment across all channels and touchpoints
Qualtrics provides easy-to-use tools to listen to both solicited and unsolicited customer, employee, product and brand sentiment across any channel. Our listening engine allows organizations to engage with stakeholders at the moment it’s most critical via chat, text, Facebook Messenger, WhatsApp, IoT devices such as Alexa or a smartwatch, or any other preferred channel. Organizations can run real-time topic and sentiment analysis during a phone call, or automatically analyze video-based feedback at scale.
Qualtrics XM is an open platform, allowing companies to collect feedback from third-party systems, including survey vendors, and operational systems like customer relationship management, or CRM, human capital management, or HCM, or enterprise resource planning, or ERP.
XM Directory: Centralize all collected experience data in one place
The Qualtrics XM Directory gives the ability to log, organize, access, manage, and update all experience data for the entire organization — in one place. By centralizing all experience data, organizations can create individual experience profiles that represent the emotions, needs, interests, and expectations of customers and employees — helping organizations provide highly personalized experiences at critical moments in the customer and employee journey.
iQ Smart Analysis: Surface alerts and recommend actions
Our powerful analytics suite, Qualtrics iQ, analyzes each piece of feedback collected using deep statistical analysis and machine learning, then generates recommended actions, ensuring teams focus on the changes that drive the highest return on investment. Using a simple interface, alerts can be configured for the most important actions. These alerts could be a manager alert about a shift in employee morale, a change in a product bundle recommendation, or even a shipping process overhaul.
Experience Workflows (xFlow): Eliminate experience gaps by assigning and routing actions to the people in the best position to drive improvement using workflow automation
The Qualtrics XM Platform can automatically route recommended actions to the people in the best position to close experience gaps or close the loop with customers or employees automatically using experience workflow automation. Employees can log into a role-based account and receive alerts relevant to their role and be given specific actions to drive improvement. The system tracks issues, progress, and next steps to help monitor progress and keep managers informed.
Ecosystem: Robust ecosystem of integrations for automating and connecting entire experience management
With Qualtrics, teams are empowered with the ability to build and save experience workflows that can be shared and scaled across departments, retail locations, or global deployments. Built with a completely open API architecture, our highly configurable platform provides a robust ecosystem of integrations for automating and connecting the entire experience management process––from collecting experience feedback from any third-party
channel, to uncovering hidden trends using native or third-party analysis, to driving activities and action using any operational system that employees already use as part of their existing routines. These automated, expert-built solutions are available out of the box, purpose-built for specific industries, departments, and geographies.
As of September 30, 2020, the Qualtrics XM Platform is trusted by more than 12,000 customers of all sizes, including 85% of the Fortune 100. The broad adoption of our platform is facilitated by a multi-pronged go-to-market model comprised of highly productive inside and field sales teams, joint solution selling with SAP, and our growing QPN of over 200 global member companies that are partnering with us on our platform to help drive breakthrough business outcomes for our customers.
For the years ended December 31, 2018 and 2019, our revenue was $401.9 million, and $591.2 million, respectively, representing year-over-year growth of 47%. For the years ended December 31, 2018 and 2019, our net loss was $37.3 million and $1,007.6 million, respectively, and our free cash flow was $15.1 million and $(404.1) million, respectively. The results of our operations for the years ended December 31, 2018 and 2019 were impacted by equity and cash settled stock-based compensation expense and advisory and legal costs related to the 2018 IPO and the SAP Acquisition. See “Summary Consolidated Financial and Other Data” for additional discussion.
Industry Trends in Our Favor
Experiences Drive Differentiation and Competitive Advantage
Today, the value of any organization is dictated by the experiences of its customers, employees, and other constituencies. While effective organizations have always recognized this truism, we now live in a world where those experiences can be shared and amplified globally and instantaneously through digital channels, and brand perception and reputation can shift quickly and profoundly. Consumers are able to transition easily from brand to brand as direct commerce, compelling promotions, and a proliferation of new brands have reduced switching costs for consumers. Employees have greater freedom as professional mobility is increasingly top-of-mind for working-age individuals.
Industries are being transformed by companies that deliver superior experiences. This includes direct-to-consumer brands that rely on a user-friendly mobile app and website with a seamless checkout process and personalized experience, manufacturers that deliver superior product quality, service providers that offer increased convenience, and organizations that focus on their employees. These organizations that thoughtfully shape interactions with their customers and employees to create differentiated experiences are in the best position to win.
Understanding the impact of experiences, both positive and negative on customers and employees is critical in today’s experience economy to remain competitive:
Positive experiences lead to better outcomes:
•Greater Loyalty. According to Gartner, customer experience drives over two-thirds of customer loyalty, outperforming brand and price combined — but over 70% of CX leaders struggle to design projects that increase customer loyalty and achieve results.
•Increased Productivity. According to Gallup, business units and teams with top quartile level of employee engagement report 18% higher productivity than those in the bottom quartile.
•Stronger Financial Performance. According to Bain & Company, customer loyalty leaders grow revenues roughly 2.5 times as fast as their industry peers and deliver two to five times the shareholder returns over the next 10 years.
And poor experiences can have severe outcomes:
•Lower Retention. According to The Northridge Group, 72% of consumers are likely to switch to a competitive brand after just one bad experience.
•Decreased Productivity. According to Gallup, 68% of the working population is disengaged, impacting employee well-being, productivity, and retention.
•Inferior Financial Performance. Deloitte cited that enterprises with bottom quartile employee engagement achieve half the innovation, half the customer satisfaction, and 25% less profits than those in the top quartile.
Experience Gaps Create Challenges for Organizations
Experience is all-important in winning and retaining customers and employees; however, actual experiences often fall short of expectations. The difference between the experience an organization believes they are delivering and the actual experience delivered is the “experience gap.” Experience gaps are common in business and lead to lost customers, lower spend, employee turnover, employee disengagement, poor performance, and product failures.
Understanding the causes of experience gaps enables organizations to prioritize the investments that they make. For example, organizations can reallocate investments from areas that yield diminishing returns to specific areas that matter most. Companies are increasingly turning to Chief Experience Officers to identify and facilitate remediation of experience gaps across their entire organizations. Boards of directors now tie C-level compensation to key metrics that demonstrate success at closing these gaps, such as customer satisfaction, product net promoter score, customer churn, employee engagement, and leadership approval. Sustained market leadership is defined by the pace at which organizations recognize and close experience gaps.
Traditional Operational Systems Fail to Explain Why Experience Gaps Exist
Organizations rely on systems of record, such as CRM, ERP, HCM, Customer Service, and Marketing Automation systems, for gathering and reporting operational data, or O-data. While these systems are useful for reporting what is happening as of a certain date, such as pipeline and sales data, employee data, and financial events, they are not designed to explain why something is happening. This “why” factor determines experience: why customers buy, why employees are engaged, why a product release was successful, or why they are brand loyal.
O-data systems on their own come with limitations that prevent them from designing new experiences and improving existing ones:
•Provide a view into the lagging indicators of experience, focusing on what happened in the past;
•Collect data that fail to deliver strong predictors of future expectations;
•Are not set up for personalization and are not tuned into human decision-making;
•Are dependent on a third party to enter event data (e.g., sales representative enters their perspective post-call), rather than direct communication with customers and employees;
•Not designed to collect feedback across multiple channels and formats;
•Do not layer in necessary sentiment behind an event; and
•Rely on cookie-based data collection that is becoming increasingly scrutinized by privacy regulation and users.
O-data alone is far from sufficient to close experience gaps. Moreover, most organizations are O-data rich and X-data poor. X-data is the human factor data — the beliefs, emotions, and intentions that tell you why things are happening and, more importantly, what is going to happen. X-data is fragmented, often unstructured, and needs to be collected across all engagement methods, including e-mail, SMS, chat, phone, website, social media, and in-app links. X-data, in addition to O-data, is critical for organizations to understand where experience gaps exist and what actions to take to close the gaps. For example, O-data systems can tell you the cost of a project, but fail to explain who will buy what is produced, how much they will pay, or how to sell more. O-data systems can tell you who your
top salespeople are, but fail to uncover if they are about to quit, and how to re-engage them. O-data systems can calculate a customer’s LTV, but fail to identify whether they will churn, and how to retain them.
Insight from Direct Feedback and the Ability to Take Action Drives Value
Direct, timely, and authentic data about the sentiment and experiences of all constituents is needed to drive growth, competitiveness, and value in today’s economy. Direct commerce models have allowed businesses to create multiple touchpoints with customers and garner data that allows them to rapidly evolve and improve their offerings and operations. Companies without this direct customer connectivity, including those that operate via indirect channels, find themselves at an increasing disadvantage, often resulting in the inability to gather direct customer experience data and reducing the ability to assess customer sentiment and needs. Despite this lack of direct customer connectivity, companies need a software platform that enables them to maintain direct feedback loops. The absence of direct signals meaningfully inhibits organizations’ ability to adapt and thrive.
Gathering direct feedback alone, however, is not enough for an organization. These insights are only valuable if they are routed to the correct people and systems at the right time so appropriate actions and improvements can be implemented. The ability to proactively route insight before an issue arises as opposed to after it has occurred is even more valuable. An organization’s ability to both uncover hidden insights and patterns and take action in real-time is critical to increase productivity and drive desired business results.
Delivering Immediate Action Requires Self-Service Tools
Traditional methods of relying on customer service agents to report issues, or hiring consultants or other third parties to analyze data about customers and employees, are not effective at providing immediate action. The increasing centrality, complexity, and nuances of delivering great experiences have compelled C-level executives to own experiences in-house and have the ability to make adjustments on their own. However, organizations need systems that can be adapted and scaled across departments for specific use cases, and contain the ability to provide ‘in the moment’ response to experiences. Self-service adoption for every employee is a central requirement for delivering immediate action.
Organizations Need to Manage Experiences Across Customers, Employees, Product, and Brand
The success of organizations today depends on the quality of the experiences that they deliver to constituents across four critical areas: customer experience, employee experience, product experience, and brand experience. Much like the four vital signs of the human body, blood pressure, heart rate, respiration, and temperature, these four experiences serve as the vital signs of the health of every organization.
The best companies are maniacal about their brand. They obsess over their customers. They improve every element of their employee experience. They constantly innovate products. These critical focus areas are intimately related and need to be managed together. Companies that cannot manage all four vital signs within a single platform cannot thrive.
Examples of how experience management can impact each of the four vital signs include:
Customer Experience:
•Build and continuously update customer profiles, with experience and operational data, to identify patterns, predict future behavior, and personalize engagement with customers.
•Assess health of customer relationships, compare against industry or internal benchmarks, and optimize key drivers of customer retention and expansion.
•Systematically predict customers most likely to churn and automate actions with relevant teams across the organization in the tools they use to address.
•Improve digital journeys with native capabilities to yield higher purchase conversion, share of wallet, and task completion.
•Identify poor customer service interactions with real-time analytics and trigger immediate service recovery efforts with the right teams in the organization.
•Understand what factors in the sales process influence purchase decisions to improve win rates.
•Activate the front line to be more customer-centric by systematically gathering, prioritizing and acting on their ideas and feedback to improve the customer experience.
•Optimize customer self-service capabilities to shift call volume to digital and reduce service and supports costs.
•Improve online reputation by gleaning insights from online review sites and social media and driving actions with the front line and other teams to improve.
Employee Experience:
•Understand, prioritize, and improve key drivers of employee engagement, retention, and productivity.
•Improve customer experience through optimizing employee experience initiatives.
•Assess and improve manager, team, and cultural effectiveness including diversity, equity, and inclusion efforts.
•Prioritize investments across factors (e.g., compensation, perks, vacation, etc.) to reduce turnover.
•Understand workplace experience factors leading to higher employee productivity and, as a result, organization performance.
•Identify causes of high employee turnover.
•Provide feedback to individual managers on their impact on employee experience including personalized recommendations on how to improve and systematically track progress.
•Use employee multi-rater reviews to determine professional action plans and improve employee job satisfaction.
Product Experience:
•Identify and measure target market and prioritize needs of customers for specific products or services by segment.
•Assess the key drivers of satisfaction with a product or service and prioritize action to improve product satisfaction and customer retention.
•Conduct concept and usability testing to optimize and benchmark new product launches.
•Optimize end-user experiences for product or service by combining operational metrics with experience insights.
•Simulate new product feature preferences and tradeoffs with choice modeling and cost/benefit analysis.
•Optimize pricing and packaging structures based on customer needs and demographics to increase customer reach and profitability.
Brand Experience:
•Assess brand health holistically, over time, and among competitors, from awareness to loyalty using tools to explore, identify and optimize key drivers of health.
•Prioritize marketing investments and actions to improve rate of new customer acquisition and repeat purchasing.
•Test, measure and optimize advertising campaign effectiveness to maximize ROI and impact on brand perception.
•Segment and target customers for personalized communications aligned to their specific needs and preferences.
•Identify gaps between desired brand position and actual consumer perceptions across a complex set of touchpoints to improve customer acquisition and retention, and prioritize actions to improve.
Organizations must be able to manage all four of these experiences and understand the impact that these interconnected experiences have upon each other. For example, engaged and empowered employees and partners are better able to address customer needs, enhance service levels, and elevate brand value. The result is richer and interrelated insights that could not be gained from tracking just one experience. Organizations able to manage these experiences in an integrated manner create a competitive advantage that drives increased organizational success and shareholder value.
Organizations Need a Holistic Experience Management Platform
Providing effective experience management requires organizations to combine O-data and X-data and take action to close experience gaps. Experience management capabilities need to be available to everyone throughout an organization, from C-level executives who are accountable for results down to those on the front lines best positioned to respond to feedback. Doing so has the potential to empower every person in an organization to make better and more informed decisions when it matters most.
To measure experiences, organizations have used a combination of various processes and tools for specific uses:
•Third-Party Market Research Firms and Consultants: This is a labor-intensive approach to researching a specific topic at a particular point in time. These firms can be effective at answering certain questions using in-depth market research through creating and sampling panels from their large networks. However, their methods of data collection and analysis lack a software-driven approach that can span across broad use cases in a timely manner. Further, they cannot automatically correlate and interpret O-data and X-data to provide recommendations on how to close experience gaps.
Organizations are also often required to have their own dedicated market research teams to commission research studies and liaise with these firms, which can serve as bottlenecks between the analysis and both the front-line employees who are seeking answers and the C-suite that is being held accountable for results.
•Point Solutions: Services-intensive point solutions require a high level of system integration and human involvement to interpret results, are not available broadly to employees, are not scalable, and lack applicability across all vital signs of an organization. Furthermore, as point solutions are unable to capture a holistic, 360 degree view of all X-data, organizations are forced to rely on a number of disparate systems, which is extremely difficult, costly, and inefficient to manage and integrate. Large, diversified software providers also provide partial point functionality, however, with core competencies far outside experience management, these providers are unable to address experience management thoroughly or comprehensively.
•Survey Tools: Survey tools are useful for broad sampling across thousands of subjects, but lack the ability to combine data in different formats across different channels, correlate with O-data, and apply the analytical rigor needed to determine what actions need to be taken to improve results, nor do they have the ability to take such actions natively. They also lack enterprise grade security, scalability, and administrative control.
Organizations cannot afford to wait for others to tell them where experience gaps exist. Just as operational systems of record have emerged for an organization’s core functions of finance, HR, sales, and marketing, there is a
clear need for a platform that extends across various O-data silos and unifies experience management across the organization.
A comprehensive experience management platform that empowers organizations to identify, assess, and close experience gaps needs the following capabilities:
•Comprehensive Data Collection. Ability to collect X-data across all channels and formats and integrate it with and enrich O-data from various existing systems.
•Address Experience Holistically. A unified and inter-connected view across key areas that have the highest impact on an organization: customers, employees, product, and brand.
•Powerful Analytics. Analytics that provide robust analysis on sentiment, priorities, churn, and organizational impact and actionable insights for users to address potential experience gaps, including actionable reports that explain why something is happening, not just what has already happened.
•Real-Time Insights. Ability to collect and interpret in real-time, when it has the highest impact for an organization.
•Automated Action. A system capable of collecting insights and information and delivering automatic notifications to the right people at the right time with an appropriate plan of action.
•Easy to Use. Simple user interface that is accessible from any device and applicable to all users at every level within an organization, enabling every person to be a researcher.
•Self-Serve Configurability. Programs need to be able to adapt to the ever-changing needs of organizations without the need for professional services.
•Scalable to Serve the Largest Organizations. Ability to meet the needs of the largest and most sophisticated organizations and scalable to millions of touchpoints.
•Robust Privacy and Security. Robust data privacy and security features required to scale for organizations of all sizes and meet the highest enterprise standards.
The Qualtrics XM Platform
Our XM Platform serves as a business operating system for Experience Management and consists of purpose-built solutions for Customer experience, Employee experience, Product experience, and Brand experience. Leveraging our Listening, Qualtrics iQ, and xFlow engine, our XM Platform provides our customers with the ability to target the right users in the right moments to glean the insights that they need to drive action.
Key benefits of our platform include:
•Ability to Address Experience Holistically. We provide specific solutions across the key areas that have the highest impact on an organization: customers, employees, product, and brand. Our XM Platform analyzes experiences within each of these areas individually and correlates data across areas to provide insight into how they impact each other. Our XM Platform integrates X-data that we collect with siloed O-data that organizations already have, providing everyone in an organization from the C-suite to employees on the front line with a holistic view of experiences across key areas and constituencies.
•Integrated Analytical Capabilities. Our platform is powered by a proprietary analytics engine that organizations of all types use to address some of the most demanding research projects. Our XM Platform leverages the latest in artificial intelligence and natural language processing to allow users to discover correlations between events, develop predictive models without using third-party tools, identify at-risk customers and employees, and suggest actions to course correct and drive impact. These capabilities are incorporated into our XM Platform through Qualtrics iQ, enabling advanced analytical features to make
statistical analysis and insights available to everyone. Our analytical capabilities are tightly integrated with our XM Platform helping drive the instructions for improvement and automated actions within our system of action.
•Built for Action. Qualtrics xFlow enables organizations to automate experience workflows to drive action natively or by integrating with systems that an organization already uses. For example, with our analytics-driven Smart Routing, our platform can automatically generate a customer ticket and action to resolution when a negative sentiment is expressed on a social media site. In this way, our XM Platform not only helps to identify issues, but also serves as a system of action by automatically directing feedback and recommended actions to the teams are in the best position to make improvements. Or the system can bypass the need for employees to resolve issues and instead automate service recovery so customer or employee issues do not slip through the cracks. xFlow works across our platform and provides automatic notifications, raises tickets and closes experience gaps immediately.
•Comprehensive Data Collection. Our XM Platform enables organizations to personalize their communication with customers, employees, and partners and interact with these groups through the most effective channels. We enable customers to collect data through both active and passive ingestion from a wide variety of channels, including SMS, e-mail, voice, web, in-app, social, chat and operational systems. Through simple integrations, users can incorporate operational data into XM analysis using native or a variety of other formats. Our comprehensive data collection methods allow customers to understand the sentiment of their end users across every engagement point so they can tailor relevant and personalized actions for any situation.
•Real-time Insight. Our XM Platform is able to extract real-time feedback and provide insights and analysis when and to whom it matters most. This timeliness is necessary to affect outcomes, including reducing churn, increasing sales, preventing employee turnover, increasing engagement, and enhancing brand among others.
•Flexible Configuration to Meet Specific Needs. Our customers have configured our platform to meet diverse needs from preparing PhD dissertations to ensuring successful product launches. Our XM Platform provides all of the tools necessary to enable program design configured to specific needs. Through an intuitive and elegant interface, users can design programs that implement complex logic and advanced workflows. Users can also design, deploy, and alter these programs without help from professional services or IT, leading to faster and more impactful insights. Our XM Platform can deliver these insights through flexible and scalable role-based dashboards to ensure people within an organization can access insight in real time and on any device.
•Democratization of Experience Management Across All Users. We designed our platform so every knowledge worker can make decisions and take actions based on customer and employee input. Users can design a customer and employee feedback program in minutes using simple drag and drop functions with the platform generating easy to consume analysis. This ease of use democratizes the ability for employees throughout an organization to extract business insights from sophisticated research and analysis. This allows every employee in the organization the ability to participate in finding and closing experience gaps for their respective areas of ownership.
•Enterprise Ready. Our XM Platform is scalable and secure. We have built our platform on open-source technologies that are designed to scale horizontally to support large-scale streaming and batch processing. Our customers can depend on our ‘always-on’ infrastructure. As an example of our scalability, up to one million healthcare providers within the Aetna network link customer digital behavior with net promoter score, or NPS, and customer satisfaction, or CSAT, across their 22 million customers. Our XM Platform adheres to the highest standards of security and privacy demanded by the largest organizations in the world. Our XM Platform enables role-based permissioning to ensure that the right people have access to sensitive customer and employee information. We are ISO 27001 certified and enable our customers to be in compliance with General Data Protection Guidelines, or GDPR and SOC2, and we are certified on Health Information Alliance Trust, or HITRUST. We have achieved Federal Risk and Authorization Management
Program, or FedRAMP, authorization to deliver services to United States federal government agencies. Additionally, organizations own and retain all their data gathered on our platform.
As a result of our robust XM Platform features and functionality, the impact to customers is profound. Below are examples of how some of our customers have benefited from using Qualtrics:
•CustomerXM: DISH estimates a $10 to $15 million impact to revenue by closing the loop with at-risk customers, reducing customer churn and increasing NPS by 10 points.
•EmployeeXM: Qualtrics helped Zillow identify and rank aspects of the employee experience that would most likely influence employees’ decision to stay long-term. As a result of this initiative, Zillow has seen a measurable improvement to their favorability scores for career development—a key driver of employees’ willingness to stay.
•ProductXM: Yamaha used Qualtrics to run a quick-turn study of their power users’ preferences on important features in new keyboard models at the critical point in product development.
•BrandXM: L.L. Bean used actionable insights from its customers to optimize and inform branding decisions, which led to every department committed to providing outdoor family enthusiasts with an unparalleled brand experience. This has increased average customer lifetime by three times.
Market Opportunity
In today’s experience economy, we believe that experience management is more critical to improving customer experience than CRM, more influential upon employee experience than HCM systems, and more important to enhancing brand experience than Marketing Automation. As an emerging category of software, we believe that experience management has broad applicability to individuals at every level in an organization to gain valuable insight regarding the customer, employee, product, and brand experiences their organizations deliver and empower them to act decisively to address potential issues as they arise. Consequently, we believe that experience management represents a vast, rapidly growing, and underpenetrated market opportunity today, and we estimate our total addressable market, or TAM, to be approximately $60 billion in 2020.
We calculate our market opportunity by estimating the total number of organizations globally by referencing independent industry data. Organizations include global enterprises and governmental institutions with an estimated annual revenue greater than or equal to $50 million, United States K-12 academic institutions, and global post-secondary academic institutions. We then segment these organizations globally by type and size, and apply an average annual contract value to each segment using internally generated data of actual customer spend for the respective segment. For example, because larger enterprises have generally demonstrated greater deployment of our solutions across their organizations, we have segmented the number of enterprises into tiers to reflect this distinction.
The calculated ARR applied to the estimated number of organizations in each respective segment across enterprise, academic institutions, and government entities is calculated using internal company data of actual customer spend by type and size. For each respective segment, we calculate the median ARR of the top 50 customers, which we believe is representative of having achieved broader implementation of our solutions within their organizations. The ARR for each customer by segment includes actual spend on subscription to our XM Platform. We then multiplied the calculated ARR and number of organizations by type and segment, and the aggregate value across all these segments represent our estimated TAM in 2020.
What Sets Us Apart
Our approach to architecting solutions and how we bring those solutions to our customers has enabled us to strengthen our lead in the experience management category. We have several distinguishing advantages:
•We are the Recognized Leader in Experience Management. We pioneered the experience management category nearly two decades ago and remain a recognized market leader in the category today. We are the leading and largest pure-play XM provider in the market, with broad traction across more than 12,000
customers and 85% of the Fortune 100. Our brand is synonymous with experience management and associated with quality and usability, providing us an advantage with attracting new customers. We are also thought leaders in the market. Through our founding of the XM Institute, we deliver a wide variety of industry-specific content, leadership, training, networking, and research to help experience management leaders develop and excel in their jobs.
•Single Platform. Qualtrics is the only technology offering that allows all four experiences to be managed on a single, connected platform. Organizations power experience management programs across their customer, employee, product, and brand, monitor the health of their entire business through robust analytics and dashboards, and drive action across the entire organization from one common interface.
•XM Directory. The value our XM Platform delivers to our customers compounds with its use. Our customer data management layer, XM Directory, enables organizations to build a 360 degree view of every customer, or employee interaction, capturing feedback, interactions, demographics, operational indicators, and other attributes in a single, unified profile. XM Directory helps to intelligently segment these profiles based on behavior or preferences, provide intelligent analytics on customer journeys, prioritize experience improvements based on deep customer insights, and use those insights to deliver personalized and automated customer outreach at the right moment, with the right message, and via the right channels to drive the most optimal outcomes. Across the Qualtrics customer base, organizations are using the XM Directory to manage more than three billion profiles, with many organizations delivering personalized experiences to hundreds of millions of customers via the XM Directory.
•xFlow. Our platform helps organizations build a culture of action through a software layer called xFlow. These experience workflows allow organizations to use a low code / no-code interface to create automated workflows to close experience gaps at scale.
•Easy Adoption and Rapid Time to Value. Our technology is designed to be easy to deploy, configure, use, and scale. By making the complex capabilities of our XM Platform simple to use, we allow customers of all types and sizes to generate value quickly. In addition, the modularity of our platform allows our customers to deploy one or more of our solutions initially and then adopt additional modules as their use cases grow and evolve. As initial deployments generate valuable X-data and the value of that data compounds over time, we see many customers adding additional functionality as the power and influence of experience management insights spread throughout their organizations.
•Powerful and Multi-Pronged Go-to-Market Model. Our powerful go-to-market model enables us to land both small and large customers initially and expand those relationships significantly over time. The broad adoption of our platform is facilitated by a multi-pronged go-to-market model comprising highly productive field and inside-sales teams, a joint development and solution selling partnership with SAP, and our robust and growing QPN. QPN has over 200 global member companies partnering with us on our XM Platform to help drive breakthrough business outcomes for joint customers. The Qualtrics Developer Platform, or QDP, a core element of QPN, provides deep technical capabilities that enable companies to build robust XM extensions and deliver automated workflows to drive action. For the nine months ended September 30, 2020, over 60% of our customers used XM Extensions to connect Qualtrics with other business systems and workflows.
Our Growth Strategies
Key elements of our growth strategies include:
•Drive New Customer Sales. We believe that our market opportunity remains largely underpenetrated. We will continue to invest aggressively in our direct and indirect sales and marketing capabilities to continue to acquire new customers, including continued growth in the number of enterprise customers. We plan to continue to acquire new customers with our powerful multi-pronged go-to-market model.
•Expand Within Existing Customers. Our customer base of more than 12,000 organizations as of September 30, 2020 represents a significant growth opportunity for us. There is opportunity to expand both
the number of users and use cases within an organization. As users start to focus more deeply on specific experiences, they often look to add integrated solutions, Customer Experience, Employee Experience, Product Experience, and Brand Experience. We offer a flexible pricing model that helps further expand our presence within organizations as they increase volume of responses, add solutions and integrations, grow users and employees and increase features and workflows within each solution. Our goal is to increase the number of customers that standardize on our XM Platform within their organization, increasing the number of our organization-wide deployments and creating opportunity for expanded use cases. As evidence of our ability to expand within existing customers, our net retention rate has consistently been above 120% in each of the past eight quarters.
•Expand Our Global Presence. A key focus of our company is to continue to penetrate unaddressed global markets. Constituents can provide feedback in 74 languages, and our core admin user interface supports 14 languages. To penetrate markets outside North America, we have developed a hub-and-spoke sales model comprised of centralized inside-sales teams surrounded by regional direct sales groups. Our first two hubs outside North America were in Dublin, Ireland and Sydney, Australia. We have opened sales offices in additional countries including France, Germany, India, Japan, the Netherlands, Sweden, Spain, Singapore, and the United Kingdom. To address data sovereignty concerns amongst our international customers we have built data centers in Canada, Germany, and Australia. We believe that this investment should further increase our international expansion opportunities. For the nine months ended September 30, 2020, 28% of our revenue came from markets outside the United States, and we believe that there is significant opportunity for continued growth in the global markets.
•Continue to Innovate and Enhance Our XM Platform. As we add to our customer base, we use our technology to draw insights and ensure that we are best serving our customers’ needs. These insights lead to innovative features, such as XM Solutions for creating faster time-to-value, XM Benchmarks to derive deeper insights, XM Automated Actions to quickly close identified experience gaps, and improvements in our iQ product features to drive intelligent action taking. These innovations lead to a greater value proposition for our customers and increased adoption of our XM Platform by both new and existing customers. In 2015, we built out our Seattle office to function as an engineering center focusing on product innovation and development, including our artificial intelligence and machine learning capabilities. Since then, the office has grown to over 650 employees and in 2019 we announced further expansion of our Seattle office with Qualtrics Tower. In 2018, we launched our Krakow, Poland office as our European engineering center, focused on core research and development, or R&D, investments in our EmployeeXM and CustomerXM products. That office has now grown to over 100 employees. Both of these growing locations support our goal of continuously enhancing our XM Platform and providing the best technology for our customers.
•Grow Revenue from Key Industry Verticals. While our XM Platform is industry-agnostic, we have made a number of industry-specific investments that will accelerate our adoption within certain verticals, including government, education, healthcare, technology, and financial services. We have developed Certified XM Solutions, leveraging partners’ expertise, and embedding industry-specific content into our products. Our Certified XM Solutions are packaged projects and programs with expert content, workflow, and automation. In every key vertical, we have reference customers that we believe validate the adoption of our XM Platform.
•Further Develop Our Partner Network. We have developed a network of leading content and consulting partners, delivery partners, and technology partners who enrich our offerings, scale our coverage, and help us reach a broader audience than we would be able to reach on our own. Our partner channel extends our sales reach, enhances our products, and provides implementation leverage both domestically and internationally. Since the launch of QPN in 2018, we have entered into many impactful partnerships with over 200 global member companies, including Accenture, Ernst & Young, Deloitte, IBM, J.D. Power, and Kantar. During 2019, we launched the QDP as a core element of QPN. We will continue to partner with other leading organizations to broaden our reach and maintain our strong net retention rates.
•Jointly Develop, Market and Sell our Solutions with SAP. As part of SAP we have been able to utilize our partnership to grow and enhance our business. We will continue to jointly develop, market and sell our solutions with SAP. SAP has a global footprint in over 180 countries, which has allowed us to reach new geographies and expand our international presence faster. Our go-to-market motion has greater enterprise reach through SAP’s global customer base, allowing Qualtrics to be sold alongside SAP applications through our solution selling partnership.
Our Platform, Solutions, and Technology
Our XM Platform was built to provide flexible, scalable solutions for our clients. We use a secure, modern data processing architecture to ensure the specific needs of our clients are met across their organization. Clients can deploy experience management modules or choose to access the entire XM Platform, and add on specific solutions as their needs evolve. We offer over 100 out-of-the-box integrations, with leading enterprise vendors such as SAP, Microsoft, and Salesforce, as well as custom integrations for our clients. Our architecture is designed to scale horizontally and cost-effectively by combining the Platform-as-a-Service offerings and modern open-source technology stacks running within our co-location data centers.
We offer a range of experience management solutions, including Integrated Solutions for experience design, customer experience, employee experience, product experience, and brand experience––all built on the Qualtrics XM platform, a collection of powerful capabilities, tools, and building blocks.
Integrated Solutions
CustomerXM
Our CustomerXM solution is a system of action that enables organizations to gain a true understanding across all forces that impact the customer experience, and surfaces these insights in real-time to drive improvements in both micro-level issues (e.g., specific customer remediation situations) and in macro-level issues (e.g., systemic problems with customer care experiences or broken digital journeys). With Qualtrics, organizations can capture, analyze and then act on customer sentiment across all channels and touchpoints along the customer lifecycle. It provides customer-focused analytics, native to the XM Platform, automated action and workflow capabilities, and no-code/low-code integrations that help organizations take effective, data-driven actions that lead to higher new customer acquisition, reduced customer churn, increased share of wallet and lower costs to acquire and serve customers.
Key use cases of CustomerXM include:
•Foundational – Understand the health of your customer relationships, identify root causes of broken experiences, conduct key driver analysis, and automatically surface macro-level prioritized focus areas that can serve as the foundation for CustomerXM programs. Model the impact of improving customer experience on key business metrics.
•Account Management – Help sales, account management and customer success teams in organizations drive long-term customer loyalty and increase revenue with account specific views, insights into key stakeholder perception and sentiment, and predictive indicators of renewal and churn. Understand the health of every account, and prioritize actions needed across the organization to increase satisfaction and customer lifetime value.
•Customer Care – Enable front-line customer care teams, such as call center or field service teams, to optimize every interaction they have with customers, and improve efficiency and effectiveness of issue resolution. This includes sophisticated voice, chat and email analytics that automatically triggers service recovery workflows for poor customer experiences and that delivers real time insights into the coaching needed for specific service representatives.
•Digital Experience – Help digital teams capture feedback across every digital touchpoint, apply native, real-time analytics and take actions that improve funnel conversion or customer self-service across website and mobile applications. Improving content effectiveness, optimize journeys for ease of use, and deliver more personalized digital experiences with targeted content delivery.
•On-site / In-store Location – Enable retail, health providers, and other location-based businesses to optimize in-location experiences, manage online review reputation and empower front-line employees to take action and immediately follow-up when customers are not satisfied.
At the core of our CustomerXM solution is our customer-centric data management system, which consolidates all experience data, across all touchpoints, along with relevant operational data, into a single system of record. This enables personalized experiences at scale, deep journey and segment intelligence, and predictions about future behavior. Our listening engine enables omni-channel engagement and data collection across in-app, SMS, interactive voice response, or IVR, chat and call center platforms, messaging apps, social media and review sites, video, voice, email and more. Qualtrics iQ, native to the XM Platform, analyzes this data in real time, surfacing recommended actions tailored by role and department. With low/no-code automated actions and workflows, as well as our open developer platform, organizations can quickly take action and deeply embed CustomerXM within existing operational workflow systems. This drives high adoption and action taking across the entire organization, which ultimately leads to meaningful change and business outcomes.
EmployeeXM
Our EmployeeXM solution provides a holistic view of an employee’s experience to help companies reduce unwanted attrition, improve employee engagement, develop and retain top performers, improve customer experience, drive productivity, and build strong teams and cultures. It allows organizations to draw insights from their employees and continuously improve every facet of the employee experience during the employment lifecycle - from recruitment onwards.
Key use cases of EmployeeXM include:
•Employee Engagement – Enable managers to measure and quantify each of their employee’s experiences in real-time. This empowers any person in an organization who is responsible for managing others to analyze and track employee engagement and drive action through expert-designed, guided manager action planning and workflows.
•Workplace Experience – Equips human resource, chief information officers, and chief financial officers to measure and optimize the everyday employee technology and facilities experience to drive productivity - whether in office or remote. Optimize workforce investments by improving IT support processes and quality and ensuring IT transformations truly meet employee needs.
•Individual Experience – Help organizations develop, reward, and retain talent at scale by providing individual, multi-rater performance feedback, measuring the effectiveness of training and development programs, and optimizing total rewards across the workforce.
•People & Culture – Assess and improve team, manager, and cultural effectiveness and aggregate employee's feedback from multiple parties, including managers, peers, and direct reports. Synthesize all these data sources to track team, manager, and cultural effectiveness progress including diversity, equity, and inclusion initiatives.
Lifecycle Touchpoints
•Pre-hire and Onboarding – Measure new employee experiences by tracking items such as satisfaction with the hiring and onboarding process, managers’ initial feedback on performance, and the effectiveness of the orientation processes. This measurement is not only able to assist in tracking the experience of newly hired employees, but also in understanding the experience of potential targets before they are hired.
•Exit Interviews – Manage and monitor employee retention and the reasons provided for employee attrition during exit interviews. Careful collection and analysis of this valuable information regarding employee satisfaction can be used to inform ongoing strategies around employee fulfillment and retention.
We have architected our EmployeeXM solution to meet the exacting requirements of human resource managers. It features workflows that enable employees to seek the right feedback from across the organization, robust administrator rights that enable higher anonymity thresholds, interactive data visualization that conveys the right information to each user, and expert designed, guided action planning surfacing the areas where potential improvements would drive the highest impact. The solution also integrates with a number of HCM and Learning Management System, or LMS, vendors.
ProductXM
Our ProductXM solution helps organizations more successfully build and maintain products and services that their customers love by understanding demand and experience signals across all phases of the product life cycle. This solution identifies actionable insights from identifying a target market, uncovering unmet needs to concept development and initial product marketing. Organizations can quickly determine the top drivers of product satisfaction and loyalty and incorporate experience insights into key product decisions, assisting in product feature prioritization, increasing product decision velocity and building a customer and data-driven product roadmap.
Key use cases of Product Experience include:
•Market and Customer Segmentation – Identify and understand the target market for an organization’s products and services through both in-depth customer feedback and broad market analysis. Determine unmet needs of customers to uncover opportunities for innovation. Prioritize product development investment plans based on target market segment needs and preferences.
•Product and Concept Testing – Help product teams collect rich feedback on ideas and prototypes to accelerate the innovation process and validate early concepts before development and production. Quickly prioritize which features matter most, by specific segments, through sophisticated choice modeling simulations. Ubiquitous access to real-time product feedback ensures that concept testing is targeted toward the right customer segments, is performed efficiently, and minimizes unwanted development bottlenecks.
•Pricing and Packaging – Help eliminate ad hoc and disjointed pricing analyses and replace them with a unified pricing research approach capable of identifying valuable product features, empowering a data-driven pricing strategy, and maximizing profit margins for each product. Determine the right packaging strategy with the right features and bundles that maximize customer preference through sophisticated out-of-the-box preference modeling that can simulate market share for different pricing and packaging scenarios relative to competing products.
•Product Satisfaction – Measure and monitor the health of a product or service after launch. Combine descriptive statistics based on operational data such as purchases, funnel and click stream analytics that explain “what” is happening, with diagnostic experience signals from structured and unstructured data that explains “why” it is happening to uncover actionable insights such as statistically relevant key drivers of dissatisfaction and projected impact.
The ProductXM solution packages our omni-channel listening capabilities, insights from structured and unstructured data and automated workflows and actions in a turnkey, guided, easy to use user interface that enables anyone without a degree in statistics to make smart data-driven product decisions. It seamlessly supports contextual operational data such as cost of production, margins or click stream behavioral data to augment human factor data to enable product teams to identify actionable insights such as key drivers of retention or engagement or profit maximizing scenarios. With our ProductXM capabilities, product teams can continuously tune their products and services through every phase of the product life cycle.
BrandXM
Our BrandXM solution provides a complete view of all brand experience drivers across the brand funnel from awareness through to purchase and post-purchase experience to increase new customer acquisitions, repeat purchases and share of wallet. This solution delivers automated real-time analysis to help organizations understand how to improve brand perception and experiences relative to competitors at a specific market and segment level.
Marketing teams can quickly optimize brand advertising and communication strategies, as well as work across the organization to improve the experiences that matter most.
Key use cases of Brand Experience include:
•Brand Health Management – Evaluate and track brand health across all aspects of the brand funnel relative to competitors. Conduct analyses to prioritize actions and investments that sustain and drive brand growth
•Communications Testing – Build and strengthen brand perceptions through more effective messaging and communications. Test and predict in-market performance of campaigns, advertisements, creatives, copy and other communications prior to launch. Quantify the impact of communications on brand metrics
•Audience Targeting and Activation – Segment target markets based on demographics, needs, preferences, common interests, or other psychographic or behavioral criteria that can be used to better understand a target audience and a brand’s perception within that audience. Connect brand insights to marketing execution platforms to build and target specific audiences with tailored messages and advertising content.
•Brand Experience Optimization – Allocate resources more efficiently to achieve desired brand outcomes. Identify and optimize the impact of all touchpoints to continuously adapt and improve resource allocation and overall ROI of marketing initiatives.
•Brand Expansion – Identify and prioritize opportunities for extending the reach of a brand within a category and across categories. Discover the fit and potential of a brand to credibly compete and capture market share in multiple adjacent categories by leveraging those perceptions that most differentiate and define it to consumers.
Our BrandXM solution provides real-time, role-based insights that help organizations take the right actions to improve brand perception. It includes workflows that integrate with marketing platforms and other operational systems that enable organizations to improve how a brand is experienced by customers and potential customers alike.
DesignXM
Our DesignXM solution helps organizations uncover the products, services, brands, and cultures that customers and employees want next. Our software helps teams connect with people in authentic, human ways to create new experiences that shift markets, define brands, establish cultures, and attract new customers.
These tools are used by market research professionals, marketing teams, product teams, HR teams, academics, insights professionals, data analysts, and developers to do advanced market, customer, and employee research. These customers use DesignXM to adopt a self-service approach to conducting a wide variety of research projects that formerly required hiring expensive outsourced consultants.
Key use cases of DesignXM include:
•Research and Development and Product Research – Product satisfaction and usage, naming and concept testing, pricing research, feature and product prioritization, and user experience
•Market and Brand Research – Brand awareness, brand preference, brand positioning, brand health and equity research, and ad and messaging research
•Strategy and Planning – Market and opportunity assessment, segmentation and targeting, market sizing, and internal stakeholder feedback
Our DesignXM solution can be purchased as software only, or be packaged with expert research services delivered in house, or via our ecosystem partners.
The Underlying Qualtrics XM Platform
Our integrated offerings in DesignXM, CustomerXM, EmployeeXM, ProductXM and BrandXM are purpose-built solutions built on a collection of powerful capabilities, tools, and building blocks. This includes our collection of flexible tools used to build and distribute data collection schemes, to aggregate and analyze data and generate insights, to build reports and dashboards, and create automations and workflows to take action on those insights.
The Qualtrics XM Platform includes the following critical functionality:
•Listening Engine. The Qualtrics XM platform enables organizations to listen to constituents in a natural way through intelligent interactions across a variety of channels, such as email, websites, SMS, mobile apps, social media, online reviews, video feedback and conversational interfaces like chatbots. Our XM Platform can conduct data collection from constituents in three ways: (a) by soliciting feedback via sending pre-created questions to pre-selected audiences in an omni-channel way (b) by dynamically generating in-context question prompts and intelligent conversations in contextual ways on websites and mobile apps, and (c) by gathering X-data inputs from ambient sources like social media and online reviews
•Predictive Intelligence & Advanced Analytics. Once data has been collected, the Qualtrics XM platform provides users with robust, best-in-class tools for advanced analytics as well as a predictive intelligence engine via our iQ suite of technologies. This includes Text iQ for analyzing topics and sentiments from unstructured, open text feedback, Stats iQ for advanced statistical analysis including correlations, regressions, crosstabs and cluster analysis, Driver iQ for automatic identification of key drivers and actions that will drive the highest ROI to close experience gaps, and Predict iQ to help identify customers likely to churn before it happens.
•Automated Actions and Workflows. The Qualtrics XM platform includes a powerful no-code, action orchestration engine, through Qualtrics XFlow, helping to automate and design more than 40 different types of action workflows - from creating tickets to sending notifications to raising alerts to automating follow-ups to pinging a third-party system for immediate action. These actions are used for closed-loop ticketing and creating automated actions to drive improvements in the organization. Example actions include a low NPS score triggering a ticket in a closed-loop ticketing system, a poor product review routed to the engineers and product owners, and any dip in brand perception routed to marketing and public relations teams in real-time. Actions can be triggered based on conditions predetermined by the user to inform them of experience gaps in a constituent’s journey and can alert users both within the XM Platform, or in other channels like email, Adobe, Microsoft, Salesforce, ServiceNow, Slack, Tableau, and Zendesk through web API requests.
•XM Directory. Powering all of this is a powerful and intelligent customer data management layer called XM Directory that allows organizations to deeply personalize every human interaction. XM Directory is built on a customer-centric data architecture that automatically tracks customer interactions over time and builds a 360 degree view of every customer, or employee interaction, capturing feedback, interactions, demographics, operational indicators and other attributes in a single profile. XM Directory can intelligently segment these profiles based on behavior or preferences, provide intelligent analytics on customer journeys, prioritize experience improvements based on deep customer insights, and use those insights to deliver personalized and automated customer outreach at the right moment, with the right message, via the right channels to drive the most optimal outcomes. All of this allows for interactions with individuals to feel like an ongoing conversation rather than transactional pings along a constituent’s journey. Across the Qualtrics customer base, organizations are using XM Directory to manage more than three billion profiles, with
several organizations delivering personalized experiences to hundreds of millions of customers via XM Directory.
Intelligent iQ Platform Features
i.Q. –– Our Powerful Predictive Intelligence Engine
Our solutions are powered by our predictive intelligence engine, iQ. Our iQ engine consists of the following critical functionality:
Text iQ
Our Text iQ functionality uses natural language processing and machine learning algorithms to analyze unstructured, open-end text data for responses and insights. Our technology uncovers trends within unstructured data responses without any additional manual tagging by using a cluster-based approach to understand the context of the unstructured data and extracting insights from the data automatically. Text iQ assigns sentiment scores to incoming open text data to allow organizations to capture the emotion of individual respondents and each topic they discuss, directing organizations on where to focus their attention. For example, after requesting written employee feedback, a financial services company can immediately gain a pulse on how the employees feel about the company and can drill down to understand specific employee sentiment by job type and which aspects employees are most frustrated with, allowing the company to identify and act on problem areas within the workplace. Text iQ automatically updates reports and dashboards with this analysis and immediately pushes this newly-analyzed data to employees, giving them the insights they need to make changes in the moment while also showing the evolution of sentiment over time.
Stats iQ
Our Stats iQ technology makes advanced statistical analysis of experience data accessible for any user. Based on the structure of the data set, Stats iQ automatically chooses the appropriate statistical analyses to run and then presents the results to the user in a digestible and understandable format in plain English, which democratizes the ability for anyone in an organization to extract business insight from sophisticated research and analysis. For example, when reviewing feedback on brand awareness and equity, a consumer-packaged goods company can use Stats iQ to automatically correlate awareness and equity by demographics and location to understand which groups of people they should target in their marketing strategy. Stats iQ also helps organizations identify their distinct customer cohorts, and better understand the characteristics, needs, and satisfaction levels of those key groups.
Comprehensive and advanced data analytic functions include relate, univariate, bivariate, crosstabs, pivot tables, regression, and modeling.
Driver iQ
Our Driver iQ technology uses financial impact and advanced regression analyses to automatically recommend the organizational improvements that will drive the highest ROI. It prioritizes key drivers from the C-Suite to the front-line employees in clear business terms. Using advanced statistical analytics, Driver iQ correlates the quality of the customer-journey with specific satisfaction drivers, and allows users to prioritize the drivers that will most improve the overall experience going forward. For example, when receiving feedback on paint colors for a new line of cars, an automotive company can use Driver iQ to identify which car colors will drive the highest sales amounts, allowing them to produce the optimal amount of each color of car. The Driver iQ interface also allows different users to configure the data in real-time to drill down in the data and identify the key drivers at their specific points of impact, yielding more relevant and actionable insights and follow-up directives for each specific user.
Predict iQ
Our Predict iQ technology helps companies understand which customers are likely to leave and what they can do to prevent attrition before it happens. Using deep learning neural networks and open-source algorithms to make its predictions, Predict iQ identifies customers who are likely to churn and provides visibility into what is driving that behavior. The technology can also be used in a workflow with Qualtrics Actions, allowing users to set up triggers to send emails, create tickets, or ping any third-party service for immediate action to prevent attrition. For example, within an enterprise software company, if Predict iQ identifies a customer that has unresolved issues with the product and is likely to churn, the company’s pre-set workflows can open up a ticket in Salesforce to remind their sales and customer success teams to resolve any product issues and provide the right amount attention to the customer. Users can also leverage other Qualtrics iQ technologies, such as sentiment analysis from Text iQ and regression models from Stats iQ, into Predict iQ to provide the neural networks with additional variables that users find relevant to enhance the accuracy and sophistication of the deep learning algorithms.
Qualtrics Developer Platform
The Qualtrics Developer Platform, or QDP, enables customers to seamlessly integrate Qualtrics with their existing applications and workflows, and extend the functionality of the XM Platform. QDP includes a robust set of developer tools - including Software Developer Kits, or SDKs, APIs, and workflow configuration tools - for our customers or third-party developers to build data connectors, widgets, plug-ins, visualizations, workflows and automations. Leveraging the QDP, customers can connect Qualtrics with third-party software systems to automate key business processes, enhance their XM program by bringing experience data from other listening posts into Qualtrics, and extend the XM Platform to address their specific business requirements.
Through the QDP, we provide over 100 out-of-the-box integrations, or XM Extensions, across 30 complementary technology categories with leading enterprise solutions like SAP, Adobe, Atlassian, Microsoft, Salesforce, ServiceNow, Slack, and Zendesk, and applications in adjacent software categories such as digital experience, social analytics, user research, help desk and support, and contact center management. The aforementioned XM Extensions, along with select partner solutions, can be marketed and sold on the XM Marketplace, our enterprise cloud marketplace, or sold directly by our innovation partners. For the nine months ended September 30, 2020, over 60% of our customers used XM Extensions to connect Qualtrics with other business systems and workflows.
Modern Data Processing Architecture
Over 100 million distinct responses are generated each month on our XM Platform. Each piece of X-data represents a distinct data stream, which are combined with related streams generated from social media, enterprise, and third-party integrations via API. Our XM Platform continually aggregates these data streams to provide up-to-the-minute analytics, as well as near real-time analysis across billions of historical data points collected. Our architecture is designed to scale horizontally and cost-effectively by combining the Platform-as-a-Service offerings and modern open-source technology stacks running within our co-location data centers.
Information Security as a Key Business Enabler
We have achieved multiple information security certifications including the globally recognized ISO 27001 standard in addition to FedRAMP certification to authorize the use of our XM Platform for U.S. Federal Government agencies. These certifications require ongoing independent validation of our compliance frameworks to provide our customers with confidence in choosing our XM Platform. Our premium Data Isolation feature protects customer response data with a customer specific encryption key. Qualtrics is Privacy Shield certified and provides our customers with self-service tools to help comply with privacy frameworks such as GDPR.
Research and Development
Our ability to compete depends in large part on our continuous commitment to research and development and our ability to rapidly introduce new technologies, features and functionality. Our research and development organization is responsible for the design, architecture, testing, and quality of our XM Platform. We focus our efforts on developing our core technologies and further enhancing their usability, functionality, reliability, performance, and flexibility. As a company, we prioritize research and development and attempt to foster creativity and autonomy in our engineering teams. Research and development expenses were $65.9 million, $242.1 million, $183.5 million, and $169.0 million for the years ended December 31, 2018 and 2019 and for the nine months ended September 30, 2019 and 2020, respectively.
Customers
As of September 30, 2020, we had more than 12,000 customers using our XM Platform in more than 100 countries. We have key reference customers in many industry verticals that we believe validate our solutions in the market, and our customers range from small and medium-sized organizations to Fortune 100 companies. Below is a representative list of customers categorized by industry vertical. No single customer accounted for more than 2% of our revenue in 2019 or in the nine months ended September 30, 2020. As of September 30, 2020, each customer listed below has spent more than $100,000 in ARR.
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Banking / Insurance
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Oil & Gas / Utilities
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Allianz
American Express Company
Australia and New Zealand Banking Group
Morgan Stanley
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Chevron
Duke Energy
E.ON
Exxon
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Consumer Packaged Goods
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Retail
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Adidas
The Coca-Cola Company
Levi Strauss
Under Armour
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CDW Corporation
CVS Health Corporation
Target Corporation
Weight Watchers International
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Education
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Services / Consulting
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Columbia University
Milwaukee Public Schools
Northwestern University
State of Utah
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Aramark Corporation
Bain & Company
Ernst & Young
PricewaterhouseCoopers
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Government
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Technology
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Centers for Medicare and Medicaid Services
General Services Administration
United States Air Force
United States Census Bureau
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Atlassian Corporation
Microsoft Corporation
Peloton
Uber
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Healthcare / Life Sciences
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Telecom / Media
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AstraZeneca
Boston Scientific
Johnson & Johnson
Medtronic
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Deutsche Telekom
Dish Network
Sprint Corporation
The Walt Disney Company
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Industrials / Automotive
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Travel / Hospitality
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Airbus
BMW
Ford
Honda
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Air France
Cathay Pacific Airways
Hilton Hotels & Resorts
Southwest Airlines
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Non-Profit
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American Heart Association
CFA Institute
Girl Scouts of the United States of America
National 4-H Council
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Customer Case Studies
Dow
Dow Inc., or Dow, operates 109 manufacturing sites in 31 countries and employs approximately 36,500 people. Dow delivered sales of approximately $43 billion in 2019.
Dow combines global breadth, asset integration and scale, focused innovation and leading business positions to achieve profitable growth. Its portfolio of plastics, industrial intermediates, coatings and silicones businesses delivers a broad range of differentiated science-based products and solutions for its customers in high-growth market segments, such as packaging, infrastructure and consumer care.
The Situation:
When Dow was spun out from the $130 billion merger of chemical giants DuPont and Dow Chemical in April of 2019, its new CEO, Jim Fitterling, set the vision for Dow to become “the most innovative, customer-centric, inclusive and sustainable materials science company in the world.”
This presented an opportunity to define a new era in the company’s 120+ year history: moving from an approach where price was the key value driver, to instead growing its business by offering a differentiated experience to customers.
Dow’s vision was to follow the example set by business to consumer, or B2C, companies like Amazon and American Express, by forging emotional connections with its customers to drive increased spend, growth through innovation, and loyalty.
The challenge in making its vision a reality was that the software technology available to business to business, or B2B, companies like Dow had not evolved to the extent of B2C. This meant most B2B companies were behind in their digital evolution, relying on technologies and methodologies that had been developed for B2C companies decades ago.
Dow turned to Qualtrics to modernize its ability to become truly customer-centric in B2B, and to develop a program that would position Customer Experience as a key input and growth driver for their new company.
Qualtrics Solution & Benefits:
In partnership with Qualtrics, Dow’s Customer Experience algorithm measures not only how easy, effective, and enjoyable it is to do business with Dow, but connects that with customer feedback at every touchpoint in their overall customer journey. Its research showed that it has a measurable, positive correlation with increased margin, volume, and price. Dow built a program on CustomerXM that gathers feedback from customers in two ways. First, a relational view of its customer database to understand the strength of the relationship; and second, transactional feedback at key moments in the buying journey to quickly resolve customer issues and spot opportunities to optimize the experience.
One key moment along the customer journey is the digital experience. Like many B2B manufacturers, digital had not been a priority in the past, with the vast majority of customer interactions taking place in person.
But Dow understood that B2B buyers were changing – they expected the same kinds of digital experiences they were used to in B2C and were increasingly relying on digital channels for product information. So the team at Dow expanded its program to include digital properties – measuring and acting on user feedback from their website and other digital interactions.
The feedback is automatically analyzed by Qualtrics iQ, and recommendations are fed back to Dow’s digital and marketing teams to drive experience improvement actions – from the complaint handling processes, to supply chain visibility, to call center customer service.
This led to Dow launching an Amazon-style e-commerce platform for its customers, providing a new channel-to-market and creating further differentiation against their competition.
Results:
•Dow found business value correlations tied to its Customer Experience score improvements for on time delivery, reduced internal order change rate and complaint management. These have all led to a positive financial impact on either margin, net sales, unit margin, volume or unit price.
•Customer Experience survey results inform service level delivery by business, customer segment, and region to ensure Dow balances and differentiates services while managing costs.
•In 2020, Dow included the Customer Experience score as part of its employee performance award structure, which is included in their corporate ESG performance metric.
Fresenius Medical Care
Fresenius Medical Care is the world's largest provider of products and services for individuals with renal diseases. Through its network of 3,971 dialysis clinics, Fresenius Medical Care provides dialysis treatments for 336,716 patients around the globe.
The Situation:
Approximately 37 million Americans have chronic kidney disease, separately more than 726,000 have End Stage Renal Disease — 100,000+ of those individuals will require dialysis and one in five will die within a year. As the ninth-leading cause of death in America, and accounting for $114 billion a year in Medicare spend, improving the nation’s kidney health is a government priority and in 2019, an executive order called for a change in how patients are cared for, setting a goal of 85% of new ESRD patients being given treatment at home by 2025.
Fresenius Medical Care has pioneered dialysis treatment for more than two decades and over the past few years has been a vocal advocate of at-home dialysis — a nascent $75 billion market with only 1% of dialysis patients choosing at-home treatment. Offering better clinical outcomes, a better quality of life, increased likelihood to receive a transplant, all at a lower cost than in-center care, home dialysis should be the modality of care — however the majority of patients were reluctant to choose home therapy and for those who did, many returned to traditional in-center dialysis care.
Fresenius Medical Care turned to Qualtrics to help understand what they could do to help more patients choose home and how, when they did choose home, they could help them stay there.
Through a comprehensive XM strategy using Qualtrics, the team at Fresenius Medical Care is now able to get real-time feedback from patients about how they feel about their care and the at-home products they’re using. The result is a closed-loop system that helps Fresenius Medical Care identify issues in real time that might cause a patient to revert to a dialysis center, and gives them the opportunity to resolve issues quickly, improve the at-home experience, and help patients continue to receive home-care dialysis.
Qualtrics Solution & Benefits:
Fresenius Medical Care learned that the first 90 days are critical and will often determine if a patient will stay or leave home treatment. To ensure any issues are addressed, 21 days after enrollment in home dialysis, they use Qualtrics to automatically reach out to patients to understand their experience with everything from the dialysis machine, to nursing care visits, order and delivery of needed products, to the dialysis training they receive.
The result is a system of action that allows the team at Fresenius Medical Care to solve problems in real-time for patients, from troubleshooting alarms to providing additional training and advice to those struggling with performing treatment at home. For example, if a patient indicates that they have not seen an increase in energy levels, that is immediately flagged for follow-up and early intervention such as changing prescription levels or altering a treatment plan.
But it’s not just about solving individual problems as they happen — with detailed patient feedback on its in-home dialysis machines, Fresenius Medical Care uses Qualtrics to harness the voice of patients to fuel innovation of machines, products, and services.
With a comprehensive XM approach, employees are able to use feedback to improve how they support patients through home visits and patient training. Positive feedback about staff is automatically shared with program managers to reward and highlight as an example of exemplary care to replicate.
Beyond that, Fresenius Medical Care’s employee experience plays a key role too, with employees able to share their feedback, helping to ensure they have the tools and resources they need to best support their patients and help them continue with successful home treatment.
Results:
•World-class NPS scores for new and tenured patients at 76 and 72, respectively.
•Supported by patient feedback, staff can quickly and directly address concerns in a personalized manner. Today 97% of patients are likely or extremely likely to continue with at-home treatment.
•74% of at-home patients have now received timely caretaker follow up and their concerns addressed in direct response to feedback.
Lumen Technologies
Lumen Technologies is an American multinational technology company headquartered in Monroe, Louisiana, that provides an industry leading platform for applications and data to help businesses, government and communities deliver amazing experiences around the world. The company is a member of the S&P 500 index and the Fortune 500.
The Situation:
In a crowded industry traditionally known for mediocre customer experience, Lumen saw an opportunity to differentiate in the market—they would invest in an experience transformation with an aim to become the most customer-centric technology company. Lumen understood that focusing on experience to drive loyalty was an effective strategy to not only differentiate from the competition, but also to drive growth and revenue.
This of course is easier said than done, because it requires implementing a cultural shift throughout the business, where employees see the value of focusing on customer experience and are empowered to participate personally with actions that have a direct impact on the customer.
As Lumen increased its focus on experiences, they chose Qualtrics to help make this a reality.
Qualtrics Solution & Benefits:
For Lumen to become more customer-centric, customer voices needed to be heard throughout the business. To begin the transformation, they implemented a state-of-the-art Qualtrics Voice of the Customer (VOC) program. This program wasn’t just about measuring satisfaction scores, it was about putting the customer at the heart of the decision-making process and taking actions that lead to increased loyalty and lifetime value, Through data modeling, Lumen has been able to identify key drivers of loyalty: experience with their company, product, pricing and brand perception.
Like any successful experience transformation, employees proved fundamental. Lumen encouraged every employee to “own” the experience. Every employee — regardless of whether they’re customer-facing or not — were encouraged to be stakeholders over the customer journey, pain points, and given instructions on how they could play their part in driving retention and expansion.
With Qualtrics, Lumen was able to see financial benefits for pivoting the business to experience, linking improved customer relationship scores to improved revenue trajectory and reduced churn. Not only could Lumen see how the experience was impacting the business, but also why. This provided a clear view into what was working, what wasn’t, and which critical touchpoints of the customer journey could be improved.
For example, it specifically highlighted the beginning of the customer journey — the onboarding process — as a critical moment that Lumen needed to master. For their business, they found a direct correlation; the better the onboarding process, the less likely the customer was to leave. It became clear that by improving the customer experience, relationships became stronger, and the business benefited as a result.
Lumen used XM to make this happen, listening to customer feedback from the very start of the relationship, and then using the Qualtrics platform to take swift action to close the loop quickly and resolve issues.
Delivering a smooth onboarding process meant Lumen was able to build strong, enduring relationships with its customers. The financial implications were evident as a result; customer churn was reduced, and as more customers promoted Lumen, its strategic segments saw increased spend.
Results:
As a result of implementing a VOC program with Qualtrics:
•Consumer early-life churn fell by 10 points as a result of taking action on customer listening.
•Identified that 1 in 4 Promoters of Lumen increased spend by 10% or more, resulting in targeted actions to increase number of Promoters.
•Lumen's customer relationship scores have consistently improved with their strategic customer segments experiencing the biggest gains.
MercadoLibre
MercadoLibre, or MELI, hosts the largest online commerce and payments ecosystem in Latin America. Its efforts are centered on enabling e-commerce, digital, and mobile payments by delivering a suite of technology solutions. MELI is present in 18 countries including Argentina, Brazil, Mexico, Colombia, Chile, Venezuela and Peru. Based on unique visitors and page views, MELI is the market leader in each of the major countries where it’s present.
The Situation:
Over the past 12 months, MELI’s market cap has more than doubled, and its expansion throughout Latin America shows no signs of slowing.
From its initial founding as an online marketplace, MELI has expanded its platform and services to create an e-commerce and payments ecosystem that drives in excess of $2 billion in revenue annually.
Throughout its growth, MELI has stayed true to its brand purpose—to democratize commerce and payments across all of Latin America. To succeed with this mission, MELI needed to rapidly expand hiring and simultaneously maintain low levels of attrition––intentionally hanging onto the people that helped them become one of the region’s fastest growing companies.
However, visibility into the employee experience––from hire to exit, was difficult. Multiple feedback platforms were being used across teams. And without a fully connected view of the overall employee experience, limited action was being taken on employee feedback.
That’s when they turned to Qualtrics.
Qualtrics Solution & Benefits:
Using Qualtrics EmployeeXM, MELI is able to continuously listen and improve experiences for every candidate and employee at all stages of their lifecycle.
They’ve gained deep insights into the key drivers of attrition, and the actions managers across the organization need to take to keep hold of their best people.
All leaders in the company now have a Leadership Effectiveness Goal composed of two metrics—engagement and turnover — and receive real-time insights through Qualtrics into how they’re performing, as well as recommended actions to help them improve.
Further, MELI is able to automatically analyze the data it gathers from across the entire employee lifecycle to identify the moments that matter most for each employee and optimize those experiences to improve engagement and retention.
For example, analysis of exit feedback uncovered the precise moment when employees who leave within their first year started to talk to other companies.
MELI is then able to use EmployeeXM to automatically identify employees at risk of leaving in their first year and trigger a series of preventative actions - such as assigning new projects or finding an alternative role within the company.
MELI is committed to continuously improving their employee and candidate experiences. With Qualtrics EmployeeXM, MELI now has a forward-looking radar to spot experience gaps on the horizon and take action automatically to close any employee experience gap and cement its place as one of the world’s best places to work.
Results:
•Today, MELI has an 89% engagement rate and 96% of employees indicate they are proud to work at the company.
•95% of employees at MELI say they would strongly endorse the company to friends or family as a great place to work, helping to improve the talent pipeline from employee referrals.
•In 2020, MELI was ranked 8th in Fortune’s World’s Best Workplaces.
The NBA
The National Basketball Association, or NBA, is a professional American men's basketball league headquartered in New York, NY and Secaucus, NJ.
The Situation:
Broadcasting in 215 countries and territories in 47 languages, the NBA is one of the world’s premier professional sports leagues.
Not only does the NBA endeavor to provide an incredible fan experience across all sports, but it also competes with every other entertainment option.
The NBA knows that its growth requires new thinking not just at the league’s headquarters, but at every one of its 30 franchises and 13 offices around the world. It goes beyond what happens in the arena — after all, 99% of fans will never attend a live game. So how can the NBA deliver an experience to its fans around the world?
Their approach is two-fold. On one hand, they must attract and retain the kind of world-class talent that will innovate, drive growth, and help create the future of the league. And on the other hand, they must design new experiences for fans and new ways to engage with the sport.
To accomplish those goals, the NBA chose Qualtrics to run its employee experience (EX) and to enhance its customer experience (CX) that’s helping to design new digital experiences.
Qualtrics Solution & Benefits:
Looking to the fan experience, the NBA integrated Qualtrics CustomerXM and installed listening posts at key moments in the fan journey. Today, the NBA leverages Qualtrics to gain insights into the emotions and sentiments of fans and the experience of NBA League Pass subscribers.
So whether someone is attending games in person, watching online, or keeping up with their team via the NBA App, the NBA has the ability to gain insights around their fans’ expectations and know which actions to take.
The NBA’s XM journey also extended the employee experience at the league-office level and opened the Qualtrics XM Platform to a majority of its 30 franchises in the league, giving them the opportunity to continuously improve the experience for their people.
The insights the NBA has into its employee and customer experiences means it’s able to act quickly to close experience gaps, and roll out new, innovative experiences for its employees and fans. And in 2020, that ability was key as COVID-19 shut down live sports and events.
As fans around the world craved the return of live sport, the NBA was one of the first professional leagues to restart by designing an entirely new experience on a campus in Orlando. In order to ensure the safety, health and comfort of those on the campus, the NBA used Qualtrics to aggregate real-time feedback from players, coaches, and league employees.
The NBA integrated Qualtrics into the specially designed NBA app for the campus in Orlando. Through the app, a push notification was sent to everyone on site periodically to get feedback from staff and teams. With this feedback, the NBA was able to monitor how this entirely new concept was working, and what they needed to do to optimize the experience.
Results:
•As a result of feedback from the Orlando campus pulse, the NBA changed food delivery options and added new on-site experiences for players and guests.
•Across global NBA branded retail stores, CX was assessed through Qualtrics using NPS as a driver for success. Using Qualtrics Stats iQ analysis, product category misalignment with fan expectations along with any service or in-store experience misses were addressed in actionable next steps. Actions taken to evaluate and adjust have resulted in an increase in sales of +4%, within comp stores.
City of Orlando
The City of Orlando is the municipal government for the Orlando metropolitan area. With a population of more than 2.5 million people, it’s Florida’s largest inland city and is one of the world’s most popular tourism destinations, welcoming more than 75 million visitors every year.
The Situation:
The growing gap between elected officials and the people they serve is not a new phenomenon — public trust in government, around the world has been declining — but with COVID-19, a global movement for social justice, and wider economic challenges, the gap is more visible than ever.
For local government, public trust is everything. It drives election turnout, positive community engagement, satisfaction with police and law enforcement, and leads to higher tax compliance. For cities across the U.S., public trust has become the leading indicator of a city’s economic prosperity.
For the City of Orlando, addressing the issue of public trust, and closing the gap between elected officials and their constituents, was vital to continue its legacy as a destination for family, work, tourism and investment.
In 2018, as Orlando became one of the fastest growing cities in the nation, Mayor Buddy Dyer set out to ensure that the record growth was not creating a gap between the city and its residents, thereby taking meaningful action to continue to build public trust.
Qualtrics Solution & Benefits:
The City of Orlando turned to Qualtrics for a comprehensive city-wide customer experience program to listen and act on residents’ feedback.
In an effort to make the city’s 300+ services easier to access and use, the city is undergoing a digital transformation across all websites and digital properties.
Now, using Qualtrics, when residents interact with a service, Qualtrics CustomerXM automatically sends them an email asking about their experience. The resulting feedback is automatically analyzed to identify the key drivers of citizens’ experience and recommend the actions that will improve satisfaction and trust in the city’s government.
The feedback is routed directly to responsible managers so they can follow up with residents and quickly make process changes.
The City of Orlando has now expanded the program beyond city services and launched a new initiative in 2020 to help close the experience gap between law enforcement and the city’s residents. Following an interaction with the police, residents now have an opportunity to give feedback that is used to drive action in the city’s police department and build closer links to the community and increase trust in law enforcement.
Results:
•Since turning to Qualtrics, the City of Orlando has increased its citizens’ public trust in government by 18% in just two years, and some services saw an increase of 51% in public trust in government following process changes surfaced and acted upon using Qualtrics.
•Using Qualtrics CustomerXM, the City of Orlando has established a repeatable, scalable, closed-loop feedback and action system for its most critical public services — asking citizens about their experience, automatically analyzing feedback, and routing it to teams across the organization to take action.
•As part of its program, the city has now built a citizen database of thousands of residents that have opted into a city-wide panel which the government reaches out to for targeted feedback when considering new policy changes or designing and launching new services and experiences in the city.
Under Armour
Under Armour is a leading inventor, marketer and distributor of branded athletic apparel, footwear and accessories – a human performance company focused on making all athletes better through industry-leading, innovative product solutions and experiences.
The Situation:
In the highly competitive athletic performance apparel and footwear sector, Under Armour has built its reputation and advantage through the introduction of innovative products and premium experiences.
The company’s mission and vision are centered around its target consumer, known as the Focused Performer. Utilizing deep athlete and consumer insights data and analytics, Under Armour synthesizes this connectivity throughout its product creation process, translating specific needs into industry-leading, athlete inspired and tested products.
As a critical part of understanding its core customer brand journey, Under Armour wanted more holistic visibility into the ongoing experience, including consideration and post-purchase behaviors.
Teams across the business were using a host of different platforms to gather disjointed feedback directly from consumers. However, millions of comments left on review websites and social media were going unnoticed because the platforms did not provide easily understood insights that could inform decision making.
In 2020, Under Armour decided to consolidate product experience with customer experience onto Qualtrics to get a complete understanding of the entire customer lifecycle for a more holistic and actionable voice of the consumer.
Qualtrics Solution & Benefits:
Through the Qualtrics XM Platform, Under Armour has built an end-to-end experience management program that responds to consumer feedback at every stage, from the first sketch of a new product concept to a runner’s first marathon and beyond.
Its product feedback system, powered by a team of 10,000+ wear-testers through Qualtrics, provides the team with critical insights into the style, features, materials, and performance of every concept.
Once the product is launched, Under Armour continues to optimize each customer’s experience through its direct-to-consumer business.
Using Qualtrics, Under Armour pulls a host of different data sets into a single system––direct consumer feedback, social media, review websites, and performance data recorded through its fitness tracking app within its MapMy platform––giving them visibility into how consumers are doing at every stage, and take action to support them in achieving their goals. This allows Under Armour to create personalized experiences that help every consumer get better.
For example, using Qualtrics Text iQ, the Under Armour team can identify trends in its product reviews collected from third-party retailers. At the same time, Stats iQ shows statistically meaningful relationships across a consumer’s full experience journey with the brand, including e-commerce, in-store, customer service and product experiences. This full journey visibility gives them a clear view of how consumers experience the brand and product in the real world.
But Under Armour goes beyond that; they’re able to overlay data from social media to expand understanding and empathy for their consumers to help proactively identify trends and insights that can define future experience opportunities.
Results:
•An efficient, single platform to align global teams, helping them actively identify and manage additional opportunities for improved consumer experiences.
•By consolidating all data sources — including direct and indirect feedback and operational data sources — Under Armour now has a significantly better informed view of the consumer experience, informing changes such as streamlining the checkout and return process and product packaging design.
•Under Armour utilized CustomerXM dashboard data coupled operational data from other systems of records to identify consumer friction with order status. Using this approach, they reduced customer service contacts by 87% during the UA SportsMask launch.
•The XM Platform enabled Under Armour to own the consumer experience by consolidating all programs into Qualtrics - today 1,400 people in Under Armour use the platform.
•Under Armour evaluated more than 2,000 products in less than one year through the Qualtrics Product Testing platform’s ease and speed, enabling the automation of the complete product testing process.
Volkswagen Australia
Volkswagen Group, or VW, is a multinational automobile manufacturer headquartered in Wolfsburg, Germany and is currently the world’s largest carmaker by volume.
The Situation:
In 2015, VW - the world’s third-largest carmaker at the time - was struggling with a global scandal, and in Australia the brand had been ranked last or close to last by customers every year for over a decade when it came to its customer service.
As a result, the most important indicators of performance were trending in the wrong direction - brand loyalty and advocacy were down, employee turnover was rising, and customer advocacy was low. All of which were costing Volkswagen money.
VW did have a survey program in place to improve these metrics, and between software and bonuses was spending $10 million a year but alarmingly nothing was improving. It was clear that VW’s market position was under threat, and its plans to improve on it becoming increasingly unattainable. Something needed to change, so they turned to Qualtrics.
Qualtrics Solution & Benefits:
Volkswagen partnered with Qualtrics to create and implement an experience management program called ‘Accelerate to WOW’ that would drastically improve operational metrics and repair the brand’s reputation, not just in Australia but throughout the world.
Volkswagen is renowned for making car ownership possible for everyone, but to be truly committed to the customer experience Volkswagen realized they needed far better access to customer feedback and insights.
The program brought the “voice of the customer” to the forefront of the business, and for the first time in Volkswagen’s history, every employee - from call center agent, team manager to sales representative, knew exactly in real-time what customers needed and how the experience was meeting those expectations.
Through Qualtrics, VW had a constant pulse on what customers were saying, and how they felt. This meant employees were able to quickly understand areas for improvement and take decisive action to ensure those that suffered poor experiences were quickly followed up with to rectify the issue.
It moved the culture at VW to one where customer metrics were front and center, even in managers’ interactions with their teams. Now, customer feedback is used to identify areas where individuals and teams can improve their own skills to directly improve the experience for customers.
And with predictive analytics, VW could go one step further and spot problems before they arose too. This helped VW take proactive action and prevent these poor experiences from happening at all. By making these continued improvements to the experience, Volkswagen was able to foster greater loyalty from their customers.
Then, by adding a Qualtrics brand tracker to their new XM program, Volkswagen was able to track how the improvements to customer experience impacted the brand too; for example, how an incredible customer experience moment — like picking up your vehicle after a service visit — improved the wider perception of Volkswagen.
The brand tracker monitors changes to customer sentiment, perceptions, and behavior towards the brand - and how these were impacting business performance. This information, coupled with a deeper understanding of the customer gathered through feedback, meant that Volkswagen knew exactly what they needed to stop, start, and continue doing to improve their program.
Results:
•Employee turnover of sales roles and key service positions in Australia reduced by 80%.
•Through a combination of efforts, including the improved brand perception, Volkswagen group steadily attracted new buyers and climbed from the third-largest to the largest European car manufacturer in Australia.
•In just three years following the emissions crisis, Volkswagen reclaimed the #1 spot for brand loyalty in auto in Australia.
•The business achieved $7 million in savings by replacing and consolidating several other technology tools with Qualtrics.
•The dealer partners in Australia that actively engaged in the program achieved double the profit compared to the network average.
•Contact center customer satisfaction in Australia rose 31% from 61% in 2016 to 92% in 2019.
•VW Australia’s NPS increased by 102.5 points, from -25.4 in 2016 to 76.9 in 2020.
Our Go-To-Market Strategy
Our XM Platform is used by more than 12,000 customers of all sizes globally across a broad range of industries, including 85% of the Fortune 100 as of September 30, 2020. No one industry comprises more than 15% of our revenues, with banking, professional & business services, technology, education and healthcare making up the top five. Our XM Platform has been adopted by many of the world’s largest organizations that view us as a strategic partner in their digital transformation initiatives. The number of customers spending $100,000 or more in ARR was 1,206 as of September 30, 2020, up from 1,026 as of December 31, 2019. Further, as of September 30, 2020, we had 64 customers spending $1 million or more in ARR, up from 43 as of December 31, 2019.
This broad adoption of our XM Platform is facilitated by a multi-pronged go-to-market model comprised of highly productive inside and field sales teams, a joint development and solution selling partnership with SAP, and our robust and growing QPN. We primarily generate sales through our direct sales team, which includes both inside and field sales personnel. All sales personnel focus on attracting new customers as well as expanding usage within our existing customer base. We also make it easy for users and organizations to sign up for free trials on our website, which can be converted to paid subscriptions. Our sales team is supported by technical sales professionals and subject-matter experts who facilitate the sales process through developing and presenting demonstrations of our XM Platform after assessing requirements, addressing security and technical questions, and matching customer needs with the appropriate Qualtrics solutions. We also have a team of solution experts who help advise on best practices and methodologies, assist with program design, and provide assistance as required through customer launch to accelerate time to value. Our customer success team complements our sales team by consulting with our customers and helping drive adoption, subscription renewal, expansion to additional use cases, and customer value.
Our marketing efforts are focused on generating awareness of our XM Platform, creating sales leads, establishing and promoting our brand, and cultivating a community of loyal customers and users. We utilize both online and offline marketing initiatives, including user conferences (such as our annual X4 Summit), online advertising, webinars, blogs, corporate communications, white papers and case studies.
We also work with partners through QPN, which has over 200 global member companies delivering breakthrough business outcomes for our customers.
QPN consists of the following:
•Strategic Partners offer a full suite of capabilities to accelerate XM within customers’ organizations, including implementation, consulting, and XM program and solution design. Strategic partners include Accenture, Bain, Capgemini, Deloitte, EY, and others.
•Innovation Partners bring XM into customers’ existing IT ecosystems and augment the capabilities of our XM Platform. Leveraging the QDP, customers can connect Qualtrics to third-party software systems to automate key business processes, enhance their XM programs by bringing experience data from other listening posts into Qualtrics, and extend our XM Platform to address their specific business requirements. Innovation partners include enterprise software leaders such as Adobe, Salesforce, ServiceNow, and independent software vendors in adjacent software categories (e.g., digital experience, social listening & analytics, user research).
•Advisory Partners are trusted XM scientists and consultants trained on our XM Platform. They work with customers to design plans and roadmaps for starting their experience management journeys. Advisory partners include Ipsos, JD Power, Kantar TNS, and many more.
•Alliance Partners help customers understand how XM can benefit their organization by evaluating their current business needs and desired outcomes. Alliance partners include Walker, Korn Ferry, commonFont, and others.
•Delivery Partners are trained and certified to implement the Qualtrics XM Platform. Enterprise organizations work with these accredited partners to scope and implement XM programs and to provide
ongoing platform customizations. Delivery partners include Acumen Solutions, Ugam (a Merkle company), Workforce Science Associates and many others.
We will continue to jointly develop, market, and sell our solutions with SAP. Examples include the use of our XM Platform within SAP SuccessFactors to gauge employee sentiment at various stages of the employee lifecycle and create workflows to resolve experience gaps that might lead to dissatisfaction and employee attrition, within SAP’s e-commerce applications to listen and act upon customer sentiment to drive higher conversion rates as consumer buying behavior moves online, and within procurement applications to enable buyers and suppliers to better understand and collaborate with each other. In addition, we have a robust roadmap of potential areas of collaboration across SAP’s product portfolio. As an independent subsidiary of SAP, we will aim to replicate those collaborations with a broader ecosystem of partners.
Professional Services
Our professional services team helps customers design and execute their market intelligence projects, through our DesignXM offering, and provides our customers with implementation, training, and similar services to help them realize the full benefits of our XM Platform. Our training programs include a mix of virtual and in-person offerings with different options focused either on helping onboard teams of users quickly or helping individuals achieve certification level subject matter expertise. Our team works closely with our partners and enables them to deploy our solutions. By working with these partners, we both augment our pipeline and our ability to scale globally by size and complexity of deployment.
Competition
Experience management is a new and rapidly developing software category. We do not believe that any of our competitors currently offer a full suite of experience management solutions that effectively competes with the full functionality of our XM Platform. However, certain features of our XM Platform compete in certain segments of the overall experience management market. Our main competitors fall into the following categories:
•Providers of software for specific use cases, such as Medallia for customer experience;
•Traditional professional and marketing research services firms, such as Aon Hewitt and Towers Watson; and
•Individual-focused and self-service survey tools, such as SurveyMonkey.
We believe that the principal competitive factors in our markets include the following:
•Product features, quality, functionality, and design;
•Ease of deployment and use;
•Market vision and pace of product innovation;
•Security and privacy;
•Overall platform experience;
•Third-party integrations;
•Pricing and total cost of ownership;
•Brand awareness and reputation;
•Accessibility across several devices, operating systems, and applications;
•Strength of sales and marketing efforts; and
•Customer support.
We believe we compete favorably across these factors. However, some of our competitors and potential competitors are larger and have greater brand name recognition, longer operating histories, larger marketing budgets and established marketing relationships, access to larger customer bases and significantly greater resources for the development of their offerings. Moreover, because our market is new and rapidly developing, it is possible that new entrants, especially those with substantial resources, more efficient operating models, more rapid technology and content development cycles or lower marketing costs, could introduce new products and services that disrupt our market and better address the needs of our customers and potential customers. See “Risk Factors—Risks Related to Our Business and Industry—The experience management software category is relatively new and rapidly changing, and if we do not compete effectively, our business, results of operations, and financial condition could be harmed” for additional information.
Intellectual Property
We rely on a combination of patent, copyright, trademark and trade secret laws in the United States and other jurisdictions, as well as license agreements and other contractual provisions, to protect our proprietary technology. We also rely on a number of international and domestic registered, pending and common law trademarks to protect our brand.
As of September 30, 2020, we had 154 registered trademarks and 35 pending trademark applications worldwide.
As of September 30, 2020, we had 50 issued utility patents in the United States, which expire between March 30, 2025 and September 29, 2038; two issued design patents in the United States, which expire on January 3, 2031 and April 11, 2031, respectively; 47 United States non-provisional patent applications pending; two Australian national-stage patent applications pending; and two European Union national-stage applications pending.
In addition, we seek to protect our intellectual property rights by requiring our employees and independent contractors involved in development of intellectual property on our behalf to enter into agreements acknowledging that all works or other intellectual property generated or conceived by them on our behalf are our property, and assigning to us any rights, including intellectual property rights, that they may claim or otherwise have in those works or property, to the extent allowable under applicable law.
Despite our efforts to protect our technology and proprietary rights through intellectual property rights, licenses and other contractual protections, unauthorized parties may still copy or otherwise obtain and use our software and other technology. In addition, we intend to continue to expand our international operations, and effective patent, copyright, trademark, trade secret and other intellectual property protection may not be available or may be limited in foreign countries. Any significant impairment of our intellectual property rights could harm our business or our ability to compete. Further, many companies in the communications and technology industries own large numbers of patents, copyrights and trademarks and may threaten litigation or file suit against us based on allegations of infringement or other violations of intellectual property rights. We may face in the future allegations that we have infringed the intellectual property rights of third parties. See “Risk Factors—Risks Related to Our Business and Industry—We may be sued by third parties for alleged infringement or misappropriation of their proprietary rights” for additional information.
Our Employees
As of September 30, 2020, we had 3,370 full-time employees. We also engage contractors and consultants from time to time. We have not experienced any work stoppages, and we believe that our employee relations are good.
At Qualtrics, we live by our TACOS culture, which defines Qualtrics and our employees. Our TACOS culture impacts who we hire, how we retain and promote employees, and how we engage with each other and our customers.
TACOS stands for:
•Transparency. We are a meritocracy and hold ourselves accountable. We reward the competent over the confident.
•All-In. We bet on Qualtrics and Qualtrics bets on us. This is our company. We deliver whatever it takes.
•Customer Obsessed. If a customer is upset, we failed. Period. We learn, and we fix it.
•One Team. There is only one team at Qualtrics. We hunt as a pack. We win and lose together and never say, “That’s not my job.”
•Scrappy. We are smart, resourceful and find a way. We write our own story instead of following others.
We recognize that a person is not simply his or her job, hobbies or personal life but a mix of all of those pieces. It is this mix—and this ability to bring one’s entire self to work—that cements the foundation of our culture. Diversity, Equity, and Inclusion, or DEI, is a cornerstone of our company culture. With strong views on diversity and inclusion, immigration, wage equality, and the universality of human rights—without regard to race, color, creed, gender, or sexual orientation—we will not be quiet, but will amplify these views on behalf of our employees and organization. We are working to have an internal representation that matches the world around us and inclusion that far exceeds it. While our TACOS culture is integral to our history, Qualtrics does not thrive without the Q-mmunity, which includes a mix of employee resource groups, or Q Groups, that serve to advance the careers, goals and well-being of the many different communities that make up our employee base. The Q Groups include:
•MosaiQ: Recruits and engages communities of color, as well as amplifies underrepresented voices;
•QPride: Focuses on making Qualtrics a welcoming place to work for members of the LGBTQ+ community;
•QSalute: Concentrates on recruiting military talent;
•Women’s Leadership Development: Aims to empower all women at Qualtrics; and
•Q&Able: Seeks to recruit, develop and promote people of diverse abilities.
The Q-mmunity strengthens our TACOS culture and underscores our commitment to each other and our customers.
Our Facilities
We have co-headquarters in Provo, Utah, and Seattle, Washington consisting of approximately 165,000 square feet of space pursuant to a lease that expires in 2030 and approximately 275,000 square feet of space pursuant to a lease that expires in 2034, respectively. We maintain additional offices in multiple locations in the United States and internationally in Australia, Canada, France, Germany, Ireland, Japan, the Netherlands, Poland, Singapore, Spain Sweden, and the United Kingdom. We lease all of our facilities, except that we own one office building in Provo, Utah consisting of approximately 42,000 square feet. In a few instances, we occupy space in SAP’s offices - notably but not exclusively in New York City and Toronto. We intend to procure additional space in the future as we continue to add employees and expand geographically. We believe our facilities are adequate and suitable for our current needs and that, should it be needed, suitable additional or alternative space will be available to accommodate our operations.
Legal Proceedings
From time to time, we may be subject to legal proceedings and claims in the ordinary course of business. We are not presently a party to any legal proceedings that, if determined adversely to us, would individually or taken together have a material adverse effect on our business, results of operations, financial condition or cash flows. We have received, and may in the future continue to receive, claims from third parties asserting, among other things, infringement of their intellectual property rights. Future litigation may be necessary to defend ourselves, our partners and our customers by determining the scope, enforceability and validity of third-party proprietary rights, or to
establish our proprietary rights. The results of any current or future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.
MANAGEMENT
Executive Officers and Directors
The following table provides information regarding the individuals who are expected to constitute our executive officers and directors upon completion of this offering. The individuals named below, other than Egon Durban and Kelly Steckelberg, constitute our executive officers and directors as of the date of this prospectus.
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Name
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Age
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Position
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Executive Officers:
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Ryan Smith
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42
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Founder, Executive Chair and Director
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Zig Serafin
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47
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Chief Executive Officer and Director
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Chris Beckstead
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44
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President and Board Observer
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Rob Bachman
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43
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Chief Financial Officer
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John Thimsen
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44
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Chief Technology Officer
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Bill McMurray
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59
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Chief Revenue Officer
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Non-Employee Directors:
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Christian Klein
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40
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Director
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Luka Mucic
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49
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Director
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Adaire Fox-Martin
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56
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Director
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Sindhu Gangadharan
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44
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Director
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Paula Hansen
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49
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Director
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Egon Durban
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47
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Director Nominee
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Kelly Steckelberg
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53
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Director Nominee
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Executive Officers
Ryan Smith. Mr. Smith co-founded our company and has served as a member of our board of directors since December 2002 and as our Founder and Executive Chair since July 2020. From December 2002 until July 2020, Mr. Smith served as our Chief Executive Officer. Mr. Smith holds a B.S. in Management from Brigham Young University.
We believe that Mr. Smith is qualified to serve as a member of our board of directors based on the perspective and experience he brings as our prior Chief Executive Officer and as one of our co-founders and Executive Chair.
Zig Serafin. Mr. Serafin has served as our Chief Executive Officer since July 2020 and prior to that as our President since January 2019. Mr. Serafin joined Qualtrics in October 2016 as our Chief Operating Officer. From July 2009 to October 2016, Mr. Serafin served as a Corporate Vice President at Microsoft Corporation, a multi-national technology company, where he led a global team responsible for engineering, service operations and strategy in telecommunications services and applications. From September 2009 to October 2012, Mr. Serafin served as General Manager at Tellme Networks, Inc., a telephone-based applications provider, following its acquisition by Microsoft Corporation. Mr. Serafin holds a B.S. from Brigham Young University.
We believe that Mr. Serafin is qualified to serve as a member of our board of directors based on the perspective and experience he brings as our Chief Executive Officer and prior President and Chief Operating Officer.
Chris Beckstead. Mr. Beckstead has served as our President since July 2020. Mr. Beckstead previously served as our Chief Operating Officer from January 2019 to July 2020. Mr. Beckstead joined Qualtrics in January 2013 as our Head of Finance and served in senior leadership positions until his appointment as Chief Operating Officer. Prior to Qualtrics, Mr. Beckstead held leadership positions at TE Connectivity Ltd. and ADC Telecommunications Inc. Mr. Beckstead holds an MBA from the University of Texas at Austin and a B.S. in Electrical Engineering from Brigham Young University.
Mr. Beckstead will serve as a non-voting board observer. See “—Board Observer.”
Rob Bachman. Mr. Bachman has served as our Chief Financial Officer since January 2019. Mr. Bachman joined Qualtrics in September 2013 as our Corporate Controller and was promoted to Director of Finance in April 2015. From August 2003 to September 2013, Mr. Bachman served in various roles at Ernst & Young, most recently as a Senior Manager in assurance services. Mr. Bachman holds an M.S. and B.S. in accounting from Brigham Young University.
John Thimsen. Mr. Thimsen has served as our Chief Technology Officer since January 2019. Mr. Thimsen joined Qualtrics in February 2015 as Sr. Director of Engineering and was promoted to VP and Head of Engineering in January 2016. From October 2005 to January 2015, Mr. Thimsen served in various roles at Amazon, most recently as a founding member and Director of Engineering for Amazon Echo from September 2011 to January 2015, where he was responsible for building the cloud-services powering Alexa. Mr. Thimsen holds a B.S. in Computer Engineering from the University of Washington.
Bill McMurray. Mr. McMurray has served as our Chief Revenue Officer since May 2020, and prior to that as our Managing Director – Asia Pacific & Japan, where he was responsible for establishing and growing the APJ Region, since September 2014. Mr. McMurray holds a B.Ec from The University of Adelaide.
Each executive officer serves at the discretion of our board of directors and holds office until his or her successor is duly elected and qualified or until his or her earlier resignation or removal.
Non-Employee Directors
Christian Klein. Mr. Klein is Chief Executive Officer, Chief Operating Officer and member of the Executive Board of SAP. In October 2019, Mr. Klein was appointed Co-CEO of SAP; and in April 2020, he was appointed sole CEO. Mr. Klein was named Chief Operating Officer of SAP in April 2016 after serving as Chief Controlling Officer since July 2015. Mr. Klein has also served in various other roles at SAP, including within Active Global Support Operations, Services Operations, Global Controlling and as Chief Financial Officer of SAP. Mr. Klein also serves on the supervisory board of adidas AG. Mr. Klein holds a diploma in International Business Administration from the University of Cooperative Education in Mannheim, Germany.
We believe that Mr. Klein is qualified to serve as a member of our board of directors due to the perspective, experience and leadership he brings from his multiple roles as an executive, including his role as chief executive officer, and director of a global enterprise software company, and his expertise within the software industry.
Luka Mucic. Mr. Mucic is Chief Financial Officer and a member of the Executive Board of SAP and he has served in this function since July 2014. Prior to assuming such roles, Mr. Mucic served in various roles within the SAP organization, including as head of Global Finance from July 2013 to July 2014, Chief Financial Officer for Global Customer Operations and head of Global Field Finance from May 2012 to June 2013 and as the Chief Financial Officer of SAP’s DACH region (Germany, Austria, and Switzerland) and SAP Deutschland AG & Co. KG from March 2008 to April 2012. Mr. Mucic also serves on the supervisory board of HeidelbergCement AG. Mr. Mucic holds a joint executive MBA from ESSEC, France, and Mannheim Business School, Germany, and a university degree in law from the University of Heidelberg, Germany. He has completed the second legal state examination in Germany.
We believe that Mr. Mucic is qualified to serve as a member of our board of directors due to his extensive experience as an executive in publicly traded companies, significant financial expertise and knowledge of the industry in which we operate.
Adaire Fox-Martin. Ms. Fox-Martin is a member of the Executive Board and audit committee of SAP SE and has been leading Customer Success, the global sales, services and customer engagement organization since February 2020. Since May 2017, Ms. Fox-Martin has served as an SAP Executive Board Member leading Global Customer Operations, which is now part of Customer Success. Prior to joining the SAP Executive Board, Ms. Fox-Martin was President of SAP’s business in the Asia Pacific Japan region, where she ran its multi-functional sales and operations
organizations since February 2014. Immediately prior to such role, Ms. Fox-Martin was Chief Operating Officer of SAP APJ from October 2013 to February 2014.
Ms. Fox-Martin is the founder of SAP One Billion Lives Ventures, a social intrapreneurship program focused on improving the lives of one billion people around the world through creation of sustainable business ventures that have social mission at the core of their operations. In 2019, Ms. Fox-Martin was named to Fortune Magazine’s Top 50 Most Powerful Women International List for the third time running. Ms. Fox-Martin also serves on the board of directors of Equinix, Inc. Ms. Fox-Martin holds a Bachelor of Arts degree from Trinity College in Dublin, Ireland.
We believe that Ms. Fox-Martin is qualified to serve as a member of our board of directors due to her extensive experience as an executive in multiple roles within the software industry, deep understanding of international business operations and service on the board of directors of a publicly traded company.
Sindhu Gangadharan. Ms. Gangadharan is the Senior Vice President and Managing Director of SAP Labs India and has served in such role since September 2019 where she is responsible for SAP’s Research & Development facilities in Bangalore, Pune, Mumbai, Hyderabad and Gurgaon. Ms. Gangadharan joined SAP in 1999, when SAP Labs India set up its operations in Bangalore. She has served as Head for Intelligent Enterprise Program from May 2018 to August 2019, Vice President and Head for Product Management SAP Cloud Platform IoT, Integration and Process from August 2016 to February 2018, and Chief Product Owner for On Premise Integration Technologies and SAP HANA Cloud Integration from June 2011 to July 2016.
Ms. Gangadharan has been a member of each of the NASSCOM Executive Council and of the Steering committee of the Indo-German Chamber of Commerce since November 2019. Ms. Gangadharan has also served on the board of directors of Titan Industries Ltd as an independent director and as a member of the board nomination and remuneration committee and audit committee since June 2020. Ms. Gangadharan holds a Bachelor’s degree in Computer Science from Bangalore University.
We believe that Ms. Gangadharan is qualified to serve as a member of our board of directors due to her significant management experience in technological research and development and service on the board of directors, and various board committees, of a publicly traded company.
Paula Hansen. Ms. Hansen is the Senior Vice President and Chief Revenue Officer of SAP Customer Experience. Prior to joining SAP in such role in February 2019, Ms. Hansen held several leadership positions with Cisco Systems, Inc. Most recently she served as Vice President for Cisco’s Global Enterprise business from August 2016 to February 2019, and she was the Vice President for Cisco’s U.S. Enterprise West business from October 2015 to July 2016. Ms. Hansen holds a Bachelor of Science degree in Electrical Engineering from the Virginia Polytechnic Institute and State University.
We believe that Ms. Hansen is qualified to serve as a member of our board of directors due to her extensive business experience as an executive in multiple roles at various publicly traded companies and knowledge of the industry in which we operate.
Director Nominees
Egon Durban. Mr. Durban joined Silver Lake, a global private equity firm, in 1999 as a founding principal and is currently its Co-Chief Executive Officer. Mr. Durban has served on the board of directors of several public companies, including Dell Technologies Inc. since January 2013; Motorola Solutions, Inc. since August 2015; VMware, Inc., a majority-owned subsidiary of Dell, since September 2016; Unity Software Inc. since June 2017; and Twitter, Inc. since March 2020. Mr. Durban also currently serves on the board of directors of several privately held companies, including City Football Group, Learfield IMG College, UFC, Verily and Waymo, and serves as Chairman of the board of directors of Endeavor Group Holdings. Previously, he served on the board of directors of SecureWorks, Intelstat, Pivotal Software, MultiPlan, and Skype; was Chairman of Skype’s operating committee; and served on the supervisory board and operating committee of NXP. Mr. Durban currently serves on the Business Council and Business Roundtable. Prior to Silver Lake, Mr. Durban worked in Morgan Stanley’s Investment Banking Division. Mr. Durban holds a B.S.B.A. in Finance from Georgetown University.
We believe that Mr. Durban is qualified to serve as a member of our board of directors due to his significant financial expertise and extensive experience serving as a board member to public and private companies within the software industry.
Mr. Durban is expected to join our board of directors upon completion of this offering and the closing of the Silver Lake investment.
Kelly Steckelberg. Ms. Steckelberg has been the Chief Financial Officer of Zoom Video Communications, Inc. since November 2017. Prior to joining Zoom, Ms. Steckelberg was the Chief Executive Officer of Zoosk, Inc. between January 2015 and June 2017, after having held positions at Zoosk of Chief Financial Officer from March 2011 to December 2014 and Chief Operating Officer from May 2012 to December 2014. She was also a member of the board of directors and a member of the audit committee of the Episcopal Community Services of San Francisco, a non-profit organization for homeless service in San Francisco, California between June 2015 and December 2017. Ms. Steckelberg has an MPA and a B.B.A. degree in Accounting from The University of Texas at Austin.
We believe that Ms. Steckelberg is qualified to serve as a member of our board of directors due to the perspective and leadership she brings from her role as an executive in a publicly traded company as well as her extensive experience and financial expertise.
Ms. Steckelberg is expected to join our board of directors upon completion of this offering.
Code of Business Conduct and Code of Ethics
Our board of directors has adopted SAP’s code of business conduct, which applies to all of our employees, officers and directors, including our Chief Executive Officer, Chief Financial Officer and other executive and senior financial officers. Our board of directors has also adopted a code of ethics that applies to all of our employees, officers and directors, including our Chief Executive Officer, Chief Financial Officer and other executive and senior financial officers. The full text of SAP’s code of business conduct is posted on the investor relations page of its website and our code of ethics will be posted on the investor relations page on our website. We intend to disclose any amendments to our code of ethics, or waivers of its requirements, on our website or in filings under the Exchange Act.
Board of Directors
Our business and affairs are managed under the direction of our board of directors. Our board of directors, upon completion of this offering, will be composed of nine members, two of whom qualify as “independent” under the listing standards of Nasdaq.
Controlled Company
Upon completion of this offering, SAP will continue to control a majority of the voting power of our outstanding common stock. As a result, we will be a “controlled company” within the meaning of the corporate governance rules of Nasdaq. As a “controlled company,” certain exemptions under the Nasdaq listing standards free us from the obligation to comply with certain Nasdaq corporate governance requirements, including the requirements:
•that a majority of our board of directors consists of “independent directors,” as defined under the rules of Nasdaq;
•that our board of directors have a compensation committee that is comprised entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and
•that our board of directors have a nominating and corporate governance committee that is comprised entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities.
Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance rules of Nasdaq.
These exemptions do not modify the independence requirements for our audit committee, and we expect to satisfy the member independence requirement for the audit committee prior to the end of the transition periods provided under Nasdaq listing standards and SEC rules and regulations for companies completing their initial public offering. See “—Committees of the Board of Directors—Audit Committee.”
If we cease to be a controlled company and our Class A common stock continues to be listed on Nasdaq, we will be required to comply with the director independence requirements of Nasdaq relating to our board of directors, compensation committee and nominating and corporate governance committee, subject to a phase-in period during the first year after we cease to be a controlled company.
Director Independence
Our board of directors has undertaken a review of the independence of each director who is not an employee of Qualtrics or SAP. Based on information provided by each such director concerning his or her background, employment and affiliations, our board of directors has determined that Egon Durban and Kelly Steckelberg do not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is “independent” as that term is defined under the listing standards of Nasdaq. In making these determinations, our board of directors considered the current and prior relationships that each non-employee director has with our company and all other facts and circumstances our board of directors deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director, and the transactions involving them, if any, described in the section titled “Certain Relationships and Related Party Transactions.”
Committees of the Board of Directors
Our board of directors has established an audit committee, a compensation committee, and a nominating and corporate governance committee. The composition and responsibilities of each of the committees of our board of directors is described below. Members will serve on these committees until their resignation or until as otherwise determined by our board of directors.
Audit Committee
Upon completion of this offering, we expect our audit committee will consist of Egon Durban, Kelly Steckelberg and , with Kelly Steckelberg serving as Chair. Egon Durban and Kelly Steckelberg meet the requirements for independence under the listing standards of Nasdaq and SEC rules and regulations. Each member of our audit committee also meets the financial literacy and sophistication requirements of the listing standards of Nasdaq. In addition, our board of directors has determined that Kelly Steckelberg is an audit committee financial expert within the meaning of Item 407(d) of Regulation S-K under the Securities Act. We intend to comply with the listing requirements of Nasdaq regarding the composition of our audit committee within the transition period for newly public companies. Following the completion of this offering, our audit committee will, among other things:
•select a qualified firm to serve as the independent registered public accounting firm to audit our financial statements;
•help to ensure the independence and performance of the independent registered public accounting firm;
•discuss the scope and results of the audit with the independent registered public accounting firm, and review, with management and the independent registered public accounting firm, our interim and year-end results of operations;
•develop procedures for employees to submit concerns anonymously about questionable accounting or audit matters;
•review our policies on risk assessment and risk management;
•review related party transactions; and
•approve or, as required, pre-approve, all audit and all permissible non-audit services to be performed by the independent registered public accounting firm.
Our audit committee will operate under a written charter that satisfies the applicable rules and regulations of the SEC and the listing standards of Nasdaq, and our audit committee will review the charter annually. We will make our audit committee charter available on our website.
Compensation Committee
Upon completion of this offering, we expect our compensation committee will consist of Ryan Smith, Christian Klein and Luka Mucic, with serving as Chair. As a “controlled company,” our compensation committee is not required to be comprised of entirely independent directors. Following the completion of this offering, our compensation committee will, among other things:
•review, approve and determine, or make recommendations to our board of directors regarding, the compensation of our executive officers;
•recommend compensation for non-employee directors;
•administer our equity compensation plans;
•review and approve, or make recommendations to our board of directors, regarding incentive compensation and equity compensation plans; and
•establish and review general policies relating to compensation and benefits of our employees.
•Subject to the terms of our compensation plans and the consent of the holders of our Class B common stock to the aggregate size of the annual equity award pool pursuant to the terms of our amended and restated certificate of incorporation, our compensation committee will have discretion to determine the amount, form, structure and implementation of compensation payable to our employees and executive officers, including, where appropriate, discretion to increase or decrease awards or to award compensation absent the attainment of performance goals and to award discretionary cash compensation outside of the parameters of our compensation plans.
Our board of directors intends to establish a written charter setting forth the purpose, composition, authority and responsibility of our compensation committee consistent with the listing standards of Nasdaq and the rules of the SEC, and our compensation committee intends to review the charter annually.
Nominating and Corporate Governance Committee
Upon completion of this offering, we expect our nominating and corporate governance committee will consist of Zig Serafin, Luka Mucic and Sindhu Gangadharan, with serving as Chair. As a “controlled company,” our nominating and corporate governance committee is not required to be comprised of entirely independent directors. Following the completion of this offering, our nominating and corporate governance committee will, among other things:
•identify, evaluate and select, or make recommendations to our board of directors regarding, nominees for election to our board of directors and its committees;
•evaluate the performance of our board of directors and of individual directors;
•consider and make recommendations to our board of directors regarding the composition of our board of directors and its committees;
•review developments in corporate governance practices;
•evaluate the adequacy of our corporate governance practices and reporting; and
•develop and make recommendations to our board of directors regarding corporate governance guidelines and matters.
Our board of directors intends to establish a written charter setting forth the purpose, composition, authority and responsibility of our nominating and corporate governance committee consistent with the listing standards of Nasdaq and the rules of the SEC, and our nominating and corporate governance committee intends to review the charter annually.
Compensation Committee Interlocks and Insider Participation
None of our executive officers currently serves, or in the past year has served, as a member of the board of directors or compensation committee (or other board committee performing equivalent functions) of any entity that has one or more of its executive officers serving on our board of directors or compensation committee. See “Certain Relationships and Related Party Transactions” for information about related party transactions involving members of our compensation committee or their affiliates.
Non-Employee Director Compensation
In 2019, an employee of SAP America served as the sole member of our board of directors. Our 2019 director was not paid any compensation for her services as a director, did not receive any benefits or reimbursements and was not otherwise entitled to any perquisites in connection with this role.
Employee directors and non-employee directors who are employed by SAP will receive no additional compensation for their services on our board of directors. Prior to this offering, we intend to establish a compensation program with respect to certain of our director nominees. The terms of this program remain under development.
Board Observer
In connection with this offering, we have agreed to allow Chris Beckstead, our President, to attend all meetings of our board of directors as a non-voting observer for as long as he is our President. Mr. Beckstead will receive no additional compensation for his service as a board observer. We will reimburse all reasonable out-of-pocket expenses incurred by Mr. Beckstead for his attendance at meetings of our board of directors.
EXECUTIVE COMPENSATION
Overview
The following discussion contains forward-looking statements that are based on our current plans, considerations, expectations, and determinations regarding future compensation programs. The actual amount and form of compensation and the compensation policies and practices that we adopt in the future may differ materially from currently planned programs as summarized in this discussion.
As an emerging growth company, we have opted to comply with the executive compensation disclosure rules applicable to “smaller reporting companies,” as defined in the rules promulgated under the Securities Act. This section provides an overview of the compensation provided to our named executive officers for the fiscal year ended December 31, 2019, which is detailed in the 2019 Summary Compensation Table and accompanying footnotes and narrative that follow.
Our named executive officers in the fiscal year ended December 31, 2019 consisted of our Chief Executive Officer and our two most highly compensated executive officers other than our Chief Executive Officer:
Ryan Smith, our Co-Founder and Chief Executive Officer;
John Thimsen, our Chief Technology Officer; and
Bill McMurray, our Chief Revenue Officer.
Our executive compensation program is based on a pay for performance philosophy. Compensation for our executive officers in 2019 was composed primarily of the following main components: base salary; annual cash bonus; and equity-based incentives in the form of cash-settled RSUs denominated in shares of SAP. Our executive officers, like all full-time employees, are eligible to participate in our health, welfare and retirement benefit plans. As we transition from a wholly owned subsidiary of SAP to a publicly traded company, under the direction of our compensation committee, we intend to evaluate our compensation philosophy and compensation plans and arrangements as circumstances require and in a manner consistent with our peers.
2019 Summary Compensation Table
The following table provides information regarding the total compensation, for services rendered in all capacities, that was earned by our named executive officers during the fiscal year ended December 31, 2019.
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Name and principal position
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Year
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Salary
($)
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Bonus ($)(2)
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Stock awards
($)(3)
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Nonequity incentive plan compensation ($)(4)
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All other compensation ($)(5)
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Total
($)
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Ryan Smith
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2019
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520,833
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3,300
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142,333,345
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(1)
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—
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12,000
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142,869,478
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Chief Executive Officer
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John Thimsen
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2019
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516,667
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1,500
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2,000,621
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309,200
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8,000
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2,835,988
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Chief Technology Officer
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Bill McMurray(6)
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2019
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356,334
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436,812
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3,000,986
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428,057
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14,197
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4,236,386
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Chief Revenue Officer
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________________
(1)In connection with the SAP Acquisition, 4.5 million RSUs granted to Mr. Smith in September 2018 as a founder grant were cancelled. Related to these RSUs being cancelled, in January 2019, 4.07 million RSUs were granted to Mr. Smith, which vest contingent upon his continuing employment over a two-year earn-out period.
(2)The amounts reported represent the following: one-time cash bonus payments in the amount of $1,500 for benefit reimbursements for Messrs. Smith and Thimsen, which we provided to all of our eligible U.S. employees during 2019; discretionary experience bonuses to Messrs. Smith and McMurray in 2019 in the amounts of $1,800 and $2,029, respectively; and retention bonus payments of $434,783 to Mr. McMurray in 2019.
(3)The amounts reported represent the grant date fair value of the Qualtrics Rights and SAP RSUs awarded to the named executive officer in the fiscal year ended December 31, 2019, as calculated in accordance with ASC Topic 718. Such grant date fair values do not take into account any estimated forfeitures related to service-vesting conditions. The assumptions
used to calculate the value of these awards are set forth in the notes to our consolidated financial statements included elsewhere in his prospectus. The amounts reported in this column do not correspond to the actual economic value that may be received by the named executive officers upon vesting of these awards or the sale of the underlying shares of common stock.
(4)The amounts reported represent incentive bonuses paid based upon the achievement of certain performance objectives pursuant to our Shared Performance Bonus Plan. The amount reported for Mr. McMurray also includes commission payments pursuant to his 2019 sales plan, totaling $288,020.
(5)The amounts reported represent company-paid 401(k) plan contributions for Messrs. Smith and Thimsen, which we provided to all of our 401(k) plan eligible U.S. employees on the same basis during 2019, and company-paid contributions to Mr. McMurray’s defined contribution plan, which we provided to all eligible employees in Australia on the same basis during 2019.
(6)The amounts reported for Mr. McMurray were paid in Australian dollars and have been converted to U.S. dollars for reporting purposes. We used a fixed exchange rate of 1.38 Australian dollars to 1.00 U.S. dollar, which was the exchange rate as of December 31, 2019, as determined by our financial planning and analysis group. For consistency of reporting, this is the same exchange rate used by our financial planning and analysis group for financial reporting and for determining commission and salary payments.
Narrative to Summary Compensation Table
Base Salaries
For the year ended December 31, 2019, the annual base salaries for each of Messrs. Smith, Thimsen and McMurray were $520,833, $516,667, and $356,334, respectively.
Annual Bonuses
During the fiscal year ended December 31, 2019, we maintained the Shared Performance Bonus Plan, or the SPB. Each of our named executive officers (other than Mr. Smith) was eligible to receive an annual bonus based on our achievement of certain performance goals, consisting of bookings and renewal rate. For 2019, the target annual bonuses for Messrs. Thimsen and McMurray were equal to $200,000 and $90,580, respectively. Based on our achievement of the relevant performance goals under the SPB during 2019, the bonuses were calculated to be paid at 154.6% of target for all participating employees, including each of Messrs. Thimsen and McMurray. The SPB is further described below under the heading “—Employee Benefits.”
In 2019, all eligible employees participating in our employee benefit plans in the U.S., including our named executive officers, received a one-time cash bonus payment of $1,500 in relation to our transition of U.S. health and welfare benefit programs from Qualtrics to SAP. Each of our named executive officers was also eligible to receive a discretionary experience bonus, available to all of our full-time employees who provided at least 12 months of services to Qualtrics. For 2019, the discretionary experience bonuses were paid to each of Messrs. Smith and McMurray in the amounts of $1,800 and $2,029, respectively. In addition, Mr. McMurray was eligible to earn commission payments and a retention bonus. In 2019, he received commission payments based on his attainment of 102% of his assigned quota target for the year. Mr. McMurray also received retention bonus payments of $434,783 in 2019.
Equity Compensation
Although we do not yet have a formal policy with respect to the grant of equity incentive awards relating to our Class A common stock to our executive officers, we believe that equity-based compensation awards provide our executives with a strong link to our long-term performance, create an ownership culture, and help to align the interests of our executives and our stockholders. During the fiscal year ended December 31, 2019, our named executive officers were granted cash-settled RSUs that fluctuate in accordance with the value of SAP’s share price, as shown in more detail in the “Outstanding Equity Awards at Fiscal 2019 Year-End” table. The RSUs granted to Mr. Smith in 2019 were granted in connection with the closing of the SAP Acquisition and related to the cancellation of his founder grants and vest over a two-year period following the SAP Acquisition, with 25% of the award vesting six months after the vesting commencement date and the remaining 75% vesting quarterly in six equal installments thereafter. The RSUs granted to Messrs. Thimsen and McMurray in 2019 vest over three years, with one-third of the RSUs vesting upon the first anniversary of the grant date and one-third of the RSUs vesting on the
second and third anniversaries thereafter, subject to the named executive officer’s continuous service through each such date.
Prior to the SAP Acquisition, we granted equity-based compensation awards to our executives, including our named executive officers, that were converted at the time of the SAP Acquisition into rights to receive cash-settled awards, or Qualtrics Rights. Qualtrics Rights continue to vest at the originally agreed upon vesting dates, including for our named executive officers. A further description of the Qualtrics Rights is included below in the footnotes to the “—Outstanding Equity Awards at Fiscal 2019 Year-End” table and under the heading “—Equity-Based Compensation Plans.”
Outstanding Equity Awards at Fiscal 2019 Year-End
The following table sets forth information regarding outstanding equity-based compensation awards held by our named executive officers as of December 31, 2019:
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Stock Awards (1)
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Name
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Grant Date
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Vesting Commencement Date
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Number of shares or units of stock that have not vested (#)
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Market value of shares of units of stock that have not vested ($)
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Ryan Smith
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09/07/2018
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08/01/2018
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569,194
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(2)(3)
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78,548,772
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(8)
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Chief Executive Officer
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01/23/2019
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01/23/2019
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857,304
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(2)(4)
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118,307,952
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(8)
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John Thimsen
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02/03/2016
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01/01/2016
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23,750
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(5)
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831,175
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(9)
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Chief Technology Officer
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07/24/2018
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01/01/2020
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101,190
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(2)(6)
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13,964,220
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(8)
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03/10/2019
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03/10/2019
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18,481
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(7)
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2,550,378
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(8)
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Bill McMurray
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03/10/2019
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03/10/2019
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27,722
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(7)
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3,825,636
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(8)
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Chief Revenue Officer
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________________
(1)All of the awards listed for Mr. Smith in the table above represent awards granted under our 2014 Plan. The awards listed for Mr. Thimsen represent awards granted under both our 2014 Plan and under certain SAP equity-based compensation plans, and all of the awards listed for Mr. McMurray represent awards granted under certain SAP equity-based compensation plans. A description of awards granted pursuant to our 2014 Plan and the applicable SAP plans is below under “—Equity-Based Compensation Plans.”
(2)The unvested units reported represent Qualtrics Rights that converted from Qualtrics awards to SAP awards in accordance with the terms agreed at the time of the SAP Acquisition. A further description of the Qualtrics Rights is included below under the heading “—Equity-Based Compensation Plans.”
(3)These RSUs vest over a five-year period following the vesting commencement date, with 20% of the award vesting on the first anniversary of the vesting commencement date and the remaining 80% vesting quarterly in sixteen equal installments thereafter, subject to Mr. Smith’s continuing employment over such five-year period.
(4)In connection with the SAP Acquisition, 4.5 million RSUs granted to Mr. Smith in September 2018 as a founder grant were cancelled. Related to these RSUs being cancelled, in January 2019, 4.07 million RSUs were granted to Mr. Smith, which vest contingent upon his continuing employment over a two-year period. These RSUs vest over a two-year period following the vesting commencement date, with 25% of the award vesting six months after the vesting commencement date and the remaining 75% vesting quarterly in six equal installments thereafter.
(5)The unvested units reported represent Qualtrics Rights that entitle Mr. Thimsen the right to receive, upon each applicable vesting date, an amount in cash equal to approximately $35 multiplied by the number of units vesting as of that date. The units vest over a four-year period following the vesting commencement date, with 25% of the award vesting on the first anniversary of the vesting commencement date and the remaining 75% vesting quarterly in twelve equal installments thereafter, subject to Mr. Thimsen’s continuing employment over such four-year period.
(6)These RSUs vest over a three-year period following the vesting commencement date in twelve equal quarterly installments starting one quarter after the vesting commencement date, subject to Mr. Thimsen’s continuing employment over such three-year period.
(7)These RSUs vest over three years, with one-third of the RSUs vesting upon the first anniversary of the grant date and one-third of the RSUs vesting on the second and third anniversaries thereafter, subject to the named executive officer’s continuing employment through each such date.
(8)The values reported are based on SAP’s closing share price as of December 30, 2019, converted from Euros into U.S. dollars, multiplied by the number of outstanding RSUs as of December 31, 2019. We used a fixed exchange rate of .87 Euro
to 1.00 U.S. dollar, which was the exchange rate as of December 31, 2019, as determined by our financial planning and analysis group. For consistency of reporting, this is the same exchange rate used by our financial planning and analysis group for financial reporting and for determining commission and salary payments.
(9)The value reported is based on an amount of approximately $35 multiplied by the number of outstanding units as of December 31, 2019.
2021 Equity-Based Compensation Awards
In connection with this offering, we will grant equity-based compensation awards to our employees under our 2021 Qualtrics Employee Omnibus Equity Plan, or the 2021 Plan, and we will grant options to purchase shares of Class A common stock to our employees under our 2021 Qualtrics Employee Stock Purchase Plan, or ESPP. Full descriptions of the 2021 Plan and ESPP are included below under the heading “—Equity-Based Compensation Plans.”
The following table sets forth information regarding equity-based compensation awards granted to our executive officers, including our named executive officers, and our directors and employees under the 2021 Plan in connection with this offering:
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Name
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Dollar Value ($)
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Number of Units
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Ryan Smith
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Chief Executive Officer
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John Thimsen
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Chief Technology Officer
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Bill McMurray
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Chief Revenue Officer
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Executive Group(1)
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Non-Executive Director Group
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Non-Executive Officer Employee Group
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_________________
(1)Reflects the dollar value and number of units granted to all of our current executive officers as a group, including our named executive officers disclosed above.
Executive Employment Arrangements
Executive Employment Arrangements
In connection with this offering, we intend to enter into an employment agreement with Mr. Ryan Smith, which will set forth the terms and conditions of his employment, including base salary, target annual bonus opportunity and standard employee benefit plan participation. In addition, Mr. Smith’s employment agreement will provide for certain payments and benefits in the event of an involuntary termination of employment.
Employment Arrangements in Place Prior to The Offering for Named Executive Officers
Ryan Smith
On September 7, 2018, we entered into an employment agreement with Mr. Smith that contains standard confidentiality, intellectual property assignment and non-competition and non-solicitation restrictions. The confidentiality restrictions apply for three years following the termination of the agreement and the non-competition and non-solicitation restrictions apply for six months following the termination of Mr. Smith’s employment.
John Thimsen
On August 22, 2018, we entered into an employment agreement with Mr. Thimsen, who currently serves as our Chief Technology Officer. The employment agreement provides for Mr. Thimsen’s at-will employment and sets forth bi-monthly payment of his compensation as well as his eligibility to participate in our benefit plans generally.
The employment agreement also contains restrictive covenant provisions, including standard non-solicitation and non-competition provisions that apply during the period of Mr. Thimsen’s employment and for a 12-month period thereafter, as well as standard confidentiality and intellectual property assignment provisions.
Bill McMurray
As of December 31, 2019, we had not entered into an employment agreement or offer letter with Mr. McMurray, but we had communicated with Mr. McMurray regarding his 2019 compensation. Mr. McMurray’s 2019 compensation was paid at a base salary rate of AU$500,000, which was an increase from the prior year and became effective as of January 16, 2019 (approximately $362,319 at an exchange rate of 1.38 Australian dollars per U.S. dollar), with an annual variable compensation opportunity of the same amount and a fixed retention bonus of AU$150,000 each quarter (approximately $108,696 at an exchange rate of 1.38 Australian dollars per U.S. dollar), each effective as of January 1, 2019. Effective May 18, 2020, we entered into an offer letter with Mr. McMurray, who currently serves as our Chief Revenue Officer. The offer letter provides for Mr. McMurray’s promotion to his position as Chief Revenue Officer and sets forth an increase in his annual salary from AU$500,000 to AU$950,000 (approximately $688,406 at the 2019 exchange rate of 1.38 Australian dollars per U.S. dollar), effective May 18, 2020. Mr. McMurray’s offer letter also provides that he would be nominated to receive an RSU award with a grant date value of $1,500,000 under an equity-based compensation plan administered by SAP, made in Euros as of the grant date and subject to (1) requisite approval and (2) his commencement of, and continued employment through, the grant date. The equity-based compensation plans administered by SAP are described below under the heading “—Equity-Based Compensation Prior to the Offering.” Mr. McMurray’s offer letter further provides that he will be nominated to receive an RSU award in March 2021 with a grant date value of $1,000,000 to $1,5000,000, depending on performance and equity budget availability. This award is also subject to his continued employment through the grant date. In addition, his offer letter provides for the continued payment of a cash retention bonus of AU$600,000 (approximately $434,783 at the 2019 exchange rate of 1.38 Australian dollars per U.S. dollar), paid quarterly through the end of 2021. Mr. McMurray’s offer letter also provides that upon his relocation to the U.S. in 2021, his base salary and variable compensation opportunity will be adjusted to $600,000 each, and he will be entitled to reimbursement of his reasonable relocation expenses.
Equity-Based Compensation Plans
Equity-Based Compensation Following The Offering
2021 Qualtrics Employee Omnibus Equity Plan
Our 2021 Qualtrics Employee Omnibus Equity Plan, or the 2021 Plan, was adopted by our board of directors on December 15, 2020 and approved by our sole stockholder, and will become effective the day before the date that the registration statement of which this prospectus is a part is declared effective by the SEC. The 2021 Plan will allow the compensation committee to make equity-based incentive awards to our officers, employees, directors, and other key persons, including consultants.
Authorized Shares. We will initially reserve up to 89,829,390 shares of our Class A common stock for the issuance of awards under the 2021 Plan less the number of shares of our Class A common stock that would otherwise have been issued in connection with the voluntary exchange offer, which is as described below under the heading “—Exchange Offer,” but were not issued as a result of eligible employees’ election not to tender, or the Initial Limit. The 2021 Plan will provide that the number of shares reserved and available for issuance under the 2021 Plan will automatically increase each January 1, beginning on January 1, 2022, and ending on (and including) January 1, 2031 by up to 5% of the outstanding number of shares of our Class B and Class A common stock on the immediately preceding December 31, as approved by the board of directors, which increase is referred to as the Annual Increase. The share reserve will be subject to adjustment in the event of a stock split, stock dividend or other change in our capitalization. The shares we issue under the 2021 Plan will be authorized but unissued shares or shares that we reacquire. The shares of Class A common stock underlying any awards that are forfeited, canceled, held back upon exercise or settlement of an award to satisfy the exercise price or tax withholding, reacquired by us prior to vesting, satisfied without the issuance of stock, expire or are otherwise terminated, other than by exercise, under the 2021 Plan will be added back to the shares of Class A common stock available for issuance under the 2021
Plan. The maximum number of shares that may be issued as incentive stock options under the 2021 Plan may not exceed the sum of the Initial Limit plus 10% of the total shares of Class A and Class B common stock outstanding as of the effective date of the 2021 Plan. Accordingly, the maximum number of shares that may be issued as incentive stock options may not exceed the sum of the Initial Limit plus shares. The value of all awards issued under the 2021 Plan and all other cash compensation paid by us to any non-employee director in any calendar year cannot exceed $1,000,000.
Administration. The 2021 Plan will be administered by our compensation committee. Our compensation committee will have full power to select, from among the individuals eligible for awards, the individuals to whom awards will be granted, to make any combination of awards to participants, and to determine the specific terms and conditions of each award, subject to the provisions of the 2021 Plan.
Eligibility. Persons eligible to participate in the 2021 Plan will be those employees, non-employee directors and consultants, as selected from time to time by our compensation committee in its discretion.
Options. The 2021 Plan will permit the granting of both options to purchase Class A common stock intended to qualify as incentive stock options under Section 422 of the Code (as defined below) and options that do not so qualify. The option exercise price of each option will be determined by our compensation committee but may not, generally, be less than 100% of the fair market value of our Class A common stock on the date of grant. The term of each option will be fixed by our compensation committee and may not exceed 10 years from the date of grant. Our compensation committee will determine at what time or times each option may be exercised.
Stock Appreciation Rights. Our compensation committee will be able to award stock appreciation rights subject to such conditions and restrictions as it may determine. Stock appreciation rights entitle the recipient to shares of Class A common stock, or cash, equal to the value of the appreciation in our stock price over the exercise price. The exercise price may not be less than 100% of the fair market value of our Class A common stock on the date of grant. The term of each stock appreciation right will be fixed by our compensation committee and may not exceed 10 years from the date of grant. Our compensation committee will determine at what time or times each stock appreciation right may be exercised.
Restricted Stock and Restricted Stock Units. Our compensation committee will be able to award restricted shares of Class A common stock and RSUs to participants subject to such conditions and restrictions as it may determine. These conditions and restrictions may include the achievement of certain performance goals and/or continued employment with us through a specified vesting period.
Unrestricted Stock Awards. Our compensation committee will also be able to grant shares of Class A common stock that are free from any restrictions under the 2021 Plan. Unrestricted stock may be granted to participants in recognition of past services or for other valid consideration and may be issued in lieu of cash compensation due to such participant.
Dividend Equivalent Rights. Our compensation committee will be able to grant dividend equivalent rights to participants that entitle the recipient to receive credits for dividends that would be paid if the recipient had held a specified number of shares of Class A common stock.
Cash-Based Awards. Our compensation committee will be able to grant cash bonuses under the 2021 Plan to participants, subject to the achievement of certain performance goals.
Sale Event. The 2021 Plan will provide that upon the effectiveness of a “sale event,” as defined in the 2021 Plan, an acquirer or successor entity may assume, continue or substitute for the outstanding awards under the 2021 Plan. To the extent that awards granted under the 2021 Plan are not assumed or continued or substituted by the successor entity, the 2021 Plan and all awards granted under the 2021 Plan shall terminate. In such case, except as may be otherwise provided in the relevant award agreement, all options and stock appreciation rights with time-based vesting, conditions or restrictions that are not vested and/or exercisable immediately prior to the sale event will become fully vested and exercisable as of the sale event, all other awards with time-based vesting, conditions or restrictions will become fully vested and nonforfeitable as of the sale event, and all awards with conditions and restrictions relating to the attainment of performance goals may become vested and nonforfeitable in connection
with the sale event in the plan administrator’s discretion or to the extent specified in the relevant award agreement. In the event of such termination, individuals holding options and stock appreciation rights may be permitted to exercise such options and stock appreciation rights (to the extent exercisable) prior to the sale event or alternatively, we may make or provide for a payment to participants holding exercisable options and stock appreciation rights equal to the difference between the per share consideration payable to stockholders in the sale event and the exercise price of the options or stock appreciation rights. The Company may also elect to provide for payment in cash or in kind to holders of other awards equal to the per share consideration payable to stockholders in the sale event multiplied by the number of vested shares subject to the stock awards. No sale event will be deemed to have occurred for purposes of the 2021 Plan by virtue of any Distribution.
Amendment. Our board of directors will be able to amend or discontinue the 2021 Plan and our compensation committee will be able to amend or cancel outstanding awards for purposes of satisfying changes in law or any other lawful purpose, but no such action may materially and adversely affect rights under an award without the holder’s consent. The compensation committee is specifically authorized to exercise its discretion to reduce the exercise price of outstanding stock options or stock appreciation rights or effect the repricing of such awards through cancellation and re-grants. Certain amendments to the 2021 Plan will require the approval of our stockholders.
No awards may be granted under the 2021 Plan after the date that is 10 years from the date immediately preceding the registration date and no incentive stock options may be granted under the 2021 Plan after the date that is 10 years from the date the 2021 Plan was approved by the board of directors. No awards under the 2021 Plan have been made prior to the date hereof.
Exchange Offer
In connection with the offering, we are conducting a voluntary exchange offer pursuant to which we are offering our eligible employees, including our executive officers, the ability to exchange their existing Qualtrics Rights and SAP RSUs, both as described below under “—Equity-Based Compensation Prior To The Offering,” for awards with underlying shares of our Class A common stock at an exchange ratio, which will be expressed as a fraction, the numerator of which will be the “VWAP” and the denominator of which will be the initial public offering price; provided, that for Qualtrics Rights granted before January 1, 2018 and for Qualtrics Rights that are based on awards originally granted as options, the number of shares of Class A common stock issued will be equal to the value of the applicable award divided by the initial public offering price. The exchange ratio is designed to preserve the intrinsic value of the Qualtrics Rights and SAP RSUs that will be tendered.
The VWAP is the volume-weighted average price per share of SAP stock on Xetra over the final five full trading days (calculated as the average (arithmetic mean) of the VWAP on those five days) prior to the expiration date of the exchange offer during the period beginning at 9:00 a.m., Central European Time (or such other time as is the official open of trading on Xetra on the applicable date) and ending at 5:30 p.m., Central European Time (or such other time as is the official close of trading on Xetra on the applicable date), as reported by Bloomberg Financial LP and converted to U.S. dollars at an exchange rate equal to the exchange rate as published by the Wall Street Journal for the date preceding the expiration date of the exchange offer. This means that if the expiration date is January 27, 2021, the VWAP would be calculated using the average (arithmetic mean) of the volume-weighted average price per share of SAP stock on January 20, 2021, the volume-weighted average price per share of SAP stock on January 21, 2021, the volume-weighted average price per share of SAP stock on January 22, 2021, the volume-weighted average price per share of SAP stock on January 25, 2021 and the volume-weighted average price per share of SAP stock on January 26, 2021, and then will be converted to U.S. dollars at an exchange rate, which shall be the exchange rate as published by the Wall Street Journal for January 26, 2021 (unless the exchange offer is extended).
We and SAP are commencing the exchange offer on December 28, 2020, prior to the effectiveness of the registration statement of which this prospectus is a part, in accordance with Rule 162 of the Securities Act and Rule 13e-4(e)(2) of the Exchange Act, such that the exchange offer will expire concurrently with the pricing of shares in this offering, unless the local laws in a jurisdiction require the delay of the commencement and expiration of the exchange offer. We are making the exchange offer available to eligible employees for compensatory purposes. We believe that ownership by our employees of awards with underlying shares of our Class A common stock received in
the exchange offer will serve as an effective tool to further align participants with Qualtrics’ stockholders’ interests by enabling participants to have an economic stake in our success from the time we become a public company. Unless otherwise required by the local laws in a jurisdiction, the exchange offer will expire at 2:00 p.m. Eastern Time on January 27, 2021.
All of our employees in the United States and all of our employees in certain other jurisdictions who hold Qualtrics Rights and SAP RSUs will be eligible to participate in the exchange offer. As of December 23, 2020, there were approximately 3,100 employees eligible to participate in the exchange offer. Based on an assumed SAP share price of $126.50 per share (which was the closing price of SAP’s ordinary shares on Xetra on December 23, 2020, converted into U.S. dollars using the exchange rate as published by the Wall Street Journal for that date and rounded to the nearest half dollar) and an assumed initial public offering price of $22.00 per share (the midpoint of the estimated offering price range set forth on the cover page of this prospectus), a maximum of approximately 18.8 million shares of our Class A common stock underlying Qualtrics Rights and SAP RSUs granted would be issued pursuant to the exchange offer, if all eligible employees tendered all of their Qualtrics Rights and SAP RSUs. Qualtrics employees who elect not to tender their awards in the exchange offer, or who cannot exchange their awards due to local law restrictions, will continue to hold their Qualtrics Rights and SAP RSUs, which will remain subject to their existing terms.
2021 Qualtrics Employee Stock Purchase Plan
Our 2021 Qualtrics Employee Stock Purchase Plan, or ESPP, was adopted by our board of directors on December 15, 2020 and approved by our sole stockholder and will become effective the day before the date that the registration statement of which this prospectus is a part is declared effective by the SEC. Our compensation committee will administer the ESPP. The ESPP will initially reserve and authorize the issuance of up to a total of 12,000,000 shares of Class A common stock to participating employees. The ESPP will provide that the number of shares reserved and available for issuance will automatically increase each January 1, beginning on January 1, 2022 and ending on (and including) January 1, 2030 by the lesser of 2% of the number of shares of our Class A common stock reserved for issuance under the ESPP, 1% of the outstanding number of shares of our Class B and Class A common stock on the immediately preceding December 31, or such lesser number of shares as determined by our compensation committee. The share reserve will be subject to adjustment in the event of a stock split, stock dividend or other change in our capitalization.
All employees whose customary employment is for more than 20 hours per week and for more than five months in any calendar year will be eligible to participate in the ESPP; provided, however, that employees who are employed for 20 hours or less a week or for five months or less in any calendar year may be eligible to participate if required by applicable law. Any employee who owns 5% or more of the total combined voting power or value of all classes of stock will not be eligible to purchase shares under the ESPP.
We will make one or more offerings, consisting of one or more purchase periods, each year to our employees to purchase shares under the ESPP. The first offering, or the Initial Offering, will begin on the effective date of the registration statement of which this prospectus is a part and, unless otherwise determined by the administrator of the ESPP, will end on January 31, 2023, and the next two offerings will commence on the first trading day on or following each of August 1, 2021 and February 1, 2022 and will end on January 31, 2023. Thereafter, unless otherwise determined by the administrator of the ESPP, offerings will commence on the first trading day on or following each August 1 and February 1 and will end on the last trading day on or before July 31 or January 31, respectively. The administrator may, in its discretion, designate a different period for any offering, provided that no offering will exceed 27 months in duration. Unless otherwise determined by the administrator of the ESPP, each offering will be divided into equal six-month purchase periods, except that the first purchase period in the Initial Offering will commence on the registration date and end on the last trading day on or before July 31, 2021. Each eligible employee as of the effective date of the registration statement for the Initial Offering will be deemed to be a participant in the ESPP at that time and must authorize payroll deductions or other contributions by submitting an enrollment form by the deadline specified by the plan administrator. Each eligible employee may elect to participate in any subsequent offering by submitting an enrollment form at least 15 business days before the relevant offering date or by such other deadline as established by the administrator for the offering.
Each employee who is a participant in the ESPP may purchase shares by authorizing contributions at a minimum of 1% up to a maximum of 20% of his or her compensation for each pay period. Unless the participating employee has previously withdrawn from the offering, his or her accumulated contributions will be used to purchase shares on the last business day of the purchase period at a price equal to 85% of the fair market value of the shares on the first business day of the offering period (which, for purposes of the Initial Offering, will be equal to our initial public offering price) or the last business day of the offering period, whichever is lower, provided that no more than a number of shares of Class A common stock determined by dividing $15,000 by the fair market value of the shares on the first business day of the offering period (or a lesser number as established by the plan administrator in advance of the purchase period) may be purchased by any one employee during each purchase period. Under applicable tax rules, an employee may purchase no more than $25,000 worth of shares of Class A common stock, valued at the start of the offering period, under the ESPP for each calendar year in which a purchase right is outstanding.
The accumulated contributions of any employee who is not a participant on the last day of a purchase period will be refunded. An employee’s rights under the ESPP terminate upon voluntary withdrawal from the plan or when the employee ceases employment with us for any reason.
Immediately prior to the effective date of a “sale event,” as defined in the ESPP, all outstanding purchase rights will automatically be exercised. The purchase price in effect for each participant will be equal to 85% of the market value per share on the start date of the offering period in which the participant is enrolled at the time the acquisition occurs or, if lower, 85% of the fair market value per share immediately prior to the acquisition. Similar to the 2021 Plan, no sale event will be deemed to have occurred for purposes of the ESPP by virtue of any Distribution.
The ESPP may be terminated or amended by our board of directors at any time but will automatically terminate on the 10-year anniversary of the registration date. An amendment that increases the number of shares of Class A common stock that are authorized under the ESPP and certain other amendments will require the approval of our stockholders. The plan administrator may adopt subplans under the ESPP for employees of our non-U.S. subsidiaries who may participate in the ESPP and may permit such employees to participate in the ESPP on different terms, to the extent permitted by applicable law.
Equity-Based Compensation Prior To The Offering
The 2014 Stock Option and Grant Plan, as amended, and SAP Equity-Based Compensation Awards
Prior to the SAP Acquisition, we granted equity-based compensation awards pursuant to the terms of our 2014 Stock Option and Grant Plan, as amended, or the 2014 Plan. In connection with the SAP Acquisition, SAP exchanged unvested RSUs, Restricted Share Awards, or RSAs, and options granted under the 2014 Plan and held by Qualtrics employees into Qualtrics Rights. Qualtrics Rights continue to vest at the originally agreed upon vesting dates. No awards have been granted under the 2014 Plan since the consummation of the SAP Acquisition.
If the original awards granted under the 2014 Plan were granted before January 1, 2018, or if the original awards granted under the 2014 Plan were granted as options, each Qualtrics Right received at the SAP Acquisition as a replacement award has a fixed value of approximately $35.00 per share, which was SAP’s consideration per share at the time of the SAP Acquisition; provided, that the fixed amount will be reduced by the original exercise price for any Qualtrics Rights that were originally granted as options under the 2014 Plan. If the original awards granted under the 2014 Plan were granted after January 1, 2018 and were not granted as options, the Qualtrics Rights received as replacement awards were denominated in SAP shares based on an exchange ratio determined at the time of the SAP Acquisition using the five-day average price of SAP stock for the period immediately preceding the consummation of the SAP Acquisition. The amount realized by the holders of these Qualtrics Rights is based on the average price of SAP stock over the five trading days ending on the trading day immediately before the applicable vesting date.
Following the SAP Acquisition, Qualtrics employees have been eligible to participate in equity-based compensation plans administered by SAP and have been granted awards that fluctuate in accordance with SAP’s share price, or SAP RSUs. SAP RSUs are cash-settled at the time of vesting. Since March 2019, SAP RSUs have been granted to Qualtrics employees pursuant to the Move SAP Plan, and since June 2020, SAP RSUs have also
been granted to Qualtrics employees pursuant to the Grow SAP Plan. Following the offering, Qualtrics employees will generally no longer be eligible to receive awards pursuant to equity-based compensation plans sponsored by SAP.
In connection with the offering, our eligible employees, including our executive officers, will have the opportunity to exchange their Qualtrics Rights and SAP RSUs for awards with underlying Qualtrics equity, as set forth above under “—Exchange Offer.”
Employee Benefits
Shared Performance Bonus Plan
We offer certain of our employees, including our executive officers, the opportunity to participate in our Shared Performance Bonus Plan, or SPB, which is also described above under the heading “—Narrative to Summary Compensation Table.” The SPB provides for cash bonus payments based upon the attainment of performance targets established by our compensation committee. The payment targets are related to financial and operational measures or objectives with respect to our company, or corporate performance goals, as well as individual performance objectives.
Our compensation committee selects corporate performance goals from among, but is not limited to, the following: achievement of billings, including subscription, research services, and professional services and other; renewal rate; achievement of cash flow (including, but not limited to, operating cash flow and free cash flow); research and development, earnings before interest, taxes, depreciation and amortization; net income (loss) (either before or after interest, taxes, depreciation and/or amortization); changes in the market price of our common stock; acquisitions or strategic transactions, including licenses, collaborations, joint ventures or promotion arrangements; operating income (loss); total stockholder returns; productivity; expense efficiency; margins; operating efficiency; working capital; earnings (loss) per share of our common stock; bookings, new bookings or renewals; sales or market shares; corporate revenue; net retention rate; and/or net annual recurring revenue, any of which may be (A) measured in absolute terms or compared to any incremental increase, (B) measured in terms of growth, (C) compared to another company or companies or to results of a peer group, (D) measured against the market as a whole and/or as compared to applicable market indices, and/or (E) measured on a pre-tax or post-tax basis (if applicable).
Each executive officer who is selected to participate in the SPB has a target bonus opportunity set for each performance period. The bonus formulas are adopted in each performance period by the compensation committee and communicated to each executive. The corporate performance goals are measured at the end of each performance period as the compensation committee determines. If the corporate performance goals and/or individual performance objectives are met, payments are made as soon as practicable following the end of each performance period. Subject to the rights contained in any agreement between the executive officer and us, an executive officer must be employed by us on the bonus payment date to be eligible to receive a bonus payment. The SPB also permits the compensation committee to approve additional bonuses to executive officers in its sole discretion and provides the compensation committee with discretion to adjust the size of the award as it deems appropriate to account for unforeseen factors beyond management’s control that affected corporate performance.
401(k) Plan
We offer eligible U.S. employees the opportunity to save for retirement on a tax-advantaged basis through a 401(k) plan. Since July 1, 2019, our 401(k) plan has been administered by SAP, with employer contributions funded by Qualtrics. Eligible employees are able to contribute up to 25% of their compensation to the 401(k) plan each pay period, and then we automatically make partial matching contributions of up to 4.5% of their compensation, up to a maximum employer contribution of $12,825 for 2020. The employer matching contributions partially vest after two years and fully vest after three years of employee service. As a tax-qualified retirement plan, contributions to the 401(k) plan and earnings on those contributions are tax advantaged. The 401(k) plan will remain unchanged for U.S. employees as of this offering.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In addition to the compensation arrangements, including employment, termination of employment and change in control 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:
•we have been or are to be a participant;
•the amount involved exceeded or exceeds $120,000; and
•any of our directors, executive officers or holders of more than 5% of our outstanding capital stock, or any immediate family member of, or person sharing the household with, any of these individuals or entities, had or will have a direct or indirect material interest.
Relationship with SAP and the Agreements Between SAP and Us
Acquisition of Qualtrics by SAP
We were acquired by SAP on January 23, 2019, pursuant to which SAP acquired all of our outstanding shares in an all cash transaction. As a result of the SAP Acquisition, and prior to this offering and the Q II investment, we operated as a wholly owned subsidiary of SAP.
Dividend to SAP America and Intercompany Indebtedness
In connection with this offering, we expect to declare a $ million dividend on our common stock. The dividend will be payable to holders of our common stock as of the date of effectiveness of the registration statement of which this prospectus forms a part (which will not include investors purchasing shares of our Class A common stock in this offering). SAP America will receive the dividend in the form of two promissory notes, which we refer to as “Promissory note 1” and “Promissory note 2.” Q II has waived its right to receive the dividend.
Promissory note 1 is expected to have a principal value of $ million, which is calculated as the sum of (i) $ million, representing the expected net proceeds from this offering (assuming an initial public offering price of $22.00, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and the exercise in full of the underwriters’ option to purchase additional shares), (ii) $120 million, representing the proceeds from the investment by Q II, and (iii) $550 million, representing the proceeds from the investment by Silver Lake, less (iv) $ million, representing anticipated transaction expenses and less (v) $500 million. The principal value of Promissory note 1 will also be reduced by an amount equal to the cash required to settle any Qualtrics Rights and SAP RSUs not tendered in the exchange offer and is subject to a reduction if the underwriters’ option to purchase additional shares is not fully exercised. Promissory note 1 matures upon the closing of this offering or, if later, upon the receipt of any proceeds we may receive in respect of the underwriters’ exercise of their option to purchase additional shares pursuant to the underwriting agreement following such date. Promissory note 1 will bear interest at a rate equal to the short-term Applicable Federal Rate published by the IRS for the month in which the note is issued (which, for the month of January 2021, is 0.14%).
Promissory note 2 has a principal value of $500 million and matures upon the earlier of ten years following the closing of this offering and the date on which we have received $500 million in net cash proceeds from primary public offerings of our Class A common stock. In addition, SAP America has the right to cause us to effect primary public offerings of our Class A common stock following the six-month anniversary of the initial public offering date if the price of our Class A common stock exceeds 125% of the initial public offering price (subject to our ability to defer such obligation under certain circumstances), and we expect any fees and expenses payable in connection with such offerings will be borne by us. Promissory note 2 may be repaid at our option in advance of its maturity date any time in whole or in part. Promissory note 2 will bear interest at a rate equal to the long-term Applicable Federal Rate published by the IRS for the month in which the note is issued (which, for the month of January 2021, is 1.35%).
The dividend will be declared to facilitate the return of capital from us to SAP America.
SAP as our Controlling Stockholder
SAP currently owns approximately 98.6% of our outstanding common stock and approximately 99.9% of the combined voting power of our outstanding common stock. Immediately following this offering, SAP will hold approximately % of the combined voting power of our outstanding common stock (or approximately % if the underwriters exercise in full their option to purchase additional shares). For as long as SAP continues to control more than 50% of the combined voting power of our common stock, SAP will be able to direct the election of all the members of our board of directors, and, so long as SAP beneficially owns at least 20% of the total outstanding shares of our common stock, the prior affirmative vote or written consent of SAP will be required for certain corporate actions, including any determinations with respect to mergers or other business combinations involving us, the acquisition or disposition of assets, the incurrence of indebtedness, the issuance of any additional common stock or other equity securities, and the payment of dividends with respect to our common stock. Similarly, SAP will have the power to determine matters submitted to a vote of our stockholders without the consent of our other stockholders, will have the power to prevent a change in control of us and will have the power to take other actions that might be favorable to SAP, including by written consent without a meeting and without prior notice to other shareholders. As a result, SAP’s controlling interest may discourage a change of control that the holders of our Class A common stock may favor.
SAP has agreed not to sell or otherwise dispose of any of our common stock for a period of 180 days from the date of this prospectus without the prior written consent of Morgan Stanley & Co. LLC and J.P. Morgan Securities LLC, subject to certain exceptions. See “Underwriting.” However, there can be no assurance concerning the period of time during which SAP will maintain its ownership of our common stock following this offering.
Agreements Between SAP and Us
In connection with this offering, we will enter into certain agreements with SAP governing various interim and ongoing relationships between us. These agreements will include:
•a master transaction agreement;
•an administrative services agreement;
•a tax sharing agreement;
•an employee matters agreement;
•an intellectual property matters agreement;
•a distribution agreement;
•an insurance matters agreement;
•a stockholders’ agreement; and
•a real estate matters agreement.
The agreements summarized below will be filed as exhibits to the registration statement of which this prospectus is a part. We encourage you to read the full text of these material agreements. We will enter into these agreements with SAP in the context of our relationship with SAP as our parent company.
Master Transaction Agreement
The master transaction agreement contains key provisions relating to our transition to becoming a public company and our ongoing relationship with SAP. The master transaction agreement also contains agreements relating to the conduct of this offering and related matters. Unless otherwise required by the specific provisions of the agreement, the master transaction agreement will terminate on a date that is three years after the first date on which SAP ceases to own shares representing the right to designate the majority of our board of directors. The provisions of the master transaction agreement related to our cooperation with SAP in connection with future
litigation will survive seven years after the termination of the agreement, and provisions related to indemnification by us and SAP will survive indefinitely.
This Offering. The master transaction agreement requires us to use our reasonable best efforts to satisfy certain conditions to the completion of this offering. SAP may, in its sole and absolute discretion, choose to proceed with or abandon this offering.
Future Distributions. Additionally, in the event SAP seeks to accomplish any Distribution, we have agreed to cooperate, at our expense, with SAP to accomplish such Distribution and we have agreed to promptly take any and all actions necessary or desirable to effect such Distribution. SAP will determine, in its sole discretion, whether any Distribution shall occur, the date of such Distribution and the form, structure and all other terms of any transaction to effect such Distribution. A Distribution may not occur at all. At any time prior to completion of any Distribution, SAP may decide to abandon such Distribution, or may modify or change the terms of such Distribution, which could have the effect of accelerating or delaying the timing of such Distribution.
Indemnification. The master transaction agreement provides for cross-indemnities that generally will place the financial responsibility on us and our subsidiaries for all liabilities associated with the current and historical Qualtrics business and operations, and generally will place on SAP the financial responsibility for liabilities associated with all of SAP’s other current and historical businesses and operations, in each case regardless of the time those liabilities arise. The master transaction agreement also contains indemnification provisions under which we and SAP each indemnify the other with respect to breaches of the master transaction agreement or any intercompany agreement.
In addition to our general indemnification obligations described above relating to the current and historical Qualtrics business and operations, we will agree to indemnify SAP against liabilities arising from misstatements or omissions in this prospectus or the registration statement of which it is a part, except for misstatements or omissions relating to information that SAP provided to us specifically for inclusion in this prospectus or the registration statement of which it forms a part. We will also agree to indemnify SAP against liabilities arising from any misstatements or omissions in our subsequent SEC filings and from information we provide to SAP specifically for inclusion in SAP’s annual or quarterly reports following the completion of this offering, but only to the extent that the information pertains to us or our business or to the extent SAP provides us prior written notice that the information will be included in its annual or quarterly reports and the liability does not result from the action or inaction of SAP.
In addition to SAP’s general indemnification obligations described above relating to the current and historical SAP business and operations, SAP will indemnify us for liabilities under litigation matters related to SAP’s business and for liabilities arising from misstatements or omissions with respect to information that SAP provided to us specifically for inclusion in this prospectus or the registration statement of which it forms a part. SAP will also agree to indemnify us against liabilities arising from information SAP provides to us specifically for inclusion in our annual or quarterly reports following the completion of this offering, but only to the extent that the information pertains to SAP or SAP’s business or to the extent we provide SAP prior written notice that the information will be included in our annual or quarterly reports and the liability does not result from our action or inaction.
For liabilities arising from events occurring on or before the time of this offering, the master transaction agreement contains a general release. Under this provision, we will release SAP and its subsidiaries, successors and assigns, and SAP will release us and our subsidiaries, successors and assigns, from any liabilities arising from events between us on the one hand, and SAP on the other hand, occurring on or before the time of this offering, including in connection with the activities to implement this offering. The general release does not apply to liabilities allocated between the parties under the master transaction agreement or other intercompany agreements or to specified ongoing contractual arrangements.
Compliance with SAP Policies. Under the master transaction agreement, we generally agree that we and all software and services provided or distributed by us will comply with certain SAP policies or equivalent policies that we adopt that are approved by SAP. Our chief compliance officer will be responsible for coordinating with and implementing the directive of the SAP personnel responsible for the subject matter of each such policy. We also
agree to create our own policies with respect to matters not covered by SAP’s policies. Initially, we will leverage SAP’s training manuals and tracking systems; however, over time, we expect to create our own versions of such manuals and systems.
Accounting Matters. Under the master transaction agreement, we will agree, subject to applicable law, to use the same independent certified public accountants selected by SAP and to not change our fiscal year during the term of the master transaction agreement. We also agree to complete our audit and provide SAP with all financial and other information on a timely basis such that SAP may meet its deadlines for its U.S. and German reporting requirements.
Restrictive Covenants. Under the master transaction agreement, we have agreed to obtain the consent of the holders of our Class B common stock prior to taking certain actions, including:
•adopting or implementing any stockholder rights plan or similar takeover defense measure;
•consolidating or merging with or into any other entity;
•permitting any of our subsidiaries to consolidate or merge with or into any other entity, with certain exceptions;
•acquiring the stock or assets of another entity for consideration in excess of $100 million except in connection with acquisitions of securities pursuant to portfolio investment decisions in the ordinary course of business to which the company and one or more of our wholly owned subsidiaries are the only parties;
•issuing any stock or other equity securities except to our subsidiaries or pursuant to this offering or to our employee benefit plans;
•conducting any business other than the business of enterprise software and related businesses;
•creating, incurring, assuming or permitting to exist any indebtedness or guarantee any indebtedness in excess of $100 million;
•making a loan or purchase debt securities in excess of $50 million;
•taking any actions to dissolve, liquidate or wind-up our company;
•declaring dividends on our stock;
•redeeming, purchasing or otherwise acquiring or retiring for value any equity securities of the company except repurchases from employees, officers, directors or other service providers upon termination of employment or through the exercise of any right of first refusal;
•entering into any joint venture or any exclusive or exclusionary arrangement with a third party; and
•amending, terminating or adopting any provision inconsistent with certain provisions of our amended and restated certificate of incorporation or amended and restated bylaws.
Administrative Services Agreement
Under the administrative services agreement, which will become effective as of the closing of this offering, SAP will provide us with certain services, including consulting and professional services, design and development services, language and globalization services, support and maintenance services, sales and marketing services, data and application hosting services and data processing services, data protection and privacy services, information technology services, compliance services, human resources services, finance and administration services, legal services and facilities services. We will provide SAP with consulting services and professional services, support and maintenance services and information technology services. For such time as the administrative services agreement is in effect, SAP and Qualtrics may agree on additional services to be included in the administrative services agreement. SAP will provide services to us, and we will provide services to SAP, with substantially the same degree of skill and care as such services are performed within SAP or within Qualtrics, respectively. Each of SAP and
Qualtrics will pay for the services rendered based on the number and total cost of the SAP employees or Qualtrics employees required to provide services, or as otherwise may be agreed.
We anticipate that the initial term of the administrative services agreement will last for three years from the consummation of the offering and will be extended automatically for successive one year terms unless terminated by one of the parties. Prior to the end of each year during the initial term or the end of any subsequent renewal term, we will agree with SAP to adjust the scope and fees payable for services under the agreement, as necessary, to accurately reflect the level of services required. We have the right to terminate any of the services provided by SAP under the administrative services agreement at any time upon 60 days’ prior written notice of termination to SAP, and SAP has the right to terminate any of the services provided by us under the administrative services agreement at any time upon 60 days’ prior written notice of termination to us. The administrative services agreement may also be terminated in the event of a 30-day uncured material breach by the party receiving services, or upon a change of control which includes when SAP ceases to own at least 50% of the total voting power of our stock. Notwithstanding any termination of the administrative services agreement or of any service provided under the administrative services agreement, each party shall continue to provide consulting services and support and maintenance services necessary to enable the other party to perform under any customer contract whereby Qualtrics products or services are sold or otherwise distributed by such other party for the duration of the support term under the applicable customer contract.
Furthermore, we have agreed in the administrative services agreement that we will be responsible for, and will indemnify SAP with respect to, our own losses for property damage or personal injury in connection with the services provided, except to the extent that such losses are caused by the gross negligence, breach, bad faith or willful misconduct of SAP. SAP will also be responsible for, and will indemnify us with respect to, its own losses for property damage or personal injury in connection with the services provided, except to the extent that such losses are caused by our gross negligence, breach, bad faith or willful misconduct.
Tax Sharing Agreement
We intend to enter into a tax sharing agreement with SAP in connection with this offering. The tax sharing agreement will govern SAP’s and our respective rights, responsibilities and obligations with respect to all tax matters (including tax liabilities, tax attributes, tax returns and tax audits).
Since the SAP Acquisition we have been, and expect that immediately following this offering, we will continue to be included in SAP America’s U.S. Consolidated Group, as well as in certain other SAP Tax Groups. As a result of our inclusion in such SAP Tax Groups, certain of our net operating losses and other tax attributes may have been previously used (and may continue to be used) to reduce the tax liability of members of such SAP Tax Groups other than us. SAP will not be required to compensate us for their use of any of our tax attributes that are generated in a taxable period beginning prior to January 1, 2021.
Pursuant to the tax sharing agreement, SAP will file with the relevant governmental authority all tax returns with respect to a SAP Tax Group, and, for taxable periods beginning after December 31, 2020, we will make tax sharing payments to SAP. The amount of our tax sharing payments with respect to SAP America’s U.S. Consolidated Group will be determined, subject to certain adjustments (including with respect to the use of tax attribute carryforwards), as if we and each of our subsidiaries included in SAP America’s U.S. Consolidated Group filed our own U.S. federal consolidated income tax return for the relevant taxable period. To the extent that we generate net operating losses and other tax attributes in a taxable period beginning after December 31, 2020, which we refer to as our post-2020 tax attributes, that we are unable to use in the taxable period in which they are generated, SAP America and its subsidiaries (other than us) will be entitled to use such tax attributes without the need to compensate us currently. However, in subsequent taxable periods, our tax sharing payments with respect to SAP America’s U.S. Consolidated Group may be reduced (to varying extents) for any taxable period in which we would have otherwise been able to use certain of such post-2020 tax attributes if such tax attributes had not already been used by SAP America or its subsidiaries (other than us). Following an event which causes us to no longer be included in a SAP Tax Group, which we refer to as a deconsolidation event, we will be entitled to receive payments from SAP (to varying extents) in respect of certain of our post-2020 tax attributes for which SAP received a tax benefit and which we otherwise would have been able to use in a taxable period ending after such deconsolidation
event if such tax attribute had not already been used SAP. The amount of any tax sharing payments with respect to SAP Tax Groups relating to U.S. state or local income taxes will be determined by using certain simplifying conventions.
The tax sharing agreement will provide that we will be responsible for any taxes with respect to income tax returns that include only us and/or our subsidiaries for taxable periods beginning after December 31, 2020. We will be responsible for any of our non-income taxes for all periods. Additionally, we will be required to indemnify SAP for any CFC/PFIC Taxes imposed on SAP that are attributable to us for taxable periods beginning after December 31, 2020.
The tax sharing agreement will allocate to SAP the economic benefit of any of our tax deductions arising by reason of the issuance, vesting, exercise or settlement of any equity-based compensation awards that relate to our stock and which were granted on or prior to the date of this offering, any such award being referred to as a Pre-IPO Equity Award. Accordingly, our tax sharing payments will not be reduced on account of tax deductions arising by reason of the issuance, vesting, exercise or settlement of any Pre-IPO Equity Award. Further, following a deconsolidation event, we will be required to make payments to SAP America with respect to any tax benefit we recognize in connection with the issuance, vesting, exercise or settlement of any Pre-IPO Equity Award.
Under the tax sharing agreement, SAP generally will have the right to control audits or other tax proceedings with respect to any tax returns of a SAP Tax Group, provided that we will have certain consultation and review rights with respect to any such audit or tax proceeding that could result in additional taxes for which we are liable under the tax sharing agreement above a certain threshold. We generally will have the right to control any audits or other tax proceedings with respect to tax returns that include only us and/or our subsidiaries; provided that so long as SAP owns 50% or more of our outstanding stock, SAP will have certain oversight and participation rights with respect to such audit or other tax proceeding.
As of the date of this prospectus, SAP has advised us that it does not have a present plan or intention to undertake any Distribution. Because SAP intends to retain the ability to engage in a Distribution in the future, the tax sharing agreement also addresses the parties' respective rights, responsibilities and obligations with respect to such a transaction. Under the tax sharing agreement, each party generally will be responsible for any taxes and related amounts imposed on SAP or us that arise from the failure of a future Distribution to qualify as a transaction that is generally tax-free, for U.S. federal income tax purposes, under Section 355 of the Code, to the extent that the failure to so qualify is attributable to: (i) a breach of the relevant representations and covenants made by that party in the tax sharing agreement or any representation letter provided in support of any tax opinion or ruling obtained by SAP with respect to the U.S. federal income tax treatment of such Distribution, or (ii) an acquisition of such party's equity securities. In addition, the tax sharing agreement will impose certain restrictions on us and our subsidiaries during the two-year period following any future Distribution that are designed to preserve the tax-free nature of such Distribution for U.S. federal income tax purposes. Specifically, during such period, except in specific circumstances, we and our subsidiaries generally would be prohibited from: (A) ceasing to conduct our business, (B) entering into certain transactions pursuant to which all or a portion of the shares of our common stock or certain of our and our subsidiaries' assets would be acquired, (C) liquidating, merging or consolidating with any other person, (D) issuing equity securities beyond certain thresholds, (E) repurchasing our shares other than in certain open-market transactions, (F) amending our amended and restated certificate of incorporation (or other organizational documents) or taking any other action that would affect the voting rights of our stock, or (G) taking or failing to take any other action that would be reasonably likely to cause such Distribution to fail to qualify as a transaction that is generally tax-free for U.S. federal income tax purposes.
Employee Matters Agreement
Prior to the consummation of this offering, we will also enter into an employee matters agreement with SAP. The employee matters agreement will allocate liabilities, costs and responsibilities relating to employee compensation, benefit plans and programs and other related matters for our employees, as well as for employees who will be aligned with our business following this offering but who may remain employed by SAP legal entities for a fixed period of time following this offering, or “Qualtrics-aligned employees.”
The employee matters agreement will also address the treatment of equity-based compensation awards outstanding immediately prior to this offering and held by such employees, the implementation of new equity-based compensation programs for such employees, the treatment of other incentive compensation for such employees, the transfer of personnel files, the application of personnel policies and works council arrangements and the implementation of certain administrative systems, including payroll systems. Some other arrangements addressed in the employee matters agreement, such as shared service agreements and leasing arrangements, will apply only to “Qualtrics-aligned employees.” The term of the employee matters agreement will continue until SAP owns shares of our common stock representing less than a majority of the votes entitled to be cast by all holders of our common stock.
Intellectual Property Matters Agreement
The intellectual property matters agreement will formalize our relationship with SAP with respect to our use of certain SAP intellectual property rights, as well as SAP’s use of certain of our intellectual property rights. The intellectual property matters agreement terminates upon our change of our control, including when SAP no longer controls more than 50% of our voting shares, or when SAP ceases to have the right to elect the majority of our board of directors. Under the terms of the intellectual property matters agreement, SAP will grant us a covenant not to sue under SAP’s patent rights for seven years following termination with respect to the sale or distribution of our products existing on the date of termination. We, in turn, will grant to SAP license rights under certain of our intellectual property rights for SAP to sell and distribute SAP’s products that incorporate or will incorporate such intellectual property. This license will survive termination of the intellectual property matters agreement. The scope of the intellectual property rights we license to SAP will be limited to the intellectual property rights we control at the time the intellectual property matters agreement terminates.
Distribution Agreement
The distribution agreement will formalize our relationship with SAP with respect to how SAP may resell our products under our brands, how SAP may license our products and IP that are embedded within an SAP product offering, and how we may license SAP products and IP that are embedded within our product offerings. Under the distribution agreement, we will grant SAP licenses to test, customize, provide and support those of our products that SAP is authorized to distribute under the agreement, and SAP will grant us licenses to test, customize, provide a support those of SAP’s products that we are authorized to distribute under the agreement. The distribution agreement also contains indemnification provisions under which we and SAP each indemnify the other with respect to certain third-party claims relating to the products that we and SAP are authorized to resell under the distribution agreement. The initial term of the distribution agreement continues until the later of (a) five years or (b) when SAP no longer controls more than 50% of our voting shares. In the event SAP controls more than 50% of our voting shares following the expiration of the initial five-year term, the term of the agreement may be renewed for a three-year term, unless either party elects not to renew on eighteen months’ notice. Following such three year renewal term, the term will renew automatically for successive eighteen (18) month terms unless either party elects not to renew on eighteen months’ notice.
Insurance Matters Agreement
Prior to the consummation of this offering, we have also entered into an insurance matters agreement with SAP. Pursuant to the insurance matters agreement, SAP will maintain insurance policies covering, and for the benefit of, us and our business. The insurance policies maintained by SAP under the insurance matters agreement will be the same or substantially similar to those maintained by SAP and covering us prior to the offering. SAP will allocate a portion of its insurance costs to us that is commensurate with the coverage we receive and SAP’s historical practice with its subsidiaries and we will also pay or reimburse SAP, as the case may be, for premium expenses, deductibles or retention amounts, amounts for fronted policies, retrospective premium adjustments and all other costs and expenses that SAP may incur in connection with the insurance coverage SAP maintains for us. The term of the insurance matters agreement will continue until SAP ceases owns shares of our common stock representing less than a majority of the votes entitled to be cast by all holders of our common stock, unless it is terminated sooner by us in the event that we determine to cease to be included in SAP’s insurance policies with 120 days’ notice to SAP in advance of the applicable renewal date of such policy or policies, by SAP with 150 days’ notice in advance of the
applicable renewal date of such policies or by either party in the event of a material uncured breach by the other party.
Stockholders’ Agreement
The stockholders’ agreement will contain agreements relating to registration rights and will govern certain aspects of the relationship between SAP, Q II, Silver Lake and us subsequent to this offering.
Registration Rights. Pursuant to the stockholders’ agreement, we will provide SAP with certain registration rights because the shares of our common stock held by SAP after this offering will be deemed “restricted securities” as defined in Rule 144 under the Securities Act. Accordingly, SAP may only sell a limited number of shares of our common stock into the public markets without registration under the Securities Act. At the request of SAP, we will use our reasonable best efforts to register shares of our common stock that are held by SAP after the closing of this offering, or subsequently acquired, for public sale under the Securities Act. SAP may request up to one registration in any calendar quarter. We will also provide SAP with “piggy-back” rights to include its shares in future registrations by us of our securities under the Securities Act. There is no limit on the number of these “piggy-back” registrations in which SAP may request its shares be included.
SAP may not transfer its registration rights other than to an affiliate. SAP’s registration rights will terminate on the earlier of the date on which SAP has sold or transferred all of its shares of our common stock deemed “restricted securities” or our common stock held by SAP may be sold without restriction pursuant to Rule 144 of the Securities Act.
We have agreed to cooperate in these registrations and related offerings. All expenses payable in connection with such registrations will be paid by us, including the fees and expenses of one firm of legal counsel chosen by SAP, except that SAP will pay all its own internal administrative costs and underwriting discounts and commissions applicable to the sale of its shares of our common stock. The stockholders’ agreement will also grant Q II and Silver Lake certain registration rights, including demand registration rights, in the case of Silver Lake, and “piggy-back” rights. It also provides for the right for Silver Lake to designate one member of our board of directors so long as it maintains a specified level of beneficial ownership in our common stock.
Real Estate Matters Agreement
Effective as of the closing date of this offering, the real estate matters agreement will govern our license from SAP of the right to continue to use and occupy certain spaces at SAP facilities. Such real estate license services will be provided to us in a substantially similar manner to similar services provided by SAP to other SAP entities. Among other terms, the real estate matters agreement sets forth the terms and conditions applicable to the allocation of space by facility and associated pricing.
Certain shared real estate locations set forth within the real estate matters agreement are not subject to the real estate matters agreement and are governed by certain operating license agreements executed prior to the consummation of the offering which will remain in effect.
We will indemnify SAP for any claims related to our use of the real estate license services rendered under the Agreement. We must indemnify SAP for any payments made pursuant to guarantee obligations with respect to our real estate leases and, to the extent any such guarantee obligations remain in effect following the time that SAP ceases to own shares of our common stock representing less than a majority of the votes entitled to be cast by all holders of our common stock, we will either cause the guarantee to be terminated or compensate SAP with the market rate for a comparable bank guarantee. Prior to the completion of any change of our control transaction at a time when SAP no longer owns shares representing a majority of the votes entitled to be cast by all holders of our common stock, any such guarantee that remains in effect must be terminated.
The real estate matters agreement has an initial three-year term which will automatically renew for additional one year terms unless terminated by the parties. Any of the real estate license services are terminable by either party with 120 days’ notice to the other party or upon notice upon a 30-day uncured material breach by the other party. The real estate matters agreement also terminates 60 days after our change of our control, including when SAP
ceases to own shares representing a majority of the votes entitled to be cast by all holders of our common stock. Any additional license services that are not reflected on an amendment may be terminated at any time.
Certain Other Arrangements
We have entered into certain arrangements for services and products with SAP and its affiliates. Our consolidated statements of operations and comprehensive income statements included elsewhere in this prospectus include all revenues and costs directly attributable and/or allocable to us, including costs for facilities, functions, and services used by us. The year ended December 31, 2019 consolidated statement of operations and the nine months ended September 30, 2019 and 2020 interim consolidated statements of operations also includes expenses of SAP directly charged or allocated to us for certain functions provided by SAP, including, but not limited to, sales organization costs, insurance, employee benefits, human resources and usage of data centers. Certain costs are allocated to us based on direct usage/benefit where identifiable, with the remainder allocated on a pro rata basis of revenues or headcount. These charges were determined based on actual expenses incurred on Qualtrics’ behalf or by usage. See Note 16 to our consolidated financial statements included elsewhere in this prospectus.
Engagement with Simplex Cleaning
In July 2010 we engaged Simplex Cleaning, an entity owned by relatives of Ryan Smith and Jared Smith, our former President and a former member of our board of directors, to provide certain office cleaning services to us. For the year ended December 31, 2018, we incurred $304,000 of expense related to these services. In October 2018, we terminated our engagement with Simplex Cleaning.
Lease Agreement with Timpanogos Land Holdings, LLC
In November 2015, we entered into a 10-year lease agreement with Timpanogos Land Holdings, LLC, an entity controlled by Ryan Smith, our Founder, Executive Chair and Director, Jared Smith, our former President and a former member of our board of directors, and Scott Smith, a former member of our board of directors, for our Provo, Utah, 165,074 square foot corporate headquarters. For the years ended December 31, 2018, we incurred $2.2 million of expense related to the lease agreement.
In October 2018, Timpanogos Land Holdings, LLC sold its ownership of the 165,074 square foot corporate headquarters in Provo, Utah to an independent third party. Pursuant to this sale, our lease agreement with Timpanogos Land Holdings, LLC was terminated. At that time we entered into a new lease agreement with the independent third party.
Loan Agreement with Zig Serafin
In May 2017, we entered into a loan agreement with Zig Serafin, our Chief Executive Officer and then Chief Operating Officer. As of December 31, 2017, the aggregate outstanding principal amount of the loan was $1.0 million. The loan matures and becomes due on the earlier of May 23, 2022, 60 days following the date of termination of employment of Mr. Serafin, or immediately prior to the first filing of a registration statement on Form S-1 related to the 2018 IPO. Until that time, the loan will accrue interest at 2.04% per annum, compounded annually. The loan was repaid by Mr. Serafin in July 2018.
Relationship with Q II
We are party to a Class A common stock purchase agreement with Q II, an entity controlled by Ryan Smith, dated as of December 8, 2020. Pursuant to the stock purchase agreement, Q II agreed to purchase 6,000,000 shares of our Class A common stock, representing approximately 1% of the total shares of our common stock to be outstanding following the completion of this offering, at a price of $20.00 per share, for an aggregate purchase price of $120 million, which transaction was completed on December 21, 2020. The shares are redeemable at the option of the Company for the 60-day period following June 30, 2021 unless the following conditions have been met: (1) the closing of our underwritten public offering shall have occurred prior to that date and (2) Ryan Smith shall remain employed by us on that date or his employment shall have been terminated prior to that date by us without cause or by him with good reason. If such conditions do not occur, we will have 60 days following June 30, 2021 to
repurchase the shares. The stock purchase agreement also restricts Q II’s right to sell or transfer the shares of our Class A common stock acquired pursuant to the purchase agreement for a period of 12 months after the effectiveness of the registration statement of which this prospectus forms a part.
Pursuant to Q II’s investment in our Class A common stock, we will grant Q II certain rights under our stockholders’ agreement, including “piggyback” registration rights with respect to our Class A common stock that may be exercised after the date that is 18 months after the effectiveness of the registration statement of which this prospectus forms a part, subject to standard cutback provisions imposed by underwriters which will be applied pro rata with other holders exercising such rights.
Utah Jazz
In December 2020, Ryan Smith, our Founder and Executive Chair, acquired a majority interest in the Utah Jazz basketball franchise, the associated venue, and certain related sports teams and operations and business interests. The Company has ongoing sales revenue with the Utah Jazz that totaled $0.2 million for the nine months ended September 30, 2020. In 2019, the Company entered into multi-year agreements with the Utah Jazz related to ticket purchases, advertising, sponsorships, and the Utah Jazz Five for the Fight Campaign. Sales and marketing and general and administrative expenses with the Utah Jazz totaled $2.5 million for the nine months ended September 30, 2020.
Limitation of Liability and Indemnification of Officers and Directors
Our amended and restated certificate of incorporation contains provisions that limit the liability of our directors for monetary damages to the fullest extent permitted by Delaware law. Consequently, our directors will not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duties as directors, except liability for the following:
•any breach of their duty of loyalty to our company or our stockholders;
•any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;
•unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the DGCL; or
•any transaction from which they derived an improper personal benefit.
Any amendment to, or repeal of, these provisions will not eliminate or reduce the effect of these provisions in respect of any act, omission or claim that occurred or arose prior to that amendment or repeal. If the DGCL is amended to provide for further limitations on the personal liability of directors of corporations, then the personal liability of our directors will be further limited to the greatest extent permitted by the DGCL.
In addition, our amended and restated bylaws provide that we will indemnify, to the fullest extent permitted by law, any person who is or was a party or is threatened to be made a party to any action, suit or proceeding by reason of the fact that he or she is or was one of our directors or officers or is or was serving at our request as a director or officer of another corporation, partnership, joint venture, trust or other enterprise. Our amended and restated bylaws provide that we may indemnify to the fullest extent permitted by law any person who is or was a party or is threatened to be made a party to any action, suit or proceeding by reason of the fact that he or she is or was one of our employees or agents or is or was serving at our request as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise. Our amended and restated bylaws also provide that we must advance expenses incurred by or on behalf of a director or officer in advance of the final disposition of any action or proceeding, subject to limited exceptions.
Further, we have entered into or will enter into indemnification agreements with each of our directors and executive officers that may be broader than the specific indemnification provisions contained in the DGCL. These indemnification agreements require us, among other things, to indemnify our directors and executive officers against liabilities that may arise by reason of their status or service. These indemnification agreements also require us to advance all expenses incurred by the directors and executive officers in investigating or defending any such action,
suit or proceeding. We believe that these agreements are necessary to attract and retain qualified individuals to serve as directors and executive officers.
The limitation of liability and indemnification provisions that are included in our amended and restated certificate of incorporation and amended and restated bylaws and in indemnification agreements that we have entered into or will enter into with our directors and executive officers may discourage stockholders from bringing a lawsuit against our directors and executive officers for breach of their fiduciary duties. They may also reduce the likelihood of derivative litigation against our directors and executive officers, even though an action, if successful, might benefit us and other stockholders. Further, a stockholder’s investment may be adversely affected to the extent that we pay the costs of settlement and damage awards against directors and executive officers as required by these indemnification provisions. At present, we are not aware of any pending litigation or proceeding involving any person who is or was one of our directors, officers, employees or other agents or is or was serving at our request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, for which indemnification is sought, and we are not aware of any threatened litigation that may result in claims for indemnification.
We expect to maintain insurance policies under which, subject to the limitations of the policies, coverage is provided to our directors and executive officers against loss arising from claims made by reason of breach of fiduciary duty or other wrongful acts as a director or executive officer, including claims relating to public securities matters, and to us with respect to payments that may be made by us to these directors and executive officers pursuant to our indemnification obligations or otherwise as a matter of law.
Certain of our non-employee directors may, through their relationships with their employers, be insured and/or indemnified against certain liabilities incurred in their capacity as members of our board of directors.
The underwriting agreement will provide for indemnification by the underwriters of us and our officers and directors for certain liabilities arising under the Securities Act or otherwise.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling our company pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
Policies and Procedures for Related Party Transactions
Following the completion of this offering, our audit committee will have the primary responsibility for reviewing and approving or disapproving “related party transactions,” which are transactions between us and related persons in which the aggregate amount involved exceeds or may be expected to exceed $120,000 and in which a related person has or will have a direct or indirect material interest. Upon completion of this offering, our policy regarding transactions between us and related persons will provide that a related person is defined as a director, executive officer, nominee for director, or greater than 5% beneficial owner of our Class A and Class B common stock, in each case since the beginning of the most recently completed year, and any of their immediate family members. An investor may obtain a written copy of this policy, once adopted, by sending a written request to Qualtrics International Inc., 333 West River Park Drive, Provo, Utah 84604, attention: Legal Department. Our audit committee charter that will be in effect upon completion of this offering will provide that our audit committee shall review and approve or disapprove certain related party transactions, including material transactions with SAP.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the beneficial ownership of our capital stock as of the date of this prospectus, and as adjusted to reflect the sale of our Class A common stock offered by us in this offering assuming no exercise of the underwriters’ option to purchase additional shares, for:
•each of our named executive officers;
•each of our directors and director nominees;
•all of our current directors and executive officers as a group; and
•each person known by us to be the beneficial owner of more than 5% of the outstanding shares of our Class A or Class B common stock (by number or by voting power).
We have determined beneficial ownership in accordance with the rules of the SEC, and thus it represents sole or shared voting or investment power with respect to our securities. Unless otherwise indicated below, to our knowledge, the persons and entities named in the table have sole voting and sole investment power with respect to all shares that they beneficially owned, subject to community property laws where applicable. The information does not necessarily indicate beneficial ownership for any other purpose, including for purposes of Sections 13(d) and 13(g) of the Securities Act.
We have based our calculation of the percentage of beneficial ownership prior to this offering on 6,000,000 shares of our Class A common stock and 423,170,610 shares of our Class B common stock outstanding as of the date of this prospectus. We have based our calculation of the percentage of beneficial ownership after this offering on shares of our Class A common stock and 423,170,610 shares of our Class B common stock outstanding immediately following the completion of this offering, assuming that the underwriters will not exercise their option to purchase additional shares and giving effect to the closing of the Silver Lake investment (which, assuming an initial public offering price of $22.00, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, represents a total of 25,245,756 shares of our Class A common stock being issued to Silver Lake). Since Silver Lake did not beneficially own more than 5% of our Class A common stock or Class B common stock as of the date of this prospectus, it is not set forth in the table below.
Unless otherwise indicated, the address of each beneficial owner listed in the table below is c/o Qualtrics International Inc., 333 West River Park Drive, Provo, Utah 84604.
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Beneficial Ownership Before the Offering
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Beneficial Ownership After the Offering
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Class A
Common
Stock
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Class B
Common
Stock
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Total
Voting
Power
Before
the
Offering
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Class A
Common
Stock
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Class B
Common
Stock
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Total
Voting
Power
After
the
Offering
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Name of Beneficial Owner
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Shares
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%
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Shares
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%
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%
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Shares
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%
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Shares
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%
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%
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Directors, Director Nominees and Named Executive Officers:
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Ryan Smith(1)
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6,000,000
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100.0
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%
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—
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*
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0.1
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%
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Zig Serafin
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—
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*
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—
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*
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—
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Christian Klein
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—
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*
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—
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*
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—
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Luka Mucic
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—
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*
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—
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*
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—
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Adaire Fox-Martin
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—
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*
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—
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*
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—
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Sindhu Gangadharan
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—
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*
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—
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*
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—
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Paula Hansen
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—
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*
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—
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*
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—
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Egon Durban
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—
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*
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—
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*
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—
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Kelly Steckelberg
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—
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*
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—
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*
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—
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John Thimsen
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—
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*
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—
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*
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—
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Bill McMurray
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—
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*
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—
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*
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—
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All directors and executive officers as a group (10 persons)
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6,000,000
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100.0
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%
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—
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*
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0.1
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%
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5% Stockholders:
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SAP SE(2)
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—
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*
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423,170,610
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100.0
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%
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99.9
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%
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_______________
*Represents beneficial ownership of less than one percent (1%) of the outstanding shares of our capital stock.
(1)Consists of 6,000,000 shares of Class A common stock held by Q II, LLC, an entity controlled by Ryan Smith, our Founder and Executive Chair. The address for Q II, LLC is 105 South State Street #513, Orem, Utah 84058.
(2)Consists of 423,170,610 shares of Class B common stock held by SAP America, Inc., a wholly owned subsidiary of SAP SE. The address for SAP SE is Dietmar-Hopp-Allee 16, 69190 Walldorf, Federal Republic of Germany.
Prior to the completion of this offering, we may grant broad-based equity-based incentive awards with underlying shares of our Class A common stock to our employees, including our executive officers. Upon completion of this offering, some of our executive officers may also acquire equity-based incentive awards with underlying shares of our Class A common stock by participating in the exchange offer.
Following this offering, we will have two classes of authorized common stock: Class A common stock and Class B common stock. Except that holders of Class A common stock are entitled to one vote per share while holders of Class B common stock are entitled to ten votes per share on all matters to be voted on by our stockholders and except with respect to conversion, certain actions that require the consent of holders of Class B common stock and other protective provisions as set forth in this prospectus, the holders of Class A common stock and Class B common stock have identical rights. If, prior to the occurrence of any Distribution, SAP transfers shares of our Class B common stock to any party that is not beneficially owned by SAP, those shares would automatically convert into Class A common stock. For so long as SAP continues to control more than 50% of the combined voting power of our common stock, SAP will be able to direct the election of all the members of our board of directors and, so long as SAP beneficially owns at least 20% of the total outstanding shares of our common stock, the prior affirmative vote or written consent of SAP will be required for certain corporate actions. Similarly, SAP will have the power to approve any action requiring stockholder approval. See “Description of Capital Stock.”
DESCRIPTION OF CAPITAL STOCK
General
The following description summarizes certain important terms of our capital stock and of our amended and restated certificate of incorporation and amended and restated bylaws. Because it is only a summary, it does not contain all the information that may be important to you. For a complete description of the matters set forth in this section titled “Description of Capital Stock,” you should refer to our amended and restated certificate of incorporation and amended and restated bylaws, which are included as exhibits to the registration statement of which this prospectus forms a part, and to the applicable provisions of Delaware law.
Our authorized capital stock consists of 3,100,000,000 shares of capital stock, par value $0.0001 per share, of which:
•2,000,000,000 shares are designated as Class A common stock; and
•1,000,000,000 shares are designated as Class B common stock; and
•100,000,000 shares of undesignated preferred stock.
As of the date of this prospectus, SAP and Q II currently own 98.6% and 1.4%, respectively, of our common stock and no shares of preferred stock have been designated or are outstanding. Upon completion of this offering, there will be outstanding shares of Class A common stock, 423,170,610 shares of Class B common stock and no shares of preferred stock.
Class A Common Stock and Class B Common Stock
Dividend Rights
Subject to preferences that may apply to shares of preferred stock outstanding at the time, the holders of outstanding shares of our Class A common stock and Class B common stock are entitled to receive dividends, out of assets legally available, sharing equally in all such dividends on a per share basis, at the times and in the amounts that our board of directors may determine from time to time. See “Dividend Policy.”
Voting Rights
Except that holders of Class A common stock are entitled to one vote per share while holders of Class B common stock are entitled to ten votes per share on all matters to be voted on by our stockholders and except with respect to the conversion, certain actions that require the consent of holders of Class B common stock and other protective provisions as set forth in this prospectus, the holders of Class A common stock and Class B common stock have identical rights. Subject to any rights of any series of preferred stock to elect directors, the holders of our Class A common stock and the holders of our Class B common stock, voting together as a single class, are entitled to elect all directors to our board of directors. In the event that the rights of any series of preferred stock would preclude the holders of our Class A common stock and the holders of our Class B common stock, voting together as a single class, from electing at least one director, the board of directors will increase the number of directors prior to the issuance of that preferred stock to the extent necessary to allow these stockholders to elect at least one director.
Delaware law would require either holders of our Class A common stock or Class B common stock to vote separately as a single class if a proposed amendment to our amended and restated certificate of incorporation would (i) increase or decrease the par value of such class or (ii) alter or change the powers, preferences, or special rights of such class in a manner that affected its holders adversely. Our amended and restated certificate of incorporation provides that the number of authorized shares of our Class A common stock, Class B common stock or preferred stock may be increased or decreased by the affirmative vote of the holders of a majority in voting power of the common stock and that no vote of the holders of our Class A common stock, Class B common stock or preferred stock voting separately as a class will be required therefor.
Generally, all other matters to be voted on by stockholders must be approved by a majority of the votes entitled to be cast at a meeting by all shares of Class A common stock and Class B common stock present in person or represented by proxy, voting together as a single class, subject to any voting rights granted to holders of any preferred stock.
No Preemptive or Similar Rights
Our Class A common stock and Class B common stock are not entitled to preemptive rights, and are not subject to conversion, redemption or sinking fund provisions, except for the conversion provisions with respect to the Class B common stock described below.
Right to Receive Liquidation Distributions
Upon our liquidation, dissolution or winding-up, the holders of our Class A common stock and Class B common stock are entitled to share equally in all of our assets remaining after payment of all liabilities and the liquidation preferences of any outstanding preferred stock.
Conversion
If all or any portion of our Class B common stock is distributed in a Distribution, shares of our Class B common stock will no longer be convertible into shares of Class A common stock. Prior to any Distribution, all shares of Class B common stock will automatically be converted into shares of Class A common stock upon the transfer of such shares of Class B common stock by SAP to any party that is not beneficially owned by SAP. If a Distribution has not occurred, each share of Class B common stock will also automatically convert into a share of Class A common stock at such time as the number of shares of common stock owned by SAP falls below 20% of the outstanding shares of our common stock. All conversions will be effected on a share-for-share basis.
Fully Paid and Non-Assessable
In connection with this offering, our legal counsel will opine that the shares of our Class A common stock to be issued pursuant to this offering will be fully paid and non-assessable.
Approval Rights of Holders of Class B Common Stock
In addition to any other vote required by law or by our amended and restated certificate of incorporation, until the first date on which SAP ceases to beneficially own 20% or more of the outstanding shares of our common stock, the prior affirmative vote or written consent of SAP as the holder of the Class B common stock is required (subject in each case to certain exceptions) in order to authorize us to:
•adopt or implement any stockholder rights plan or similar takeover defense measure;
•consolidate or merge with or into any other entity;
•permit any of our subsidiaries to consolidate or merge with or into any other entity, with certain exceptions;
•acquire the stock or assets of another entity for consideration in excess of $100 million except in connection with acquisitions of securities pursuant to portfolio investment decisions in the ordinary course of business to which the company and one of more of our wholly owned subsidiaries are the only parties;
•issue any stock or other equity securities except to our subsidiaries or pursuant to this offering or to our employee benefit plans;
•conduct any business other than the business of enterprise software and related businesses;
•create, incur, assume or permit to exist any indebtedness or guarantee any indebtedness in excess of $100 million;
•make any loan to or purchase any debt securities of any person in excess of $50 million;
•take any actions to dissolve, liquidate or wind-up our company;
•declare dividends on our stock;
•redeem, purchase or otherwise acquire or retire for value any equity securities of the company except repurchases from employees, officers, directors or other service providers upon termination of employment or through the exercise of any right of first refusal;
•enter into any joint venture or any exclusive or exclusionary arrangement with a third party; and
•amend, terminate or adopt any provision inconsistent with certain provisions of our amended and restated certificate of incorporation or amended and restated bylaws.
Preferred Stock
Our board of directors is authorized, subject to the approval of our Class B stockholders and subject to limitations prescribed by Delaware law, to issue preferred stock in one or more series, to establish from time to time the number of shares to be included in each series and to fix the designation, powers, preferences and rights of the shares of each series and any of its qualifications, limitations or restrictions, in each case without further vote or action by our stockholders. Our board of directors can also increase or decrease the number of shares of any series of preferred stock, but not below the number of shares of that series then outstanding, without any further vote or action by our stockholders. Our board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of our Class A common stock. The issuance of preferred stock 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 and Class B common stock. We have no current plan to issue any shares of preferred stock.
Warrants
As of the date of this prospectus, there were no outstanding warrants to purchase shares of our capital stock.
Registration Rights
We will enter into a stockholders’ agreement with SAP, Q II and Silver Lake which, among other things, will provide for specified registration and other rights relating to the shares of our Class A common stock and Class B common stock owned by SAP, Q II and Silver Lake. See “Certain Relationships and Related Party Transactions—Relationship with SAP and the Agreements Between SAP and Us,” “Certain Relationships and Related Party Transactions—Relationship with Q II” and “Shares Eligible for Future Sale—Registration Rights.”
Restricted Stock Units
As of December 23, 2020, and assuming an applicable SAP share price of $126.50 per share (which was the closing price of SAP’s ordinary shares on Xetra on December 23, 2020, converted into U.S. dollars using the exchange rate as published by the Wall Street Journal for that date and rounded to the nearest half dollar) and an initial public offering price of $22.00 per share (the midpoint of the estimated offering price range set forth on the cover page of this prospectus), Qualtrics employees held Qualtrics Rights with value of approximately $233 million that were granted outside of SAP equity-based compensation plans and SAP RSUs with value of approximately $181 million that were granted under applicable SAP equity-based compensation plans. In connection with the exchange offer, we expect that up to 18.8 million RSUs with underlying shares of our Class A common stock may be issued to Qualtrics employees in exchange for their Qualtrics Rights and SAP RSUs. See “Executive Compensation—Equity-Based Compensation Plans—Exchange Offer.”
Anti-Takeover Provisions
The provisions of Delaware law, our amended and restated certificate of incorporation and our amended and restated bylaws, which are summarized below, may have the effect of delaying, deferring or discouraging another
person from acquiring control of our company. 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 will be governed by the provisions of Section 203 of the DGCL. In general, Section 203 prohibits a public Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless:
•the transaction was approved by the board of directors prior to the time that the stockholder became an interested stockholder;
•upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding shares owned by directors who are also officers of the corporation and shares owned by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or
•at or subsequent to the time the stockholder became an interested stockholder, the business combination was approved by the board of directors and authorized at an annual or special meeting of the stockholders, and not by written consent, by the affirmative vote of at least two-thirds of the outstanding voting stock which is not owned by the interested stockholder.
In general, Section 203 defines a “business combination” to include mergers, asset sales and other transactions resulting in financial benefit to a stockholder and an “interested stockholder” as a person who, together with affiliates and associates, owns, or within three years did own, 15% or more of the corporation’s outstanding voting stock. These provisions may have the effect of delaying, deferring or preventing changes in control of our company.
Amended and Restated Certificate of Incorporation and Amended and Restated Bylaw Provisions
Our amended and restated certificate of incorporation and our amended and restated bylaws include a number of provisions that could deter hostile takeovers or delay or prevent changes in control of our company, as well as changes in our board of directors or management team, including the following:
Board of Directors; Vacancies. Our board of directors will consist of not less than five directors, with the exact number to be determined by the board of directors.
Any director may be removed from office at any time, without cause, by the affirmative vote of the holders of our common stock representing at least a majority of the votes entitled to be cast on the election of such director.
Any vacancy on the board of directors that results from an increase in the number of directors may be filled only by a majority of the board of directors then in office, provided that a quorum is present, and any other vacancy occurring in the board of directors may be filled only by a majority of directors then in office, even if less than a quorum, or by a sole remaining director. However, until SAP ceases to be the beneficial owner of shares of our common stock representing at least a majority of the votes entitled to be cast by the holders of Class A common stock and the holders of Class B common stock, voting together as a single class, any vacancy caused by the removal of a director by our stockholders may be filled only by our stockholders.
This will make it more difficult to change the composition of our board of directors and will promote continuity of management.
Dual-Class Common Stock. As described above in the section titled “—Class A Common Stock and Class B Common Stock—Voting Rights,” our amended and restated certificate of incorporation provides for a dual-class
common stock structure pursuant to which holders of our Class B common stock have the ability to control the outcome of matters requiring stockholder approval, even if they own significantly less than a majority of the shares of our outstanding Class A common stock, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or its assets.
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 stockholder’s notice.
To be in proper written form, a stockholder’s notice must set forth as to each matter of business the stockholder intends to bring before our annual meeting of stockholders: (1) a brief description of the business intended to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (2) the name and address, as they appear on the Company’s books, of the stockholder proposing such business and any controlling stockholder or beneficial owner of stockholder’s shares, or a Stockholder Associated Person, (3) the class and number of our shares that are held of record or are beneficially owned by the stockholder or any Stockholder Associated Person and any derivative positions held or beneficially held by the stockholder or any Stockholder Associated Person, (4) whether and the extent to which any hedging or other transaction or series of transactions has been entered into by or on behalf of such stockholder or any Stockholder Associated Person with respect to our securities, and a description of any other agreement, arrangement or understanding the effect or intent of which is to mitigate loss to, or to manage the risk or benefit from share price changes for, or to increase or decrease the voting power of, such stockholder or any Stockholder Associated Person with respect to our securities, (5) any material interest of the stockholder or a Stockholder Associated Person in such business, and (6) a statement whether either such stockholder or any Stockholder Associated Person will deliver a proxy statement and form of proxy to holders of at least the percentage of the voting power of our voting shares required under applicable law to carry the proposal. In addition, to be in proper written form, a stockholder’s notice must be supplemented not later than ten days following the record date for the determination of stockholders entitled to notice of the meeting to disclose the information contained in clauses (3) and (4) above as of the record date.
To be in proper written form, a stockholder’s notice as it relates to director nominations at annual meetings, must set forth: as to each nominee whom the stockholder proposes to nominate for election or re-election as a director: (1) the name, age, business address, and residence address of the nominee, (2) the principal occupation or employment of the nominee, (3) the information required to be provided pursuant to clauses (3) and (4) of the prior paragraph with respect to the nominee, (4) a description of all arrangements or understandings between or among any of the stockholder, each nominee, and/or any other person or persons (naming such person or persons) pursuant to which the nominations are to be made by the stockholder or relating to the nominee’s potential service on the board of directors, (5) a written statement executed by the nominee acknowledging that as a director of the Company, the nominee will owe a fiduciary duty under Delaware law with respect to the Company and its stockholders, and (6) any other information relating to the nominee that would be required to be disclosed about such nominee if proxies were being solicited for the election of the nominee as a director, or that is otherwise required, in each case pursuant to Regulation 14A under the Exchange Act (including without limitation the nominee’s written consent to being named in the proxy statement, if any, as a nominee and to serving as a director if elected). In addition, to be in proper written form, a stockholder’s notice must (i) provide, with respect to such stockholder, the information required to be provided pursuant to clauses (2) through (5) in the prior paragraph, and be supplemented not later than ten days following the record date for the determination of stockholders entitled to notice of the meeting to disclose the information contained in clauses (3) and (4) in the prior paragraph as of the record date (except that the references to “business” in such clauses shall instead refer to nominations of directors) and (ii) a statement whether either such stockholder will deliver a proxy statement and form of proxy to holders at least the percentage of the Company’s voting shares reasonably believed by such stockholder to be necessary to elect such nominee(s).
These provisions might preclude our stockholders from bringing matters before our annual meeting of stockholders or from making nominations for directors at our annual meeting of stockholders if the proper procedures are not followed. We expect that these provisions may also discourage or deter a potential acquirer from
conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of our company.
Stockholder Action; Special Meeting of Stockholders. Our amended and restated certificate of incorporation provides that until such time as SAP ceases to hold shares representing at least a majority of votes entitled to be cast by the holders of Class A common stock and the holders of Class B common stock, voting together as a single class, any action required or permitted to be taken by stockholders at any annual or special meeting of stockholders may be taken without a meeting, without prior notice and without a vote, so long as written consent is obtained from the holders of the minimum number of votes that would have been required to authorize or take action if such a meeting were held. From and after such time as SAP ceases to hold shares representing at least a majority of the votes entitled to be cast by the holders of Class A common stock and the holders of Class B common stock, voting together as a single class, any action required or permitted to be taken by stockholders may be effected only at a duly called annual or special meeting of stockholders and may not be effected by a written consent or consents by stockholders in lieu of such a meeting.
Except as otherwise required by law, special meetings of our stockholders for any purpose or purposes may only be called by (1) our Executive Chair or Chief Executive Officer, (2) a majority of directors then in office, or (3) SAP, so long as SAP is the beneficial owner of at least a majority of the votes entitled to be cast by the holders of Class A common stock and the holders of Class B common stock, voting together as a single class. No business other than that stated in the notice of a special meeting may be transacted at such special meetings. These provisions might delay the ability of our stockholders to force consideration of a proposal or for stockholders controlling a majority of our capital stock to take any action, including the removal of directors.
No Cumulative Voting. The DGCL provides that stockholders are not entitled to cumulate votes in the election of directors unless a corporation’s certificate of incorporation provides otherwise. Our amended and restated certificate of incorporation does not provide for cumulative voting.
Amendment of Charter Provisions. Subject to the rights of holders of our Class B common stock to withhold their consent to the amendment of the provisions of our amended and restated certificate of incorporation relating to corporate opportunities and conflicts of interest between our company and SAP, certain provisions of our amended and restated certificate of incorporation, including those relating to corporate opportunities and conflicts of interest between us and SAP, the consent of SAP as the holder of our Class B common stock, our amended and restated bylaws, our board of directors and the indemnification of our directors and officers, may be amended by the affirmative vote of at least 80% of the votes entitled to be cast thereon. All other provisions of our amended and restated certificate of incorporation may be amended by the affirmative vote of a majority of the votes entitled to be cast thereon.
The board of directors may from time to time make, amend, supplement or repeal our amended and restated bylaws upon the vote of a majority of the board of directors. Once SAP ceases to own shares representing at least a majority of the votes entitled to be cast by the holders of Class A common stock and the holders of Class B common stock, voting together as a single class, our amended and restated certificate of incorporation provides that the sections of our amended and restated bylaws related to the removal of directors and the required advance notice related to stockholder proposals and nomination of directors by shareholders may only be amended by the affirmative vote of shares representing at least 80% of the votes entitled to be cast by the outstanding common stock, voting as a single class, subject to any voting rights granted to any holders of any preferred stock.
Issuance of Undesignated Preferred Stock. Our board of directors will have the authority, without further action by our stockholders, to issue up to 100,000,000 shares of undesignated preferred stock with rights and preferences, including voting rights, designated from time to time by our board of directors. The existence of authorized but unissued shares of preferred stock would enable our board of directors to render more difficult or to discourage an attempt to obtain control of us by means of a merger, tender offer, proxy contest, or other means.
The foregoing provisions will make it more difficult for our existing stockholders, other than holders of our Class B common stock, to replace our board of directors as well as for another party to obtain control of us by replacing our board of directors. Since our board of directors has the power to retain and discharge our officers,
these provisions could also make it more difficult for existing stockholders, other than the holders of our Class B common stock, or another party to effect a change in management.
These provisions, including the dual-class structure of our common stock, are intended to preserve SAP’s control after completion of our initial public offering, facilitate our continued product innovation and the risk-taking that it requires, permit us to continue to prioritize our long-term goals rather than short-term results, enhance the likelihood of continued stability in the composition of our board of directors and its policies and to discourage certain types of transactions that may involve an actual or threatened acquisition of us. These provisions are also designed to reduce our vulnerability to an unsolicited acquisition proposal and to discourage certain tactics that may be used in proxy fights. However, such provisions could have the effect of discouraging others from making tender offers for our shares and may have the effect of deterring hostile takeovers or delaying changes in our control or management. As a consequence, these provisions may also inhibit fluctuations in the market price of our stock that could result from actual or rumored takeover attempts.
Choice of Forums. Our amended and restated bylaws provide that, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, or other employees or our stockholders to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provisions of the DGCL, our amended and restated certificate of incorporation or our amended and restated bylaws or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware, or (iv) any action asserting a claim governed by the internal affairs doctrine shall be, to the fullest extent permitted by law, the Court of Chancery of the State of Delaware. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and consented to this provision. Our amended and restated bylaws also provide that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act; provided, however, that our stockholders cannot and will not be deemed to have waived our compliance with the U.S. federal securities laws and the rules and regulations thereunder. This provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction.
Provisions of Our Amended and Restated Certificate of Incorporation Relating to Related Person Transactions and Corporate Opportunities
In order to address potential conflicts of interest between us and SAP with respect to corporate opportunities that are otherwise permitted to be undertaken by us, our amended and restated certificate of incorporation contains provisions regulating and defining the conduct of our affairs as they may involve SAP and its officers and directors, and our powers, rights, duties and liabilities and those of our officers, directors and stockholders in connection with our relationship with SAP. In general, these provisions recognize that we and SAP may engage in the same or similar business activities and lines of business, may have an interest in the same areas of corporate opportunities and will continue to have contractual and business relations with each other, including officers and directors of SAP serving as our directors.
Our amended and restated certificate of incorporation provides that SAP will have the right to, and shall have no duty to refrain from:
•engaging in the same or similar business activities or lines of business as us;
•doing business with any of our clients or customers; or
•employing or otherwise engaging any of our officers or employees.
Our amended and restated certificate of incorporation provides that if SAP acquires knowledge of a potential transaction or matter which may be a corporate opportunity for both us and SAP, SAP will have no duty to communicate or present such corporate opportunity to us and we will, to the fullest extent permitted by law, renounce any interest or expectancy in any such opportunity and waive any claim that such corporate opportunity be presented to us. SAP will have satisfied its fiduciary duty with respect to such a corporate opportunity and will not be liable to us or our stockholders for breach of any fiduciary duty as our stockholder by reason of the fact that SAP
acquires or seeks the corporate opportunity for itself, directs that corporate opportunity to another person or does not present that corporate opportunity to us.
If one of our directors or officers who is also a director or officer of SAP learns of a potential transaction or matter that may be a corporate opportunity for both us and SAP, our amended and restated certificate of incorporation provides that the director or officer will have satisfied his or her fiduciary duties to us and our stockholders, will not be liable for breach of fiduciary duties to us and our stockholders with respect to such corporate opportunity, and will be deemed not to have derived an improper personal economic gain from such corporate opportunity if the director or officer acts in good faith in a manner consistent with the following policy:
•where an opportunity is offered to a Qualtrics director (but not an officer) who is also a director or officer of SAP, Qualtrics will be entitled to pursue such opportunity only when expressly offered to such individual solely in his or her capacity as a Qualtrics director;
•where an opportunity is offered to a Qualtrics officer who is also an SAP officer, Qualtrics will be entitled to pursue such opportunity only when expressly offered to such individual solely in his or her capacity as a Qualtrics officer;
•where an opportunity is offered to a Qualtrics officer who is also a director (but not an officer) of SAP, Qualtrics will be entitled to pursue such opportunity unless expressly offered to the individual solely in his or her capacity as an SAP director; and
•where one of our officers or directors, who also serves as a director or officer of SAP, learns of a potential transaction or matter that may be a corporate opportunity for both us and SAP in any manner not addressed in the foregoing descriptions, such director or officer will have no duty to communicate or present that corporate opportunity to us and will not be liable to us or our stockholders for breach of fiduciary duty by reason of the fact that SAP pursues or acquires that corporate opportunity for itself.
The foregoing limitation of liability provisions are not intended to be an allocation of corporate opportunities between us and SAP.
For purposes of our amended and restated certificate of incorporation, “corporate opportunities” include business opportunities which we are financially able to undertake, which are, from their nature, in our line of business, are of practical advantage to us and are ones in which we have an interest or a reasonable expectancy, and in which, by embracing the opportunities, the self-interest of SAP or its officers or directors will be brought into conflict with our self-interest.
The corporate opportunity provisions in our amended and restated certificate of incorporation will continue in effect until the later of (1) SAP ceasing to beneficially own 20% or more of the outstanding shares of our common stock and (2) the date upon which no Qualtrics officer or director is also an officer or director of SAP. The vote of at least 80% of the votes entitled to be cast will be required to amend, alter, change or repeal the corporate opportunity provisions.
By becoming a stockholder in our company, you will be deemed to have notice of and have consented to the provisions of our amended and restated certificate of incorporation related to corporate opportunities that are described above.
Transfer Agent and Registrar
Upon completion of this offering, the transfer agent and registrar for our Class A and Class B common stock will be American Stock Transfer & Trust Company, LLC. The transfer agent’s address is 6201 15th Avenue, Brooklyn, New York 11219.
Limitations of Liability and Indemnification
See “Certain Relationships and Related Party Transactions—Limitation of Liability and Indemnification of Officers and Directors.”
Listing
We have applied to list our Class A common stock on Nasdaq under the symbol “XM.”
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our Class A common stock, and we cannot predict the effect, if any, that market sales of shares of our Class A common stock or the availability of shares of our Class A common stock for sale will have on the market price of our Class A common stock prevailing from time to time. Future sales of our Class A common stock in the public market, or the perception that those sales may occur, could adversely affect the prevailing market price of our Class A common stock at such time, which could make it more difficult for you to sell your shares of Class A common stock at a time and price that you consider appropriate, and could impair our ability to raise equity capital or use our Class A common stock as consideration for acquisitions of other businesses, investments or other corporate purposes in the future.
Immediately upon the completion of this offering, we will have a total of shares of our Class A common stock outstanding (or shares if the underwriters exercise in full their option to purchase additional shares) and 423,170,610 shares of our Class B common stock outstanding, all of which will be owned by SAP. Of these outstanding shares, shares of our Class A common stock to be sold in this offering (or shares if the underwriters exercise in full their option to purchase additional shares) will be freely tradable, except that any shares purchased in this offering by our affiliates, as that term is defined in Rule 144 under the Securities Act, would only be able to be sold in compliance with the Rule 144 limitations described below.
Our executive officers will be eligible to participate in the exchange offer and have informed us that they intend to tender all of their eligible awards that are outstanding as of February 1, 2021. Assuming our executive officers tender all of their eligible awards that are outstanding as of February 1, 2021 in the exchange offer, we expect approximately shares of our Class A common stock to be issued to our executive officers in connection with the settlement of restricted stock units within 180 days of the date of this prospectus, however, no restricted stock units issuable to our executive officers are scheduled to settle prior to the 90th day following the date of this prospectus. These shares will not be subject to any lock-up agreement with the underwriters and may be sold 90 days after the date of this prospectus. At the time of settlement, a portion of such shares may be sold to cover applicable taxes.
Shares of our Class A common stock received by other employees who are not our affiliates upon vesting of equity awards received in the exchange offer will be freely tradable upon issuance and not subject to any lock-up restriction. At the time of vesting, a portion of such shares may be sold, including to cover any related tax obligations. See “Executive Compensation—Equity-Based Compensation Plans—Exchange Offer.”
Shares of Class A common stock issued to Q II, and to be issued to Silver Lake, are and will be, respectively, deemed “restricted securities” as defined in Rule 144 under the Securities Act and, pursuant to their respective Class A common stock purchase agreements, each of Q II and Silver Lake has agreed with us not to sell or transfer such shares for a period of 12 months and 24 months, respectively, after the effectiveness of the registration statement of which this prospectus forms a part. See “—Lock-Up Arrangements” below.
The remaining outstanding shares of our Class A and all of our Class B common stock will be deemed “restricted securities” as defined in Rule 144 under the Securities Act. These restricted securities, and the shares of Class A common stock into which the outstanding shares of our Class B common stock are convertible, may be sold in the public market only if they are registered or if they qualify for an exemption from registration under Rule 144 under the Securities Act, which rule is summarized below. SAP will agree to certain lock-up restrictions with the underwriters pursuant to which it will agree, subject to specific exceptions, not to sell any of our stock for 180 days following the date of this prospectus. See “—Lock-Up Arrangements” below and “Underwriters.”
Lock-Up Arrangements
SAP will agree to certain lock-up restrictions with the underwriters pursuant to which it will agree that, subject to specific exceptions, it will not offer for sale, sell, contract to sell, grant any option for the sale of, transfer, or otherwise dispose of any shares of our common stock, options, or warrants to acquire shares of our common stock, or any security or instrument related to such common stock, option, or warrant for a period of at least 180 days following the date of this prospectus. Participants in the directed share program will be subject to lock-up restrictions with the underwriters for a period of 12 months following the date of this prospectus with respect to any
shares of our Class A common stock purchased through the directed share program. Morgan Stanley & Co. LLC and J.P. Morgan Securities LLC may, in their joint discretion, release any of the securities subject to lock-up restrictions with the underwriters at any time. Our executive officers and directors will not be subject to any lock-up agreements with the underwriters in connection with this offering. See “Underwriters.”
Pursuant to the Class A common stock purchase agreement with Q II dated as of December 8, 2020, Q II has agreed with us not to sell or transfer its shares of our Class A common stock purchased by it prior to this offering for a period of 12 months after the effectiveness of the registration statement of which this prospectus forms a part. See “Prospectus Summary—Recent Developments.”
Pursuant to the Class A common stock purchase agreement with Silver Lake dated as of December 23, 2020, Silver Lake has agreed with us not to sell or transfer its shares of our Class A common stock purchased by it prior to this offering for a period of 24 months after the effectiveness of the registration statement of which this prospectus forms a part. See “Prospectus Summary—Recent Developments.”
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 of our common stock proposed to be sold for at least six months is entitled to sell those shares without complying with the manner of sale, volume limitation or notice provisions of Rule 144, subject to compliance with the public information requirements of Rule 144. If such a person has beneficially owned the shares proposed to be sold for at least one year, including the holding period of any prior owner other than our affiliates, then that person would be entitled to sell those shares without complying with any of the requirements of Rule 144.
In general, under Rule 144, as currently in effect, our affiliates or persons selling shares of our common stock on behalf of our affiliates are entitled to sell upon expiration of the lock-up restrictions described above, within any three-month period, a number of shares that does not exceed the greater of:
•1% of the number of shares of our common stock then outstanding, which will equal shares immediately after this offering; or
•the average weekly trading volume of our common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to that sale.
Sales under Rule 144 by our affiliates or persons selling shares of our common stock on behalf of our affiliates are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us.
Registration Statement
We intend to file a registration statement on Form S-8 under the Securities Act promptly after the completion of this offering to register shares of our common stock subject to restricted stock units outstanding, as well as shares of our common stock subject to equity-based incentive awards reserved for future issuance, under our equity compensation plans and arrangements. The registration statement on Form S-8 is expected to become effective immediately upon filing, and shares of our common stock covered by the registration statement will then become eligible for sale in the public market, subject to the Rule 144 limitations applicable to affiliates and vesting restrictions. See “Executive Compensation—Equity-Based Compensation Plans” for a description of our equity compensation plans.
Registration Rights
We will enter into a stockholders’ agreement with SAP America, Q II and Silver Lake in which we will grant SAP America, Q II and Silver Lake and their respective permitted transferees specified demand and/or piggyback registration rights with respect to the shares of our Class A common stock (including shares issuable upon any
conversion of Class B common stock) and shares of our Class B common stock held by them from time to time. Immediately after the completion of this offering, outstanding shares of Class A common stock and all 423,170,610 outstanding shares of Class B common stock will be entitled to such registration rights, which will constitute approximately % of our outstanding shares (or approximately % of our outstanding shares if the underwriters exercise in full their option to purchase additional shares). After the completion of this offering, subject to the lock-up restrictions described above, SAP America and Silver Lake and their respective permitted transferees will have the right to require us from time to time to use our reasonable best efforts to effect registrations at any time, subject to customary restrictions. In addition, if we propose to register any of our equity securities for public sale, except in specified circumstances, we will be required to give SAP America, Q II and Silver Lake and their respective permitted transferees the right to include shares of our Class A common stock and Class B common stock in the registration. The registration rights will be subject to customary notice requirements, timing restrictions and volume limitations that may be imposed by the underwriters of an offering. See “Certain Relationships and Related Party Transactions—Relationship with SAP and the Agreements Between SAP and Us.”
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS OF OUR CLASS A COMMON STOCK
The following is a summary of the material U.S. federal income tax consequences to Non-U.S. Holders (as defined below) with respect to the ownership and disposition of our Class A common stock. This summary applies only to Non-U.S. Holders that purchase our Class A common stock in this offering and hold our Class A common stock as a capital asset within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended, or the Code (generally, property held for investment purposes). This summary does not address all aspects of U.S. federal income taxation that may be relevant to particular Non-U.S. Holders in light of their individual circumstances or the U.S. federal income tax consequences applicable to Non-U.S. Holders that are subject to special rules, such as controlled foreign corporations, passive foreign investment companies, corporations that accumulate earnings to avoid U.S. federal income tax, banks or other financial institutions, tax-exempt organizations, U.S. expatriates, broker-dealers and traders in securities or currencies, or Non-U.S. Holders that hold Class A common stock as part of a “straddle,” “hedge,” “conversion transaction” or other integrated investment.
This summary is based on provisions of the Code, Treasury regulations promulgated thereunder and administrative and judicial interpretations thereof, all as in effect as of the date hereof, and all of which are subject to change or differing interpretation, possibly with retroactive effect. We have not sought and will not seek any rulings from the IRS regarding the matters discussed below. This summary does not address the Medicare tax on net investment income, the alternative minimum tax or any U.S. state, local or non-U.S. income or other tax consequences (including estate and gift tax consequences) of owning and disposing of our Class A common stock.
For purposes of this summary, the term “Non-U.S. Holder” means a beneficial owner of our Class A common stock that is, for U.S. federal income tax purposes, neither an entity or arrangement treated as a partnership for U.S. federal income tax purposes nor any of the following:
•a citizen or individual resident of the United States;
•a corporation, or other entity treated as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the United States, any state thereof or the District of Columbia;
•an estate the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source; or
•a trust if (a) a United States court is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (b) the trust has a valid election in effect under applicable Treasury regulations to be treated as a U.S. person.
If an entity or arrangement treated as a partnership for U.S. federal income tax purposes holds our Class A common stock, the tax treatment of a partner in such partnership will generally depend upon the status of the partner and the activities of the partnership. Partnerships holding our Class A common stock, and partners in such partnerships, should consult their own tax advisors as to the U.S. federal income tax consequences applicable to them in their particular circumstances.
EACH NON-U.S. HOLDER IS URGED TO CONSULT ITS OWN TAX ADVISOR REGARDING THE U.S. FEDERAL, STATE, LOCAL, AND NON-U.S. INCOME AND OTHER TAX CONSEQUENCES OF OWNING AND DISPOSING OF OUR COMMON STOCK.
Distributions on Class A common stock
Distributions on our Class A common stock will generally be treated as dividends to the extent such distributions are paid from our current or accumulated earnings and profits as determined for U.S. federal income tax purposes. If a distribution exceeds our current and accumulated earnings and profits, the excess will be treated first as a return of capital to the extent of a Non-U.S. Holder’s adjusted tax basis in our Class A common stock and thereafter as capital gain from the sale or exchange of such Class A common stock, subject to the tax treatment described below in “—Sale, exchange or other taxable disposition of Class A common stock.” Generally, the gross
amount of dividends paid to a Non-U.S. Holder with respect to our Class A common stock will be subject to U.S. federal withholding tax at a rate of 30%, or at a lower rate if an applicable income tax treaty so provides and the applicable withholding agent has received proper certification as to the application of that treaty.
Dividends that are effectively connected with a Non-U.S. Holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, are attributable to a U.S. permanent establishment of the Non-U.S. Holder) are generally subject to U.S. federal income tax on a net income basis in the same manner in which citizens or residents of the United States would be subject to U.S. federal income tax, but are exempt from the 30% withholding tax described above (assuming compliance with certain certification requirements). Any such effectively connected dividends received by a Non-U.S. Holder that is a corporation may also, under certain circumstances, be subject to an additional “branch profits tax” at a rate of 30% (or a lower applicable income tax treaty rate).
To claim the benefits of an applicable income tax treaty or an exemption from withholding because the income is effectively connected with the conduct of a trade or business in the United States, a Non-U.S. Holder generally will be required to provide a properly executed IRS Form W-8BEN or W-8BEN-E (if the holder is claiming the benefits of an income tax treaty) or IRS Form W-8ECI (for income effectively connected with a trade or business in the United States) or other suitable form. If the Non-U.S. Holder holds the stock through a financial institution or other agent acting on the holder’s behalf, the holder will be required to provide appropriate documentation to the agent. A Non-U.S. Holder eligible for a reduced rate of withholding tax pursuant to an income tax treaty may obtain a refund of any excess amounts withheld by filing an appropriate claim for refund with the IRS. Non-U.S. Holders should consult their tax advisors regarding their entitlement to benefits under an applicable income tax treaty and the specific manner of claiming the benefits of the treaty.
Sale, exchange or other taxable disposition of Class A common stock
Subject to the discussion below under “—Information reporting and backup withholding,” a Non-U.S. Holder will generally not be subject to U.S. federal income or withholding tax with respect to gain recognized on the sale, exchange or other taxable disposition of our Class A common stock unless (i) the gain is effectively connected with such Non-U.S. Holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, is attributable to a U.S. permanent establishment of such Non-U.S. Holder), (ii) in the case of a Non-U.S. Holder that is a non-resident alien individual, such Non-U.S. Holder is present in the United States for 183 or more days in the taxable year of disposition and certain other requirements are met, or (iii) the Company is or has been a “United States real property holding corporation” for U.S. federal income tax purposes at any time within the shorter of (A) the five-year period ending on the date of such sale, exchange or other taxable disposition and (B) the period that such Non-U.S. Holder held our Class A common stock, and either (a) our Class A common stock is not treated as regularly traded on an established securities market, or (b) such Non-U.S. Holder owns or owned (actually or constructively) more than 5% of our Class A common stock at any time during the shorter of the two periods mentioned above. Although there can be no assurance, we believe that we have not been and are not currently, and we do not anticipate becoming, a United States real property holding corporation.
If gain is effectively connected with a Non-U.S. Holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, is attributable to a U.S. permanent establishment of such Non-U.S. Holder), the Non-U.S. Holder will be subject to U.S. federal income tax on the net gain from the disposition of our Class A common stock in the same manner in which citizens or residents of the United States would be subject to U.S. federal income tax. In the case of a Non-U.S. Holder that is a foreign corporation, such gain may also be subject to an additional branch profits tax at a rate of 30% (or a lower applicable income tax treaty rate). If a Non-U.S. Holder is a non-resident alien individual that is present in the United States for 183 or more days in the taxable year of disposition and certain other requirements are met, the Non-U.S. Holder will generally be subject to a flat income tax at a rate of 30% (or lower applicable income tax treaty rate) on any gain recognized on the disposition of our Class A common stock, which may be offset by certain U.S. source capital losses (provided the holder has timely filed U.S. federal income tax returns with respect to such losses).
Information reporting and backup withholding
Any dividends that are paid on our Class A common stock to a Non-U.S. Holder must be reported annually to the IRS and to the Non-U.S. Holder. Copies of these information returns also may be made available to the tax authorities of the country in which the Non-U.S. Holder resides under the provisions of various treaties or agreements for the exchange of information. Dividends paid on our Class A common stock and the gross proceeds from the disposition of our Class A common stock may be subject to additional information reporting and may also be subject to U.S. federal backup withholding, currently at a rate of 24%, if such Non-U.S. Holder fails to comply with applicable U.S. information reporting and certification requirements. Provision of a properly executed applicable IRS Form W-8 will generally satisfy the certification requirements necessary to avoid the additional information reporting and backup withholding.
Backup withholding is not an additional tax. Any amounts so withheld under the backup withholding rules will be refunded by the IRS or credited against the non-U.S. holder's U.S. federal income tax liability, provided that the required information is timely furnished to the IRS.
Foreign Account Tax Compliance Act
Withholding at a rate of 30% will generally be required in certain circumstances on dividends in respect of shares of our Class A common stock held by or through certain foreign financial institutions (including investment funds), unless such institution (i) enters into, and complies with, an agreement with the IRS to report, on an annual basis, information with respect to interests in, or accounts maintained by, the institution that are owned by certain U.S. persons or by certain non-U.S. entities that are wholly or partially owned by U.S. persons and to withhold on certain payments, or (ii) if required under an intergovernmental agreement between the United States and an applicable foreign country, reports such information to its local tax authority, which will exchange such information with the U.S. authorities. An intergovernmental agreement between the United States and an applicable foreign country may modify these requirements. Accordingly, the entity through which our Class A common stock is held will affect the determination of whether such withholding is required. Similarly, dividends in respect of our Class A common stock held by an investor that is a non-financial non-U.S. entity that does not qualify under certain exceptions will generally be subject to withholding at a rate of 30%, unless such entity either (i) certifies that such entity does not have any “substantial United States owners” or (ii) provides certain information regarding the entity’s “substantial United States owners,” which the payer will in turn be required to provide to the U.S. Department of the Treasury. Under proposed Treasury regulations, which may be relied upon by taxpayers until final regulations are issued, the withholding provisions described above generally will not apply to proceeds from a sale or other disposition of our Class A common stock. Prospective investors are urged to consult their tax advisors regarding the possible implications of these rules on their investment in our Class A common stock.
UNDERWRITERS
Under the terms and subject to the conditions in an underwriting agreement dated the date of this prospectus, the underwriters named below, for whom Morgan Stanley & Co. LLC and J.P. Morgan Securities LLC are acting as representatives, have severally agreed to purchase, and we have agreed to sell to them, severally, the number of shares indicated below:
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Name
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Number of Shares
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Morgan Stanley & Co. LLC
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J.P. Morgan Securities LLC
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BofA Securities, Inc.
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Barclays Capital Inc.
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Deutsche Bank Securities Inc.
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Goldman Sachs & Co. LLC
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HSBC Securities (USA) Inc.
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Citigroup Global Markets Inc.
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BMO Capital Markets Corp.
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Truist Securities, Inc.
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Canaccord Genuity LLC
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Evercore Group L.L.C.
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JMP Securities LLC
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Oppenheimer & Co. Inc.
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Piper Sandler & Co.
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Raymond James & Associates, Inc.
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William Blair & Company, L.L.C.
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Loop Capital Markets LLC
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Samuel A. Ramirez & Company, Inc.
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R. Seelaus & Co., LLC
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Total
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The underwriters and the representatives are collectively referred to as the “underwriters” and the “representatives,” respectively. The underwriters are offering the shares of Class A common stock subject to their acceptance of the shares from us and subject to prior sale. The underwriting agreement provides that the obligations of the several underwriters to pay for and accept delivery of the shares of Class A common stock offered by this prospectus are subject to the approval of certain legal matters by their counsel and to certain other conditions. The underwriters are obligated to take and pay for all of the shares of Class A common stock offered by this prospectus if any such shares are taken. However, the underwriters are not required to take or pay for the shares covered by the underwriters’ option to purchase additional shares described below.
The underwriters initially propose to offer part of the shares of Class A common stock directly to the public at the offering price listed on the cover page of this prospectus and part to certain dealers at a price that represents a concession not in excess of $ per share under the initial public offering price. After the initial offering of the shares of Class A common stock, the offering price and other selling terms may from time to time be varied by the representatives. The offering of the shares by the underwriters is subject to receipt and acceptance and subject to the underwriters’ right to reject any order in whole or in part.
We have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to additional shares of Class A common stock at the initial public offering price listed on the cover page of this prospectus, less underwriting discounts and commissions. To the extent the option is exercised, each underwriter will become obligated, subject to certain conditions, to purchase about the same percentage of the
additional shares of Class A common stock as the number listed next to the underwriter’s name in the preceding table bears to the total number of shares of Class A common stock listed next to the names of all underwriters in the preceding table.
The following table shows the per share and total initial public offering price, underwriting discounts and commissions, and proceeds before expenses to us. These amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase up to an additional shares of Class A common stock.
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Total
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Per Share
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No Exercise
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Full Exercise
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Initial public offering price
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$
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$
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$
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Underwriting discounts and commissions to be paid by us
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$
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$
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$
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Proceeds, before expenses, to us
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$
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$
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$
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The estimated offering expenses payable by us, exclusive of the underwriting discounts and commissions, are approximately $ . We have agreed to reimburse the underwriters for expenses relating to clearance of this offering with the Financial Industry Regulatory Authority up to $ .
The underwriters have informed us that they do not intend sales to discretionary accounts to exceed 5% of the total number of shares of Class A common stock offered by them.
We have applied to list our Class A common stock on Nasdaq under the trading symbol “XM.”
We and SAP America will agree that, subject to certain conditions, without the prior written consent of Morgan Stanley & Co. LLC and J.P. Morgan Securities LLC, on behalf of the underwriters, we and it will not, during the period ending 180 days after the date of this prospectus, referred to as the restricted period:
•offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, any shares of our common stock or any securities convertible into or exercisable or exchangeable for shares of our common stock;
•file any registration statement with the SEC relating to the offering of any shares of our common stock or any securities convertible into or exercisable or exchangeable for our common stock; or
•enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of our common stock;
whether any such transaction described above is to be settled by delivery of common stock or such other securities, in cash or otherwise. In addition, we and it will agree that, without the prior written consent of Morgan Stanley & Co. LLC and J.P. Morgan Securities LLC, on behalf of the underwriters, we or it will not, during the restricted period, make any demand for, or exercise any right with respect to, the registration of any shares of our common stock or any security convertible into or exercisable or exchangeable for common stock.
Morgan Stanley & Co. LLC and J.P. Morgan Securities LLC, in their joint discretion, may release the common stock and other securities subject to the lock-up agreements described above in whole or in part at any time, subject to applicable notice requirements.
Our executive officers and directors will not be subject to any lock-up agreements with the underwriters in connection with this offering. See “Shares Eligible for Future Sale—Lock-Up Arrangements.”
In order to facilitate the offering of the Class A common stock, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the Class A common stock. Specifically, the underwriters may sell more shares than they are obligated to purchase under the underwriting agreement, creating a short position. A short sale is covered if the short position is no greater than the number of shares available for purchase by the underwriters under their option to purchase additional shares. The underwriters can close out a covered short sale by exercising
their option to purchase additional shares or purchasing shares in the open market. In determining the source of shares to close out a covered short sale, the underwriters will consider, among other things, the open market price of shares compared to the price available under their option to purchase additional shares. The underwriters may also sell shares in excess of their option to purchase additional shares, creating a naked short position. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the Class A common stock in the open market after pricing that could adversely affect investors who purchase in this offering. As an additional means of facilitating this offering, the underwriters may bid for, and purchase, shares of Class A common stock in the open market to stabilize the price of the Class A common stock. These activities may raise or maintain the market price of the Class A common stock above independent market levels or prevent or retard a decline in the market price of the Class A common stock. The underwriters are not required to engage in these activities and may end any of these activities at any time.
We and the underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act.
A prospectus in electronic format may be made available on websites maintained by one or more underwriters, or selling group members, if any, participating in this offering. The representatives may agree to allocate a number of shares of Class A common stock to underwriters for sale to their online brokerage account holders. Internet distributions will be allocated by the representatives to underwriters that may make Internet distributions on the same basis as other allocations.
Other Relationships
The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. Certain of the underwriters and their respective affiliates have, from time to time, performed, and may in the future perform, various financial advisory and investment banking services for us, for which they received or will receive customary fees and expenses.
In addition, in the ordinary course of their various business activities, the underwriters and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments. Such investment and securities activities may involve our securities and instruments. The underwriters and their respective affiliates may also make investment recommendations or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that they acquire, long or short positions in such securities and instruments.
Pricing of the Offering
Prior to this offering, there has been no public market for our Class A common stock. The initial public offering price was determined by negotiations between us and the representatives. Among the factors considered in determining the initial public offering price were our future prospects and those of our industry in general, our sales, earnings and certain other financial and operating information in recent periods, and the price-earnings ratios, price-sales ratios, market prices of securities, and certain financial and operating information of companies engaged in activities similar to ours.
Directed Share Program
At our request, the underwriters have reserved for sale, at the initial public offering price, up to 1% of the shares of our Class A common stock offered hereby for certain senior sales personnel of SAP. None of our directors, executive officers or employees will purchase shares of our Class A common stock in the directed share program. The number of shares of our Class A common stock available for sale to the general public in this offering will be reduced to the extent these persons purchase the reserved shares of our Class A common stock. Any reserved shares
of our Class A common stock not so purchased will be offered by the underwriters to the general public on the same terms as the other shares of our Class A common stock. Participants in the directed share program will be subject to lock-up restrictions with the underwriters for a period of 12 months following the date of this prospectus with respect to any shares of our Class A common stock purchased through the directed share program.
Selling Restrictions
European Economic Area
In relation to each Member State of the European Economic Area and the United Kingdom, each, a “Relevant State,” no securities 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 securities 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 offers of securities may be made to the public in that Relevant State at any time under the following exemptions under the Prospectus Regulation:
(a)to any legal entity which is a qualified investor as defined under the Prospectus Regulation;
(b)to fewer than 150 natural or legal persons (other than qualified investors as defined under the Prospectus Regulation), subject to obtaining the prior consent of the representatives; or
(c)in any other circumstances falling within Article 1(4) of the Prospectus Regulation,
provided that no such offer of shares shall require us or any of our representatives 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 any 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 any shares, and the expression “Prospectus Regulation” means Regulation (EU) 2017/1129 (as amended).
United Kingdom
Each underwriter has represented and agreed that:
(a)it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000, or the FSMA, received by it in connection with the issue or sale of the shares of our Class A common stock in circumstances in which Section 21(1) of the FSMA does not apply to us; and
(b)it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the shares of our Class A common stock in, from or otherwise involving the United Kingdom.
Canada
The shares may be sold only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the shares must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.
Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars 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.
Switzerland
This prospectus is not intended to constitute an offer or solicitation to purchase or invest in the shares of Class A common stock. The shares of Class A common stock may not be publicly offered, directly or indirectly, in Switzerland within the meaning of the Swiss Financial Services Act, or the FinSA, and no application has or will be made to admit the shares of Class A common stock to trading on any trading venue (exchange or multilateral trading facility) in Switzerland. Neither this prospectus nor any other offering or marketing material relating to the shares of Class A common stock constitutes a prospectus pursuant to the FinSA, and neither this prospectus nor any other offering or marketing material relating to the shares of Class A common stock may be publicly distributed or otherwise made publicly available in Switzerland.
Dubai International Financial Centre
This prospectus relates to an Exempt Offer in accordance with the Offered Securities Rules of the Dubai Financial Services Authority, or the DFSA. This prospectus is intended for distribution only to persons of a type specified in the Offered Securities Rules of the DFSA. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this prospectus nor taken steps to verify the information set forth herein and has no responsibility for the prospectus. The shares to which this prospectus relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the shares offered should conduct their own due diligence on the shares. If you do not understand the contents of this prospectus you should consult an authorized financial advisor.
Australia
No placement document, prospectus, product disclosure statement or other disclosure document has been lodged with the Australian Securities and Investments Commission in relation to the offering. This prospectus does not constitute a prospectus, product disclosure statement or other disclosure document under the Corporations Act 2001, or the Corporations Act, and does not purport to include the information required for a prospectus, product disclosure statement or other disclosure document under the Corporations Act.
Any offer in Australia of the shares may only be made to persons, or the Exempt Investors, who are “sophisticated investors” (within the meaning of section 708(8) of the Corporations Act), “professional investors” (within the meaning of section 708(11) of the Corporations Act) or otherwise pursuant to one or more exemptions contained in section 708 of the Corporations Act so that it is lawful to offer the shares without disclosure to investors under Chapter 6D of the Corporations Act.
The shares applied for by Exempt Investors in Australia must not be offered for sale in Australia in the period of 12 months after the date of allotment under the offering, except in circumstances where disclosure to investors under Chapter 6D of the Corporations Act would not be required pursuant to an exemption under section 708 of the Corporations Act or otherwise or where the offer is pursuant to a disclosure document which complies with Chapter 6D of the Corporations Act. Any person acquiring shares must observe such Australian on-sale restrictions.
This prospectus contains general information only and does not take into account the investment objectives, financial situation or particular needs of any particular person. It does not contain any securities recommendations or
financial product advice. Before making an investment decision, investors need to consider whether the information in this prospectus is appropriate for their needs, objectives and circumstances, and, if necessary, seek expert advice on those matters.
Hong Kong
The shares of Class A common stock have not been offered or sold and will not be offered or sold in Hong Kong, by means of any document, other than (i) to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance; or (ii) in other circumstances which do not result in the document being a “prospectus” as defined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance. No advertisement, invitation or document relating to the shares of Class A common stock has been or may be issued or has been or may be in the possession of any person for the purposes of issuance, whether in Hong Kong or elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to shares of Class A common stock which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” as defined in the Securities and Futures Ordinance and any rules made under that Ordinance.
Japan
No registration pursuant to Article 4, paragraph 1 of the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948, as amended), or the FIEL, has been made or will be made with respect to the solicitation of the application for the acquisition of the shares of Class A common stock.
Accordingly, the shares of Class A common stock have not been, directly or indirectly, offered or sold and will not be, directly or indirectly, offered or sold in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan) or to others for re-offering or re-sale, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan except pursuant to an exemption from the registration requirements, and otherwise in compliance with, the FIEL and the other applicable laws and regulations of Japan.
For Qualified Institutional Investors, or QII
Please note that the solicitation for newly issued or secondary securities (each as described in Paragraph 2, Article 4 of the FIEL) in relation to the shares of Class A common stock constitutes either a “QII only private placement” or a “QII only secondary distribution” (each as described in Paragraph 1, Article 23-13 of the FIEL). Disclosure regarding any such solicitation, as is otherwise prescribed in Paragraph 1, Article 4 of the FIEL, has not been made in relation to the shares of Class A common stock. The shares of Class A common stock may only be transferred to QIIs.
For Non-QII Investors
Please note that the solicitation for newly issued or secondary securities (each as described in Paragraph 2, Article 4 of the FIEL) in relation to the shares of Class A common stock constitutes either a “small number private placement” or a “small number private secondary distribution” (each as is described in Paragraph 4, Article 23-13 of the FIEL). Disclosure regarding any such solicitation, as is otherwise prescribed in Paragraph 1, Article 4 of the FIEL, has not been made in relation to the shares of Class A common stock. The shares of Class A common stock may only be transferred en bloc without subdivision to a single investor.
Singapore
This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares of Class A common stock may not be circulated or distributed, nor may the shares of Class A common stock be offered or sold, or be made the subject of an invitation for subscription or purchase, whether
directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore, or the SFA, (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275, of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.
Where the shares of Class A common stock are subscribed or purchased under Section 275 of the SFA by a relevant person which is (a) a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust (where the trustee is not an accredited investor) the sole purpose of which is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, securities (as defined in Section 239(1) of the SFA) of that corporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the shares of Class A common stock pursuant to an offer made under Section 275 of the SFA except: (i) to an institutional investor or to a relevant person defined in Section 275(2) of the SFA, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA; (ii) where no consideration is or will be given for the transfer; (iii) where the transfer is by operation of law; (iv) as specified in Section 276(7) of the SFA; or (v) as specified in Regulation 37A of the Securities and Futures (Offers of Investments) (Securities and Securities-based Derivatives Contracts) Regulations 2018.
Solely for the purposes of its obligations pursuant to Section 309B of the SFA, we have determined, and hereby notify all relevant persons (as defined in the CMP Regulations 2018), that the shares are “prescribed capital markets products” (as defined in the CMP Regulations 2018) and Excluded Investment Products (as defined in MAS Notice SFA 04-N12: Notice on the Sale of Investment Products and MAS Notice FAA-N16: Notice on Recommendations on Investment Products).
LEGAL MATTERS
The validity of the shares of our Class A common stock being offered by this prospectus is being passed upon for us by Shearman & Sterling LLP, New York, New York. The underwriters have been represented by Goodwin Procter LLP, Redwood City, California.
EXPERTS
The consolidated financial statements of Qualtrics International Inc. as of December 31, 2019 and 2018, and for each of the years in the two-year period ended December 31, 2019, have been included herein in reliance upon the report of KPMG LLP, independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. The audit report covering the December 31, 2019 financial statements refers to a change in accounting for leases as a result of the adoption of Financial Accounting Standards Board Accounting Standards Codification (ASC) Topic 842 - Leases.
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 by this prospectus. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement, some of which is contained in exhibits to the registration statement as permitted by the rules and regulations of the SEC. For further information with respect to us and our Class A common stock, we refer you to the registration statement, including the exhibits filed as a part of the registration statement. Statements contained in this prospectus concerning the contents of any contract or any other document is not necessarily complete. If a contract or document has been filed as an exhibit to the registration statement, please see the copy of the contract or document that has been filed. Each statement in this prospectus relating to a contract or document filed as an exhibit is qualified in all respects by the filed exhibit.
As a result of this offering, we will become subject to the information and reporting requirements of the Exchange Act and, in accordance with this law, will file periodic reports, proxy statements and other information with the SEC. These periodic reports, proxy statements and other information will be available for inspection and copying at the SEC’s public reference facilities and the website of the SEC referred to above. We also maintain a website at www.Qualtrics.com. Upon completion of this offering, you may access these materials free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. Information contained on our website is not a part of this prospectus and the inclusion of our website address in this prospectus is an inactive textual reference only.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors of Qualtrics International Inc.
To the Board of Directors of SAP SE:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Qualtrics International Inc. and subsidiaries (the Company) as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive loss, redeemable convertible preferred stock and stockholders’ equity (deficit), and cash flows for each of the years in the two‑year period ended December 31, 2019, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the two‑year period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company has elected to change its method of accounting for leases as of January 1, 2019 due to the adoption of Financial Accounting Standards Board Accounting Standards Codification (ASC) Topic 842 - Leases.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the Company’s auditor since 2019.
Salt Lake City, Utah
October 13, 2020, except for the effects of the stock and capital reorganization described in Note 2 “2020 Stock Split and Capital Reorganization”, as to which the date is December 28, 2020.
Qualtrics International Inc.
Consolidated Balance Sheets
(In thousands, except share and par value)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
As of September 30,
|
|
|
|
|
|
2018
|
|
2019
|
|
2020
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
115,443
|
|
|
$
|
42,467
|
|
|
$
|
87,500
|
|
|
|
|
Accounts receivable, net of allowance (1)
|
|
139,490
|
|
|
193,692
|
|
|
161,459
|
|
|
|
|
Deferred contract acquisition costs, net
|
|
14,764
|
|
|
22,168
|
|
|
35,938
|
|
|
|
|
Prepaid expenses and other current assets
|
|
19,514
|
|
|
37,090
|
|
|
44,754
|
|
|
|
|
Total current assets
|
|
289,211
|
|
|
295,417
|
|
|
329,651
|
|
|
|
|
Non-current assets:
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
38,182
|
|
|
51,067
|
|
|
92,037
|
|
|
|
|
Right-of-use assets from operating leases
|
|
—
|
|
|
184,838
|
|
|
180,163
|
|
|
|
|
Goodwill
|
|
6,709
|
|
|
6,709
|
|
|
6,709
|
|
|
|
|
Other intangible assets, net
|
|
6,892
|
|
|
5,414
|
|
|
4,323
|
|
|
|
|
Deferred contract acquisition costs, net of current portion
|
|
34,023
|
|
|
54,832
|
|
|
82,594
|
|
|
|
|
Deferred tax assets
|
|
—
|
|
|
3,313
|
|
|
2,655
|
|
|
|
|
Other assets
|
|
3,496
|
|
|
1,694
|
|
|
8,089
|
|
|
|
|
Total assets
|
|
$
|
378,513
|
|
|
$
|
603,284
|
|
|
$
|
706,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities, redeemable convertible preferred stock, and equity (deficit)
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Lease liabilities
|
|
$
|
—
|
|
|
$
|
7,893
|
|
|
$
|
8,792
|
|
|
|
|
Accounts payable (1)
|
|
23,441
|
|
|
31,707
|
|
|
48,114
|
|
|
|
|
Accrued liabilities
|
|
37,137
|
|
|
80,029
|
|
|
78,319
|
|
|
|
|
Liability-classified, stock-based awards
|
|
—
|
|
|
286,991
|
|
|
276,803
|
|
|
|
|
Deferred revenue
|
|
279,978
|
|
|
382,602
|
|
|
377,600
|
|
|
|
|
Total current liabilities
|
|
340,556
|
|
|
789,222
|
|
|
789,628
|
|
|
|
|
Non-current liabilities:
|
|
|
|
|
|
|
|
|
|
Lease liabilities, net of current portion
|
|
—
|
|
|
182,274
|
|
|
189,363
|
|
|
|
|
Liability-classified, stock-based awards, net of current portion
|
|
—
|
|
|
161,237
|
|
|
105,959
|
|
|
|
|
Deferred revenue, net of current portion
|
|
4,244
|
|
|
4,182
|
|
|
3,613
|
|
|
|
|
Deferred tax liabilities
|
|
2,062
|
|
|
—
|
|
|
738
|
|
|
|
|
Other liabilities
|
|
9,349
|
|
|
6,889
|
|
|
14,015
|
|
|
|
|
Total liabilities
|
|
$
|
356,211
|
|
|
$
|
1,143,804
|
|
|
$
|
1,103,316
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
Redeemable convertible preferred stock, par value $0.0001 per share, authorized 207,060,843, 0 and 0 shares as of December 31, 2018 and 2019, and September 30, 2020 (unaudited), respectively; issued and outstanding 183,031,841, 0 and 0 shares as of December 31, 2018 and 2019, and September 30, 2020 (unaudited), respectively
|
|
36
|
|
|
—
|
|
|
—
|
|
|
|
|
Equity (deficit)
|
|
|
|
|
|
|
|
|
|
Preferred stock, par value $0.0001 per share; authorized 100,000,000 shares; no shares outstanding (2)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
Class A common stock, par value $0.0001 per share; authorized 2,000,000,000 shares; no shares issued and outstanding (2)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class B common stock, par value $0.0001 per share; authorized 429,005,187, 1,000,000,000 and 1,000,000,000 shares as of December 31, 2018 and 2019, and September 30, 2020 (unaudited) respectively; issued and outstanding 3,608,688, 423,170,610 and 423,170,610 as of December 31, 2018 and 2019, and September 30, 2020 (unaudited) respectively (2)
|
|
1
|
|
|
42
|
|
|
42
|
|
|
|
|
Additional paid in capital
|
|
141,816
|
|
|
586,631
|
|
|
986,631
|
|
|
|
|
Accumulated other comprehensive income (loss)
|
|
(919)
|
|
|
(928)
|
|
|
524
|
|
|
|
|
Accumulated deficit
|
|
(118,632)
|
|
|
(1,126,265)
|
|
|
(1,384,292)
|
|
|
|
|
Total equity (deficit)
|
|
22,266
|
|
|
(540,520)
|
|
|
(397,095)
|
|
|
|
|
Total liabilities, redeemable convertible preferred stock, and equity (deficit)
|
|
$
|
378,513
|
|
|
$
|
603,284
|
|
|
$
|
706,221
|
|
|
|
________________
(1)Includes amounts from related parties. See Note 16 for further details
(2)See Note 2 “2020 Stock Split and Capital Reorganization” for further details
The accompanying notes are an integral part of these consolidated financial statements.
Qualtrics International Inc.
Consolidated Statements of Operations
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Nine Months Ended September 30,
|
|
|
|
2018
|
|
2019
|
|
2019
|
|
2020
|
|
|
|
|
|
|
|
(unaudited)
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
Subscription
|
|
$
|
295,528
|
|
|
$
|
430,038
|
|
|
$
|
309,562
|
|
|
$
|
415,000
|
|
|
Professional services and other
|
|
106,380
|
|
|
161,117
|
|
|
108,786
|
|
|
134,956
|
|
|
Total revenue
|
|
401,908
|
|
|
591,155
|
|
|
418,348
|
|
|
549,956
|
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
Subscription
|
|
35,785
|
|
|
67,982
|
|
|
51,563
|
|
|
46,974
|
|
|
Professional services and other
|
|
66,929
|
|
|
117,509
|
|
|
80,692
|
|
|
100,060
|
|
|
Total cost of revenue
|
|
102,714
|
|
|
185,491
|
|
|
132,255
|
|
|
147,034
|
|
|
Gross profit
|
|
299,194
|
|
|
405,664
|
|
|
286,093
|
|
|
402,922
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
65,925
|
|
|
242,124
|
|
|
183,466
|
|
|
168,985
|
|
|
Sales and marketing
|
|
192,142
|
|
|
440,325
|
|
|
327,454
|
|
|
322,775
|
|
|
General and administrative
|
|
74,248
|
|
|
717,363
|
|
|
624,342
|
|
|
155,225
|
|
|
Total operating expenses
|
|
332,315
|
|
|
1,399,812
|
|
|
1,135,262
|
|
|
646,985
|
|
|
Operating loss
|
|
(33,121)
|
|
|
(994,148)
|
|
|
(849,169)
|
|
|
(244,063)
|
|
|
Other non-operating income (loss), net
|
|
169
|
|
|
(486)
|
|
|
(666)
|
|
|
(483)
|
|
|
Loss before income taxes
|
|
(32,952)
|
|
|
(994,634)
|
|
|
(849,835)
|
|
|
(244,546)
|
|
|
Provision for income taxes
|
|
4,356
|
|
|
12,999
|
|
|
10,528
|
|
|
13,481
|
|
|
Net loss
|
|
$
|
(37,308)
|
|
|
$
|
(1,007,633)
|
|
|
$
|
(860,363)
|
|
|
$
|
(258,027)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 23, 2019 through December 31, 2019
|
|
January 23, 2019 through September 30, 2019
|
|
Nine Months Ended September 30, 2020
|
|
|
|
|
|
|
|
(unaudited)
|
|
Net loss per share attributable to common stockholder, basic
|
|
|
|
$
|
(1.76)
|
|
|
$
|
(1.41)
|
|
|
$
|
(0.61)
|
|
|
Weighted-average Class A and Class B shares used in computing net loss per share attributable to common stockholder, basic
|
|
|
|
423,170,610
|
|
|
423,170,610
|
|
|
423,170,610
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net loss per share attributable to common stockholder, basic (unaudited)
|
|
|
|
|
|
|
|
|
|
Weighted-average Class A and Class B shares used in computing pro forma net loss per share attributable to common stockholder, basic (unaudited)
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
Operating expenses includes:
Stock-based compensation expense as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Nine Months Ended September 30,
|
|
in thousands
|
2018
|
|
2019
|
|
2019
|
|
2020
|
|
|
|
|
|
|
(unaudited)
|
|
Cost of subscription revenue
|
$
|
4
|
|
|
$
|
24,136
|
|
|
$
|
20,947
|
|
|
$
|
3,809
|
|
|
Cost of professional services and other revenue
|
144
|
|
|
17,168
|
|
|
13,937
|
|
|
6,193
|
|
|
Research and development
|
2,228
|
|
|
130,809
|
|
|
107,134
|
|
|
63,165
|
|
|
Sales and marketing
|
708
|
|
|
115,581
|
|
|
94,088
|
|
|
34,933
|
|
|
General and administrative
|
1,516
|
|
|
588,532
|
|
|
514,015
|
|
|
109,949
|
|
|
Total stock-based compensation expense, including cash settled(a)
|
$
|
4,600
|
|
|
$
|
876,226
|
|
|
$
|
750,121
|
|
|
$
|
218,049
|
|
________________
(a)As a result of the SAP Acquisition, our stock based compensation expense reflects the recognition of both equity classified awards and liability classified awards. Liability classified awards are settled in cash in accordance with SAP’s employee equity compensation programs. 2018 stock-based compensation expense consisted entirely of equity-classified awards. 2019 stock-based compensation expense consisted of $185.8 million of equity-classified awards and was recognized as a result of the SAP Acquisition, and $690.4 million of liability-classified awards, of which $312.8 million were settled in cash in 2019. For the nine months ended September 30, 2019 and 2020, stock-based compensation expense consisted of $185.8 million, and $0.0 million, respectively, of equity-classified awards recognized as a result of the SAP Acquisition, and $564.3 million and $218.0 million, respectively, of liability-classified awards. During the nine months ended September 30, 2019 and 2020, awards of $213.2 million and $284.0 million, respectively, were settled in cash. Liability-classified awards are recorded according to mark-to-market accounting.
Amortization of acquired intangible assets as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Nine Months Ended September 30,
|
|
in thousands
|
2018
|
|
2019
|
|
2019
|
|
2020
|
|
|
|
|
|
|
(unaudited)
|
|
Cost of subscription revenue
|
$
|
703
|
|
|
$
|
1,160
|
|
|
$
|
878
|
|
|
$
|
797
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
145
|
|
|
204
|
|
|
153
|
|
|
153
|
|
|
General and administrative
|
201
|
|
|
114
|
|
|
87
|
|
|
141
|
|
|
Total amortization of acquired intangible assets
|
$
|
1,049
|
|
|
$
|
1,478
|
|
|
$
|
1,118
|
|
|
$
|
1,091
|
|
Qualtrics International Inc.
Consolidated Statements of Comprehensive Loss
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Nine Months Ended September 30,
|
|
|
|
2018
|
|
2019
|
|
2019
|
|
2020
|
|
|
|
|
|
|
|
(unaudited)
|
|
Net loss
|
|
$
|
(37,308)
|
|
|
$
|
(1,007,633)
|
|
|
$
|
(860,363)
|
|
|
$
|
(258,027)
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gain (loss)
|
|
(1,471)
|
|
|
(9)
|
|
|
577
|
|
|
1,452
|
|
|
Comprehensive loss
|
|
$
|
(38,779)
|
|
|
$
|
(1,007,642)
|
|
|
$
|
(859,786)
|
|
|
$
|
(256,575)
|
|
The accompanying notes are an integral part of these consolidated financial statements.
Qualtrics International Inc.
Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)
(In thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable convertible preferred stock
|
|
|
|
|
Class B common stock
|
|
Additional paid-in capital
|
|
Accumulated other comprehensive income (loss)
|
|
Accumulated deficit
|
|
Total equity (deficit)
|
|
|
|
Shares
|
|
Amount
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
|
|
|
|
Balance, January 1, 2018
|
|
|
183,031,841
|
|
|
$
|
36
|
|
|
|
|
|
|
|
3,545,242
|
|
|
$
|
1
|
|
|
$
|
137,747
|
|
|
$
|
552
|
|
|
$
|
(81,324)
|
|
|
$
|
56,976
|
|
|
Stock-based compensation expense
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
4,600
|
|
|
—
|
|
|
—
|
|
|
4,600
|
|
|
Conversion of restricted stock to common stock
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
103,446
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Repurchase of class B common stock
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
(40,000)
|
|
|
—
|
|
|
(531)
|
|
|
—
|
|
|
—
|
|
|
(531)
|
|
|
Net loss
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
(37,308)
|
|
|
(37,308)
|
|
|
Foreign currency translation adjustment
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,471)
|
|
|
—
|
|
|
(1,471)
|
|
|
Balance, December 31, 2018
|
|
|
183,031,841
|
|
|
$
|
36
|
|
|
|
|
|
|
|
3,608,688
|
|
|
$
|
1
|
|
|
$
|
141,816
|
|
|
$
|
(919)
|
|
|
$
|
(118,632)
|
|
|
$
|
22,266
|
|
|
Stock-based compensation expense
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
185,792
|
|
|
—
|
|
|
—
|
|
|
185,792
|
|
|
Settlement of vested stock-based awards
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
(539,707)
|
|
|
—
|
|
|
—
|
|
|
(539,707)
|
|
|
Modification of equity awards to liability awards
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
(70,765)
|
|
|
—
|
|
|
—
|
|
|
(70,765)
|
|
|
Conversion of restricted stock to common stock
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
1,209,466
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Capital restructuring pursuant to reorganization
|
|
|
(183,031,841)
|
|
|
(36)
|
|
|
|
|
|
|
|
418,352,456
|
|
|
41
|
|
|
(5)
|
|
|
—
|
|
|
—
|
|
|
36
|
|
|
Capital contribution
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
869,500
|
|
|
—
|
|
|
—
|
|
|
869,500
|
|
|
Net loss
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,007,633)
|
|
|
(1,007,633)
|
|
|
Foreign currency translation adjustment
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(9)
|
|
|
—
|
|
|
(9)
|
|
|
Balance, December 31, 2019
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
423,170,610
|
|
|
$
|
42
|
|
|
$
|
586,631
|
|
|
$
|
(928)
|
|
|
$
|
(1,126,265)
|
|
|
$
|
(540,520)
|
|
|
Capital contribution (unaudited)
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
400,000
|
|
|
—
|
|
|
—
|
|
|
400,000
|
|
|
Net loss (unaudited)
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(258,027)
|
|
|
(258,027)
|
|
|
Foreign currency translation adjustment (unaudited)
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,452
|
|
|
—
|
|
|
1,452
|
|
|
Balance, September 30, 2020 (unaudited)
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
423,170,610
|
|
|
$
|
42
|
|
|
$
|
986,631
|
|
|
$
|
524
|
|
|
$
|
(1,384,292)
|
|
|
$
|
(397,095)
|
|
The accompanying notes are an integral part of these consolidated financial statements.
Qualtrics International Inc.
Consolidated Statements of Cash Flows
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Nine Months Ended September 30,
|
|
|
2018
|
|
2019
|
|
2019
|
|
2020
|
|
|
|
|
|
|
(unaudited)
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net loss
|
$
|
(37,308)
|
|
|
$
|
(1,007,633)
|
|
|
$
|
(860,363)
|
|
|
$
|
(258,027)
|
|
|
Adjustments to reconcile net loss to net cash provided by (used in) operating activities
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
14,787
|
|
|
19,715
|
|
|
14,054
|
|
|
18,570
|
|
|
Reduction of right-of-use assets from operating leases
|
—
|
|
|
9,031
|
|
|
4,943
|
|
|
12,429
|
|
|
Stock-based compensation expense, including cash settled(1)
|
4,600
|
|
|
876,226
|
|
|
750,121
|
|
|
218,049
|
|
|
Amortization of deferred contract acquisition costs
|
13,368
|
|
|
19,513
|
|
|
13,871
|
|
|
22,383
|
|
|
Deferred income taxes
|
143
|
|
|
(5,321)
|
|
|
(3,401)
|
|
|
2,672
|
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
(57,799)
|
|
|
(54,320)
|
|
|
14,467
|
|
|
31,777
|
|
|
Prepaid expenses and other current assets
|
(2,573)
|
|
|
(17,533)
|
|
|
(4,449)
|
|
|
(7,578)
|
|
|
Deferred contract acquisitions costs
|
(27,101)
|
|
|
(47,734)
|
|
|
(34,723)
|
|
|
(63,293)
|
|
|
Other assets
|
(910)
|
|
|
1,801
|
|
|
1,991
|
|
|
(6,378)
|
|
|
Lease liabilities
|
—
|
|
|
(6,375)
|
|
|
(4,068)
|
|
|
213
|
|
|
Accounts payable
|
12,350
|
|
|
7,219
|
|
|
682
|
|
|
1,205
|
|
|
Accrued liabilities
|
17,194
|
|
|
44,662
|
|
|
24,400
|
|
|
(1,842)
|
|
|
Deferred revenue
|
99,077
|
|
|
102,562
|
|
|
47,431
|
|
|
(5,571)
|
|
|
Other liabilities
|
576
|
|
|
55
|
|
|
2,259
|
|
|
7,125
|
|
|
Settlement of stock-based payments liabilities
|
—
|
|
|
(312,772)
|
|
|
(213,170)
|
|
|
(283,963)
|
|
|
Net cash flows provided by (used in) operating activities
|
36,404
|
|
|
(370,904)
|
|
|
(245,955)
|
|
|
(312,229)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Cash paid for intangible assets
|
(1,500)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Cash paid for business combinations, net of cash acquired
|
(9,865)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Purchases of property and equipment
|
(21,321)
|
|
|
(33,181)
|
|
|
(26,469)
|
|
|
(43,054)
|
|
|
Net cash flows used in investing activities
|
(32,686)
|
|
|
(33,181)
|
|
|
(26,469)
|
|
|
(43,054)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds from capital contribution
|
—
|
|
|
869,500
|
|
|
754,500
|
|
|
400,000
|
|
|
Settlement of equity-based awards
|
—
|
|
|
(539,707)
|
|
|
(539,707)
|
|
|
—
|
|
|
Repurchase of class B common stock
|
(531)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Net cash flows (used in) provided by financing activities
|
(531)
|
|
|
329,793
|
|
|
214,793
|
|
|
400,000
|
|
|
Effect of changes in exchange rates on cash and cash equivalents
|
(1,179)
|
|
|
1,316
|
|
|
1,164
|
|
|
316
|
|
|
Net increase (decrease) in cash and cash equivalents
|
2,008
|
|
|
(72,976)
|
|
|
(56,467)
|
|
|
45,033
|
|
|
Cash and cash equivalents as at 1 January
|
113,435
|
|
|
115,443
|
|
|
115,443
|
|
|
42,467
|
|
|
Cash and cash equivalents as at 31 December
|
$
|
115,443
|
|
|
$
|
42,467
|
|
|
$
|
58,976
|
|
|
$
|
87,500
|
|
|
|
|
|
|
|
|
|
|
|
Supplemented cash flow disclosures
|
|
|
|
|
|
|
|
|
Cash paid for income taxes, net of tax refunds
|
$
|
1,146
|
|
|
$
|
4,034
|
|
|
$
|
2,596
|
|
|
$
|
7,125
|
|
|
Cash paid for operating leases
|
—
|
|
|
10,932
|
|
|
7,314
|
|
|
5,160
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities
|
|
|
|
|
|
|
|
|
Capital expenditures incurred but not yet paid
|
$
|
72
|
|
|
$
|
1,115
|
|
|
$
|
17
|
|
|
$
|
16,431
|
|
|
Business combination consideration in accrued liabilities
|
600
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Right-of-use assets obtained in exchange for lease obligations
|
—
|
|
|
141,240
|
|
|
2,401
|
|
|
7,258
|
|
|
Construction costs capitalized under build-to-suit lease
|
2,900
|
|
|
—
|
|
|
—
|
|
|
—
|
|
_______________
(1)As a result of the SAP Acquisition, our stock based compensation expense reflects the recognition of both equity classified awards and liability classified awards. Liability classified awards are settled in cash in accordance with SAP’s employee equity compensation programs. 2018 stock-based compensation expense consisted entirely of equity-classified awards. 2019
stock-based compensation expense consisted of $185.8 million of equity-classified awards and was recognized as a result of the SAP Acquisition, and $690.4 million of liability-classified awards, of which $312.8 million were settled in cash in 2019. For the nine months ended September 30, 2019 and 2020, stock-based compensation expense consisted of $185.8 million, and $0.0 million, respectively, of equity-classified awards recognized as a result of the SAP Acquisition, and $564.3 million and $218.0 million, respectively, of liability-classified awards. During the nine months ended September 30, 2019 and 2020, awards of $213.2 million and $284.0 million, respectively, were settled in cash. Liability-classified awards are recorded according to mark-to-market accounting.
The accompanying notes are an integral part of these consolidated financial statements.
Qualtrics International Inc.
Notes to Consolidated Financial Statements
1.DESCRIPTION OF THE BUSINESS
Qualtrics International Inc. (“Qualtrics” or “the Company”) was incorporated in the state of Delaware in September 2014. Qualtrics has built the first experience management platform (“XM Platform”) to manage customer, employee, product, and brand experiences. The Company sells subscriptions to its XM Platform and provides professional services primarily consisting of research services, implementation services, and engineering services.
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
On January 23, 2019, SAP SE (“SAP”) acquired all outstanding shares of Qualtrics International Inc. for approximately $8.0 billion in cash and push down accounting was not elected to be used at the time of acquisition (the “SAP Acquisition”). Since the SAP Acquisition, the operations of Qualtrics have been included in SAP’s consolidated financial statements. Qualtrics continues to operate as separate legal entities and will continue to be presented as a separate segment within SAP’s consolidated financial statements. Certain contracts for Qualtrics products are legally owned by SAP entities and the related revenues, expenses, assets and liabilities will remain with SAP. Qualtrics receives a royalty charge from SAP for these arrangements.
The financial statements have been derived from the consolidated financial statements and accounting records of SAP using the historical results of operations and historical basis of assets and liabilities for Qualtrics and its wholly owned subsidiaries. All intercompany transactions and balances of Qualtrics and its wholly owned subsidiaries have been eliminated in consolidation. Since the SAP Acquisition, Qualtrics has functioned as part of the larger group of companies controlled by SAP. However, due to the relative short period since the SAP Acquisition, Qualtrics largely continued to operate as a standalone operation and had not yet been fully integrated into the SAP group of companies, with limited use of corporate overhead functions. For that reason, it was not required to carve out or carve in any material assets or liabilities on the balance sheet. Additionally, due to the limited integration efforts, Qualtrics’ benefit from direct or indirect corporate overhead functions such as human resources, marketing, accounting or legal were also limited. Any allocated expenses from SAP were included in the financial statements. Certain other costs incurred by SAP for the direct benefit of Qualtrics, such as payroll services, have been directly charged to Qualtrics and included in Qualtrics’ financial statements. Services provided by the SAP entities for Qualtrics are recorded in the Qualtrics legal entities.
Management believes the assumptions underlying the financial statements and the above allocations are reasonable. However, the financial statements included herein may not necessarily reflect results of operations, financial position and cash flows as if Qualtrics had operated as a standalone company during all periods presented. Accordingly, historical results of Qualtrics should not be relied upon as an indicator of the future performance of Qualtrics.
2018 Stock Split
On October 24, 2018, the Company amended its restated certificate of incorporation to effect a two-for-one reverse stock split of its common stock and redeemable convertible preferred stock. On the effective date of the reverse stock split, (1) each two shares of outstanding redeemable convertible preferred stock and common stock were reduced to one share of redeemable convertible preferred stock and common stock, respectively; (2) the number of shares of common stock issuable under each outstanding option to purchase common stock and issuable upon vesting under each restricted stock unit was proportionately reduced on a two-for-one basis; (3) the exercise price of each outstanding option to purchase common stock was proportionately increased on a two-for-one basis; and (4) corresponding adjustments in the per share conversion prices, dividend rates, and liquidation preferences of the redeemable convertible preferred stock were made. The impact of the stock split has been retroactively applied to the Company’s financial statements.
2019 Merger and Capital Restructuring Pursuant to Reorganization
On January 23, 2019, with the completion of the SAP Acquisition of the Company by a subsidiary of SAP (“Merger”), Merger was merged with and into Qualtrics International Inc. As a result of these and other transactions (collectively referred to herein as the “Reorganization”), the separate corporate existence of Merger ceased, and the Company continues as the surviving corporation. In connection with the Reorganization, all 187,849,989 shares of redeemable convertible preferred stock and common stock of the Company are no longer outstanding. The 423,170,610 shares of common stock of Merger became newly issued and outstanding shares of the surviving corporation. Share and per share information referenced throughout the consolidated financial statements and notes to the consolidated financial statements for the period ended December 31, 2019 have been adjusted to reflect the decreased number of shares outstanding. Due to the impact of the Reorganization, the Company’s capital structure for the year ended December 31, 2018 is not comparable with the Company’s capital structure after the Reorganization. As a result, the presentation of net loss per share for the period prior to such transaction is not meaningful and only net loss per share for periods subsequent to the Reorganization are presented herein.
2020 Stock Split and Capital Reorganization
On December 21, 2020, the Company amended its restated certificate of incorporation to create new classes of preferred stock, Class A and Class B common stock. The Company’s previously outstanding shares of common stock issued on January 23, 2019, were converted into shares of Class B common stock. SAP holds all of the shares of the new Class B common stock. The ownership rights of Class A and Class B common stockholders are the same except with respect to voting, the election of directors, conversion, and certain actions that require the consent of holders of Class B and other protective provisions. See Note 19 for further details related to the terms and conditions of the new equity of the Company. The amended and restated certificate of incorporation effectuated a 4,231,706.1-for-one stock split of the new Class B common stock. The capitalization of the Company, including all share and per share data has been retroactively adjusted back to January, 23, 2019, the date of the SAP acquisition, to reflect the recapitalization. As discussed in the 2019 Merger and Capital Restructuring Pursuant to Reorganization note above, the historical capital structure prior to January 23, 2019 is not comparable to the capital structure after the acquisition by SAP and therefore the historical capital structure is not retroactively adjusted as the presentation would not be meaningful. To retroactively adjust the consolidated statements of redeemable convertible preferred stock and stockholders’ equity (deficit), the stock split is reflected as an adjustment of the capital restructuring pursuant to reorganization that occurred in 2019 of the new Class B shares issued and outstanding of 423,170,610, net of the historical Class B shares that were acquired by SAP.
Unaudited interim consolidated financial statements
The accompanying interim consolidated balance sheet as of September 30, 2020, the consolidated statements of operations, comprehensive loss, and cash flows for the nine months ended September 30, 2019 and 2020, and the consolidated statement of redeemable convertible preferred stock and stockholders’ deficit for the nine months ended September 30, 2020 and the related footnote disclosures are unaudited. These unaudited interim consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP). The interim consolidated financial statements are presented in accordance with the rules and regulations of the U.S. Securities and Exchange Commission and do not include all disclosures normally required in annual consolidated financial statements prepared in accordance with GAAP. In management’s opinion, the unaudited interim consolidated financial statements include all adjustments necessary to state fairly our financial position as of September 30, 2020, and the results of operations and cash flows for the nine months ended September 30, 2019 and 2020. The financial data and the other information disclosed in these notes are unaudited. The results for the nine months ended September 30, 2020 are not necessarily indicative of the operating results expected for the full fiscal 2020 year or any future period.
Use of Estimates
The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) requires management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the balance sheet
date, as well as reported amounts of revenue and expenses during the reporting period. The Company’s most significant estimates and judgments involve revenue recognition with respect to the determination of the standalone selling prices for the Company’s services, deferred contract acquisition costs, the period of benefit generated from deferred contract acquisition costs, valuation of the Company’s equity and cash settled stock-based compensation, including the underlying deemed estimated fair value of the Company’s common stock, valuation of deferred income tax assets, uncertain tax positions, contingencies, goodwill and intangible assets, the determination of whether a contract contains a lease, determining the incremental borrowing rate for the calculation of the present value of lease liabilities and litigation. Actual results could differ from those estimates.
Segments
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 Company’s Chief Executive Officer is the CODM. The Company’s CODM reviews financial information presented on a consolidated basis for purposes of making operating decisions, allocating resources, and evaluating financial performance. As such, the Company has determined that it operates in one operating and one reportable segment.
Foreign Currency Transactions
The assets and liabilities of the Company’s foreign subsidiaries are translated from their respective functional currencies into U.S. dollars at the rates in effect at the balance sheet date and revenue and expense amounts are translated at the average exchange rate for the period. Foreign currency translation gains and losses are recorded in other comprehensive loss. Exchange rate differences resulting from translation adjustments are accounted for as a component of accumulated other comprehensive loss.
Gains and losses, whether realized or unrealized, from foreign currency transactions (those transactions denominated in currencies other than the entities’ functional currency) are included in other income (expense), net. The Company recorded $1.1 million in net foreign currency transaction losses in the year ended December 31, 2018, and $0.9 million in net foreign currency transaction losses in the year ended December 31, 2019. The Company recorded $1.0 million in net foreign currency transaction losses and $0.5 million in net foreign currency transaction gains for the nine months ended September 30, 2019 and 2020 (unaudited), respectively.
Revenue Recognition
The Company recognizes revenue from its service/product lines when control is transferred to its customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for the services. Sales and other taxes collected from customers to be remitted to government authorities are excluded from revenue. In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) and Subtopic 340-40, Other Assets and Deferred Costs—Contracts with Customers (Subtopic 340-40). The Company accounts for revenue contracts with customers by applying the requirements of Topic 606, which includes the following steps:
•Identification of the contract, or contracts, with a customer
•Identification of the performance obligations in a contract
•Determination of the transaction price
•Allocation of the transaction price to the performance obligations in the contract
•Recognition of revenue when, or as, performance obligations are satisfied
Classes of Revenue
The Company derives revenue from two service/product lines:
Subscription Revenue
The Company generates revenue primarily from sales of subscriptions to access its XM Platform, together with related support services to its customers. Arrangements with customers do not provide the customer with the right to take possession of the software operating the XM Platform at any time. Instead, customers are granted continuous access to the XM Platform over the contractual period.
The Company’s subscription contracts generally have annual contractual terms while some have multi-year contractual terms. The Company generally bills annually in advance with net 30 payment terms. The Company’s agreements generally cannot be canceled with refund.
Professional Services and Other Revenue
Professional services and other revenue mainly includes two types of services: research services and professional services. Research services is a solution provided to existing subscription customers with arrangements, which are distinct from subscription revenue services. In addition, the Company provides professional services associated with new and expanding customers requesting implementation, integration services, and other ancillary services. These services are distinct from subscription revenue services.
Identification of a Contract
For accounting purposes, we treat multiple contracts entered into with the same customer as a single contract if they are entered into at or near the same time and are economically interrelated. We do not combine contracts with closing days more than three months apart because we do not consider them being entered into near the same time. Judgment is required in evaluating whether various contracts are interrelated, which includes considerations as to whether they were negotiated as a package with a single commercial objective, whether the amount of consideration on one contract is dependent on the performance of the other contract, or if some or all goods in the contracts are a single performance obligation.
New arrangements with existing customers can be either a new contract or the modification of prior contracts with the customer. Our respective judgment in making this determination considers whether there is a connection between the new arrangement and the pre-existing contracts, whether the goods and services under the new arrangement are highly interrelated with the goods and services sold under prior contracts, and how the goods and services under the new arrangement are priced. In determining whether a change in transaction price represents a contract modification or a change in variable consideration, we examine whether the change in price results from changing the contract or from applying unchanged existing contract provisions.
Identification of Performance Obligations
Some contracts with customers contain multiple performance obligations. For these contracts, the Company accounts for individual performance obligations separately, if they are distinct. Typically, the products and services outlined in the Classes of Revenue section qualify as separate performance obligations and the portion of the contractual fee allocated to them is recognized separately. Judgment is required, however, in determining whether a good or service is considered a separate performance obligation. In particular for our professional services and implementation activities, judgment is required to evaluate whether such services significantly integrate, customize, or modify the subscription service to which they relate. In this context, we consider the nature of the services and their volume relative to the volume of the subscription service to which they relate. In general, the implementation services for our subscription services go beyond pure setup activities and qualify as separate performance obligations. Non-distinct goods and services are combined into one distinct bundle of goods and services (combined performance obligation).
In rare instances, customers have the option to purchase additional subscription and support services at a stated price. These options generally do not provide a material right as they are priced at standalone selling price, or SSP.
We apply judgment in determining whether such options provide a material right to the customer that the customer would not receive without entering into that contract (material right options). In this judgment, we consider, for example, whether the options entitle the customer to a discount that exceeds the discount granted for the respective goods or services sold together with the option.
Determination of Transaction Price
We apply judgment in determining the amount to which we expect to be entitled in exchange for transferring promised goods or services to a customer. This includes estimates as to whether and to what extent subsequent concessions or payments may be granted to customers and whether the customer is expected to pay the contractual fees. In this judgment, we consider our history both with the respective customer and more broadly.
If the Company’s services do not meet certain service level commitments, certain customers are entitled to receive service credits, and in certain cases, refunds, each representing a form of variable consideration. Historically, the Company has not experienced any significant incidents affecting the defined levels of reliability and performance as required by its subscription contracts. Accordingly, any estimated refunds related to these agreements in the consolidated financial statements is not material during the periods presented.
The Company applied the practical expedient in Topic 606 and did not evaluate contracts of one year or less for the existence of a significant financing component. The Company determined that no significant financing component existed on its multi-year contracts, as these contracts were structured for purposes other than obtaining financing from customers. Additionally, prices are generally fixed at contract inception; therefore, the Company’s contracts do not contain a significant amount of variable consideration.
Allocation of transaction price
The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. The Company determines standalone selling prices considering market conditions and based on overall pricing objectives such as observable standalone selling prices, and other factors, including the value of contracts, types of services sold, customer demographics, and the number and types of users within such contracts. We have established a hierarchy to identify the standalone selling prices that we use to allocate the transaction price of a customer contract to the performance obligations in the contract:
•Where standalone selling prices for an offering are observable and reasonably consistent across customers (that is, not highly variable), our standalone selling price estimates are derived from our respective pricing history.
•Where sales prices for an offering are not directly observable or highly variable across customers, we use estimation techniques. For renewable offerings with highly variable pricing across customers, these techniques consider the individual contract’s expected renewal price as far as this price is substantive. Typically, our subscription offerings follow this approach. For our professional and other services, these estimations typically follow a cost-plus-margin approach.
Judgment is required when estimating standalone selling prices. To judge whether the historical pricing of our goods and services is highly variable, we have established thresholds of pricing variability. For judging whether contractual renewal prices are substantive, we have established floor prices that we use as standalone selling prices whenever the contractual renewal prices are below these floor prices. In judging whether contracts are expected to renew at their contractual renewal prices, we rely on our respective renewal history. We review the standalone selling prices periodically or whenever facts and circumstances change to ensure the most objective input parameters available are used.
Recognition of Revenue
Access to our XM Platform represents a series of distinct services as the Company continually provides access to and fulfills its obligation to the end customer over the subscription term. The series of distinct services represents a single performance obligation that is satisfied over time. Accordingly, the fixed consideration related to
subscription revenue is generally recognized on a straight-line basis over the contract term, beginning on the date that the service is made available to the customer.
Revenue from professional services and other revenue related to research services is recognized upon completion because completion and delivery of the results is considered a separate performance obligation satisfied at a point in time. Revenue from professional services and other revenue related to customized software coding is recognized upon completion, because the customer consumes the intended benefit and assumes control upon final completion of the custom coding. Revenue from professional services and other revenue related to implementation and other ancillary services is recognized as the services are performed, because the customer consumes the benefit as the services are provided.
Judgment is required to determine whether revenue is to be recognized at a point in time or over time. For performance obligations satisfied over time, we need to measure progress using the method that best reflects Qualtrics’ performance.
All judgments and estimates mentioned above can significantly impact the timing and amount of revenue to be recognized.
Contract Balances
The Company bills in advance for annual contracts, and at times enters into non-cancelable multi-year deals. Non-cancelable multi-year deals typically include price escalations each year. The Company recognizes revenue on a straight-line basis over the non-cancelable term and accounts for the difference between straight-line revenue and annual invoice amounts as a contract asset. The current and noncurrent portion of contract assets included in prepaid and other current assets and other assets as of December 31, 2018 were $0.4 million and $1.6 million, respectively. The current and noncurrent portion of contract assets included in prepaid and other current assets and other assets as of December 31, 2019 were $3.7 million and $2.4 million, respectively. The increase in contract assets is due to a higher number of multi-year deals in 2019 compared to 2018. The current and noncurrent portion of contract assets included in prepaid and other current assets and other assets as of September 30, 2020 (unaudited) were $7.7 million and $5.8 million, respectively.
The Company records contract liabilities to deferred revenue when cash payments are received or due in advance of performance. Deferred revenue primarily relates to the advance consideration received from the customer prior to the related performance obligation being fulfilled. In certain circumstances we receive consideration from customers in advance of a specific service being identified. Total consideration received in advance of a specific service being identified totaled $19.6 million and $26.4 million as of December 31, 2018 and 2019, respectively. Total consideration received in advance of a specific service being identified totaled $21.6 million and $31.1 million as of September 30, 2019 and 2020 (unaudited), respectively. The following table shows the amount of revenue included in prior period deferred revenue for each of the Company’s revenue generating solutions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Nine Months Ended September 30,
|
|
in thousands
|
2018
|
|
2019
|
|
2019
|
|
2020
|
|
|
|
|
|
|
(unaudited)
|
|
Subscription revenue:
|
|
|
|
|
|
|
|
|
Revenue included in prior period deferred revenue
|
$
|
160,449
|
|
|
$
|
233,811
|
|
|
$
|
206,402
|
|
|
$
|
283,837
|
|
|
Revenue generated from same period billings
|
135,079
|
|
|
196,227
|
|
|
103,160
|
|
|
131,163
|
|
|
Total subscription revenue
|
$
|
295,528
|
|
|
$
|
430,038
|
|
|
$
|
309,562
|
|
|
$
|
415,000
|
|
|
Professional services and other revenue:
|
|
|
|
|
|
|
|
|
Revenue included in prior period deferred revenue
|
$
|
3,758
|
|
|
$
|
43,539
|
|
|
$
|
33,143
|
|
|
$
|
32,108
|
|
|
Revenue generated from same period billings
|
102,622
|
|
|
117,578
|
|
|
75,643
|
|
|
102,848
|
|
|
Total professional services and other revenue
|
$
|
106,380
|
|
|
$
|
161,117
|
|
|
$
|
108,786
|
|
|
$
|
134,956
|
|
Remaining Performance Obligations
Remaining performance obligations represent the amount of contracted future revenue that has not yet been recognized, including both deferred revenue and non-cancelable contracted amounts that will be invoiced and recognized as revenue in future periods. Amounts of a customer contract’s transaction price that are allocated to the remaining performance obligations represent contracted revenue that has not yet been recognized. They include amounts recognized as contract liabilities and amounts that are contracted but not yet due. The future estimated revenue related to unsatisfied performance obligations as of December 31, 2018 was $370.9 million, of which approximately $303.3 million was recognized in 2019. The future estimated revenue related to unsatisfied performance obligations as of December 31, 2019 was $642.7 million, of which approximately $434.1 million is expected to be recognized as revenue over the next 12 months. The future estimated revenue related to unsatisfied performance obligations as of September 30, 2020 (unaudited) was $814.1 million, of which approximately $494.1 million is expected to be recognized as revenue over the next 12 months. This estimate is based on our best judgment, as it needs to consider estimates of possible future contract modifications. The amount of transaction price allocated to the remaining performance obligations, and changes in this amount over time, are impacted by, among others, currency fluctuations and the contract period of our cloud contracts remaining at the balance sheet date and thus by the timing of contract renewals.
Disaggregation of Revenue
The following table summarizes the revenue by region based on the shipping address of customers who have contracted to use our cloud platform:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Nine Months Ended September 30,
|
|
in thousands
|
2018
|
|
2019
|
|
2019
|
|
2020
|
|
|
|
|
|
|
(unaudited)
|
|
United States
|
$
|
308,394
|
|
|
$
|
438,052
|
|
|
$
|
313,281
|
|
|
$
|
395,813
|
|
|
International
|
93,514
|
|
|
153,103
|
|
|
105,067
|
|
|
154,143
|
|
|
Total revenue
|
$
|
401,908
|
|
|
$
|
591,155
|
|
|
$
|
418,348
|
|
|
$
|
549,956
|
|
No single country outside the United States accounted for 10% or more of revenue during the years ended December 31, 2018 and 2019, and the nine months ended September 30, 2019 and 2020 (unaudited).
Stock-Based Compensation, including cash settled
Equity Awards
The Company measures and recognizes compensation expense for stock-based payment equity awards, including restricted stock awards (“RSAs”), restricted stock units (“RSUs”), and stock options granted to employees and advisors, based on the grant date fair value of the awards. Awards that will be settled in cash are marked-to-market each quarter. The grant date fair value of stock options is estimated using a Black-Scholes option pricing model. The fair value of stock-based compensation for stock options is recognized on a straight-line basis over the period during which services are provided in exchange for the award. The grant date fair value of RSAs and RSUs is estimated based on the fair value of the underlying common stock. Awards which contain both service-based and performance conditions are recognized using the accelerated attribution method.
As discussed in detail in Note 13, the Company issues two types of RSAs, one-tier and two-tier. One-tier RSAs vests solely on a service-based condition. For these awards, the Company recognizes stock-based compensation expense on a straight-line basis over the vesting period. Two-tier RSAs contain both a service-based condition and performance condition, defined as the earlier of (i) an acquisition or change in control of the Company or (ii) upon the occurrence of an initial public offering by the Company. A change in control event and effective registration event are not deemed probable until consummated; accordingly, no expense is recorded related to two-tier RSAs until the performance condition becomes probable of occurring. Awards which contain both service-based and performance conditions are recognized using the accelerated attribution method once the performance condition is probable of occurring.
As discussed in detail in Note 13, all of the Company’s RSUs contain both a service-based condition and performance condition, defined as the earlier of (i) an acquisition or change in control of the Company or (ii) upon the occurrence of an initial public offering by the Company. A change in control event and effective registration event are not deemed probable until consummated; accordingly, no expense is recorded related to RSUs until the performance condition becomes probable of occurring. Awards which contain both service-based and performance conditions are recognized using the accelerated attribution method once the performance condition is probable of occurring.
With the SAP Acquisition, the performance condition of two-tier RSAs and RSUs was deemed to be met in January 2019.
In conjunction with the SAP Acquisition, under the terms of the acquisition agreement, unvested RSAs, RSUs, and options held by employees of Qualtrics were exchanged into liability-classified, stock-based awards to be settled in cash (“Qualtrics Rights”). Approximately $858 million of the purchase price related to RSAs, RSUs, and options that were to vest after the SAP Acquisition, contingent upon continued service from employees. The price realized by employees for these time-based awards is $35.00 per share, if the award was granted before January 1, 2018 or if the award was originally granted as an option; provided, that the fixed amount will be reduced by the original exercise price for any Qualtrics Rights that were originally granted as options. If the award was granted on or after January 1, 2018, the amount realized is $35.00 per share, adjusted for changes in the five-day average price of SAP stock for the period immediately preceding the close compared to SAP’s stock price on the vesting date.
In conjunction with the SAP Acquisition, the Founder Performance Grants described in Note 13 were cancelled. New Founder Grants were granted at the closing date that vest upon continuing employment over a two-year period from the closing date. Certain stock-based awards contained change in control provisions and vesting was accelerated upon close of the SAP Acquisition.
Cash Awards
The Company measures and recognizes compensation expense for stock-based payment cash awards based on the fair value of the awards each quarter until settlement. The fair value of stock-based compensation cash awards that vests solely on a service-based condition is recognized on a straight-line basis over the period during which services are provided in exchange for the award. The fair value is estimated based on the fair value of the underlying stock price or some are valued by $35.00. Awards which contain both service-based and performance conditions are recognized using the accelerated attribution method once the performance condition is probable of occurring.
The Company accounts for forfeitures as they occur; therefore, stock-based compensation expense has been calculated based on actual forfeitures in the Company’s consolidated statements of operations.
Net loss per Share Attributable to Common Stockholders
Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. As there are no potentially dilutive securities, diluted earnings per share attributable to common stockholders has not been presented. For purposes of calculating earnings per share, the Company uses the two-class method. Because both classes share the same rights in dividends, basic and diluted earnings per share was the same for both classes.
Due to the impact of the SAP Acquisition of Qualtrics, the Company’s capital structure for the years ended December 31, 2018 and 2019 are not comparable. As a result, the presentation of net loss per share for the year ended prior to the transaction is not meaningful and only net loss per share for periods subsequent to the SAP Acquisition of Qualtrics are presented herein.
Unaudited pro forma per share data gives effect, in the weighted average shares used in the calculation, to the additional million shares of common stock, which, when multiplied by the assumed initial public offering price of $22.00 per share (the midpoint of the range set forth on the cover page of this prospectus), and after giving effect to a pro rata allocation of offering costs, would have been required to be issued to generate proceeds sufficient to
pay the portion of the $ million dividend declared in that exceeded the most recent twelve months’ earnings.
Cost of Revenue
Cost of revenue includes expenses related to operating the Company’s cloud platform in data centers, depreciation of the Company’s data center equipment, the amortization of the Company’s capitalized internal-use software and acquired technology, and third-party vendor costs to fulfill contracts with customers. Cost of revenue also includes employee-related costs, including salaries, bonuses, equity and cash settled stock-based compensation expense, and employee benefit costs associated with the Company’s customer support, cloud operations, and delivery of professional services. Additionally, the Company makes allocations of certain overhead costs, primarily based on headcount.
Advertising and Promotional Expense
Advertising and promotional expenses are expensed as incurred. Advertising and promotional expenses for the years ended December 31, 2018 and 2019 were $2.3 million and $3.2 million, respectively. Advertising and promotional expenses for the nine months ended September 30, 2019 and 2020 (unaudited) were $2.1 million and $2.3 million, respectively.
Cash and cash equivalents
Cash and cash equivalents consist of cash on hand and highly liquid investments with original maturities of three months or less from the date of purchase. The Company maintains cash and cash equivalents at financial institutions, which at times may not be federally insured or may exceed federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risks on such accounts. Cash and cash equivalents are recorded at cost, which approximates fair value.
Accounts Receivable and Allowances
Accounts receivable are recorded at the invoiced amount, net of allowances. Accounts receivable are typically due within 30 days from the date of invoice. Customer balances outstanding longer than the contractual payment terms are considered past due.
In the event of lack of payment due to a bankruptcy or other credit-related issues of a customer, the Company writes off the related accounts receivable with a charge to bad debt expense in the consolidated statements of comprehensive loss. Bad debt expense was not material in the years ended December 31, 2018 and 2019, or for the nine months ended September 30, 2019 and 2020 (unaudited).
In the event of lack of payment from a customer for issues unrelated to credit risk, the Company cancels the customer’s subscription access or service and writes off the corresponding accounts receivable with reductions to revenue and deferred revenue. Write-offs to revenue and deferred revenue from cancellations are based upon the composition of revenue recognized and deferred revenue remaining at the time of cancellation.
The Company’s allowances were $9.8 million, $12.0 million, and $14.7 million as of December 31, 2018 and 2019, and September 30, 2020 (unaudited), respectively. During 2018, $0.5 million of net additions was charged to revenue and $4.0 million of net additions was charged to deferred revenue. During 2019, $1.1 million of net additions was charged to revenue and $1.1 million of net additions was charged to deferred revenue. During the nine months ended September 30, 2020 (unaudited), $0.7 million of net additions was charged to revenue and $2.0 million of net additions was charged to deferred revenue.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, cash equivalents, and accounts receivable. The Company performs credit evaluations of its customers’ financial condition and, generally, requires no collateral from its customers. No customer accounted for more than 10% of accounts receivable at December 31, 2018 and 2019, and September 30, 2020 (unaudited). No single customer accounted for
10% or more of total revenue during the years ended December 31, 2018 and 2019, and the nine months ended September 30, 2019 and 2020 (unaudited).
Deferred Contract Acquisition Costs, net
Deferred contract acquisition costs, net is stated at gross deferred contract acquisition costs less accumulated amortization. Sales commissions and related payroll taxes for initial SaaS subscription contracts earned by the Company’s sales force are considered to be incremental and recoverable costs of obtaining a contract with a customer. As a result, these amounts have been capitalized as deferred contract acquisition costs on the consolidated balance sheets. The Company deferred incremental costs of obtaining a contract of $27.1 million, $47.7 million, $34.7 million, and $63.3 million during the years ended December 31, 2018 and 2019, and the nine months ended September 30, 2019 and 2020 (unaudited), respectively.
Sales commissions for renewal contracts are not considered commensurate with the commissions paid for the acquisition of an initial SaaS subscription contract, given the substantive difference in commission rates in proportion to their respective contract values. After the conclusion of the initial contract period, commissions paid on subsequent renewals are commensurate year after year. As such, the Company expenses renewal commissions as incurred.
Deferred contract acquisition costs are amortized over an estimated period of benefit of five years. The period of benefit was estimated by considering factors such as estimated average customer life, the rate of technological change in the subscription service, and the impact of competition in its industry. As the Company’s average customer life significantly exceeded the rate of change in its technology, the Company concluded that the rate of change in the technology underlying the Company’s subscription service was the most significant factor in determining the period of benefit for which the asset relates. In evaluating the rate of change in the technology, the Company considered the competition in the industry, its commitment to continuous innovation, and the frequency of product, platform, and technology updates. The Company determined that the impact of competition in the industry is reflected in the period of benefit through the rate of technological change.
Amortization of deferred contract acquisition costs were $13.4 million and $19.5 million for the years ended December 31, 2018 and 2019, respectively, and $13.9 million and $22.4 million for the nine months ended September 30, 2019 and 2020 (unaudited), respectively. Amortization of deferred contract acquisition costs are included in sales and marketing expense in the accompanying consolidated statements of operations. There was no impairment loss in relation to the deferred costs for any period presented.
Property and Equipment, net
Property and equipment, net is stated at cost less accumulated depreciation. Depreciation is computed on a straight-line basis over the estimated asset lives. Routine maintenance and repairs are charged to expense when incurred. Expenditures that materially increase values, change capacities, or extend the useful lives of the respective assets are capitalized. Upon retirement or disposition of property and equipment, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in operations. The estimated useful lives by asset classification are generally as follows:
|
|
|
|
|
|
|
|
Computer equipment
|
3-5 years
|
|
Furniture and fixtures
|
5-10 years
|
|
Server equipment
|
5 years
|
|
Vehicles
|
3 years
|
|
Internal-use software
|
2 years
|
|
Buildings
|
25 years
|
|
Leasehold improvements
|
Lesser of useful life or remaining lease term
|
Property and equipment subject to depreciation is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If indicators of impairment
exist, recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset to the estimated undiscounted future cash flows expected to be generated by the asset.
If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset. There was no impairment of property and equipment during the years ended December 31, 2018 and 2019, and the nine months ended September 30, 2019 and 2020 (unaudited).
The following table sets forth property and equipment by geographic area:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
As of September 30,
|
|
in thousands
|
2018
|
|
2019
|
|
2020
|
|
|
|
|
|
|
(unaudited)
|
|
United States
|
$
|
32,702
|
|
|
$
|
46,361
|
|
|
$
|
84,194
|
|
|
International
|
5,480
|
|
|
4,706
|
|
|
7,843
|
|
|
Total property and equipment, net
|
$
|
38,182
|
|
|
$
|
51,067
|
|
|
$
|
92,037
|
|
No single country outside the United States had a property and equipment balance greater than 10% of total property and equipment, net, as of December 31, 2018 and 2019, and September 30, 2020 (unaudited).
Leases
As of January 1, 2019, the Company adopted the lease accounting requirements of Topic 842 using the modified retrospective transition approach. Under Topic 842, the Company determines if an arrangement is a lease at inception, and leases are classified at commencement as either operating or finance leases. As of December 31, 2019 and September 30, 2020 (unaudited), the Company had no finance leases.
Right-of-use (“ROU”) assets and lease liabilities are recognized at commencement based on the present value of the minimum lease payments over the lease term. The Company utilizes certain practical expedients and policy elections available under Topic 842. Leases with a one-year term or less are not recognized on the balance sheet. Additionally, the Company has elected to combine non-lease components with lease components for the purposes of calculating the ROU asset and liabilities, to the extent they are fixed. Non-lease components that are not fixed are expensed as incurred as variable lease costs. The Company uses the incremental borrowing rate based on information available at the commencement date in determining the present value of future lease payments. The rate is an estimate of the collateralized borrowing rate the Company would incur on future lease payments over a similar term.
The Company leases facilities under non-cancelable operating lease agreements. Certain of the operating lease agreements contain rent concessions and rent escalations which are included in the present value calculation of minimum lease payments. Topic 842 requires that operating leases recognize expense on a straight-line basis over the lease term. The lease term begins on the date the Company has the right to use the leased property. Lease terms may include options to extend or terminate the lease. These options are included in the ROU asset and lease liability when it is reasonably certain that the option will be exercised. The Company’s lease agreements do not contain residual value guarantees or covenants.
As of December 31, 2018, the Company had recorded $2.9 million in property and equipment, net, and other liabilities relating to a build-to-suit facility lease arrangement in Dublin, Ireland. In accordance with Topic 842, this has been derecognized. This new Dublin lease will not be recognized until the Company has the right to use the facility in 2021.
Prior to the January 1, 2019 adoption of Topic 842, ROU assets and lease liabilities were not recognized for operating leases. Rent concessions and rent escalation provisions were considered in determining the straight-line rent expense to be recorded over the lease term.
Internal-use Software
The Company capitalizes certain development costs incurred in connection with its internal-use software. These capitalized costs are primarily related to the software platforms that are hosted by the Company and accessed by its customers on a subscription basis. Costs incurred in the preliminary stages of development are expensed as incurred as research and development costs. Once an application has reached the development stage, internal and external costs, if direct and incremental, are capitalized until the software is substantially complete and ready for its intended use. The Company also capitalizes costs related to specific upgrades and enhancements when it is probable the expenditures will result in additional functionality. Capitalized costs are recorded as part of property and equipment. Maintenance and training costs are expensed as incurred. Internal-use software is amortized on a straight-line basis over its estimated useful life of 24 months. The Company recognized amortization expenses of $8.5 million, $11.0 million, $8.0 million, and $9.3 million related to capitalized internal-use software for the years ended December 31, 2018 and 2019, and the nine months ended September 30, 2019 and 2020 (unaudited), respectively, within cost of subscription revenue.
Business Combinations
The Company uses best estimates and assumptions to assign fair values to the tangible and intangible assets acquired and liabilities assumed in business combinations as of the acquisition date. These estimates are inherently uncertain and subject to refinement. During the measurement period, which may be up to one year from the acquisition date, adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed may be recorded, with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Company’s consolidated statements of comprehensive loss.
Goodwill and Other Intangible Assets
The Company records goodwill when consideration paid in a purchase acquisition exceeds the fair value of the net tangible assets and the identified intangible assets acquired. Goodwill is not amortized, but rather is tested for impairment annually or more frequently if facts and circumstances warrant a review. The Company has determined that there is a single reporting unit for the purpose of goodwill impairment tests, which are performed annually on October 1st or more frequently if certain indicators are present. For purposes of assessing the impairment of goodwill, the Company annually estimates the fair value of the reporting unit and compares this amount to the carrying value of the reporting unit. If the Company determines that the carrying value of the reporting unit exceeds its fair value, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds its fair value. There was no impairment of goodwill for the years ended December 31, 2018 and 2019.
Other intangible assets, consisting of developed technology, customer relationships, tradenames, purchased license agreements, developed content, and purchased patents, are stated at cost less accumulated amortization. All other intangible assets have been determined to have definite lives and are amortized on a straight-line basis over their estimated remaining economic lives. Developed technology is amortized over 5 to 6 years to cost of subscription revenue and had a weighted average remaining amortization period of 2.2 years as of September 30, 2020 (unaudited). Customer relationships are amortized over 1 to 9 years to sales and marketing expense and had a weighted average remaining amortization period of 6.3 years as of September 30, 2020 (unaudited). Tradenames are amortized over 5 years to general and administrative expense, with a weighted average remaining amortization period of 2.5 years as of September 30, 2020 (unaudited). Purchased license agreements are determined to have definite lives and are amortized over 4 years to cost of subscription revenue, with a weighted average remaining amortization period of 1.6 years as of September 30, 2020 (unaudited). Amortization expense related to the license agreements is included in cost of subscription revenue. Developed content is amortized over 4 years and included in cost of subscription revenue, with a weighted average remaining amortization period of 2.0 years as of September 30, 2020 (unaudited). Purchased patents are amortized over useful lives ranging from 9 to 16 years to general and administrative expense. The patents’ weighted average remaining amortization period is 8.0 years as of September 30, 2020 (unaudited). Amortization expense related to the patents is included in general and administrative expense.
Income Taxes
Income taxes as presented in the consolidated financial statements of Qualtrics attribute current and deferred income taxes of SAP to the Company’s standalone financial statements in a manner that is systematic, rational and consistent with the asset and liability method prescribed by FASB ASC Topic 740: Income Taxes (“ASC 740”). Accordingly, the Company’s income tax provision was prepared following the separate return method. The separate return method applies ASC 740 to the standalone financial statements of each member of the consolidated group as if the group members were a separate taxpayer and a standalone enterprise. As a result, actual transactions included in the consolidated financial statements of SAP may not be included in the separate consolidated financial statements of the Company. Similarly, the tax treatment of certain items reflected in the consolidated financial statements of the Company may not be reflected in the consolidated financial statements and tax returns of SAP. Therefore, such items as net operating losses, credit carry-forwards and valuation allowances may exist in the standalone financial statements that may or may not exist in SAP’s consolidated financial statements. As such, the income taxes of the Company as presented in these consolidated financial statements may not be indicative of the income taxes that the Company will generate in the future.
Certain operations of Qualtrics have historically been included in a consolidated return with other SAP entities. Current obligations for taxes in certain jurisdictions, where the Company files a consolidated tax return with SAP, are deemed settled with SAP for purposes of these consolidated financial statements. Current obligations for tax in jurisdictions where the Company does not file a consolidated return with SAP, including certain foreign and domestic jurisdictions, are recorded as accrued liabilities.
Deferred income tax balances reflect the effects of temporary differences between the financial reporting and tax bases of the Company’s assets and liabilities using enacted tax rates expected to apply when taxes are actually paid or recovered. In addition, deferred tax assets are recorded for net operating loss (“NOL”) and credit carryforwards.
A valuation allowance is provided against deferred tax assets unless it is more likely than not that they will be realized based on all available positive and negative evidence. Such evidence includes, but is not limited to, recent cumulative earnings or losses, expectations of future taxable income by taxing jurisdiction, and the carry-forward periods available for the utilization of deferred tax assets.
The Company uses a two-step approach to recognizing and measuring uncertain income tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit. The second step is to measure the tax benefit as the largest amount, which is more than 50% likely of being realized upon ultimate settlement. The Company recognizes interest and penalties related to unrecognized tax benefits as a component of pre-tax book income or loss. Significant judgment is required to evaluate uncertain tax positions.
Although the Company believes that it has adequately reserved for its uncertain tax positions, it can provide no assurance that the final tax outcome of these matters will not be materially different. The Company evaluates its uncertain tax positions on a regular basis and evaluations are based on a number of factors, including changes in facts and circumstances, changes in tax law, such as the Tax Act, correspondence with tax authorities during the course of an audit, and effective settlement of audit issues.
To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made and could have a material impact on the Company’s financial condition and results of operations.
Fair Value Measurement
The Company applies fair value accounting for all financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining fair value measurements for assets and liabilities, the Company considers the principal or most advantageous market in which it would transact and the market-based risk
measurements or assumptions that market participants would use in pricing the asset or liability, such as risks inherent in valuation techniques, transfer restrictions, and credit risk. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
•Level 1 — Quoted prices in active markets for identical assets or liabilities.
•Level 2 — Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
•Level 3 — Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.
Warranty and Indemnification
The Company includes service level commitments to its customers warranting certain levels of uptime reliability and performance and permitting those customers to receive credits in the event that the Company fails to meet those levels. To date, the Company has not incurred any material costs related to such commitments.
The Company’s contracts include provisions indemnifying customers against liabilities if its products infringe a third-party’s intellectual property rights. The Company has not incurred any costs as a result of such indemnification and has not accrued any liabilities related to such obligations in the accompanying consolidated financial statements.
Recently adopted accounting pronouncements
In November 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-18, Statement of Cash Flows, Restricted Cash (Topic 230), which amends the guidance in Accounting Standards Codification (“ASC”) Topic 230, Statement of Cash Flows, and requires that entities show the changes in total of cash, cash equivalents, restricted cash, and restricted cash equivalents in the statements of cash flows. As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. ASU No. 2016-18 is effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019, and is applied retrospectively when adopted. The Company adopted this standard as of January 1, 2018. The adoption of the guidance did not have a material effect on the consolidated financial statements.
In May 2017, the FASB issued ASU No. 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting, which amends the guidance in ASC Topic 718. The standard provides clarity and reduces the cost and complexity when applying the guidance in ASC Topic 718 to a change to the terms or conditions of a share-based payment award. ASU No. 2017-09 is effective for fiscal years beginning after December 15, 2017, and interim periods within those years, with early adoption permitted. The Company adopted this standard as of January 1, 2018. The adoption of the guidance did not have an impact on the consolidated financial statements.
In February 2016, the FASB issued ASU 2016-2 Leases (“Topic 842”). The standard requires the recognition of a liability for lease obligations and a corresponding ROU asset on the balance sheet, and disclosure of certain information regarding leasing arrangements. The Company adopted this standard effective January 1, 2019 using the transitional provision of ASU 2018-11, “Leases (Topic 842) Targeted Improvements,” which allows for the adoption of Topic 842 at the beginning of the fiscal year of adoption. Prior periods were not restated. The Company elected to apply practical expedients upon transition to this standard, which allowed the Company to not reassess lease classification, treatment of initial direct costs, or whether an existing or expired contract contained a lease. The practical expedient to exclude leases with a term of less than twelve months was also elected.
Under adoption of Topic 842, leases previously classified as operating leases are now reported on the balance sheet. The Company recognized operating leases related ROU assets of $52.6 million and lease liabilities of $55.8
million as of January 1, 2019. In addition, the $2.9 million build-to-suit asset and related liability previously recorded as of December 31, 2018 was derecognized. The new guidance does not require recognition until control has been established. Because there are no finance leases, the updated standard did not have a material impact on the consolidated statements of income or cash provided by operating activities.
In June 2018, the FASB issued ASU 2018-07, Improvements to Nonemployee Share-Based Payment Accounting. ASU 2018-07 simplifies the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. The new standard is effective for fiscal years beginning after December 15, 2018, and interim periods within those annual periods. Early adoption is permitted. The adoption of this standard in 2019 did not have a material impact on the consolidated financial statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses. The update requires measurement and recognition of expected credit losses for financial assets held at amortized cost, including accounts receivable. ASU 2016-13 was amended in November 2018 by ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, and again in April 2019 by ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, and in May 2019 by ASU 2019-05, Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief. ASU 2016-13, as amended, is effective for annual reporting periods of emerging growth companies beginning after December 15, 2022, including interim periods within those fiscal years. Adoption of the standard will be applied using a modified retrospective approach with a cumulative-effect adjustment to retained earnings. The Company is currently evaluating the impact on its consolidated financial statements and cannot reasonably estimate the impact on its financial statements at this time.
In December 2019, the FASB issued ASU 2019-12, Income Taxes: Simplifying the Accounting for Income Taxes. The new standard intended to simplify the accounting for income taxes by eliminating certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The standard is effective for annual periods of emerging growth companies beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15, 2022, with early adoption permitted. Adoption of the standard requires certain changes to primarily be made prospectively, with some changes to be made retrospectively. We are currently assessing the impact of this standard on our financial condition and results of operations.
3.CASH AND CASH EQUIVALENTS
Cash and cash equivalents consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
As of September 30,
|
|
in thousands
|
2018
|
|
2019
|
|
2020
|
|
|
|
|
|
|
(unaudited)
|
|
Cash
|
$
|
28,769
|
|
|
$
|
42,247
|
|
|
$
|
87,451
|
|
|
Money market mutual funds
|
86,674
|
|
|
220
|
|
|
49
|
|
|
Total cash and cash equivalents
|
$
|
115,443
|
|
|
$
|
42,467
|
|
|
$
|
87,500
|
|
4.FAIR VALUE MEASUREMENTS
The Company’s cash equivalents with regards to the money market mutual funds are classified within Level 1 of the fair value hierarchy. See Note 2, “Summary of Significant Accounting Policies” for additional details.
5.PROPERTY AND EQUIPMENT, NET
Property and equipment, net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
As of September 30,
|
|
in thousands
|
2018
|
|
2019
|
|
2020
|
|
|
|
|
|
|
(unaudited)
|
|
Internal-use software
|
$
|
19,394
|
|
|
$
|
23,365
|
|
|
$
|
24,918
|
|
|
Server equipment
|
13,805
|
|
|
21,995
|
|
|
25,373
|
|
|
Leasehold improvements
|
12,974
|
|
|
16,539
|
|
|
23,252
|
|
|
Computer equipment
|
6,825
|
|
|
9,073
|
|
|
13,680
|
|
|
Buildings
|
8,615
|
|
|
8,216
|
|
|
8,216
|
|
|
Furniture and fixtures
|
1,411
|
|
|
2,214
|
|
|
2,266
|
|
|
Software
|
222
|
|
|
222
|
|
|
222
|
|
|
Construction in progress
|
—
|
|
|
348
|
|
|
34,776
|
|
|
Total property and equipment
|
$
|
63,246
|
|
|
$
|
81,972
|
|
|
$
|
132,703
|
|
|
Accumulated depreciation and amortization
|
(25,064)
|
|
|
(30,905)
|
|
|
(40,666)
|
|
|
Property and equipment, net
|
$
|
38,182
|
|
|
$
|
51,067
|
|
|
$
|
92,037
|
|
The Company recognized depreciation and amortization expense related to its property and equipment as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Nine Months Ended September 30,
|
|
in thousands
|
2018
|
|
2019
|
|
2019
|
|
2020
|
|
|
|
|
|
|
(unaudited)
|
|
Cost of revenue
|
$
|
11,248
|
|
|
$
|
14,654
|
|
|
$
|
10,499
|
|
|
$
|
13,500
|
|
|
Research and development
|
638
|
|
|
1,181
|
|
|
796
|
|
|
1,263
|
|
|
Sales and marketing
|
1,575
|
|
|
2,086
|
|
|
1,429
|
|
|
2,317
|
|
|
General and administrative
|
277
|
|
|
316
|
|
|
149
|
|
|
399
|
|
|
Total depreciation and amortization expense
|
$
|
13,738
|
|
|
$
|
18,237
|
|
|
$
|
12,873
|
|
|
$
|
17,479
|
|
6.LEASES
The Company has operating leases for corporate offices under non-cancelable operating leases with various expiration dates. There are no finance leases. The leases have remaining terms of 1 to 14 years. Options to extend for up to 15 years have not been included because they are not reasonably certain.
The components of lease expense were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
December 31,
|
|
As of September 30,
|
|
in thousands
|
2019
|
|
2020
|
|
|
|
|
(unaudited)
|
|
Operating lease cost
|
$
|
13,177
|
|
|
$
|
17,823
|
|
|
Variable and short-term lease cost
|
1,291
|
|
|
3,307
|
|
Supplemental balance sheet information related to operating leases was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
December 31,
|
|
As of September 30,
|
|
in thousands
|
2019
|
|
2020
|
|
|
|
|
(unaudited)
|
|
Operating lease right-of-use assets
|
$
|
184,838
|
|
|
$
|
180,163
|
|
|
Operating lease liabilities, current
|
7,893
|
|
|
8,792
|
|
|
Operating lease liabilities, non-current
|
182,274
|
|
|
189,363
|
|
|
Total operating lease liabilities
|
$
|
190,167
|
|
|
$
|
198,155
|
|
Other information related to leases was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
December 31,
|
|
As of September 30,
|
|
|
2019
|
|
2020
|
|
|
|
|
(unaudited)
|
|
Weighted average remaining lease term
|
12.8 years
|
|
12.1 years
|
|
Weighted average discount rate
|
3.57
|
%
|
|
3.38
|
%
|
As of December 31, 2019 and September 30, 2020 (unaudited), the maturities of lease liabilities under non-cancelable operating leases, net of lease incentives, was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Period
|
As of
December 31,
|
|
As of
September 30,
|
|
|
2019
|
|
2020
|
|
|
|
|
(unaudited)
|
|
2020(1)
|
$
|
(20,340)
|
|
|
$
|
(27,819)
|
|
|
2021
|
17,510
|
|
|
18,782
|
|
|
2022
|
19,901
|
|
|
21,889
|
|
|
2023
|
20,140
|
|
|
22,132
|
|
|
2024
|
20,181
|
|
|
22,218
|
|
|
Thereafter
|
187,580
|
|
|
191,947
|
|
|
Total minimum lease payments
|
$
|
244,972
|
|
|
$
|
249,149
|
|
|
Less: imputed interest
|
(54,805)
|
|
|
(50,994)
|
|
|
Total
|
$
|
190,167
|
|
|
$
|
198,155
|
|
________________
(1)Negative amount includes $31 million of lease incentives to be received in 2020.
As of December 31, 2018, prior to the adoption of Topic 842, the maturities of lease liabilities under non-cancelable operating leases was as follows (in thousands):
|
|
|
|
|
|
|
|
Fiscal Period
|
Operating Leases
|
|
2019
|
$
|
9,682
|
|
|
2020
|
10,342
|
|
|
2021
|
6,329
|
|
|
2022
|
6,198
|
|
|
2023
|
6,025
|
|
|
Thereafter
|
39,257
|
|
|
Total minimum lease payments
|
$
|
77,833
|
|
Rent expense related to the operating leases for the year ended December 31, 2018 was $9.1 million.
7.BUSINESS COMBINATIONS
In 2019 and 2020, the Company did not enter into any business combinations.
In March 2018, the Company acquired the outstanding stock of Delighted, Inc. (“Delighted”), a customer experience measurement and rating company. The assets, liabilities, and operating results of Delighted are reflected in the Company’s consolidated financial statements from the date of acquisition. On the closing date, the Company paid approximately $7.0 million in cash, net of cash assumed in the acquisition. The Company recorded a tax benefit of $0.8 million as a result of a valuation allowance reversal related to deferred tax liabilities generated from the acquisition. The acquisition resulted in a deferred tax liability of $0.8 million, mostly due to basis differences in acquired intangible assets. After recording the deferred tax liability through purchase accounting, the Company determined its existing deferred tax assets (primarily consisting of net operating loss carryovers and tax credits) could be applied against the deferred tax liability of Delighted and reduced its valuation allowance, resulting in a benefit to the tax provision.
In October 2018, the Company acquired the outstanding stock of Temkin Group, LLC (“Temkin”), a customer experience research, consulting, and training company. The assets, liabilities, and operating results of Temkin are reflected in the Company’s consolidated financial statements from the date of acquisition. On the closing date, the Company paid approximately $2.9 million in cash, net of cash assumed in the acquisition.
The total consideration transferred for the Delighted and Temkin acquisitions was allocated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
Delighted
(March 2018)
|
|
Temkin
(October 2018)
|
|
Developed technology
|
$
|
2,260
|
|
|
$
|
—
|
|
|
Customer relationships
|
1,840
|
|
|
180
|
|
|
Developed content
|
—
|
|
|
400
|
|
|
Tradenames
|
550
|
|
|
—
|
|
|
Goodwill
|
3,195
|
|
|
2,869
|
|
|
Other assets, net
|
1,163
|
|
|
—
|
|
|
Total assets acquired
|
$
|
9,008
|
|
|
$
|
3,449
|
|
|
Deferred tax liability
|
(791)
|
|
|
—
|
|
|
Other liabilities, net
|
—
|
|
|
(539)
|
|
|
Total assets acquired, net
|
$
|
8,217
|
|
|
$
|
2,910
|
|
The goodwill arising from the acquisitions discussed above consists largely of the synergies and economies of scale the Company is expected to achieve from combining the acquired assets and operations with its existing operations. Acquisition-related costs were not material for either acquisition and were expensed as incurred and included in general and administrative expenses. Goodwill related to Delighted is not deductible for tax purposes, whereas goodwill related to Temkin is deductible for tax purposes. The contribution of Delighted and Temkin to the 2018 revenue and earnings is not material (the effects would also not have been material if the acquisitions had closed at the beginning of 2018).
8.OTHER INTANGIBLE ASSETS, NET
Other intangible assets, net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
As of September 30,
|
|
in thousands
|
2018
|
|
2019
|
|
2020
|
|
|
|
|
|
|
(unaudited)
|
|
Patents
|
$
|
751
|
|
|
$
|
751
|
|
|
$
|
751
|
|
|
Developed technology
|
3,070
|
|
|
3,070
|
|
|
3,070
|
|
|
Customer relationships
|
2,100
|
|
|
2,100
|
|
|
2,100
|
|
|
Developed content
|
400
|
|
|
400
|
|
|
400
|
|
|
Tradename
|
550
|
|
|
550
|
|
|
550
|
|
|
License agreements
|
1,500
|
|
|
1,500
|
|
|
1,500
|
|
|
Total intangible assets
|
$
|
8,371
|
|
|
$
|
8,371
|
|
|
$
|
8,371
|
|
|
Accumulated amortization
|
(1,479)
|
|
|
(2,957)
|
|
|
(4,048)
|
|
|
Other intangible assets, net
|
$
|
6,892
|
|
|
$
|
5,414
|
|
|
$
|
4,323
|
|
The Company recognized amortization expense to cost of revenue of $0.7 million, $1.2 million, $0.9 million, and $0.8 million for the years ended December 31, 2018 and 2019, and for the months ended September 30, 2019 and 2020 (unaudited), respectively. An immaterial amount of amortization expense was recorded to sales and marketing and general and administrative for the years ended December 31, 2018 and 2019, and for the nine months ended September 30, 2019 and 2020 (unaudited).
Estimated amortization expense for intangible assets for the next five years consists of the following as of September 30, 2020 (unaudited):
|
|
|
|
|
|
|
|
|
As of
September 30,
|
|
in thousands
|
2020
|
|
|
(unaudited)
|
|
2020
|
$
|
364
|
|
|
2021
|
1,455
|
|
|
2022
|
1,104
|
|
|
2023
|
398
|
|
|
2024
|
281
|
|
|
Thereafter
|
721
|
|
|
Total
|
$
|
4,323
|
|
9.ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
As of September 30,
|
|
in thousands
|
2018
|
|
2019
|
|
2020
|
|
|
|
|
|
|
(unaudited)
|
|
Accrued wages, bonuses and commissions
|
$
|
20,318
|
|
|
$
|
45,238
|
|
|
$
|
46,225
|
|
|
Accrued payroll taxes
|
3,598
|
|
|
1,742
|
|
|
2,400
|
|
|
Other accrued expenses
|
12,748
|
|
|
21,602
|
|
|
19,949
|
|
|
Accrued income taxes
|
473
|
|
|
11,447
|
|
|
9,745
|
|
|
Total accrued liabilities
|
$
|
37,137
|
|
|
$
|
80,029
|
|
|
$
|
78,319
|
|
10.COMMITMENTS AND CONTINGENCIES
Leases
In March 2018, the Company entered into a lease commitment for additional office space that is currently being constructed in Dublin, Ireland. Upon delivery of the constructed office space, the Company will pay approximately $1.7 million per annum to lease the space. The Company expects the constructed office space to be delivered in 2021. The lease agreement is for 15-years, with a termination option at the election of the Company at the end of the 8th year.
An unconditional bank guarantee for $0.8 million with an expiration date of December 31, 2021, was outstanding as of December 31, 2018 and 2019, and September 30, 2020 (unaudited). This bank guarantee is required by the lease agreement on the Company’s Sydney, Australia office.
Legal Matters
From time to time, the Company is a party to a variety of claims, lawsuits, and proceedings which arise in the ordinary course of business, including claims of alleged infringement of intellectual property rights. The Company records a liability when it believes that it is probable that a loss will be incurred, and the amount of loss or range of loss can be reasonably estimated. Given the unpredictable nature of legal proceedings, the Company bases its estimate on the information available at the time of the assessment. As additional information becomes available, the Company reassesses the potential liability and may revise the estimate. The Company is not presently a party to any litigation the outcome of which, it believes, if determined adversely to the Company, would individually or in the aggregate have a material adverse effect on the business, operating results, or financial condition.
11.REDEEMABLE CONVERTIBLE PREFERRED STOCK
The Company has elected to follow the SEC staff’s guidance (included in ASC 480-10-S99, SEC Materials) when evaluating the classification for its shares within the balance sheets. A liquidation or winding up of the Company, a greater than 50% change in control, or a sale of substantially all of its assets triggered a redemption of these shares. Therefore, all shares of redeemable convertible preferred stock outstanding as of December 31, 2018 were presented outside of permanent equity as they were contingently redeemable.
As of December 31, 2019 and September 30, 2020 (unaudited), no redeemable convertible preferred stock was outstanding after the conversion of the 183,031,841 shares of redeemable convertible preferred stock in January 2019.
The following table summarizes the redeemable convertible preferred stock outstanding and liquidation preferences – prior to the capital restructuring - as of December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Per share price at issuance (in $)
|
|
Liquidation preference (in $)
|
|
|
Authorized
|
|
Outstanding
|
|
|
|
Series A-1
|
18,013,088
|
|
12,572,189
|
|
$
|
2.00
|
|
|
$
|
2,514
|
|
|
Series A-2
|
94,884,748
|
|
88,823,418
|
|
2.00
|
|
|
34,161,487
|
|
Series A-3
|
1,400,000
|
|
1,399,993
|
|
2.00
|
|
|
2,800,000
|
|
Series B-1
|
35,000,000
|
|
35,000,000
|
|
2.00
|
|
|
70,000,000
|
|
Series B-2
|
27,102,163
|
|
27,102,161
|
|
4.46
|
|
|
120,833,333
|
|
Series B-3
|
20,204,436
|
|
10,102,212
|
|
12.38
|
|
|
124,999,996
|
|
Series B-4
|
5,607,344
|
|
5,607,341
|
|
5.36
|
|
|
30,000,000
|
|
Series B-5
|
4,849,064
|
|
|
2,424,527
|
|
12.38
|
|
|
30,000,001
|
|
Total
|
207,060,843
|
|
|
183,031,841
|
|
|
|
$
|
412,797,331
|
|
Upon a liquidation event, as defined in the then current certificate of incorporation, the holders of Series A-1, Series A-2, Series A-3, Series B-1, Series B-2, Series B-3, Series B-4, and Series B-5 redeemable convertible preferred stock were entitled to receive, prior to and in preference to any distribution of the proceeds of such liquidation to common stockholders, an amount per share equal to $0.00, $0.38, $2.00, $2.00, $4.46, $12.38, $5.36, and $12.38, respectively, plus any declared but unpaid dividends on such shares. If the proceeds distributed among the holders of the redeemable convertible preferred stock are insufficient to permit the redeemable convertible preferred stock holders to receive the full payment noted above, then the entire proceeds legally available for distribution would have been distributed ratably among the holders of the redeemable convertible preferred stock in proportion to the full preferential amount that each such holder were otherwise entitled to receive.
Dividends
Holders of the Company’s redeemable convertible preferred stock were entitled to receive dividends, when, as and if declared by the Company’s Board of Directors, on a pro-rata share ownership basis, prior to and in preference of any dividend paid to holders of the Company’s common stock. Such dividends were not cumulative or mandatory. No dividends have been declared in any period presented.
Voting
Each holder of redeemable convertible preferred stock had the right to 10 votes for each share of Class A common stock into which the shares of redeemable convertible preferred stock held by such holder could then be converted.
Conversion
In January 2019, the Company’s redeemable convertible preferred stock were converted to common stock as follows:
At the option of the holder thereof, each share of redeemable convertible preferred stock was converted into a number of shares of Class A common stock that results from dividing the applicable original issue price for such series by the applicable conversion price in effect on the date of conversion (the “Conversion Rate”). Each share of the 183,031,841 redeemable convertible preferred stock was automatically converted into 183,031,841 shares of Class A common stock at the Conversion Rate at the time in effect for such series of redeemable convertible preferred stock upon the closing of the Company’s sale.
12.COMMON STOCK
On January 23, 2019, with the completion of the SAP Acquisition, Merger was merged with and into Qualtrics International Inc. As a result of the Reorganization, the separate corporate existence of Merger ceased, and the Company continues as the surviving corporation. In connection with the Reorganization, all shares of redeemable
convertible preferred stock and common stock are no longer outstanding. The shares of common stock of Merger became newly issued and outstanding shares of the surviving corporation.
As of December 31, 2019 and September 30, 2020 (unaudited), the Company had 423,170,610 shares common stock outstanding.
As of December 31, 2018, the Company was authorized to issue 194,534,094 shares of Class A common stock and 234,471,093 shares of Class B common stock. Holders of Class A common stock and Class B common stock were entitled to dividends on a pro rata basis, when, as, and if declared by the Company’s Board of Directors, subject to the rights of the holders of the Company’s redeemable convertible preferred stock. Holders of Class A common stock are entitled to 10 votes per share, and holders of Class B common stock are entitled to one vote per share. Upon a liquidation event, as defined in the then current certificate of incorporation, after payments are made to holders of the Company’s redeemable convertible preferred stock, any distribution of proceeds to common stockholders would have been made on a pro rata basis to the holders of Class A common stock and Class B common stock.
As of December 31, 2018, the Company had 3,608,688 shares of Class B common stock outstanding. No shares of Class A common stock were outstanding for this period.
13.STOCK-BASED COMPENSATION
Stock-based compensation expense, including cash settled, for the years ended December 31, 2018 and 2019 and the nine months ended September 30, 2019 and 2020 (unaudited) was recorded as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Nine Months Ended September 30,
|
|
in thousands
|
2018
|
|
2019
|
|
2019
|
|
2020
|
|
|
|
|
|
|
(unaudited)
|
|
Cost of subscription revenue
|
$
|
4
|
|
|
$
|
24,136
|
|
|
$
|
20,947
|
|
|
$
|
3,809
|
|
|
Cost of professional services and other revenue
|
144
|
|
|
17,168
|
|
|
13,937
|
|
|
6,193
|
|
|
Research and development
|
2,228
|
|
|
130,809
|
|
|
107,134
|
|
|
63,165
|
|
|
Sales and marketing
|
708
|
|
|
115,581
|
|
|
94,088
|
|
|
34,933
|
|
|
General and administrative
|
1,516
|
|
|
588,532
|
|
|
514,015
|
|
|
109,949
|
|
|
Total stock-based compensation expense, including cash settled(1)
|
$
|
4,600
|
|
|
$
|
876,226
|
|
|
$
|
750,121
|
|
|
$
|
218,049
|
|
______________
(1)As a result of the SAP Acquisition, our stock based compensation expense reflects the recognition of both equity classified awards and liability classified awards. Liability classified awards are settled in cash in accordance with SAP’s employee equity compensation programs. 2018 stock-based compensation expense consisted entirely of equity-classified awards. 2019 stock-based compensation expense consisted of $185.8 million of equity-classified awards and was recognized as a result of the SAP Acquisition, and $690.4 million of liability-classified awards, of which $312.8 million were settled in cash in 2019. For the nine months ended September 30, 2019 and 2020, stock-based compensation expense consisted of $185.8 million, and $0.0 million, respectively, of equity-classified awards recognized as a result of the SAP Acquisition, and $564.3 million and $218.0 million, respectively, of liability-classified awards. During the nine months ended September 30, 2019 and 2020, awards of $213.2 million and $284.0 million, respectively, were settled in cash. Liability-classified awards are recorded according to mark-to-market accounting.
Equity Awards
2014 Stock Option and Grant Plan (2014 Plan)
Under the Company’s 2014 Stock Option and Grant Plan, as amended (the “2014 Plan”), the Company may grant stock-based awards to purchase or directly issue shares of common stock to employees, directors, and consultants. The Company issued four types of equity awards under the 2014 Plan, 1) one-tier RSAs, 2) two-tier
RSAs, 3) two-tier RSUs, and 4) stock options. Each of these types of equity awards were outstanding as of December 31, 2018, as follows:
•One-tier RSAs, which have a service-based vesting condition over a four-year period. These awards have a cliff vesting period of one year and continue to vest quarterly thereafter. The Company began granting one-tier RSAs under its 2014 Plan in April 2014. The last grant of one-tier RSAs in the 2014 Plan was in August 2014. The Company recognizes compensation expense associated with one-tier RSAs ratably on a straight-line basis over the requisite service period. Additional one-tier RSAs have been issued subsequent to August 2014, outside the 2014 Plan, in relation to business combinations.
•Two-tier RSAs, which have both a service-based vesting condition and a performance vesting condition. The service-based vesting period for these awards is four years with a cliff vesting period of one year and continue to vest quarterly thereafter. The performance vesting condition is satisfied on the earlier of (i) an acquisition or change in control of the Company or (ii) upon the occurrence of an initial public offering by the Company. As of December 31, 2018, no compensation expense related to two-tier RSAs had been recognized, because the performance vesting condition was not satisfied. In January 2019, for two-tier RSAs, at the time the performance condition becomes probable, the Company has recognized the cumulative stock-based compensation expense for the awards that have met their service-based vesting condition using the accelerated attribution method of $1.1 million.
•Two-Tier RSUs, which have both a service-based vesting condition and a performance vesting condition. The service-based vesting period for these awards is generally four years with a cliff vesting period of one year and continue to vest quarterly thereafter. The performance vesting condition is satisfied on the earlier of (i) an acquisition or change in control of the Company or (ii) upon the occurrence of an initial public offering by the Company. The Company began granting two-tier RSUs under its 2014 plan in April 2014. Certain two-tier RSUs contained change in control provisions and vesting was accelerated upon close of the acquisition in January 2019. As of December 31, 2018, no compensation expense related to two-tier RSUs had been recognized because the performance vesting condition was not satisfied. In January 2019, for two-tier RSUs, at the time the performance condition became probable, the Company recognized the cumulative stock-based compensation expense for the awards that have met their service-based vesting condition using the accelerated attribution method of $125.2 million.
•Stock options, which have a service-based vesting period. The Company began granting stock options under its 2014 plan in August 2016. The last grant of stock options in the 2014 Plan was in October 2018. Certain stock options contained change in control provisions and vesting was accelerated upon close of the acquisition in January 2019. The Company records compensation expense related to stock options granted to employees and contractors based on the fair values estimated using the Black-Scholes pricing model on the measurement date. This valuation model for stock-based compensation expense requires the Company to make assumptions and judgments about the variables used in the Black-Scholes pricing model, including the fair value of its common stock, expected term, expected volatility, risk-free interest rate, and expected dividend yield. These judgments are made as follows:
Fair Value of Common Stock
The absence of an active market for the Company’s common stock required it to estimate the fair value of its common stock for purposes of granting stock options, RSAs as well as RSUs, and for determining equity and cash settled stock-based compensation expense for the periods presented. The Company obtained contemporaneous third-party valuations to assist in determining the estimated fair value of its common stock. These contemporaneous third-party valuations used the methodologies, approaches, and assumptions consistent with the American Institute of Certified Public Accountants Practice Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation.
The Company considered numerous factors in assessing the estimated fair value of its common stock, including the rights, preferences, and privileges of its redeemable convertible preferred stock relative to those of its common stock; market multiples of comparable public companies in its industry as indicated by their market capitalization
and guideline merger and acquisition transactions; the Company’s performance and market position relative to its competitors, who may change from time to time; the Company’s historical financial results and estimated trends and prospects for its future performance; the economic and competitive environment; the likelihood and timeline of achieving a liquidity event, such as an initial public offering or sale of the Company, given prevailing market conditions; any adjustments necessary to recognize a lack of marketability for its common stock; and precedent sales of or offers to purchase its common stock.
Expected Term
The Company estimated the expected term using the simplified method, as the Company did not have sufficient historical exercise activity to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior. The simplified method calculated the average period the stock options were expected to remain outstanding as the midpoint between the vesting date and the contractual expiration date of the award.
Expected Volatility
The expected volatility rate was based on an average of the historical volatilities of the publicly traded equity securities of several entities with characteristics similar to those of the Company, as there had been no public market for the Company’s Class B common stock to date and as a result the Company did not have any trading history of its Class B common stock
Risk-Free Interest Rate
The risk-free interest rate was based on the U.S. Treasury security in effect at the time of grant for maturities corresponding with the expected term of the option.
Expected Dividend Yield
The Company had not paid and does not expect to pay dividends. Consequently, the Company used an expected dividend yield of zero.
The fair values of the stock options granted during the year 2018 were calculated using the following assumptions:
|
|
|
|
|
|
|
|
|
As of
December 31,
|
|
|
2018
|
|
Fair value of underlying common stock
|
$13.30 - $15.38
|
|
Expected term (in years)
|
6.0 - 6.4
|
|
Expected volatility
|
45.0%
|
|
Risk free interest rate
|
2.5% - 3.0%
|
|
Expected dividend yield
|
—
|
|
As of December 31, 2018 555,839 stock options were vested and exercisable, respectively. The weighted-average exercise prices of the exercisable stock options were $12.80 as of December 31, 2018. The weighted-average remaining contractual term of the exercisable stock options was 7.7 years at December 31, 2018. The aggregate intrinsic value of options vested and expected to vest as of December 31, 2018 was $48.4 million. The aggregate intrinsic value of options exercisable as of December 31, 2018 was $13.8 million.
Founder Awards
In September 2018, the Company’s board of directors approved co-founder equity grants to Messrs. Ryan Smith and Jared Smith. These were the first equity grants offered to the founders in the history of the Company. The grants issued were a mix of time-based grants and performance grants based upon the future success of the Company. The grants included RSUs with respect to 11.25 million shares of Class B common stock in the aggregate, or,
collectively, the Founder Grants, of which 9.0 million RSUs were granted to Mr. Ryan Smith, our co-founder and then Chief Executive Officer, and 2.25 million RSUs were granted to Mr. Jared Smith, our co-founder and then President. Subject to satisfaction of a liquidity-based vesting condition, 50% of the Founder Grants vest upon the satisfaction of a service condition (“Founder Time Grants”), and 50% of the Founder Grants vest upon the satisfaction of a service condition and achievement of certain stock price goals (“Founder Performance Grants”), each as described below. The liquidity-based vesting condition for each Founder Grant is the earlier to occur of (i) a Sale Event (as defined in our 2014 Plan) or (ii) the consummation of an initial public offering. Vesting is also contingent upon the individuals maintaining certain positions with the Company.
The Founder Performance Grants were eligible to vest over the five-year period following August 1, 2018. The Founder Performance Grants comprised five tranches that were eligible to vest upon the first applicable vesting date, or Vesting Date, to occur following the achievement of specified stock price goals, for each, a Stock Price Target, measured as a ninety-day rolling average trading price at any time during the 12-month period prior to a Vesting Date. The stock price goals ranged from $35.56 to $71.12 and upon the achievement of each price goal 20% of the shares would vest. In November 2019 the Founder Performance Grants were modified such that upon the Merger with SAP the awards would be terminated and forfeited for no consideration, which occurred in January 2019. No compensation expense related to the Founder Performance Grants had been recognized.
The Founder Time Grants satisfy the service condition over the five-year period following August 1, 2018, with the initial 20% satisfying the service condition on August 1, 2019 and the remaining 80% satisfying the service condition in sixteen equal quarterly installments thereafter. In addition, upon a Sale Event, 50% of any then-unvested portion of the Founder Time Grants would vest in full. At the time the performance condition became probable as a result of the SAP Merger, the Company recognized the cumulative stock-based compensation expense of $52.1 million for the awards that had met the service-based vesting condition using the accelerated attribution method.
In January 2019, the Company’s board of directors approved co-founder equity grants to Messrs. Ryan Smith and Jared Smith. The grants issued are time-based grants. The grants include RSUs with respect to 6.1 million shares of Class B common stock in the aggregate (“Founder New Grants”), of which 4.07 million RSUs were granted to Mr. Ryan Smith, our co-founder and then Chief Executive Officer, and 2.03 million RSUs were granted to Mr. Jared Smith, our co-founder and then President. These awards are subject to the satisfaction of a service condition over a two-year period from the closing date, with the initial 25% satisfying the service condition on July 23, 2019 and the remaining 75% satisfying the service condition in six equal quarterly installments thereafter.
Equity activity for the 2014 Plan – prior to the capital restructuring - was as follows for the years ended December 31, 2018 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options outstanding
|
|
One-Tier Restricted Stock Outstanding
|
|
Two-Tier Restricted Stock Outstanding
|
|
Two-Tier Restricted Stock Units Outstanding
|
|
in thousands
|
Number of shares available for issuance under the 2014 Plan
|
|
Number of shares outstanding under the 2014 Plan
|
|
Weighted average exercise price per share
(in $)
|
|
Weighted average remaining contractual term (years)
|
|
Number of shares outstanding under the 2014 Plan
|
|
Weighted average grant date fair value per share (in $)
|
|
Number of shares outstanding under the 2014 Plan
|
|
Weighted average grant date fair value per share (in $)
|
|
Number of shares outstanding under the 2014 Plan
|
|
Weighted average grant date fair value per share (in $)
|
|
Weighted average remaining contractual term (years)
|
|
Balance at January 1, 2018
|
563
|
|
|
1,070
|
|
|
12.79
|
|
|
9.40
|
|
|
2,231
|
|
|
0.19
|
|
|
995
|
|
|
0.24
|
|
|
18,230
|
|
|
6.05
|
|
|
5.80
|
|
|
Additional shares authorized
|
23,214
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
Shares granted
|
(20,556)
|
|
|
824
|
|
|
14.57
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
19,732
|
|
|
14.90
|
|
|
|
|
Shares forfeited
|
982
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(982)
|
|
|
9.07
|
|
|
|
|
Shares repurchased
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
(40)
|
|
|
0.26
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
Balance at December 31, 2018
|
4,203
|
|
|
1,894
|
|
|
13.57
|
|
|
8.20
|
|
|
2,191
|
|
|
0.18
|
|
|
995
|
|
|
0.24
|
|
|
36,980
|
|
|
10.68
|
|
|
5.50
|
|
|
Shares granted
|
(6,700)
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,700
|
|
|
34.92
|
|
|
|
|
Shares cancelled
|
5,600
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,600)
|
|
|
15.38
|
|
|
|
|
Shares forfeited
|
192
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(192)
|
|
|
2.33
|
|
|
|
|
Shares settled
|
—
|
|
|
(1,498)
|
|
|
13.50
|
|
|
|
|
(2,191)
|
|
|
0.18
|
|
|
(995)
|
|
|
0.24
|
|
|
(14,277)
|
|
|
7.52
|
|
|
|
|
Shares exchanged
|
—
|
|
|
(396)
|
|
|
13.81
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(23,611)
|
|
|
18.46
|
|
|
|
|
Cancelled authorized shares
|
(3,295)
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
Balance at December 31, 2019
|
—
|
|
|
—
|
|
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
Cash Awards
Cash Awards Replacing Pre-Acquisition Qualtrics Awards (Qualtrics Rights)
In conjunction with the acquisition, unvested Restricted Share Awards (RSAs), Restricted Share Units (RSUs), and options held by employees of Qualtrics were exchanged into stock-based cash awards (Qualtrics Rights).
The replacement awards closely mirror the terms of the replaced awards except that:
•The replaced awards were planned to be settled by issuing equity instruments, whereas the replacement awards are settled in cash.
•RSAs, RSUs, and options granted before 2018 and unvested as at the closing date of the Qualtrics acquisition were converted into the right to receive, at the originally agreed vesting dates, an amount in cash equal to the number of RSAs and RSUs held as at the vesting date multiplied by $35.00 per share. The respective amount of options equals the number of options held as at the vesting date multiplied by $35.00 per share less the originally-agreed exercise price.
•RSAs and RSUs granted in 2018 and thereafter and unvested as at the closing date of the Qualtrics acquisition were converted into awards that are indexed to SAP’s share price as follows: SAP’s consideration per share ($35.00) was divided by the average closing price of the SAP share over the five trading days on the closing date (€91.28), translated into US$ ($103.75), and the result (Equity Award Exchange Ratio of 0.3373) was multiplied by the average closing price of the SAP share over the five trading days prior to the exercise or vesting date.
There were 24.7 million unvested Qualtrics Rights as at the closing date of the acquisition, representing a fair value of $848 million. Of the total fair value, $244 million was allocated to pre-modification service, while $604 million was allocated to future services to be provided. Post-modification compensation expense will be recognized as the awards vest over the remainder of the original vesting terms. The remaining vesting periods for such Qualtrics Rights are in a range of up to five years from closing date. In January 2019, at the time of the modification, the Company recognized the cumulative stock-based compensation expense for the awards that have been exchanged of $173.5 million.
The unvested Qualtrics Rights include the converted Founder Grants. All awards are paid out in cash upon vesting. SAP is contractually obligated to contribute the required cash to settle the awards.
From January 23, 2019, through December 31, 2019, 7.8 million Qualtrics Rights vested and were settled by an amount of $311 million in cash. During the nine months ended September 30, 2020 (unaudited), 5.9 million Qualtrics Rights vested and were settled by an amount of $252 million in cash. The unrecognized expense related to Qualtrics Rights was $252 million and $118 million as of December 31, 2019 and September 30, 2020 (unaudited), and will be recognized over a remaining vesting period of up to four years.
As of December 31, 2019 and September 30, 2020 (unaudited), 11.7 million and 7.0 million outstanding Qualtrics Rights were valued based on the SAP share of €120.32 and €132.76, respectively, multiplied by the Equity Award Exchange Ratio translated into US$ and 4.3 million and 2.5 million, respectively, outstanding Qualtrics Rights were valued by $35.00. The weighted-average remaining contractual term of the Qualtrics Rights was 1.5 and 1.4 years at December 31, 2019 and September 30, 2020 (unaudited), respectively. None of the outstanding awards are vested or exercisable and the intrinsic value of vested awards is zero. The weighted average SAP share price for the Qualtrics Rights exercised in 2019 and during the nine months ended September 30, 2020 (unaudited) is €106.15 and €112.80, respectively.
Move SAP Plan (SAP RSU Plan)
To retain and motivate executives and certain employees, SAP grants virtual shares representing a contingent right to receive a cash payment determined by the SAP share price and the number of share units that ultimately vest.
Granted share units will vest in annual tranches over a three year service period.
•Move SAP RSUs have a service-based vesting condition over a three-year period. These awards have a cliff vesting period of one year and continue to vest annually thereafter. The Company began granting under Move SAP Plan in March 2019. The Company recognizes compensation expense associated with the RSUs ratably on a straight-line basis over the requisite service period. All awards are paid out in cash upon vesting. There were no SAP RSUs that vested and therefore no cash settlements for the year ended 2019.
The fair values of the cash awards at the December 31, 2019 and September 30, 2020 (unaudited) were calculated using the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SAP RSU Plan
|
|
|
As of December 31, 2019
|
|
As of September 30, 2020
|
|
|
|
|
(unaudited)
|
|
Fair value of underlying common stock
|
€120.32
|
|
€132.76
|
|
Weighted average remaining life at year end (in years)
|
1.5
|
|
1.4
|
|
Weighted average fair value at year end
|
€118.08
|
|
€130.49
|
|
Risk free interest rate
|
(0.53%) to (0.13%)
|
|
(0.61%) to (0.30%)
|
|
Expected dividend yield
|
1.26%
|
|
1.24%
|
For these awards, the fair value is calculated by subtracting the net present value of expected future dividend payments, if any, until maturity of the respective award from the prevailing share price as at the valuation date. The risk-free interest rate is derived from German government bonds with a similar duration. The SAP dividend yield is based on expected future dividends.
In the nine months ended September 30, 2020 (unaudited), 0.2 million Move SAP RSUs vested and were settled by an amount of $25 million in cash. The unrecognized expense related to Move SAP RSUs was $195 million as of September 30, 2020 (unaudited) and will be recognized over a remaining vesting period of up to three years.
Changes in Outstanding Awards Under Our Cash-Settled Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
Qualtrics Rights
|
|
SAP RSU Plan
|
|
12/31/2018
|
—
|
|
|
—
|
|
|
Granted
|
24,666
|
|
|
1,051
|
|
|
Transferred in/out
|
—
|
|
|
1
|
|
|
Settled/exercised
|
(7,776)
|
|
|
—
|
|
|
Forfeited
|
(883)
|
|
|
(1)
|
|
|
12/31/2019
|
16,007
|
|
|
1,051
|
|
|
Granted (unaudited)
|
—
|
|
|
845
|
|
|
Transferred in/out (unaudited)
|
—
|
|
|
3
|
|
|
Settled/exercised (unaudited)
|
(5,945)
|
|
|
(195)
|
|
|
Forfeited (unaudited)
|
(630)
|
|
|
(115)
|
|
|
9/30/2020 (unaudited)
|
9,432
|
|
|
1,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
Qualtrics Rights
|
|
SAP RSU Plan
|
|
Total carrying amount of liabilities as at December 31, 2019
|
423,081
|
|
|
25,147
|
|
|
Total carrying amount of liabilities as at September 30, 2020 (unaudited)
|
331,614
|
|
|
52,184
|
|
|
|
|
|
|
|
Total expense recognized in 2019
|
663,309
|
|
|
25,076
|
|
|
Total expense recognized in the nine months ended September 30, 2020 (unaudited)
|
160,696
|
|
|
52,038
|
|
Own SAP Plan (Own)
Starting in July 2019 under Own, employees have the opportunity to purchase, on a monthly basis, SAP shares without any required holding period. The investment per each eligible employee is limited to a percentage of the respective employee's monthly base salary. The Company matches the employee investment by 40% and adds a subsidy equivalent of €20 per month for non-executives. The number of shares purchased under this plan was 53,293 and 130,058 in 2019 and in the nine months ended September 30, 2020 (unaudited), respectively. The Company recognized compensation expense associated with the match of $2.0 million and $5.0 million in 2019 and in the nine months ended September 30, 2020 (unaudited), respectively.
As a result of our stock-based payments transactions, the Company has commitments to grant SAP shares to employees. The Company intends to meet these commitments through SAP by reissuing treasury shares or through an agent who administers the equity-settled programs and purchases shares on the open market. The Company has fulfilled the obligations of Own through an agent.
14.NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS
The following table sets forth the calculation of basic net loss per share attributable to common stockholders during the periods presented.
Due to the impact of the SAP acquisition of Qualtrics, the Company’s capital structure for the years ended December 31, 2018 and 2019 are not comparable. As a result, the presentation of net loss per share for the year ended prior to the transaction is not meaningful and only net loss per share for periods subsequent to the SAP acquisition of Qualtrics are presented herein.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands (except share amount)
|
January 23, 2019 through December 31, 2019
|
|
January 23, 2019 through September 30, 2019
|
|
Nine Months Ended September 30, 2020
|
|
|
|
|
(unaudited)
|
|
Numerator:
|
|
|
|
|
|
|
Net loss attributable to common shareholder
|
$
|
(743,010)
|
|
|
$
|
(598,292)
|
|
|
$
|
(258,027)
|
|
|
Denominator:
|
|
|
|
|
|
|
Weighted-average shares outstanding for basic loss per share
|
423,170,610
|
|
|
423,170,610
|
|
|
423,170,610
|
|
|
Basic loss per share
|
$
|
(1.76)
|
|
|
$
|
(1.41)
|
|
|
$
|
(0.61)
|
|
15.INCOME TAXES
For the years ended December 31, 2018 and 2019, the Company’s (loss) from continuing operations before provision for income taxes was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
in thousands
|
2018
|
|
2019
|
|
Domestic
|
$
|
(41,919)
|
|
|
$
|
(1,016,772)
|
|
|
Foreign
|
8,967
|
|
|
22,138
|
|
|
Loss before income taxes
|
$
|
(32,952)
|
|
|
$
|
(994,634)
|
|
The federal, state and foreign income tax provisions are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
in thousands
|
2018
|
|
2019
|
|
Current taxes:
|
|
|
|
|
Federal
|
$
|
—
|
|
|
$
|
(127)
|
|
|
State
|
(23)
|
|
|
175
|
|
|
Foreign
|
4,135
|
|
|
18,326
|
|
|
Total current taxes
|
$
|
4,112
|
|
|
$
|
18,374
|
|
|
Deferred taxes:
|
|
|
|
|
Federal
|
$
|
(515)
|
|
|
$
|
127
|
|
|
State
|
(261)
|
|
|
—
|
|
|
Foreign
|
1,020
|
|
|
(5,502)
|
|
|
Total deferred taxes
|
244
|
|
|
(5,375)
|
|
|
Total
|
$
|
4,356
|
|
|
$
|
12,999
|
|
A reconciliation of the statutory U.S. federal income tax rate to the Company’s effective income tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
in %
|
2018
|
|
2019
|
|
Tax at U.S. statutory rates
|
21.0
|
%
|
|
21.0
|
%
|
|
State tax, net of federal tax effect
|
4.5
|
%
|
|
5.5
|
%
|
|
Foreign taxes
|
(8.4)
|
%
|
|
(1.0)
|
%
|
|
Items not deductible for tax
|
(3.6)
|
%
|
|
(0.6)
|
%
|
|
Equity compensation
|
(1.1)
|
%
|
|
8.4
|
%
|
|
Tax credits
|
27.6
|
%
|
|
3.1
|
%
|
|
Changes in valuation allowance to operations
|
(45.4)
|
%
|
|
(36.7)
|
%
|
|
Changes in tax reserves
|
(7.8)
|
%
|
|
(1.0)
|
%
|
|
Effective income tax rate
|
(13.2)
|
%
|
|
(1.3)
|
%
|
Significant components of the Company’s deferred tax assets (liabilities) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
in thousands
|
2018
|
|
2019
|
|
Deferred tax assets:
|
|
|
|
|
Investment in partnership
|
$
|
4,785
|
|
|
$
|
111,172
|
|
|
Tax credits
|
16,452
|
|
|
40,660
|
|
|
Charitable contribution carryovers
|
683
|
|
|
665
|
|
|
Stock compensation
|
—
|
|
|
8,171
|
|
|
Net operating loss carryovers
|
16,381
|
|
|
250,071
|
|
|
Other
|
292
|
|
|
2,721
|
|
|
Gross deferred tax assets
|
38,593
|
|
|
413,460
|
|
|
Valuation allowance
|
(37,181)
|
|
|
(403,033)
|
|
|
Net deferred tax assets
|
1,412
|
|
|
10,427
|
|
|
Deferred tax liabilities:
|
|
|
|
|
Compensation accruals
|
(2,482)
|
|
|
(4,096)
|
|
|
Other
|
(992)
|
|
|
(3,018)
|
|
|
Total net deferred tax assets (liabilities)
|
$
|
(2,062)
|
|
|
$
|
3,313
|
|
The Company conducts the majority of its operations through a limited liability company that is wholly owned within the consolidated group. Accordingly, the outside basis difference in the limited liability company is reflected as a deferred tax asset, shown as “investment in partnership.” The foreign local deferred taxes are reported separately from the investment in partnership deferred tax asset and liability.
ASC 740, Income Taxes, provides for the recognition of deferred tax assets if realization of such assets is more likely than not. In assessing the need for a valuation allowance, the Company considered all available evidence, both positive and negative, including historical levels of income, legislative developments, expectations, and risks associated with estimates of future taxable income, and prudent and feasible tax planning strategies. The valuation allowance for deferred tax assets was $37.2 million and $403.0 million at December 31, 2018 and 2019, respectively. During 2019, the valuation allowance increased by $365.8 million primarily due to current year pre-tax book losses in the United States.
As of December 31, 2019, the Company had approximately $991.7 million of consolidated federal net operating loss carryforwards and $776.4 million of state net operating loss carryforwards available to offset future taxable income, respectively. If unused, federal net operating loss carryforwards of $38.4 million will expire between 2033 and 2037. $953.3 million of federal net operating loss carryforwards can be carried forward indefinitely. If unused, state net operating loss carryforwards of $534.9 million will expire between 2025 and 2039. $241.5 million of state net operating loss carryforwards can be carried forward indefinitely. The Company has federal research tax credit carryforwards of $24.1 million and Utah research tax credit carryforwards of $3.4 million, which if not utilized, will expire between 2033 and 2039, and 2028 and 2033, respectively. The Company has foreign tax credit carryforwards of $26.2 million which will expire between 2024 and 2029, if not utilized.
As described above, the Company has calculated the income taxes in its consolidated financial statements on a separate return basis. However, the Company was in actuality included in the consolidated, combined or unitary U.S. federal and state income tax returns with SAP America, Inc. and its affiliates. As a result, a portion of the Company’s net operating loss and credit carryforwards would not be available for the Company’s use in future tax periods as the net operating losses, or underlying deductions, and credits have already been partially absorbed by SAP America, Inc.
Undistributed earnings of certain of the Company’s foreign subsidiaries amounted to approximately $32 million at December 31, 2019. Those earnings are considered to be indefinitely reinvested; accordingly, no provision for state, local and foreign withholding income taxes has been provided hereon. Upon repatriation of those earnings, in the form of dividends or otherwise, the Company could be subject to withholding taxes payable to the various
foreign countries. Determination of the amount of unrecognized deferred income tax liability is not practicable due to the complexities associated with its hypothetical calculation.
ASC 740 requires the Company to recognize the financial statement effects of a tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. The following table summarizes the activity related to unrecognized tax benefits for the periods December 31, 2018 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
in thousands
|
2018
|
|
2019
|
|
Beginning balance
|
$
|
1,191
|
|
|
$
|
4,970
|
|
|
Additions for tax positions related to current year
|
3,779
|
|
|
9,301
|
|
|
Additions for tax positions related to prior year
|
—
|
|
|
910
|
|
|
Reductions for settlements
|
—
|
|
|
(140)
|
|
|
Ending balance
|
$
|
4,970
|
|
|
$
|
15,041
|
|
The Company does not anticipate material changes within 12 months of the reporting date to its unrecognized tax benefits as of December 31, 2019. At December 31, 2019, the Company had $15.0 million of total unrecognized tax benefits, of which, if recognized, $5.7 million would impact the Company’s effective tax rate. Of the $15.0 million of 2019 unrecognized tax benefits, $9.3 million is offset to deferred tax assets and the remaining $5.7 million is recorded as a long term liability. At December 31, 2018, the Company had $5.0 million of total unrecognized tax benefits, of which, if recognized, $2.4 million would impact the Company’s effective tax rate. Of the $5.0 million of 2018 unrecognized tax benefits, $2.6 million is an offset to deferred tax assets and the remaining $2.4 million is recorded as a long term liability. The Company recognizes interest and penalties related to unrecognized tax benefits as part of pre-tax book income or expense, which totaled $0.8 million and $0.1 million for 2018 and 2019, respectively. The Company’s accrual for interest and penalties totaled $0.8 million and $0.9 million at December 31, 2018 and 2019, respectively.
The Company files federal, state and foreign income tax returns in various jurisdictions such as Australia, Ireland, the United Kingdom and the United States, with varying statutes of limitations. The tax years from 2016 forward remain subject to examination for the Company and its U.S. subsidiaries. Tax filings for the Company’s foreign subsidiaries remain subject to examination by local tax authorities from 2015 and onward.
For the nine months ended September 30, 2019 and 2020 (unaudited)
The Company has an effective tax rate of (1.2)% and (5.5)% for the nine months ended September 30, 2019 and 2020 (unaudited), respectively. The Company has incurred U.S. operating losses and has minimal profits in its foreign jurisdictions.
The Company has evaluated all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income and has determined that it is more likely than not that its net deferred tax assets will not be realized in the United States. Due to uncertainties surrounding the realization of the deferred tax assets, the Company maintains a full valuation allowance against its net deferred tax assets.
The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted by the United States on March 27, 2020. The Company is continuing to analyze the impacts of the CARES Act. The CARES Act did not have a material impact on the Company’s provision for income taxes for the nine months ended September 30, 2020.
16.RELATED PARTY TRANSACTIONS
On January 23, 2019, SAP acquired all outstanding shares of Qualtrics International Inc. Since the acquisition, SAP and its affiliates are related parties to the Company. The Company has entered into certain arrangements for services and products with SAP and its affiliates.
The consolidated statements of operations and comprehensive income statements include all revenues and costs directly attributable and/or allocable to the Company, including costs for facilities, functions, and services used by
Qualtrics. The year ended December 31, 2019 consolidated statement of operations and the nine months ended September 30, 2019 and 2020 interim consolidated statements of operations also includes expenses of SAP directly charged or allocated to Qualtrics for certain functions provided by SAP, including, but not limited to, sales organization costs, insurance, employee benefits, human resources and usage of data centers. Certain costs are allocated to the Company based on direct usage/benefit where identifiable, with the remainder allocated on a pro rata basis of revenues or headcount.
These charges were determined based on actual expenses incurred on Qualtrics’ behalf or by usage. The total costs charged from SAP and its affiliates were $34.1 million, $17.9 million, and $20.3 million during the year ended December 31, 2019 and the nine months ended September 30, 2019 and 2020 (unaudited), respectively. There were no costs charged by SAP in 2018 due to Qualtrics being a standalone company. During the year ended December 31, 2019 and the nine months ended September 30, 2019 and 2020 (unaudited), the Company received $2.4 million, $0.3 million, and $7.7 million, respectively, from SAP and its affiliates in exchange for services and products. As of December 31, 2019 and September 30, 2020 (unaudited), the Company had outstanding accounts receivables from SAP’s affiliates of $0.0 million and $0.2 million, respectively, and outstanding trade payables to SAP and its affiliates of $14.4 million and $17.2 million, respectively. All open items within both balances are due within one year.
Certain other costs incurred by SAP for Qualtrics’ benefit, such as salaries and benefits of SAP’s sales staff, have been included as expenses in Qualtrics’ financial statements, which totaled $15.2 million, $11.7 million, and $10.8 million during the year ended December 31, 2019 and the nine months ended September 30, 2019 and 2020 (unaudited), respectively. In order to compensate for Qualtrics’ efforts to support SAP, SAP received an indirect benefit, such as salaries and benefits of Qualtrics’ sales staff in the amount of $8.7 million, $2.4 million, and $8.8 million during the year ended December 31, 2019 and the nine months ended September 30, 2019 and 2020 (unaudited), respectively. Qualtrics’ expenses as a separate, standalone company in the future could differ materially from the historical results presented herein.
These direct charges and allocations may not include all of the actual expenses that would have been incurred by the Company and may not reflect its consolidated results of operations, financial position and cash flows had it been a standalone company during the periods presented. It is not practicable to estimate actual costs that would have been incurred had Qualtrics been a standalone company during the periods presented. Actual costs that might have been incurred had we been a standalone company would depend on a number of factors, including the chosen organizational structure, what functions we might have performed ourselves or outsourced and strategic decisions we might have made in areas such as information technology and infrastructure.
Management believes that the allocations are a reasonable reflection of the services received or the costs incurred on behalf of Qualtrics and its operations and that the consolidated statement of operations for the year ended December 31, 2019 and the nine months ended September 30, 2019 and 2020 (unaudited).
During 2015, the Company entered into a 10-year property lease agreement with an entity owned by certain Company founders. For the year ended December 31, 2018, the Company paid $2.2 million related to the lease agreement. In October 2018, the Company terminated its 10-year lease agreement with an entity owned by certain Company founders and entered into a new lease agreement for the same property with an unrelated entity.
As of December 31, 2017, the Company had an outstanding loan of $1.0 million to an executive of the Company. This loan was entered into during 2017. The loan matured and became due on the earlier of May 23, 2022, 60 days following the date of termination of employment, or immediately prior to the Company’s initial filing of a registration statement under the Securities Act of 1933 covering the offer and sale of the Company’s equity securities. Until that time, the loan accrued interest at 2.04% per annum, compounded annually. The loan was repaid in full in July 2018.
17.DEFINED CONTRIBUTION PLAN
In 2018 and through June 30, 2019, the Company had a 401(k) plan covering eligible employees of the Company. Eligible employees were U.S. full-time or part-time employees who were at least 18 years of age and who
met a 90-day minimum service requirement. The 401(k) plan was subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). Eligible participants could contribute up to 90% of compensation. Participants directed the investment of their contributions into various investment options offered by the 401(k) plan. From 2016 until June 30, 2019, the Company contributed, at its discretion, 3% of eligible U.S. employee compensation to the 401(k) plan. Since July 1, 2019, the Company has had a 401(k) plan administered by SAP, with employer contributions funded by the Company. Eligible employees are able to contribute up to 25% of their compensation to the 401(k) plan each pay period, and then the Company automatically makes partial matching contributions of up to 4.5% of their compensation, up to a maximum employer contribution of $12,600 in 2019 and $12,825 in 2020. The employer matching contributions partially vest after two years and fully vest after three years of employee service. The Company’s contributions to the 401(k) plans for the years ended December 31, 2018 and 2019 and for the nine months ended September 30, 2019 and 2020 (unaudited) totaled $4.0 million, $8.2 million, $5.2 million, and $12.4 million, respectively.
18.SUBSEQUENT EVENTS
The Company has evaluated, for potential recognition and disclosure, events after the balance sheet date of December 31, 2019 through October 13, 2020, the date the financial statements were available to be issued.
Given the spread of the novel coronavirus (“COVID-19”) and its declaration by the World Health Organization (“WHO”) as a global health pandemic, the Company is currently facing an unpredictable and fluid situation around COVID-19, which has a significant increase in economic uncertainty.
Qualtrics has developed and maintained business continuity plans to respond to disruptive incidents such as COVID-19; therefore, management believes that the above situation will not affect the Company’s ability to deliver services. Management is continuously monitoring the outbreak but cannot make a conclusion on its impact on the Company’s performance as at the date of the approval of the financial statements.
Except for the events mentioned above, there have been no significant events after the reporting period which may affect either the Company's operations or results of those operations or the Company's state of affairs.
19.SUBSEQUENT EVENTS (unaudited)
The Company has evaluated subsequent events through December 28, 2020, the date that the interim financial statements as of September 30, 2020, and for the nine months then ended were available to be issued.
On December 8, 2020, we entered into a stock purchase agreement with Q II, an entity controlled by Ryan Smith, pursuant to which Q II has agreed to purchase 6,000,000 shares of our Class A common stock at a price of $20.00 per share for an aggregate purchase price of $120 million, following the applicable waiting period under the HSR Act and the satisfaction of other customary closing conditions, including the absence of a material adverse effect with respect to our business or otherwise.
The shares when issued will be redeemable at the option of the Company for the 60-day period following June 30, 2021 unless the following conditions have been met: (i) the closing of our underwritten public offering shall have occurred prior to that date and (ii) Ryan Smith shall remain employed by the Company on that date or his employment shall have been terminated prior to that date by the Company without cause or by him with good reason. If such conditions do not occur, the Company will have 60 days following June 30, 2021 to repurchase the shares.
On December 23, 2020, Silver Lake Partners VI DE (AIV), L.P. (“Silver Lake”) agreed to purchase $550 million of shares of our Class A common stock, comprising (a) 15,018,484 shares at $21.64 per share and (b) $225 million of shares at the initial public offering price, in a concurrent private placement transaction (the “Silver Lake investment”). The Silver Lake investment is contingent upon, and is expected to close immediately following, the closing of the IPO as well as the satisfaction of customary closing conditions. We have agreed to appoint a representative of Silver Lake to our Board upon the closing of the Silver Lake investment.
In December 2020, Ryan Smith, our Founder and Executive Chair, acquired a majority interest in the Utah Jazz basketball franchise, the associated venue, and certain related sports teams and operations and business interests. The Company has ongoing sales revenue with the Utah Jazz that totaled $0.2 million for the nine months ended September 30, 2020. In 2019, the Company entered into multi-year agreements with the Utah Jazz related to ticket purchases, advertising, sponsorships, and the Utah Jazz Five for the Fight Campaign. Sales and marketing and general and administrative expenses with the Utah Jazz totaled $2.5 million for the nine months ended September 30, 2020.
On December 21, 2020, the Company amended its restated certificate of incorporation to create new shares of preferred stock, Class A and Class B common stock. The following description summarizes certain important terms of our capital stock and of our amended and restated certificate of incorporation and amended and restated bylaws.
Class A Common Stock and Class B Common Stock
Dividend Rights
Subject to preferences that may apply to shares of preferred stock outstanding at the time, the holders of outstanding shares of our Class A common stock and Class B common stock are entitled to receive dividends, out of assets legally available, sharing equally in all such dividends on a per share basis, at the times and in the amounts that our board of directors may determine from time to time.
Voting Rights
Except that holders of Class A common stock are entitled to one vote per share while holders of Class B common stock are entitled to ten votes per share on all matters to be voted on by our stockholders and except with respect to the conversion, certain corporate actions that require the consent of holders of Class B common stock and other protective provisions, the holders of Class A common stock and Class B common stock have identical rights. Subject to any rights of any series of preferred stock to elect directors, the holders of our Class A common stock and the holders of our Class B common stock, voting together as a single class, are entitled to elect all directors to our board of directors. In the event that the rights of any series of preferred stock would preclude the holders of our Class A common stock and the holders of our Class B common stock, voting together as a single class, from electing at least one director, the board of directors will increase the number of directors prior to the issuance of that preferred stock to the extent necessary to allow these stockholders to elect at least one director.
Right to Receive Liquidation Distributions
Upon our liquidation, dissolution or winding-up, the holders of our Class A common stock and Class B common stock are entitled to share equally in all of our assets remaining after payment of all liabilities and the liquidation preferences of any outstanding preferred stock.
Conversion
If all or any portion of our Class B common stock is distributed by SAP America, Inc. in a transaction that is intended to be tax-free for U.S. federal income tax purposes (a “Distribution”), shares of our Class B common stock will no longer be convertible into shares of Class A common stock. Prior to any Distribution, all shares of Class B common stock will automatically be converted into shares of Class A common stock upon the transfer of such shares of Class B common stock by SAP to any party that is not beneficially owned by SAP. If a Distribution has not occurred, each share of Class B common stock will also automatically convert into a share of Class A common stock at such time as the number of shares of common stock owned by SAP (and its affiliates) falls below 20% of the outstanding shares of our common stock. All conversions will be effected on a share-for-share basis.
Preferred Stock
Our board of directors is authorized, subject to the approval of our Class B stockholders and 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. We have no current plan to issue any shares of preferred stock.
Except for the events mentioned above, there have been no significant events after the reporting period which may affect either the Company's operations or results of those operations or the Company's state of affairs.
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses to be paid by us, other than underwriting discounts and commissions, upon completion of this offering. All amounts shown are estimates except for the SEC registration fee, the FINRA filing fee and the Nasdaq Global Select Market, or Nasdaq, listing fee.
|
|
|
|
|
|
|
|
|
Amount Paid or to be Paid
|
|
SEC registration fee
|
$
|
10,910
|
|
|
FINRA filing fee
|
15,500
|
|
|
Nasdaq listing fee
|
*
|
|
Printing and engraving expenses
|
*
|
|
Legal fees and expenses
|
*
|
|
Accounting fees and expenses
|
*
|
|
Transfer agent and registrar fees
|
*
|
|
Miscellaneous expenses
|
*
|
|
Total
|
$ *
|
________________
*To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law authorizes a corporation’s board of directors to grant, and authorizes a court to award, indemnity to officers, directors, and other corporate agents.
Our amended and restated certificate of incorporation contains provisions that limit the liability of our directors for monetary damages to the fullest extent permitted by Delaware law. Consequently, our directors will not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duties as directors, except liability for the following:
•any breach of their duty of loyalty to us or our stockholders;
•any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;
•unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law; or
•any transaction from which they derived an improper personal benefit.
Any amendment to, or repeal of, these provisions will not eliminate or reduce the effect of these provisions in respect of any act, omission, or claim that occurred or arose prior to that amendment or repeal. If the Delaware General Corporation Law is amended to provide for further limitations on the personal liability of directors of corporations, then the personal liability of our directors will be further limited to the greatest extent permitted by the Delaware General Corporation Law.
In addition, our amended and restated bylaws provide that we will indemnify, to the fullest extent permitted by law, any person who is or was a party or is threatened to be made a party to any action, suit, or proceeding by reason of the fact that he or she is or was one of our directors or officers or is or was serving at our request as a director or officer of another corporation, partnership, joint venture, trust, or other enterprise. Our amended and restated bylaws provide that we may indemnify to the fullest extent permitted by law any person who is or was a party or is threatened to be made a party to any action, suit or proceeding by reason of the fact that he or she is or was one of our employees or agents or is or was serving at our request as an employee or agent of another corporation, partnership, joint venture, trust, or other enterprise. Our amended and restated bylaws also provide that we must
advance expenses incurred by or on behalf of a director or officer in advance of the final disposition of any action or proceeding, subject to limited exceptions.
Further, we have entered into or will enter into indemnification agreements with each of our directors and executive officers that may be broader than the specific indemnification provisions contained in the Delaware General Corporation Law. These indemnification agreements require us, among other things, to indemnify our directors and executive officers against liabilities that may arise by reason of their status or service. These indemnification agreements also require us to advance all expenses incurred by the directors and executive officers in investigating or defending any such action, suit or proceeding. We believe that these agreements are necessary to attract and retain qualified individuals to serve as directors and executive officers.
The limitation of liability and indemnification provisions that are included in our amended and restated certificate of incorporation, amended and restated bylaws, and in indemnification agreements that we have entered into or will enter into with our directors and executive officers may discourage stockholders from bringing a lawsuit against our directors and executive officers for breach of their fiduciary duties. They may also reduce the likelihood of derivative litigation against our directors and executive officers, even though an action, if successful, might benefit us and other stockholders. Further, a stockholder’s investment may be adversely affected to the extent that we pay the costs of settlement and damage awards against directors and executive officers as required by these indemnification provisions. At present, we are not aware of any pending litigation or proceeding involving any person who is or was one of our directors, officers, employees or other agents or is or was serving at our request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, for which indemnification is sought, and we are not aware of any threatened litigation that may result in claims for indemnification.
The Agreement and Plan of Merger by and among the registrant, SAP America, Inc., Bucknell Merger Subsidiary, Inc., Shareholder Representative Services LLC, in its capacity as the representative of the security holders of the registrant, and SAP SE, as guarantor, dated as of November 11, 2018, provides that the registrant will cause to be maintained, for a period of six years following the effective time of the merger referred to therein, directors and officers runoff insurance coverage, technology errors and omissions runoff insurance coverage and errors and omissions runoff insurance coverage for the registrant’s past and present directors and officers. The runoff insurance is required to provide the registrant’s past and present directors and officers with coverage that is not less favorable in the aggregate to the insured persons than the terms of the insurance coverage maintained by the registrant at the effective time of the merger.
We have obtained insurance policies under which, subject to the limitations of the policies, coverage is provided to our directors and executive officers against loss arising from claims made by reason of breach of fiduciary duty or other wrongful acts as a director or executive officer, including claims relating to public securities matters, and to us with respect to payments that may be made by us to these directors and executive officers pursuant to our indemnification obligations or otherwise as a matter of law.
Certain of our non-employee directors may, through their relationships with their employers, be insured and/or indemnified against certain liabilities incurred in their capacity as members of our board of directors.
The underwriting agreement filed as Exhibit 1.1 to this registration statement will provide for indemnification by the underwriters of us and our officers and directors for certain liabilities arising under the Securities Act or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since January 1, 2017, we have issued the following unregistered securities:
Preferred Stock Issuances
In March 2017, we sold an aggregate of 10,102,218 shares of what was then our Series B-3 redeemable convertible preferred stock to 16 accredited investors at a purchase price of $12.38 per share, for an aggregate purchase price of approximately $125,000,000.
In March 2017, we sold an aggregate of 2,424,532 shares of what was then our Series B-5 redeemable convertible preferred stock to 16 accredited investors at a purchase price of $12.38 per share, for an aggregate purchase price of approximately $30,000,000.
Option and Restricted Stock Unit Issuances
From January 1, 2017 to January 23, 2019, we granted to our directors, officers, employees, consultants, and other service providers options to purchase an aggregate of 1,893,569 shares of what was then our Class B common stock under our 2014 Plan at exercise prices ranging from approximately $12.64 to $15.38 per share, and 27,295,550 RSUs for shares of what was then our Class B common stock under our 2014 Plan.
In May 2018, we granted to the estate of one of our employees 22,050 RSUs for shares of what was then our Class B common stock pursuant to Section 4(a)(2) of the Securities Act.
On January 23, 2019, we granted an aggregate 6,100,000 RSUs for shares of what was then our Class B common stock to our co-founders.
We did not grant any options or RSUs subsequent to January 23, 2019.
Common Stock Issuances
In November 2017, we issued to a consultant an aggregate of 2,090 shares of what was then our Class B common stock pursuant to Section 4(a)(2) of the Securities Act in consideration for services rendered.
In May 2018, we issued to the estate of one of our employees 17,950 shares of what was then our Class B common stock pursuant to Section 4(a)(2) of the Securities Act in consideration for past services rendered.
In December 2020, we sold 6,000,000 shares of our Class A common stock to Q II, LLC at a purchase price of $20.00 per share, for an aggregate purchase price of $120,000,000.
Shares Issued in Connection with Acquisitions
On March 15, 2018, we acquired Delighted, Inc., or Delighted, by way of a merger pursuant to which the consideration payable by us included 426,238 shares of what was then our Class B common stock. All of the shares of what was then our Class B common stock were issued to former service providers and stockholders of Delighted and are subject to vesting and risk of forfeiture tied to their ongoing employment services to us.
On October 9, 2018, we acquired Temkin Group, a customer experience firm, by way of a purchase of all of its outstanding membership interests, pursuant to which the consideration payable by us included 167,500 shares of what was then our Class B common stock. All of the shares of what was then our Class B common stock were issued to former service providers and members of the customer experience firm and are subject to vesting and risk of forfeiture tied to their ongoing employment services to us.
None of the foregoing transactions involved any underwriters, underwriting discounts or commissions, or any public offering. We believe the offers, sales, and issuances of the above securities were exempt from registration under the Securities Act (or Regulation D or Regulation S promulgated thereunder) by virtue of Section 4(a)(2) of the Securities Act because the issuance of securities to the recipients did not involve a public offering, or in reliance on Rule 701 because the transactions were pursuant to compensatory benefit plans or contracts relating to compensation as provided under such rule. The recipients of the securities in each of these transactions represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were placed upon the stock certificates issued in these transactions. All recipients had adequate access, through their relationships with us, to information about us. The sales of these securities were made without any general solicitation or advertising.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a)Exhibits.
See the Exhibit Index immediately preceding the signature page hereto for a list of exhibits filed as part of this registration statement on Form S-1, which Exhibit Index is incorporated herein by reference.
(b)Financial Statement Schedules.
All financial statement schedules are omitted because the information called for is not required or is shown either in the consolidated financial statements or in the notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1)For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
(2)For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
EXHIBIT INDEX
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|
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|
|
|
|
|
|
|
|
Exhibit Number
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Description
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1.1*
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Form of Underwriting Agreement
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3.1
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3.2
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4.1
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5.1*
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Opinion of Shearman & Sterling LLP
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10.1+
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10.2+
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10.3+
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10.4+
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10.5
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10.6+
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10.7+
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10.8
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10.9+
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10.10
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10.11
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10.12#
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10.13#
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10.14#
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10.15#*
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Employment Agreement, by and between the Registrant and Ryan Smith, dated as of , 2021
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10.16#
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10.17#
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10.18+†
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10.19+†
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10.20
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10.21+
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10.22+
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21.1
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23.1
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23.2*
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Consent of Shearman & Sterling LLP (included in Exhibit 5.1)
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24.1
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99.1
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99.2
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________________
* To be filed by amendment.
# Represents management compensation plan, contract or arrangement.
+ Certain schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company agrees to furnish supplementally a copy of any omitted schedule or exhibit to the SEC upon its request.
† Portions of this exhibit (indicated by asterisks) have been redacted in compliance with Regulation S-K Item 601(b)(10)(iv).
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this registration statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in Provo, Utah, on the 28th day of December, 2020.
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QUALTRICS INTERNATIONAL INC.
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By:
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/s/ Zig Serafin
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Name: Zig Serafin
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Title: Chief Executive Officer
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POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Zig Serafin and Chris Beckstead, and each of them, as his or her true and lawful attorney-in-fact and agent with full power of substitution, for him or her in any and all capacities, to sign any and all amendments to this registration statement (including post-effective amendments or any abbreviated registration statement and any amendments thereto filed pursuant to Rule 462(b) under the Securities Act of 1933 increasing the number of securities for which registration is sought), and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact, proxy and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact, proxy and agent, or his or her substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration statement on Form S-1 has been signed by the following persons in the capacities and on the dates indicated.
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Signature
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Title
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Date
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/s/ Zig Serafin
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Chief Executive Officer
(Principal Executive Officer) and Director
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December 28, 2020
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Zig Serafin
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/s/ Rob Bachman
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Chief Financial Officer
(Principal Financial and Accounting Officer)
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December 28, 2020
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Rob Bachman
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/s/ Ryan Smith
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Founder, Executive Chair and Director
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December 28, 2020
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Ryan Smith
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/s/ Christian Klein
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Director
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December 28, 2020
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Christian Klein
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/s/ Luka Mucic
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Director
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December 28, 2020
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Luka Mucic
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/s/ Adaire Fox-Martin
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Director
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December 28, 2020
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Adaire Fox-Martin
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/s/ Sindhu Gangadharan
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Director
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December 28, 2020
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Sindhu Gangadharan
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/s/ Paula Hansen
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Director
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December 28, 2020
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Paula Hansen
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AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
QUALTRICS INTERNATIONAL INC.
QUALTRICS INTERNATIONAL INC., a Delaware corporation (the “Corporation”), DOES HEREBY CERTIFY AS FOLLOWS:
1.The name of the Corporation is Qualtrics International Inc. The original Certificate of Incorporation of the Corporation was filed with the Secretary of State of the State of Delaware on September 3, 2014 under its current name and was amended and restated on January 23, 2019.
2.This Amended and Restated Certificate of Incorporation (this “Certificate of Incorporation”) was duly adopted in accordance with Sections 242 and 245 of the General Corporation Law of the State of Delaware (the “DGCL”), and the sole stockholder of the Corporation adopted this Certificate of Incorporation by written consent in accordance with Section 228 of the DGCL.
3.Pursuant to Sections 242 and 245 of the DGCL, this Certificate of Incorporation amends and integrates and restates the provisions of the Certificate of Incorporation of this Corporation.
The text of this Certificate of Incorporation is hereby amended and restated to read in its entirety as follows:
ARTICLE I
NAME
The name of the Corporation is Qualtrics International Inc.
ARTICLE II
REGISTERED OFFICE AND AGENT
The address of the Corporation’s registered office in the State of Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle 19801. The name of the Corporation’s registered agent at such address is The Corporation Trust Company.
ARTICLE III
PURPOSE
The purpose of the Corporation shall be to engage in any lawful act or activity for which corporations may be organized and incorporated under the DGCL, subject to the limitations and other restrictions contained herein.
ARTICLE IV
CAPITAL STOCK
A.The Corporation shall be authorized to issue three billion one hundred million (3,100,000,000) shares of capital stock, of which (i) two billion (2,000,000,000) shares shall be shares of Class A Common Stock, par value $0.0001 per share (the “Class A Common Stock”), (ii) one billion (1,000,000,000) shares shall be shares of Class B Common Stock, par value $0.0001 per share (the “Class B Common Stock”; the Class A Common Stock and the Class B Common Stock being collectively referred to herein as the “Common Stock”), and (iii) one hundred million (100,000,000) shares shall be shares of Preferred Stock, par value $0.0001 per share (the “Preferred Stock”). Upon the filing of this Certificate of Incorporation, all of the shares of capital stock of the Corporation issued and outstanding prior to the filing of this Certificate of Incorporation, consisting of 100 shares of common stock of the Corporation held by SAP America, shall be subdivided and reclassified into four hundred twenty three million one hundred seventy thousand six hundred ten (423,170,610) fully paid, nonassessable shares of Class B Common Stock. Subject to the approval rights of the holders of the Class B Common Stock under Article VI of this Certificate of Incorporation (including any Certificate of Designation and as the same may be amended and/or restated from time to time, this “Certificate of Incorporation”), 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 the number of shares thereof then outstanding and, in the case of Class A Common Stock, a sufficient number of shares of Class A Common Stock that may be issuable upon the conversion, reclassification or transfer of all outstanding shares of Class B Common Stock) by the affirmative vote of the holders of a majority in voting power of the stock of the Corporation entitled to vote thereon irrespective of the provisions of Section 242(b)(2) of the DGCL (or any successor provision thereto), and no vote of the holders of the Class A Common Stock, the Class B Common Stock or the Preferred Stock voting separately as a class shall be required therefor.
B.Shares of Preferred Stock may be issued from time to time in one or more series. The board of directors (the “Board of Directors”) of the Corporation is hereby authorized by resolution or resolutions to provide for series of Preferred Stock to be issued and, by filing a certificate pursuant to the DGCL (a “Certificate of Designation”), to fix the number of shares constituting such series, and to increase or decrease the number of shares of any such series (but not below the number of shares thereof then outstanding), and with respect to each such series, to fix the voting powers, if any, designations, preferences and the relative, participating, optional or other special rights, if any, and any qualifications, limitations or restrictions thereof, of any such
series. The authority of the Board of Directors with respect to each series of Preferred Stock shall include, but not be limited to, determination of the following:
(i)the designation of the series, which may be by distinguishing number, letter or title;
(ii)the number of shares of the series, which number the Board of Directors may thereafter increase or decrease (but not below the number of shares thereof then outstanding);
(iii)whether dividends, if any, shall be cumulative or noncumulative and the dividend rate of the series;
(iv)dates at which dividends, if any, shall be payable;
(v)the redemption rights and price or prices, if any, for shares of the series;
(vi)the terms and amount of any sinking fund provided for the purchase or redemption of shares of the series;
(vii)the amounts payable on, and the preferences, if any, of shares of the series in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation;
(viii)whether the shares of the series shall be convertible into shares of any other class or series, or any other security, of the Corporation or any other entity, and, if so, the specification of such other class or series of such other security, the conversion price or prices or rate or rates, any adjustments thereof, the date or dates at which such shares shall be convertible and all other terms and conditions upon which such conversion may be made;
(ix)restrictions on the issuance of shares of the same series or of any other class or series;
(x)the voting powers, if any, of the holders of shares of the series; and
(xi)such other powers, privileges, preferences and rights, and qualifications, limitations and restrictions thereof, as the Board of Directors shall determine.
C.The voting powers, preferences and relative participating, optional or other special rights, and the qualifications, limitations and restrictions of the Class A Common Stock and Class B Common Stock are as follows:
(i)Except as otherwise set forth below in this Article IV and in Article VII, the voting powers, preferences and relative participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, of the Class A Common Stock and Class B Common Stock shall be identical in all respects.
(ii)Subject to the other provisions of this Certificate of Incorporation, including the provisions of any Certificate of Designation, the holders of Common Stock shall be entitled to receive such dividends and other distributions, in cash, stock of any entity or property of the Corporation, when and as may be declared thereon by the Board of Directors from time to time out of assets or funds of the Corporation legally available therefor, and shall share equally on a per share basis in all such dividends and other distributions. No such dividend or distribution that is payable in shares of Common Stock, including distributions pursuant to stock splits or divisions of Common Stock, or dividends payable in rights to acquire, or securities convertible or exercisable or exchangeable for, shares of Class A Common Stock or Class B Common Stock may be made unless: (a) shares of Class A Common Stock are paid or distributed only in respect of Class A Common Stock, (b) shares of Class B Common Stock are paid or distributed only in respect of Class B Common Stock, (c) no such dividend or distribution is made in respect of the Class A Common Stock unless simultaneously also made in respect of the Class B Common Stock, (d) no such dividend or distribution is made in respect of the Class B Common Stock unless simultaneously also made in respect of the Class A Common Stock and (e) the number of shares of Class A Common Stock paid or distributed in respect of each outstanding share of Class A Common Stock is equal to the number of shares of Class B Common Stock paid or distributed in respect of each outstanding share of Class B Common Stock.
(iii)(a) Except as may be otherwise required by law or by this Certificate of Incorporation and subject to any voting rights that may be granted to holders of Preferred Stock pursuant to the provisions of a Certificate of Designation, all rights to vote and all voting power of the capital stock of the Corporation, whether for the election of directors or any other matter submitted to a vote of stockholders of the Corporation, shall be vested exclusively in the holders of Common Stock.
(b)Except as may be otherwise required by law or by this Certificate of Incorporation, at every meeting of the stockholders of the Corporation, in connection with the election of directors and on all other matters submitted to a vote of the stockholders of the Corporation generally, (A) every holder of Class A Common Stock shall be entitled to one vote for each share of Class A Common Stock standing in such holder’s name on the transfer books of the Corporation, and (B) every holder of Class B Common Stock shall be entitled to 10 votes for each share of Class B Common Stock standing in such holder’s name on the transfer books of the Corporation. Except as may be otherwise required by law or by this Certificate of Incorporation, the holders of Class A Common Stock and Class B Common Stock shall vote together as a single class in connection with the election of directors, all other matters submitted to a vote of the stockholders of the Corporation generally and any other matters on which the holders of the Class A Common Stock and Class B Common Stock are required or permitted to vote, and the votes cast in respect of the Class A Common Stock and the Class B Common Stock shall be counted and totaled together. Notwithstanding the foregoing, but subject to any applicable approval rights of the holders of the Class B Common Stock under Article VI of this Certificate of Incorporation and except as otherwise required by applicable law, holders of the Class A Common Stock and Class B 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 or applicable law.
(c)Every reference in this Certificate of Incorporation to a majority or other proportion of shares, or a majority or other proportion of the votes of shares, of Common Stock, Class A Common Stock, or Class B Common Stock shall refer to such majority or other proportion of the votes to which such shares of Common Stock, Class A Common Stock or Class B Common Stock entitle their holders to cast as provided in this Certificate of Incorporation.
(iv)In the event of any dissolution, liquidation or winding up of the affairs of the Corporation, whether voluntary or involuntary, after payment in full of the amounts required to be paid to the holders of Preferred Stock pursuant to the provisions of a Certificate of Designation, the remaining assets and funds of the Corporation shall be distributed pro rata to the holders of Common Stock, and the holders of Class A Common Stock and the holders of Class B Common Stock shall be entitled to receive the same amount per share in respect thereof.
(v)In connection with any reorganization of the Corporation, any consolidation of the Corporation with one or more other entities or any merger of the Corporation with or into another entity, the holders of each share of Class A Common Stock and Class B Common Stock shall be entitled to receive the same per share consideration as the per share consideration, if any, received by the holders of each share of such other class of Common Stock, and any securities issued to the holders of shares Class A Common Stock and Class B Common Stock as consideration in such transaction may entitle the holders thereof to voting powers in the same ratio as applies between the shares of Class A Common Stock and Class B Common Stock. In the event that the holders of Class A Common Stock or of Class B Common Stock are granted rights to elect to receive one of two or more alternative forms of consideration in connection with such merger or consolidation, the foregoing provision shall be deemed satisfied if holders of Class A Common Stock and holders of Class B Common Stock are granted substantially identical election rights.
(vi)(a) The holders of Class A Common Stock shall not be entitled to convert any share of Class A Common Stock into any other security of the Corporation or any other property.
(b)Prior to the date of a Distribution, each outstanding share of Class B Common Stock shall immediately and automatically (without any action on the part of the holder or the Corporation) convert into one (1) fully paid and non-assessable share of Class A Common Stock upon any transfer of such share (other than, for the avoidance of doubt, a transfer that constitutes a Distribution) if, after such transfer, such share is not beneficially owned by SAP. Following a Distribution, shares of Class B Common Stock shall no longer convert into shares of Class A Common Stock upon any subsequent transfer.
(c)Each share of Class B Common Stock outstanding or held in treasury by the Corporation shall be reclassified into one (1) validly issued, fully paid and nonassessable share of Class A Common Stock (i) automatically, on the date, if any, on which the outstanding shares of Class B Common Stock owned by SAP represent less than 20% of the aggregate number of shares of the then outstanding Common Stock, or (ii) by the affirmative vote of holders of at least eighty percent (80%) of the outstanding shares of Class B Common Stock, voting separately as a class, provided in each case that, as of such date, a Distribution has not occurred. After any such reclassification, the Corporation shall no longer be authorized to issue or otherwise dispose of any shares of Class B Common Stock. Following a Distribution, shares of Class B Common Stock shall no longer be subject to reclassification into shares of Class A Common Stock pursuant to this sub-clause (c) of this clause (vi) of this Section C.
(d)The Corporation shall provide notice of the reclassification of the shares of Class B Common Stock pursuant to sub-clause (c) of this clause (vi) of this Section C to holders of record of such shares of Common Stock as soon as practicable following such reclassification; provided, however, that the Corporation may satisfy such notice requirements by providing such notice prior to such reclassification. Such notice shall be provided by any means then permitted by the DGCL; provided, however, that no failure to give such notice nor any defect therein shall affect the validity of the reclassification of the shares of Class B Common Stock. Each such notice shall, as appropriate, state (A) the reclassification date; and (B) the place or places where certificates if any, for such shares may be surrendered in exchange for certificates, if any, representing shares of Class A Common Stock, or the method by which book-entry interests in the shares of Class A Common Stock may be obtained in exchange for such certificates in respect of shares of Class B Common Stock. Immediately upon such reclassification of shares of Class B Common Stock into shares of Class A Common Stock, the rights of the holders of shares of Class B Common Stock as such shall cease and all authorized and outstanding shares of Class B Common Stock shall be extinguished, and such holders shall be treated for all purposes as having become the record holders of the shares of Class A Common Stock into which such holders’ shares of Class B Common Stock were reclassified and each stock certificate representing shares of Class B Common Stock immediately prior to such reclassification shall represent only the number of shares of Class A Common Stock into which the shares of Class B Common Stock previously represented by such certificate were reclassified. Each Person holding of record a stock certificate or certificates that previously represent shares of Class B Common Stock shall receive, upon surrender of such certificate or certificates, a new certificate or certificates representing, or a book-entry interest in, the number of shares of Class A Common Stock to which such Person is entitled as a result of the reclassification.
(e)If the date on which any share of Class B Common Stock is converted into a share of Class A Common Stock pursuant to the provisions of subclause (b) of this clause (vi) of this Section C or reclassified into a share of Class A Common Stock pursuant to the provisions of subclause (c) of this clause (vi) of this Section C is (A) after the record date for the determination of the holders of Class B Common Stock
entitled to receive any dividend and (B) prior to the date on which such dividend is to be paid to such holders, the holder of the share of Class B Common Stock so converted or reclassified, as applicable, as of such record date will be entitled to receive such dividend on such payment date, provided, however, that to the extent that such dividend is payable in shares of Class B Common Stock or in rights to acquire, or securities convertible or exercisable or exchangeable for, shares of Class B Common Stock, such shares of Class B Common Stock shall also be deemed to have so converted or reclassified, as applicable, into an equivalent number of shares of Class A Common Stock as of the date of such conversion or reclassification such that no such shares of Class B Common Stock shall be issued in payment thereof and, in lieu thereof, such dividend shall instead be paid in a number of shares of Class A Common Stock equal to the number of shares of Class B Common Stock that would have otherwise been issued as part of such dividend.
(f)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 issuance upon conversion, reclassification or transfer of outstanding shares of Class B Common Stock, such number of shares of Class A Common Stock that shall be issuable upon the conversion, reclassification or transfer of all such outstanding shares of Class B Common Stock.
(g)The Corporation shall not reissue or resell any shares of Class B Common Stock that are converted or reclassified into shares of Class A Common Stock pursuant to this clause (vi) of this Section C or that are acquired by the Corporation in any other manner. The Corporation shall, from time to time, take such appropriate action as may be necessary to retire such shares and to reduce the authorized number of shares of Class B Common Stock accordingly.
(vii)The holders of shares of Common Stock are not entitled to any preemptive right to subscribe for, purchase or receive any part of any new or additional issue of stock of any class or series of the Corporation, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock of the Corporation.
(viii)No stockholder shall be entitled to exercise any right of cumulative voting.
ARTICLE V
CORPORATE OPPORTUNITIES
A.In anticipation that the Corporation and SAP may engage in the same or similar activities or lines of business and have an interest in the same areas of corporate opportunities, and in recognition of the benefits to be derived by the Corporation through its continued contractual, corporate and business relations with SAP (including service of officers and directors of SAP as directors of the Corporation), and in addition to and subject to the limitations set forth in Article VI, the provisions of this Article V are set forth to regulate and define the conduct of certain affairs of the Corporation as they may involve SAP and its officers
and directors, and the powers, rights, duties and liabilities of the Corporation and its officers, directors and stockholders in connection therewith.
B.No contract, agreement, arrangement or transaction between the Corporation and SAP shall be void or voidable solely for the reason that SAP is a party thereto, and SAP: (i) shall be deemed to have fully satisfied and fulfilled any duties to the Corporation and its stockholders with respect thereto; (ii) shall not be liable to the Corporation or its stockholders for any breach of fiduciary duty by reason of the entering into, performance or consummation of any such contract, agreement, arrangement or transaction; (iii) shall be deemed to have acted in good faith and in a manner it reasonably believed to be in and not opposed to the best interests of the Corporation; and (iv) shall be deemed not to have breached any duties of loyalty to the Corporation or its stockholders and not to have received an improper personal gain therefrom, in each case to the fullest extent permitted by applicable law, if the material facts as to the contract, agreement, arrangement or transaction are disclosed or are known to the Board of Directors or the committee thereof that authorizes the contract, agreement, arrangement or transaction, and the Board of Directors or such committee in good faith authorizes the contract, agreement, arrangement or transaction by the affirmative vote of a majority of the disinterested directors, even though less than a quorum. Directors of the Corporation who are also directors or officers of SAP may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee that authorizes the contract, agreement, arrangement or transaction.
C.SAP shall have the right to, and shall have no duty not to (i) engage in the same or similar business activities or lines of business as the Corporation, (ii) do business with any client or customer of the Corporation and (iii) employ or otherwise engage any officer or employee of the Corporation, and the Corporation hereby renounces any interest or expectancy in any such activities and shall not be deemed to have an interest or expectancy in any such activities merely because the Corporation engages in the same or similar activities or otherwise. To the fullest extent permitted by applicable law, neither SAP nor any officer or director thereof (except as provided in Section D of this Article V) shall be liable to the Corporation or its stockholders for breach of any fiduciary duty by reason of any such activities of SAP or of such person’s participation therein. Subject to the provisions of Section (D) of this Article V, in the event that SAP acquires knowledge of a potential transaction or matter which may be a corporate opportunity for both SAP and the Corporation, SAP shall have no duty to communicate or present such corporate opportunity to the Corporation, and the Corporation, to the fullest extent permitted by law, hereby renounces any interest or expectancy in such corporate opportunity and waives any claim that such corporate opportunity should have been presented to the Corporation. Subject to the provisions of Section (D) of this Article V, SAP shall not be liable to the Corporation or its stockholders for breach of any fiduciary duty as a stockholder of the Corporation by reason of the fact that SAP pursues or acquires such corporate opportunity for itself, directs such corporate opportunity to another Person or does not present such corporate opportunity to the Corporation.
D.To the fullest extent permitted by applicable law, in the event that a director or officer of the Corporation who is also a director or officer of SAP acquires knowledge
of a potential transaction or matter which may be a corporate opportunity for both the Corporation and SAP and which may be properly pursued by the Corporation consistent with the provisions of Article VI hereof, such director or officer of the Corporation (i) shall be deemed to have fully satisfied and fulfilled such person’s fiduciary duty to the Corporation and its stockholders with respect to such corporate opportunity, (ii) shall not be liable to the Corporation or its stockholders for any breach of fiduciary duty by reason of the fact that SAP pursues or acquires such corporate opportunity for itself or directs such corporate opportunity to another Person or does not present such corporate opportunity to the Corporation, (iii) shall be deemed to have acted in good faith and in a manner such person reasonably believes to be in and not opposed to the best interests of the Corporation for the purposes of Article X hereof and the other provisions of this Certificate of Incorporation, and (iv) shall be deemed not to have breached such person’s duty of loyalty to the Corporation or its stockholders or to have received an improper personal gain therefrom for the purposes of Article X hereof and the other provisions of this Certificate of Incorporation, if such director or officer acts in good faith in a manner consistent with the following policy:
(w) where a corporate opportunity is offered to a person who is a director but not an officer of the Corporation and who is also a director or officer of SAP, the Corporation shall be entitled to pursue such opportunity only if such opportunity is expressly offered to such person solely in his or her capacity as a director of the Corporation (and to the extent any such opportunity is not so expressly offered to such person in such capacity, the Corporation hereby renounces any interest or expectancy in such opportunity);
(x) where a corporate opportunity is offered to a person who is an officer of both the Corporation and SAP, the Corporation shall be entitled to pursue such opportunity only if such opportunity is expressly offered to such person solely in his or her capacity as an officer or director (to the extent that such person is a director) of the Corporation (and to the extent any such opportunity is not so expressly offered to such person in such capacities, the Corporation hereby renounces any interest or expectancy in such opportunity);
(y) where a corporate opportunity is offered to a person who is an officer of the Corporation and who is also a director but not an officer of SAP, the Corporation shall be entitled to pursue such opportunity unless such opportunity is expressly offered to such person solely in his or her capacity as a director of SAP, in which case SAP shall be entitled to pursue, and the Corporation hereby renounces any interest or expectancy in, such opportunity; and
(z) if an officer or director of the Corporation, who also serves as an officer or director of SAP, acquires knowledge of a potential transaction or matter which may be a corporate opportunity for both the Corporation and SAP in any manner not addressed by this Article V, Section D, clauses (w), (x) or (y), such officer or director shall have no duty to communicate or present such corporate opportunity to the Corporation and shall to the fullest extent permitted by law not be liable to the Corporation or its stockholders for breach of fiduciary duty as an officer or director of the Corporation by reason of the fact that SAP pursues or acquires such corporate opportunity for itself, directs such corporate opportunity to another Person or does not present such corporate opportunity to the Corporation, and the Corporation to
the fullest extent permitted by law renounces any interest or expectancy in such business opportunity and waives any claim that such business opportunity constituted a corporate opportunity that should be presented to the Corporation.
The provisions of this Section D are not intended to be an exhaustive statement of corporate opportunities which may be available to the Corporation, pursuit of which shall be in accordance with this Certificate of Incorporation and applicable law.
E.For purposes of this Article V and Article VI, “Corporation” means the Corporation and all corporations, partnerships, joint ventures, limited liability companies, trusts, associations and other entities in which the Corporation owns (directly or indirectly) fifty percent (50%) or more of the outstanding voting stock, voting power, partnership interests, limited liability company interests or similar ownership interests.
F.Any Person purchasing or otherwise acquiring 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 V.
G.Section A, Section C and Section D of this Article V shall become inoperative and of no effect on the later of (i) the Operative Date and (ii) the date upon which no officer or director of the Corporation is also an officer or director of SAP. Neither the alteration, amendment, termination or repeal of this Article V nor the adoption of any provision inconsistent with this Article V shall eliminate or reduce the effect of this Article V in respect of any matter occurring, or any cause of action, suit or claim that, but for this Article V would accrue or arise, prior to such alteration, amendment, termination, repeal or adoption. Following the later of (i) the Operative Date and (ii) the date upon which no officer or director of the Corporation is also an officer or director of SAP, any contract, agreement, arrangement or transaction involving a corporate opportunity not approved or allocated as provided in this Article V shall not by reason thereof result in any breach of any fiduciary duty or duty of loyalty or failure to act in good faith or in the best interests of the Corporation or derivation of any improper personal gain, but shall be governed by the other provisions of this Certificate of Incorporation, the Amended and Restated Bylaws of the Corporation (as amended and/or restated from time to time, the “Bylaws”), the DGCL and other applicable law.
ARTICLE VI
CONSENT OF HOLDERS OF CLASS B COMMON STOCK
A.In addition to any other vote required by law or by this Certificate of Incorporation, prior to the Operative Date, the prior affirmative vote of the holders of a majority of the outstanding shares of the Class B Common Stock, voting separately as a class, shall be required to authorize the Corporation to (and (in the case of clauses (iii) through (x) and (xiii)) below) to authorize or permit any Subsidiary (as defined in Article XI) to), in each case whether
directly or indirectly and whether by merger, consolidation, division, operation of law or otherwise:
(i)adopt or implement any stockholder rights plan or similar takeover defense measure;
(ii)consolidate or merge with or into any Person;
(iii)permit any Subsidiary to consolidate or merge with or into any Person (other than (a) a consolidation or merger of a Wholly-Owned Subsidiary with or into the Corporation or with or into another Wholly-Owned Subsidiary or (b) in connection with a Permitted Acquisition);
(iv)directly or indirectly acquire Stock, Stock Equivalents or assets (including, without limitation, any business or operating unit) of any Person (other than the Corporation or its Subsidiaries), in each case in a single transaction or series of related transactions, involving consideration (whether in cash, securities, assets or otherwise, and including Indebtedness assumed by the Corporation or any of its Subsidiaries and Indebtedness of any entity so acquired) paid or delivered by the Corporation and its Subsidiaries in excess of $100,000,000; provided that this clause (iv) of this Section A shall not require the vote of the holders of Class B Common Stock in connection with acquisitions of securities pursuant to portfolio investment decisions in the ordinary course of business or transactions to which the Corporation and one or more Wholly-Owned Subsidiaries are the only parties;
(v)issue any Stock or any Stock Equivalents, except (a) the issuance of shares of Stock of a Wholly-Owned Subsidiary of the Corporation to the Corporation or another Wholly-Owned Subsidiary of the Corporation, (b) pursuant to the Initial Public Offering or in private placement transactions after the filing of the IPO Registration Statement and occurring substantially concurrent with or prior to the closing of the Initial Public Offering, or (c) the issuance of shares of Class A Common Stock or options or other rights to purchase or acquire Class A Common Stock pursuant to employee benefit plans or programs, including in connection with any exchange offer that occurs at the time of or substantially concurrent with the Initial Public Offering, or dividend reinvestment plans approved by the Board of Directors (provided, however, that notwithstanding the provision of this clause (c), the prior affirmative vote of the holders of a majority of the outstanding shares of the Class B Common Stock, voting separately as a class, shall be required to authorize any increase in the number of shares reserved and available for issuance under such employee benefit plans or programs in any year in excess of 5% of the outstanding number of shares of Class B Common Stock and Class A Common Stock on the immediately preceding December 31);
(vi)conduct any business other than the business of enterprise software and other businesses ancillary thereto;
(vii)make or commit to make any individual or series of related capital expenditures or commitments in excess of $100,000,000;
(viii)create, incur, assume or permit to exist any Indebtedness or guarantee the Indebtedness of any other Person, or permit any Subsidiary to create, incur, assume or permit to exist any Indebtedness or guarantee any Indebtedness of any other Person, in excess of an aggregate principal amount at any time outstanding of $100,000,000;
(ix)make any loan to any other Person or purchase any debt securities of any other Person, in excess of an aggregate principal amount at any time outstanding of $50,000,000;
(x)redeem, purchase or otherwise acquire (or pay into or set aside funds for a sinking fund for such purpose) any shares of Stock or Stock Equivalents of the Corporation or a Subsidiary (other than a Wholly-Owned Subsidiary); provided, however, that this restriction shall not apply to the repurchase of shares of Common Stock from employees, officers, directors, consultants or other Persons performing services for the Corporation or any Wholly-Owned Subsidiary pursuant to agreements under which the Corporation has the option to repurchase such shares upon the occurrence of certain events, such as the termination of employment, or through the exercise of any right of first refusal or the conversion or reclassification of any shares of Class B Common Stock pursuant to clause (vi) of Article IV, Section C;
(xi)dissolve, liquidate or wind up the Corporation;
(xii)declare dividends on any class or series of the capital stock of the Corporation;
(xiii)enter into any joint venture or any other arrangement or agreement with any Person to provide or license on an exclusive basis any products or services of such Person that are substantially equivalent to products and services offered by SAP; and
(xiv)alter, amend, change, terminate or repeal, or adopt any provision inconsistent with, Articles V or VI or Sections A, or C through D of Article VII of this Certificate of Incorporation or Sections 2.2, 2.4, 2.6, 2.8(B), 2.11, 3.2, 3.9, 3.11, 6.9 or 8.1 of the Bylaws.
B.For purposes of this Article VI and Article VII:
(i)“Indebtedness” means, with respect to any Person, any liability of such Person in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments and shall also include (a) any liability of such Person under any agreement related to the fixing of interest rates on any Indebtedness and (b) any capitalized or finance lease obligations of such Person (if and to the extent the same would appear on a balance sheet of such Person prepared in accordance with United States generally accepted accounting principles).
(ii)“Initial Public Offering” means an initial public offering of Class A Common Stock as contemplated by a Registration Statement on Form S-1 filed with the U.S. Securities and Exchange Commission (the “IPO Registration Statement”).
(iii)“Permitted Acquisition” means any acquisition by the Corporation or any of its Subsidiaries of Stock, Stock Equivalents or assets (including, without limitation, any business or operating unit) of any Person not requiring the prior affirmative vote of the holders of the Class B Common Stock pursuant to clause (iv) of Section A of this Article VI.
(iv)“Stock” means shares of capital stock (whether denominated as common stock or preferred stock), beneficial, partnership, limited liability company or membership interests, participations or other equivalents (regardless of how designated) of or in a corporation, partnership, limited liability company, joint venture, trust, associations or other entity, whether voting or non-voting.
(v)“Stock Equivalents” means all securities convertible into or exchangeable for Stock and all warrants, options or other rights to purchase or subscribe for any Stock, whether or not presently convertible, exchangeable or exercisable, and all voting debt.
(vi)“Wholly-Owned Subsidiary” means each Subsidiary in which the Corporation owns (directly or indirectly) all of the outstanding voting Stock, voting power, partnership interests or similar ownership interests, except for director’s qualifying shares in nominal amount.
C.The Corporation shall not undertake any action or conduct that would have the effect of indirectly engaging the Corporation in activities that the provisions of this Article VI would otherwise prohibit.
D.Any Person purchasing or otherwise acquiring 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 VI.
E.Neither the alteration, amendment or repeal of this Article VI nor the adoption of any provision inconsistent with this Article VI shall eliminate or reduce the effect of this Article VI in respect of any matter occurring, or any cause of action, suit or claim that, but for this Article VI, would accrue or arise, prior to such alteration, amendment, repeal or adoption.
ARTICLE VII
BOARD OF DIRECTORS
A.The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. The Board of Directors shall consist of no less than five directors. Subject to the limitation in the preceding sentence, the number of directors shall be determined from time to time solely by resolution adopted by affirmative vote of a majority of the entire Board of Directors which the Corporation would have if there were no vacancies at the time such resolution is adopted.
B.Elections of the members of the Board of Directors shall be held annually at the annual meeting of stockholders and each member of the Board of Directors shall hold office until the next annual meeting of stockholders and until such director’s successor is elected and qualified, subject to such director’s earlier death, resignation, disqualification or removal. Elections of the members of the Board need not be by written ballot unless the Bylaws shall so provide.
C.Any newly created directorship on the Board of Directors that results from an increase in the number of directors and any other vacancy occurring on the Board of Directors shall be filled by the affirmative vote of a majority of the Board of Directors then in office, even if less than a quorum, or by a sole remaining director; provided, however, that, prior to the date that SAP ceases to beneficially own shares of Common Stock representing at least a majority of the votes entitled to be cast by the holders of the outstanding shares of Class A Common Stock and Class B Common Stock, voting together as a single class, any vacancy or newly created directorship caused by an action of the stockholders shall be filled only by a vote of the stockholders. Any director elected to fill a vacancy not resulting from an increase in the number of directors shall have the same remaining term as that of his or her predecessor. No decrease in the number of directors shall shorten the term of any incumbent director.
D.Any director may be removed from office at any time, without cause, by the affirmative vote of the holders of shares of capital stock of the Corporation representing at least a majority of the votes entitled to be cast on the election of such director.
E.Advance notice of stockholder nominations for the election of directors and stockholder proposals for business to be conducted at any meeting of stockholders shall be given in the manner provided in the Bylaws.
F.The books and records of the Corporation may be kept (subject to any mandatory requirement of law) outside the State of Delaware at such place or places (and/or on, by means of or in the form of any information storage device, method or one or more electronic networks or databases (including one or more distributed electronic networks or databases) in accordance with Section 224 of the DGCL).
ARTICLE VIII
STOCKHOLDER ACTION
A.Any action required or permitted to be taken by stockholders at any annual or special meeting of stockholders may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding capital stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares of capital stock entitled to vote thereon were present and voted; provided, however, that except as otherwise provided by a Certificate of Designation, from and after the date that SAP ceases to beneficially own shares of Common Stock representing at least a majority of the votes entitled to be cast by the holders of the outstanding shares of Class A Common Stock and Class B Common
Stock, voting together as a single class, any action required or permitted to be taken by stockholders may be effected only at a duly called annual or special meeting of stockholders and may not be effected by a written consent or consents by stockholders in lieu of such a meeting.
B.Except as otherwise required by law or provided by a Certificate of Designation, special meetings of stockholders of the Corporation may be called only by (1) the Executive Chair, (2) the Board of Directors or the Secretary of the Corporation pursuant to a resolution adopted by a majority of directors then in office or (3) SAP, so long as SAP is the beneficial owner of shares of Common Stock representing at least a majority of the votes entitled to be cast by the holders of the outstanding shares of Class A Common Stock and Class B Common Stock, voting together as a single class. No business other than that stated in the notice of a special meeting of stockholders shall be transacted at such special meeting.
ARTICLE IX
AMENDMENT OF BYLAWS AND CERTIFICATE OF INCORPORATION
A.In furtherance and not in limitation of the powers conferred by law, the Board of Directors is expressly authorized and empowered to adopt, amend and repeal the Bylaws at any regular or special meeting of the Board of Directors or by written consent, subject to the power of the stockholders of the Corporation to adopt, amend or repeal any Bylaws. The stockholders shall have the power to make, amend or repeal the Bylaws, provided, however, that from and after the date that SAP ceases to beneficially own shares of Common Stock representing at least a majority of the votes entitled to be cast by the holders of the outstanding shares of Class A Common Stock and Class B Common Stock, voting together as a single class, Sections 2.2, 2.4, 2.6, 2.8(B), 2.11, 3.2, 3.9, 3.11, 6.9 or 8.1 of the Bylaws shall not be amended, altered, changed or repealed, other than by the affirmative vote of the holders of shares of capital stock of the Corporation representing eighty percent (80%) of the votes entitled to be cast thereon.
B.Except as otherwise provided in this Certificate of Incorporation, the Corporation reserves the right to amend and repeal any provisions contained in this Certificate of Incorporation in the manner prescribed by the laws of the State of Delaware, and all rights of stockholders shall be subject to this reservation. Notwithstanding any other provision of this Certificate of Incorporation or the Bylaws (and notwithstanding the fact that a lesser percentage or separate class vote may be specified by law, this Certificate of Incorporation or the Bylaws), the affirmative vote of the holders of shares of capital stock of the Corporation representing at least eighty percent (80%) of the votes entitled to be cast thereon shall be required to amend, alter, change or repeal, or to adopt any provision of this Certificate of Incorporation inconsistent with the purpose and intent of, any provision of Article V, Article VI, Article VII, Article VIII, this Article IX and Article X of this Certificate of Incorporation (including the defined terms used in such Articles and used elsewhere in this Certificate of Incorporation).
ARTICLE X
LIMITATIONS ON LIABILITY AND INDEMNIFICATION
A.A director of this Corporation shall not be liable to the Corporation or its stockholders for monetary damages for 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 may hereafter be amended. Any repeal or modification of this Section A shall not adversely affect any right or protection of a director of the Corporation existing hereunder with respect to any act or omission occurring prior to such repeal or modification.
B.The Corporation shall indemnify 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 to 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 has or had agreed to become a director 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 limited liability company, partnership, joint venture, trust, enterprise or nonprofit entity, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, against all liability and loss suffered and expenses (including attorneys’ fees and expenses, judgments, fines, amounts to be paid in settlement and excise payments or penalties arising under the Employee Retirement Income Security Act of 1974 (“ERISA”)) reasonably incurred by such Covered Person in connection therewith, and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators. Notwithstanding the preceding sentence, except as otherwise provided in this Article X, 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 of Directors. The Corporation may, by the action of the Board of Directors, provide indemnification to employees and agents of the Corporation with the same scope and effect as the foregoing indemnification of directors and officers.
C.The Corporation shall to the fullest extent not prohibited by applicable law pay the expenses (including attorneys’ fees and expenses) incurred by a Covered Person in defending any proceeding in advance of its final disposition, provided, however, that, to the extent required by law, such payment of expenses in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the Covered Person to repay all amounts advanced if it should be ultimately determined that the Covered Person is not entitled to be indemnified under this Article X or otherwise. The rights contained in this Section C shall inure to the benefit of a Covered Person’s heirs, executors and administrators.
D.If a claim for indemnification (following the final disposition of such action, suit or proceeding) or advancement of expenses under this Article X is not paid in full within thirty days after a written claim therefor by the Covered Person has been received by the Corporation, the Covered Person may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expenses of prosecuting such claim to the fullest extent permitted by law. In any such action the Corporation shall have the burden of proving that the Covered Person is not entitled to the requested indemnification or advancement of expenses under applicable law.
E.The rights conferred on any Covered Person by this Article X shall not be exclusive of any other rights which such Covered Person may have or hereafter acquire under any statute, provision of this Certificate of Incorporation, the Bylaws, agreement, vote of stockholders or disinterested directors or otherwise.
F.The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such Person against such expense, liability or loss under the DGCL.
G.The Corporation’s obligation, if any, to indemnify or to advance expenses to any Covered Person who was or is serving at its request as a director, officer, employee or agent of another corporation, limited liability company, partnership, joint venture, trust, enterprise or nonprofit entity shall be reduced by any amount such Covered Person is entitled to collect and is collectible as indemnification or advancement of expenses from such other corporation, limited liability company, partnership, joint venture, trust, enterprise or non-profit enterprise.
H.Any repeal or modification of the foregoing provisions of this Article X shall not adversely affect any right or protection hereunder of any Covered Person in respect of any act or omission occurring prior to the time of such repeal or modification.
I.This Article X shall not limit the right of the Corporation, to the extent and in the manner permitted by law, to indemnify and to advance expenses to persons other than Covered Persons, to a greater extent or in an manner otherwise different than provided for in this Article X when and as authorized by appropriate corporate action.
J.If this Article X or any portion hereof will be invalidated on any ground by any court of competent jurisdiction, then the Corporation will nevertheless indemnify each Covered Person entitled to indemnification under Section B of this Article X as to all expense, liability and loss (including attorneys’ fees and related disbursements, judgments, fines, ERISA excise taxes and penalties, penalties and amounts paid or to be paid in settlement) actually and reasonably incurred or suffered by such Covered Person and for which indemnification is available to such Covered Person pursuant to this Article X to the fullest extent permitted by any applicable portion of this Article X that shall not have been invalidated and to the fullest extent permitted by applicable law.
ARTICLE XI
CERTAIN DEFINITIONS
For purposes of this Certificate of Incorporation:
A.“beneficial owner” and “beneficial ownership” have the meaning ascribed to such terms in Rule 13d-3 under the Securities Exchange Act of 1934, as amended, but shall not include shares of Common Stock beneficially owned by SAP but not for its own account, including (in such exclusion) beneficial ownership which arises by virtue of some entity that is an affiliate of SAP being a sponsor or advisor of a mutual or similar fund that beneficially owns shares of Common Stock.
B. “Distribution” means a distribution or other transfer of the Class B Common Stock by SAP America to holders of stock of SAP America (including SAP SE) or holders of securities issued by SAP America in a transaction intended to qualify for non-recognition of gain and loss under Section 355 of the Internal Revenue Code of 1986, as amended (or any corresponding provisions of any successor statute).
C.“Operative Date” means the first date on which SAP ceases to beneficially own twenty percent (20%) or more of the aggregate number of shares of the then outstanding Common Stock.
D.“Person” means any individual, partnership, joint venture, limited liability company, firm, corporation, trust or other entity, including governmental authorities.
E.“Pledge” means any mortgage, lien (statutory or otherwise), pledge, hypothecation, charge, security interest, preference, priority or encumbrance of any kind in, attaching or applicable to, affecting or otherwise in respect of any share of Class B Common Stock, whether or not filed, recorded or otherwise perfected under applicable law, created, incurred or existing pursuant to any bona fide loan or indebtedness transaction or other bona fide obligation.
F.“SAP” means (x) prior to the date of a Distribution, SAP America and, for so long as SAP America is an SAP Subsidiary, SAP SE and all SAP Subsidiaries, and (y) following a Distribution, SAP SE and all SAP Subsidiaries.
G.“SAP America” means SAP America, Inc., a Delaware corporation, and all successors to SAP America by way of merger, consolidation or sale of substantially all of its assets.
H.“SAP SE” means SAP SE, a Societas Europaea registered in accordance with the corporate laws of Germany and the European Union, and all successors to SAP SE by way of merger, consolidation or sale of substantially all of its assets.
I.“SAP Subsidiary” means any corporation, limited liability company, joint venture, partnership, trust, association or other entity in which SAP SE: (i) beneficially owns,
either directly or indirectly, more than fifty percent (50%) of (a) the total combined voting power of all classes of voting securities of such entity, (b) the total combined equity interests, or (c) the capital or profits interest, in the case of a partnership; or (ii) otherwise has the power to vote, either directly or indirectly, sufficient securities to elect a majority of the board of directors or similar governing body, but in each case shall not include the Corporation or any Subsidiary of the Corporation.
J.“Subsidiary” means, with respect to the Corporation, any corporation, limited liability company, joint venture, partnership, trust, association or other entity in which the Corporation: (i) beneficially owns, either directly or indirectly, more than fifty percent (50%) of (a) the total combined voting power of all classes of voting securities of such entity, (b) the total combined equity interests, or (c) the capital or profits interest, in the case of a partnership; or (ii) otherwise has the power to vote, either directly or indirectly, sufficient securities to elect a majority of the board of directors or similar governing body.
K.“transfer” for purposes of Article IV means any sale or other disposition of a share of Class B Common Stock, except that “transfer” does not include any Pledge of a share of Class B Common Stock for so long as the owner of such share of Class B Common Stock continues to exercise voting control over such share of Class B Common Stock (with a power of attorney or proxy given by such owner to another Person in connection with such Pledge to exercise voting control effective upon the occurrence of certain events not constituting voting control by such other Person for these purposes until such events occur and such power of attorney or proxy is effective).
[Signature Page Follows]
IN WITNESS WHEREOF, the undersigned authorized officer of the Corporation has executed this Amended and Restated Certificate of Incorporation on this 21st day of December, 2020.
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By:
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/s/ Blake Tierney
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Name: Blake Tierney
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Title:Vice President, General Counsel, Chief Compliance Officer and Secretary
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[Signature Page to Amended and Restated Certificate of Incorporation]
AMENDED AND RESTATED
BYLAWS
OF
QUALTRICS INTERNATIONAL INC.
Incorporated under the Laws of the State of Delaware
ARTICLE I
OFFICES AND RECORDS
Section 1.1Offices. Qualtrics International Inc. (the “Corporation”) may have such offices, either within or without the State of Delaware, as the Board of Directors may designate or as the business of the Corporation may from time to time require.
Section 1.2Books and Records. The books and records of the Corporation may be kept inside or outside the State of Delaware at such place or places (and/or on, by means of or in the form of any information storage device, method or one or more electronic networks or databases (including one or more distributed electronic networks or databases) in accordance with Section 224 of the General Corporation Law of the State of Delaware).
ARTICLE II
STOCKHOLDERS
Section 2.1Annual Meeting. The annual meeting of the stockholders of the Corporation shall be held on such date and at such place, if any, and time as may be fixed by resolution of the Board of Directors. The Corporation may postpone, reschedule or cancel any annual meeting of stockholders previously scheduled by the Board of Directors.
Section 2.2Special Meeting. Except as otherwise required by law or provided by the resolution or resolutions adopted by the Board of Directors designating the rights, powers and preferences of any series of Preferred Stock and the Certificate of Designation filed by the Corporation with respect thereto (collectively, a “Certificate of Designation”), and except as set forth in the Corporation’s Certificate of Incorporation, as amended or restated (the “Certificate of Incorporation”), special meetings of stockholders of the Corporation may be called only by (1) the Executive Chair, (2) the Board of Directors or the Secretary of the Corporation pursuant to a resolution adopted by a majority of the directors then in office or (3) SAP, so long as SAP is the beneficial owner of shares of capital stock of the Corporation representing at least a majority of the votes entitled to be cast by the holders of the outstanding shares of Class A Common Stock and Class B Common Stock, voting together as a single class. The Corporation may postpone,
reschedule or cancel any special meeting of stockholders previously scheduled by the Executive Chair or the Board of Directors. For purposes of these Bylaws:
(1)“SAP” means (i) prior to the date of a Distribution (as defined in the Certificate of Incorporation), SAP America and, for so long as SAP America is a SAP Subsidiary, SAP SE and all SAP Subsidiaries, and (ii) following a Distribution, SAP SE and all SAP Subsidiaries.
(2)“SAP America” means SAP America, Inc., a Delaware corporation, and all successors to SAP America by way of merger, consolidation or sale of substantially all of its assets.
(3)“SAP SE” means SAP SE, a Societas Europaea registered in accordance with the corporate laws of Germany and the European Union, and all successors to SAP SE by way of merger, consolidation or sale of substantially all of its assets.
(4)“SAP Subsidiary” means any corporation, limited liability company, joint venture, partnership, trust, association or other entity in which SAP SE: (i) beneficially owns, either directly or indirectly, more than fifty percent (50%) of (a) the total combined voting power of all classes of voting securities of such entity, (b) the total combined equity interests, or (c) the capital or profits interest, in the case of a partnership; or (ii) otherwise has the power to vote, either directly or indirectly, sufficient securities to elect a majority of the board of directors or similar governing body, but in each case shall not include the Corporation or any Subsidiary of the Corporation.
Section 2.3Place of Meeting. The Board of Directors or the Executive Chair, as the case may be, may designate the place of meeting for any annual meeting or for any special meeting of the stockholders called by the Board of Directors or the Executive Chair. If no designation is so made, the place of meeting shall be the principal executive office of the Corporation. Notwithstanding the foregoing, the Board of Directors, in its sole discretion, may determine that any such meeting shall not be held at any place, but may instead be held solely by means of remote communication.
Section 2.4Notice of Meeting. Whenever stockholders are required or permitted to take any action at a meeting, notice of the meeting, stating the place, if any, date and time of the meeting, and the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such meeting, the record date for determining the stockholders entitled to vote at the meeting (if such date is different from the record date for stockholders entitled to notice of the meeting) and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall, unless otherwise provided by applicable law, be given by the Corporation not less than ten (10) days nor more than sixty (60) days before the date of the meeting, either personally, by mail or by other lawful means, to each stockholder of record entitled to vote at such meeting as of the record date for determining the stockholders entitled to notice of the meeting. If mailed, such notice shall be deemed to be given when deposited in the United States mail with postage thereon prepaid, addressed to the stockholder at his or her address as it appears on the stock transfer books of the
Corporation. Such further notice shall be given as may be required by law. Except as otherwise permitted by Section 2.8, business may not be conducted at a special meeting of stockholders unless it has been brought before the meeting pursuant to the Corporation’s notice of meeting.
Section 2.5Quorum and Adjournment. Except as otherwise provided by law or by the Certificate of Incorporation, the holders of shares of capital stock of the Corporation representing a majority in voting power of the then-outstanding shares entitled to vote generally at a meeting of stockholders, represented in person or by proxy, shall constitute a quorum at a meeting of stockholders, except that when specified business is to be voted on by one or more classes or series of stock voting as a separate class or series, the holders of a majority in voting power of the then-outstanding shares of such class, classes or series shall constitute a quorum of such class, classes or series for the transaction of such business. Attendance of a person at a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened shall not constitute the presence of such person for the purposes of determining whether a quorum exists. The chairman of the meeting or the holders of shares representing a majority of the votes entitled to be cast by stockholders present in person or by proxy at the meeting may adjourn the meeting from time to time, whether or not there is such a quorum. Notice need not be given of any such adjourned meeting if the time and place, if any, of the adjourned meeting and the means of remote communication, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such adjourned meeting are announced at the meeting at which the adjournment is taken. If the date of any adjourned meeting is more than thirty (30) days after the date for which the meeting was originally noticed, or if a new record date for determination of stockholders entitled to vote is fixed for the adjourned meeting, notice of the adjourned meeting shall be given in conformity herewith and, in the event that the Board of Directors so fixes a new record date for determination of stockholders entitled to vote, the Board shall fix as the record date for determining stockholders entitled to notice of such adjourned meeting the same or an earlier date as that fixed for determination of stockholders entitled to vote at the adjourned meeting and such notice of the adjourned meeting shall be given to each stockholder of record as of the record date so fixed for notice of such adjourned meeting. The stockholders present at a duly called meeting at which a quorum is present may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum.
Section 2.6Conduct of Business. The Board of Directors may adopt by resolution such rules and regulations for the conduct of the meeting of stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the chairman of any meeting of stockholders shall have the right and authority to prescribe such rules, regulations and procedures, and to do all such acts, as the chairman of the meeting deems in his or her judgment appropriate for the proper conduct of the meeting, including, without limitation, determining the order of business and the procedure at the meeting, regulating the manner of voting and the conduct of discussion as seem to him or her in order, convening and (for any or no reason) recessing and/or adjourning the meeting. Without limiting the foregoing, such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the chairman of the meeting, may include, without limitation, the
following: (i) the establishment of an agenda or order of business for the meeting; (ii) rules and procedures for maintaining order at the meeting and the safety of those present; (iii) limitations on attendance at or participation in the meeting to stockholders entitled to vote at the meeting, their duly authorized and constituted proxies or such other persons as the chairman of the meeting shall determine; (iv) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (v) limitations on the time allotted to questions or comments by participants. The date and time for the opening and closing of the polls for each matter upon which the stockholders will vote at the meeting shall be announced at the meeting.
Section 2.7Proxies. At all meetings of stockholders, a stockholder may vote by proxy executed in writing (or in such manner prescribed by the General Corporation Law of the State of Delaware) by the stockholder, or by his or her duly authorized officer, director, employee or agent. Such proxy must be filed with the Secretary or his or her representative at or before the time of the meeting at which such proxy will be voted. No proxy shall be valid after three (3) years from the date of its execution, unless the proxy provides for a longer period. Each proxy shall be revocable unless it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power.
Section 2.8Notice of Stockholder Business and Nominations.
(A)Annual Meetings of Stockholders.
(1)Nominations of persons for election to the Board of Directors and the proposal of business to be considered by the stockholders at an annual meeting of stockholders may be made only (a) pursuant to the Corporation’s notice of meeting (or any supplement thereto), (b) by or at the direction of the Board of Directors or (c) by any stockholder of the Corporation (i) who was a stockholder of record of the Corporation both at the time the notice provided for in Paragraphs (A)(2) and (A)(3) of this Section 2.8 is delivered to, or mailed to and received by, the Secretary of the Corporation and on the record date for the determination of stockholders entitled to vote at the meeting, (ii) who is entitled to vote at the meeting upon such election of directors or upon such business, as the case may be, and (iii) who complies with the notice procedures set forth in Paragraphs (A)(2) and (A)(3) of this Section 2.8. Except for proposals properly made in accordance with Rule 14a-8 under the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (as so amended and inclusive of such rules and regulations, the “Exchange Act”) and included in the notice of meeting given by or at the direction of the Board of Directors or made by SAP pursuant to Paragraph (C)(5) of this Section 2.8, the foregoing clause (c) shall be the exclusive means for a stockholder to propose business to be brought before an annual meeting of stockholders. In addition, for business (other than the nomination of persons for election to the Board of Directors) to be properly brought before an annual meeting by a stockholder, such business must be a proper matter for stockholder action pursuant to the Certificate of Incorporation, these Bylaws, and applicable law.
(2)For nominations of persons for election to the Board of Directors or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (c) of Paragraph (A)(1) of this Section 2.8, the stockholder (a) must have given timely notice thereof in writing to the Secretary and (b) must provide any updates or supplements to
such notice at such times and in the forms required by this Section 2.8. To be timely, a stockholder’s notice shall be delivered to, or mailed to and received by, the Secretary at the principal executive office of the Corporation not earlier than the close of business on the 120th day, nor later than the close of business on the 90th day, prior to the first anniversary of the preceding year’s annual meeting (provided that, with respect to the annual meeting to be held in 2021, the anniversary date shall be deemed to be May 1, 2021); provided, however, that in the event that the date of any annual meeting is more than thirty (30) days before or more than thirty (30) days after such anniversary date, notice by the stockholder, to be timely, must be so delivered, or mailed and received, not earlier than the close of business on the 120th day prior to such annual meeting and not later than the close of business on the later of (a) the 90th day prior to such annual meeting and (b) the 10th day following the day on which public announcement of the date of such meeting is first made by the Corporation. Except as provided in Section 2.5 of these Bylaws, the public announcement of an adjournment or postponement of an annual meeting shall not commence a new time period (or extend any time period) for the giving of a stockholder’s notice as described above.
(3)To be in proper form for purposes of this Section 2.8, a stockholder’s notice to the Secretary (whether pursuant to this Paragraph (A) or Paragraph (B) of this Section 2.8) must set forth:
(a)as to each Proposing Person (as defined below) (i) the name and address of such Proposing Person (including, if applicable, the name and address that appear on the Corporation’s books and records); and (ii) the class or series and number of shares of capital stock of the Corporation that are, directly or indirectly, owned of record or beneficially owned (within the meaning of Rule 13d-3 under the Exchange Act) by such Proposing Person (provided that such Proposing Person shall in all events be deemed to beneficially own any shares of any class or series and number of shares of capital stock of the Corporation as to which such Proposing Person has a right to acquire beneficial ownership at any time in the future);
(b)as to each Proposing Person, (i) any derivative, swap, or other transaction or series of transactions engaged in, directly or indirectly, by such Proposing Person, the purpose or effect of which is to give such Proposing Person economic risk similar to ownership of shares of any class or series of capital stock of the Corporation, including due to the fact that the value of such derivative, swap, or other transactions are determined by reference to the price, value, or volatility of any shares of any class or series of capital stock of the Corporation, or which derivative, swap, or other transactions provide, directly or indirectly, the opportunity to profit from any increase in the price or value of shares of any class or series of capital stock of the Corporation (“Synthetic Equity Interests”), which Synthetic Equity Interests shall be disclosed without regard to whether (x) the derivative, swap, or other transactions convey any voting rights in such shares to such Proposing Person, (y) the derivative, swap, or other transactions are required to be, or are capable of being, settled through delivery of such shares, or (z) such Proposing Person may have entered into other transactions that hedge or mitigate the economic effect of such derivative, swap, or other transactions; (ii) any proxy (other than a revocable proxy or consent given in response to a solicitation made pursuant to, and in accordance with, Section 14(a) of the Exchange Act by way of a solicitation statement filed on
Schedule 14A), agreement, arrangement, understanding, or relationship pursuant to which such Proposing Person has or shares a right to vote any shares of any class or series of capital stock of the Corporation (including the number of shares and class or series of capital stock of the Corporation that are subject to such proxy, agreement, arrangement, understanding, or relationship); (iii) any agreement, arrangement, understanding, or relationship, including any repurchase or similar so-called “stock borrowing” agreement or arrangement, engaged in, directly or indirectly, by such Proposing Person, the purpose or effect of which is to mitigate loss to, reduce the economic risk (of ownership or otherwise) of shares of any class or series of capital stock of the Corporation by, manage the risk of share price changes for, or increase or decrease the voting power of, such Proposing Person with respect to the shares of any class or series of capital stock of the Corporation, or that provides, directly or indirectly, the opportunity to profit from any decrease in the price or value of the shares of any class or series of the Corporation (“Short Interests”); (iv) any rights to dividends on the shares of any class or series of capital stock of the Corporation owned beneficially by such Proposing Person that are separated or separable from the underlying shares of the Corporation; (v) any performance related fees (other than an asset based fee) to which such Proposing Person is entitled based on any increase or decrease in the price or value of shares of any class or series of the capital stock of the Corporation, or any Synthetic Equity Interests or Short Interests, if any; and (vi) any other information relating to such Proposing Person that would be required to be disclosed in a proxy statement or other filing required to be made in connection with solicitations of proxies or consents by such Proposing Person in support of the nominations or business proposed to be brought before the meeting pursuant to Regulation 14A under the Exchange Act (the disclosures to be made pursuant to the foregoing clauses (i) through (vi) are referred to as “Disclosable Interests”); provided, however, that Disclosable Interests shall not include any such disclosures with respect to the ordinary course business activities of any broker, dealer, commercial bank, trust company, or other nominee who is a Proposing Person solely as a result of being the stockholder directed to prepare and submit the notice required by these Bylaws on behalf of a beneficial owner;
(c)if such notice pertains to the nomination by the stockholder of a person or persons for election to the Board of Directors (each, a “nominee”), as to each nominee, (i) the name, age, business and residence address, and principal occupation or employment of the nominee; (ii) all other information relating to the nominee that would be required to be disclosed about such nominee if proxies were being solicited for the election of the nominee as a director in an election contest (whether or not such proxies are or will be solicited), or that is otherwise required, in each case pursuant to and in accordance with Regulation 14A under the Exchange Act; (iii) such nominee’s written consent to being named in the Corporation’s proxy statement as a nominee of the stockholder and to serving as a director if elected; and (iv) all information with respect to such nominee that would be required to be set forth in a stockholder’s notice pursuant to this Section 2.8 if such nominee were a Proposing Person;
(d)if the notice relates to any business (other than the nomination of persons for election to the Board of Directors) that the stockholder proposes to bring before the meeting, (i) a reasonably brief description of the business desired to be brought
before the meeting, (ii) the text of the proposal or business (including the text of any resolutions proposed for consideration and if such business includes a proposal to amend these Bylaws, the language of the proposed amendment), (iii) the reasons for conducting such business at the meeting, and (iv) any material interest in such business of each Proposing Person;
(e)a representation that the stockholder giving the notice is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such business or nomination; and
(f)a representation as to whether any Proposing Person intends or is part of a group that intends (i) to deliver a proxy statement or form of proxy to holders of at least the percentage of the Corporation’s outstanding capital stock required to approve or adopt the proposal or elect the nominee or (ii) otherwise to solicit proxies from stockholders in support of such proposal or nomination.
(4)The Corporation may require any proposed nominee to furnish such other information as it may request to determine, among other things, (i) the eligibility of such proposed nominee to serve as a director of the Corporation, and (ii) whether such nominee qualifies as an “independent director” or “audit committee financial expert” under applicable law, securities exchange rule or regulation, or any publicly-disclosed corporate governance guideline or committee charter of the Corporation.
(5)Notwithstanding anything in the second sentence of paragraph (A)(2) of this Section 2.8 to the contrary, in the event that the number of directors to be elected to the Board of Directors at an annual meeting of stockholders is increased and there is no public announcement by the Corporation naming all of the Corporation’s nominees for director or specifying the size of the increased Board of Directors at least 120 days prior to the first anniversary of the preceding year’s annual meeting, a stockholder’s notice pursuant to this Section 2.8 shall also be considered timely, but only with respect to nominees for any new seats on the Board of Directors created by such increase, if it is delivered to, or mailed to and received by, the Secretary at the principal executive office of the Corporation not later than the close of business on the 10th day following the day on which such public announcement is first made by the Corporation.
(B)Special Meetings of Stockholders.
(1)No business other than that stated in the Corporation’s notice of a special meeting of stockholders shall be transacted at such special meeting. If the business stated in the Corporation’s notice of a special meeting of stockholders includes electing one or more directors to the Board of Directors, nominations of persons for election to the Board of Directors at such special meeting may be made (a) by or at the direction of the Board of Directors or (b) by any stockholder of the Corporation (i) who was a stockholder of record of the Corporation both at the time the notice provided for in Paragraph (B)(2) of this Section 2.8 is delivered to the Secretary of the Corporation and on the record date for the determination of stockholders entitled to vote at the special meeting, (ii) who is entitled to vote at the meeting and upon such election, and (iii) who complies with the notice procedures set forth in Paragraph (B)(2) of this Section
2.8; provided, however, that a stockholder may nominate persons for election at a special meeting only to such position(s) as specified in the Corporation’s notice of the meeting.
(2)If a special meeting has been called in accordance with Section 2.2 for the purpose of electing one or more directors to the Board of Directors, then for nominations of persons for election to the Board of Directors to be properly brought before such special meeting by a stockholder pursuant to clause (b) of Paragraph (B)(1) of this Section 2.8, the stockholder (a) must have given timely notice thereof in writing and in the proper form to the Secretary of the Corporation at the principal executive offices of the Corporation, and (b) must provide any updates or supplements to such notice at such times and in the forms required by this Section 2.8. To be timely, a stockholder’s notice relating to a special meeting shall be delivered to, or mailed to and received by, the Secretary at the principal executive office of the Corporation not earlier than the close of business on the 120th day prior to such special meeting and not later than the close of business on the later of (a) the 90th day prior to such special meeting and (b) the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall the public announcement of an adjournment or postponement of a special meeting commence a new time period (or extend any time period) for the giving of a stockholder’s notice as described above. To be in proper form for purposes of this Paragraph (B) of this Section 2.8, such notice shall set forth the information required by clauses (a), (b), (c), (e), and (f) of Paragraph (A)(3) of this Section 2.8.
(C)General.
(1)Only such persons as are nominated in accordance with the procedures set forth in this Section 2.8 shall be eligible to be elected at an annual or special meeting of directors to serve as directors, and no business may be conducted at a meeting of stockholders unless it has been brought before the meeting in accordance with the procedures set forth in this Section 2.8. Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, the chairman of the meeting (or the Board of Directors in the advance of the meeting) shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this Section 2.8 and, if any proposed nomination or business was not made or proposed in compliance with this Section 2.8, to declare that such non-compliant proposal or nomination be disregarded.
(2)Notwithstanding the foregoing provisions of this Section 2.8, unless otherwise required by law, if the stockholder (or a qualified representative of the stockholder) does not appear at the annual or special meeting of stockholders of the Corporation to present a nomination or proposed business, such nomination shall be disregarded and such proposed business shall not be transacted, notwithstanding that proxies in respect of such vote may have been received by the Corporation. For purposes of this Section 2.8, to be considered a qualified representative of the stockholder, a person must be a duly authorized officer, manager or partner of such stockholder or authorized by a writing executed by such stockholder or an electronic transmission delivered by such stockholder to act for such stockholder as proxy at the
meeting of stockholders and such person must produce such writing or electronic transmission, or a reliable reproduction of the writing or electronic transmission, at the meeting of stockholders.
(3)For purposes of this Section 2.8, (a) “public announcement” means disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act and (b) “Proposing Person” means (i) the stockholder giving the notice required by Paragraph (A) or Paragraph (B) of this Section 2.8, (ii) the beneficial owner or beneficial owners, if different, on whose behalf such notice is given, and (iii) any affiliates or associates (each within the meaning of Rule 12b-2 under the Exchange Act for purposes of these Bylaws) of such stockholder or beneficial owner.
(4)Notwithstanding the foregoing provisions of this Section 2.8, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the nomination of persons for election to the Board of Directors or the proposal of business to be considered by the stockholders at a meeting of stockholders. Paragraph (A) of this Section 2.8 is expressly intended to apply to any business proposed to be brought before an annual meeting of stockholders other than any proposal made pursuant to Rule 14a-8 under the Exchange Act. Nothing in this Section 2.8 shall be deemed to (a) affect any rights of stockholders to request inclusion of proposals in the Corporation’s proxy statement pursuant to Rule 14a-8 (or any successor thereto) promulgated under the Exchange Act, (b) confer upon any stockholder a right to have a nominee or any proposed business included in the Corporation’s proxy statement, except to the extent provided in Rule 14a-11 promulgated under the Exchange Act, or (c) affect any rights of the holders of any class or series of Preferred Stock to nominate and elect directors pursuant to and to the extent provided in any applicable provisions of the Certificate of Incorporation.
(5)SAP. Notwithstanding anything to the contrary contained in these Bylaws, until such time as SAP ceases to be the beneficial owner of shares representing at least a majority of the votes entitled to be cast by the holders of the outstanding shares of Class A Common Stock and Class B Common Stock, voting together as a single class, SAP shall be entitled to nominate persons for election to the Board of Directors and propose business to be considered by the stockholders at any meeting of stockholders without compliance with the notice requirements and procedures of this Section 2.8.
Section 2.9Required Vote. Except for any matters for which a different or minimum vote is specified under the terms of the Certificate of Incorporation, any Certificate of Designation, these Bylaws, the rules or regulations of any stock exchange applicable to the Corporation or any law or regulation applicable to the corporation or its securities, in which case such different or minimum vote shall be the applicable vote on the matter, when a quorum is present, the affirmative vote of the holders of shares representing at least a majority of votes present in person or represented by proxy at the meeting and entitled to vote on a matter constitutes the act of the stockholders. No stockholder shall be entitled to exercise any right of
cumulative voting. Every reference in these Bylaws to a majority or other proportion of shares, or a majority or other proportion of the votes of shares, of then-outstanding capital stock of the Corporation (or any one or more classes or series of such stock) shall refer to such majority or other proportion of the votes to which such shares of capital stock entitle their holders to cast as provided in the Certificate of Incorporation or any Certificate of Designation.
Section 2.10Inspectors of Elections; Opening and Closing the Polls. The Board of Directors by resolution shall appoint one or more inspectors, which inspector or inspectors may include individuals who serve the Corporation in other capacities, including, without limitation, as officers, employees, agents or representatives, to act at the meetings of stockholders and make a written report thereof. One or more persons may be designated as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate has been appointed to act or is able to act at a meeting of stockholders, the chairman of the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before discharging his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspectors shall have the duties prescribed by law.
The chairman of the meeting shall fix and announce at the meeting the date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting.
Section 2.11Stockholder Action by Written Consent. Any action required or permitted to be taken by stockholders at any annual or special meeting of stockholders may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding capital stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares of capital stock entitled to vote thereon were present and voted; provided, however, that, and except as otherwise provided by a Certificate of Designation, from and after the date that SAP ceases to be the beneficial owner of shares representing at least a majority of votes entitled to be cast by the holders of the outstanding shares of Class A Common Stock and Class B Common Stock, voting together as a single class, any action required or permitted to be taken by stockholders may be effected only at a duly called annual or special meeting of stockholders and may not be effected by a written consent or consents by stockholders in lieu of such a meeting. All written consents authorized by this Section 2.11 shall be delivered to the Corporation by delivery to its registered office, its principal place of business or the Secretary. Delivery made to a corporation’s registered office shall be by hand or by certified or registered mail, return receipt requested.
Prompt notice of the taking of any corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for such meeting had been the date that written consents signed by a sufficient number of stockholders to take the action were delivered to the Corporation as provided in this Section 2.11. In the event that the action that is consented to is such as would have required the filing of a certificate under the General Corporation Law of the State of
Delaware that such action had been voted on by stockholders or by members at a meeting thereof, the certificate filed shall state, in lieu of any statement concerning any vote of stockholders or members, that written consent has been given in accordance with the General Corporation Law of the State of Delaware.
Section 2.12Stock List. A complete list of stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order for each class of stock and showing the address of each such stockholder and the number of shares registered in his or her name, shall be open to the examination of any such stockholder for a period of at least 10 days prior to the meeting in the manner provided by law. The stock list shall also be open to the examination of any stockholder during the whole time of the meeting as provided by law. This list shall presumptively determine the identity of the stockholders entitled to vote at the meeting and the number of shares held by each of them. So long as SAP is the beneficial owner of shares representing at least a majority of votes entitled to be cast by the holders of the outstanding shares of Class A Common Stock and Class B Common Stock, voting together as a single class, upon the request of SAP, the stock list shall be provided to SAP promptly. If the meeting is to be held solely by means of remote communication, then, in addition to the foregoing requirements, the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting.
ARTICLE III
BOARD OF DIRECTORS
Section 3.1General Powers. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. In addition to the powers and authorities expressly conferred upon the Board of Directors by these Bylaws, the Board of Directors may exercise all such powers of the Corporation and do all such lawful acts and things as are not by law, the Certificate of Incorporation or these Bylaws required to be exercised or done by the stockholders.
Section 3.2Number, Tenure, Qualifications and Election of Directors.
(A)The Board of Directors shall consist of not less than five nor more than thirteen members. Subject to the limitations of the foregoing sentence and the rights of the holders of any series of Preferred Stock to elect directors under specified circumstances, the number of directors shall be fixed, and may be increased or decreased from time to time, exclusively by a resolution adopted by an affirmative vote of a majority of the entire Board of Directors which the Corporation would have if there were no vacancies at the time such resolution is adopted (the “Entire Board of Directors”).
(B) Each director shall be elected by the vote of the majority of the votes cast with respect to such director at any meeting for the election of such director at which a quorum is present, provided that, except as otherwise provided by the Certificate of Incorporation, if the number of nominees exceeds the number of directors to be elected, the directors shall be elected
by the vote of a plurality of the votes cast. For purposes of this Section 3.2, a majority of the votes cast means that the number of shares voted “for” a director must exceed the number of votes cast “against” that director. If a nominee for director is not elected, the director shall offer to tender his or her resignation to the Board of Directors. The Corporate Governance and Nominating Committee will make a recommendation to the Board of Directors to accept or reject the resignation or whether other action should be taken. The Board of Directors will act on the Committee’s recommendation and publicly disclose its decision and the rationale behind it within 90 days from the date of the certification of the election results. The director who has so tendered his or her resignation will not participate in the Board of Directors’ decision.
Section 3.3Regular Meetings. Regular meetings of the Board of Directors shall be held at such place or places, if any, on such date or dates, and at such time or times as shall have been established by the Board of Directors and publicized among all directors. A notice of each regular meeting shall not be required.
Section 3.4Special Meetings. Special meetings of the Board of Directors shall be called by the Executive Chair, the Chief Executive Officer, a majority of directors then in office or, until SAP ceases to be the beneficial owner of shares representing at least a majority of the votes entitled to be cast by the holders of the outstanding shares of Class A Common Stock and Class B Common Stock, voting together as a single class, SAP. The person or persons authorized to call special meetings of the Board of Directors may fix the place, if any, and time of the meetings.
Section 3.5Notice. Notice of any special meeting of directors shall be given to each director at his or her business or residence (as he or she may specify) in writing by hand delivery, first-class mail, overnight mail or courier service, confirmed facsimile transmission or electronic transmission or orally by telephone. If mailed by first-class mail, such notice shall be deemed adequately delivered when deposited in the United States mail so addressed, with postage thereon prepaid, at least five (5) days before such meeting. If given by overnight mail or courier service, such notice shall be deemed adequately delivered when the notice is delivered to the overnight mail or courier service company at least twenty-four (24) hours before such meeting. If given by telephone, hand delivery or confirmed facsimile transmission or electronic transmission, such notice shall be deemed adequately delivered when the notice is transmitted at least twenty-four (24) hours before such meeting. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice of such meeting, except for amendments to these Bylaws, as provided under Section 8.1. A meeting may be held at any time without notice if all the directors are present or if those not present waive notice of the meeting in accordance with Section 6.6 of these Bylaws.
Section 3.6Action by Consent of Board of Directors. Any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing or by electronic transmission. After any such action is taken, the writing or writings or electronic transmission or transmissions shall be filed with the minutes of proceedings of the Board or committee. Such filing shall be in paper form if the minutes are
maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.
Section 3.7Conference Telephone Meetings. Members of the Board of Directors, or any committee thereof, may participate in a meeting of the Board of Directors, or such committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear and communicate with each other, and such participation in a meeting shall constitute presence in person at such meeting.
Section 3.8Quorum; Voting. Subject to Section 3.9, at all meetings of the Board of Directors, the presence of a majority of the directors then in office shall constitute a quorum for the transaction of business, but if at any meeting of the Board of Directors there shall be less than a quorum present, the directors present thereat may adjourn the meeting without further notice. Attendance of a director at a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened shall not constitute the presence of such director for the purposes of determining whether a quorum exists. Except as otherwise provided by applicable law, the Certificate of Incorporation or these Bylaws, the act of a majority of directors present at a meeting at which there is a quorum constitutes the act of the Board of Directors.
Section 3.9Vacancies; Newly Created Directorships. Except as otherwise provided by the Certificate of Incorporation or a Certificate of Designation, any newly created directorship on the Board of Directors that results from an increase in the number of directors and any other vacancy occurring on the Board of Directors (i) shall be filled only by a vote of the stockholders of the Corporation prior to the time that SAP ceases to beneficially own shares of Common Stock representing at least a majority of the votes entitled to be cast by the holders of the outstanding shares of Class A Common Stock and Class B Common Stock, voting together as a single class, and (ii) after the time that SAP ceases to beneficially own shares of Common Stock representing at least a majority of the votes entitled to be cast by the holders of the outstanding shares of Class A Common Stock and Class B Common Stock, voting together as a single class, shall be filled by the affirmative vote of a majority of the Board of Directors then in office, even if less than a quorum, or by a sole remaining director. Any director elected to fill a vacancy not resulting from an increase in the number of directors shall have the same remaining term as that of his or her predecessor. No decrease in the number of directors shall shorten the term of any incumbent director.
Section 3.10Committees of the Board of Directors. The Board of Directors may from time to time designate committees of the Board of Directors, with such lawfully delegable powers and duties as it thereby confers, to serve at the pleasure of the Board of Directors and shall, for those committees and any others provided for herein, elect a director or directors to serve as the member or members, designating, if it desires, other directors as alternate members who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of any member of any committee and any alternate member in his or her place, the member or members of the committee present at the meeting and not disqualified from voting, whether or not he, she or they constitute a quorum, may by unanimous vote appoint
another member of the Board of Directors to act at the meeting in the place of the absent or disqualified member.
Each committee may determine the procedural rules for meeting and conducting its business and shall act in accordance therewith, except as otherwise provided herein or by the Board of Directors or required by law. Adequate provision shall be made for notice to members of all meetings; one-third (1/3) of the members of any committee shall constitute a quorum for the transaction of business by such committee, unless the committee shall consist of one (1) or two (2) members, in which event one (1) member shall constitute a quorum; and all matters shall be determined by a majority vote of the members of a committee present at any meeting at which a quorum is present.
No committee shall have the power or authority in reference to any of the following matters: (a) approving or adopting, or recommending to the stockholders, any action or matter (other than the election or removal of directors) expressly required by General Corporation Law of the State of Delaware to be submitted to stockholders for approval or (b) altering, amending or repealing any Bylaw, or adopting any new Bylaw.
Section 3.11Removal. Any director may be removed from office at any time, without cause, by the affirmative vote of the holders of shares of capital stock of the Corporation representing at least a majority of the votes entitled to be cast on the election of such director.
Section 3.12Records. The Board of Directors shall cause to be kept a record containing the minutes of the proceedings of the meetings of the Board of Directors, and of any committee thereof, and of the stockholders, appropriate stock books and registers and such books of records and accounts as may be necessary for the proper conduct of the business of the Corporation.
Section 3.13Compensation. The Board of Directors shall have authority to determine from time to time the amount of compensation, if any, that shall be paid to its members for their services as directors and as members of standing or special committees of the Board of Directors. The Board of Directors shall also have power, in its discretion, to provide for and to pay to directors rendering services to the Corporation not ordinarily rendered by directors as such, special compensation appropriate to the value of such services as determined by the Board of Directors from time to time. Nothing herein contained shall be construed to preclude any directors from serving the Corporation in any other capacity and receiving compensation therefor.
Section 3.14Executive Chair. The Executive Chair, who shall not be deemed an officer of the Corporation, shall be chosen from among the directors. The Executive Chair shall, if present and except as set forth in Section 4.3, preside at all meetings of the stockholders and of the Board of Directors. The Executive Chair shall have such other powers and duties as may from time to time be prescribed by the Board of Directors or these Bylaws. In the absence of the Executive Chair, the Chief Executive Officer shall preside at all meetings of the stockholders and of the Board of Directors. The Chief Executive Officer may also preside at any such meeting attended by the Executive Chair if he or she is so designated by the Executive Chair.
ARTICLE IV
OFFICERS
Section 4.1Officers Designated. The elected officers of the Corporation (the “Elected Officers”) shall be a Chief Executive Officer, a President, a Secretary, a Treasurer, a Chief Financial Officer and such other officers as the Board of Directors from time to time may deem proper. Elected Officers shall each have such powers and duties as generally pertain to their respective offices, subject to the specific provisions of this Article IV. Such Elected Officers shall also have such powers and duties as from time to time may be conferred by the Board of Directors. Subject to the requirements of the Certificate of Incorporation, the Board of Directors, the Executive Chair or the Chief Executive Officer may appoint such other officers (including one or more Controllers, Vice Presidents, Assistant Vice Presidents, Assistant Secretaries, Assistant Treasurers and Assistant Controllers) (each, an “Appointed Officer”) and such agents, as may be necessary or desirable for the conduct of the business of the Corporation. Such Appointed Officers and agents shall have such powers and duties as generally pertain to their respective offices and shall have such duties and shall hold their offices for such terms as shall be provided in these Bylaws or as may be prescribed by the Board of Directors or by the Executive Chair or the Chief Executive Officer, as the case may be.
Section 4.2Election and Term of Office. Subject to the requirements of the Certificate of Incorporation, the Elected Officers shall be elected annually by the Board of Directors at the regular meeting of the Board of Directors held after the annual meeting of the stockholders. If the election of the Elected Officers shall not be held at such meeting, such election shall be held as soon thereafter as convenient. Each officer shall hold office until his or her successor shall have been duly elected or appointed, as the case may be, and shall have qualified or until his or her death or until he or she shall resign, but, subject to the requirements of the Certificate of Incorporation, any officer may be removed pursuant to the provisions set forth in Section 4.9.
Section 4.3Chief Executive Officer. The Chief Executive Officer, subject to the control of the Board of Directors, shall act in a general executive capacity and shall control the business and affairs of the Corporation. Subject to the requirements of the Certificate of Incorporation, the Chief Executive Officer shall have the power to appoint and remove subordinate officers, agents and employees, except those elected by the Board of Directors. The Chief Executive Officer shall keep the Board of Directors fully informed of material developments regarding the business of the Corporation and shall consult with them concerning the business of the Corporation.
Section 4.4President. The President shall have such duties as may be determined from time to time by resolution of the Board of Directors not inconsistent with these Bylaws and, in the absence or incapacity of the Chief Executive Officer, shall also perform the duties of that office. In general, the President shall perform all other duties normally incident to the office of President and such other duties as may be prescribed by the Board of Directors from time to time.
Section 4.5Vice-Presidents. Each Vice President shall have such powers and shall perform such duties as shall be assigned to him or her by the Executive Chair, the Chief Executive Officer, or such other officer who the Vice President reports into, or by the Board of Directors.
Section 4.6Chief Financial Officer. The Chief Financial Officer shall act in an executive financial capacity. He or she shall assist the Executive Chair and the Chief Executive Officer in the general supervision of the Corporation’s financial policies and affairs.
Section 4.7Treasurer. The Treasurer shall exercise general supervision over the receipt, custody and disbursement of corporate funds. The Treasurer shall cause the funds of the Corporation to be deposited in such banks as may be authorized by the Board of Directors, or in such banks as may be designated as depositaries in the manner provided by resolution of the Board of Directors. He or she shall have such further powers and duties and shall be subject to such directions as may be granted or imposed upon him or her from time to time by the Board of Directors, the Executive Chair or the Chief Executive Officer.
Section 4.8Secretary. The Secretary shall keep, or cause to be kept, in one or more books provided for that purpose, the minutes of all meetings of the Board of Directors, the committees of the Board of Directors and the stockholders; he or she shall see that all notices are duly given in accordance with the provisions of the Certificate of Incorporation, these Bylaws and as required by law; he or she shall be custodian of the records and the seal of the Corporation and affix and attest the seal to all stock certificates of the Corporation (unless the seal of the Corporation on such certificates shall be a facsimile, as hereinafter provided) and affix and attest the seal to all other documents to be executed on behalf of the Corporation under its seal; and he or she shall see that the books, reports, statements, certificates and other documents and records required by law to be kept and filed are properly kept and filed; and in general, he or she shall perform all the duties incident to the office of Secretary and such other duties as from time to time may be assigned to him or her by the Board of Directors, the Executive Chair or the Chief Executive Officer.
Section 4.9Removal. Except as otherwise provided by the Certificate of Incorporation, any Elected Officer or Appointed Officer may be removed by the affirmative vote of a majority of directors then in office whenever, in their judgment, the best interests of the Corporation would be served thereby. Any Appointed Officer may also be removed by the Executive Chair or the Chief Executive Officer whenever, in his or her judgment, the best interests of the Corporation would be served thereby. Nothing in these Bylaws shall be construed as creating any kind of contractual right to employment with or compensation by the Corporation.
Section 4.10Vacancies. Except as otherwise provided by the Certificate of Incorporation, any newly created elected office and any vacancy in any elected office because of death, resignation or removal may be filled by the Board of Directors for the unexpired portion of the term at any meeting of the Board of Directors. Any vacancy in an office appointed by the Executive Chair or the Chief Executive Officer because of death, resignation or removal may be filled by the Executive Chair or the Chief Executive Officer.
ARTICLE V
STOCK
Section 5.1Stock Certificates and Transfers; Direct Registration.
(A)The interest of each stockholder of the Corporation shall be evidenced by certificates for shares of stock in such form as the appropriate officers of the Corporation may from time to time prescribe. Subject to the satisfaction of any additional requirements specified in the Certificate of Incorporation, the shares of the stock of the Corporation shall be transferred on the books of the Corporation by the holder thereof in person or by his or her attorney, upon surrender for cancellation of certificates for at least the same number of shares, with an assignment and power of transfer endorsed thereon or attached thereto, duly executed, with such proof of the authenticity of the signature as the Corporation or its agents may reasonably require.
The certificates of stock shall be signed and countersigned by any two authorized officers of the Corporation (with each Elected Officer and Appointed Officer being an authorized officer for such purpose) and registered in such manner as the Board of Directors may by resolution prescribe, which resolution may permit all or any of the signatures on such certificates to be in facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue.
(B)Notwithstanding any other provision in these Bylaws, the Board of Directors may resolve to adopt a system of issuance, recordation and transfer of its shares by electronic or other means not involving any issuance of certificates such that some or all of any or all classes or series of stock of the Corporation shall be uncertificated shares (a “Direct Registration System”), including provisions for notice to purchasers in substitution for any required statements on certificates, and as may be required by applicable corporate securities laws or stock exchange listing rules. Any Direct Registration System so adopted shall not become effective as to issued and outstanding certificated securities until the certificates therefor have been surrendered to the Corporation.
Section 5.2Record Date.
(A)In order that the Corporation may determine the stockholders entitled to notice of any meeting of stockholders or any adjournment thereof, or to receive payment of any dividend or other distribution or allotment of any rights or to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may, except as otherwise required by law, fix a record date, which record date shall not precede the date on which the resolution fixing the record date is adopted by the Board of Directors and which record date shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting of stockholders, nor more than sixty (60) days prior to the time for such other action as described above. If the Board of Directors so fixes a date for notice of any meeting of stockholders or any adjournment thereof, such date shall also be the record date
for determining the stockholders entitled to vote at such meeting unless the Board of Directors determines, at the time it fixes such record date, that a later date on or before the date of the meeting shall be the date for making such determination. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of and to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held, and, for determining stockholders entitled to receive payment of any dividend or other distribution or allotment of rights or to exercise any rights of change, conversion or exchange of stock or for any other purpose, the record date shall be at the close of business on the day on which the Board of Directors adopts a resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for determination of stockholders entitled to vote at the adjourned meeting, and in such case shall also fix as the record date for stockholders entitled to notice of such adjourned meeting the same or an earlier date as that fixed for determination of stockholders entitled to vote in accordance with the foregoing provisions of this Section 5.2 at the adjourned meeting.
(B)In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than 10 days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. If no record date has been fixed by the Board of Directors and prior action by the Board of Director is required by applicable law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the date on which the Board of Directors adopts the resolution taking such prior action.
Section 5.3Lost, Mutilated, Stolen or Destroyed Certificates. No certificate for shares of stock in the Corporation shall be issued in place of any certificate alleged to have been lost, mutilated, destroyed or stolen, except on production of such evidence of such loss, destruction or theft and on delivery to the Corporation of a bond of indemnity in such amount, upon such terms and secured by such surety, as the Board of Directors, or any financial officer of the Corporation, may in its, or his or her, discretion require.
ARTICLE VI
MISCELLANEOUS PROVISIONS
Section 6.1Fiscal Year. The fiscal year of the Corporation shall be as fixed by the Board of Directors.
Section 6.2Dividends. The Board of Directors may from time to time declare, and the Corporation may pay, dividends on its outstanding shares in the manner and upon the terms and conditions provided by law and the Certificate of Incorporation.
Section 6.3Seal. The corporate seal shall have inscribed thereon the words “Corporate Seal,” the year of incorporation and around the margin thereof the words “Qualtrics International Inc.”
Section 6.4Facsimile Signatures. In addition to the provisions for use of facsimile signatures elsewhere specifically authorized in these Bylaws, facsimile signatures of any officer or officers of the Corporation may be used whenever and as authorized by the Board of Directors or any committee thereof.
Section 6.5Reliance upon Books, Reports and Records. The Board of Directors, each committee thereof, each member of the Board of Directors and such committees and each officer of the Corporation shall, in the performance of its, his or her duties, be fully protected in relying in good faith upon the books of account or other records of the Corporation and upon such information, opinions, reports or documents presented to it or them by any of the Corporation’s officers or employees, by any committee of the Board of Directors or by any other person as to matters that the Board, such committee, such member or such officer reasonably believes are within such other person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation.
Section 6.6Waiver of Notice. Whenever any notice is required to be given to any stockholder or director of the Corporation under the provisions of the General Corporation Law of the State of Delaware, the Certificate of Incorporation or these Bylaws, a waiver thereof in writing, signed by the person or persons entitled to such notice, or a waiver by electronic transmission by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Neither the business to be transacted at, nor the purpose of, any annual or special meeting of the stockholders or the Board of Directors or committee thereof need be specified in any waiver of notice of such meeting. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.
Section 6.7Audits. The accounts, books and records of the Corporation shall be audited upon the conclusion of each fiscal year by an independent certified public accountant selected by the Board of Directors, or a committee thereof, and it shall be the duty of the Board of Directors, or such committee, to cause such audit to be done annually.
Section 6.8Resignations. Any director or any officer, whether elected or appointed, may resign at any time by giving written notice of such resignation to the Corporation, and such resignation shall be deemed to be effective when said notice is delivered, or at such later time as is specified therein. No formal action shall be required of the Board of Directors or the stockholders to make any such resignation effective, other than as required by Section 3.2 or as otherwise provided therein.
Section 6.9Indemnification and Insurance.
(A)The Corporation shall indemnify 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 to 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 has or had agreed to become a director 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 limited liability company, partnership, joint venture, trust, enterprise or nonprofit entity, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, against all liability and loss suffered and expenses (including attorneys’ fees and expenses, judgments, fines, amounts to be paid in settlement and excise payments or penalties arising under the Employee Retirement Income Security Act of 1974 (“ERISA”)) reasonably incurred by such Covered Person in connection therewith, and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators. Notwithstanding the preceding sentence, except as otherwise provided in this Section 6.9, 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 of Directors. The Corporation may, by the action of the Board of Directors, provide indemnification to employees and agents of the Corporation with the same scope and effect as the foregoing indemnification of directors and officers.
(B)The Corporation shall to the fullest extent not prohibited by applicable law pay the expenses (including attorneys’ fees and expenses) incurred by a Covered Person in defending any proceeding in advance of its final disposition, provided, however, that, to the extent required by law, such payment of expenses in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the Covered Person to repay all amounts advanced if it should be ultimately determined that the Covered Person is not entitled to be indemnified under this Section 6.9 or otherwise. The rights contained in this clause (B) shall inure to the benefit of a Covered Person’s heirs, executors and administrators.
(C)If a claim for indemnification (following the final disposition of such action, suit or proceeding) or advancement of expenses under this Section 6.9 is not paid in full within thirty days after a written claim therefor by the Covered Person has been received by the Corporation, the Covered Person may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expenses of prosecuting such claim. In any such action the Corporation shall have the burden of proving that the Covered Person is not entitled to the requested indemnification or advancement of expenses under applicable law.
(D)The rights conferred on any Covered Person by this Section 6.9 shall not be exclusive of any other rights which such Covered Person may have or hereafter acquire under any statute, provision of these Bylaws or the Certificate of Incorporation, agreement, vote of stockholders or disinterested directors or otherwise.
(E)The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such individual or entity against such expense, liability or loss under the General Corporation Law of the State of Delaware.
(F)The Corporation’s obligation, if any, to indemnify or to advance expenses to any Covered Person who was or is serving at its request as a director, officer, employee or agent of another corporation, limited liability company, partnership, joint venture, trust, enterprise or nonprofit entity shall be reduced by any amount such Covered Person is entitled to collect and is collectible as indemnification or advancement of expenses from such other corporation, limited liability company, partnership, joint venture, trust, enterprise or non-profit enterprise.
(G)Any repeal or modification of the foregoing provisions of this Section 6.9 shall not adversely affect any right or protection hereunder of any Covered Person in respect of any act or omission occurring prior to the time of such repeal or modification.
(H)This Section 6.9 shall not limit the right of the Corporation, to the extent and in the manner permitted by law, to indemnify and to advance expenses to persons other than Covered Persons, to a greater extent or in an manner otherwise different than provided for in this Section 6.9 when and as authorized by appropriate corporate action.
(I)If this Section 6.9 or any portion hereof will be invalidated on any ground by any court of competent jurisdiction, then the Corporation will nevertheless indemnify each Covered Person entitled to indemnification under clause (A) of this Section 6.9 as to all expense, liability and loss (including attorneys’ fees and related disbursements, judgments, fines, ERISA excise taxes and penalties, penalties and amounts paid or to be paid in settlement) actually and reasonably incurred or suffered by such Covered Person and for which indemnification is available to such Covered Person pursuant to this Section 6.9 to the fullest extent permitted by any applicable portion of this Section 6.9 that shall not have been invalidated and to the fullest extent permitted by applicable law.
Section 6.10Establishing Forum for Certain Actions.
(A)Unless the Corporation consents in writing to the selection of any alternative forum, the Court of Chancery of the State of Delaware shall, to the fullest extent permitted by law, be the sole and exclusive forum for (a) any derivative action or proceeding brought on behalf of the Corporation, (b) any action asserting a claim of breach of a fiduciary duty owed by, or other wrongdoing by, any director, officer, employee or stockholder of the Corporation to the Corporation or the Corporation’s stockholders, (c) any action asserting a
claim arising pursuant to any provision of the General Corporation Law of the State of Delaware, the Certificate of Incorporation (including any Certificate of Designation) or these Bylaws or as to which the General Corporation Law of the State of Delaware confers jurisdiction on the Court of Chancery of the State of Delaware or (d) any action asserting a claim governed by the internal affairs doctrine.
(B)Notwithstanding anything to the contrary herein, but subject to the foregoing provisions of this Section 6.10, unless the Corporation consents in writing to the selection of any alternative forum, the federal district courts of the United States of America shall, to the fullest extent permitted by law, be the sole and exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933, as amended.
(C)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 Section 6.10.
Section 6.11Remote Communication. For the purposes of these Bylaws, if authorized by the Board of Directors in its sole discretion, and subject to such guidelines and procedures as the Board of Directors may adopt, stockholders and proxyholders may, by means of remote communication: (a) participate in a meeting of stockholders; and (b) be deemed present in person and vote at a meeting of stockholders whether such meeting is to be held at a designated place or solely by means of remote communication, so long as (i) the Corporation implements reasonable measures to verify that each person deemed present and permitted to vote at the meeting by means of remote communication is a stockholder or proxyholder, (ii) the Corporation implements reasonable measures to provide such stockholders and proxyholders a reasonable opportunity to participate in the meeting and to vote on matters submitted to the stockholder, including an opportunity to read or hear the proceedings of the meeting substantially concurrently with such proceedings, and (iii) if any stockholder or proxyholder votes or takes other action at the meeting by means of remote communication, a record of such vote or other action shall be maintained by the Corporation.
ARTICLE VII
CONTRACTS, PROXIES, ETC.
Section 7.1Contracts. Except as otherwise required by law, the Certificate of Incorporation or these Bylaws, any contracts or other instruments may be executed and delivered in the name and on the behalf of the Corporation by such officer or officers of the Corporation as the Board of Directors may from time to time specify. Such authority may be general or confined to specific instances as the Board of Directors may determine. The Executive Chair, the Chief Executive Officer or such other persons as the Board of Directors may authorize may execute bonds, contracts, deeds, leases and other instruments to be made or executed for or on behalf of the Corporation. Subject to any restrictions imposed by the Board of Directors or the Executive Chair, the Chief Executive Officer or such other persons as the Board of Directors may authorize may delegate contractual powers to others under his or her jurisdiction, it being
understood, however, that any such delegation of power shall not relieve such person of responsibility with respect to the exercise of such delegated power.
Section 7.2Proxies. Unless otherwise provided by resolution adopted by the Board of Directors, the Executive Chair, the Chief Executive Officer, the President or any Vice President may from time to time appoint an attorney or attorneys or agent or agents of the Corporation, in the name and on behalf of the Corporation, to cast the votes that the Corporation may be entitled to cast as the holder of stock or other securities in any other entity, any of whose stock or other securities may be held by the Corporation, at meetings of the holders of the stock or other securities of such other entity, or to consent in writing, in the name of the Corporation as such holder, to any action by such other entity, and may instruct the person or persons so appointed as to the manner of casting such votes or giving such consent, and may execute or cause to be executed, in the name and on behalf of the Corporation and under its corporate seal or otherwise, all such written proxies or other instruments as he or she may deem necessary or proper in the premises.
ARTICLE VIII
AMENDMENTS
Section 8.1Amendments. These Bylaws may be altered, amended or repealed at any meeting of the Board of Directors; provided, however, that, notwithstanding any other provisions of these Bylaws or any provision of law that might otherwise permit a lesser vote, (i) the affirmative vote of a majority of the Entire Board of Directors shall be required to alter, amend or repeal any provision of these Bylaws, or to adopt any new Bylaw; and (ii) prior to the first date on which SAP ceases to beneficially own twenty percent (20%) or more of the aggregate number of shares of Common Stock then-outstanding, the prior affirmative vote of the holders of a majority of the outstanding shares of Class B Common Stock, voting separately as a class, shall be required for the Board of Directors to alter, amend, change or repeal, or adopt any provision of these Bylaws inconsistent with, the following provisions of these Bylaws: Sections 2.2, 2.8(B), 2.8(c)(5) and 2.11 of Article II; Sections 3.2(A), 3.2(B), 3.4, 3.9 and 3.11 of Article III; Section 6.9 and Section 6.10 of Article VI; and this Section 8.1. Prior to the first date on which SAP ceases to beneficially own twenty percent (20%) or more of the aggregate number of shares of Common Stock then-outstanding, these Bylaws may also be amended by the stockholders; provided, however, that, notwithstanding any other provision of these Bylaws or any provision of law that might otherwise permit a lesser vote, but in addition to any affirmative vote of the holders of any series of Preferred Stock required by law, by the Certificate of Incorporation or by a Certificate of Designation, the affirmative vote of the holders of shares representing a majority of the votes entitled to be cast by the holders of the outstanding shares of Class A Common Stock and Class B Common Stock, voting together as a single class, shall be required for the stockholders of the Corporation to alter, amend or repeal any provision of these Bylaws, or to adopt any new Bylaw; provided, further, however, that: (x) the prior affirmative vote of the holders of a majority of the outstanding shares of Class B Common Stock, voting separately as a class, shall be required for the stockholders to alter, amend, change or repeal, or adopt any Bylaw inconsistent with, the following provisions of these Bylaws: Sections 2.2, 2.8(B), 2.8(c)(5) and
2.11 of Article II; Sections 3.2(A), 3.2(B), 3.4, 3.9 and 3.11 of Article III; Section 6.9 and Section 6.10 of Article VI; and this Section 8.1.
D E L A W A R E SEAL Q U A LT RI CS INT ERNATIONA L IN C . CO RPORATE SEPTEMBER 3, 2014 This certifies that is the record holder of INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE CUSIP 747601 20 1 SEE REVERSE FOR CERTAIN DEFINITIONS AND LEGENDS C O U N T E R S IG N E D A N D R E G IS T E R E D : A M E R IC A N S TO C K TR A N S FE R & TR U S T C O M PA N Y, LLC (B R O O K LY N , N Y ) T R A N S F E R A G E N T A N D R E G IS T R A R B Y : A U T H O R IZ E D S IG N AT U R ECHIEF EXECUTIVE OFFICER FULLY PAID AND NONASSESSABLE SHARES OF CLASS A COMMON STOCK, PAR VALUE $0.0001 PER SHARE, OF Qualtrics International Inc. transferable on the books of the corporation in person or by duly authorized attorney upon surrender of this Certificate properly endorsed. This Certificate is not valid until countersigned by the Transfer Agent and registered by the Registrar. WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. Dated: SECRETARY XMA
The Corporation shall furnish without charge to each stockholder who so requests a statement of the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock of the Corporation or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Such requests shall be made to the Corporation’s Secretary at the principal office of the Corporation. KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, OR DESTROYED THE CORPORATION WILL REQUIRE A BOND INDEMNITY AS A CONDITION TO THE ISSUANCE OF A REPLACEMENT CERTIFICATE. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: Additional abbreviations may also be used though not in the above list. TEN COM – as tenants in common TEN ENT – as tenants by the entireties JT TEN – as joint tenants with right of survivorship and not as tenants in common COM PROP – as community property UNIF GIFT MIN ACT – ......................... Custodian ......................... (Cust) (Minor) under Uniform Gifts to Minors Act.............................................................................. (State) UNIF TRF MIN ACT – ................. Custodian (until age ..................) (Cust) ..................................... under Uniform Transfers (Minor) to Minors Act............................................................ (State) FOR VALUE RECEIVED, _____________________________________________________ hereby sell(s), assign(s) and transfer(s) unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE shares of the capital stock represented by within Certificate, and do hereby irrevocably constitute and appoint attorney-in-fact to transfer the said stock on the books of the within named Corporation with full power of the substitution in the premises. Dated NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER. By THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION, (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15. GUARANTEES BY A NOTARY PUBLIC ARE NOT ACCEPTABLE. SIGNATURE GUARANTEES MUST NOT BE DATED. Signature(s) Guaranteed: (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) X X
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FORM OF
MASTER TRANSACTION AGREEMENT
dated as of [ ]
between
SAP SE
and
QUALTRICS INTERNATIONAL INC.
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TABLE OF CONTENTS
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ARTICLE I DOCUMENTS AND ITEMS TO BE DELIVERED ON THE IPO DATE
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1
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Section 1.1
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Documents to be delivered by SAP
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1
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Section 1.2
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Documents to be delivered by Qualtrics
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2
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ARTICLE II THE IPO AND ACTIONS PENDING THE IPO
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2
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Section 2.1
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Transactions Prior to the IPO
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2
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Section 2.2
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Cooperation
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3
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Section 2.3
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Conditions Precedent to Consummation of the IPO
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3
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ARTICLE III COVENANTS AND OTHER MATTERS
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5
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Section 3.1
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Other Agreements
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5
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Section 3.2
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Consent of Holders of Class B Common Stock
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5
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Section 3.3
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Agreement for Exchange of Information
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7
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Section 3.4
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Auditors and Audits; Financial Statements; Accounting Matters
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9
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Section 3.5
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Confidentiality
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13
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Section 3.6
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Privileged Matters
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15
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Section 3.7
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Cooperation in Future Litigation and Other Proceedings
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16
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Section 3.8
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Mail and Other Communications
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16
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Section 3.9
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Dispute Resolution
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17
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Section 3.10
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Governmental Approvals
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18
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Section 3.11
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Compliance and Other Policies
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18
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Section 3.12
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Termination of Intercompany Agreements
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21
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Section 3.13
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Guaranties
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22
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Section 3.14
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Tax-Free Distribution
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22
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ARTICLE IV Mutual releases; indemnification
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23
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Section 4.1
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Release of Pre-IPO Date Claims
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23
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Section 4.2
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Indemnification by Qualtrics
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24
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Section 4.3
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Indemnification by SAP
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24
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Section 4.4
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Ancillary Agreement Liabilities
|
25
|
|
Section 4.5
|
Reductions for Insurance Proceeds and other Recoveries
|
25
|
|
Section 4.6
|
Procedures for Defense, Settlement and Indemnification of the Third Party Claims
|
27
|
|
Section 4.7
|
Additional Matters
|
28
|
|
Section 4.8
|
Survival of Indemnities
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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ARTICLE V MISCELLANEOUS
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29
|
|
|
|
|
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Section 5.1
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Consent
|
29
|
|
Section 5.2
|
Limitation of Liability
|
30
|
|
Section 5.3
|
Entire Agreement
|
30
|
|
Section 5.4
|
Governing Law and Jurisdiction
|
30
|
|
Section 5.5
|
Consent to Jurisdiction
|
30
|
|
Section 5.6
|
Waiver of Jury Trial
|
30
|
|
Section 5.7
|
Termination; Amendment
|
31
|
|
Section 5.8
|
Notices
|
31
|
|
Section 5.9
|
Counterparts
|
32
|
|
Section 5.10
|
Binding Effect; Assignment
|
32
|
|
Section 5.11
|
Severability
|
32
|
|
Section 5.12
|
Failure or Indulgence not Waiver; Remedies Cumulative
|
33
|
|
Section 5.13
|
Authority
|
33
|
|
Section 5.14
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Interpretation
|
33
|
|
Section 5.15
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Conflicting Agreements
|
33
|
|
Section 5.16
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Third Party Beneficiaries
|
33
|
|
Section 5.17
|
Publicity
|
34
|
|
Section 5.18
|
Specific Performance
|
34
|
|
|
|
|
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ARTICLE VI DEFINITIONS
|
34
|
|
|
|
|
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Section 6.1
|
Defined Terms
|
34
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MASTER TRANSACTION AGREEMENT
This Master Transaction Agreement is dated as of the [__] day of [__], 202[_], between SAP SE, a European Company (Societas Europaea), registered in accordance with the corporate laws of Germany and the European Union (“SAP”), and Qualtrics International Inc., a Delaware corporation (“Qualtrics”, with each of SAP and Qualtrics a “Party,” and together, the “Parties”). Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to such terms in ARTICLE VI hereof.
RECITALS
WHEREAS, SAP is the indirect beneficial owner of all the issued and outstanding Class B common stock of Qualtrics;
WHEREAS, SAP, through Qualtrics, is engaged in the business of experience management software and services, including providing a technology platform for organizations to collect, manage, analyze and take action on experience data, as more completely described in a Registration Statement on Form S-1 (File No. [ ]) filed with the Securities and Exchange Commission (“Commission”) under the Securities Act (the “IPO Registration Statement”);
WHEREAS, SAP and Qualtrics currently contemplate that Qualtrics will make an initial public offering (“IPO”) of its Class A common stock pursuant to the IPO Registration Statement; and
WHEREAS, the Parties intend in this Agreement to set forth the principal arrangements between SAP and Qualtrics regarding the relationship of the Parties from and after the filing of the IPO Registration Statement and the consummation of the IPO.
NOW, THEREFORE, in consideration of the foregoing and the terms, conditions, covenants and provisions of this Agreement, SAP and Qualtrics mutually covenant and agree as follows:
ARTICLE I
DOCUMENTS AND ITEMS TO BE DELIVERED ON THE IPO DATE
Section 1.1Documents to be delivered by SAP. On or prior to the closing of the IPO (the “IPO Date”), SAP will deliver, or will cause its appropriate Subsidiaries to deliver, to Qualtrics all of the following items and agreements:
(a)a duly executed Administrative Services Agreement, substantially in the form attached to the IPO Registration Statement as Exhibit 10.2 (the “Administrative Services Agreement”);
(b)a duly executed Tax Sharing Agreement, substantially in the form attached to the IPO Registration Statement as Exhibit 10.3 (the “Tax Sharing Agreement”);
(c)a duly executed Employee Matters Agreement, substantially in the form attached to the IPO Registration Statement as Exhibit 10.4 (the “Employee Matters Agreement”);
(d)a duly executed Intellectual Property Matters Agreement, substantially in the form attached to the IPO Registration Statement as Exhibit 10.5 (the “Intellectual Property Matters Agreement”);
(e)a duly executed Distribution Agreement, substantially in the form attached to the IPO Registration Statement as Exhibit 10.6 (the “Distribution Agreement”);
(f)a duly executed Insurance Matters Agreement, substantially in the form attached to the IPO Registration Statement as Exhibit 10.7 (the “Insurance Matters Agreement”);
(g)a duly executed Stockholders’ Agreement, substantially in the form attached to the IPO Registration Statement as Exhibit 10.8 (the “Stockholders’ Agreement”);
(h)a duly executed Real Estate Matters Agreement, substantially in the form attached to the IPO Registration Statement as Exhibit 10.9 (the “Real Estate Matters Agreement”); and
(i)such other agreements, documents or instruments as Qualtrics may reasonably require.
Section 1.2Documents to be delivered by Qualtrics. On or prior to the IPO Date, Qualtrics will deliver to SAP all of the following items and agreements:
(a)a duly executed counterpart of each agreement or instrument referred to in Section 1.1;
(b)(i) a duly executed promissory note, substantially in the form attached to the IPO Registration Statement as Exhibit 10.10 (“Note 1”), in a principal amount equal to the IPO Dividend Amount (as defined below), and (ii) a duly executed promissory note, substantially in the form attached to the IPO Registration Statement as Exhibit 10.11 (“Note 2”), in a principal amount of $500 million; and
(c)such other agreements, documents or instruments as SAP may reasonably require.
ARTICLE II
THE IPO AND ACTIONS PENDING THE IPO
Section 2.1Transactions Prior to the IPO. Subject to the occurrence of the events described in this ARTICLE II, SAP intends to cause Qualtrics to consummate the IPO and take, or cause to be taken, the actions specified in this Section 2.1.
(a)Registration Statement. Qualtrics has filed the IPO Registration Statement, and intends to file such amendments or supplements thereto as may be necessary in
order to cause the same to become and remain effective as required by law or by the managing underwriters for the IPO (the “Underwriters”), including filing such amendments or supplements to the IPO Registration Statement as may be required by the underwriting agreement to be entered into among Qualtrics and the Underwriters (the “Underwriting Agreement”), the Commission or federal, state or foreign securities laws. Qualtrics also intends to prepare, file with the Commission and cause to become effective a registration statement registering the Class A common stock of Qualtrics under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), and any registration statements or amendments thereof which are required to reflect the establishment of, or amendments to, any employee benefit and other plans necessary or appropriate in connection with the IPO or the other transactions contemplated by this Agreement. SAP shall cooperate with Qualtrics in furtherance of the foregoing.
(b)Underwriting Agreement. Qualtrics shall enter into the Underwriting Agreement, which shall in form and substance be satisfactory to SAP and Qualtrics, and Qualtrics shall comply with its obligations thereunder.
(c)NASDAQ Listing. Qualtrics shall prepare, file and use its reasonable best efforts to make effective, an application for listing of its Class A common stock issued in the IPO on the Nasdaq Stock Market (“Nasdaq”), subject to official notice of issuance.
(d)Charter and Bylaws. Immediately prior to the IPO Date, the Amended and Restated Certificate of Incorporation and the Amended and Restated Bylaws of Qualtrics, each substantially in the forms attached to the IPO Registration Statement as Exhibits 3.1 and 3.2, respectively, shall be in effect.
Section 2.2Cooperation. Qualtrics shall consult with, and cooperate in all respects with, SAP in connection with the pricing and marketing, including any roadshow presentations, of the Class A common stock of Qualtrics to be offered in the IPO and shall, at SAP’s direction, promptly take any and all actions necessary or desirable to consummate the IPO as contemplated by the IPO Registration Statement and the Underwriting Agreement.
Section 2.3Conditions Precedent to Consummation of the IPO. The obligations of the Parties to consummate the IPO shall be conditioned on the satisfaction of the following conditions (collectively, the “IPO Conditions”):
(a)Registration Statement. The IPO Registration Statement shall have been declared effective by the Commission (the time of such effectiveness being the “IPO Effective Time”), and there shall be no stop-order in effect with respect thereto;
(b)Blue Sky. The actions and filings with regard to applicable securities and blue sky laws of any state (and any comparable laws under any foreign jurisdictions) shall have been taken and, where applicable, have become effective or been accepted;
(c)NASDAQ Listing. The Class A common stock of Qualtrics to be issued in the IPO shall have been accepted for listing on the Nasdaq, subject only to official notice of issuance;
(d)Underwriting Agreement. Qualtrics shall have entered into the Underwriting Agreement and all conditions to the obligations of Qualtrics and the Underwriters shall have been satisfied or waived by the party that is entitled to the benefit thereof;
(e)Rollover Shortfall Shares. In the event that holders of the Cash-Settled Equity Awards elect to exchange less than 100% of Cash-Settled Equity Awards for New Share-Settled Equity Awards in the exchange offer by Qualtrics that is described in the IPO Registration Statement, (i) Qualtrics will increase the number of shares of Class A common stock to be sold pursuant to the IPO by such Rollover Shortfall Shares and (ii) the proceeds to Qualtrics from the sale of such Rollover Shortfall Shares will remain on Qualtrics’ balance sheet and there shall not be a corresponding increase in the principal amount of Note 1 or Note 2. “Cash-Settled Equity Awards” shall mean equity-based awards issued to employees of Qualtrics by Qualtrics and/or SAP that are to be settled in cash. “New Share-Settled Equity Awards” shall mean equity-based awards issued by Qualtrics in exchange for Cash-Settled Equity Awards that are to be settled by the issuance of shares of Class A common stock. “Rollover Shortfall Shares” shall mean such additional number of shares of Class A common stock that would have been required to be issued in respect of any Cash-Settled Equity Awards that were not exchanged, or not elected to be exchanged, for New Share-Settled Equity Awards in the exchange offer referred to above and that remain outstanding as of the time of sale of the Firm Shares, if such Cash-Settled Equity Awards had so been exchanged or elected to be exchanged;
(f)Intercompany Notes. After the IPO Effective Time, and prior to the IPO Date, Qualtrics shall have issued Note 1 and Note 2 as a dividend payable to all holders of record of Common Stock as of immediately prior to the IPO Effective Time (other than any such holder of Common Stock who shall have waived its right to receive such dividend) in an amount equal to (i) the amount by which the sum of the anticipated net proceeds to Qualtrics in the IPO (but excluding proceeds received in respect of Rollover Shortfall Shares), plus the proceeds to Qualtrics from all sales of Class A common stock in private placement transactions after the filing of the IPO Registration Statement and occurring substantially concurrent with or prior to the IPO Date, minus anticipated transaction expenses, exceeds $500 million (such amount, the “IPO Dividend Amount”), payable in the form of a promissory note in the form of Note 1, and (ii) $500 million, payable in the form of a promissory note in the form of Note 2;
(g)No Legal Restraints. No order, injunction or decree issued by any court or agency of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the IPO or any of the other transactions contemplated by this Agreement or any Intercompany Agreement shall be in effect;
(h)Deliveries. Each Party shall have made the deliveries required pursuant to Section 1.1 and Section 1.2, respectively; and
(i)Other Actions. Such other actions as either Party may reasonably request to be taken prior to the IPO, in order to assure the successful completion of the IPO, shall have been taken.
Qualtrics shall use its reasonable best efforts to satisfy, or cause to be satisfied, the IPO Conditions, it being understood and acknowledged by the Parties that SAP shall have absolute discretion to proceed with or abandon the IPO.
ARTICLE III
COVENANTS AND OTHER MATTERS
Section 3.1Other Agreements. SAP and Qualtrics agree to negotiate, execute and deliver, or cause to be negotiated, executed and delivered by the appropriate parties, as appropriate, such other agreements, instruments and other documents as SAP may reasonably deem necessary or desirable in order to effect the purposes of this Agreement and the Intercompany Agreements.
Section 3.2Consent of Holders of Class B Common Stock.
(a)In addition to any other vote required by law or by the Amended and Restated Certificate of Incorporation of Qualtrics, prior to the Operative Date (as defined in the Amended and Restated Certificate of Incorporation of Qualtrics), the prior affirmative vote of the holders of a majority of the outstanding shares of the Class B common stock, voting separately as a class, shall be required to authorize Qualtrics to (and (in the case of clauses (iii) through (x) and (xiii) below) to authorize or permit any Subsidiary of Qualtrics to), in each case whether directly or indirectly and whether by merger, consolidation, division, operation of law or otherwise:
(i)adopt or implement any stockholder rights plan or similar takeover defense measure;
(ii)consolidate or merge with or into any Person;
(iii)permit any Subsidiary to consolidate or merge with or into any Person (other than (a) a consolidation or merger of a Wholly-Owned Subsidiary with or into Qualtrics or with or into another Wholly-Owned Subsidiary or (b) in connection with a Permitted Acquisition);
(iv)directly or indirectly acquire Stock, Stock Equivalents or assets (including, without limitation, any business or operating unit) of any Person (other than Qualtrics or its Subsidiaries), in each case in a single transaction or series of related transactions, involving consideration (whether in cash, securities, assets or otherwise, and including Indebtedness assumed by Qualtrics or any of its Subsidiaries and Indebtedness of any entity so acquired) paid or delivered by Qualtrics and its Subsidiaries in excess of $100,000,000; provided, however, that this Section 3.2(a)(iv) shall not require the vote of the holders of Class B common stock in connection with acquisitions of securities pursuant to portfolio investment decisions in the ordinary course of business or transactions to which Qualtrics and one or more Wholly-Owned Subsidiaries are the only parties;
(v)issue any Stock or any Stock Equivalents, except (A) the issuance of shares of Stock of a Wholly-Owned Subsidiary of Qualtrics to Qualtrics or another Wholly-Owned Subsidiary of Qualtrics, (B) pursuant to the IPO or in private placement transactions after the filing of the IPO Registration Statement and occurring substantially concurrent with or prior to the IPO Date or (C) the issuance of shares of Class A common stock or options or other rights to purchase or acquire Class A common stock pursuant to employee benefit plans or programs, including in connection with any exchange offer that occurs at the time of or substantially concurrent with the IPO, or dividend reinvestment plans approved by the Qualtrics board of directors (the “Qualtrics Board”) (provided, however, that notwithstanding the provision of this clause (C), the prior affirmative vote of the holders of a majority of the outstanding shares of the Class B common stock, voting separately as a class, shall be required to authorize any increase in the number of shares reserved and available for issuance under such employee benefit plans or programs in any year in excess of 5% of the outstanding number of shares of Class B common stock and Class A common stock on the immediately preceding December 31);
(vi)conduct any business other than the business of enterprise software and other businesses ancillary thereto;
(vii)make or commit to make any individual or series of related capital expenditures or commitments in excess of $100,000,000;
(viii)create, incur, assume or permit to exist any Indebtedness or guarantee the Indebtedness of any other Person, or permit any Subsidiary to create, incur, assume or permit to exist any Indebtedness or guarantee any Indebtedness of any other Person, in excess of an aggregate principal amount at any time outstanding of $100,000,000;
(ix)make any loan to any other Person or purchase any debt securities of any other Person, in excess of an aggregate principal amount at any time outstanding of $50,000,000;
(x)redeem, purchase or otherwise acquire (or pay into or set aside funds for a sinking fund for such purpose) any shares of Stock or Stock Equivalents of Qualtrics or a Subsidiary (other than a Wholly-Owned Subsidiary); provided, however, that this restriction shall not apply to the repurchase of shares of Common Stock from employees, officers, directors, consultants or other persons performing services for Qualtrics or any Wholly-Owned Subsidiary pursuant to agreements under which Qualtrics has the option to repurchase such shares upon the occurrence of certain events, such as the termination of employment, or through the exercise of any right of first refusal or the conversion or reclassification of any shares of Class B common stock pursuant to clause (vi) of Article IV, Section C of the Amended and Restated Certificate of Incorporation of Qualtrics;
(xi)dissolve, liquidate or wind up Qualtrics;
(xii)declare dividends on any class or series of the capital stock of Qualtrics;
(xiii)enter into any joint venture or any other arrangement or agreement with any Person to provide or license on an exclusive basis any products or services of such Person that are substantially equivalent to products and services offered by the SAP Group; and
(xiv)alter, amend, change, terminate or repeal, or adopt any provision inconsistent with (A) this Agreement, (B) Articles V or VI or Sections A, or C through D of Article VII of the Amended and Restated Certificate of Incorporation of Qualtrics or (C) Sections 2.2, 2.4, 2.6, 2.8(B), 2.11, 3.2, 3.9, 3.11, 6.9 or 8.1 of the Amended and Restated Bylaws of Qualtrics.
(b)Qualtrics shall not undertake any action or conduct that would have the effect of indirectly engaging Qualtrics in activities that the provisions of this Section 3.2 would otherwise prohibit.
Section 3.3Agreement for Exchange of Information.
(a)Generally. SAP agrees to provide, or cause to be provided, to Qualtrics, at any time, as soon as reasonably practicable after request therefor, any Information in the possession or under the control of SAP that Qualtrics reasonably needs (i) to comply with reporting, disclosure, filing or other requirements imposed on Qualtrics (including under applicable securities laws) by a Governmental Authority having jurisdiction over Qualtrics, including, as required by Nasdaq requirements, (ii) to comply with its obligations under this Agreement or any Intercompany Agreement or (iii) to conduct the ongoing Qualtrics Business; provided, however, that in the event that SAP determines that any such provision of Information could be commercially detrimental, violate any law or agreement, or waive any attorney-client privilege, the Parties shall take all reasonable measures to permit the compliance with such obligations in a manner that avoids any such harm or consequence. Qualtrics agrees to provide, or cause to be provided, to SAP, at any time, as soon as reasonably practicable after request therefor, all reports and other Information regularly provided by Qualtrics to SAP prior to the IPO Date and any Information in the possession or under the control of Qualtrics that SAP reasonably needs (A) to comply with reporting, disclosure, filing or other requirements imposed on SAP (including under applicable securities laws) by a Governmental Authority having jurisdiction over SAP, including, as required by German, New York Stock Exchange and Frankfurt Stock Exchange requirements, (B) to comply with its obligations under this Agreement or any Intercompany Agreement or (C) to conduct the ongoing SAP Business; provided, however, that in the event that Qualtrics determines that any such provision of Information could be commercially detrimental, violate any law or agreement, or waive any attorney-client privilege, the Parties shall take all reasonable measures to permit the compliance with such obligations in a manner that avoids any such harm or consequence. Each of SAP and Qualtrics agree to make their respective personnel available to discuss the Information exchanged pursuant to this Section 3.3.
(b)Internal Accounting Controls; Financial Information. Except as otherwise provided in the Administrative Services Agreement, after the IPO Date, (i) each Party shall maintain in effect at its own cost and expense adequate systems and controls for its business to the extent necessary to enable the other Party to satisfy its reporting, tax return, accounting, audit and other obligations, and (ii) each Party shall provide, or cause to be provided, to the other Party and its Subsidiaries in such form as such requesting Party shall reasonably request, at no charge to the requesting Party, all financial and other data and information as the requesting Party reasonably determines necessary or advisable in order to prepare its financial statements and reports or filings with any Governmental Authority, in each case including as required by German, New York Stock Exchange, Nasdaq and Frankfurt Stock Exchange requirements (and, to the extent a Party provides the other Party with access to its finance and accounting systems, the Party provided with access must agree to comply with all requirements and policies of the Party providing access that are generally applicable to third parties provided with system access).
(c)Ownership of Information. Any Information owned by a Party that is provided to a requesting Party pursuant to this Section 3.3 shall be deemed to remain the property of the providing Party. Unless specifically set forth herein, nothing contained in this Agreement shall be construed as granting or conferring rights of license or otherwise in any such Information. Notwithstanding the foregoing, this Section 3.3(c) shall not restrict the use of any Information by a Party to the extent such Party requires such information in connection with its stock exchange reporting requirements and otherwise as required by applicable law.
(d)Record Retention. To facilitate the possible exchange of Information pursuant to this Section 3.3 and other provisions of this Agreement, each Party agrees to use its reasonable best efforts to retain all Information in its respective possession or control substantially in accordance with and for not less than the period required by its respective record retention policies and/or practices as in effect on the IPO Date, and for such longer period as may be required by any Governmental Authority, any litigation matter, any applicable law, any provision of this Agreement (including Section 3.4(f)) or any Intercompany Agreement. However, except as set forth in the Tax Sharing Agreement, each Party may amend its respective record retention policies at such Party’s discretion at any time; provided, however, that if a Party desires to effect any such amendment in a way that shortens the duration of its record retention prior to the date that is three years after the termination of this Agreement, the amending Party must give 30 days prior written notice (to the extent permitted by law) of such change in the policy to the other Party to this Agreement. In the event either Party desires to discard or destroy any such Information prior to the expiration of the period required by its respective record retention policies and or practices, each Party agrees to give the other Party 30 days written notice prior to discarding or destroying any such Information and, if the other Party so requests, the Party seeking to discard or destroy such Information shall allow the other Party to take possession of such Information at such other Party’s sole cost and expense.
(e)Limitation of Liability. Each Party will use its reasonable best efforts to ensure that Information provided to the other Party hereunder is accurate and complete; provided, however, no Party shall have any liability to any other Party in the event that any Information exchanged or provided pursuant to this Section 3.3 is found to be inaccurate, in the
absence of gross negligence or willful misconduct by the party providing such Information. No Party shall have any liability to any other Party if any Information is destroyed or lost after the relevant Party has complied with the provisions of Section 3.3(d).
(f)Other Agreements Providing for Exchange of Information. The rights and obligations granted under this Section 3.3 are subject to any specific limitations, qualifications or additional provisions on the sharing, exchange, ownership, retention or confidential treatment of Information set forth in this Agreement and any Intercompany Agreement.
(g)Production of Witnesses; Records; Cooperation. For a period from the IPO Date until the date that is seven years after the first date upon which members of the SAP Group cease to own at least 20% of the then outstanding number of shares of Common Stock, and except in the case of an Action in which Qualtrics (or any of its Subsidiaries or any of its or their respective officers or directors) and SAP (or any of its Subsidiaries or any of its or their respective officers or directors) are adverse parties, each Party shall use its reasonable best efforts to make available to each other Party, upon written request, the former, current and future directors, officers, employees, other personnel and agents of such Party as witnesses and any books, records or other documents within its control or which it otherwise has the ability to make available, to the extent that any such directors, officers, employees, other personnel and agents (giving consideration to their business demands) or books, records or other documents may reasonably be required in connection with any legal, administrative or other proceeding in which the requesting Party may from time to time be involved, regardless of whether such legal, administrative or other proceeding is a matter with respect to which indemnification may be sought hereunder. Notwithstanding the foregoing, during the seven year period after the first date upon which the members of the SAP Group hold shares of Common Stock representing less than a majority of the votes entitled to be cast by all holders of Common Stock, the obligations of this Section 3.3(g) shall not apply in instances where doing so would be materially against the best interest of such Party. The requesting Party shall bear all costs and expenses in connection therewith.
Section 3.4Auditors and Audits; Financial Statements; Accounting Matters. Each Party agrees that:
(a)Selection of Auditors.
(i)Qualtrics shall select the independent certified public accountants (“Qualtrics’ Auditors”) used by SAP to serve as its (and its Subsidiaries’) independent certified public accountants (“SAP’s Auditors” and, for the avoidance of doubt, should SAP at any time change the accounting firm serving as its independent certified public accountants, “SAP’s Auditors” shall thereafter mean the new firm serving as SAP’s independent certified public accountants) for purposes of providing an opinion on its consolidated financial statements; provided, however, that Qualtrics’ Auditors may be different from SAP’s Auditors if necessary to comply with applicable laws, regulations or rules regarding auditor independence and qualifications (provided, however, that Qualtrics shall use commercially reasonable efforts to ensure that neither it nor its directors, officers or employees take any actions that could reasonably be expected to
require Qualtrics to engage auditors other than SAP’s Auditors). The foregoing shall not be construed after Qualtrics conducts an IPO so as to unlawfully limit any responsibility of the audit committee of the Qualtrics Board, pursuant to Rule 10A-3(b)(2), to appoint, compensate, retain and oversee the work of the registered public accounting firm Qualtrics engages.
(ii)Each Party shall provide the other Party as much prior notice as reasonably practical of any change in Qualtrics’ Auditors for purposes of providing an opinion on its consolidated financial statements.
(b)Date of Auditors’ Opinion and Quarterly Reviews. During the term of this Agreement and thereafter to the extent necessary for the purpose of preparing financial statements or completing a financial statement audit (but in no event after the date that is ten years after the first date upon which the members of the SAP Group hold shares of Common Stock representing less than a majority of the votes entitled to be cast by all holders of Common Stock), Qualtrics shall use its reasonable best efforts to enable Qualtrics’ Auditors to complete their audit such that they will date their opinion on Qualtrics’ audited annual financial statements on the same date that SAP’s Auditors date their opinion on SAP’s audited annual financial statements, and to enable SAP to meet its timetable for the printing, filing and public dissemination of SAP’s annual financial statements. During the term of this Agreement and thereafter to the extent necessary for the purpose of preparing financial statements or completing a financial statement audit, Qualtrics shall use its reasonable best efforts to enable Qualtrics’ Auditors to complete their annual audit and quarterly review procedures such that they will provide clearance on Qualtrics’ annual and quarterly financial statements on the same date that SAP’s Auditors provide clearance on SAP’s annual and quarterly financial statements. During the term of this Agreement, Qualtrics shall ensure that its periodic earnings announcements will be made after the close of market of the Nasdaq on the trading day before the scheduled date for SAP’s earnings announcements for the corresponding period, unless either (i) otherwise consented to in advance by SAP in writing or (ii) the Qualtrics Board shall determine that Qualtrics is required to do otherwise under applicable law, regulations, rules or listing requirements.
(c)Annual and Quarterly Financial Statements. During the term of this Agreement, Qualtrics shall not change its fiscal year and shall, upon request, provide to SAP on a timely basis all Information that SAP reasonably requires from Qualtrics to meet its schedule for the preparation, printing, filing, and public dissemination of SAP’s annual, quarterly and monthly financial statements and reports. Without limiting the generality of the foregoing, Qualtrics will provide, upon request, all required financial Information with respect to Qualtrics to Qualtrics’ Auditors in a sufficient and reasonable time, and in sufficient detail, to permit Qualtrics’ Auditors to take all steps and perform all reviews necessary to provide sufficient assistance to SAP’s Auditors with respect to financial Information to be included or contained in SAP’s annual, quarterly and monthly financial statements. Similarly, SAP shall, upon request, provide to Qualtrics on a timely basis all financial Information that Qualtrics reasonably requires to meet its schedule for the preparation, printing, filing, and public dissemination of Qualtrics’ annual, quarterly and monthly financial statements. Without limiting the generality of the
foregoing, SAP will provide, upon request, all required financial Information with respect to SAP and its Subsidiaries to Qualtrics’ Auditors in a sufficient and reasonable time, and in sufficient detail, to permit Qualtrics’ Auditors to take all steps and perform all reviews necessary to provide sufficient assistance to Qualtrics’ Auditors with respect to Information to be included or contained in Qualtrics’ annual and quarterly financial statements.
(d)Certifications and Attestations.
(i)During the term of this Agreement and thereafter to the extent necessary for the timely filing by SAP of annual and quarterly reports under the Exchange Act or in connection with any investigations of prior periods, Qualtrics shall cause its principal executive officer and principal financial officer to provide to SAP on a timely basis and as reasonably requested by SAP (A) any certificates requested as support for the certifications and attestations required by Sections 302, 906 and 404 of the Sarbanes-Oxley Act of 2002, as amended, to be filed with such annual and quarterly reports, (B) any certificates requested as may be necessary under German legal requirements, (C) any certificates or other written Information which such principal executive officer or principal financial officer received as support for the certificates provided to SAP and (D) a reasonable opportunity to discuss with such principal financial officer and other appropriate officers and employees of Qualtrics any issues reasonably related to the foregoing.
(ii)During the term of this Agreement and thereafter to the extent necessary for the timely filing by Qualtrics of annual and quarterly reports under the Exchange Act or in connection with any investigations of prior periods, SAP shall cause its appropriate officers and employees to provide to Qualtrics on a timely basis and as reasonably requested by Qualtrics (A) any certificates requested as support for the certifications and attestations required by Sections 302, 906 and 404 of the Sarbanes-Oxley Act of 2002, as amended, to be filed with such annual and quarterly reports, (B) any certificates or other Information which such appropriate officers and employees received as support for the certificates provided to Qualtrics and (C) a reasonable opportunity to discuss with such appropriate officers and employees any issues reasonably related to the foregoing.
(e)Identity of Personnel Performing the Annual Audit and Quarterly Reviews. During the term of this Agreement and thereafter to the extent such information and cooperation is necessary for the preparation of financial statements or completing a financial statements audit, Qualtrics shall authorize Qualtrics’ Auditors to make available to SAP’s Auditors both the personnel who performed or will perform the annual audits and quarterly reviews of Qualtrics and work papers related to the annual audits and quarterly reviews of Qualtrics, in all cases within a reasonable time prior to Qualtrics’ Auditors’ opinion date, so that SAP’s Auditors are able to perform the procedures they consider necessary to take responsibility for the work of Qualtrics’ Auditors as it relates to SAP’s Auditors’ report on SAP’s financial statements, all within sufficient time to enable SAP to meet its timetable for the printing, filing and public dissemination of SAP’s annual and quarterly statements. Similarly, SAP shall
authorize SAP’s Auditors to make available to Qualtrics’ Auditors both the personnel who performed or will perform the annual audits and quarterly reviews of SAP and work papers related to the annual audits and quarterly reviews of SAP, in all cases within a reasonable time prior to SAP’s Auditors’ opinion date, so that Qualtrics’ Auditors are able to perform the procedures they consider necessary to take responsibility for the work of SAP’s Auditors as it relates to Qualtrics’ Auditors’ report on Qualtrics’ statements, all within sufficient time to enable Qualtrics to meet its timetable for the printing, filing and public dissemination of Qualtrics’ annual and quarterly financial statements.
(f)Access to Books and Records. During the term of this Agreement and thereafter, until all governmental audits are complete and the applicable statute of limitations for tax matters has expired, in each case only to the extent such information and cooperation is necessary for the preparation of financial statements or completing a financial statements audit, Qualtrics shall provide SAP’s internal auditors, counsel and other designated representatives of SAP access, upon request, to (i) the premises of Qualtrics during normal business hours and all Information (and duplicating rights) within the knowledge, possession or control of Qualtrics and its Subsidiaries and (ii) the officers and employees of Qualtrics and its Subsidiaries, so that SAP may conduct reasonable audits relating to the financial statements provided by Qualtrics pursuant hereto as well as to the internal accounting controls and operations of Qualtrics. Similarly, SAP shall provide Qualtrics’ internal auditors, counsel and other designated representatives of Qualtrics access during normal business hours to (A) the premises of SAP and its Subsidiaries and all Information (and duplicating rights) within the knowledge, possession or control of SAP and its Subsidiaries and (B) the officers and employees of SAP and its Subsidiaries, so that Qualtrics may conduct reasonable audits relating to the financial statements provided by SAP pursuant hereto as well as to the internal accounting controls and operations of SAP and its Subsidiaries.
(g)Accounting Policies and Principles. During the term of this Agreement and thereafter if a change in accounting principles by a Party would affect the historical financial statements of the other Party, (i) Qualtrics shall be subject to the SAP’s Global Revenue Recognition Guidelines and Group Accounting Guidelines, as in effect from time to time (the “SAP Accounting Policies”), (ii) Qualtrics shall not make or adopt any changes in its accounting estimates or accounting principles from those in effect on the IPO Date without SAP’s prior consent (not to be unreasonably withheld or delayed) and (iii) SAP shall not make or adopt any changes in the SAP Accounting Policies or its accounting estimates or accounting principles (in each case as they apply to Qualtrics) from those in effect on the IPO Date without first giving Qualtrics as much prior notice as reasonably practical and consulting with Qualtrics and, if requested by Qualtrics, consulting with the Qualtrics’ Auditors, with respect thereto; provided, that SAP may make or adopt any changes in its sole discretion after such consultation.
(h)Conflict with Third-Party Agreements. Nothing in Section 3.3 or Section 3.4 shall require either Party to violate any agreement with any third party regarding the confidentiality of confidential and proprietary information relating to that third party or its business; provided, however, that in the event that such Party is required under Section 3.3 or
Section 3.4 to disclose any such Information, such Party shall use its reasonable best efforts to seek to obtain such third party’s consent to the disclosure of such information.
Section 3.5Confidentiality.
(a)SAP and Qualtrics shall hold and shall cause each of their respective Subsidiaries to hold, and shall each cause its and their respective officers, employees, agents, consultants and advisors to hold, in strict confidence and shall not disclose or release without the prior written consent of the other Party, any and all Confidential Information (as defined below) concerning the other Party and/or its respective Subsidiaries. Notwithstanding the foregoing sentence, the Parties may disclose, or may permit disclosure of, Confidential Information (i) to their respective Affiliated Companies, auditors, attorneys, financial advisors, bankers and other consultants and advisors who have a need to know such information and, in each case, are informed of their obligation to hold such information confidential to the same extent as is applicable to the Parties and in respect of whose failure to comply with such obligations, Qualtrics or SAP, as the case may be, will be responsible, or (ii) if the Parties or any of their respective Affiliated Companies are required to disclose any such Confidential Information by applicable law, or judicial or administrative process; provided, that the Party required to disclose such Confidential Information (the “Notifying Party”) shall, to the extent permitted by law or court order, promptly notify the other Party of the existence of such requirement, and shall provide the other Party a reasonable opportunity to seek an appropriate protective order or other remedy, which the Notifying Party will reasonably cooperate in obtaining. In the event that an appropriate protective order or other remedy is not obtained, then to the extent permitted by law or court order, the Notifying Party shall furnish, or cause to be furnished, only that portion of the Confidential Information that is required to be disclosed and shall use its reasonable best efforts to obtain reasonable assurances that confidential treatment will be accorded to such Information.
(b)As used in this Section 3.5, “Confidential Information” shall mean all non-public information, data, or material that is marked confidential or that should reasonably be understood to be confidential under the circumstances, including (i) scientific, engineering, mathematical or design information, data and material of the Disclosing Party, including, but not limited to, specifications, ideas, concepts, models, and strategies for products or services, quality assurance policies, procedures and specifications, source code and object code and all other know-how, methodology, processes, procedures, techniques and trade secrets related to product or service design, development, manufacture, implementation, use, support, and maintenance and (ii) all other non-public information, data or material of the Disclosing Party, including, but not limited to training materials and information, proprietary earnings reports and forecasts, proprietary macro-economic reports and forecasts, proprietary business plans, proprietary general market evaluations and surveys, proprietary financing and credit-related information, customer information and risk and insurance information, in each case that, prior to, on or following the IPO Date, has been disclosed by one Party or its Subsidiaries (the “Disclosing Party”) to the other Party or its Subsidiaries (the “Receiving Party”). Confidential Information includes any modifications or derivatives prepared by the Receiving Party that contain or are based upon any Confidential Information obtained from the Disclosing Party, including any analyses, reports, or summaries of the Confidential Information. Confidential Information may also include
information disclosed to a Disclosing Party by third parties. Confidential Information shall not, however, include any information which (A) is or becomes publicly known through no improper action or inaction by the Receiving Party; (B) was in the possession of or known by the Receiving Party without restriction prior to receipt from the Disclosing Party; (C) is obtained by the Receiving Party from a third party without a breach of the Receiving Party’s obligations hereunder or such third party’s obligations of confidentiality; or (D) is independently developed by the Receiving Party without use of or reference to the Disclosing Party’s Confidential Information, in each case as established by documentary evidence.
(c)Nothing in this Section 3.5 shall restrict (i) the Disclosing Party from using, disclosing, or disseminating its own Confidential Information in any way, or (ii) the Disclosing Party from reassigning any of its employees that have had access to Confidential Information to businesses of the Receiving Party that may engage in the same or similar business activities or lines of business as the Disclosing Party or that do business with any client or customer of the Disclosing Party. Moreover, nothing in this Section 3.5 supersedes any restriction imposed by third parties on their Confidential Information, and there is no obligation on the Disclosing Party to conform third party agreements to the terms of this Agreement except as expressly set forth therein.
(d)Notwithstanding anything to the contrary set forth herein, (i) SAP and its Subsidiaries, on the one hand, and Qualtrics and its Subsidiaries, on the other hand, shall be deemed to have satisfied their obligations hereunder with respect to Confidential Information if they exercise the same degree of care (but no less than a reasonable degree of care) as they take to preserve confidentiality for their own similar Information and (ii) confidentiality obligations provided for in any agreement between SAP or its Subsidiaries, or Qualtrics or any of its Subsidiaries, on the one hand, and any employee of SAP or any of its Subsidiaries, or Qualtrics or any of its Subsidiaries, on the other hand, shall remain in full force and effect.
(e)Confidential Information of SAP and its Subsidiaries, on the one hand, or Qualtrics and its Subsidiaries, on the other hand, in the possession of and used by the other as of the IPO Date may continue to be used by such Party or its Subsidiaries in possession of the Confidential Information in and only in the operation of the SAP Business or the Qualtrics Business, as the case may be, and may be used only so long as the Confidential Information is maintained in confidence and not disclosed in violation of Section 3.5(a). The disclosure of Confidential Information from one Party to the other Party does not include a license or other substantive rights in the Confidential Information except to the extent such a license or rights are granted elsewhere in this Agreement or an Intercompany Agreement. Notwithstanding the foregoing, (i) in the event there is any conflict or inconsistency between this Section 3.5 and any provision of the Intellectual Property Matters Agreement, the terms and conditions of the Intellectual Property Matters Agreement shall govern and control, and (ii) any use of Confidential Information that constitutes use of Intellectual Property Rights (as defined in the Intellectual Property Matters Agreement) that is addressed in the Intellectual Property Matters Agreement shall be governed by the Intellectual Property Matters Agreement and any such use must be within the scope of the licenses and covenants therein. Such continued right to use Confidential Information may only be transferred to a third party (A) to the extent expressly
permitted by the Intellectual Property Matters Agreement for Confidential Information that constitutes use of Intellectual Property Rights and (B) where such third party expressly agrees in writing to be bound by the provisions of this Section 3.5.
Section 3.6Privileged Matters.
(a)SAP and Qualtrics agree that their respective rights and obligations to maintain, preserve, assert or waive any or all privileges belonging to either Party or its Subsidiaries, including but not limited to the attorney-client privilege, the work product immunity, and any other privilege or immunity from production (collectively, “Privileges”), shall be governed by the provisions of this Section 3.6. With respect to Privileged Information (as defined below) of SAP, SAP shall have sole authority in perpetuity to determine whether to assert or waive any or all Privileges, and Qualtrics shall use its reasonable best efforts to ensure that it takes no action (nor permit any of its Subsidiaries to take action) without the prior written consent of SAP that would be reasonably likely to result in any waiver of any Privilege that could be asserted by SAP or any of its Subsidiaries under applicable law and this Agreement. With respect to Privileged Information of Qualtrics arising after the IPO Date, Qualtrics shall have sole authority in perpetuity to determine whether to assert or waive any or all Privileges, and SAP shall use its reasonable best efforts to ensure that it takes no action (nor permit any of its Subsidiaries to take action) without the prior written consent of Qualtrics that would be reasonably likely to result in any waiver of any Privilege that could be asserted by Qualtrics or any of its Subsidiaries under applicable law and this Agreement. The rights and obligations created by this Section 3.6 shall apply to all Information as to which SAP or Qualtrics or their respective Subsidiaries would be entitled to assert or have asserted a Privilege (“Privileged Information”).
(b)Upon receipt by SAP or Qualtrics, as the case may be, of any subpoena, discovery or other request from any third party that actually or arguably calls for the production or disclosure of Privileged Information of the other, or if SAP or Qualtrics, as the case may be, obtains knowledge that any current or former employee of SAP or Qualtrics, as the case may be, has received any subpoena, discovery or other request from any third party that actually or arguably calls for the production or disclosure of Privileged Information of the other, SAP or Qualtrics, as the case may be, shall promptly notify the other of the existence of the request and shall, to the extent possible, provide the other a reasonable opportunity to review the Information and to assert any rights it may have under this Section 3.6 or otherwise to prevent the production or disclosure of Privileged Information. SAP or Qualtrics, as the case may be, will not produce or disclose to any third party any of the other’s Privileged Information under this Section 3.6 unless (i) the other has provided its express written consent to such production or disclosure or (ii) a court of competent jurisdiction has entered an order not subject to interlocutory appeal or review finding that the Information is not entitled to protection from disclosure under any applicable privilege, doctrine or rule.
(c)Each and all of the Parties’ transfer of books and records and other Information to each other and each Party’s agreement to permit the other Party to obtain Information existing prior to the IPO Date are made in reliance on SAP’s and Qualtrics’
respective agreements, as set forth in Section 3.5 and this Section 3.6, to maintain the confidentiality of such Information and to take the steps provided herein for the preservation of all Privileges that may belong to or be asserted by SAP or Qualtrics, as the case may be. The access to Information, witnesses and individuals being granted pursuant to Section 3.3 and Section 3.4 and the disclosure to Qualtrics and SAP of Privileged Information relating to the Qualtrics Business or the SAP Business pursuant to this Agreement shall not be asserted by SAP or Qualtrics to constitute, or otherwise be deemed, a waiver of any Privilege that has been or may be asserted under this Section 3.6 or otherwise. Nothing in this Agreement shall operate to reduce, minimize or condition the rights granted to SAP and Qualtrics in, or the obligations imposed upon SAP and Qualtrics by, this Section 3.6.
Section 3.7Cooperation in Future Litigation and Other Proceedings. Subject to the other terms and conditions of this Agreement and excluding any circumstance in which Qualtrics (or any of its Subsidiaries or any of its or their respective officers or directors) and SAP (or any of its Subsidiaries or any of its or their respective officers or directors) are adverse parties in an Action: (a) in the event that Qualtrics (or any of its Subsidiaries or any of its or their respective officers or directors) or SAP (or any of its Subsidiaries or any of its or their respective officers or directors) at any time after the date hereof initiates or becomes subject to any Action with respect to which the Parties have no prior agreements (as to indemnification or otherwise), the Party (and its Subsidiaries and its and their respective officers and directors) that has not initiated and is not subject to such Action shall comply, at the other Party’s expense, with any reasonable requests by the other Party for assistance in connection with such Action (including by way of provision of information, compliance with subpoenas and making available of associates or employees as witnesses); and (b) unless otherwise provided in this Agreement, another Intercompany Agreement or any other contract between the Parties, in the event that Qualtrics (or any of its Subsidiaries or any of its or their respective officers or directors) and SAP (or any of its Subsidiaries or any of its or their respective officers or directors) at any time after the date hereof initiate or become subject to any Action with respect to which the Parties have no prior agreements (as to indemnification or otherwise), each Party (and its officers and directors) shall, at its own expense, coordinate with the other Party with respect to strategies and actions with respect to such Action to the extent such coordination would not be detrimental to their respective interests and shall comply, at the expense of the requesting Party, with any reasonable requests of the other Party for assistance in connection therewith (including by way of provision of information, compliance with subpoenas and making available of employees as witnesses).
Section 3.8Mail and Other Communications. After the IPO Date, each of SAP and Qualtrics may receive mail, facsimiles, packages and other communications properly belonging to the other. Accordingly, at all times after the IPO Date, each of SAP and Qualtrics authorizes the other to receive and open all mail, facsimiles, packages and other communications received by it and not unambiguously intended for the other Party or any of the other Party’s officers or directors, and to retain the same to the extent that they either (i) relate to the business of the receiving Party or (ii) do not relate to the business of the other Party. In the event that a Party shall receive mail, facsimiles, packages or other communications that are either unambiguously intended for the other Party or any of the other Party’s officers or directors or that (x) relate to the business of the other Party and (y) do not relate to the business of the
receiving Party, the receiving Party shall promptly deliver such mail, facsimiles, packages or other communications to the other Party as provided for in Section 5.8 hereof. The provisions of this Section 3.8 are not intended to, and shall not, be deemed to constitute (a) an authorization by either SAP or Qualtrics to permit the other to accept service of process on its behalf and neither Party is or shall be deemed to be the agent of the other for service of process purposes or (b) a waiver of any Privilege with respect to Privileged Information contained in such mail, facsimiles, packages or other communications.
Section 3.9Dispute Resolution.
(a)In the event of any dispute, controversy or claim arising between the Parties out of or relating to this Agreement or any Intercompany Agreement or the breach, termination or validity thereof (“Dispute”), upon the provision of notice by either Party to the other party in accordance with the terms of this Agreement (which notice shall include a summary of the Dispute and appropriate supporting materials), such Dispute shall first be negotiated between appropriate senior executives of each Party who shall have the authority to resolve the matter. Such executives shall meet to attempt in good faith to negotiate a resolution of the Dispute prior to pursuing other available remedies, within ten days of receipt by a Party of notice of a Dispute, which date of receipt shall be referred to herein as the “Dispute Resolution Commencement Date.” Discussions and correspondence relating to trying to resolve such Dispute shall be treated as Confidential Information and Privileged Information of each of SAP and Qualtrics developed for the purpose of settlement and shall be exempt from discovery or production and shall not be admissible in any subsequent proceeding between the Parties.
(b)If the senior representatives of the two Parties are unable to resolve the Dispute within 120 days from the Dispute Resolution Commencement Date, on the request of any Party, the Dispute will be mediated by a mediator appointed pursuant to the mediation rules of the American Arbitration Association. Both Parties will share the administrative costs of the mediation and the mediator’s fees and expenses equally, and each Party shall bear all of its other costs and expenses related to the mediation, including but not limited to attorney’s fees, witness fees, and travel expenses. The mediation shall take place in New York unless the Parties agree on an alternative forum.
(c)If the mediation does not result in resolution of the Dispute within six months from the date a request for mediation is made to the American Arbitration Association, on the request of any Party, the Dispute will be submitted for binding arbitration before an arbitrator appointed pursuant to the arbitration rules of the American Arbitration Association; provided, however, if the matter or matters in Dispute involve claimed amounts in excess of $25,000,000, there shall be three arbitrators: one appointed by SAP, one appointed by Qualtrics, and one appointed by the other two arbitrators. Both Parties will share the administrative costs of the arbitration and the arbitrator’s or arbitrators’ fees and expenses equally, and each Party shall bear all of its other costs and expenses related to the arbitration, including but not limited to attorney’s fees, witness fees, and travel expenses. The arbitration shall take place in New York or in whatever alternative forum on which the Parties may agree.
(d)Notwithstanding the foregoing, if either Party requires emergency relief such that the timeline described above is reasonably likely to result in material additional harm to such Party, then such Party may immediately submit the applicable Dispute for binding arbitration pursuant to Section 3.9(c) without following the steps and timelines described above in Sections 3.9(a) through (c).
(e)Notwithstanding anything to the contrary in this Section 3.9, Disputes arising under the Distribution Agreement or the IP Matters Agreement shall be subject to the Dispute resolution provisions of those agreements, as applicable.
(f)Unless otherwise agreed in writing, the Parties will continue to provide service and honor all other commitments under this Agreement and each Intercompany Agreement during the course of dispute resolution pursuant to the provisions of this Section 3.9 with respect to all matters not subject to such Dispute.
Section 3.10Governmental Approvals. To the extent that any of the transactions contemplated by this Agreement requires any Governmental Approvals, the Parties will use their reasonable best efforts to obtain any such Governmental Approvals.
Section 3.11Compliance and Other Policies.
(a)SAP Policies. The Qualtrics Group members and, as applicable, all software and services provided or distributed by the Qualtrics Group, shall be subject to the SAP global compliance policies listed on Schedule 3.11(a)(i), as in effect from time to time and generally applicable to SAP’s Subsidiaries (the “SAP Compliance Policies”), or such equivalent Qualtrics policies as Qualtrics may adopt and SAP may approve (such approval not to be unreasonably withheld or delayed) from time to time (the “Qualtrics Equivalent Compliance Policies”), and the SAP policies (including product policies) listed on Schedule 3.11(a)(ii), as in effect from time to time and generally applicable to SAP’s Subsidiaries (the “SAP Other Policies” and, together with the SAP Compliance Policies, the “SAP Policies”), or such equivalent policies as Qualtrics may adopt and SAP may approve (such approval not to be unreasonably withheld or delayed) from time to time (the “Qualtrics Equivalent Other Policies” and, together with the Qualtrics Equivalent Compliance Policies, the “Qualtrics Equivalent Policies”). The Qualtrics Board shall approve and adopt the SAP Policies or Qualtrics Equivalent Policies, as applicable, on an annual basis.
(b)Provisions Applicable to SAP Policies; SAP Role in Implementation and Oversight of SAP Policies.
(i)Qualtrics shall be responsible for ensuring compliance with and implementation of all SAP Policies or Qualtrics Equivalent Policies, as applicable, including by developing appropriate and reasonable training materials (which, to the extent they relate to SAP Compliance Policies, shall be in coordination with SAP), conducting appropriate training (which may be provided by SAP pursuant to the Administrative Services Agreement) and implementing reasonable systems for tracking training.
(ii)SAP may amend or modify the SAP Policies from time to time with prior written notice to Qualtrics; provided that SAP shall provide Qualtrics with reasonable time to implement such changes before the policy changes go into effect. SAP may add or modify SAP Policies to address changes in applicable law that impose responsibility on SAP for, or that have a reasonable potential to cause SAP to incur liability or other adverse consequences resulting from, the conduct of the Qualtrics Group, or in connection with ordinary course updates to the SAP Policies, which shall be applicable to Qualtrics and, if required, approved and adopted by the Qualtrics Board or replaced with additional or modified Qualtrics Equivalent Policies as Qualtrics may adopt and SAP may approve (such approval not to be unreasonably withheld or delayed). Qualtrics may amend or modify Qualtrics Equivalent Policies from time to time with the approval of the Qualtrics Board, if required, and shall amend or modify Qualtrics Equivalent Policies as directed by SAP in order to reflect changes made to the corresponding global SAP Policies. Qualtrics may make modifications to SAP Policy documentation and Qualtrics Equivalent Policy documentation to reflect Qualtrics’ branding, formatting, style or business needs without changing the substance or content of such policies, unless such substance or content is clearly not applicable to U.S. subsidiaries of SAP.
(iii)Qualtrics shall work with SAP to implement policies and procedures as necessary for the Qualtrics Group to comply with the SAP Compliance Policies or Qualtrics Equivalent Compliance Policies, as applicable. SAP and Qualtrics shall jointly be responsible for implementing Qualtrics’ compliance functions in the areas covered by the SAP Compliance Policies or Qualtrics Equivalent Compliance Policies, as applicable, until Qualtrics develops its own compliance infrastructure. As Qualtrics develops its own compliance infrastructure, SAP’s role will transition to providing oversight and resources as reasonably necessary to support ongoing compliance until such time as Qualtrics has fully developed its own compliance infrastructure. Such oversight shall consist of the rights and obligations set forth in Section 3.11(f) below.
(c)Qualtrics Policies. For applicable matters that are not subject to SAP Policies or Qualtrics Equivalent Policies, the Qualtrics Board and management shall establish and maintain Qualtrics compliance policies (the “Qualtrics Policies”) and controls as it determines appropriate, which may include for the matters listed on Schedule 3.11(c).
(d)Access. SAP shall provide the Qualtrics Group with access at all times to current versions of the SAP Policies and the SAP Accounting Policies, and Qualtrics shall make the SAP Policies, SAP Accounting Policies or Qualtrics Equivalent Policies, as applicable, available to Qualtrics Group employees on the Qualtrics internal network. Qualtrics shall, upon request, provide individuals identified by SAP with such access as they may request to current versions of the Qualtrics Equivalent Policies.
(e)Chief Compliance Officer. The Qualtrics Board or management shall be responsible for hiring or appointing, firing and determining compensation of the Qualtrics chief compliance officer (“CCO”), and for delegating power and authority to the CCO or other
personnel designated by the Qualtrics Board. The power and authority delegated to the CCO shall include the power to delegate responsibility for certain compliance functions to other personnel. The CCO or other personnel designated by the Qualtrics Board or by the CCO shall be responsible for administering a compliance program applicable to the subject matter of each SAP Compliance Policy and Qualtrics Equivalent Compliance Policy, and for coordinating with the SAP Group Chief Compliance Officer or such other SAP personnel designated by SAP as responsible for each SAP Compliance Policy or the subject matter of the applicable Qualtrics Equivalent Compliance Policy.
(f)Compliance Reporting; Audits.
(i)Qualtrics shall, upon request, provide SAP with periodic reports regarding compliance with SAP Compliance Policies or Qualtrics Equivalent Compliance Policies, as applicable, with such frequency (which, except as provided in clause (ii) below, shall be no more frequently than quarterly without the agreement of Qualtrics) and format as may be reasonably required by SAP. SAP, upon reasonable prior written notice, shall have the right to review Qualtrics’ compliance status and processes to ensure adequacy and consistency with each SAP Compliance Policy and Qualtrics Equivalent Compliance Policy. SAP’s compliance and internal audit functions may audit Qualtrics’ compliance management systems upon reasonable prior written notice. Qualtrics shall also provide SAP with access, upon reasonable prior written notice, to Qualtrics’ books, records, systems and employees as reasonably necessary in connection with any regulatory audit involving the SAP Group. Qualtrics will support any such review or audit in good faith.
(ii)Without limiting the generality of the foregoing sentence, upon request, the CCO shall work with SAP’s designated compliance officer to provide the SAP Group Chief Compliance Officer or such other officer of SAP designated for such purpose with regular reports on the status of Qualtrics’ compliance program applicable to the subject matter of each SAP Compliance Policy and Qualtrics Equivalent Compliance Policy, as reasonably required by SAP to enable the SAP Group Chief Compliance Officer or such other officer of SAP designated for such purpose to meet its internal reporting obligations to the extent and for so long as those reporting obligations require the SAP Group Chief Compliance Officer or such other officer of SAP designated for such purpose to report on Qualtrics to SAP’s senior management or supervisory board.
(g)Breach Reporting and Response. Qualtrics and SAP shall establish mechanisms for (i) Qualtrics to report breaches of SAP Compliance Policies or Qualtrics Equivalent Compliance Policies, as applicable, to the appropriate authority, which may include the audit committee of the Qualtrics Board and/or SAP, (ii) the response to (including communications with applicable Governmental Authorities), and the conduct of investigations of, any actual, reported or suspected breaches of SAP Compliance Policies or Qualtrics Equivalent Compliance Policies, as applicable, and (iii) consequence management and remediation required as a result of any breaches of SAP Compliance Policies or Qualtrics Equivalent Compliance Policies, as applicable. SAP shall reasonably and fairly allocate to
Qualtrics, and Qualtrics shall be responsible for, all costs, fines and penalties incurred by Qualtrics and SAP (including all attorneys’, accountants’, consultants’ and other professionals’ fees and expenses) that are attributable to any actual, reported or suspected breach by Qualtrics of SAP Compliance Policies or Qualtrics Equivalent Compliance Policies, as applicable, as allocated to Qualtrics.
(h)Governmental Investigations and Proceedings. Notwithstanding anything herein to the contrary, unless prohibited by applicable legal requirements or by a Governmental Authority, SAP shall have, in its sole discretion, the right to direct (or, at SAP’s election, participate in) Qualtrics’ conduct of any investigation by any Governmental Authority and defense of any other Action brought by any Governmental Authority involving the subject matter of a SAP Compliance Policy or Qualtrics Equivalent Compliance Policy, as applicable, and to control all communications with applicable Governmental Authorities in connection with any such investigation or other Action, except where such investigation, defense, or communications relate solely to the actions or conduct of the Qualtrics Group and do not involve the SAP Group, and are not reasonably likely to materially affect the SAP Group, other than in its capacity as a shareholder of Qualtrics, as determined by SAP in its sole discretion. SAP shall reasonably and fairly allocate to Qualtrics, and Qualtrics shall be responsible for, all costs, fines and penalties incurred by Qualtrics and SAP (including all attorneys’, accountants’, consultants’ and other professionals’ fees and expenses) in connection with any investigation by any Governmental Authority or any other Action brought by any Governmental Authority that are attributable to any actual, reported or suspected breach by Qualtrics of a SAP Compliance Policy or Qualtrics Equivalent Compliance Policy, as applicable, as allocated to Qualtrics. For the avoidance of doubt, this Section 3.11(h) applies to investigations and Actions brought by a Governmental Authority and not to Third Party Claims initiated by other third parties that are merely brought before or through a Governmental Authority.
(i)Certifications. Qualtrics shall, upon request, provide all certifications and representation letters (that are related to or applicable to Qualtrics and its Subsidiaries) regarding SAP Policies, SAP Accounting Policies and Qualtrics Equivalent Policies as required by SAP to enable SAP to provide all required regulatory certifications required by any Government Authorities.
(j)SAP Assistance. SAP shall provide assistance to Qualtrics on a transitional basis in fulfilling its obligations under this Section 3.11 for the duration and in the manner described on Schedule 3.11(j).
Section 3.12Termination of Intercompany Agreements. Except for (a) this Agreement and the Intercompany Agreements and (b) as set forth on Schedule 3.12, in furtherance of the releases and other provisions of Section 4.1, effective immediately prior to the IPO Date, SAP for itself and as agent for each other member of the SAP Group, on the one hand, and Qualtrics for itself and as agent for each other member of the Qualtrics Group, on the other hand, hereby terminate any and all agreements, arrangements, commitments and understandings, oral or written (“Existing Intercompany Agreements”) between such parties and in effect as of the IPO Date. No such terminated Existing Intercompany Agreement (including any provision
thereof that purports to survive termination) shall be of any further force or effect after the IPO Date. Each Party shall, at the reasonable request of the other Party, take, or cause to be taken, such other actions as may be necessary to effect the foregoing. The Parties, on behalf of the members of their respective Groups, hereby waive any advance notice provision or other termination requirements with respect to any Existing Intercompany Agreement. For the avoidance of doubt, intercompany accounts payable and receivable among the Parties and their Subsidiaries shall continue in effect after the IPO Date.
Section 3.13Guaranties. Except as otherwise provided in the Real Estate Matters Agreement, SAP and Qualtrics shall each use their reasonable efforts to cause each member of the SAP Group to be removed and released, effective as of the IPO Date, in respect of all obligations under each guarantee, indemnity, surety bond, letter of credit and letter of comfort (each, a “Guarantee”), given or obtained by any member of the SAP Group for the benefit of any member of the Qualtrics Group or the Qualtrics Business. If the Parties are unable to effect any such substitution, removal, release and termination with respect to any such Guarantee as of the IPO Date then, following the IPO Date, Qualtrics shall effect such substitution, removal, release and termination as soon as reasonably practicable after the IPO Date; provided, that from and after IPO Date, Qualtrics shall indemnify, hold harmless and promptly reimburse the members of the SAP Group for any payments made by members of the SAP Group and for any and all Liabilities of the members of the SAP Group arising out of, or in performing, in whole or in part, any performance obligation in accordance with the underlying obligation under any such Guarantee.
Section 3.14Tax-Free Distribution.
(a)Tax-Free Distribution Generally. At any time after the IPO Date, if SAP, in its sole and absolute discretion, advises Qualtrics that SAP intends to pursue any Tax-Free Distribution, Qualtrics agrees to take all reasonable action requested by SAP to facilitate such Tax-Free Distribution.
(b)SAP’s Sole Discretion. SAP shall, in its sole and absolute discretion, determine whether to proceed with any Tax-Free Distribution, the date of the consummation of such Tax-Free Distribution and all terms of such Tax-Free Distribution, including the form, structure and terms of any transaction(s) and/or offering(s) to effect such Tax-Free Distribution and the timing of and conditions to the consummation of such Tax-Free Distribution. In addition, SAP may at any time and from time to time until the completion of any Tax-Free Distribution, modify or change the terms of such Tax-Free Distribution, including by accelerating or delaying the timing of the consummation of all or part of such Tax-Free Distribution. Qualtrics shall reasonably cooperate with SAP in all respects to accomplish any Tax-Free Distribution and shall, at SAP’s direction, promptly take any and all reasonable actions that SAP reasonably deems necessary or desirable to effect such Tax-Free Distribution. Without limiting the generality of the foregoing, Qualtrics shall, at SAP’s direction, reasonably cooperate with SAP, and execute and deliver, or use its reasonable best efforts to cause to have executed and delivered, all instruments, and to make all filings with, and to obtain all consents, approvals or authorizations of, any Governmental Authorities as SAP may reasonably deem necessary or
desirable in order to consummate and make effective any Tax-Free Distribution. If, in connection with any Tax-Free Distribution, SAP makes a Request (as defined in the Stockholders’ Agreement) for a Demand Registration (as defined in the Stockholders’ Agreement), the terms and the conditions of the Stockholders’ Agreement shall govern.
(c)This Section 3.14 shall not be interpreted as limiting the provisions of Section 5.2(a) of the Tax Sharing Agreement.
ARTICLE IV
MUTUAL RELEASES; INDEMNIFICATION
Section 4.1Release of Pre-IPO Date Claims.
(a)Qualtrics Release. Except as provided in Section 4.1(c), as of the IPO Date, Qualtrics does hereby, for itself and as agent for each member of the Qualtrics Group, and on behalf of any Person acting through the Qualtrics Group in a shareholder or derivative action or otherwise, remise, release and forever discharge the SAP Indemnitees from any and all Liabilities whatsoever, whether at law or in equity (including any right of contribution), whether arising in tort or under any contract or agreement or otherwise, by operation of law or otherwise, existing or arising from any past acts or events occurring or failing to occur or alleged to have occurred or to have failed to occur or any conditions existing or alleged to have existed on or before the IPO Date, including in connection with the transactions and all other activities to implement the IPO.
(b)SAP Release. Except as provided in Section 4.1(c), as of the IPO Date, SAP does hereby, for itself and as agent for each member of the SAP Group, and on behalf of any Person acting through the SAP Group in a shareholder or derivative action or otherwise, remise, release and forever discharge the Qualtrics Indemnitees from any and all Liabilities whatsoever, whether at law or in equity (including any right of contribution), whether arising in tort or under any contract or agreement or otherwise, by operation of law or otherwise, existing or arising from any past acts or events occurring or failing to occur or alleged to have occurred or to have failed to occur or any conditions existing or alleged to have existed on or before the IPO Date, including in connection with the transactions and all other activities to implement the IPO.
(c)No Impairment. Nothing contained in Section 4.1(a) or Section 4.1(b) shall limit or otherwise affect any Party’s rights or obligations pursuant to or contemplated by this Agreement or any Intercompany Agreement, in each case in accordance with its terms including any obligations relating to indemnification, including indemnification pursuant to Section 4.2 and Section 4.3 of this Agreement, and any Insurance Proceeds under any of SAP’s Insurance Policies relating to the Qualtrics Business which Qualtrics is entitled to be paid.
(d)No Actions as to Released Pre-IPO Date Claims. Qualtrics agrees, for itself and as agent for each member of the Qualtrics Group, not to make any claim or demand, or commence any Action asserting any claim or demand, including any claim of contribution or any indemnification, against SAP or any member of the SAP Group, or any other Person released pursuant to Section 4.1(a), with respect to any Liabilities released pursuant to Section 4.1(a).
SAP agrees, for itself and as agent for each member of the SAP Group, not to make any claim or demand, or commence any Action asserting any claim or demand, including any claim of contribution or any indemnification, against Qualtrics or any member of the Qualtrics Group, or any other Person released pursuant to Section 4.1(b), with respect to any Liabilities released pursuant to Section 4.1(b).
(e)Further Instruments. At any time, at the request of any other Party, each Party shall cause each member of its respective SAP Group or Qualtrics Group, as applicable, to execute and deliver releases reflecting the provisions hereof.
Section 4.2Indemnification by Qualtrics. Except as otherwise provided in this Agreement, including Section 4.7(f) hereof, Qualtrics shall, for itself and as agent for each member of the Qualtrics Group, indemnify, defend (or, where applicable, pay the defense costs for) and hold harmless the SAP Indemnitees from and against, and shall reimburse such SAP Indemnitees with respect to, any and all Losses that any third party, including any Person acting through the Qualtrics Group in a shareholder or derivative action or otherwise, seeks to impose upon the SAP Indemnitees, or which are imposed upon the SAP Indemnitees, that relate to, arise or result from, whether prior to or following the IPO Date, any of the following items (without duplication):
(a)any Qualtrics Liability;
(b)any breach by Qualtrics or any member of the Qualtrics Group of this Agreement or any of the Intercompany Agreements; and
(c)any Liabilities relating to, arising out of or resulting from any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, with respect to all information (i) contained in the IPO Registration Statement, any issuer free writing prospectus or any preliminary, final or supplemental prospectus forming a part of the IPO Registration Statement (other than written information provided by SAP to Qualtrics), (ii) contained in any public filings made by Qualtrics with the Commission following the IPO Date (other than written information provided by SAP to Qualtrics) and (iii) provided by Qualtrics to SAP specifically for inclusion in SAP’s annual or quarterly reports and other regulatory reports following the IPO Date.
(d)In the event that any member of the Qualtrics Group makes a payment to the SAP Indemnitees hereunder, and any of the SAP Indemnitees subsequently diminishes the Liability on account of which such payment was made, either directly or through a third-party recovery (other than a recovery indirectly from SAP), SAP will promptly repay (or will procure SAP Indemnitee to promptly repay) such member of the Qualtrics Group the amount by which the payment made by such member of the Qualtrics Group exceeds the actual cost of the associated indemnified Liability.
Section 4.3Indemnification by SAP. Except as otherwise provided in this Agreement, SAP shall cause SAP America to, for itself and as agent for each member of the SAP
Group, indemnify, defend (or, where applicable, pay the defense costs for) and hold harmless the Qualtrics Indemnitees from and against, and shall reimburse such Qualtrics Indemnitee with respect to, any and all Losses that any third party, including any Person acting through the SAP Group in a shareholder or derivative action or otherwise, seeks to impose upon the Qualtrics Indemnitees, or which are imposed upon the Qualtrics Indemnitees, that relate to, arise or result from, whether prior to or following the IPO Date, any of the following items (without duplication):
(a)any SAP Liability (in each case excluding the Qualtrics Liabilities);
(b)any breach by SAP or any member of the SAP Group of this Agreement or any of the Intercompany Agreements; and
(c)any Liabilities relating to, arising out of or resulting from any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, with respect to all information (i) contained in the IPO Registration Statement, any issuer free writing prospectus or any preliminary, final or supplemental prospectus forming a part of the IPO Registration Statement provided by SAP specifically for inclusion therein and (ii) provided by SAP to Qualtrics specifically for inclusion in Qualtrics’ annual or quarterly reports following the IPO Date.
(d)In the event that any member of the SAP Group makes a payment to the Qualtrics Indemnitees hereunder, and any of the Qualtrics Indemnitees subsequently diminishes the Liability on account of which such payment was made, either directly or through a third-party recovery (other than a recovery indirectly from Qualtrics), Qualtrics will promptly repay (or will procure a Qualtrics Indemnitee to promptly repay) such member of the SAP Group the amount by which the payment made by such member of the SAP Group exceeds the actual cost of the associated indemnified Liability.
Section 4.4Ancillary Agreement Liabilities. Notwithstanding any other provision in this Agreement to the contrary, any Liability specifically assumed by, or allocated to, a Party in any of the Intercompany Agreements shall be governed exclusively by the terms of such Intercompany Agreement. For the avoidance of doubt, the allocation between the Parties of Liabilities for Taxes shall be governed exclusively by the Tax Sharing Agreement.
Section 4.5Reductions for Insurance Proceeds and other Recoveries.
(a)Insurance Proceeds. The amount that any Indemnifying Party is or may be required to provide indemnification to or on behalf of any Indemnitee pursuant to Section 4.2 or Section 4.3, as applicable, shall be reduced (retroactively or prospectively) by any Insurance Proceeds or other amounts actually recovered from third parties by or on behalf of such Indemnitee in respect of the related Loss. The existence of a claim by an Indemnitee for monies from an insurer or against a third party in respect of any indemnifiable Loss shall not, however, delay any payment pursuant to the indemnification provisions contained herein and otherwise determined to be due and owing by an Indemnifying Party. Rather, the Indemnifying Party shall
make payment in full of the amount determined to be due and owing by it against an assignment by the Indemnitee to the Indemnifying Party of the entire claim of the Indemnitee for Insurance Proceeds or against such third party. Notwithstanding any other provisions of this Agreement, it is the intention of the Parties that no insurer or any other third party shall be (i) entitled to a benefit it would not be entitled to receive in the absence of the foregoing indemnification provisions, or (ii) relieved of the responsibility to pay any claims for which it is obligated. If an Indemnitee has received the payment required by this Agreement from an Indemnifying Party in respect of any indemnifiable Loss and later receives Insurance Proceeds or other amounts in respect of such indemnifiable Loss, then such Indemnitee shall hold such Insurance Proceeds or other amounts in trust for the benefit of the Indemnifying Party (or Indemnifying Parties) and shall pay to the Indemnifying Party, as promptly as practicable after receipt, a sum equal to the amount of such Insurance Proceeds or other amounts received, up to the aggregate amount of any payments received from the Indemnifying Party pursuant to this Agreement in respect of such indemnifiable Loss (or, if there is more than one Indemnifying Party, the Indemnitee shall pay each Indemnifying Party, its proportionate share (based on payments received from the Indemnifying Parties) of such Insurance Proceeds).
(b)Tax Cost/Tax Benefit. The amount that any Indemnifying Party is or may be required to provide indemnification to or on behalf of any Indemnitee pursuant to Section 4.2 or Section 4.3, as applicable, shall be (i) increased to take account of any net Tax cost incurred by the Indemnitee arising from the receipt or accrual of an indemnification payment hereunder (grossed up for such increase) and (ii) reduced to take account of any net Tax benefit realized by the Indemnitee arising from incurring or paying such loss or other liability. In computing the amount of any such Tax cost or Tax benefit, the Indemnitee shall be deemed to recognize all other items of income, gain, loss, deduction or credit before recognizing any item arising from the receipt or accrual of any indemnification payment hereunder or incurring or paying any indemnified Loss. Any indemnification payment hereunder shall initially be made without regard to this Section 4.5(b) and shall be increased or reduced to reflect any such net Tax cost (including gross-up) or net Tax benefit only after the Indemnitee has actually realized such cost or benefit. For purposes of this Agreement, an Indemnitee shall be deemed to have “actually realized” a net Tax cost or a net Tax benefit to the extent that, and at such time as, the amount of Taxes payable by such Indemnitee is increased above or reduced below, as the case may be, the amount of Taxes that such Indemnitee would be required to pay but for the receipt or accrual of the indemnification payment or the incurrence or payment of such Loss, as the case may be. The amount of any increase or reduction hereunder shall be adjusted to reflect any Final Determination with respect to the Indemnitee’s liability for Taxes, and payments between such indemnified parties to reflect such adjustment shall be made if necessary. Notwithstanding any other provision of this Agreement, to the extent permitted by applicable law, the Parties agree that any indemnity payment made hereunder shall be treated as a capital contribution by SAP America to Qualtrics or dividend distribution by Qualtrics to SAP America, as the case may be, immediately prior to the IPO Date and, accordingly, not includible in the taxable income of the recipient or deductible by the payor.
Section 4.6Procedures for Defense, Settlement and Indemnification of the Third Party Claims.
(a)Notice of Claims. If an Indemnitee shall receive notice or otherwise learn of the assertion by a Person who is not a member of the SAP Group or the Qualtrics Group of any claim or of the commencement by any such Person of any Action (collectively, a “Third Party Claim”) with respect to which an Indemnifying Party may be obligated to provide indemnification, SAP and Qualtrics (as applicable) will ensure that such Indemnitee shall give such Indemnifying Party written notice thereof within 30 days after becoming aware of such Third Party Claim. Any such notice shall describe the Third Party Claim in reasonable detail. Notwithstanding the foregoing, the delay or failure of any Indemnitee or other Person to give notice as provided in this Section 4.6(a) shall not relieve the related Indemnifying Party of its obligations under this ARTICLE IV, except to the extent that such Indemnifying Party is actually and substantially prejudiced by such delay or failure to give notice.
(b)Defense by Indemnifying Party. An Indemnifying Party shall be entitled to participate in the defense of any Third Party Claim and, to the extent that it wishes, at its cost, risk and expense, to assume the defense thereof, with counsel reasonably satisfactory to the party seeking indemnification. After timely notice from the Indemnifying Party to the Indemnitee of such election to so assume the defense thereof, the Indemnifying Party shall not be liable to the party seeking indemnification for any legal expenses of other counsel or any other expenses subsequently incurred by Indemnitee in connection with the defense thereof, except that the Indemnifying Party shall bear the expenses of separate counsel for the Indemnitee if there exists a conflict of interest between the Indemnitee and the Indemnifying Party in connection with the defense of such Third Party Claim that would make the representation by the same counsel or the counsel selected by Indemnifying Party inappropriate or the Indemnitee would lose any defenses available to it which are different from or in addition to those available to the Indemnifying Party. The Indemnitee agrees to cooperate in all reasonable respects with the Indemnifying Party and its counsel in the defense against any Third Party Claim. The Indemnifying Party shall be entitled to compromise or settle any Third Party Claim as to which it is providing indemnification; provided, however, that such compromise or settlement shall be made only with the written consent of the Indemnitee, such consent not to be unreasonably withheld, conditioned or delayed.
(c)Defense by Indemnitee. If an Indemnifying Party fails to assume the defense of a Third Party Claim within 30 calendar days after receipt of notice of such claim, Indemnitee will, upon delivering notice to such effect to the Indemnifying Party, have the right to undertake the defense, compromise or settlement of such Third Party Claim on behalf of and for the account of the Indemnifying Party subject to the limitations as set forth in this Section 4.6; provided, however, that such Third Party Claim shall not be compromised or settled without the written consent of the Indemnifying Party, which consent shall not be unreasonably withheld, conditioned or delayed. If the Indemnitee assumes the defense of any Third Party Claim, it shall keep the Indemnifying Party reasonably informed of the progress of any such defense, compromise or settlement. The Indemnifying Party shall reimburse all applicable costs and expenses of the Indemnitee in the event it is ultimately determined that the Indemnifying Party is
obligated to indemnify the Indemnitee with respect to such Third Party Claim. In no event shall an Indemnifying Party be liable for any settlement effected without its consent, which consent will not be unreasonably withheld, conditioned or delayed.
Section 4.7Additional Matters.
(a)Pre-IPO Date Actions. Except with respect to matters pertaining solely to, or solely in connection with, the Qualtrics Business, SAP may, in its sole discretion, have exclusive authority and control over the investigation, prosecution, defense and appeal of all Actions pending at the IPO Date relating to or arising in connection with, in any manner, the Qualtrics Business or the Qualtrics Liabilities, in each case if SAP or a member of the SAP Group is named as a party thereto; provided, however, that SAP must obtain the written consent of Qualtrics, such consent not to be unreasonably withheld, conditioned or delayed, to settle or compromise or consent to the entry of judgment with respect to such Action. After any such compromise, settlement, consent to entry of judgment or entry of judgment, SAP shall reasonably and fairly allocate to Qualtrics, and Qualtrics shall be responsible for Qualtrics’ proportionate share of, any such compromise, settlement, consent or judgment attributable to the Qualtrics Business or the Qualtrics Liabilities, including its proportionate share of the costs and expenses associated with defending same consistent with the manner in which costs and expenses would be allocated to other members of the SAP Group.
(b)Management of Third Party Claims. With respect to any Third Party Claim that does not implicate any SAP Group members as parties or otherwise, Qualtrics shall be responsible for hiring counsel, managing and defending such Third Party Claim. Qualtrics acknowledges and agrees that, to the extent it is utilizing insurance coverage in connection with such Third Party Claim, it may be required to take direction from an insurance company in the selection and hiring of such counsel. With respect to any Third Party Claim that materially implicates both Qualtrics Group and SAP Group members, (i) SAP shall be responsible for hiring counsel, managing and defending such Third Party Claim, (ii) SAP will in good faith keep Qualtrics informed and seek input from Qualtrics as appropriate and (iii) Qualtrics may elect to hire its own counsel or participate in its own defense at its own expense.
(c)Cooperation in Defense and Settlement. With respect to any Third Party Claim that implicates both Qualtrics and SAP in a material fashion due to the allocation of Liabilities, responsibilities for management of defense and related indemnities set forth in this Agreement or any of the Intercompany Agreements, the Parties agree to cooperate fully and maintain a joint defense (in a manner that will preserve the attorney-client privilege, joint defense or other privilege with respect thereto) so as to minimize such Liabilities and defense costs associated therewith. The Party that is not responsible for managing the defense of such Third Party Claims shall, upon reasonable request, be consulted with respect to significant matters relating thereto and may, if such Party deems necessary or helpful, associate counsel to assist in the defense of such claims.
(d)Governmental Claims. Notwithstanding anything in this Agreement to the contrary (including Section 4.6 hereof) and unless prohibited by applicable legal requirements or by a Governmental Authority, SAP may, in its sole discretion, have exclusive authority and
control over the investigation, prosecution, defense and appeal of all Third Party Claims initiated by a Governmental Authority, including those relating to or arising in connection with the Qualtrics Business, unless any such matter does not involve the SAP Group and is not reasonably likely to materially affect the SAP Group, other than in its capacity as a shareholder of Qualtrics, as reasonably determined by SAP. SAP shall reasonably and fairly allocate to Qualtrics, and Qualtrics shall be responsible for, all costs, fines and penalties incurred by Qualtrics and SAP (including all attorneys’, accountants’, consultants’ and other professionals’ fees and expenses) in connection with any compromise, settlement, consent or judgment resulting from any investigation, prosecution, defense or appeal, attributable to the Qualtrics Business or the Qualtrics Liabilities, as allocated to Qualtrics. For the avoidance of doubt, this Section 4.7(d) applies to Third Party Claims initiated by a Governmental Authority and not to Third Party Claims initiated by other third parties that are merely brought before or through a Governmental Authority.
(e)Subrogation. In the event of payment by or on behalf of any Indemnifying Party to or on behalf of any Indemnitee in connection with any Third Party Claim, such Indemnifying Party shall be subrogated to and shall stand in the place of such Indemnitee, in whole or in part based upon whether the Indemnifying Party has paid all or only part of the Indemnitee’s Liability, as to any events or circumstances in respect of which such Indemnitee may have any right, defense or claim relating to such Third Party Claim against any claimant or plaintiff asserting such Third Party Claim or against any other person. Such Indemnitee shall cooperate with such Indemnifying Party in a reasonable manner, and at the cost and expense of such Indemnifying Party, in prosecuting any subrogated right, defense or claim.
(f)Intercompany Agreements Control. The foregoing provisions of this Article IV (including Section 4.7 hereof) are subject in all respects to the terms of (i) the Insurance Matters Agreement, to the extent any Action is covered by insurance, (ii) the Intellectual Property Matters Agreement, to the extent any Action relates to intellectual property and (iii) the Distribution Agreement, to the extent any Action relates to the distribution and sale of the other Party’s products.
Section 4.8Survival of Indemnities. The rights and obligations of the members of the SAP Group and the Qualtrics Group under this ARTICLE IV shall survive the sale or other transfer by any Party of any assets or businesses or the assignment by it of any Liabilities or the sale by any member of the SAP Group or the Qualtrics Group of the capital stock or other equity interests of any Subsidiary to any Person.
ARTICLE V
MISCELLANEOUS
Section 5.1Consent. Any consent of SAP or Qualtrics pursuant to this Agreement or any of the Intercompany Agreements shall not be effective unless it is in writing and evidenced by the signature of the General Counsel of SAP or General Counsel of Qualtrics (or another duly authorized signatory of such Party or such other person that the General Counsel has specifically authorized in writing to give such consent).
Section 5.2Limitation of Liability. IN NO EVENT SHALL ANY MEMBER OF THE SAP GROUP OR QUALTRICS GROUP BE LIABLE TO ANY OTHER MEMBER OF THE SAP GROUP OR QUALTRICS GROUP FOR ANY SPECIAL, CONSEQUENTIAL, INDIRECT, INCIDENTAL OR PUNITIVE DAMAGES OR LOST PROFITS, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY (INCLUDING NEGLIGENCE) ARISING IN ANY WAY OUT OF THIS AGREEMENT, WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES; PROVIDED, HOWEVER, THAT THE FOREGOING LIMITATIONS SHALL NOT LIMIT (a) EACH PARTY’S INDEMNIFICATION OBLIGATIONS FOR LIABILITIES AS SET FORTH IN EITHER THIS AGREEMENT OR ANY INTERCOMPANY AGREEMENT, (b) EITHER PARTY’S BREACH OF ITS CONFIDENTIALITY OBLIGATIONS UNDER SECTION 3.5, OR (c) EITHER PARTY’S BREACH OF ITS DATA PROTECTION OR PRIVACY OBLIGATIONS HEREUNDER.
Section 5.3Entire Agreement. This Agreement, the Intercompany Agreements and the Exhibits and Schedules referenced or attached hereto and thereto, constitute the entire agreement between the Parties with respect to the subject matter hereof and thereof and shall supersede all prior written and oral and all contemporaneous oral agreements and understandings with respect to the subject matter hereof and thereof.
Section 5.4Governing Law and Jurisdiction. This Agreement, including the validity hereof and the rights and obligations of the Parties hereunder, shall be construed in accordance with and all Disputes arising out of or relating to this Agreement shall be governed by the laws of the State of Delaware applicable to contracts made and to be performed entirely in such State (without giving effect to the conflicts of laws provisions thereof).
Section 5.5Consent to Jurisdiction. SUBJECT TO SECTION 3.9, THE PARTIES AGREE THAT JURISDICTION AND VENUE IN ANY ACTION BROUGHT BY ANY PARTY IN CONNECTION WITH THIS AGREEMENT, THE TRANSACTIONS, OR THE PERFORMANCE OF THE OBLIGATIONS IMPOSED HEREUNDER SHALL PROPERLY AND EXCLUSIVELY LIE IN ANY FEDERAL OR STATE COURT LOCATED IN THE STATE OF DELAWARE. EACH PARTY ALSO AGREES NOT TO BRING ANY ACTION IN CONNECTION WITH THIS AGREEMENT, THE TRANSACTIONS, OR THE PERFORMANCE OF THE OBLIGATIONS IMPOSED HEREUNDER IN ANY OTHER COURT. BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PARTY IRREVOCABLY SUBMITS TO THE JURISDICTION OF SUCH COURTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY WITH RESPECT TO ANY SUCH ACTION. THE PARTIES IRREVOCABLY AGREE THAT VENUE WOULD BE PROPER IN SUCH COURT, AND HEREBY WAIVE ANY OBJECTION THAT ANY SUCH COURT IS AN IMPROPER OR INCONVENIENT FORUM FOR THE RESOLUTION OF SUCH ACTION. THE PARTIES FURTHER AGREE THAT THE MAILING BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, OF ANY PROCESS REQUIRED BY ANY SUCH COURT SHALL CONSTITUTE VALID AND LAWFUL SERVICE OF PROCESS AGAINST THEM, WITHOUT NECESSITY FOR SERVICE BY ANY OTHER MEANS PROVIDED BY STATUTE OR RULE OF COURT.
Section 5.6Waiver of Jury Trial. EACH OF THE PARTIES ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY THAT MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH OF THE PARTIES HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT. EACH OF THE PARTIES CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER COMPANY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE OTHER PARTY WOULD NOT, IN THE EVENT OF ANY LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (B) EACH OF THE PARTIES UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) EACH OF THE PARTIES MAKES THIS WAIVER VOLUNTARILY AND (D) EACH OF THE PARTIES HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 5.4.
Section 5.7Termination; Amendment. This Agreement and all Intercompany Agreements may be terminated or amended by and in the sole discretion of SAP, without the approval of Qualtrics, at any time prior to the IPO. This Agreement and any applicable Intercompany Agreements may be terminated or amended at any time after such date and during the term of this Agreement only by an instrument in writing signed on behalf of each of the Parties. In the event of termination pursuant to this Section 5.7, no Party shall have any liability of any kind to the other Party. Except as otherwise provided herein or required by the provisions hereof, this Agreement shall terminate on the date that is three years after the first date upon which the members of the SAP Group hold shares of Common Stock representing less than a majority of the votes entitled to be cast by all holders of Common Stock; provided, however, that the provisions of Sections 3.11 (Compliance and Other Policies) and Section 4.7(d) shall terminate on the first date upon which the members of the SAP Group hold shares of Common Stock representing less than a majority of the votes entitled to be cast by all holders of Common Stock, the provisions of Section 3.7 (Cooperation in Future Litigation or Other Proceedings) shall survive for a period of seven years after the termination of this Agreement, and the provisions of Section 3.5 (Confidentiality) and Section 3.6 (Privileged Matters), Article IV (other than Section 4.7), Article V and Article VI shall survive indefinitely after the termination of this Agreement.
Section 5.8Notices. Notices, offers, requests or other communications required or permitted to be given by either Party pursuant to the terms of this Agreement shall be given in writing to the respective Parties at the following addresses:
if to SAP:
SAP SE
Dietmar-Hopp-Allee 16
Germany – 69190
Attention: Jochen Scholten
E-mail:
if to Qualtrics:
Qualtrics International Inc.
333 W River Park Dr
Provo, UT 84604
Attention: Legal Department
E-mail:
with a copy to:
Shearman & Sterling LLP
1460 El Camino Real, 2nd Floor
Menlo Park, CA 94025
Attention: Daniel R. Mitz
E-mail: Daniel.Mitz@shearman.com
or at such other address or e-mail as the Party to whom notice is given may have previously furnished to the other in writing as provided herein. Any notice shall be sent by hand delivery, internationally recognized overnight courier or, within the United States, may also be sent via certified mail, return receipt requested and, in any event, shall be concurrently sent by e-mail. All notices shall be deemed to have been given when received, if hand delivered; when transmitted, if transmitted electronically; one working day after it is sent, if sent by internationally recognized overnight courier; and three days after it is postmarked, if mailed first class mail or certified mail, return receipt requested, with postage prepaid.
Section 5.9Counterparts. This Agreement, including the Intercompany Agreements and the Exhibits and Schedules hereto and thereto and the other documents referred to herein or therein, may be executed in counterparts, each of which shall be deemed to be an original but all of which shall constitute one and the same agreement.
Section 5.10Binding Effect; Assignment. This Agreement shall inure to the benefit of and be binding upon the Parties and their respective legal representatives and successors. Neither Party may assign this Agreement or any rights or obligations hereunder, without the prior written consent of the other Party, and any such assignment shall be void; provided, however, either Party may assign this Agreement to a successor entity in conjunction with such Party’s reincorporation in another jurisdiction or into another business form.
Section 5.11Severability. If any term or other provision of this Agreement or the Exhibits or Schedules attached hereto is determined by a court, administrative agency or arbitrator to be invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to either Party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall
negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the fullest extent possible.
Section 5.12Failure or Indulgence not Waiver; Remedies Cumulative. No failure or delay on the part of either Party in the exercise of any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty or agreement herein, nor shall any single or partial exercise of any such right preclude other or further exercise thereof or of any other right. All rights and remedies existing under this Agreement or the Exhibits or Schedules attached hereto are cumulative to, and not exclusive of, any rights or remedies otherwise available.
Section 5.13Authority. Each of the Parties represents to the other that (a) it has the corporate or other requisite power and authority to execute, deliver and perform this Agreement, (b) the execution, delivery and performance of this Agreement by it have been duly authorized by all necessary corporate or other actions, (c) it has duly and validly executed and delivered this Agreement, and (d) this Agreement is a legal, valid and binding obligation, enforceable against it in accordance with its terms subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors’ rights generally and general equity principles.
Section 5.14Interpretation. The headings contained in this Agreement, in any Exhibit or Schedule hereto and in the table of contents to this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Any capitalized term used in any Exhibit or Schedule but not otherwise defined therein, shall have the meaning assigned to such term in this Agreement. When a reference is made in this Agreement to an Article or a Section, Exhibit or Schedule, such reference shall be to an Article or Section of, or an Exhibit or Schedule to, this Agreement unless otherwise indicated. Words in the singular shall be held to include the plural and vice versa and words of one gender shall be held to include the other gender as the context requires. The terms “hereof,” “herein” “and “herewith” and words of similar import, unless otherwise stated, shall be construed to refer to this Agreement as a whole (including all of the Schedules hereto) and not to any particular provision of this Agreement. Any reference herein to this Agreement, unless otherwise stated, shall be construed to refer to this Agreement as amended, supplemented or otherwise modified from time to time, as permitted by Section 5.7. The word “including” and words of similar import when used in this Agreement shall mean “including, without limitation,” unless the context otherwise requires or unless otherwise specified. The word “or” shall not be exclusive.
Section 5.15Conflicting Agreements. None of the provisions of this Agreement are intended to supersede any provision in any Intercompany Agreement or any other agreement with respect to the respective subject matters thereof. In the event of conflict between this Agreement and any Intercompany Agreement or other agreement executed in connection herewith, the provisions of such other agreement shall prevail.
Section 5.16Third Party Beneficiaries. None of the provisions of this Agreement shall be for the benefit of or enforceable by any third party. No such third party shall
obtain any right under any provision of this Agreement or shall by reasons of any such provision make any claim in respect of any Liability (or otherwise) against either Party.
Section 5.17Publicity. Each of SAP and Qualtrics shall consult with the other, and shall, subject to the requirements of Section 3.5, provide the other Party the opportunity to review and comment upon, any press releases or other public statements in connection with this Agreement, the IPO or any other transactions related thereto and any filings with any Governmental Authority or national securities exchange with respect thereto, in each case prior to the issuance or filing thereof, as applicable.
Section 5.18Specific Performance. In the event of any actual or threatened default in, or breach of, any of the terms, conditions and provisions of this Agreement, the affected Party shall have the right to seek specific performance and injunctive or other equitable relief of its rights under this Agreement, in addition to any and all other rights and remedies at law or in equity, and all such rights and remedies shall be cumulative. The other Party shall not oppose the granting of such relief on the basis that money damages are an adequate remedy. The Parties agree that the remedies at law for any breach or threatened breach hereof, including monetary damages, may be inadequate compensation for any loss and that any defense in any action for specific performance that a remedy at law would be adequate is waived. Any requirements for the securing or posting of any bond with such remedy are waived.
ARTICLE VI
DEFINITIONS
Section 6.1.Defined Terms. The following capitalized terms shall have the meanings given to them in this Section 6.1:
“Action” means any demand, action, suit, countersuit, arbitration, inquiry, proceeding or investigation by or before any Governmental Authority or any arbitration or mediation tribunal.
“Administrative Services Agreement” shall have the meaning set forth in Section 1.1(a).
“Affiliated Company” of any Person means any entity that controls, is controlled by, or is under common control with such Person. As used herein, “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such entity, whether through ownership of voting securities or other interests, by contract or otherwise.
“Agreement” shall mean this Master Transaction Agreement, together with the Schedules and Exhibits hereto, as the same may be amended from time to time in accordance with the provisions hereof.
“Cash-Settled Equity Awards” shall have the meaning set forth in Section 2.3(e).
“CCO” shall have the meaning set forth in Section 3.11(e)
“Class A common stock” means the Class A common stock, par value $0.0001 per share, of Qualtrics.
“Class B common stock” means the Class B common stock, par value $0.0001 per share, of Qualtrics.
“Code” means the Internal Revenue Code of 1986, as amended.
“Commission” shall have the meaning set forth in the recitals of this Agreement.
“Common Stock” means the Class A common stock and Class B common stock of Qualtrics.
“Confidential Information” shall have the meaning set forth in Section 3.5(b)(i).
“Disclosing Party” shall have the meaning set forth in Section 3.5(b)(i).
“Dispute” shall have the meaning set forth in Section 3.9(a).
“Dispute Resolution Commencement Date” shall have the meaning set forth in Section 3.9(a).
“Distribution Agreement” shall have the meaning set forth in Section 1.1(e).
“Distribution Date” means the date on which a Tax-Free Distribution occurs.
“Employee Matters Agreement” shall have the meaning set forth in Section 1.1(c).
“Exchange Act” shall have the meaning set forth in Section 2.1(a).
“Existing Intercompany Agreements” shall have the meaning set forth in Section 3.12.
“Final Determination” shall have the meaning set forth in the Tax Sharing Agreement.
“Governmental Approvals” means any notices, reports or other filings to be made, or any consents, registrations, approvals, permits or authorizations to be obtained from, any Governmental Authority.
“Governmental Authority” means any federal, state, local, foreign or international court, government, department, commission, board, bureau, agency, official or other regulatory, administrative or governmental authority.
“Guarantee” shall have the meaning set forth in Section 3.13.
“IFRS” means International Financial Reporting Standards.
“Indebtedness” means, with respect to any Person, any liability of such Person in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments and shall
also include (a) any liability of such Person under any agreement related to the fixing of interest rates on any Indebtedness and (b) any capitalized or finance lease obligations of such Person (if and to the extent the same would appear on a balance sheet of such Person prepared in accordance with United States generally accepted accounting principles).
“Indemnifying Party” means any party which may be obligated to provide indemnification to an Indemnitee pursuant to Section 4.2 or Section 4.3 hereof or any other section of this Agreement or any Intercompany Agreement.
“Indemnitee” means any party which may be entitled to indemnification from an Indemnifying Party pursuant to Section 4.2 or Section 4.3 hereof or any other section of this Agreement or any Intercompany Agreement.
“Information” means information, whether or not patentable or copyrightable, in written, oral, electronic or other tangible or intangible forms, stored in any medium, including studies, reports, records, books, contracts, instruments, surveys, discoveries, ideas, concepts, know-how, techniques, designs, specifications, drawings, blueprints, diagrams, models, prototypes, samples, flow charts, data, computer data, disks, diskettes, tapes, computer programs or other software, marketing plans, customer names, communications by or to attorneys (including attorney-client privileged communications), memos and other materials prepared by attorneys or under their direction (including attorney work product), and other technical, financial, employee or business information or data.
“Insurance Matters Agreement” shall have the meaning set forth in Section 1.1(f).
“Insurance Policies” means insurance policies pursuant to which a Person makes a true risk transfer to an insurer.
“Insurance Proceeds” means those monies: (a) received by an insured from an insurance carrier; or (b) paid by an insurance carrier on behalf of the insured; or (c) from Insurance Policies.
“Intellectual Property Matters Agreement” shall have the meaning set forth in Section 1.1(d).
“Intercompany Agreements” means the Employee Matters Agreement, the Insurance Matters Agreement, the Intellectual Property Matters Agreement, the Real Estate Matters Agreement, the Administrative Services Agreement, the Tax Sharing Agreement, the Distribution Agreement and the Stockholders’ Agreement.
“IPO” shall have the meaning set forth in the recitals to this Agreement.
“IPO Date” shall have the meaning set forth Section 1.1.
“IPO Conditions” shall have the meaning set forth in Section 2.3.
“IPO Dividend Amount” shall have the meaning set forth in Section 2.3(f).
“IPO Registration Statement” shall have the meaning set forth in the recitals to this Agreement.
“Liabilities” means all debts, liabilities, guarantees, assurances, commitments and obligations, whether fixed, contingent or absolute, asserted or unasserted, matured or unmatured, liquidated or unliquidated, accrued or not accrued, known or unknown, due or to become due, whenever or however arising (including whether arising out of any contract or tort based on negligence or strict liability) and whether or not the same would be required by generally accepted principles and accounting policies to be reflected in financial statements or disclosed in the notes thereto.
“Loss” and “Losses” mean any and all damages, losses, deficiencies, Liabilities, obligations, penalties, judgments, settlements, claims, payments, fines, interest, costs and expenses (including the costs and expenses of any and all Actions and demands, assessments, judgments, settlements and compromises relating thereto and all attorneys’, accountants’, consultants’ and other professionals’ fees and expenses incurred in the investigation or defense thereof or the enforcement of rights hereunder), including direct and consequential damages, but excluding punitive damages (other than punitive damages awarded to any third party against an indemnified party).
“Nasdaq” shall have the meaning set forth in Section 2.1(c).
“New Share-Settled Equity Awards” shall have the meaning set forth in Section 2.3(e).
“Note 1” shall have the meaning set forth in Section 1.2(b).
“Note 2” shall have the meaning set forth in Section 1.2(b).
“Notifying Party” shall have the meaning set forth in Section 3.5(a).
“Party” or “Parties” shall have the meaning set forth in the preamble to this Agreement.
“Permitted Acquisition” means any acquisition by Qualtrics or any of its Subsidiaries of Stock, Stock Equivalents or assets (including, without limitation, any business or operating unit) of any Person not requiring the prior affirmative vote of the holders of the Class B common stock pursuant to Section 3.2(a)(iv).
“Person” means an individual, partnership, joint venture, limited liability company, firm, corporation, trust or other entity, including governmental authorities.
“Privileged Information” shall have the meaning set forth in Section 3.6(a).
“Privileges” shall have the meaning set forth in Section 3.6(a).
“Qualtrics” shall have the meaning set forth in the preamble to this Agreement.
“Qualtrics’ Auditors” shall have the meaning set forth in Section 3.4(a)(i).
“Qualtrics Balance Sheet” means Qualtrics’ unaudited consolidated balance sheet for the most recently completed fiscal quarter as of the IPO Date.
“Qualtrics Board” shall have the meaning set forth in Section 3.2(a)(v).
“Qualtrics Business” means the business presently conducted by Qualtrics, as more completely described in the IPO Registration Statement, or following the IPO Date, such business that is then conducted by Qualtrics and described in its periodic filings with the Commission.
“Qualtrics Equivalent Compliance Policies” shall have the meaning set forth in Section 3.11(a).
“Qualtrics Equivalent Other Policies” shall have the meaning set forth in Section 3.11(a).
“Qualtrics Equivalent Policies” shall have the meaning set forth in Section 3.11(a).
“Qualtrics Group” means Qualtrics and its Subsidiaries.
“Qualtrics Indemnitees” means Qualtrics, each member of the Qualtrics Group and each of their respective directors, officers and employees.
“Qualtrics Liabilities” means (without duplication) the following Liabilities:
(i)all Liabilities reflected in the Qualtrics Balance Sheet;
(ii)all Liabilities of SAP or its Subsidiaries that arise after the date of the Qualtrics Balance Sheet that would be reflected in a Qualtrics balance sheet as of the date of such Liabilities, if such balance sheet was prepared using the same principles and accounting policies under which the Qualtrics Balance Sheet was prepared;
(iii)all Liabilities that should have been reflected in the Qualtrics Balance Sheet but are not reflected in the Qualtrics Balance Sheet due to mistake or unintentional omission;
(iv)all Liabilities (other than Liabilities for Taxes, which are governed by the Tax Sharing Agreement), whether arising before, on or after the IPO Date, that relate to, arise or result from:
(A)the operation of the Qualtrics Business as conducted at any time prior to, on or after the IPO Date (including any Liability relating to, arising out of or resulting from any act or failure to act by any director, officer, employee, agent or representative (whether or not such act or failure to act is or was within such Person’s authority)); or
(B)the operation of any business conducted by any member of the Qualtrics Group at any time after the IPO Date (including any Liability relating to, arising
out of or resulting from any act or failure to act by any director, officer, employee, agent or representative (whether or not such act or failure to act is or was within such Person’s authority));
(v)all Liabilities resulting from a breach of its confidentiality obligations or breach of its data protection and privacy obligations;
(vi)all Liabilities that are expressly contemplated by this Agreement, or any other Intercompany Agreement (or the Schedules hereto or thereto) as Liabilities to be assumed by Qualtrics or any member of the Qualtrics Group; and
(vii)Liabilities of any member of the Qualtrics Group under this Agreement or any of the Intercompany Agreements.
After the IPO Date, SAP and Qualtrics may receive invoices evidencing liabilities jointly incurred by or on behalf of both of them or their respective Affiliated Companies. Accordingly, each of SAP and Qualtrics agrees that such joint liabilities shall be divided among SAP, Qualtrics and their respective Affiliated Companies consistent with past practice and “Qualtrics Liabilities” shall include the portion so allocated to Qualtrics.
“Qualtrics Policies” shall have the meaning set forth in Section 3.11(c).
“Real Estate Matters Agreement” shall have the meaning set forth in Section 1.1(h).
“Receiving Party” shall have the meaning set forth in Section 3.5(b)(i).
“Rollover Shortfall Shares” shall have the meaning set forth in Section 2.3(e).
“Rule 10A-3(b)(2)” means Rule 10A-3(b)(2) (or any successor rule to similar effect) promulgated under the Exchange Act.
“SAP” shall have the meaning set forth in the preamble to this Agreement.
“SAP Accounting Policies” shall have the meaning set forth in Section 3.4(g).
“SAP America” means SAP America, Inc., a Delaware corporation and wholly owned Subsidiary of SAP.
“SAP’s Auditors” shall have the meaning set forth in Section 3.4(a)(i).
“SAP Business” means any business that is then conducted by SAP and described in its periodic filings with the Commission, other than the Qualtrics Business.
“SAP Compliance Policies” shall have the meaning set forth in Section 3.11(a).
“SAP Group” means (x) prior to the first Distribution Date, SAP America and, for so long as SAP America is a Subsidiary of SAP, SAP and all Subsidiaries of SAP, and (y) following the first Distribution Date, SAP and all Subsidiaries of SAP. For the avoidance of
doubt, for purposes of this Agreement, the Qualtrics Group shall not be deemed to be Subsidiaries of any member of the SAP Group.
“SAP Indemnitees” means SAP, each member of the SAP Group and each of their respective directors, officers and employees.
“SAP Liabilities” means (without duplication) the following Liabilities:
(i)all Liabilities (other than Liabilities for Taxes, which are governed by the Tax Sharing Agreement), whether arising before, on or after the IPO Date, that relate to, arise or result from:
(A)the operation of the SAP Business as conducted at any time prior to, on or after the IPO Date (including any Liability relating to, arising out of or resulting from any act or failure to act by any director, officer, employee, agent or representative (whether or not such act or failure to act is or was within such Person’s authority)); or
(B)the operation of any business conducted by any member of the SAP Group at any time after the IPO Date (including any Liability relating to, arising out of or resulting from any act or failure to act by any director, officer, employee, agent or representative (whether or not such act or failure to act is or was within such Person’s authority));
(ii)all Liabilities resulting from a breach of its confidentiality obligations or breach of its data protection and privacy obligations;
(iii)all Liabilities that are expressly contemplated by this Agreement, or any other Intercompany Agreement (or the Schedules hereto or thereto) as Liabilities to be assumed by SAP or any member of the SAP Group; and
(iv)Liabilities of any member of the SAP Group under this Agreement or any of the Intercompany Agreements.
After the IPO Date, SAP and Qualtrics may receive invoices evidencing liabilities jointly incurred by or on behalf of both of them or their respective Affiliated Companies. Accordingly, each of SAP and Qualtrics agrees that such joint liabilities shall be divided among SAP, Qualtrics and their respective Affiliated Companies consistent with past practice and “SAP Liabilities” shall include the portion so allocated to SAP.
“SAP Other Policies” shall have the meaning set forth in Section 3.11(a).
“SAP Policies” shall have the meaning set forth in Section 3.11(a).
“Securities Act” means the Securities Act of 1933, as amended.
“Stock” means shares of capital stock (whether denominated as common stock or preferred stock), beneficial, partnership, limited liability company or membership interests,
participations or other equivalents (regardless of how designated) of or in a corporation, partnership, limited liability company, joint venture, trust, association or other entity, whether voting or non-voting.
“Stock Equivalents” means all securities convertible into or exchangeable for Stock and all warrants, options or other rights to purchase or subscribe for any Stock, whether or not presently convertible, exchangeable or exercisable, and all voting debt.
“Stockholders’ Agreement” shall have the meaning set forth in Section 1.1(g).
“Subsidiary” means, with respect to any Person, any corporation, limited liability company, joint venture, partnership, trust, association or other entity in which such Person: (a) beneficially owns, either directly or indirectly, more than 50% of (i) the total combined voting power of all classes of voting securities of such entity, (ii) the total combined equity interests, or (iii) the capital or profits interest, in the case of a partnership; or (b) otherwise has the power to vote, either directly or indirectly, sufficient securities to elect a majority of the board of directors or similar governing body. Notwithstanding the foregoing, for purposes of this Agreement, no member of the Qualtrics Group shall be deemed to be a Subsidiary of any member of the SAP Group.
“Tax” and “Taxes” shall have the meanings set forth in the Tax Sharing Agreement.
“Tax-Free Distribution” means a distribution or other transfer of the Class B Common Stock (i) by SAP America to holders of stock of SAP America (including SAP) and/or holders of securities issued by SAP America or (ii) by SAP to holders of stock of SAP and/or holders of securities issued by SAP, in either case in a transaction intended to qualify for non-recognition of gain and loss under Section 355 of the Code.
“Tax Sharing Agreement” shall have the meaning set forth in Section 1.1(b).
“Third Party Claim” shall have the meaning set forth in Section 4.6(a).
“Underwriters” shall have the meaning set forth in Section 2.1(a).
“Underwriting Agreement” shall have the meaning set forth in Section 2.1(a).
“U.S. GAAP” means U.S. Generally Accepted Accounting Principles.
“Wholly-Owned Subsidiary” means each Subsidiary of Qualtrics in which Qualtrics owns (directly or indirectly) all of the outstanding voting Stock, voting power, partnership interests or similar ownership interests, except for director’s qualifying shares in nominal amount.
[Signature Page Follows.]
WHEREFORE, the Parties have signed this Master Transaction Agreement effective as of the date first set forth above.
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SAP SE
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Name:
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Title:
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Name:
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Title:
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QUALTRICS INTERNATIONAL INC.
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Name:
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Title:
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[Signature Page to Master Transaction Agreement]
SCHEDULE 3.11(a)(i)
SAP Global Compliance Policies [Omitted pursuant to Item 601(a)(5) of Regulation S-K]
SCHEDULE 3.11(a)(ii)
SAP Other Policies [Omitted pursuant to Item 601(a)(5) of Regulation S-K]
SCHEDULE 3.11(c)
Qualtrics Policies [Omitted pursuant to Item 601(a)(5) of Regulation S-K]
SCHEDULE 3.12
Surviving Existing Intercompany Agreements [Omitted pursuant to Item 601(a)(5) of Regulation S-K]
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FORM OF
ADMINISTRATIVE SERVICES AGREEMENT
dated as of [ ]
between
SAP SE,
SAP AMERICA, INC.
and
QUALTRICS INTERNATIONAL INC.
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TABLE OF CONTENTS
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PAGE
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ARTICLE I
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DEFINITIONS
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Section 1.01
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Definitions
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2
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Section 1.02
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Internal References
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6
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ARTICLE II
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PROVISION OF SERVICES
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Section 2.01
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Provision of SAP Services
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6
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Section 2.02
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Provision of Qualtrics Services
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6
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Section 2.03
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Additional Services
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7
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Section 2.04
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Transition
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7
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Section 2.05
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Cooperation
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7
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Section 2.06
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Modifications
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8
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Section 2.07
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Exceptions
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8
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Section 2.08
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Annual Review
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8
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Section 2.09
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Transaction Agreements
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8
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Section 2.10
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Proprietary Rights in relation to Development Services.
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9
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ARTICLE III
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SERVICE COSTS; OTHER CHARGES
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Section 3.01
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Service Costs
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10
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Section 3.02
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Payment
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13
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Section 3.03
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Financial Responsibility for Parties’ Personnel
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14
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ARTICLE IV
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STANDARD OF PERFORMANCE AND INDEMNIFICATION
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Section 4.01
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General Standard of Service
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14
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Section 4.02
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Services Management
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14
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Section 4.03
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Limitation of Liability
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15
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Section 4.04
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Indemnification
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16
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ARTICLE V
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TERM AND TERMINATION
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Section 5.01
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Term
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16
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Section 5.02
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Termination
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17
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Section 5.03
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Effect of Termination
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17
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ARTICLE VI
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MISCELLANEOUS
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Section 6.01
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Ownership
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18
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Section 6.02
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No Agency
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18
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Section 6.03
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Subcontractors
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18
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Section 6.04
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Force Majeure
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18
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Section 6.05
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Entire Agreement
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19
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Section 6.06
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Information
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19
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Section 6.07
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Notices
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19
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Section 6.08
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Governing Law and Jurisdiction
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20
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Section 6.09
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Consent to Jurisdiction
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20
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Section 6.10
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Waiver of Jury Trial
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20
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Section 6.11
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Amendment
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21
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Section 6.12
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Counterparts
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21
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Section 6.13
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Binding Effect; Assignment
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21
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Section 6.14
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Severability
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21
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Section 6.15
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Failure or Indulgence not Waiver; Remedies Cumulative
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21
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Section 6.16
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Authority
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21
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Section 6.17
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Interpretation
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22
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Section 6.18
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Conflicting Agreements
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22
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Section 6.19
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Third Party Beneficiaries
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22
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Section 6.20
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Limitation of Liability
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22
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SCHEDULES
SCHEDULE I.Certain Services To Be Provided By SAP to Qualtrics
SCHEDULE II.Certain Services To Be Provided By Qualtrics to SAP
ADMINISTRATIVE SERVICES AGREEMENT
This Administrative Services Agreement is dated as of the [ ] day of [ ], 202[ ], between Qualtrics International Inc., a Delaware corporation (“Qualtrics”), SAP SE, a Societas Europaea registered in accordance with the corporate laws of Germany and the European Union (“SAP SE”), and SAP America, Inc., a Delaware corporation (“SAP America” and, together with SAP SE, “SAP”). Qualtrics and SAP are sometimes referred to herein separately as a “Party” and together as the “Parties”. Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to them in Article I hereof.
RECITALS
WHEREAS, SAP SE is the indirect beneficial owner of all the issued and outstanding Class B common stock of Qualtrics, and SAP America is the direct beneficial owner of all the issued and outstanding Class B common stock of Qualtrics;
WHEREAS, SAP, through Qualtrics, is engaged in the business (the “Qualtrics Business”) of experience management software and services, including providing a technology platform for organizations to collect, manage, analyze and take action on experience data, as more completely described in a Registration Statement on Form S-1 (File No. [ ]) filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the “IPO Registration Statement”);
WHEREAS, SAP and Qualtrics currently contemplate that Qualtrics will make an initial public offering (the “IPO”) of its Class A common stock pursuant to the IPO Registration Statement;
WHEREAS, SAP directly or indirectly provides certain services to the Qualtrics Entities (as defined below) and Qualtrics directly or indirectly provides certain services to the SAP Entities (as defined below);
WHEREAS, following consummation of the IPO, Qualtrics desires SAP to continue to provide certain services to the Qualtrics Entities, and SAP desires Qualtrics to continue to provide certain services to the SAP Entities, as more fully set forth in this Agreement; and
WHEREAS, each Party desires to set forth in this Agreement the principal terms and conditions pursuant to which SAP will provide certain services to the Qualtrics Entities and Qualtrics will provide certain services to the SAP Entities.
NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto, for themselves and their respective successors and assigns, hereby covenant and agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01Definitions. As used in this Agreement, the following terms shall have the following meanings, applicable both to the singular and the plural forms of the terms described:
“Action” means any demand, action, suit, countersuit, arbitration, inquiry, proceeding or investigation by or before any federal, state, local, foreign or international court, government, department, commission, board, bureau, agency, official or other regulatory, administrative or governmental authority or any arbitration or mediation tribunal.
“Agreement” means this Administrative Services Agreement, together with the Schedules, as the same may be amended and supplemented from time to time in accordance with the provisions hereof.
“Change of Control” means the occurrence of any one or more of the following events:
(a)the sale or disposition, in one or a series of related transactions, of all or substantially all of the consolidated assets of the Qualtrics Entities, taken as a whole, to any “person” or “group” (as such terms are used for purposes of Sections 13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934, as amended) other than SAP SE or any of its direct or indirect wholly-owned Subsidiaries;
(b)any “person” or “group,” other than SAP SE or any of its direct or indirect wholly-owned Subsidiaries, is or becomes the beneficial owner, directly or indirectly, of more than fifty percent (50%) of the total voting power of the outstanding voting stock of Qualtrics, excluding as a result of any merger or consolidation that does not constitute a Change of Control pursuant to clause (c);
(c)any merger or consolidation of Qualtrics with or into any other person, unless immediately thereafter SAP SE or any of its direct or indirect wholly-owned Subsidiaries beneficially owns a majority of the outstanding shares of the common stock (or equivalent voting securities) of the surviving or successor entity (or the parent entity thereof); or
(d)SAP SE or any of its direct or indirect wholly-owned Subsidiaries ceases to have the right to cause the election of that number of members of the board of directors of Qualtrics who collectively have the right to vote a majority of the aggregate number of votes represented by all of the members of the board of directors of Qualtrics.
“Contract” means any contract, agreement, lease, license, sales order, purchase order, instrument or other commitment that is binding on any Person or any part of such Person’s property under applicable law.
“Distribution Agreement” means the Distribution Agreement between the Parties of even date herewith.
“Employee” means any Qualtrics Employee or SAP Employee.
“Employee Matters Agreement” means the Employee Matters Agreement between the Parties of even date herewith.
“Insurance Matters Agreement” means the Insurance Matters Agreement between the Parties of even date herewith.
“Intellectual Property Matters Agreement” means the Intellectual Property Matters Agreement between the Parties of even date herewith.
“Liabilities” means all debts, liabilities, guarantees, assurances, commitments and obligations, whether fixed, contingent or absolute, asserted or unasserted, matured or unmatured, liquidated or unliquidated, accrued or not accrued, known or unknown, due or to become due, whenever or however arising (including, without limitation, whether arising out of any Contract or tort based on negligence or strict liability) and whether or not the same would be required by generally accepted principles and accounting policies to be reflected in financial statements or disclosed in the notes thereto.
“Losses” means any and all damages, losses, deficiencies, Liabilities, obligations, penalties, judgments, settlements, claims, payments, fines, interest, costs and expenses (including the costs and expenses of any and all Actions and demands, assessments, judgments and settlements and compromises relating thereto and all attorneys’, accountants’, consultants’ and other professionals’ fees and expenses incurred in the investigation or defense thereof or the enforcement of rights hereunder), including direct and consequential damages, but excluding punitive damages (other than punitive damages awarded to any third party against an indemnified party).
“Master Transaction Agreement” means the Master Transaction Agreement between the Parties of even date herewith.
“Offering Date” means the date on which the IPO is consummated.
“Person” means any individual, partnership, limited liability company, joint venture, corporation, trust, unincorporated organization, government (including any department or agency thereof) or other entity.
“Qualtrics-Aligned Employee” has the meaning set forth in the Employee Matters Agreement.
“Qualtrics Employee” means (i) an employee or individual contractor of a Qualtrics Entity who will be engaged in providing Qualtrics Services, or (ii) a Qualtrics-Aligned Employee who will be engaged in providing Qualtrics Services.
“Qualtrics Entities” means Qualtrics and its Subsidiaries and any entity which becomes a Subsidiary of Qualtrics after the date hereof, and “Qualtrics Entity” means any one of the Qualtrics Entities.
“Qualtrics Services” means the various services to be provided by a Qualtrics Entity to or on behalf of the SAP Entities as described on Schedule II and any Additional Services provided by a Qualtrics Entity pursuant to this Agreement.
“Real Estate Matters Agreement” means the Real Estate Matters Agreement between the Parties of even date herewith.
“SAP Employee” means an employee or individual contractor of an SAP Entity who will be engaged in providing SAP Services. For the avoidance of doubt, no Qualtrics-Aligned Employee shall be considered to be an SAP Employee for purposes of this Agreement.
“SAP Entities” means SAP SE and its Subsidiaries (other than the Qualtrics Entities) and any entity which becomes a Subsidiary of SAP SE after the date hereof, and “SAP Entity” means any one of the SAP Entities.
“SAP Services” means the various services to be provided by an SAP Entity to or on behalf of the Qualtrics Entities as described on Schedule I and any Additional Services provided by an SAP Entity pursuant to this Agreement.
“Schedule I” means the first Schedule attached hereto, as amended from time to time, which lists certain agreed upon SAP Services to be provided by SAP to or on behalf of the Qualtrics Entities and sets forth the related pricing for such Services.
“Schedule II” means the second Schedule attached hereto which sets forth the pricing for Qualtrics Services to be provided by Qualtrics to or on behalf of the SAP Entities and sets forth the related pricing for such Services.
“Schedules” means any one or more of the schedules referred to in and attached to this Agreement.
“Services” means the Qualtrics Services and the SAP Services.
“Subsidiary” means, as to any Person, a corporation, limited liability company, joint venture, partnership, trust, association or other entity in which such Person: (1) beneficially owns, either directly or indirectly, more than fifty percent (50%) of (A) the total combined voting power of all classes of voting securities of such entity, (B) the total combined equity interests, or (C) the capital or profits interest, in the case of a partnership; or (2) otherwise has the power to vote, either directly or indirectly, sufficient securities to elect a majority of the board of directors
or similar governing body. For purposes of this Agreement, no Qualtrics Entity shall be deemed to be Subsidiaries of any SAP Entity.
“Tax” and “Taxes” shall have the meanings set forth in the Tax Sharing Agreement.
“Tax Sharing Agreement” means the Tax Sharing Agreement between the Parties of even date herewith.
“Transaction Agreements” means this Agreement, the Distribution Agreement, the Employee Matters Agreement, the Insurance Matters Agreement, the Intellectual Property Matters Agreement, the Real Estate Matters Agreement, the Master Transaction Agreement and the Tax Sharing Agreement.
(b)Each of the following terms is defined in the Section set forth opposite such term:
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TERM
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SECTION
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Additional Services
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2.03
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ARMR
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3.01(a)(i)
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Billable Employees
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3.01(a)(i)
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Billable Offerings
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3.01(a)(i)
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Consulting Services
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3.01(a)(i)
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Cost
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3.01(a)(ii)
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Development Services Intellectual Property Rights
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2.10(a)
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Development Services Provider
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2.10(a)
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Development Services Recipient
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2.10(a)
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Force Majeure
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6.04(a)
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Initial Term
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5.01(a)
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IPO
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Recitals
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IPO Registration Statement
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Recitals
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Other Services
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3.01(a)(ii)
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Out-of-Pocket Costs
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3.01(d)
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Parties
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Preamble
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Party
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Preamble
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Qualtrics
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Preamble
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Qualtrics Indemnified Person
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4.03(b)
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Qualtrics Business
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Recitals
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Renewal Term
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5.01(a)
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SAP
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Preamble
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SAP America
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Preamble
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SAP Indemnified Person
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4.03(a)
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SAP SE
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Preamble
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Service Center
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3.01(b)
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Services Managers
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4.02
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Services Taxes
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3.01(e)(i)
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SLA
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3.01(b)
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Termination Date
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5.03(a)
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Section 1.02Internal References. Unless the context indicates otherwise, references to Articles, Sections and paragraphs shall refer to the corresponding articles, sections and paragraphs in this Agreement and references to the parties shall mean the parties to this Agreement.
ARTICLE II
PROVISION OF SERVICES
Section 2.01Provision of SAP Services
(a)Subject to the terms and conditions of this Agreement and in consideration of the costs for SAP Services described below, SAP agrees to provide or cause to be provided to the Qualtrics Entities, and Qualtrics agrees to purchase or to cause the Qualtrics Entities to purchase from SAP, the SAP Services, until such SAP Services are terminated in accordance with the provisions hereof.
(b)The Parties acknowledge and agree that SAP may directly satisfy its obligation to provide or to procure the SAP Services hereunder or may indirectly do so by causing one or more of its Subsidiaries to provide or to procure the SAP Services. The SAP Services shall, at Qualtrics’ request, be provided directly to Qualtrics or Subsidiaries of Qualtrics. With respect to the SAP Services provided to, or procured on behalf of, any Subsidiary of Qualtrics, Qualtrics agrees to pay on behalf of such Subsidiary all amounts payable by or in respect of such SAP Services pursuant to this Agreement, if any amounts payable are not otherwise paid by such Subsidiary. Qualtrics (or the other relevant Qualtrics Entity receiving SAP Services) shall pay all amounts payable in respect of SAP Services to the SAP Entity indicated on the applicable invoice for such SAP Services (which may be SAP or the Subsidiary of SAP that provided or procured such SAP Services).
(c)Except as otherwise provided on a Schedule, SAP may elect not to provide any Services requested by Qualtrics, and Qualtrics may elect not to purchase any Services offered by SAP.
Section 2.02Provision of Qualtrics Services
(a)Subject to the terms and conditions of this Agreement and in consideration of the costs for Qualtrics Services described below, Qualtrics agrees to provide or cause to be provided to the SAP Entities, and SAP agrees to purchase or to cause the SAP Entities to purchase from Qualtrics, the Qualtrics Services, until such Qualtrics Services are terminated in accordance with the provisions hereof.
(b)The Parties acknowledge and agree that Qualtrics may directly satisfy its obligation to provide or to procure the Qualtrics Services hereunder or may indirectly do so by causing one or more of its Subsidiaries to provide or to procure the Qualtrics Services. The Qualtrics Services shall, at SAP’s request, be provided directly to SAP or Subsidiaries of SAP. With respect to the Qualtrics Services provided to, or procured on behalf of, any Subsidiary of SAP, SAP agrees to pay on behalf of such Subsidiary all amounts payable by or in respect of such Qualtrics Services pursuant to this Agreement, if any amounts payable are not otherwise paid by such Subsidiary. SAP SE or SAP America (or the other relevant SAP Entity receiving Qualtrics Services) shall pay all amounts payable in respect of Qualtrics Services to the Qualtrics Entity indicated on the applicable invoice for such Qualtrics Services (which may be Qualtrics or the Subsidiary of Qualtrics that provided or procured such Qualtrics Services).
(c)Except as otherwise provided on a Schedule, Qualtrics may elect not to provide any Services requested by SAP, and SAP may elect not to purchase any Services offered by Qualtrics.
Section 2.03Additional Services. In addition to the Services to be provided or procured pursuant to, and in accordance with, Section 2.01 or Section 2.02, and subject to Section 2.09, if requested by the Party receiving such Services, and to the extent that the Party providing such Services may agree in writing (including by amending the Schedules, entering into an SLA pursuant to Section 3.01(b), providing a statement of work, or any other written (including by email) evidence of a request for additional services and an acceptance of such request), the Party providing such Services shall provide additional services to such other Party (“Additional Services”). The costs and other terms and conditions applicable to such Additional Services shall be as provided in Section 3.01, unless otherwise mutually agreed by the Parties prior to the provision of such Additional Services.
Section 2.04Transition. Each Party receiving a Service (including any SAP Service provided pursuant to an SLA) agrees to use commercially reasonable efforts to cooperate with the Party providing such Service in providing for an orderly transition of such Service to the Party receiving such Service or to a successor service provider as designated by the Party receiving such Service.
Section 2.05Cooperation. To the extent reasonably necessary to perform the Services, a Party receiving Services shall provide personnel of the Party providing Services, its Subsidiaries and its subcontractors with reasonable access during normal business hours to the receiving Party’s office space, telecommunications and computer equipment and systems, and other areas and equipment. The Party providing Services will comply, and shall instruct its Subsidiaries and subcontractors to comply, with any reasonable security and access restrictions and other procedures that are communicated to such Party in writing and applicable to such access. The Party receiving Services shall (a) comply with any reasonable instructions of the Party providing Services that are reasonably necessary for it to adequately provide the Services; (b) comply with all standards and procedures applicable to such Services (if any) which are generally applied by such Party in the provision of services similar to such Services to itself and its Subsidiaries and which are communicated to the receiving Party in writing; and (c) promptly
notify the Party providing Services of any operational or system problem which may affect the provision of any Services. To the extent the receiving Party fails to adhere to this Section 2.05, the Party providing Services shall (i) be entitled to additional compensation and/or time to perform the Services, as applicable, as mutually agreed between the Parties in writing to the extent such failure materially increases its cost or burden to provide such Services, or (ii) be excused from its performance of the Services hereunder where such failure prevents its provision of the Service in conformance with this Agreement; provided that the Party providing Services shall first notify the receiving Party of such failure in writing and, where applicable, allow the receiving Party a reasonable opportunity (not to exceed thirty (30) days) to cure such failure.
Section 2.06Modifications.
(a)Each Party may make changes from time to time in its standards and procedures for performing Services; provided that any such change shall also apply to such Party’s own business.
(b)Each Party shall provide the other Party with a minimum of sixty (60) days’ prior written notice of any planned changes to such Party’s business or information technology infrastructure or systems that may affect the provision or receipt of the Services hereunder.
Section 2.07Exceptions. In connection with providing the Services, neither Party shall be required to perform, or to refrain from taking, any actions that, in such Party’s reasonable judgment, could result in or cause any conflict with, or breach or violation of, any existing license, lease or other agreement to which such Party or any of its Subsidiaries is a party, or any law, rule or regulation; provided that each Party agrees to, as promptly as practicable after becoming aware of such conflict, breach, or violation, consult with the other Party to identify any reasonable alternative services or solutions and, with such other Party’s permission, implement such alternative services or solutions.
Section 2.08Annual Review. No later than 30 days prior to the end of each year during the Initial Term or the end of any Renewal Term (unless notice of non-renewal shall have been given), the Parties may commence discussions to determine the appropriate scope and level of service for each Service (including any SAP Service provided pursuant to an SLA) to be provided in the next year of the Initial Term or in the subsequent Renewal Term, as applicable, based on a good faith review of the Services and levels of service provided in the then-current year or term and a good faith estimate of each Party’s future service requirements, and may execute and deliver amended Schedules for the subsequent year or Renewal Term as mutually agreed.
Section 2.09Transaction Agreements. Certain of the other Transaction Agreements require the Parties to perform services to each other under the terms of the applicable other Transaction Agreements. Unless specifically designated as a Service or Additional Service under or in accordance with this Agreement, the provision of services pursuant to any such other Transaction Agreement shall be subject to the terms and conditions of the applicable other Transaction Agreement and shall not constitute Services or Additional
Services under this Agreement and shall not be subject to the terms and conditions of this Agreement.
Section 2.10Proprietary Rights in relation to Development Services.
(a)Each Party providing Development Services, including Custom Development Services (each as described in the Schedules) (the “Development Services Provider”) agrees to assign, and hereby assigns, to the other Party (the “Development Services Recipient”), to the extent legally permissible, all intellectual property rights, title and interest in any and all products, works, inventions, designs and other materials (and any modifications and enhancements thereto) created or produced by or in connection with the Development Services Provider’s provision of Development Services under this Agreement (“Development Services Intellectual Property Rights”). The Development Services Provider agrees to provide any declarations and sign any documents reasonably necessary to effect such assignment to the Development Services Recipient. To the extent the foregoing assignment is ineffective for any reason, the Development Services Provider hereby grants to the Development Services Recipient an exclusive, perpetual, irrevocable, world-wide, royalty-free, fully paid up, transferable and unrestricted (in terms of time and substance) right to use, sell, duplicate, modify, process, translate and distribute such Development Services Intellectual Property Rights, including in the form of leasing or renting out, and to transfer these rights to use the work results to any third party. The assignment and/or granting of rights hereunder shall become effective immediately upon the respective Development Services Intellectual Property Rights coming into existence. The Development Services Recipient herewith accepts this assignment and this granting of rights in the Development Services Intellectual Property Rights.
(b)The Development Services Provider expressly waives the right to be identified as the author of the Development Services Intellectual Property Rights. The Development Services Provider will secure by respective agreements with its employees that the assignment and granting of Development Services Intellectual Property Rights pursuant to Section 2.10(a) and the waiver pursuant to Section 2.10(b) will not be hindered or prevented by, nor be in conflict with, proprietary rights of the Development Services Provider’s Employees.
(c)The Development Services Provider shall make available to the Development Services Recipient, promptly upon the completion of any Development Services (including Custom Development Services set forth in Schedule I) under this Agreement, information whether in tangible or intangible form, electronically stored or any form of media or otherwise, which is necessary for the Development Services Recipient to fully exercise the rights granted under paragraph (a) hereof.
(d)Notwithstanding the foregoing, the terms of this Section 2.10 shall not apply to any Development Services Intellectual Property Rights that constitute improvements, modifications or derivative works of the Development Services Provider’s products or services and, as between the Parties, each Party shall exclusively own and retain all right, title or interest in and to their respective products or services, including all improvements, modifications or derivative works. Without limiting the foregoing, the Parties acknowledge and agree that neither Party intends to create any such Development Services Intellectual Property Rights that
constitute improvements, modifications or derivative works of the Development Services Provider’s products or services.
(e)Development Services Provider Indemnification.
(i)The Development Services Provider agrees to defend or at its option settle, at its own cost and expense, the Development Services Recipient against any and all claims of third parties against the Development Services Recipient to the extent alleging that the Development Services Recipient’s use of the Development Services Intellectual Property Rights as provided by the Development Services Provider and as authorized by this Agreement infringes such third parties’ intellectual property rights. The Development Services Provider shall indemnify and hold harmless against any final judgment entered on such claim or in settlement thereof.
(ii)The Parties shall promptly inform each other in case either of them becomes aware of a third party asserting an infringement of proprietary rights by the use of Development Services Intellectual Property Rights as authorized by this Agreement.
(iii)The Development Services Provider may, at is sole option and without limiting its indemnification obligations hereunder, either exchange or modify the Development Services Intellectual Property Rights in a manner that it no longer infringes third-party intellectual property rights, without materially degrading its functionality, or procure for the Development Services Recipient the right to continue the use of the Development Services Intellectual Property Rights.
(f)The terms of this Section 2.10 shall survive any termination or expiration of this Agreement.
ARTICLE III
SERVICE COSTS; OTHER CHARGES
Section 3.01Service Costs.
(a)Services Performed by Employees of the Providing Party. Except (x) for SAP Services that the Parties mutually agree shall be provided and charged pursuant to an SLA entered into pursuant to Section 3.01(b), or (y) as otherwise provided in the applicable Schedule for the applicable Service, each Service (including Additional Services, unless otherwise mutually agreed by the Parties prior to the provision of such Additional Services) shall be provided at a fee or price calculated as follows:
(i)For Services (“Consulting Services”) performed by consultants, instructors and other Employees who have an internal or external billing rate (“Billable Employees”), or for other Services that consist of a billable offering with a defined selling price on an external price list, such as training services (“Billable Offerings”), such Consulting Services shall be charged at the Average Realized Market Rate (“ARMR”) determined and adjusted by the providing Party pursuant to Section
3.01(a)(iii) for each Billable Employee who renders Consulting Services or for each Billable Offering. To the extent any Billable Employee does not have an ARMR, the lowest consulting fee rate determined by such Party for such Billable Employee shall be used.
(ii)For all other Services (“Other Services”), unless a different cost methodology or markup rate is specified on the applicable Schedule for a particular Other Service, such Other Services shall be charged at the providing Party’s cost (including assessments for administration, information technology and facilities) (“Cost”) as determined by the providing Party, plus a markup rate of 6%. If any Other Services are performed by Billable Employees, the price for the portion of such Other Services performed by Billable Employees shall be determined as if such services were Consulting Services as provided above. The providing Party shall not charge for any Other Services that are provided primarily for the benefit of the providing Party.
(iii)ARMR and Cost shall be calculated by the providing Party in a manner consistent with how ARMR and Cost are calculated by SAP for the applicable job types or other measurement criteria in the applicable locations across SAP’s business units. SAP shall provide Qualtrics with sufficient information regarding how ARMR and Cost are calculated by SAP in order to enable Qualtrics to calculate ARMR and Cost pursuant to this Agreement. ARMR shall be subject to an annual adjustment process whereby at the end of each year and no later than the end of SAP’s year-end closing process, the providing Party shall recalculate the amounts charged to the receiving Party for such year based on the ARMR as calculated by the providing Party for such year, and shall either invoice the receiving Party for any shortfall in the event such recalculation results in the receiving Party having paid less than the amount owed for such year or credit the receiving Party for any excess in the event such recalculation results in the receiving Party having paid more than the amount owed for such year.
(b)SAP Services Performed Pursuant to an SLA. The parties may mutually agree that certain SAP Services shall be provided and charged by an SAP Entity pursuant to a separate Shared Services Agreement and Service Level Agreement (each, together with all schedules, exhibits and appendices thereto, an “SLA”) to be entered into between an SAP Entity (any SAP Entity entering into an SLA, a “Service Center”) and a Qualtrics Entity. To the extent that any SAP Services are provided by or on behalf of a Service Center pursuant to an SLA, such SLA shall constitute a Schedule to this Agreement and such SAP Services shall be provided pursuant to, and shall be subject to the terms and conditions of, any such SLA with the same effect as if such SLA were a Schedule to this Agreement.
(c)Third Party Service Providers. Services performed by third party service providers or subcontractors directly to or for the benefit of the receiving party that are billed to the providing Party rather than being billed directly to the receiving Party shall be charged at the price charged by such third party service provider or subcontractor without any markup, unless otherwise specified on the applicable Schedule for such Other Services.
(d)Out-of-Pocket Costs. In addition to the amounts payable pursuant to Section 3.01(a), (b) or (c), in the event that a Party providing Services incurs reasonable and documented out-of-pocket expenses in connection with the provision of any Service, including license fees and payments, reasonable travel costs and expenses, shipping and transportation costs and other fees or expenses, but excluding payments made to Employees of such Party, payments to third party service providers or subcontractors, or other payments included in the calculation of Costs (such included expenses, collectively, “Out-of-Pocket Costs”), the Party receiving such Service shall reimburse the Party providing such Service for all such Out-of-Pocket Costs in accordance with the invoicing procedures set forth in Section 3.02, without any markup. Neither Party shall incur any individual or series of related Out-of-Pocket Costs (excluding license fees and payments and duties and non-recoverable taxes) for any individual Service in excess of $5,000 in any billing period without the prior written approval of the Party receiving Services unless such Out-of-Pocket Costs are approved on the applicable Schedule for such Services.
(e)Taxes.
(i)All applicable sales, use, value added, GST, transfer, receipts, customs duties, consumption or other similar Taxes (and any other Taxes other than income Taxes and corporation Taxes), together with any interest, penalties or amounts imposed with respect thereto (collectively, “Services Taxes”), shall be borne by the Party (or its Subsidiary) receiving Services hereunder. If any Services Tax is required to be withheld or deducted from any payment under this Agreement, the Party (or its Subsidiary) receiving Services will increase the amount payable under this Agreement as shall ensure that after such withholding or deduction, the Party (or its Subsidiary) providing Services receives an amount equal to the amount required to be paid hereunder.
(ii)Income Taxes will be borne by the Party (or its Subsidiary) providing Services. If the Party (or its Subsidiary) receiving Services is required to withhold any Taxes (other than Services Taxes) from any payment to the Party (or its Subsidiary) providing Services under this Agreement, the Party (or its Subsidiary) receiving Services hereunder shall be entitled to withhold or deduct such Taxes from the gross amount to be paid. However, the Party (or its Subsidiary) receiving Services shall cooperate with the Party (or its Subsidiary) providing Services to reduce any such withholding Tax payable pursuant to applicable law or an income tax treaty. The Party (or its Subsidiary) receiving Services hereunder will in the case of any withholding Tax (including withholding Taxes described under Section 3.01(e)(ii)) provide to the Party (or its Subsidiary) providing Services a receipt from the relevant tax authority to which such withholding Tax has been paid.
(iii)Each Party shall cooperate with each other Party and take any reasonably requested action which does not cause such first Party to incur any cost or inconvenience (other than de minimis costs or inconveniences) in order to minimize any Services Taxes imposed on the sale of the Services (or other goods and services sold pursuant to this Agreement), including providing sales and use (or value added) tax
exemption certificates or other documentation necessary to support tax exemptions. Each Party agrees to provide each other Party such information and data as reasonably requested from time to time, and to fully cooperate with each other Party, in connection with (i) the reporting of any Services Taxes payable pursuant to this Agreement, (ii) any audit relating to any Services Taxes payable pursuant to this Agreement or (iii) any assessment, refund, claim or proceeding relating to any such Services Taxes.
(iv)Except as otherwise provided in any SLA, this Section 3.01(e) shall be applicable to any SAP Service provided pursuant to an SLA.
Section 3.02Payment.
(a)Unless otherwise set forth on a Schedule (or otherwise mutually agreed to by the Parties in writing), charges for Services shall be invoiced quarterly in arrears by each Party (or its Subsidiary) providing or procuring such Services following the end of a quarter; provided that provided that charges for Consulting Services shall be invoiced monthly in arrears by each Party (or its Subsidiary) providing or procuring such Consulting Services following the end of a month. The invoice shall set forth in reasonable detail (which shall be sufficient to allow the receiving Party’s internal controlling or financial oversight personnel or its certified public accountants to verify independently the correctness of the invoice) for the period covered by such invoice (i) the Services rendered, (ii) the aggregate amount charged for each type of Service provided, (iii) the calculations for such amount charged, including billing rates, hours worked, ARMR, and Cost, as applicable, and (iv) such additional information as the Party receiving the invoice may reasonably request. Each invoice shall be directed to the appropriate Services Manager of the Party to receive the invoice or such other individual designated in writing from time to time by such Services Manager. Unless otherwise agreed in writing between the Parties, all payments made pursuant to an invoice shall, in the case of payments to a Qualtrics Entity, unless otherwise agreed in writing, be made in U.S. dollars and, in the case of payments to a SAP Entity, be made in the local or functional currency of such SAP Entity. The Parties shall provide documentation supporting any amounts invoiced pursuant to this Section 3.02 as the Party receiving the invoice may from time to time reasonably request.
(b)Each invoice shall be payable within sixty (60) days after receipt; provided that if such Party, in good faith, disputes any invoiced charge, payment of such charge may be made only after mutual resolution of such dispute. Each Party agrees to notify the Party sending the invoice promptly, and in no event later than thirty (30) days following receipt of an invoice, of any disputed charge, listing all disputed items and providing a reasonably detailed description of each disputed item. Amounts not so disputed shall be deemed accepted and shall be paid, notwithstanding disputes on other items, within the period set forth in Section 3.02(a). The applicable Parties shall seek to resolve all such disputes expeditiously and in good faith. Interest shall be charged on amounts overdue. The interest rate is based on the official interbank offered rate (1m-LIBOR) or a similar official reference rate of the relevant currency prevailing the first day of the month in which the interest will be calculated plus a margin of 100 basis points (1.00%) per annum. The interest will be calculated and charged on a monthly basis.
(c)During the term of this Agreement, each Party shall keep such books, records and accounts as are reasonably necessary to verify the calculation of the fees and related expense for Services provided hereunder. Each Party shall provide documentation supporting any amounts invoiced pursuant to this Section 3.02 as the other Party may from time to time reasonably request. Each Party shall have the right to review such books, records and accounts of the other Party at any time upon reasonable notice, and the Party requesting such review agrees to conduct any such review in a manner so as not to unreasonably interfere with the other Party’s normal business operations.
(d)Each Party hereby acknowledges and agrees that it shall have no right under this Agreement to offset any amounts owed (or to become due and owing) to another Party, whether under this Agreement or otherwise, against any other amount owed (or to become due and owing) to it by the other Party.
Section 3.03Financial Responsibility for Parties’ Personnel. Each Party shall pay for all personnel and other related expenses, including salary or wages, of its employees performing the applicable Services (including any SAP Service provided pursuant to an SLA). No individual providing SAP Services (including any SAP Service provided pursuant to an SLA) to a Qualtrics Entity pursuant to the terms of this Agreement shall be deemed to be, or shall have any rights as, an employee of any Qualtrics Entity, and no individual providing Qualtrics Services to an SAP Entity pursuant to the terms of this Agreement shall be deemed to be, or shall have any rights as, an employee of such SAP Entity. Notwithstanding the foregoing, the financial responsibility for, and the rights of, all Qualtrics-Aligned Employees shall be as provided in the Employee Matters Agreement.
ARTICLE IV
STANDARD OF PERFORMANCE AND INDEMNIFICATION
Section 4.01General Standard of Service. Except as otherwise agreed to in writing by the Parties or as described in this Agreement:
(a)The nature, quality, degree of skill and standard of care applicable to the delivery of the SAP Services hereunder, and the skill levels of the SAP Employees providing such SAP Services, shall be substantially the same as or consistent with those which similar SAP Entities exercise or employ in providing similar services within or to any SAP Entity.
(b)The nature, quality, degree of skill and standard of care applicable to the delivery of the Qualtrics Services hereunder, and the skill levels of the Qualtrics Employees providing such Qualtrics Services, shall be substantially the same as or consistent with those which any Qualtrics Entity exercises or employs in providing similar services within or to any Qualtrics Entity.
Section 4.02Services Management. SAP and Qualtrics each agree to appoint one or more of their respective employees for each specific Service (including any SAP Service provided pursuant to an SLA) it provides who will have overall responsibility for managing and coordinating the delivery of such Service, including making available the services of
appropriately qualified employees and resources to enable the provision of the Services (each, a “Services Manager”). The Services Managers will consult and coordinate with each other regarding the provision of Services. A Party may change its Service Managers for any Service from time to time by providing notice of such change in writing to the other Party and to the other Party’s Service Manager for such Service.
Section 4.03Limitation of Liability.
(a)Except as provided in Section 4.04, Qualtrics agrees that none of the SAP Entities and their respective directors, officers, agents, and employees (each, of the SAP Entities and their respective directors, officers, agents, and employees, an “SAP Indemnified Person”) shall have any liability, whether direct or indirect, in contract or tort or otherwise, to any Qualtrics Entity or any other Person under the control of such Qualtrics Entity for or in connection with the SAP Services rendered or to be rendered by any SAP Indemnified Person pursuant to this Agreement, the transactions contemplated hereby or any SAP Indemnified Person’s actions or inactions in connection with any SAP Services or such transactions, except for damages which have resulted (i) from such SAP Indemnified Person’s breach, gross negligence, bad faith or willful misconduct in connection with the foregoing, or (ii) from such SAP Indemnified Person’s breach of its confidentiality or data protection or privacy obligations hereunder or under the Master Transaction Agreement.
(b)Except as provided in Section 4.04, SAP agrees that none of the Qualtrics Entities and their respective directors, officers, agents, and employees (each, of the Qualtrics Entities and their respective directors, officers, agents, and employees, a “Qualtrics Indemnified Person”) shall have any liability, whether direct or indirect, in contract or tort or otherwise, to any SAP Entity or any other Person under the control of such SAP Entity for or in connection with the Qualtrics Services rendered or to be rendered by any Qualtrics Indemnified Person pursuant to this Agreement, the transactions contemplated hereby or any Qualtrics Indemnified Person’s actions or inactions in connection with any Qualtrics Services or such transactions, except for damages which have resulted (i) from such Qualtrics Indemnified Person’s breach, gross negligence, bad faith or willful misconduct in connection with the foregoing, or (ii) from such Qualtrics Indemnified Person’s breach of its confidentiality or data protection or privacy obligations hereunder or under the Master Transaction Agreement.
(c)None of the SAP Entities shall have any liability to any Qualtrics Entity or any other Person for failure to perform SAP’s obligations under this Agreement or otherwise, where such failure to perform similarly affects the SAP Entities receiving the same or similar services and does not have a disproportionately adverse effect on the Qualtrics Entities, taken as a whole. None of the Qualtrics Entities shall have any liability to any SAP Entity or any other Person for failure to perform Qualtrics’ obligations under this Agreement or otherwise, where such failure to perform similarly affects the Qualtrics Entities receiving the same or similar services and does not have a disproportionately adverse effect on the SAP Entities, taken as a whole.
(d)In addition to the foregoing, each Party agrees that, in all circumstances, it shall mitigate and otherwise minimize damages to such Party and its Subsidiaries, individually
and collectively, whether direct or indirect, due to, resulting from or arising in connection with any failure by the other Party to comply fully with such Party’s obligations under this Agreement, to the extent required by applicable law.
Section 4.04Indemnification.
(a)Qualtrics agrees to indemnify and hold harmless each SAP Indemnified Person from and against any Losses arising out of or related to any Action by a third party to the extent arising out of or in connection with (i) Qualtrics Services rendered or to be rendered by any Qualtrics Indemnified Person pursuant to this Agreement or the transactions contemplated hereby or (ii) any Qualtrics Indemnified Person’s actions or inactions in connection with this Agreement or any such Qualtrics Services or transactions; provided that Qualtrics shall not be responsible for any damages incurred by any SAP Indemnified Person that have resulted from any SAP Entity’s, or any such SAP Indemnified Person’s, gross negligence or willful misconduct in connection with the SAP Services rendered or to be rendered pursuant to this Agreement.
(b)SAP agrees to indemnify and hold harmless each Qualtrics Indemnified Person from and against any Losses arising out of or related to any Action by a third party to the extent arising out of or in connection with (i) SAP Services rendered or to be rendered by any SAP Indemnified Person pursuant to this Agreement or the transactions contemplated hereby or (ii) any SAP Indemnified Person’s actions or inactions in connection with this Agreement or any such SAP Services or transactions; provided that SAP shall not be responsible for any damages incurred by any Qualtrics Indemnified Person that have resulted from any Qualtrics Entity’s, or any such Qualtrics Indemnified Person’s, gross negligence or willful misconduct in connection with the Qualtrics Services rendered or to be rendered pursuant to this Agreement.
ARTICLE V
TERM AND TERMINATION
Section 5.01Term. Except as otherwise provided in this Article V or as otherwise agreed in writing by the Parties (including as provided on any Schedule), (a) this Agreement shall have an initial term from the Offering Date through the third anniversary of the Offering Date (the “Initial Term”), and will be renewed automatically thereafter for successive one year terms (each, a “Renewal Term”) unless either Party elects not to renew this Agreement by notice in writing to the other Party not less than 150 days prior to the end of the Initial Term or any Renewal Term (unless otherwise set forth in a Schedule with respect to any particular Service), and (b) with respect to any Service, the obligation of a Party to provide or to procure, and the obligation of the other Party to purchase, such Service shall cease as of the applicable date set forth in Schedule I or Schedule II or the applicable date set forth in any agreement between the Parties pursuant to which Additional Services are provided (in each case as such dates may be extended with the consent of the Party providing or procuring a Service and the Party receiving a Service) or such earlier date determined in accordance with Section 5.02.
Section 5.02Termination.
(a)The Parties may by mutual agreement from time to time, at any time, terminate this Agreement with respect to one or more of the Services, in whole or in part.
(b)Except as provided in clause (iii) of Section 5.03(a) or as otherwise provided on any Schedule, (i) Qualtrics may terminate any SAP Service at any time upon at least sixty (60) days prior written notice of such termination to SAP, effective as of such 60th day, and (ii) SAP may terminate any Qualtrics Service at any time upon at least sixty (60) days prior written notice of such termination to Qualtrics, effective as of such 60th day.
(c)Except as provided in any agreement between the Parties pursuant to which Additional Services are provided, either Party may terminate any Additional Service that is not reflected on an amendment to the Schedules at any time.
(d)Except as provided in clause (iii) of Section 5.03(a), a Party may terminate a Service provided by such Party upon written notice in the event of the receiving Party’s material breach of this Agreement, which breach remains uncured thirty (30) days after the breaching Party’s receipt of written notice thereof.
(e)Except as provided in clause (iii) of Section 5.03(a), this Agreement (including all Services) shall terminate automatically 90 days following a Change of Control.
Section 5.03Effect of Termination.
(a)Other than as required by law, upon the effective date of the expiration or termination of any Service pursuant to Section 5.01 or Section 5.02, or upon termination of this Agreement in accordance with its terms (any such date, the “Termination Date”), the Parties shall have no further obligation to provide the terminated Service (or any Service, in the case of termination of this Agreement) and shall have no obligation to pay any fees relating to such terminated Services or to make any other payments hereunder; provided that notwithstanding such termination, (i) each Party shall remain liable for fees owed and payable in respect of Services provided to it prior to the effective date of the termination; (ii) the Parties shall continue to charge for administrative, employee and program costs relating to amounts paid after but incurred or committed prior to the termination of any Service and for year-end recalculations pursuant to Section 3.01(a)(iii), and the Party so charged shall be obligated to pay such expenses in accordance with the terms of this Agreement, provided that (A) the Party that provided the Service makes reasonable efforts to obtain available refunds of such costs and (B) if such Party obtains a refund of any such costs already paid by the Party that received the Service, the Party that provided the Service shall return such portion of the costs to the Party that received the Service; (iii) notwithstanding any termination of any Service or of this Agreement, any Consulting Services or support and maintenance services provided under this Agreement and necessary to enable a Party to perform under any customer contract whereby products or services are sold or otherwise distributed by such Party prior to the IPO or pursuant to the Distribution Agreement or any other reseller agreement or inbound OEM agreement after the IPO shall continue in accordance with this Agreement for the duration of the support term under the
applicable customer contract (including renewals); and (iv) the provisions of Section 2.10 and Articles IV, V and VI shall survive any such termination indefinitely.
(b)Following termination of this Agreement with respect to any Service, the Parties agree to cooperate with each other in providing for an orderly transition of such Service to the receiving Party or to a successor service provider as designated by the receiving Party.
ARTICLE VI
MISCELLANEOUS
Section 6.01Ownership. Except as expressly provided in Section 2.10, (i) this Agreement and the performance of the Services hereunder will not affect the ownership of any assets or responsibility for any liabilities, and (ii) no Party will gain, by virtue of this Agreement or the Services provided hereunder, by implication or otherwise, any rights of ownership of any property or intellectual property rights owned by any other Party or their respective Subsidiaries.
Section 6.02No Agency. Nothing in this Agreement shall constitute or be deemed to constitute a partnership or joint venture by and among the Parties hereto or constitute or be deemed to constitute any Party the agent or employee of any other Party for any purpose whatsoever, and no Party shall have authority or power to bind any other Party or to contract in the name of, or create a liability against, any other Party in any way or for any purpose.
Section 6.03Subcontractors. Each Party may hire or engage one or more third party subcontractors to perform all or any of the Services to be provided (or caused to be provided) by it under this Agreement; provided that (i) subject to Section 3.01, such Party shall pay for all fees due each such subcontractor, and (ii) subject to Section 4.03, such Party shall in all cases remain primarily responsible for all obligations undertaken by each such subcontractor on such Party’s behalf pursuant to the terms of this Agreement with respect to the scope, quality, degree of skill and nature of the Services provided by such Party hereunder.
Section 6.04Force Majeure.
(a)For purposes of this Section 6.04, “Force Majeure” means an event beyond the control of any Party which prevents a Party from performing its obligation under this Agreement, and includes without limitation, acts of God, storms, floods, riots, fires, natural disasters, labor disputes or stoppages, government acts or orders, epidemics, pandemics, outbreaks of communicable disease, quarantines, acts of terrorism, sabotage, civil commotion or civil unrest, interference by civil or military authorities, acts of war (declared or undeclared) and failure of energy sources.
(b)Continued performance of a Service may be suspended immediately to the extent caused by Force Majeure. The Party claiming suspension of a Service due to Force Majeure will give prompt notice to the other of the occurrence of the event giving rise to the suspension and of its nature and anticipated duration. The Parties shall cooperate with each other to find alternative means and methods for the provision of the suspended Service.
(c)No Party shall be under any liability for failure to fulfill any obligation under this Agreement, so long as and to the extent to which the fulfillment of such obligation is prevented, frustrated, hindered, or delayed as a consequence of circumstances of Force Majeure and does not have a disproportionately adverse effect on the other Party.
Section 6.05Entire Agreement. Except as otherwise expressly set forth in this Agreement, this Agreement (including the Schedules constituting a part of this Agreement) and any other writing signed by the Parties that specifically references or is specifically related to this Agreement constitute the entire agreement among the Parties with respect to the subject matter hereof and supersede all prior agreements, understandings and negotiations, both written and oral, between the Parties with respect to the subject matter hereof.
Section 6.06Information. Subject to applicable law and privileges, each Party covenants with and agrees to provide to the other Party all information regarding itself and transactions under this Agreement that is reasonably required by the other Party to comply with all applicable federal, state, county and local laws, ordinances, regulations and codes, including, but not limited to, securities laws and regulations.
Section 6.07Notices. Notices, offers, requests or other communications required or permitted to be given by any Party pursuant to the terms of this Agreement shall be given in writing to the respective Parties to the following addresses:
(a)If to SAP SE, to:
SAP SE
Dietmar-Hopp-Allee 16
Germany – 69190
Attention: Jochen Scholten
E-mail:
(b)If to SAP America, to:
SAP America, Inc.
3999 West Chester Pike
Newtown Square, PA 19073
Attention: Mary Beth Hanss
E-mail:
(c)If to Qualtrics, to:
Qualtrics International Inc.
333 W River Park Dr
Provo, UT 84604
Attention: Legal Department
E-mail:
or to such other address as the Party to whom notice is given may have previously furnished to the other in writing as provided herein. Any notice shall be sent by hand delivery, internationally recognized overnight courier or, within the United States, may also be sent via certified mail, return receipt requested and, in any event, shall be concurrently sent by e-mail. All notices shall be deemed to have been given when received, if hand delivered; when transmitted, if transmitted electronically; one working day after it is sent, if sent by internationally recognized overnight courier; and three days after it is postmarked, if mailed first class mail or certified mail, return receipt requested, with postage prepaid.
Section 6.08Governing Law and Jurisdiction. This Agreement, including the validity hereof and the rights and obligations of the Parties hereunder, shall be construed in accordance with and all disputes, controversies or claims arising out of or relating to this Agreement shall be governed by the laws of the State of Delaware applicable to contracts made and to be performed entirely in such State (without giving effect to the conflicts of laws provisions thereof).
Section 6.09Consent to Jurisdiction. THE PARTIES AGREE THAT JURISDICTION AND VENUE IN ANY ACTION BROUGHT BY ANY PARTY IN CONNECTION WITH THIS AGREEMENT OR THE PERFORMANCE OF THE OBLIGATIONS IMPOSED HEREUNDER SHALL PROPERLY AND EXCLUSIVELY LIE IN ANY FEDERAL OR STATE COURT LOCATED IN THE STATE OF DELAWARE. EACH PARTY ALSO AGREES NOT TO BRING ANY ACTION IN CONNECTION WITH THIS AGREEMENT OR THE PERFORMANCE OF THE OBLIGATIONS IMPOSED HEREUNDER IN ANY OTHER COURT. BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PARTY IRREVOCABLY SUBMITS TO THE JURISDICTION OF SUCH COURTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY WITH RESPECT TO ANY SUCH ACTION. THE PARTIES IRREVOCABLY AGREE THAT VENUE WOULD BE PROPER IN SUCH COURT, AND HEREBY WAIVE ANY OBJECTION THAT ANY SUCH COURT IS AN IMPROPER OR INCONVENIENT FORUM FOR THE RESOLUTION OF SUCH ACTION. THE PARTIES FURTHER AGREE THAT THE MAILING BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, OF ANY PROCESS REQUIRED BY ANY SUCH COURT SHALL CONSTITUTE VALID AND LAWFUL SERVICE OF PROCESS AGAINST THEM, WITHOUT NECESSITY FOR SERVICE BY ANY OTHER MEANS PROVIDED BY STATUTE OR RULE OF COURT.
Section 6.10Waiver of Jury Trial. EACH OF THE PARTIES ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY THAT MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH OF THE PARTIES HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT. EACH OF THE PARTIES CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER COMPANY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE OTHER PARTY WOULD NOT, IN THE EVENT OF ANY LITIGATION, SEEK TO
ENFORCE THE FOREGOING WAIVER, (B) EACH OF THE PARTIES UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) EACH OF THE PARTIES MAKES THIS WAIVER VOLUNTARILY AND (D) EACH OF THE PARTIES HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 6.10.
Section 6.11Amendment. This Agreement may be amended only by an instrument in writing signed on behalf of each of the Parties.
Section 6.12Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which shall constitute one and the same agreement.
Section 6.13Binding Effect; Assignment. This Agreement shall inure to the benefit of and be binding upon the Parties and their respective legal representatives and successors. Neither Party may assign this Agreement or any rights or obligations hereunder, without the prior written consent of the other Party, and any such assignment shall be void; provided that either Party may assign this Agreement to a successor entity in conjunction with such Party’s reincorporation in another jurisdiction or into another business form.
Section 6.14Severability. If any term or other provision of this Agreement or the Schedules is determined by a court, administrative agency or arbitrator to be invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to either Party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the fullest extent possible.
Section 6.15Failure or Indulgence not Waiver; Remedies Cumulative. No failure or delay on the part of either Party in the exercise of any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty or agreement herein, nor shall any single or partial exercise of any such right preclude other or further exercise thereof or of any other right. All rights and remedies existing under this Agreement or the Schedules are cumulative to, and not exclusive of, any rights or remedies otherwise available.
Section 6.16Authority. Each of the Parties represent to the other Party that (a) it has the corporate or other requisite power and authority to execute, deliver and perform this Agreement, (b) the execution, delivery and performance of this Agreement by it have been duly authorized by all necessary corporate or other actions, (c) it has duly and validly executed and delivered this Agreement, and (d) this Agreement is its legal, valid and binding obligation, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors’ rights generally and general equity principles.
Section 6.17Interpretation. The headings contained in this Agreement, in any Schedule hereto and in the table of contents to this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Any capitalized term used in any Schedule but not otherwise defined therein shall have the meaning assigned to such term in this Agreement. When a reference is made in this Agreement to an Article or a Section or Schedule, such reference shall be to an Article or Section of, or a Schedule to, this Agreement unless otherwise indicated. Words in the singular shall be held to include the plural and vice versa and words of one gender shall be held to include the other gender as the context requires. The terms “hereof,” “herein” “and “herewith” and words of similar import, unless otherwise stated, shall be construed to refer to this Agreement as a whole (including all of the Schedules) and not to any particular provision of this Agreement. Any reference herein to this Agreement, unless otherwise stated, shall be construed to refer to this Agreement as amended, supplemented or otherwise modified from time to time. The word “including” and words of similar import when used in this Agreement shall mean “including, without limitation,” unless the context otherwise requires or unless otherwise specified. The word “or” shall not be exclusive.
Section 6.18Conflicting Agreements. In the event of conflict between this Agreement and the Master Transaction Agreement or other agreement executed in connection herewith, the provisions of this Agreement shall prevail. Only those provisions of the Master Transaction Agreement that are specifically incorporated by reference shall apply to this Agreement.
Section 6.19Third Party Beneficiaries. None of the provisions of this Agreement shall be for the benefit of or enforceable by any third party, including any employee or any creditor of any Person. No such third party shall obtain any right under any provision of this Agreement or shall by reasons of any such provision make any claim in respect of any Liability (or otherwise) against either Party.
Section 6.20Limitation of Liability. IN NO EVENT SHALL ANY SAP ENTITY OR QUALTRICS ENTITY BE LIABLE TO ANY OTHER SAP ENTITY OR QUALTRICS ENTITY FOR ANY SPECIAL, CONSEQUENTIAL, INDIRECT, INCIDENTAL OR PUNITIVE DAMAGES OR LOST PROFITS, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY (INCLUDING NEGLIGENCE) ARISING IN ANY WAY OUT OF THIS AGREEMENT, WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES; PROVIDED THAT THE FOREGOING LIMITATIONS SHALL NOT LIMIT (A) EACH PARTY’S INDEMNIFICATION OBLIGATIONS FOR LIABILITIES AS SET FORTH IN EITHER THIS AGREEMENT OR ANY TRANSACTION AGREEMENT OR (B) EITHER PARTY’S BREACH OF ITS CONFIDENTIALITY OR DATA PROTECTION OR PRIVACY OBLIGATIONS HEREUNDER OR UNDER THE MASTER TRANSACTION AGREEMENT.
[Signature Page Follows]
IN WITNESS WHEREOF, the Parties have caused this Agreement to be signed by their duly authorized representatives.
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SAP SE
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By:
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Name:
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Title:
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By:
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Name:
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Title:
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SAP AMERICA, INC.
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By:
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Name:
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Title:
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QUALTRICS INTERNATIONAL INC.
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By:
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Name:
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Title:
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[Signature Page to Administrative Services Agreement]
SCHEDULE I
Certain Services To Be Provided By SAP to Qualtrics [Omitted pursuant to Item 601(a)(5) of Regulation S-K]
SCHEDULE II
Certain Services To Be Provided By Qualtrics to SAP [Omitted pursuant to Item 601(a)(5) of Regulation S-K]
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FORM OF
TAX SHARING AGREEMENT
dated as of [ ]
among
SAP SE,
SAP AMERICA, INC.
AND THEIR AFFILIATES
and
QUALTRICS INTERNATIONAL INC.
AND ITS AFFILIATES
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TABLE OF CONTENTS
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Page
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Article
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I Definitions
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1
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Section 1.1 Definitions
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1
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Article
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II Preparation and Filing of Tax Returns
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9
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Section 2.1 SAP’s Responsibility
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9
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Section 2.2 Qualtrics’ Responsibility
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10
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Section 2.3 Agent
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10
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Section 2.4 Preparation of Certain Tax Return Materials
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10
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Section 2.5 Manner of Tax Return Preparation
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11
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Article
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III Liability for Taxes
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12
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Section 3.1 Qualtrics’ Liability for Taxes
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12
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Section 3.2 SAP’s Liability for Taxes
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13
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Section 3.3 Payment of Tax Liability
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14
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Section 3.4 Computation of Separate Tax Liability
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13
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Section 3.5 Covenant
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14
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Section 3.6 Certain Tax Credits
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14
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Article
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IV Deconsolidation Events
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14
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Section 4.1 Tax Allocations
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14
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Section 4.2 Carrybacks
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15
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Section 4.3 Post-Deconsolidation Payments
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15
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Article
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V Distribution Taxes
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15
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Section 5.1 Liability for Distribution Taxes
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15
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Section 5.2 Continuing Covenants
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18
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Article
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VI German Tax Matters
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21
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Section 6.1 Liability for Relevant German CFC/PFIC Taxes
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21
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Section 6.2 Policy
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21
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Article
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VII Indemnification
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21
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Section 7.1 In General
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21
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Section 7.2 Inaccurate or Incomplete Information
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21
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Section 7.3 No Indemnification for Tax Items
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22
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Article
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VIII Payments
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22
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Section 8.1 Estimated Tax Payments
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22
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Section 8.2 True-Up Payments
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22
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Section 8.3 Redetermination Amounts
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22
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Section 8.4 Payments of Refunds, Credits and Reimbursements
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23
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Section 8.5 Payments Under This Agreement
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23
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Article
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IX Tax Proceedings
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24
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Section 9.1 In General
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24
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Section 9.2 Audits with Respect to Combined Returns
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25
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Section 9.3 SAP as Non-Controlling Party
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25
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Section 9.4 Control of Distribution Tax Proceedings
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25
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Section 9.5 Notice
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25
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Article
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X Cooperation and Exchange of Information
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26
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Section 10.1 Cooperation
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26
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Section 10.2 Other Information
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26
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Article
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XI Miscellaneous Provisions
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26
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Section 11.1 Effectiveness
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26
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Section 11.2 Dispute Resolution
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26
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Section 11.3 Notices
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27
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Section 11.4 Changes in Law
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28
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Section 11.5 Confidentiality
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28
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Section 11.6 Binding Effect; Assignment
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28
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Section 11.7 Affiliates
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28
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Section 11.8 Authority
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29
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Section 11.9 Entire Agreement
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29
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Section 11.10 Consent to Jurisdiction
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29
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Section 11.11 Counterparts
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30
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Section 11.12 Severability
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30
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Section 11.13 Third Party Beneficiaries
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30
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Section 11.14 Failure or Indulgence not Waiver
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30
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Section 11.15 Setoff
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30
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Section 11.16 Other Remedies
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30
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Section 11.17 Amendment and Modification
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31
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Section 11.18 Waiver of Jury Trial
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31
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Section 11.19 Interpretation
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31
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TAX SHARING AGREEMENT
This Tax Sharing Agreement (this “Agreement”) is dated as of the [ ] day of [ ], 202[ ], among Qualtrics International Inc., a Delaware corporation (“Qualtrics”), each Qualtrics Affiliate (as defined below), SAP SE, a Societas Europaea registered in accordance with the corporate laws of Germany and the European Union (“SAP”), SAP America, Inc., a Delaware corporation ("SAP America"), and each other SAP Affiliate (as defined below). Qualtrics, each Qualtrics Affiliate, SAP, SAP America and each other SAP Affiliate are sometimes referred to herein separately as a “Party” and together as the “Parties”.
RECITALS
WHEREAS, SAP America, a direct subsidiary of SAP, intends to cause Qualtrics to complete the Qualtrics Recapitalization (as defined below);
WHEREAS, SAP America intends, sometime after the Qualtrics Recapitalization, to effect the initial public offering by Qualtrics of its Class A common stock and the contemporaneous private placement of Class A common stock (the “IPO”);
WHEREAS, certain members of the SAP Group (as defined below), on the one hand, and certain members of the Qualtrics Group (as defined below), on the other hand, file (or may file in the future) certain Tax Returns (as defined below) on a consolidated, combined or unitary basis for certain U.S. federal, state, local and non-U.S. income tax purposes; and
WHEREAS, in contemplation of the IPO, the Parties hereto have determined to enter into this Agreement, setting forth their agreement with respect to certain tax matters.
NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the Parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions.
(a) As used in this Agreement, the following terms shall have the following meanings, applicable both to the singular and the plural forms of the terms described:
“Affiliate” means an SAP Affiliate or a Qualtrics Affiliate, as the context requires.
“After Tax Amount” means any additional amount necessary to reflect the hypothetical Tax consequences of the receipt or accrual of any payment required to be made under this Agreement (including payment of any additional amount or amounts hereunder and the effect of the deductions available for interest paid or accrued and for Taxes such as state and local Income Taxes), determined by using the highest applicable statutory corporate Income Tax rate (or rates, in the case of an item that affects more than one Tax) for the relevant taxable period (or portion thereof).
“Aggregate Distribution Tax Liabilities” means, in the event of a Distribution, the sum of the Distribution Tax Liabilities with respect to each Taxing Jurisdiction.
“Agreement” has the meaning set forth in the preamble hereto.
“Audit” means any audit, assessment of Taxes, other examination by any Taxing Authority, proceeding, or appeal of such a proceeding relating to Taxes, whether administrative or judicial, including proceedings relating to competent authority determinations.
“Code” means the Internal Revenue Code of 1986, as amended.
“Combined Group” means any consolidated, combined, unitary or similar group under applicable Tax law of which both one or more members of the SAP Group and one or more members of the Qualtrics Group are members.
“Combined Return” means any Consolidated Return, Combined State Return or other Income Tax Return with respect to a Combined Group.
“Combined State Return” means any Income Tax Return with respect to a Combined Group that relates to U.S. state or local Taxes.
“Consolidated Return” means any Tax Return with respect to U.S. federal income taxes filed on a consolidated basis wherein Qualtrics or one or more Qualtrics Affiliates join in the filing of such Tax Return (for any taxable period or portion thereof) with SAP America or one or more subsidiaries of SAP America.
“Controlling Party” has the meaning set forth in Section 9.1 of this Agreement.
“Deconsolidation Event” means, with respect to any Combined Group, any event or transaction that causes Qualtrics and/or one or more Qualtrics Affiliates to no longer be eligible to join with SAP or one or more SAP Affiliates in the filing of the applicable Combined Return.
“Distribution” means an Internal Distribution or an External Distribution.
“Distribution Tax Liabilities” means, in the event of a Distribution, with respect to any Taxing Jurisdiction, the sum of (a) any Taxes actually paid to such Taxing Jurisdiction as a result of any corporate-level gain or income recognized that would not have been paid but for the failure of such Distribution to qualify for its Intended Tax Treatment in such Taxing Jurisdiction (assuming that there are no applicable Tax Attributes available in any relevant taxable year), (b) interest on such amounts calculated pursuant to such Taxing Jurisdiction’s laws regarding interest on Tax liabilities from the date such additional gain or income was recognized until full payment with respect thereto is made pursuant to Section 8.5 hereof (or in the case of a reduction in a Tax refund, the amount of interest that would have been received on the foregone portion of the Tax refund but for the failure of the Distribution to qualify for its Intended Tax Treatment), and (c) any penalties actually paid to such Taxing Jurisdiction that would not have been paid but for the failure of such Distribution to qualify for its Intended Tax Treatment in such Taxing Jurisdiction.
“Estimated Tax Installment Date” means, (i) with respect to U.S. federal income taxes, the estimated Tax installment due dates prescribed in Section 6655(c) of the Code and, (ii) with respect to any other state, local or non-U.S. Tax any other date on which an installment payment of an estimated amount of such Tax is required to be made under applicable law.
“External Distribution” means, following an Internal Distribution, any distribution by SAP of Qualtrics stock (and securities, if any) to SAP shareholders and/or securityholders in a transaction intended to qualify for an Intended Tax Treatment.
“Fifty-Percent or Greater Interest” shall have the meaning ascribed to such term for purposes of Sections 355(d) and (e) of the Code.
“Final Determination” means the final resolution of liability for any Tax for any taxable period, by or as a result of: (i) a final and unappealable decision, judgment, decree or other order by any court of competent jurisdiction; (ii) a final settlement with the IRS, a closing agreement or accepted offer in compromise under Section 7121 or Section 7122 of the Code, or a comparable agreement under the laws of other jurisdictions, which resolves the entire Tax liability for any taxable period, (iii) any allowance of a refund or credit in respect of an overpayment of Tax, but only after the expiration of all periods during which such refund may be recovered by the jurisdiction imposing the Tax; or (iv) any other final disposition, including by reason of the expiration of the applicable statute of limitations.
“first Party” has the meaning set forth in Section 10.2 of this Agreement.
“Hypothetical Qualtrics Tax Attribute” means any current-year loss, deduction, tax credit or other similar amount or Tax Attribute (other than any Pre-IPO Equity Award Tax Attribute), in each case, (i) that is properly attributable to Qualtrics or any Qualtrics Affiliate, (ii) that is generated in a taxable year beginning after December 31, 2020, (iii) the utilization of which resulted in a Tax Benefit to SAP or any SAP Affiliate, and (iv) that Qualtrics or any of its Affiliates would have been entitled under applicable law to carry forward to the applicable taxable year (taking into account applicable carryforward periods) if such item had not been utilized by SAP or any SAP affiliate in a prior period.
“Income Tax” means any U.S. federal, state, local or non-U.S. Tax determined (in whole or in part) by reference to net income, net worth, gross receipts or capital, or any Taxes imposed in lieu of such a tax. For the avoidance of doubt, the term Income Tax includes any franchise tax or any Taxes imposed in lieu of such a tax.
“Income Tax Return” means any Tax Return relating to any Income Tax.
“Independent Firm” has the meaning set forth in Section 11.2 of this Agreement.
“Intended Tax Treatment” means the intended tax treatment of a Distribution as set forth in any applicable Opinion or Ruling, including, but not limited to, the U.S. Tax-Free Status and the treatment of such Distribution for German tax purposes.
“Internal Distribution” means any distribution by SAP America of Qualtrics stock (and securities, if any) to SAP America shareholders and/or securityholders in a transaction intended to qualify for an Intended Tax Treatment.
“IPO” has the meaning set forth in the recitals hereto.
“IPO Date” means the close of business on the date in which all steps of the IPO are completed and all shares of Qualtrics Class A common stock intended to be issued in connection therewith are issued and outstanding.
“IRS” means the U.S. Internal Revenue Service.
“Master Transaction Agreement” means the Master Transaction Agreement between SAP and Qualtrics of even date herewith.
“Non-Income Tax Return” means any Tax Return relating to any Tax other than an Income Tax.
“Notified Action” shall have the meaning set forth in Section 5.2(d)(i).
“Officer’s Certificate” means a letter executed by an officer of SAP, SAP America or Qualtrics and provided to Tax Counsel as a condition for the completion of a Tax Opinion.
“Owed Party” has the meaning set forth in Section 8.5 of this Agreement.
“Owing Party” has the meaning set forth in Section 8.5 of this Agreement.
“Party” has the meaning set forth in the preamble hereof.
“Payment Period” has the meaning set forth in Section 8.5(e) of this Agreement.
“Person” means any individual, partnership, joint venture, limited liability company, corporation, association, joint stock company, trust, estate, unincorporated organization or similar entity or a governmental authority or any department or agency or other unit thereof.
“Post-Deconsolidation Period” means any taxable period (as applicable) beginning after the date of a Deconsolidation Event with respect to the applicable U.S. federal, state, local or non-U.S. Tax.
“Pre-Deconsolidation Period” means any taxable period beginning on or before the date of a Deconsolidation Event with respect to the applicable U.S. federal, state, local or non-U.S. Tax.
“Pre-IPO Equity Award Tax Attributes” means any current-year losses, deductions, credits or other similar amount or Tax Attributes arising from or relating to the issuance, transfer, vesting, exercise or settlement of any Pre-IPO Equity Awards.
“Pre-IPO Equity Awards” means any shares (restricted or otherwise), equity interests, options, share appreciation rights, restricted share units, performance share units or
other similar rights with respect to the stock of Qualtrics or a Qualtrics Affiliate that were granted on or prior to the IPO Date in connection with compensation paid to an employee, independent contractor or director.
“Proposed Acquisition Transaction” means, in the event of any Distribution, a transaction or series of transactions (or any agreement, understanding or arrangement, within the meaning of Section 355(e) of the Code and Treasury Regulations Section 1.355-7, or any other Treasury Regulations, to enter into a transaction or series of transactions), whether such transaction is supported by Qualtrics management or shareholders, is a hostile acquisition, or otherwise, as a result of which Qualtrics would merge or consolidate with any other Person or as a result of which any Person or Persons would (directly or indirectly) acquire, or have the right to acquire, from Qualtrics and/or one or more holders of outstanding shares of Qualtrics stock, a number of shares of Qualtrics stock that would, when combined with any other changes in ownership of Qualtrics stock pertinent for purposes of Section 355(e) of the Code, comprise 20% or more of (a) the value of all outstanding shares of Qualtrics stock as of the date of such transaction, or in the case of a series of transactions, the date of the last transaction of such series, or (b) the total combined voting power of all outstanding shares of voting Qualtrics stock as of the date of such transaction, or in the case of a series of transactions, the date of the last transaction of such series. Notwithstanding the foregoing, a Proposed Acquisition Transaction shall not include (a) the adoption by Qualtrics of a shareholder rights plan or (b) issuances by Qualtrics that satisfy Safe Harbor VIII (relating to acquisitions in connection with a person’s performance of services) or Safe Harbor IX (relating to acquisitions by a retirement plan of an employer) of Treasury Regulations Section 1.355-7(d). For purposes of determining whether a transaction constitutes an indirect acquisition, any recapitalization resulting in a shift of voting power or any redemption of shares of stock shall be treated as an indirect acquisition of shares of stock by the non-exchanging shareholders. This definition and the application thereof are intended to monitor compliance with Section 355(e) of the Code and shall be interpreted accordingly. Any clarification of, or change in, the statute or Treasury Regulations promulgated under Section 355(e) of the Code shall be incorporated into this definition and its interpretation.
“Qualtrics” has the meaning set forth in the preamble hereto.
“Qualtrics Active Business” means, in the event of a Distribution, each trade or business actively conducted (within the meaning of Section 355(b) of the Code and Treasury Regulations Section 1.355-3) by Qualtrics and its “separate affiliated group” (within the meaning of Section 355(b)(3)(B)) immediately after such Distribution, as described in the Tax Opinion Documents and any Ruling Documents.
“Qualtrics Affiliate” means any corporation or other entity directly or indirectly “controlled” by Qualtrics at the time in question, where “control” means the ownership of 50% or more of the ownership interests of such corporation or other entity (by vote or value) or the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such corporation or other entity.
“Qualtrics Combined State Return Materials” has the meaning set forth in Section 2.4(b).
“Qualtrics Consolidated Return Materials” has the meaning set forth in Section 2.4(a).
“Qualtrics Group” means Qualtrics and each Qualtrics Affiliate.
“Qualtrics Recapitalization” means the recapitalization of Qualtrics’ stock structure (A) intended to be completed by the (i) cancellation of all of Qualtrics’ then authorized, issued and outstanding stock, (ii) authorization of two new classes of Qualtrics stock, Qualtrics Class A common stock and Qualtrics Class B common stock, and (iii) issuance of Qualtrics Class B common stock to SAP with respect to SAP’s ownership of Qualtrics shares, and (B) that is intended qualify as a reorganization under Section 368(a)(1)(E) of the Code (and any corresponding or similar provision of state, local or non-U.S. Tax law).
“Qualtrics Separate State Tax Liability” means, with respect to any Combined State Return for any taxable year, an amount computed by SAP equal to the product of (A) a fraction, (i) the numerator of which is the aggregate taxable income (as determined for U.S. federal income tax purposes) of the members of the Qualtrics Group, if any, and (ii) the denominator of which is the combined aggregate taxable income (as determined for U.S. federal income tax purposes) of both the members of the Qualtrics Group and the members of the SAP America Group, if any; provided, that no Pre-IPO Equity Award Tax Attributes shall be taken into account in either the numerator or the denominator of such fraction, and (B) the total amount of Tax that would have been show as due and payable on such Combined State Return if no Pre-IPO Equity Award Tax Attributes (if any) had been taken into account on such Combined State Return. For the avoidance of doubt, the Qualtrics Separate State Tax Liability shall not be less than zero dollars ($0).
“Qualtrics Separate Tax Liability” means (A) with respect to any Consolidated Return for any taxable year, an amount equal to the Qualtrics Separate U.S. Federal Tax Liability, (B) with respect to any Combined State Return for any taxable year, an amount equal to the Qualtrics Separate State Tax Liability, and (C) with respect to any other Combined Return for any taxable year, an amount calculated by SAP under applicable Tax law in a manner consistent with the principles for calculating the Qualtrics Separate U.S. Federal Tax Liability.
“Qualtrics Separate U.S. Federal Tax Liability” means, with respect to any Consolidated Return for any taxable year, an amount equal to the Tax liability that Qualtrics and each Qualtrics Affiliate that is included in such Consolidated Return would have incurred if they had filed a U.S. federal consolidated income tax return separate from the members of the SAP Group for the relevant taxable year as adjusted by the Tax Attribute Conventions set forth in Section 3.4(a) of this Agreement. For the avoidance of doubt, the Qualtrics Separate U.S. Federal Tax Liability shall not be less than zero dollars ($0).
“Relevant German CFC/PFIC Taxes” means, any Taxes imposed on any member of the SAP Group as a result of the income of any member of the Qualtrics Group being subject to German controlled foreign company taxation (within the meaning of the German Foreign Tax Act (Außensteuergesetz)).
“Ruling” means (i) any private letter ruling issued by the IRS in connection with an Internal Distribution, External Distribution or both, and (ii) any similar ruling issued by any other Taxing Authority addressing the application of a provision of the laws of another jurisdiction (including Germany) to an Internal Distribution, External Distribution or both.
“Ruling Documents” means (i) the request for a Ruling filed with the IRS, together with any supplemental filings or other materials subsequently submitted to the IRS, the appendices and exhibits thereto, and any Ruling issued by the IRS to SAP (or any SAP Affiliate) in connection with an Internal Distribution, External Distribution or both and (ii) any similar filings submitted to, or rulings issued by, any other Taxing Authority in connection with an Internal Distribution, External Distribution or both.
“SAP” has the meaning set forth in the preamble hereto.
“SAP Affiliate” means any corporation or other entity directly or indirectly “controlled” by SAP where “control” means the ownership of 50% or more of the ownership interests of such corporation or other entity (by vote or value) or the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such corporation or other entity, but at all times excluding Qualtrics or any Qualtrics Affiliate.
“SAP America” has the meaning set forth in the preamble hereto.
“SAP America Consolidated Group” means the affiliated group of corporations within the meaning of Section 1504(a) of the Code of which SAP America is the common parent.
“SAP America Group” means SAP America and any SAP Affiliate that is a subsidiary of SAP America.
“SAP Group” means SAP and each SAP Affiliate.
“Section 336(e) Tax Basis” has the meaning set forth in Section 5.1(e)(ii).
“Tax Attribute” shall mean any net operating losses, net capital losses, excess tax credits and any other similar Tax attributes as determined for U.S. federal, state, local or non-U.S. tax purposes (including carryovers or carrybacks thereof). For the avoidance of doubt, the existence or amount of basis and computations of previously taxed income and earnings and profits are not Tax Attributes.
“Tax Attribute Conventions” has the meaning set forth in Section 3.4(a).
“Tax Benefit” means a reduction in the cash Tax liability of a Taxpayer for any taxable period. Except as otherwise provided in this Agreement, a Tax Benefit shall be deemed to have been realized or received from a Tax Item in a taxable period only if and to the extent that the Tax liability of the Taxpayer for such period, after taking into account the effect of the Tax Item on the Tax liability of such Taxpayer in the current period and all prior periods, is less than it would have been had such Tax liability been determined without regard to such Tax Item. For the avoidance of doubt, the amount of any Tax Benefit attributable to the use of any Tax Item shall be determined after giving effect to any provision of applicable Tax law that would limit or otherwise impact the actual reduction in the cash Tax liability attributable to such Tax
Item including any limitation under Section 382 or Section 383 of the Code (or a corresponding or similar provision of state, local or non-U.S. tax law) or the impact of Section 59A of the Code (or a corresponding or similar provision of state, local or non-U.S. tax law) on the reduction to the cash Tax liability of the applicable Taxpayer.
“Tax Counsel” means a nationally recognized law firm or accounting firm selected by SAP to provide a Tax Opinion.
“Tax Detriment” means an increase in the Tax liability (or reduction in refund or credit or any item of deduction or expense) of a Taxpayer for any taxable period. Except as otherwise provided in this Agreement, a Tax Detriment shall be deemed to have been realized or incurred from a Tax Item in a taxable period only if and to the extent that the Tax liability of the Taxpayer for such period, after taking into account the effect of the Tax Item on the Tax liability of such Taxpayer in the current period and all prior periods, is more than it would have been had such Tax liability been determined without regard to such Tax Item.
“Tax Item” means any item of income, gain, loss, deduction, expense or credit, or other attribute that may have the effect of increasing or decreasing any Tax.
“Tax Opinion” means, in the event of any Distribution, the opinion issued to SAP by Tax Counsel regarding the Intended Tax Treatment of such Distribution.
“Tax Opinion Documents” means, in the event of a Distribution, the Tax Opinion and the information and representations (including as set forth in any Officer’s Certificates) provided by, or on behalf of, SAP or SAP America and Qualtrics, as the case may be, to Tax Counsel in connection therewith.
“Tax-Related Losses” means, in the event of a Distribution, (i) the Aggregate Distribution Tax Liabilities; (ii) all reasonable accounting, legal and other professional fees, and court costs incurred in connection with any settlement, Final Determination, judgment or other determination with respect to such Aggregate Distribution Tax Liabilities; (iii) all costs, expenses and damages associated with stockholder litigation or controversies and any amount required to be paid by SAP or Qualtrics or their respective Affiliates in respect of the liability of shareholders, whether paid to shareholders or to the IRS or any other Taxing Authority payable by SAP or Qualtrics or their respective Affiliates, in each case, resulting from the failure of a Distribution to qualify for its Intended Tax Treatment.
“Tax Return” means any return, report, certificate, form or similar statement or document (including any related or supporting information or schedule attached thereto and any information return, amended tax return, claim for refund or declaration of estimated Tax) required to be supplied to, or filed with, a Taxing Authority in connection with the determination, assessment or collection of any Tax or the administration of any laws, regulations or administrative requirements relating to any Tax.
“Taxes” means all U.S. federal, state, local or non-U.S. taxes, charges, fees, duties, levies, imposts, rates or other assessments, including income, gross receipts, net worth, excise, property, sales, use, license, capital stock, transfer, franchise, payroll, withholding, social
security, value added or other taxes, (including any interest, penalties or additions attributable thereto) and a Tax means any one of such Taxes.
“Taxing Jurisdiction” means the United States and every other government or governmental unit having jurisdiction to tax SAP, Qualtrics or any of their Affiliates.
“Taxing Authority” means any governmental authority or any subdivision, agency, commission or authority thereof or any quasi-governmental or private body having jurisdiction over the assessment, determination, collection or imposition of any Tax (including the IRS).
“Taxpayer” means any taxpayer and its Combined Group.
“Treasury Regulations” means the Treasury regulations (including temporary regulations) promulgated by the United States Department of Treasury with respect to the Code.
“Unqualified Tax Opinion” means, in the event of a Distribution, an unqualified opinion of Tax Counsel on which SAP may rely to the effect that a transaction (a) will not disqualify such Distribution from its Intended Tax Treatment, assuming that such Distribution would have qualified for its Intended Tax Treatment if such transaction did not occur, and (b) will not adversely affect any of the conclusions set forth in the Tax Opinion.
“U.S. Federal Deconsolidation Event” means a Deconsolidation Event with respect to the SAP America Consolidated Group.
“U.S. Tax-Free Status” means, (i) in the case of an Internal Distribution, the qualification of the Internal Distribution as a transaction (a) described in Section 355(a) of the Code, (b) in which the stock (and, if applicable, securities) distributed thereby is “qualified property” for purposes of Section 355(c)(2) of the Code, and (c) in which SAP America, Qualtrics and the stockholders (and, if applicable, securityholders) of SAP America, recognize no income, gain or loss for U.S. federal, state and local income tax purposes, and (ii) in the case of an External Distribution, the qualification of the External Distribution as a transaction (a) described in Section 355(a) of the Code, (b) in which the stock (and, if applicable, securities) distributed thereby is “qualified property” for purposes of Section 355(c)(2) of the Code, and (c) in which SAP America, Qualtrics and the stockholders (and, if applicable, securityholders) of SAP America and SAP, recognize no income, gain or loss for U.S. federal, state and local income tax purposes.
ARTICLE II
PREPARATION AND FILING OF TAX RETURNS
Section 2.1SAP’s Responsibility. Subject to the other applicable provisions of this Agreement (including Section 2.4), SAP shall have sole and exclusive responsibility for the filing of (or for causing the filing of):
(a)all Combined Returns for any taxable period;
(b)all Income Tax Returns (other than Combined Returns) with respect to SAP and/or any SAP Affiliate for any taxable period; and
(c)all Non-Income Tax Returns with respect to SAP or any SAP Affiliate for any taxable period.
Section 2.2Qualtrics’ Responsibility. Subject to the other applicable provisions of this Agreement (including Section 2.5(c)), Qualtrics shall have sole and exclusive responsibility for the preparation and filing of (or for causing the preparation and filing of):
(a)all Income Tax Returns (other than Combined Returns) with respect to Qualtrics and/or any Qualtrics Affiliate for any taxable period; and
(b)all Non-Income Tax Returns with respect to Qualtrics or any Qualtrics Affiliate for any taxable period.
Section 2.3Agent. Subject to the other applicable provisions of this Agreement, Qualtrics hereby irrevocably designates, and agrees to cause each Qualtrics Affiliate to so designate, SAP and/or SAP America as its sole and exclusive agents and attorneys-in-fact to take such action (including execution of documents) as SAP and/or SAP America, in their sole discretion, may deem appropriate in any and all matters (including Audits) relating to any Tax Return described in Section 2.1 of this Agreement.
Section 2.4Preparation of Certain Tax Return Materials.
(a)For any taxable year that any member of the Qualtrics Group is included in a Consolidated Return, Qualtrics will deliver to SAP not later than 80 calendar days prior to the due date (including any applicable extensions) of the Consolidated Return for such taxable year, substantially completed drafts of (i) a pro forma IRS Form 1120 (including any applicable attachments and/or statements) of each applicable member of the Qualtrics Group to be filed with such Consolidated Return, (ii) so long as Qualtrics, LLC is treated as a partnership for U.S. federal income tax purposes, a copy of each Schedule K-1 (Form 1065) issued by Qualtrics, LLC, and (iii) any Tax Return workpapers in respect of the foregoing (clauses (i)-(iii), the “Qualtrics Consolidated Return Materials”). Not later than 60 calendar days prior to the due date (including any applicable extensions) of such Consolidated Return, Qualtrics will deliver to SAP the final Qualtrics Consolidated Return Materials. The Qualtrics Consolidated Return Materials will be prepared in a manner consistent with past practice using the accounting methods and elections used on the Consolidated Return.
(b)For any taxable year that any member of the Qualtrics Group is included in any Combined State Return, Qualtrics will deliver to SAP, not later than 80 calendar days prior to the due date (including any applicable extensions) of such Combined State Return for such taxable year, substantially completed drafts of (i) a pro forma Tax Return (including any applicable attachments and/or statements) of each applicable member of the Qualtrics Group to be filed with such Combined State Return, (ii) so long as Qualtrics, LLC is treated as a partnership for U.S. federal income tax purposes, a copy of each Schedule K-1 (Form 1065) issued by Qualtrics, LLC, and (iii) any applicable U.S. state apportionment workpapers or other Tax Return workpapers (clauses (i)-(iii), the “Qualtrics Combined State Return Materials”). Not later than 60 calendar days prior to the due date (including any applicable extensions) of such Combined State Return, Qualtrics will deliver to SAP the final Qualtrics Combined State Return
Materials. The Qualtrics Combined State Return Materials will be prepared in a manner consistent with past practice using the accounting methods and elections used on the relevant Combined State Return.
(c)Upon SAP’s request, Qualtrics will deliver to SAP in a reasonably prompt manner any information regarding members of the Qualtrics Group (or that is otherwise within the possession of the Qualtrics Group) that is reasonably required by SAP in connection with the filing of any German or other non-U.S. Tax Return.
(d)No later than 30 calendar days prior to the due date for any estimated Taxes (including the due date for filing a request for extension) with respect to a Combined Return, Qualtrics will deliver to SAP information sufficient for SAP to calculate the estimated Qualtrics Separate Tax Liability pursuant to Section 3.4(b) of this Agreement, including information to determine relevant U.S. state apportionment factors.
Section 2.5Manner of Tax Return Preparation.
(a)Unless otherwise required by a Taxing Authority, the Parties hereby agree to prepare and file all Tax Returns, and to take all other actions, in a manner consistent with (i) this Agreement, (ii) any Tax Opinion and (iii) any Ruling. All Tax Returns shall be filed on a timely basis (taking into account applicable extensions) by the Party responsible for filing such returns under this Agreement.
(b)SAP shall have the exclusive right, in its sole discretion, with respect to any Tax Return described in Section 2.1 of this Agreement (including, for the avoidance of doubt, any and all Combined Returns), to determine (i) the manner in which such Tax Return shall be prepared and filed, including the elections, method of accounting, positions, conventions and principles of taxation to be used and the manner in which any Tax Item shall be reported, (ii) whether any extensions shall be requested, (iii) the elections that will be made by SAP, any SAP Affiliate, Qualtrics, and/or any Qualtrics Affiliate on such Tax Return (including an election to claim foreign tax credits under Section 901(a) of the Code or any similar provision of any state, local or non-U.S. Tax law), (iv) whether any amended Tax Returns shall be filed, (v) whether any claims for refund shall be made, (vi) whether any refunds shall be paid by way of refund or credited against any liability for the related Tax, and (vii) whether to retain outside firms to prepare and/or review such Tax Returns; provided, however, that SAP or SAP America shall consult with Qualtrics prior to changing any method of accounting if such action would solely impact the Qualtrics Group.
(c)For so long as SAP and its Affiliates own, in the aggregate, directly or indirectly, more than 50% of the outstanding stock of Qualtrics (by vote or value), with respect to any Tax Return prepared by Qualtrics pursuant to Section 2.2 hereof, the Qualtrics Group shall, upon SAP’s request, (i) use commercially reasonable efforts provide a copy of such Tax Return (together with any worksheets and other materials used in preparation thereof) available for SAP’s review and comment at least forty-five 45 calendar days prior to the due date (including any applicable extensions) for filing such Tax Return and (ii) incorporate any reasonable comments provided by SAP with respect to any such Tax Return that are provided by
SAP at least 10 business days prior to the due date (including any applicable extensions) for the filing of such Tax Return.
(d)Notwithstanding anything to the contrary herein, SAP shall make any decision as to whether any Tax Return that would include at least one member of the SAP Group will be filed on a consolidated, combined or unitary basis for any taxable year and the Qualtrics Group shall take all actions necessary to cause all applicable members of the Qualtrics Group to join in the filing of any such Tax Return that SAP decides to file on a consolidated, combined or unitary basis pursuant to this Section 2.5(d). With respect to any taxable year (or portion thereof) that SAP and its Affiliates own, in the aggregate, directly or indirectly, 50% or more of the outstanding stock of Qualtrics (by vote or value), no member of the Qualtrics Group shall be entitled to file any Tax Return on a consolidated, combined or unitary basis (including such a Tax Return consisting solely of members of the Qualtrics Group) for such taxable year without the prior consent of SAP (such consent not to be unreasonably withheld, conditioned or delayed). For the avoidance of doubt, such consent will not be considered to be unreasonably withheld, conditioned or delayed if the filing of such Tax Return on a consolidated, combined or unitary basis will result in a Tax Detriment to SAP or any its Affiliates for any taxable year.
ARTICLE III
LIABILITY FOR TAXES
Section 3.1Qualtrics’ Liability for Taxes. Each member of the Qualtrics Group shall be jointly and severally liable for the following Taxes, and shall be entitled to receive and retain all refunds of Taxes previously incurred by Qualtrics (except to the extent that any such refunds are attributable Pre-IPO Equity Award Tax Attributes) or any Qualtrics Affiliate with respect to such Taxes:
(a)all Taxes with respect to Tax Returns described in Section 2.1(a) of this Agreement to the extent of the Qualtrics Separate Tax Liability, for any taxable period beginning after December 31, 2020;
(b)all Taxes with respect to Tax Returns described in Section 2.2(a) of this Agreement for any taxable period beginning after December 31, 2020;
(c)all Taxes with respect to Tax Returns described in Section 2.2(b) of this Agreement; and
(d)all Taxes imposed by any Taxing Authority with respect to Qualtrics or any Qualtrics Affiliate (other than in connection with the required filing of a Tax Return described in Sections 2.1(a) or 2.2 of this Agreement) for any taxable period.
Section 3.2SAP’s Liability for Taxes. SAP shall be liable for the following Taxes, and (subject to Section 3.6) shall be entitled to receive and retain all refunds of Taxes previously incurred by SAP or any SAP Affiliate with respect to such Taxes:
(a)except for Taxes that are the responsibility of Qualtrics and the Qualtrics Affiliates pursuant to Section 3.1(a) of this Agreement, all Taxes with respect to Tax Returns described in Section 2.1(a) of this Agreement;
(b)all Taxes with respect to Tax Returns described in Sections 2.1(b) or 2.1(c) of this Agreement;
(c)all Taxes with respect to Tax Returns described in Section 2.2(a) for taxable periods beginning before January 1, 2021; and
(d)all Taxes imposed by any Taxing Authority with respect to SAP or any SAP Affiliate (other than in connection with the required filing of a Tax Return described in Section 2.1 or Section 2.2(a) of this Agreement) for any taxable period.
Section 3.3Payment of Tax Liability. If one Party is liable or responsible for Taxes under Sections 3.1 or 3.2 of this Agreement, with respect to Tax Returns for which another Party is responsible for filing, or with respect to Taxes that are paid by another Party, then the liable or responsible Party shall pay the Taxes (or a reimbursement of such Taxes) to the other Party pursuant to Section 8.5 of this Agreement.
Section 3.4Computation of Separate Tax Liability.
(a)Any Qualtrics Separate U.S. Federal Tax Liability shall be computed using the following conventions (the “Tax Attribute Conventions”):
(i)By not taking into account any Pre-IPO Equity Award Tax Attributes;
(ii)By taking into account any carryforwards of any Tax Attribute (other than any Pre-IPO Equity Award Tax Attribute) generated in any taxable period beginning after December 31, 2020 that are properly attributable to Qualtrics or its Affiliates and are actually available to be used by the SAP America Consolidated Group in the taxable year in which the Qualtrics Separate U.S. Federal Tax Liability is being computed;
(iii)By taking into account, any Hypothetical Qualtrics Tax Attribute (determined as if all other available loss, deductions, credits and other Tax Attributes were utilized before the Hypothetical Qualtrics Tax Attribute) that has not been previously utilized by Qualtrics to reduce the Qualtrics Separate U.S. Federal Tax Liability in a prior taxable period; provided, that the Qualtrics Separate U.S. Federal Tax Liability shall only be reduced on account of a Hypothetical Qualtrics Tax Attribute to the extent of the Tax Benefit recognized by the SAP Group as a result of the utilization of the underlying Tax Attribute to which such Hypothetical Qualtrics Tax Attribute relates.
(b)At least 10 business days prior to the due date for any payment of Taxes (including estimated taxes for purposes of Section 8.1 of this Agreement) in respect of any Combined Return, SAP (or one of its Affiliates) shall provide Qualtrics with a written calculation in reasonable detail (including, upon reasonable request, copies of all work sheets and other materials used in preparation thereof) setting forth the amount of any Qualtrics Separate Tax Liability or estimated Qualtrics Separate Tax Liability, as applicable. The calculation of any Qualtrics Separate Tax Liability shall be based on the Qualtrics Consolidated Return Materials, the Qualtrics Combined State Return Materials, and/or any other information provided by
Qualtrics to SAP pursuant to this Agreement and shall be computed in a manner consistent (i) with general Tax accounting principles, (ii) the Tax law of the applicable Taxing Jurisdiction, (iii) the Tax Attribute Conventions, and (iv) past practice, if any, to the extent not inconsistent with this Agreement. SAP may determine any estimated Qualtrics Separate Tax Liability based on the materials that Qualtrics is required to deliver to SAP pursuant to Section 2.4(d) of this Agreement or by using any reasonable method, including, without limitation, by basing such estimated Qualtrics Separate Tax Liability on the Qualtrics Separate Tax Liability for prior taxable years. In no event shall any payment attributable to the amount of any Qualtrics Separate Tax Liability or estimated Qualtrics Separate Tax Liability be paid later than the date provided in Article VIII of this Agreement.
Section 3.5Covenant. Without the prior consent of SAP, no member of the Qualtrics Group will take any action that would reasonably be expected to cause any Combined Group to lose the benefit of any Tax Attribute that could otherwise be utilized with respect to a Combined Return, including, without limitation, any action that would cause Qualtrics, LLC (or its successor) to be classified as other than a partnership or disregarded entity for U.S. federal income tax purposes.
Section 3.6Certain Tax Credits. Any Utah State Economic Development Tax Increment Financing (EDTIF) tax credit shall be for the account of Qualtrics, and if any member of the SAP Group receives such a tax credit then SAP shall cause the recipient member of the SAP Group to pay to Qualtrics an amount equal to such tax credit no later than 10 business days after receipt thereof.
ARTICLE IV
DECONSOLIDATION EVENTS
Section 4.1Tax Allocations. The Parties have set forth how certain Tax matters with respect to a Deconsolidation Event would be handled in the event that a transaction that constitutes a Deconsolidation Event is pursued at some future time.
(a)Allocation of Tax Items. In the case of a Deconsolidation Event, all Tax computations with respect to applicable Combined Returns for (i) any Pre-Deconsolidation Periods ending on the date of the Deconsolidation Event and (ii) the immediately following taxable period of Qualtrics or any Qualtrics Affiliate, shall be made pursuant to the principles of Section 1.1502-76(b) of the Treasury Regulations or of a corresponding provision under the laws of other jurisdictions, as reasonably determined by SAP.
(b)Allocation of Tax Attributes. In the case of a Deconsolidation Event, SAP shall determine the allocation of any Tax Attributes among SAP, each SAP Affiliate, Qualtrics, and each Qualtrics Affiliate with respect to applicable Combined Returns. The Parties hereby agree that in the absence of controlling legal authority or unless otherwise provided under this Agreement, Tax Attributes shall be allocated to the legal entity that is required under Article III of this Agreement to bear the liability for the Tax associated with such Tax Attribute, or in the case where no Party is required hereunder to bear such liability, the Party that incurred the cost or burden associated with the creation of such Tax Attribute. SAP shall provide Qualtrics with an
opportunity to review and comment on a draft of any such allocation, and SAP shall accept any reasonable comments.
Section 4.2Carrybacks. Qualtrics shall (and shall cause each of its Affiliates to) waive, to the extent permitted under applicable U.S. federal, state, local or non-U.S. law, carrybacks of Tax Attributes from any Post-Deconsolidation Period to any Pre-Deconsolidation Period. If any member of the Qualtrics Group carries back a Tax Attribute from a Post-Deconsolidation Period to Pre-Deconsolidation Period, no payment shall be due from SAP (or any its Affiliates) with respect to that carryback, regardless of whether such carryback is required by applicable law. Without limiting the foregoing, Qualtrics hereby expressly agrees to elect (under Section 172(b)(3) of the Code (and any similar provision of any state, local or non-U.S. Tax law) and Treasury Regulations Section 1.1502-21(b)(3) to relinquish any right to carry back net operating losses to any Pre-Deconsolidation Periods of SAP (or and of its Affiliates).
Section 4.3Post-Deconsolidation Payments.
(a)Pre-IPO Equity Awards. For each taxable year ending after a Deconsolidation Event, Qualtrics shall pay to SAP America the amount of any Tax Benefit recognized by the Qualtrics Group during such taxable year to the extent arising from any Pre-IPO Equity Award Tax Attributes. Any amount payable under this Section 4.3(a) shall be payable within 10 calendar days after the date of filing of the Tax Return upon which such Tax Benefit is utilized.
(b)Tax Attributes. For each taxable year ending after a Deconsolidation Event in which a member of the Qualtrics Group would have been entitled to utilize a Hypothetical Qualtrics Tax Attribute under applicable Tax law (determined as if all other available loss, deductions, credits and other Tax Attributes were utilized before the Hypothetical Qualtrics Tax Attribute) that was not previously taken into account under this Section 4.3(b) or to reduce the Qualtrics Separate Tax Liability, then SAP America shall pay to Qualtrics an amount equal to the lesser of (i) the amount of the Tax Benefit that would have been available to the Qualtrics Group as a result of the utilization of such Hypothetical Qualtrics Tax Attribute and (ii) the Tax Benefit realized by the SAP Group as a result of the utilization of the Tax Attribute to which the Hypothetical Qualtrics Tax Attribute relates. Any amount payable under this Section 4.3(a)shall be payable within 10 calendar days after the date of filing of the Tax Return upon which such Hypothetical Qualtrics Tax Attribute could otherwise have been utilized. For the avoidance of doubt, a Hypothetical Qualtrics Tax Attribute does not include any amount attributable to a Pre-IPO Equity Award.
(c)Cooperation. Qualtrics agrees to share any calculations, workpapers or relevant Tax Returns reasonably requested by SAP in connection with matters related to this Section 4.3. The parties shall attempt in good faith to resolve any issues or disputes related to this Section 4.3.
ARTICLE V
DISTRIBUTION TAXES
Section 5.1Liability for Distribution Taxes.
(a)Notwithstanding anything in this Agreement to the contrary, subject to Section 5.1(c), in the event of a Distribution, Qualtrics shall be responsible for, and shall indemnify and hold harmless SAP and its Affiliates and each of their respective officers, directors and employees from and against, 100% of any Tax-Related Losses that are attributable to or result from any one or more of the following: (i) the acquisition after a Distribution of all or a portion of Qualtrics’ stock and/or its or its subsidiaries’ assets by any means whatsoever by any Person, (ii) any “agreement, understanding, arrangement, substantial negotiations or discussions” (as such terms are defined in Treasury Regulations Section 1.355-7(h)) by any one or more officers or directors of any member of the Qualtrics Group or by any other Person or Persons with the implicit or explicit permission of one or more of such officers or directors (other than officers or directors of SAP or SAP America) that cause a Distribution to be treated as part of a plan pursuant to which one or more Persons acquire, directly or indirectly, Qualtrics stock representing a Fifty-Percent or Greater Interest therein, (iii) any action or failure to act by Qualtrics after a Distribution (including, without limitation, any amendment to Qualtrics’ certificate of incorporation (or other organizational documents), whether through a stockholder vote or otherwise) affecting the voting rights of Qualtrics stock (including, without limitation, through the conversion of one class of Qualtrics stock into another class of Qualtrics stock), or (iv) any breach by Qualtrics or any Qualtrics Affiliate of any covenant contained in Section 5.2(a) or (c) (regardless whether such act or failure to act is covered by a Ruling, Unqualified Tax Opinion or SAP waiver described in Section 5.2(c)).
(b)Notwithstanding anything in this Agreement to the contrary, subject to Section 5.1(c), in the event of a Distribution, SAP (or the applicable member of the SAP Group) shall be responsible for, and shall indemnify and hold harmless Qualtrics and its Affiliates and each of their respective officers, directors and employees from and against, 100% of any Tax-Related Losses that are attributable to, or result from any one or more of the following: (i) the acquisition after an Internal Distribution of all or a portion of SAP America’s stock and/or its Subsidiaries’ assets or after an External Distribution of all or a portion of SAP’s stock and/or its Subsidiaries’ assets, in each case by any means whatsoever by any Person, (ii) any “agreement, understanding, arrangement, substantial negotiations or discussions” (as such terms are defined in Treasury Regulations Section 1.355-7(h)) by any one or more officers or directors of any member of the SAP Group or by any other Person or Persons with the implicit or explicit permission of one or more of such officers or directors that cause a Distribution to be treated as part of a plan pursuant to which one or more Persons acquire, directly or indirectly, stock of SAP representing a Fifty-Percent or Greater Interest therein, or (iii) any breach by SAP or a member of the SAP Group of any covenant contained in Section 5.2(b).
(c)To the extent any Tax-Related Loss is subject to indemnification under both Sections 5.1(a) and (b), responsibility for such Tax-Related Loss shall be shared by SAP (or the applicable member of the SAP Group) and Qualtrics according to relative fault.
(i)Notwithstanding anything in Section 5.1(b) or (c) or any other provision of this Agreement to the contrary:
(A)with respect to (1) any Tax-Related Loss resulting from the application of Section 355(e) of the Code and (2) any other Tax-Related Loss
resulting, in each case, in whole or in part, from an acquisition after the Distribution of any stock or assets of Qualtrics (or any member of the Qualtrics Group) by any means whatsoever by any Person or any action or failure to act by Qualtrics after a Distribution affecting the voting rights of Qualtrics, Qualtrics shall be responsible for, and shall indemnify and hold harmless SAP and its Affiliates and each of their respective officers, directors and employees from and against, 100% of such Tax-Related Loss; and
(B)for purposes of calculating the amount and timing of any Tax-Related Loss for which Qualtrics is responsible under this Section 5.1(c)(i), Tax-Related Losses shall be calculated by assuming that SAP, the SAP America Consolidated Group and each member of the SAP Group have no Tax Attributes in any relevant taxable year.
(ii)Notwithstanding anything in Section 5.1(a) or (c) or any other provision of this Agreement to the contrary, with respect to (A) any Tax-Related Loss resulting from the application of Section 355(e) of the Code (other than as a result of an acquisition of a Fifty-Percent or Greater Interest in Qualtrics) and (B) any other Tax-Related Loss resulting, in each case, in whole or in part, from an acquisition after an Internal Distribution of any stock or assets of SAP America (or any of its Subsidiaries) or after an External Distribution of any stock or assets of SAP (or any of its Subsidiaries), in each case, by any means whatsoever by any Person, SAP shall be responsible for, and shall indemnify and hold harmless Qualtrics and its Affiliates and each of their respective officers, directors and employees from and against, 100% of such Tax-Related Loss.
(d)SAP (or the applicable SAP Affiliate) shall be liable for 100% of any Tax-Related Losses not otherwise allocable to a Party under this Section 5.1.
(e)Section 336(e) Election. SAP shall determine, in its sole and absolute discretion, whether to make a protective election under Section 336(e) of the Code and the Treasury Regulations thereunder (and any corresponding or analogous provisions of state, local and non-U.S. law) in connection with a Distribution (a “Section 336(e) Election”). If SAP determines that a Section 336(e) Election should be made:
(i)SAP, Qualtrics and their respective Affiliates shall cooperate in making the Section 336(e) Election, including by filing any statements, amending any Tax Returns or taking such other actions reasonably necessary to carry out the Section 336(e) Election;
(ii)if a Distribution fails to qualify (in whole or in part) for the U.S. Tax-Free Status and Qualtrics or any Qualtrics Affiliate realizes an increase in Tax basis as a result of the Section 336(e) Election (the “Section 336(e) Tax Basis”) or otherwise, then the Tax Benefit realized by the Qualtrics Group as a result of the Section 336(e) Tax Basis (or other tax basis increase) shall be shared between SAP and Qualtrics in the same proportion as the Distribution Taxes giving rise to the Section 336(e) Tax Basis were borne by SAP and Qualtrics (after giving effect to the indemnification obligations in this Agreement);
(iii)the amount required to be paid under this Section 5.1(e) shall be payable within 10 business days of filing the tax return upon which the Tax Benefit was realized; and
(iv)to the extent the Section 336(e) Election becomes effective, each of SAP, Qualtrics and their Affiliates agrees not to take any position that is inconsistent with the Section 336(e) Election.
Section 5.2Continuing Covenants.
(a)Qualtrics Restrictions. Qualtrics agrees that, so long as a Distribution that qualifies for the U.S. Tax-Free Status could, in the reasonable discretion of SAP, be effectuated, Qualtrics will not knowingly take or fail to take, or permit any Qualtrics Affiliate to knowingly take or fail to take, any action that could reasonably be expected to preclude SAP’s ability to effectuate such a Distribution. In the event of an Internal Distribution, External Distribution or both, Qualtrics agrees that (i) it will take, or cause any Qualtrics Affiliate to take, any action reasonably requested by SAP (including the delivery of an Officer’s Certificate) in order to enable SAP to effectuate such Distribution or Distributions and (ii) it will not take or fail to take any action (and it shall cause the members of the Qualtrics Group not to take or fail to take any action) which action or failure to act could reasonably be expected to prevent SAP from consummating either Distribution. In the event of an Internal Distribution, External Distribution or both, Qualtrics agrees that it will not take or fail to take, or permit any Qualtrics Affiliate to take or fail to take, any action where such action or failure to act would be inconsistent with any information, covenant, representation, or material that relates to facts or matters related to Qualtrics (or any Qualtrics Affiliate) or within the control of Qualtrics and is contained in the Tax Opinion Documents or any Ruling Documents other than as permitted by Section 5.2(c) of this Agreement. In the event of any Distribution, Qualtrics agrees that it will not take (and it will cause the Qualtrics Affiliates to refrain from taking) any position on a Tax Return that is inconsistent with such Distribution qualifying for its Intended Tax Treatment.
(b)SAP Restrictions. In the event of a Distribution, SAP agrees that it will not take or fail to take, or permit any SAP Affiliate to take or fail to take, any action where such action or failure to act would be inconsistent with any material, information, covenant or representation that relates to facts or matters related to SAP (or any SAP Affiliate) or within the control of SAP and is contained in the Tax Opinion Documents or any Ruling Documents. In the event of any Distribution, SAP agrees that it will not take (and it will cause the SAP Affiliates to refrain from taking) any position on a Tax Return that is inconsistent with such Distribution qualifying for its Intended Tax Treatment.
(c)Certain Qualtrics Actions Following a Distribution. In the event of any Distribution, Qualtrics agrees that, during the two year period following any Distribution, Qualtrics shall not (i) enter into any Proposed Acquisition Transaction or, to the extent Qualtrics has the right to prohibit any Proposed Acquisition Transaction, permit any Proposed Acquisition Transaction to occur (whether by (A) redeeming rights under a shareholder rights plan, (B) finding a tender offer to be a “permitted offer” under any such plan or otherwise causing any such plan to be inapplicable or neutralized with respect to any Proposed Acquisition Transaction or (C) approving any Proposed Acquisition Transaction, whether for purposes of Section 203 of
the DGCL or any similar corporate statute, any “fair price” or other provision of Qualtrics’ charter or bylaws or otherwise), (ii) merge or consolidate with any other Person or liquidate or partially liquidate, (iii) in a single transaction or series of transactions (A) sell or transfer (other than sales or transfers of inventory in the ordinary course of business) all or substantially all of the assets held by Qualtrics at the time of a Distribution (B) sell or transfer 50% or more of the gross assets of the Qualtrics Active Business or (C) sell or transfer 30% or more of the consolidated gross assets of Qualtrics and its Subsidiaries (in each case, such percentages to be measured based on fair market value as of the date of the relevant distribution), (iv) redeem or otherwise repurchase (directly or through a Subsidiary) any Qualtrics stock, or rights to acquire stock, except to the extent such repurchases satisfy Section 4.05(1)(b) of Revenue Procedure 96-30 (as in effect prior to the amendment by Revenue Procedure 2003-48), (v) amend its certificate of incorporation (or other organizational documents), or take any other action, whether through a stockholder vote or otherwise, affecting the voting rights of Qualtrics stock (including, without limitation, through the conversion of one class of Qualtrics stock into another class of Qualtrics stock) or (vi) take any other action or actions (including any action or transaction that would be reasonably likely to be inconsistent with any representation or covenant made in the Tax Opinion Documents or any Ruling Documents) which in the aggregate (and taking into account any other transactions described in this subparagraph (c)) would be reasonably likely to have the effect of causing or permitting one or more Persons to acquire, directly or indirectly, stock representing a Fifty-Percent or Greater Interest in Qualtrics or otherwise jeopardize the U.S. Tax-Free Status of a Distribution, unless, in each case, prior to taking any such action set forth in the foregoing clauses (i) through (vi), Qualtrics shall have requested that SAP obtain a Ruling (or, if applicable, a supplemental Ruling) from the IRS and/or any other applicable Taxing Authority in accordance with Section 5.2(d) of this Agreement to the effect that such transaction will not affect the U.S. Tax-Free Status of the Distribution and SAP shall have received such Ruling in form and substance satisfactory to SAP in its reasonable discretion (and in determining whether a Ruling is satisfactory, SAP may consider, among other factors, the appropriateness of any underlying assumptions and representations made in connection with such Ruling), or Qualtrics shall provide SAP with an Unqualified Tax Opinion in form and substance satisfactory to SAP in its reasonable discretion (and in determining whether an opinion is satisfactory, SAP may consider, among other factors, the appropriateness of any underlying assumptions and representations if used as a basis for the opinion), or SAP shall have waived the requirement to obtain such Ruling or Unqualified Tax Opinion.
(d)Procedures Regarding Opinions and Rulings.
(i)If Qualtrics notifies SAP that it desires to take one of the actions described in clauses (i) through (vi) of Section 5.2(c) (a “Notified Action”), SAP and Qualtrics shall reasonably cooperate to attempt to obtain the Ruling or Unqualified Tax Opinion referred to in Section 5.2(c), unless SAP shall have waived the requirement to obtain such Ruling or Unqualified Tax Opinion.
(ii)At the reasonable request of Qualtrics pursuant to Section 5.2(c), SAP shall cooperate with Qualtrics and use commercially reasonable efforts to seek to obtain, as expeditiously as possible, a Ruling from the IRS (and/or any other applicable Taxing Authority, or if applicable, a supplemental Ruling) or an
Unqualified Tax Opinion for the purpose of permitting Qualtrics to take the Notified Action. Further, in no event shall SAP be required to file any request for a Ruling under this Section 5.2(d) unless Qualtrics represents that (A) it has reviewed the request for such Ruling, and (B) all information and representations, if any, relating to any member of the Qualtrics Group, contained in the related Ruling documents are (subject to any qualifications therein) true, correct and complete. Qualtrics shall reimburse SAP for all reasonable costs and expenses incurred by the SAP Group in obtaining a Ruling or Unqualified Tax Opinion requested by Qualtrics within 10 business days after receiving an invoice from SAP therefor.
(iii)SAP shall have the right to request a Ruling from the IRS (and/or any other applicable Taxing Authority, or if applicable, a supplemental Ruling) or an Unqualified Tax Opinion at any time in its sole and absolute discretion. If SAP determines to obtain a Ruling or an Unqualified Tax Opinion, Qualtrics shall (and shall cause each Affiliate of Qualtrics to) cooperate with SAP and take any and all actions reasonably requested by SAP in connection with obtaining the Ruling or Unqualified Tax Opinion (including, without limitation, by making any representation or covenant or providing any materials or information requested by the IRS or Tax Counsel; provided, that Qualtrics shall not be required to make (or cause any Affiliate of Qualtrics to make) any representation or covenant that is inconsistent with historical facts or as to future matters or events over which it has no control). SAP and Qualtrics shall each bear its own costs and expenses in obtaining a Ruling or an Unqualified Tax Opinion requested by SAP.
(iv)Qualtrics hereby agrees that SAP shall have sole and exclusive control over the process of obtaining any Ruling, and that only SAP shall apply for a Ruling. In connection with obtaining a Ruling pursuant to Section 5.2(c) hereof, (A) SAP shall keep Qualtrics informed in a timely manner of all material actions taken or proposed to be taken by SAP in connection therewith; (B) SAP shall (1) reasonably in advance of the submission of any related Ruling Documents provide Qualtrics with a draft copy thereof, (2) reasonably consider Qualtrics’ comments on such draft copy, and (3) provide Qualtrics with a final copy; and (C) SAP shall provide Qualtrics with notice reasonably in advance of, and Qualtrics shall have the right to attend, any formally scheduled meetings with the IRS (subject to the approval of the IRS) that relate to such Ruling. Neither Qualtrics nor any member of the Qualtrics Group shall request any guidance from the IRS or any other Taxing Authority (whether written, verbal or otherwise) at any time concerning a Distribution (including the impact of any transaction on a Distribution).
(e)Qualtrics Cooperation. Qualtrics agrees that, at the request of SAP, Qualtrics shall cooperate fully with SAP to take any action necessary or reasonably helpful to effectuate any Distribution, including seeking to obtain, as expeditiously as possible, a Tax Opinion or Ruling. Such cooperation shall include the execution of any documents that may be necessary or reasonably helpful in connection with obtaining any Tax Opinion or Ruling
(including any (i) power of attorney, (ii) Officer’s Certificate, (iii) Ruling Documents and/or (iv) reasonably requested written representations confirming that (A) Qualtrics has read the Officer’s Certificate and/or Ruling Documents and (B) all information and representations, if any, relating to Qualtrics, any Qualtrics Affiliate or the Qualtrics Business contained therein are true, correct and complete in all material respects).
ARTICLE VI
GERMAN TAX MATTERS
Section 6.1Liability for Relevant German CFC/PFIC Taxes. Notwithstanding anything in this Agreement to the contrary, Qualtrics shall be responsible for, and shall indemnify and hold harmless SAP and its Affiliates against, 100% of any Relevant German CFC/PFIC Taxes payable by SAP or any of its Affiliates for taxable periods beginning after December 31, 2020. Any such indemnity payments shall be made in accordance with Section 8.5 hereof.
Section 6.2Policy. The Parties will cooperate to adopt a policy to provide that Qualtrics will consult with SAP (and provide certain information to SAP) prior to any member of the Qualtrics Group taking certain actions that create a risk that Relevant German CFC/PFIC Taxes could be imposed on SAP. The Parties will cooperate to review and modify such policy as appropriate, including on account of any changes in applicable law.
ARTICLE VII
INDEMNIFICATION
Section 7.1In General.
(a)Each member of the SAP Group shall jointly and severally indemnify Qualtrics, each Qualtrics Affiliate, and their respective directors, officers and employees, and hold them harmless from and against any and all Taxes for which SAP or any SAP Affiliate is liable under this Agreement and any loss, cost, damage or expense, including reasonable attorneys’ fees and costs, that is attributable to, or results from, the failure of SAP, any SAP Affiliate or any director, officer or employee to make any payment required to be made under this Agreement.
(b)Each member of the Qualtrics Group shall jointly and severally indemnify SAP, each SAP Affiliate, and their respective directors, officers and employees, and hold them harmless from and against any and all Taxes for which Qualtrics or any Qualtrics Affiliate is liable under this Agreement and any loss, cost, damage or expense, including reasonable attorneys’ fees and costs, that is attributable to, or results from, the failure of Qualtrics, any Qualtrics Affiliate or any director, officer or employee to make any payment required to be made under this Agreement.
Section 7.2Inaccurate or Incomplete Information.
(a)Each member of the SAP Group shall jointly and severally indemnify Qualtrics, each Qualtrics Affiliate, and their respective directors, officers and employees, and hold them harmless from and against any cost, fine, penalty, or other expense of any kind attributable to the failure of SAP or any SAP Affiliate in supplying Qualtrics or any Qualtrics
Affiliate with inaccurate or incomplete information, in connection with the preparation of any Tax Return.
(b)Each member of the Qualtrics Group shall jointly and severally indemnify SAP, each SAP Affiliate, and their respective directors, officers and employees, and hold them harmless from and against any cost, fine, penalty, or other expenses of any kind attributable to the failure of Qualtrics or any Qualtrics Affiliate in supplying SAP or any SAP Affiliate with inaccurate or incomplete information, in connection with the preparation of any Tax Return.
Section 7.3No Indemnification for Tax Items. Nothing in this Agreement shall be construed as a guarantee of the existence or amount of any loss, credit, carryforward, basis or other Tax Item, whether past, present or future, of SAP, any SAP Affiliate, Qualtrics or any Qualtrics Affiliate. In addition, for the avoidance of doubt, for purposes of determining any amount owed between the Parties hereto, all such determinations shall be made without regard to any financial accounting tax asset or liability or other financial accounting items.
ARTICLE VIII
PAYMENTS
Section 8.1Estimated Tax Payments. Not later than five business days prior to each Estimated Tax Installment Date with respect to a taxable period for which a Combined Return will be filed, Qualtrics shall pay to SAP (or the applicable SAP Affiliate) on behalf of the Qualtrics Group an amount equal to the amount of any estimated Qualtrics Separate Tax Liability (as calculated pursuant to Section 3.4(b)).
Section 8.2True-Up Payments. Not later than 10 business days after receipt of any Qualtrics Separate Tax Liability computation pursuant to Section 3.4(b) of this Agreement, the Qualtrics Group shall pay to the applicable member of the SAP Group, or the SAP Group shall pay to the applicable member of the Qualtrics Group, as appropriate, an amount equal to the difference, if any, between the Qualtrics Separate Tax Liability and the aggregate amount paid by Qualtrics with respect to such period under Section 8.1 of this Agreement.
Section 8.3Redetermination Amounts. In the event of a redetermination of any Tax Item reflected on any Combined Return (other than Tax Items relating to Distribution Taxes), as a result of a refund of Taxes paid, a Final Determination or any settlement or compromise with any Taxing Authority which in any such case would affect the Qualtrics Separate Tax Liability, then within 10 calendar days of such redetermination Qualtrics shall deliver to SAP any information that would be required for SAP to recompute the Qualtrics Separate Tax Liability pursuant to Section 3.4(b) of this Agreement or amounts due pursuant to Section 4.3 of this Agreement. Within 30 calendar days of such redetermination, SAP shall prepare (or cause to be prepared) and deliver to Qualtrics a revised calculation of the Qualtrics Separate Tax Liability for the relevant taxable period reflecting such redetermination or amounts due pursuant to Section 4.3 of this Agreement. The Qualtrics Group shall pay to the applicable member of the SAP Group, or the SAP Group shall pay to the applicable member of the Qualtrics Group, as appropriate, an amount equal to the difference, if any, between the revised Qualtrics Separate Tax Liability and the Qualtrics Separate Tax Liability for such period as originally computed pursuant to this Agreement or to reflect the revisions of the amount due
pursuant to Section 4.3 of this Agreement. Any amount payable under this Section 8.3 shall be payable within 15 calendar days of receipt by Qualtrics of the revised calculation of the Qualtrics Separate Tax Liability or amounts due reflecting the redetermination of the relevant Tax Item.
Section 8.4Payments of Refunds, Credits and Reimbursements. If one Party receives a refund or credit of any Tax to which the other party is entitled pursuant to Section 3.1 or 3.2 of this Agreement, the Party receiving such refund or credit shall pay to the other Party the amount of such refund or credit (less any out-of-pocket fees or expenses incurred in obtaining such refund or credit) pursuant to Section 8.5 of this Agreement. If one Party pays a Tax with respect to which the other party is liable or responsible pursuant to Sections 3.1 or 3.2 of this Agreement, then the liable or responsible Party shall pay to the other party the amount of such Tax pursuant to Section 8.5 of this Agreement.
Section 8.5Payments Under This Agreement. In the event that one Party (the “Owing Party”) is required to make a payment to another Party (the “Owed Party”) pursuant to this Agreement, then such payments shall be made according to this Section 8.5.
(a)In General. All payments shall be made to the Owed Party or to the appropriate Taxing Authority as specified by the Owed Party within the time prescribed for payment in this Agreement, or if no period is prescribed, within 10 business days after delivery of written notice of payment owing together with a computation of the amounts due.
(b)Treatment of Payments.
(i)To the extent permitted by applicable law, the Parties agree for all applicable Tax purposes to treat any payments made by one Party to another Party pursuant to this Agreement as non-taxable payments (i.e., dividends, capital contributions or reimbursements of expenses), except for any indemnification payments made by Qualtrics to SAP with respect to Relevant German CFC/PFIC Taxes as required by Section 6.1 of this Agreement.
(ii)Unless otherwise required by any Final Determination, the Parties agree that any payments treated as dividends or capital contributions pursuant to Section 8.5(b)(i) made after the date of any Deconsolidation Event that relate to taxable periods (or portions thereof) ending on or before the date of such Deconsolidation Event shall be treated for all Tax purposes as dividends or capital contributions, as the case may be, made immediately prior to the Deconsolidation Event.
(iii)Unless otherwise required by any Final Determination, the Parties agree that any payments made by Qualtrics to SAP America pursuant to Section 4.3(a) of this Agreement (relating to Post-Deconsolidation payments in respect of Pre-IPO Equity Award Tax Attributes) shall be treated as having been distributed by Qualtrics to SAP America prior to the U.S. Federal Deconsolidation Event.
(c)Prompt Performance. All actions required to be taken (including payments) by any Party under this Agreement shall be performed within the time prescribed for
performance in this Agreement, or if no period is prescribed, such actions shall be performed promptly.
(d)After Tax Amounts. If notwithstanding the manner in which payments described in Section 8.5(b) were reported, there is a Tax liability or an adjustment to a Tax liability of a Party as a result of the receipt a payment made under this Agreement then the Owing Party shall be liable for (i) the After Tax Amount with respect to such payment and (ii) interest at the rate described in Section 8.5(e) of this Agreement on the amount of such Tax from the date such Tax accrues through the date of payment of such After Tax Amount. An Owed Party making a demand for a payment pursuant to this Agreement and for a payment of an After Tax Amount with respect to such payment shall separately specify and compute such After Tax Amount.
(e)Interest. Payments pursuant to this Agreement that are not made within the period prescribed in this Agreement (the “Payment Period”) shall bear interest for the period from and including the date immediately following the last date of the Payment Period through and including the date of payment at a per annum rate equal to the prime rate as published in The Wall Street Journal on the last day of such Payment Period. Such interest will be payable at the same time as the payment to which it relates and shall be calculated on the basis of a year of 365 days and the actual number of days for which due.
(f)Post-Internal Distribution Payments. Following the date of an Internal Distribution, if SAP America would otherwise be an Owed Party with respect to any payment that the Parties agree would be treated as a dividend for applicable Tax purposes that relates to a period after the Internal Distribution, then notwithstanding anything in this Article VIII to the contrary, the applicable member of the Qualtrics Group should make such payment directly to SAP, which payment shall be treated for all applicable Tax purposes as a dividend from Qualtrics to SAP relating to a period after the Internal Distribution.
ARTICLE IX
TAX PROCEEDINGS
Section 9.1In General. Except as otherwise provided in this Agreement (including, without limitation, Section 9.3 and Section 9.4), (i) with respect to Tax Returns described in Section 2.1 of this Agreement, SAP (or such SAP Affiliate as SAP shall designate) and (ii) with respect to Tax Returns described in Section 2.2 of this Agreement (including any Tax Returns with respect to Qualtrics, LLC), Qualtrics (or such Qualtrics Affiliate as Qualtrics shall designate) (in either case, the “Controlling Party”), shall have the exclusive right, in its sole discretion, to control, contest, and represent the interests of SAP, any SAP Affiliate, Qualtrics, and/or any Qualtrics Affiliate in any Audit relating to such Tax Return and to resolve, settle or agree to any deficiency, claim or adjustment proposed, asserted or assessed in connection with or as a result of any such Audit. The Controlling Party’s rights shall extend to any matter pertaining to the management and control of an Audit, including execution of waivers, choice of forum, selection of counsel, scheduling of conferences and the resolution of any Tax Item. Any costs incurred in handling, settling, or contesting an Audit shall be borne by the Controlling Party.
Section 9.2Audits with Respect to Combined Returns. Except as otherwise provided in Section 9.4 of this Agreement (relating to Audits regarding Distribution Taxes), in the event of any Audit relating to a Combined Return for which Qualtrics could reasonably be expected to become liable for any Tax in excess of $1 million, (a) SAP shall consult with Qualtrics reasonably in advance of taking any significant action in connection with such Audit, (b) SAP shall consult with Qualtrics and offer Qualtrics a reasonable opportunity to comment before submitting any written materials prepared or furnished in connection with such Audit that relate solely to members of the Qualtrics Group, and (c) SAP shall provide Qualtrics copies of any written materials relating to such Audit received from the relevant Tax Authority (but only the portion of such written materials that relate solely to members of the Qualtrics Group).
Section 9.3SAP as Non-Controlling Party. For so long as SAP and its Affiliates own directly or indirectly, in the aggregate, more than 50% of the outstanding stock of Qualtrics (by vote or value), then with respect to any Audit for which SAP is the non-Controlling Party: (a) the Qualtrics Group shall provide SAP with a timely and reasonably detailed account of each phase of such Audit, (b) the Qualtrics Group shall consult with SAP before taking any significant action in connection with such Audit, (c) the Qualtrics Group shall consult with SAP and offer the members of the SAP Group an opportunity to comment before submitting to a Taxing Authority any written materials prepared or furnished in connection with such Audit, (d) the SAP Group shall be entitled to participate (at its own expense) in such Audit, and (e) the Qualtrics Group shall not settle such Audit without SAP’s prior written consent (which consent shall not be unreasonably withheld, delayed or conditioned).
Section 9.4Control of Distribution Tax Proceedings. In the event of a Distribution, SAP shall have the exclusive right, in its sole discretion, to control, contest, and represent the interests of SAP, any SAP Affiliate, Qualtrics, and/or any Qualtrics Affiliate in any Audits relating to Distribution Taxes and to resolve, settle or agree to any deficiency, claim or adjustment proposed, asserted or assessed in connection with or as a result of any such Audit; provided, however, that SAP shall not settle any such audit with respect to Distribution Taxes with a Taxing Authority that would reasonably be expected to result in a material Tax cost to Qualtrics or any Qualtrics Affiliate, without the prior consent of Qualtrics, which consent shall not be unreasonably withheld, conditioned or delayed. SAP’s rights shall extend to any matter pertaining to the management and control of such Audit, including execution of waivers, choice of forum, scheduling of conferences and the resolution of any Tax Item.
Section 9.5Notice. Within 10 business days after a Party becomes aware of the existence of a Tax issue that may give rise to an indemnification obligation under this Agreement, such Party shall give notice to the other Party of such issue (such notice shall contain factual information, to the extent known, describing any asserted tax liability in reasonable detail), and shall promptly forward to the other Party copies of all notices and material communications with any Taxing Authority relating to such issue. The failure to provide the other Party notice as required by this Section 9.5 shall not affect the indemnification provided hereunder except, and only to the extent that, the indemnifying Party shall have been actually prejudiced as a result of such failure.
ARTICLE X
COOPERATION AND EXCHANGE OF INFORMATION
Section 10.1Cooperation. Qualtrics and SAP shall each consult and cooperate fully (and each shall cause its respective Affiliates to cooperate fully) with all reasonable requests from the other Party for information and materials not otherwise available to the requesting Party in connection with the preparation and filing of any Tax Return or claims for refund, or Audits with respect to any Tax Return. Such cooperation shall include, without limitation:
(a)the retention until one year after the expiration of the applicable statute of limitations (giving effect to any extension or waiver thereof), and the provision upon request, of copies of all Tax Returns, books, records (including information regarding ownership and Tax basis of property), documentation and other information relating to any Tax Return, including accompanying schedules, related work papers, and documents relating to rulings or other determinations by Taxing Authorities;
(b)the execution of any document that may be necessary or reasonably helpful in connection with any Audit, or the filing of a Tax Return or refund claim by a member of the SAP Group or the Qualtrics Group, including certification, to the best of a Party’s knowledge, of the accuracy and completeness of the information it has supplied; and
(c)the use of a Party’s commercially reasonable efforts to obtain any documentation that may be necessary or reasonably helpful in connection with any of the foregoing.
Section 10.2Other Information. Without limiting the provisions of Section 10.1, upon a Party’s (the “first Party”) reasonable request, the other Party will deliver to the first Party any information within its possession that is required by the first Party in connection with the filing of any Tax Return that it is required to file.
ARTICLE XI
MISCELLANEOUS PROVISIONS
Section 11.1Effectiveness. This Agreement shall become effective upon execution by the Parties hereto.
Section 11.2Dispute Resolution. In the event that SAP and Qualtrics disagree as to the amount or calculation of any payment to be made under this Agreement, or the interpretation or application of any provision under this Agreement, the Parties shall attempt in good faith to resolve such dispute. If such dispute is not resolved within 60 business days following the commencement of the dispute, SAP and Qualtrics shall jointly agree upon and retain an internationally recognized law or accounting firm, which firm is independent of both Parties (the “Independent Firm”), to resolve the dispute. The Independent Firm shall act as an arbitrator to resolve all points of disagreement and its decision shall be final and binding upon all Parties involved. Following the decision of the Independent Firm, SAP and Qualtrics shall each take or cause to be taken any action necessary to implement the decision of the Independent Firm. The fees and expenses relating to the Independent Firm shall be borne equally by SAP and
Qualtrics, except that if the Independent Firm determines that the position advanced by either Party is frivolous, has not been asserted in good faith or for which there is not substantial authority, 100% of the fees and expenses of the Independent Firm shall be borne by such Party.
Section 11.3Notices. Notices, offers, requests or other communications required or permitted to be given by either Party pursuant to the terms of this Agreement shall be given in writing to the respective Parties at the following addresses:
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If to SAP or any SAP Affiliate, to:
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SAP SE
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Dietmar-Hopp-Allee 16
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Germany – 69190
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Attention: Jochen Scholten
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E-mail:
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with a copy to:
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SAP America, Inc.
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3999 West Chester Pike
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Newtown Square, PA 19073
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Attention: Mary Beth Hanss
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Email:
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Shearman & Sterling LLP
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1460 El Camino Real, 2nd Floor
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Menlo Park, CA, 95025
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Attention: Daniel Mitz and Larry Crouch
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Email: Daniel.Mitz@shearman.com and LCrouch@shearman.com
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If to Qualtrics or any Qualtrics Affiliate, to:
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Qualtrics International Inc.
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333 W River Park Dr
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Provo, UT 84604
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Attention: Legal Department
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E-mail:
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or at such other address or e-mail as the Party to whom notice is given may have previously furnished to the other in writing as provided herein. Any notice shall be sent by hand delivery, internationally recognized overnight courier or, within the United States, may also be sent via certified mail, return receipt requested and, in any event, shall be concurrently sent by e-mail. All notices shall be deemed to have been given when received, if hand delivered; when transmitted, if transmitted electronically; one working day after it is sent, if sent by internationally recognized
overnight courier; and three days after it is postmarked, if mailed first class mail or certified mail, return receipt requested, with postage prepaid.
Section 11.4Changes in Law.
(a)Any reference to a provision of the Code or a law of another jurisdiction shall include a reference to any applicable successor provision or law.
(b)If, due to any change in applicable law or regulations or their interpretation by any court of law or other governing body having jurisdiction subsequent to the date of this Agreement, performance of any provision of this Agreement or any transaction contemplated thereby shall become impracticable or impossible, the Parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such provision.
Section 11.5Confidentiality. Each Party shall hold and cause its directors, officers, employees, advisors and consultants to hold in strict confidence, unless compelled to disclose by judicial or administrative process or, in the opinion of its counsel, by other requirements of law, all information (other than any such information relating solely to the business or affairs of such Party) concerning the other Parties hereto furnished it by such other Party or its representatives pursuant to this Agreement (except (a) as may otherwise be necessary in connection with the filing of Tax Returns or any Audit, or (b) to the extent that such information can be shown to have been (i) in the public domain through no fault of such Party or (ii) later lawfully acquired from other sources not under a duty of confidentiality by the Party to which it was furnished), and each Party shall not release or disclose such information to any other person, except its directors, officers, employees, auditors, attorneys, financial advisors, bankers and other consultants who shall be advised of and agree to be bound by the provisions of this Section 11.5. Each Party shall be deemed to have satisfied its obligation to hold confidential information concerning or supplied by the other Party if it exercises the same care as it takes to preserve confidentiality for its own similar information.
Section 11.6Binding Effect; Assignment. This Agreement shall inure to the benefit of and be binding upon the Parties and their respective legal representatives and successors. Neither Party may assign this Agreement or any rights or obligations hereunder, without the prior written consent of the other Party, and any such assignment shall be void; provided, however, either Party may assign this Agreement to a successor entity in conjunction with such Party’s reincorporation in another jurisdiction or into another business form.
Section 11.7Affiliates. SAP shall cause to be performed, and hereby guarantees the performance of, all actions, agreements and obligations set forth herein to be performed by any SAP Affiliate, and Qualtrics shall cause to be performed, and hereby guarantees the performance of, all actions, agreements and obligations set forth herein to be performed by any Qualtrics Affiliate; provided, however, that, if it is contemplated that a SAP Affiliate may cease to be a SAP Affiliate as a result of a transfer of its stock or other ownership interests to a third party in exchange for consideration in an amount approximately equal to the fair market value of the stock or other ownership interests transferred and such consideration is not distributed outside of the SAP Group to the shareholders of SAP, then (a) Qualtrics shall execute a release
of such SAP Affiliate from its obligations under this Agreement effective as of such transfer; provided, that SAP shall have confirmed in writing its obligations and the obligations of its remaining SAP Affiliates with respect to their own obligations and the obligations of the departing SAP Affiliate and that such departing SAP Affiliate shall have executed a release of any rights it may have against Qualtrics or any Qualtrics Affiliate by reason of this Agreement, or (b) SAP shall acknowledge in writing no later than 30 days prior to such cessation that it shall bear 100% of the liability for the obligations of SAP and each SAP Affiliate (including the departing SAP Affiliate) under this Agreement. If at any time Qualtrics shall, directly or indirectly, obtain beneficial ownership of more than 50% of the total combined voting power of any other entity, Qualtrics shall cause such entity to become a Party to this Agreement by executing together with SAP an agreement in substantially the same form as set forth in Schedule 11.7 and such entity shall have all rights and obligations of an Qualtrics Affiliate under this Agreement.
Section 11.8Authority. Each of the Parties represents to the other that (a) it has the corporate or other requisite power and authority to execute, deliver and perform this Agreement, (b) the execution, delivery and performance of this Agreement by it have been duly authorized by all necessary corporate or other actions, (c) it has duly and validly executed and delivered this Agreement, and (d) this Agreement is a legal, valid and binding obligation, enforceable against it in accordance with its terms subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors’ rights generally and general equity principles.
Section 11.9Entire Agreement. This Agreement contains the entire agreement among the Parties hereto with respect to the subject matter hereof and supersedes any prior tax sharing agreements between SAP (or any SAP Affiliate) and Qualtrics (or any Qualtrics Affiliate) and such prior tax sharing agreements shall have no further force and effect. If, and to the extent, the provisions of this Agreement conflict with any agreement entered into in connection with a Distribution or another Deconsolidation Event, the provisions of this Agreement shall control. For the avoidance of doubt, in the event there is any inconsistency between the provisions of this Agreement and the provisions of the Master Transaction Agreement, the provisions of this Agreement shall govern.
Section 11.10Consent to Jurisdiction. THE PARTIES IRREVOCABLY AND UNCONDITIONALLY AGREE THAT THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND ALL DISPUTES, CONTROVERSIES OR CLAIMS ARISING OUT OF OR RELATING TO THE AGREEMENT OR THE BREACH, TERMINATION OR VALIDITY THEREOF SHALL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE, EXCLUDING ANY CONFLICTS OF LAW RULES. THE PARTIES AGREE THAT JURISDICTION AND VENUE IN ANY ACTION BROUGHT BY ANY PARTY IN CONNECTION WITH THIS AGREEMENT, THE TRANSACTIONS, OR THE PERFORMANCE OF THE OBLIGATIONS IMPOSED HEREUNDER SHALL PROPERLY AND EXCLUSIVELY LIE IN ANY FEDERAL OR STATE COURT LOCATED IN THE STATE OF DELAWARE. EACH PARTY ALSO AGREES NOT TO BRING ANY ACTION (OTHER THAN APPEALS) IN CONNECTION WITH THIS AGREEMENT, THE TRANSACTIONS, OR THE PERFORMANCE OF THE OBLIGATIONS IMPOSED
HEREUNDER IN ANY OTHER COURT. BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PARTY IRREVOCABLY SUBMITS TO THE JURISDICTION OF SUCH COURTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY WITH RESPECT TO ANY SUCH ACTION. THE PARTIES IRREVOCABLY AGREE THAT VENUE WOULD BE PROPER IN SUCH COURT, AND HEREBY WAIVE ANY OBJECTION THAT ANY SUCH COURT IS AN IMPROPER OR INCONVENIENT FORUM FOR THE RESOLUTION OF SUCH ACTION. THE PARTIES FURTHER AGREE THAT THE MAILING BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, OF ANY PROCESS REQUIRED BY ANY SUCH COURT SHALL CONSTITUTE VALID AND LAWFUL SERVICE OF PROCESS AGAINST THEM, WITHOUT NECESSITY FOR SERVICE BY ANY OTHER MEANS PROVIDED BY STATUTE OR RULE OF COURT.
Section 11.11Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same Agreement.
Section 11.12Severability. If any term, provision, covenant, or restriction of this Agreement is held by a court of competent jurisdiction (or an arbitrator or arbitration panel) to be invalid, void, or unenforceable, the remainder of the terms, provisions, covenants, and restrictions set forth herein shall remain in full force and effect, and shall in no way be affected, impaired, or invalidated. In the event that any such term, provision, covenant or restriction is held to be invalid, void or unenforceable, the Parties hereto shall use their best efforts to find and employ an alternate means to achieve the same or substantially the same result as that contemplated by such terms, provisions, covenant, or restriction.
Section 11.13Third Party Beneficiaries. This Agreement is solely for the benefit of the Parties. This Agreement should not be deemed to confer upon third parties any remedy, claim, liability, reimbursement, cause of action or other rights in excess of those existing without this Agreement.
Section 11.14Failure or Indulgence not Waiver. No failure or delay on the part of a Party in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such right or power, preclude any other or further exercise thereof or the exercise of any other right or power. No modification or waiver of any provision of this Agreement nor consent to any departure by the Parties therefrom shall in any event be effective unless the same shall be in writing, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given.
Section 11.15Setoff. All payments to be made by any Party under this Agreement may be netted against payments due to such Party under this Agreement, but otherwise shall be made without setoff, counterclaim or withholding, all of which are hereby expressly waived.
Section 11.16Other Remedies. Qualtrics recognizes that any failure by it or any Qualtrics Affiliate to comply with its obligations under Article V of this Agreement could, in the event of a Distribution, result in Distribution Taxes that would cause irreparable harm to SAP,
SAP Affiliates, and their stockholders. Accordingly, SAP shall be entitled to seek an injunction or injunctions to prevent breaches of Article V of this Agreement and to enforce specifically the terms and provisions of Article V of this Agreement, this being in addition to any other remedy to which SAP is entitled at law or in equity.
Section 11.17Amendment and Modification. This Agreement may be amended, modified or supplemented only by a written agreement signed by all of the Parties hereto.
Section 11.18Waiver of Jury Trial. EACH OF THE PARTIES ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY THAT MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH OF THE PARTIES HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT. EACH OF THE PARTIES CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER COMPANY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE OTHER PARTY WOULD NOT, IN THE EVENT OF ANY LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (B) EACH OF THE PARTIES UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) EACH OF THE PARTIES MAKES THIS WAIVER VOLUNTARILY AND (D) EACH OF THE PARTIES HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 11.18.
Section 11.19Interpretation. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words “include,” “includes” or “including” are used in this Agreement they shall be deemed to be followed by the words “without limitation.” The words “hereof,” “herein” and “herewith” and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole and not to any particular provision of this Agreement, and article, section, paragraph, exhibit and schedule references are to the articles, sections, paragraphs, exhibits and schedules of this Agreement unless otherwise specified. The meaning assigned to each term defined herein shall be equally applicable to both the singular and the plural forms of such term, and words denoting any gender shall include all genders. Where a word or phrase is defined herein, each of its other grammatical forms shall have a corresponding meaning. The Parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties, and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any provisions of this Agreement.
[Signature Page Follows]
IN WITNESS WHEREOF, each of the Parties hereto has caused this Agreement to be executed by a duly authorized officer as of the date first written above.
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SAP SE
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On behalf of itself and each SAP Affiliate that is not a member of the SAP America Group
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By:
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Name:
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Title:
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By:
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Name:
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Title:
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SAP AMERICA, INC.
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On behalf of itself and each other SAP Affiliate that is a member of the SAP America Group
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By:
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Name:
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Title:
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QUALTRICS INTERNATIONAL INC.
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on behalf of itself and each Qualtrics Affiliate
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By:
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Name:
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Title:
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[Signature Page to Tax Sharing Agreement]
Schedule 11.7 [Omitted pursuant to Item 601(a)(5) of Regulation S-K]
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FORM OF
EMPLOYEE MATTERS AGREEMENT
dated as of [ ]
between
SAP SE
and
QUALTRICS INTERNATIONAL INC.
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Table of Contents
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ARTICLE I DEFINITIONS
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1
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Section 1.1 Definitions
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1
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ARTICLE II GENERAL PRINCIPLES
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4
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Section 2.1 Assumption and Retention of Liabilities
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4
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Section 2.2 Qualtrics-Aligned Employees
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4
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Section 2.3 Relocations
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5
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Section 2.4 Comparability
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5
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ARTICLE III EMPLOYEE BENEFIT PLANS
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5
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Section 3.1 Benefits Transfer
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5
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Section 3.2 Eligibility at Qualtrics
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6
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Section 3.3 Qualtrics 401(k) Plan
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6
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Section 3.4 Terms of Participation in Benefit Plans
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7
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Section 3.5 HXM Systems
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7
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Section 3.6 Vacation and PTO
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7
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ARTICLE IV INCENTIVE AND EQUITY COMPENSATION MATTERS
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8
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Section 4.1 Exchange of Outstanding Awards at the IPO Date
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8
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Section 4.2 Treatment of Equity-Based Incentive Awards
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Section 4.3 Short-Term Incentive Compensation
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9
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ARTICLE V NON-QUALIFIED DEFERRED COMPENSATION MATTERS
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9
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Section 5.1 General
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9
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ARTICLE VI COSTS
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9
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Section 6.1 Fees
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9
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Section 6.2 Indemnification
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ARTICLE VII LEASING AND BENEFITS SERVICES
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10
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Section 7.1 Leasing Period
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10
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Section 7.2 Compensation/Payroll
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11
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Section 7.3 Plans
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11
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Section 7.4 Personnel Policies
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Section 7.5 Leased Employees
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ARTICLE VIII CERTAIN NON-U.S. JURISDICTION MATTERS
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12
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Section 8.1 Works Council Arrangements
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12
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ARTICLE IX GENERAL AND ADMINISTRATIVE
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Section 9.1 Personnel Records
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13
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Section 9.2 Confidentiality and Proprietary Information
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13
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Section 9.3 No Termination of Plans or Plan Amendments
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13
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Section 9.4 Fiduciary Matters
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14
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Section 9.5 Consent of Third Parties
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Section 9.6 Cooperation
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14
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Section 9.7 Termination
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14
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ARTICLE X MISCELLANEOUS
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14
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Section 10.1 No Agency
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14
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Section 10.2 Entire Agreement
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Section 10.3 Information
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15
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Section 10.4 Notices
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15
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Section 10.5 Governing Law
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Section 10.6 Consent to Jurisdiction
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16
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Section 10.7 Waiver of Jury Trial
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Section 10.8 Amendment
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Section 10.9 Counterparts
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17
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Section 10.10 Binding Effect; Assignment
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Section 10.11 Severability
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17
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Section 10.12 Failure or Indulgence not Waiver; Remedies Cumulative
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Section 10.13 Authority
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Section 10.14 Interpretation
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Section 10.15 Third Party Beneficiaries
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Section 10.16 Limitation of Liability
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EMPLOYEE MATTERS AGREEMENT
This Employee Matters Agreement is dated as of the [__] day of [__], 202[_], between SAP SE, a European Company (Societas Europaea), registered in accordance with the corporate laws of Germany and the European Union (“SAP”), and Qualtrics International Inc., a Delaware corporation (“Qualtrics”, with each of SAP and Qualtrics a “Party,” and together, the “Parties”). Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to such terms in Article I hereof.
RECITALS
WHEREAS, SAP is the indirect beneficial owner of all the issued and outstanding Class B common stock of Qualtrics;
WHEREAS, SAP, through Qualtrics, is engaged in the business of providing a technology platform for experience management, as more completely described in a Registration Statement on Form S-1 (File No. [ ]) filed with the Securities and Exchange Commission (“Commission”) under the Securities Act (the “IPO Registration Statement”);
WHEREAS, SAP and Qualtrics currently contemplate that Qualtrics will make an initial public offering (“IPO”) of its Class A common stock pursuant to the IPO Registration Statement; and
WHEREAS, the Parties intend in this Agreement to set forth the principal arrangements between SAP and Qualtrics regarding the allocation between them of assets, liabilities, and responsibilities with respect to certain employees and employee compensation and benefit plans, programs and matters from and after the filing of the IPO Registration Statement and the consummation of the IPO.
NOW, THEREFORE, in consideration of the foregoing and the terms, conditions, covenants and provisions of this Agreement, SAP and Qualtrics mutually covenant and agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. As used in this Agreement, the following terms shall have the following meanings, applicable both to the singular and the plural forms of the terms described:
“Administrative Services Agreement” means the Administrative Services Agreement between the Parties of even date herewith.
“Agreement” means this Employee Matters Agreement, together with the Schedules hereto, as the same may be amended and supplemented from time to time in accordance with the provisions hereof.
“Benefit Plans” means all benefit plans, including any welfare plans, medical, dental, and vision plans, life insurance plans, cafeteria plans, retirement, and other deferred compensation plans.
“Benefits Commencement Date” means: (i) for each Qualtrics-Aligned Employee, the Employment Commencement Date; and (ii) for each U.S. and AU Qualtrics Employee, a date that is mutually agreed between the Parties but that is no later than January 1, 2022; provided, that if Qualtrics is unable to meet this deadline notwithstanding its reasonable best efforts, the deadline shall automatically be extended by six months.
“Class A common stock” means the Class A common stock, par value $0.0001 per share, of Qualtrics.
“Class B common stock” means the Class B common stock, par value $0.0001 per share, of Qualtrics.
“Code” means the U.S. Internal Revenue Code of 1986, as amended from time to time, or any successor federal income tax law, and the regulations promulgated thereunder.
“Common Stock” means the Class A common stock and Class B common stock of Qualtrics.
“Employment Commencement Date” means the date that each Qualtrics-Aligned Employee becomes a Qualtrics Employee in accordance with Section 2.2 of this Agreement.
“ERISA” means the U.S. Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated thereunder.
“HR Liabilities” means all Liabilities arising out of, by reason of, or otherwise in connection with, the employment of, and/or the termination of the employment of, any employee.
“HXM Systems” means human capital management systems in relation to Qualtrics Employees and Qualtrics-Aligned Employees; provided, that HXM Systems, including related implementation services, shall be administered through SuccessFactors and/or any other SAP-owned systems, as applicable, wherever such capabilities are available.
“Intercompany Agreement” has the meaning set forth in the Master Transaction
Agreement.
“IPO Date” means the date on which the IPO is consummated.
“Labor Agreement” means any agreement with any Works Council that pertains to any Qualtrics Employees, Transferring Employees and/or Qualtrics-Aligned Employees.
“Liabilities” has the meaning set forth in the Master Transaction Agreement.
“Losses” has the meaning set forth in the Administrative Services Agreement.
“Master Transaction Agreement” means the Master Transaction Agreement between the Parties of even date herewith.
“Person” has the meaning set forth in the Master Transaction Agreement.
“Qualtrics 401(k) Plan” means the U.S. defined contribution retirement savings plan that Qualtrics will establish in accordance with Section 3.3(a) hereof.
“Qualtrics-Aligned Employees” means employees who provide services as if they are full-time Qualtrics Employees but who are employed by SAP entities. The Qualtrics-Aligned Employees as of [ ], 2020 are set forth on Schedule A hereto, which schedule shall be updated at the IPO Date.
“Qualtrics Business” means the business presently conducted by Qualtrics, as more completely described in the IPO Registration Statement, or following the IPO Date, such business that is then conducted by Qualtrics and described in its periodic filings with the Commission.
“Qualtrics Employee” means any individual who, immediately prior to the IPO, is either actively employed by or then on a leave of absence from a Qualtrics Entity.
“Qualtrics Entities” means Qualtrics and its Subsidiaries and any entity which becomes a Subsidiary of Qualtrics after the date hereof.
“Qualtrics Indemnified Person” has the meaning set forth in the Administrative Services Agreement.
“Qualtrics Plan” means any Benefit Plan sponsored or maintained by a Qualtrics Entity.
“SAP 401(k) Plan” means the SAP America, Inc. 401(k) Plan.
“SAP Employee” means any individual who, as of the IPO Date, is either actively employed by or then on a leave of absence from an SAP Entity but does not include any Qualtrics Employee.
“SAP Entities” means SAP SE and its Subsidiaries (other than the Qualtrics Entities) and any entity which becomes a Subsidiary of SAP SE after the date hereof (other than a Qualtrics Entity).
“SAP Indemnified Person” has the meaning set forth in the Administrative Services Agreement.
“SAP Plan” means any Benefit Plan sponsored or maintained by an SAP Entity.
“Securities Act” means the Securities Act of 1933, as amended.
“Subsidiary” has the meaning set forth in the Master Transaction Agreement.
“Taxes” has the meaning set forth in the Master Transaction Agreement.
“Transferring Employee” means any Qualtrics-Aligned Employee who is transferred to a Qualtrics Entity in accordance with Section 2.2 of this Agreement.
“U.S. and AU Qualtrics Employees” means each Qualtrics Employee whose primary workplace is in the United States or Australia immediately prior to the IPO.
“Works Council” means any union, works council, or other similar agency or representative body certified or otherwise recognized for the purposes of bargaining collectively or established for the purposes of notification of or consultation on behalf of any employee.
ARTICLE II
GENERAL PRINCIPLES
Section 2.1 Assumption and Retention of Liabilities.
(a) General. Except to the extent otherwise required by applicable law or otherwise provided in this Agreement, Qualtrics shall or shall cause another Qualtrics Entity, as applicable, to retain or assume, as the case may be, all HR Liabilities in respect of Qualtrics Employees and Qualtrics-Aligned Employees, regardless of when such HR Liabilities arise. For the avoidance of doubt, Qualtrics Entities shall not be responsible for HR Liabilities in respect of SAP Employees.
(b) HR Compliance. The Qualtrics Entities, and, as applicable all services provided by the Qualtrics Entities, shall be subject to Qualtrics HR compliance policies, as in effect from time to time and applicable to any Qualtrics Entity (the “Qualtrics HR Policies”). To the extent that Qualtrics’ human resources (“HR”) department is not involved at the outset of any HR matter relating to any Qualtrics Employee or Qualtrics-Aligned Employee, SAP shall promptly involve Qualtrics’ HR department. Upon such involvement, Qualtrics shall be responsible for all HR matters relating to any Qualtrics Employee and SAP and Qualtrics shall coordinate with respect to all HR matters relating to any Qualtrics-Aligned Employee. Unless otherwise agreed between the Parties, SAP’s Head of HR Compliance or his or her delegate and Qualtrics’ Managing Counsel for Employment Matters or his or her delegate shall be responsible for coordinating all such efforts. Qualtrics shall reimburse SAP for any HR Liabilities incurred by SAP or any SAP Entity (including all attorneys’, accountants’, consultants’ and other professionals’ fees and expenses) in connection with any actual, reported or suspected breach by Qualtrics of any Qualtrics HR Policies.
Section 2.2 Qualtrics-Aligned Employees.
(a) No later than the IPO Date, Qualtrics shall ensure that each Qualtrics-Aligned Employee who is designated as a pre-IPO transfer on Schedule A hereto becomes a
Qualtrics Employee; provided, that if Qualtrics is unable to meet this deadline notwithstanding its reasonable best efforts, the deadline shall automatically be extended by six months.
(b) Qualtrics shall ensure that all Qualtrics-Aligned Employees other than those described in Section 2.2(a) are transferred to a Qualtrics Entity on or as soon as reasonably possible following the IPO Date but no later than January 1, 2022; provided, that if Qualtrics is unable to meet this deadline notwithstanding its reasonable best efforts, the deadline shall automatically be extended by six months and provided further, however, that with respect to any Qualtrics-Aligned Employee who does not transfer on or prior to the IPO Date, such Qualtrics-Aligned Employee shall continue providing services to Qualtrics pursuant to the terms of the leasing arrangement set forth in Article VII of this Agreement until such time as Qualtrics implements a suitable alternative arrangement.
(c) As of the date hereof, Qualtrics shall not: (i) hire any additional Qualtrics-Aligned Employee without the prior written consent of SAP, including in jurisdictions where Qualtrics-Aligned Employees are not already engaged, except as previously approved as set forth on Schedule B of this Agreement; or (ii) inform any Qualtrics-Aligned Employee of his or her termination of employment without providing SAP with notice of any such termination of employment in accordance with the applicable local SAP payroll cutoff dates; provided, that such notice shall not be required in the event of a termination for “cause.”
(d) SAP and Qualtrics agree to cooperate in good faith to effectuate the transfers of employment contemplated by this Section 2.2.
Section 2.3 Relocations. Qualtrics shall continue to administer and be responsible for all applicable relocation and expatriate programs to which Qualtrics Employees and, following the Employment Commencement Date, Transferring Employees are subject. Qualtrics and SAP shall cooperate as necessary to transfer any visas of Transferring Employees from SAP to Qualtrics.
Section 2.4 Comparability. Except as otherwise provided in this Agreement or as required by applicable law or Labor Agreement, neither Qualtrics nor SAP shall have any obligation to provide any particular level of compensation or benefits following the IPO.
ARTICLE III
EMPLOYEE BENEFIT PLANS
Section 3.1 Benefits Transfer. Effective as of the Benefits Commencement Date, U.S. and AU Qualtrics Employees and Transferring Employees shall cease to participate in and accrue benefits under the SAP Plans, except that the U.S. and AU Qualtrics Employees and the Transferring Employees shall continue participation in the SAP Plans to the extent required by applicable law, the terms of the SAP Plans or as otherwise provided in this Article III. SAP shall satisfy all Liabilities under the SAP Plans relating to the U.S. and AU Qualtrics Employees and the Transferring Employees, at Qualtrics’ cost, as determined under the Administrative Services Agreement. Except as otherwise provided in this Article III or as required by any applicable law, Labor Agreement or plan provisions, Qualtrics shall use reasonable best efforts to
cause any Qualtrics Plan in which any U.S. and AU Qualtrics Employee or any Transferring Employee, as applicable, becomes a participant to recognize, without duplication, such U.S. and AU Qualtrics Employee’s or Transferring Employee’s years of service with any SAP Entity prior to the Benefits Commencement Date to the same extent that service is recognized for Qualtrics Employees who transfer between Qualtrics Entities under any Qualtrics Plans, for purposes of eligibility, vesting and benefit accruals under such Qualtrics Plan.
Section 3.2 Eligibility at Qualtrics. Qualtrics shall take all actions reasonably required to cause all U.S. and AU Qualtrics Employees and Transferring Employees, including all dependents of such employees, to be eligible for coverage under the Qualtrics Plans that provide group health, prescription drug, dental, dependent life, accidental death and dismemberment, flexible spending accounts, vision insurance and similar type welfare benefits effective immediately as of the Benefits Commencement Date or as soon as practicable thereafter; provided, that the Benefits Commencement Date may be different with respect to each individual Qualtrics Plan. Qualtrics shall use reasonable best efforts to cause such U.S. and AU Qualtrics Employees and Transferring Employees and their dependents to have any pre-existing condition limitations, eligibility waiting periods, evidence of insurability and required physical examinations waived with respect to all the Qualtrics Plans (to the extent the same was waived under the comparable SAP Plan prior to the Benefits Commencement Date).
Section 3.3 Qualtrics 401(k) Plan.
(a) Qualtrics International Inc. 401(k) Savings Plan and Trust. Qualtrics shall adopt a defined contribution savings plan qualified under Section 401(a) of the Code and establish a related trust exempt from taxation under Section 501(a) of the Code no later than January 1, 2022 (the effective date of such plan to be the “Implementation Date”); provided, that if Qualtrics is unable to meet this deadline notwithstanding its reasonable best efforts, the deadline shall automatically be extended by six months. Until the Implementation Date, all eligible Qualtrics Employees and Transferring Employees shall continue to be entitled to participate in the SAP 401(k) Plan on the same terms and conditions as in effect immediately prior to the IPO Date and any eligible employees hired by a Qualtrics Entity in the United States after the IPO Date but prior to the Implementation Date shall be permitted to participate in the SAP 401(k) Plan in a manner consistent with all other eligible Qualtrics Employees and in accordance with the terms thereof.
(b) Assumption of Liabilities and Transfer of Assets. SAP and Qualtrics shall use reasonable best efforts to cause, in the manner described herein, the accounts under the SAP 401(k) Plan of each eligible Qualtrics Employee and each eligible Transferring Employee to be transferred to the Qualtrics 401(k) Plan as soon as practicable after the Implementation Date. As soon as practicable after the Implementation Date: (i) SAP shall cause the accounts (including any outstanding loan balances) of each eligible current Qualtrics Employee and Transferring Employee in the SAP 401(k) Plan to be transferred to the Qualtrics 401(k) Plan and its related trust in kind based on the investment election of the individual participant or, in the absence of an investment election, the plan’s default investment election (in each case, to the extent possible, without negative tax consequences to the applicable employee), in accordance with
Sections 401(a)(12), 411(d)(6) and 414(l) of the Code; (ii) Qualtrics (or any successor Qualtrics Entity) and the Qualtrics 401(k) Plan shall assume and be solely responsible for all Liabilities under the Qualtrics 401(k) Plan relating to the accounts that are so transferred arising at or after the time of such transfer; and (iii) Qualtrics shall cause such transferred accounts to be accepted by the Qualtrics 401(k) Plan and its related trust and shall cause the Qualtrics 401(k) Plan to satisfy all protected benefit requirements under the Code and applicable law with respect to the transferred accounts. In determining whether a Qualtrics Employee is vested in his or her account under the Qualtrics 401(k) Plan, if applicable, the Qualtrics 401(k) Plan shall credit each Qualtrics Employee with at least the individual’s service credited under the SAP 401(k) Plan; provided, however, that in no event shall Qualtrics be required to provide any service or any other benefit-affecting credits to any individual to the extent that the provision of such credits would result in any duplication of benefits. Immediately prior to the date upon which the transfer described above occurs, SAP shall contribute to the SAP 401(k) Plan all matching contributions, if any, due to Qualtrics Employees pursuant to the terms and conditions of such plan for periods prior to the transfer date. Notwithstanding anything contained herein to the contrary, the transfer described herein shall not take place prior to the 31st day following the filing of any required Forms 5310-A in connection therewith.
Section 3.4 Terms of Participation in Benefit Plans. Except to the extent otherwise provided herein, SAP and Qualtrics shall adopt, or shall cause to be adopted, all reasonable and necessary plan amendments to prevent the IPO from constituting a termination of employment of any Qualtrics Employee, Transferring Employee or Qualtrics-Aligned Employee for purposes of triggering a distribution under any SAP Plan or any Qualtrics Plan.
Section 3.5 HXM Systems. Following the IPO Date and no later than January 1, 2022, Qualtrics shall establish HXM Systems (including payroll systems where applicable) for all Qualtrics Employees and Transferring Employees, at Qualtrics’ cost, which shall be as determined in accordance with the Administrative Services Agreement for any costs associated with HXM Systems that are administered through SAP. SAP shall cooperate with Qualtrics to migrate all applicable data onto Qualtrics’ HXM Systems as needed to complete such process as soon as reasonably practicable thereafter. Until such time as the Qualtrics HXM Systems are established, SAP shall facilitate Qualtrics’ continued use of SAP HXM Systems for all Qualtrics Employees and Transferring Employees. For the avoidance of doubt, all Qualtrics-Aligned Employees shall remain on SAP’s HXM Systems until such time that they become Transferring Employees.
Section 3.6 Vacation and PTO. With respect to Qualtrics Employees other than U.S. and AU Qualtrics Employees, Qualtrics shall retain all Liabilities for all accrued and unused vacation and paid time off (“PTO”) as of the IPO Date. With respect to Transferring Employees, Qualtrics-Aligned Employees, and U.S. and AU Qualtrics Employees, SAP shall continue to satisfy on Qualtrics’ behalf all accrued and unused vacation and PTO for the period after the IPO until the Employment Commencement Date or Benefits Commencement Date, as applicable. Only where required by applicable local law or SAP Plan provisions, SAP shall pay out all accrued and unused vacation benefits or PTO determined as of immediately prior to the
Employment Commencement Date, to each Transferring Employee entitled to such benefits, at Qualtrics’ cost, as determined under the Administrative Services Agreement.
ARTICLE IV
INCENTIVE AND EQUITY COMPENSATION MATTERS
Section 4.1 Exchange of Outstanding Awards at the IPO Date. Subject to local law limitations, Qualtrics shall offer Qualtrics Employees, Transferring Employees and Qualtrics-Aligned Employees the opportunity to exchange their currently unvested equity-based compensation awards, which include Qualtrics Rights and SAP RSUs (both terms as defined in the IPO Registration Statement, and together, the “Existing Awards”), that vest on or after February 1, 2021 (or such other date as the Parties may agree in writing) into equity-based compensation awards of Qualtrics (the “Exchanged Awards”); provided, that the Parties may exclude any Qualtrics Employees, Transferring Employees or Qualtrics-Aligned Employees from exchanging their awards in such manner if doing so would be inadvisable or impractical. The Exchanged Awards shall retain the same vesting and payment schedule as the Existing Awards but shall otherwise be governed by the terms and conditions of the 2021 Qualtrics Employee Omnibus Equity Plan (the “2021 Plan”). All Existing Awards held by Qualtrics Employees, Transferring Employees and Qualtrics-Aligned Employees that do not become Exchanged Awards (the “Unexchanged Awards”) shall continue subject to their existing terms and conditions, at Qualtrics’ cost (which cost, for the avoidance of doubt, shall constitute HR Liabilities), with administrative charges, as applicable, determined under the Administrative Services Agreement. As of the IPO, Qualtrics shall retain or assume, as applicable, the responsibility of administering the Unexchanged Awards in accordance with their original terms and conditions, and SAP shall provide Qualtrics with all applicable information as needed for Qualtrics to administer the Unexchanged Awards.
Section 4.2 Treatment of Equity-Based Incentive Awards.
(a) SAP Equity-Based Incentive Award Plans. As of the IPO Date, Qualtrics Employees, Transferring Employees and Qualtrics-Aligned Employees shall no longer be eligible to participate in any equity-based incentive award plans administered by SAP, including the Move SAP Plan, Grow SAP Plan, Own SAP Plan and Own SAP Virtual Plan (together with any other equity-based incentive award plans administered by SAP, the “SAP Award Plans”); provided, that the Qualtrics-Aligned Employees shall remain eligible to participate in the Own SAP Plan and Own SAP Virtual Plan, as applicable, until the Employment Commencement Date, unless otherwise agreed in writing between the Parties. Prior to the IPO Date, SAP shall take all actions necessary or appropriate to cause all Qualtrics Employees, Transferring Employees and Qualtrics-Aligned Employees to cease to be eligible to participate in any SAP Award Plans, except that SAP shall not take any action to cause the Qualtrics-Aligned Employees to cease to be eligible to participate in the Own SAP Plan or Own SAP Virtual Plan. To the extent applicable, any cash balance pursuant to an SAP Award Plan and in the account of any Qualtrics Employee, Transferring Employee or Qualtrics-Aligned Employee shall be administered in accordance with the terms of the applicable plan, including that the account of any Qualtrics Employee, Transferring Employee or Qualtrics-Aligned Employee administered
under the Own SAP Plan or the Own SAP Virtual Plan shall be treated as if such employee has ceased employment with any Qualtrics Entity or SAP Entity, as applicable, in accordance with the terms of the applicable plan.
(b) Approval of Plans. Prior to the IPO Date, Qualtrics shall adopt (i) the 2021 Plan and (ii) the 2021 Qualtrics Employee Stock Purchase Plan (the “ESPP”), and each plan shall be approved by Qualtrics’ sole stockholder. Subject to local law limitations and unless inadvisable or impractical, all Qualtrics Employees, Transferring Employees and Qualtrics-Aligned Employees shall become eligible to participate in the 2021 Plan and all Qualtrics Employees and Transferring Employees who transfer prior to the IPO Date shall become eligible to participate in the ESPP, in each case, immediately as of the IPO Date. All other Transferring Employees and Qualtrics-Aligned Employees shall become eligible to participate in the ESPP as of the applicable Employment Commencement Date or as soon as is reasonably practicable thereafter.
(c) Registration Requirements. As soon as practicable following the IPO Date, Qualtrics agrees that it shall cause to be registered pursuant to the Securities Act of 1933, as amended, all shares of Qualtrics common stock authorized for issuance under the 2021 Plan and the ESPP. SAP shall cooperate with Qualtrics in completing and maintaining any such registration statements and related disclosures.
Section 4.3 Short-Term Incentive Compensation. Short-term incentive compensation and commission payments earned or accrued by any Qualtrics Employee or Qualtrics-Aligned Employee for the fiscal year 2020 and beyond shall be Liabilities of Qualtrics pursuant to the terms and conditions of the applicable short-term incentive compensation plan or policy. Following the IPO, Qualtrics shall retain all Liabilities relating to short-term compensation and commission payments earned or accrued by all Qualtrics Employees, Transferring Employees and Qualtrics-Aligned Employees.
ARTICLE V
NON-QUALIFIED DEFERRED COMPENSATION MATTERS
Section 5.1 General. There shall be no transfer among the Parties or their affiliates of assets or Liabilities in respect of nonqualified deferred compensation plans maintained by any of them or their respective subsidiaries, and any assets of the Qualtrics Employees and Qualtrics-Aligned Employees currently held in a nonqualified deferred compensation plan shall be treated in accordance with the terms of the applicable plan. Effective as of January 1, 2021, Qualtrics Employees and Qualtrics-Aligned Employees shall no longer be eligible to participate in SAP Plans that are nonqualified voluntary elective deferral plans.
ARTICLE VI
COSTS
Section 6.1 Fees. In exchange for the performance of SAP’s obligations pursuant to this Agreement, Qualtrics shall reimburse SAP for all HR Liabilities in respect of
Qualtrics Employees, Transferring Employees and Qualtrics-Aligned Employees in accordance with Article III of the Administrative Services Agreement.
Section 6.2 Indemnification.
(a) Qualtrics agrees to indemnify and hold harmless each SAP Indemnified Person from and against any Losses arising out of or related to any claim, action or proceeding (collectively, “Actions”) by a third party to the extent arising out of or in connection with (i) services rendered or to be rendered by any Qualtrics Indemnified Person pursuant to this Agreement or the transactions contemplated hereby or (ii) any Qualtrics Indemnified Person’s actions or inactions in connection with this Agreement or such transactions; provided, that Qualtrics shall not be responsible for any damages incurred by any SAP Indemnified Person that have resulted from any SAP Entity’s, or any such SAP Indemnified Person’s, gross negligence or willful misconduct in connection with the services rendered or to be rendered pursuant to this Agreement.
(b) SAP agrees to indemnify and hold harmless each Qualtrics Indemnified Person from and against any Losses arising out of or related to any Action by a third party to the extent arising out of or in connection with (i) services rendered or to be rendered by any SAP Indemnified Person pursuant to this Agreement or the transactions contemplated hereby or (ii) any SAP Indemnified Person’s actions or inactions in connection with this Agreement or such transactions; provided, that SAP shall not be responsible for any damages incurred by any Qualtrics Indemnified Person that have resulted from any Qualtrics Entity’s, or any such Qualtrics Indemnified Person’s, gross negligence or willful misconduct in connection with the services rendered or to be rendered pursuant to this Agreement.
ARTICLE VII
LEASING AND BENEFITS SERVICES
Section 7.1 Leasing Period. During the period from the IPO through the end of the day immediately prior to the Employment Commencement Date for Qualtrics-Aligned Employees (the “Leasing Period”), SAP shall continue to employ the Qualtrics-Aligned Employees and to make the Qualtrics-Aligned Employees available to any Qualtrics Entity (without any requirement to provide any additional compensation or benefits to such Qualtrics-Aligned Employees that will not be reimbursed pursuant to this Agreement), to perform such lawful tasks as the applicable Qualtrics Entity may direct in connection with the Qualtrics Business, subject to applicable law and the terms of any applicable employee policies of SAP (the “Leased Services”). During the Leasing Period: (i) SAP agrees that it shall not terminate the employment of any Qualtrics-Aligned Employee without the prior written consent of Qualtrics, which shall not be unreasonably withheld or delayed in the event of grounds constituting “cause” under any SAP Plan, or any SAP policy, practice or applicable law; and (ii) SAP shall instruct in writing the leased Qualtrics-Aligned Employees to (a) maintain the confidentiality of any confidential or trade secret information of Qualtrics and (b) comply with all other applicable employment policies of SAP, and SAP shall report promptly to Qualtrics any suspected failure of the leased Qualtrics-Aligned Employees to follow such instruction. For the avoidance of doubt, a decision by SAP to terminate the employment of any Qualtrics-Aligned
Employee pursuant to this Section 7.1 shall in no way modify Qualtrics’ obligations under this Agreement, including, without limitation, Article VI. Notwithstanding the foregoing, if any Qualtrics-Aligned Employee shall be terminated by SAP and re-hired by Qualtrics in connection with such employee’s transfer of employment to Qualtrics, SAP shall terminate the applicable Qualtrics-Aligned Employee as of 11:59 pm of the day immediately prior to such employee’s Employment Commencement Date.
Section 7.2 Compensation/Payroll. During the Leasing Period and, for U.S. and AU Qualtrics Employees, the period from the IPO through the day immediately prior to the Benefits Commencement Date (which such period, for U.S. and AU Qualtrics Employees, shall be the “Benefits Services Period”), as applicable, SAP shall be responsible for (i) paying and shall pay to or on behalf of each Qualtrics-Aligned Employee or U.S. and AU Qualtrics Employee, as applicable, all wages, salaries, bonuses, severance, paid leave, including paid vacation, and other compensation earned, vested, due, accrued for payment, or payable under the applicable plan, policy or program (collectively, “Compensation”), (ii) deducting all employment and other Taxes, withholdings and other legally required deductions (such as in the nature of social security payments or judicially ordered deductions), (iii) paying all Taxes on or with respect to such Compensation as may be required of an employer, (iv) maintaining, contributing to or paying (as applicable) unemployment insurance, unemployment compensation, workers’ compensation, disability, retirement contributions, and any other insurance and fringe benefits with respect to the Qualtrics-Aligned Employee or U.S. and AU Qualtrics Employee, as applicable, and (v) any reporting, disclosure and withholding obligations in connection therewith. During the Leasing Period and the Benefits Services Period, as applicable, SAP shall not, unless otherwise instructed by Qualtrics to do so in writing, change the terms of employment or compensation of any Qualtrics-Aligned Employee or U.S. and AU Qualtrics Employee, grant any bonuses, whether monetary or otherwise, or increase in any wages, salary, severance, pension, equity award or other compensation or benefits in respect of any Qualtrics-Aligned Employee or U.S. and AU Qualtrics Employee, as applicable, or adopt or enter into any Labor Agreement affecting the Qualtrics-Aligned Employee or U.S. and AU Qualtrics Employee, as applicable, other than as required by applicable law. With respect to the Qualtrics-Aligned Employees or U.S. and AU Qualtrics Employees during the Leasing Period or the Benefits Services Period, as applicable, Qualtrics shall not be obligated to pay any Compensation to the Qualtrics-Aligned Employees or U.S. and AU Qualtrics Employees directly, nor shall Qualtrics be responsible for paying directly to any governmental agency any Taxes, withholdings, or other legally required deductions (such as social security payments due), or for reporting to disclosure obligations in connection therewith with respect to the Qualtrics-Aligned Employee or U.S. and AU Qualtrics Employees. Nothing herein shall be interpreted as limiting the obligations of Qualtrics to make payments to SAP in respect of these Liabilities pursuant to the Administrative Services Agreement.
Section 7.3 Plans. During the Leasing Period and the Benefits Services Period, as applicable, the Qualtrics-Aligned Employees and U.S. and AU Qualtrics Employees shall remain eligible for or participate in the same SAP Plans in which such Qualtrics-Aligned Employees or U.S. and AU Qualtrics Employees were eligible or participating as of immediately prior to the IPO, subject to their elections in any such SAP Plans in the ordinary course of
business for any plan year thereafter, subject to the terms and limitations of such SAP Plans (including without limitation, regarding eligibility and participation), and the right of SAP to modify, cancel, amend or terminate any such SAP Plan in its sole and absolute discretion, but subject to this Agreement and only to the extent such modification, cancellation, amendment or termination is done with respect to all similarly situated participants under such SAP Plan. Wherever required by applicable local law or SAP Plan provisions, SAP will pay out all accrued and unused vacation to U.S. and AU Qualtrics Employees as soon as reasonably practicable or required after the Benefits Commencement Date, at Qualtrics’ cost, as determined under the Administrative Services Agreement. Notwithstanding the foregoing, participation in the SAP 401(k) Plan and the Qualtrics 401(k) Plan for eligible Qualtrics Employees and eligible Transferring Employees shall be determined in accordance with Section 3.3(a) of this Agreement.
Section 7.4 Personnel Policies. Except as specified herein or as required by applicable law, all terms and conditions of employment applicable to the Qualtrics-Aligned Employees shall at all times during the Leasing Period be governed by the personnel policies and practices generally applicable to similarly situated SAP Employees, as such policies and practices may be amended from time to time during the Leasing Period. Notwithstanding the foregoing, nothing contained herein shall be interpreted as limiting the obligations of Qualtrics to cause compliance with all employee-related policies as set forth in the Master Transaction Agreement.
Section 7.5 Leased Employees. The Qualtrics-Aligned Employees shall at all times during the Leasing Period remain SAP Employees, and no Qualtrics-Aligned Employees shall be deemed for any purpose to be an agent, servant or employee of any Qualtrics Entity during the Leasing Period. Subject to applicable data privacy and protection and employment laws, SAP shall respond to all questions and inquiries from Qualtrics, state and federal agencies, and other persons regarding payroll and employment data and history relating to the Qualtrics-Aligned Employees leased under this Article VII for periods of employment with SAP. During the Leasing Period, the Qualtrics-Aligned Employees shall not be entitled to participate in or receive any benefit or right as an employee or participant under Qualtrics’ employee benefit and welfare plans as a result of or in connection with the provision of the Leased Services, but, for the avoidance of doubt, shall be eligible to participate in equity-based incentive award programs administered by Qualtrics and SAP as set forth in Article IV. SAP shall instruct in writing all Qualtrics-Aligned Employees providing the Leased Services to comply with, during the Leasing Period, any confidentiality obligations set forth in any written arrangement between such Qualtrics-Aligned Employee and Qualtrics. SAP shall promptly notify Qualtrics of any breach of any such obligations by a Qualtrics-Aligned Employee.
ARTICLE VIII
CERTAIN NON-U.S. JURISDICTION MATTERS
Section 8.1 Works Council Arrangements.
(a) General. Qualtrics Employees and Transferring Employees in the European Economic Area and Germany who are subject to SAP’s SE Works Council Europe and
SAP’s German Group Works Council as of immediately prior to the IPO shall remain subject to the applicable provisions of such Works Council arrangements after the IPO until such time as is required by law. SAP shall inform Qualtrics of, and Qualtrics shall comply with, any obligations arising from these Works Council arrangements and any other applicable Labor Agreements for the duration of time that any Qualtrics Employees or Transferring Employees remain subject to their terms. In addition, Qualtrics-Aligned Employees who are subject to any Labor Agreement shall remain subject to such agreements after the IPO until such time as is required by law.
(b) GLR Communications. To the extent that any Qualtrics Employees, including any Transferring Employees, are subject to any SAP Labor Agreements, whether prior to or following the IPO, Qualtrics shall coordinate all communications with the applicable Works Council through SAP’s Global Labor Relations Department (“GLR”) and Qualtrics shall not communicate directly with the applicable Works Council without the prior written consent of GLR, unless otherwise required by law. For the avoidance of doubt, SAP and Qualtrics acknowledge that Qualtrics may be subject to Labor Agreements that are independent of SAP in certain jurisdictions and that, as of the IPO, Qualtrics shall be responsible for compliance with all such Labor Agreements and shall not be required to coordinate with GLR with respect to any such Labor Agreements, unless otherwise required by law.
ARTICLE IX
GENERAL AND ADMINISTRATIVE
Section 9.1 Personnel Records. Qualtrics shall continue to retain all applicable employee records, data or information, and compliance-related training documents (collectively, “Employment Files”), with respect to each Qualtrics Employee, and SAP shall maintain Employment Files for each Qualtrics-Aligned Employee, in accordance with all applicable laws. Following the IPO: (i) to the extent applicable, SAP shall transfer copies of all applicable Employment Files with respect to each Transferring Employee and Qualtrics-Aligned Employee, to Qualtrics and (ii) the Parties shall have shared access to all applicable Employment Files with respect to each Qualtrics Employee, Transferring Employee and Qualtrics-Aligned Employee, in each case if permissible under, and as reasonably required in order to comply with, applicable law and as reasonably required in order for the Parties to perform their obligations under this Agreement.
Section 9.2 Confidentiality and Proprietary Information. No provision of this Agreement shall be deemed to release any individual for any violation of any agreement or policy pertaining to confidential or proprietary information of SAP or any of its affiliated companies or of Qualtrics or any of its affiliated companies, respectively, or otherwise relieve any individual of his or her obligations under any such agreements or policies.
Section 9.3 No Termination of Plans or Plan Amendments. Without limiting the generality of any other provisions of this Agreement: (i) except as expressly provided in this Agreement, nothing in this Agreement shall preclude any Qualtrics Entity, at any time after the consummation of the IPO, from amending, merging, modifying, terminating, eliminating, reducing, or otherwise altering in any respect any Qualtrics Plan, any benefit under any plan or any trust, insurance policy or funding vehicle related to any Qualtrics Plan; and (ii) except as
expressly provided in this Agreement, nothing in this Agreement shall preclude any SAP Entity, at any time prior to or after the consummation of the IPO, from amending, merging, modifying, terminating, eliminating, reducing, or otherwise altering in any respect any SAP Plan, any benefit under any plan or any trust, insurance policy or funding vehicle related to any SAP Plan. In addition, no provision of this Agreement is intended, or shall be interpreted, to amend any term or condition of any Qualtrics Plan, any SAP Plan or any other employee related plan, program or policy of any Qualtrics Entity or any SAP Entity.
Section 9.4 Fiduciary Matters. SAP and Qualtrics each acknowledge that actions required to be taken pursuant to this Agreement may be subject to fiduciary duties or standards of conduct under ERISA or other applicable law, and no party shall be deemed to be in violation of this Agreement if it fails to comply with any provisions hereof based upon its good faith determination that to do so would violate such a fiduciary duty or standard. Each party shall be responsible for taking such actions as are deemed necessary and appropriate to comply with its own fiduciary responsibilities and shall fully release the other party for any Liabilities imposed on such party pursuant to the provisions of this Agreement by the failure to satisfy any such responsibility.
Section 9.5 Consent of Third Parties. If any provision of this Agreement is dependent on the consent of any third party (such as a vendor) and such consent is withheld, SAP and Qualtrics shall use commercially reasonable efforts to implement the applicable provisions of this Agreement to the full extent practicable. If any provision of this Agreement cannot be implemented due to the failure of such third party to consent, SAP and Qualtrics shall negotiate in good faith to implement the provision in a mutually satisfactory manner. The phrase “commercially reasonable efforts” as used herein shall not be construed to require the incurrence of any non-routine or unreasonable expense or liability or the waiver of any right.
Section 9.6 Cooperation. The Parties agree to, and to cause their affiliated companies to, cooperate and use reasonable efforts to promptly (a) comply with all requirements of this Agreement, ERISA, the Code and other laws which may be applicable to the matters addressed herein, (b) subject to applicable law, provide each other with such information reasonably requested by the other party to assist the other party in administering its plans and programs and complying with applicable law and regulations and the terms of this Agreement and (c) notwithstanding any provision of the Master Transaction Agreement to the contrary, any powers of attorney currently in effect between the Parties and necessary to facilitate the administration of payroll services set forth in this Agreement with respect to U.S. and AU Qualtrics Employees (“Existing Payroll POAs”) shall remain in effect until the date that such Existing Payroll POAs are terminated pursuant to their terms.
Section 9.7 Termination. Except as otherwise provided herein or required by the provisions hereof, this Agreement shall terminate on the first date upon which the SAP Entities hold shares of Common Stock representing less than a majority of the votes entitled to be cast by all holders of Common Stock.
ARTICLE X
MISCELLANEOUS
Section 10.1 No Agency. Nothing in this Agreement shall constitute or be deemed to constitute a partnership or joint venture by and between the Parties hereto or constitute or be deemed to constitute any Party the agent or employee of any other Party for any purpose whatsoever, and no Party shall have authority or power to bind any other Party or to contract in the name of, or create a liability against, any other Party in any way or for any purpose.
Section 10.2 Entire Agreement. This Agreement (including the Schedules constituting a part of this Agreement) and any other writing signed by the Parties that specifically references or is specifically related to this Agreement constitute the entire agreement among the Parties with respect to the subject matter hereof and supersede all prior agreements, understandings and negotiations, both written and oral, between the Parties with respect to the subject matter hereof.
Section 10.3 Information. Subject to applicable law and privileges, each Party covenants with and agrees to provide to the other Party all information regarding itself and transactions under this Agreement that is reasonably required by the other Party to comply with all applicable federal, state, county and local laws, ordinances, regulations and codes, including, but not limited to, securities laws and regulations.
Section 10.4 Notices. Notices, offers, requests or other communications required or permitted to be given by any Party pursuant to the terms of this Agreement shall be given in writing to the respective Parties to the following addresses:
(a) if to SAP, to:
SAP SE
Dietmar-Hopp-Allee 16
Germany – 69190
Attention: Matthias Faust
E-mail:
c/o SAP America, Inc.
3999 West Chester Pike
Newtown Square, PA 19073
Attention: Patricia Taylor
E-mail:
(b) if to Qualtrics, to:
Qualtrics International Inc.
333 West River Park Drive
Provo, UT 84604
Attention: Legal Department
E-mail:
(c) with a copy to:
Shearman & Sterling LLP
1460 El Camino Real, 2nd Floor
Menlo Park, CA 94025
Attention: Daniel R. Mitz
E-mail:Daniel.Mitz@shearman.com
or to such other address as the Party to whom notice is given may have previously furnished to the other in writing as provided herein. Any notice shall be sent by hand delivery, internationally recognized overnight courier or, within the United States, may also be sent via certified mail, return receipt requested and, in any event, shall be concurrently sent by e-mail. All notices shall be deemed to have been given when received, if hand delivered; when transmitted, if transmitted electronically; one working day after it is sent, if sent by internationally recognized overnight courier; and three days after it is postmarked, if mailed first class mail or certified mail, return receipt requested, with postage prepaid.
Section 10.5 Governing Law. This Agreement, including the validity hereof and the rights and obligations of the Parties hereunder, shall be construed in accordance with and all disputes, controversies or claims arising out of or relating to this Agreement shall be governed by the laws of the State of Delaware applicable to contracts made and to be performed entirely in such State (without giving effect to the conflicts of laws provisions thereof).
Section 10.6 Consent to Jurisdiction. THE PARTIES AGREE THAT JURISDICTION AND VENUE IN ANY ACTION BROUGHT BY ANY PARTY IN CONNECTION WITH THIS AGREEMENT OR THE PERFORMANCE OF THE OBLIGATIONS IMPOSED HEREUNDER SHALL PROPERLY AND EXCLUSIVELY LIE IN ANY FEDERAL OR STATE COURT LOCATED IN THE STATE OF DELAWARE. EACH PARTY ALSO AGREES NOT TO BRING ANY ACTION IN CONNECTION WITH THIS AGREEMENT OR THE PERFORMANCE OF THE OBLIGATIONS IMPOSED HEREUNDER IN ANY OTHER COURT. BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PARTY IRREVOCABLY SUBMITS TO THE JURISDICTION OF SUCH COURTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY WITH RESPECT TO ANY SUCH ACTION. THE PARTIES IRREVOCABLY AGREE THAT VENUE WOULD BE PROPER IN SUCH COURT, AND HEREBY WAIVE ANY OBJECTION THAT ANY SUCH COURT IS AN IMPROPER OR INCONVENIENT FORUM FOR THE RESOLUTION OF SUCH ACTION. THE PARTIES FURTHER AGREE THAT THE MAILING BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, OF ANY PROCESS REQUIRED BY ANY SUCH COURT SHALL CONSTITUTE VALID AND LAWFUL SERVICE OF PROCESS AGAINST THEM, WITHOUT NECESSITY FOR SERVICE BY ANY OTHER MEANS PROVIDED BY STATUTE OR RULE OF COURT.
Section 10.7 Waiver of Jury Trial. EACH OF THE PARTIES ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY THAT MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH OF THE PARTIES HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT. EACH OF THE PARTIES CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER COMPANY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE OTHER PARTY WOULD NOT, IN THE EVENT OF ANY LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (B) EACH OF THE PARTIES UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) EACH OF THE PARTIES MAKES THIS WAIVER VOLUNTARILY AND (D) EACH OF THE PARTIES HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 10.7.
Section 10.8 Amendment. This Agreement may be amended only by an instrument in writing signed on behalf of each of the Parties.
Section 10.9 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which shall constitute one and the same agreement.
Section 10.10 Binding Effect; Assignment. This Agreement shall inure to the benefit of and be binding upon the Parties and their respective legal representatives and successors. Neither Party may assign this Agreement or any rights or obligations hereunder, without the prior written consent of the other Party, and any such assignment shall be void; provided, however, that either Party may assign this Agreement to a successor entity in conjunction with such Party’s reincorporation in another jurisdiction or into another business form.
Section 10.11 Severability. If any term or other provision of this Agreement or the Schedules attached hereto is determined by a court, administrative agency or arbitrator to be invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to either Party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the fullest extent possible.
Section 10.12 Failure or Indulgence not Waiver; Remedies Cumulative. No failure or delay on the part of either Party in the exercise of any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty or agreement herein, nor shall any single or partial exercise of any such right preclude
other or further exercise thereof or of any other right. All rights and remedies existing under this Agreement or the Schedules attached hereto are cumulative to, and not exclusive of, any rights or remedies otherwise available.
Section 10.13 Authority. Each of the Parties represent to the other Party that (a) it has the corporate or other requisite power and authority to execute, deliver and perform this Agreement, (b) the execution, delivery and performance of this Agreement by it have been duly authorized by all necessary corporate or other actions, (c) it has duly and validly executed and delivered this Agreement, and (d) this Agreement is its legal, valid and binding obligation, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors’ rights generally and general equity principles.
Section 10.14 Interpretation. The headings contained in this Agreement, in any Schedule hereto and in the table of contents to this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Any capitalized term used in any Schedule but not otherwise defined therein shall have the meaning assigned to such term in this Agreement. When a reference is made in this Agreement to an Article or a Section or Schedule, such reference shall be to an Article or Section of, or a Schedule to, this Agreement unless otherwise indicated. Words in the singular shall be held to include the plural and vice versa and words of one gender shall be held to include the other gender as the context requires. The terms “hereof,” “herein” “and “herewith” and words of similar import, unless otherwise stated, shall be construed to refer to this Agreement as a whole (including all of the Schedules hereto) and not to any particular provision of this Agreement. Any reference herein to this Agreement, unless otherwise stated, shall be construed to refer to this Agreement as amended, supplemented or otherwise modified from time to time. The word “including” and words of similar import when used in this Agreement shall mean “including, without limitation,” unless the context otherwise requires or unless otherwise specified. The word “or” shall not be exclusive.
Section 10.15 Third Party Beneficiaries. None of the provisions of this Agreement shall be for the benefit of or enforceable by any third party. No such third party shall obtain any right under any provision of this Agreement or shall by reasons of any such provision make any claim in respect of any Liability (or otherwise) against either Party.
Section 10.16 Limitation of Liability. IN NO EVENT SHALL ANY PARTY BE LIABLE TO ANY OTHER PARTY FOR ANY SPECIAL, CONSEQUENTIAL, INDIRECT, INCIDENTAL OR PUNITIVE DAMAGES OR LOST PROFITS, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY (INCLUDING NEGLIGENCE) ARISING IN ANY WAY OUT OF THIS AGREEMENT, WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES; PROVIDED, HOWEVER, THAT THE FOREGOING LIMITATIONS SHALL NOT LIMIT (A) EACH PARTY’S INDEMNIFICATION OBLIGATIONS FOR LIABILITIES AS SET FORTH IN EITHER THE MASTER TRANSACTION AGREEMENT OR ANY INTERCOMPANY AGREEMENT OR (B) EITHER PARTY’S BREACH OF ITS CONFIDENTIALITY OR DATA PROTECTION
OR PRIVACY OBLIGATIONS HEREUNDER OR UNDER THE MASTER TRANSACTION AGREEMENT.
[Signature Page Follows]
IN WITNESS WHEREOF, the Parties have caused this Employee Matters Agreement to be duly executed as of the day and year first above written and the Parties agree that this Employee Matters Agreement shall have been entered into after the execution of the Intellectual Property Matters Agreement by the Parties hereto.
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SAP SE
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Name:
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Title:
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Name:
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Title:
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QUALTRICS INTERNATIONAL INC.
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Name:
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Title:
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[Signature Page to Employee Matters Agreement]
Schedule A
List of Qualtrics-Aligned Employees,
as of [ ], 2020 [Omitted pursuant to Item 601(a)(5) of Regulation S-K]
Schedule B
Approved Hires – Qualtrics-Aligned Employees [Omitted pursuant to Item 601(a)(5) of Regulation S-K]
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FORM OF
INTELLECTUAL PROPERTY MATTERS AGREEMENT
dated as of [ ]
between
SAP SE
and
QUALTRICS INTERNATIONAL INC.
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TABLE OF CONTENTS
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PAGE
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ARTICLE I
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DEFINITIONS
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Section 1.1 Definitions
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1
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Section 1.2 Internal References
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5
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ARTICLE II
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LICENSES
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Section 2.1 License to SAP
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5
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Section 2.2 No Delivery
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6
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Section 2.3 Sublicensing Rights
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6
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Section 2.4 Assignment
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7
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Section 2.5 Bankruptcy Code Designation
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7
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ARTICLE III
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COVENANT NOT TO SUE
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Section 3.1 SAP Covenant
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7
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Section 3.2 No Assignment
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8
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ARTICLE IV
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COVENANTS; RESPONSIBILITIES OF THE PARTIES
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Section 4.1 Sale of Intellectual Property Rights
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8
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Section 4.2 Ownership; Responsibility for Intellectual Property Rights
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8
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Section 4.3 Notice of Sublicense Restrictions
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8
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Section 4.4 Encumbrances
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8
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Section 4.5 IP Cross Licenses
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9
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Section 4.6 Confidentiality
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9
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ARTICLE V
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REPRESENTATIONS AND WARRANTIES
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Section 5.1 Mutual Warranties
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9
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Section 5.2 Disclaimer
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9
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ARTICLE VI
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TERM AND TERMINATION
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Section 6.1 Term
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10
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Section 6.2 No Other Termination
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10
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Section 6.3 Effect of Termination
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10
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Section 6.4 Survival
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10
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ARTICLE VII
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DISPUTE RESOLUTION
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Section 7.1 Notice of Dispute
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10
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Section 7.2 Executive Escalation
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10
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Section 7.3 Binding Arbitration
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10
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Section 7.4 Procedure
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11
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Section 7.5 No Limitation on Provisional Injunctive Relief
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11
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ARTICLE VIII
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MISCELLANEOUS
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Section 8.1 Consent
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12
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Section 8.2 Limitation on Liability
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12
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Section 8.3 Interpretation
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12
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Section 8.4 Binding Effect
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12
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Section 8.5 Counterparts
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12
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Section 8.6 Entire Agreement
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12
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Section 8.7 Severability
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13
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Section 8.8 Failure or Indulgence not Waiver; Remedies Cumulative
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13
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Section 8.9 Third Party Beneficiaries
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13
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Section 8.10 Notices
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13
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Section 8.11 Governing Law
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14
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Section 8.12 Consent to Jurisdiction
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14
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Section 8.13 Waiver of Jury Trial
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14
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Section 8.14 Amendment
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15
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Section 8.15 Authority
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15
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Section 8.16 Master Transaction Agreement
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15
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INTELLECTUAL PROPERTY MATTERS AGREEMENT
This Intellectual Property Matters Agreement (this “Agreement”) is dated as of the [ ] day of [ ], 202[ ], between SAP SE, a Societas Europaea registered in accordance with the corporate laws of Germany and the European Union (“SAP”), and Qualtrics International Inc., a Delaware corporation (“Qualtrics” with each of SAP and Qualtrics a “Party,” and together, the “Parties”).
RECITALS
WHEREAS, SAP is the indirect beneficial owner of all the issued and outstanding Class B common stock of Qualtrics;
WHEREAS, SAP, through Qualtrics, is engaged in the business of providing a technology platform for experience management, as more completely described in a Registration Statement on Form S-1 (File No. [ ]) filed with the Securities and Exchange Commission under the Securities Act (the “IPO Registration Statement”);
WHEREAS, SAP and Qualtrics currently contemplate that Qualtrics will make an initial public offering (the “IPO”) of its Class A common stock pursuant to the IPO Registration Statement; and
WHEREAS, the Parties intend in this Agreement to set forth the principal arrangements between SAP and Qualtrics regarding the use of certain Intellectual Property Rights as between the Parties from and after the filing of the IPO Registration Statement and the consummation of the IPO.
NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto, for themselves and their respective successors and assigns, hereby covenant and agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1Definitions.
(a)As used in this Agreement, the following terms shall have the following meanings, applicable both to the singular and the plural forms of the terms described:
“Affiliate” means any entity controlling, controlled by or under common control with an entity, where “control” will mean ownership, directly or indirectly, of the shares of an entity representing more than 50% of the voting rights in such entity. Notwithstanding the foregoing, neither Qualtrics nor any of its Subsidiaries shall be deemed Affiliates of SAP under this Agreement.
“Authorized Third Parties” means any entity that is authorized by a Party or its Affiliates to exercise any legal rights or to perform any activities with respect to a Party’s products or services, including original equipment manufacturers, integrators, distributors, resellers, customers, partners, contractors, consultants, and users with such authorization, other than an SAP Entity or a Qualtrics Entity.
“Action” means any demand, action, suit, countersuit, arbitration, inquiry, proceeding or investigation by or before any federal, state, local, foreign or international Governmental Authority or any arbitration or mediation tribunal.
“Change of Control” means the occurrence of any one or more of the following events:
(i)the sale or disposition, in one or a series of related transactions, of all or substantially all of the consolidated assets of the Qualtrics Entities, taken as a whole, to any “person” or “group” (as such terms are used for purposes of Sections 13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934, as amended) other than SAP or any of its direct or indirect wholly-owned Subsidiaries;
(ii)any “person” or “group,” other than SAP or any of its direct or indirect wholly-owned Subsidiaries, is or becomes the beneficial owner, directly or indirectly, of more than 50% of the total voting power of the outstanding voting stock of Qualtrics, excluding as a result of any merger or consolidation that does not constitute a Change of Control pursuant to clause (c);
(iii)any merger or consolidation of Qualtrics with or into any other person, unless immediately thereafter SAP or any of its direct or indirect wholly-owned Subsidiaries beneficially owns a majority of the outstanding shares of the common stock (or equivalent voting securities) of the surviving or successor entity (or the parent entity thereof); or
(iv)SAP or any of its direct or indirect wholly-owned Subsidiaries ceases to have the ability to cause the election of that number of members of the board of directors of Qualtrics who would collectively have the right to vote a majority of the aggregate number of votes represented by all of the members of the board of directors of Qualtrics.
“Distribution Agreement” means the Distribution Agreement between the Parties of even date herewith.
“Governmental Authority” shall mean any federal, state, local, foreign or international court, government, department, commission, board, bureau, agency, official or other regulatory, administrative or governmental authority, or any arbitration or mediation tribunal or panel.
“Improvement” means any modification, improvement or derivative work to or of any Intellectual Property Right.
“Intellectual Property Rights” means patents of any type, design rights, utility models or other similar invention rights, copyrights, mask work rights, trade secret rights, trademarks, trade names and service marks and any other intangible property rights, including applications and registrations for any of the foregoing, in any country, arising under statutory or common law or by contract and whether or not perfected, now existing or hereafter filed, issued, or acquired.
“Laws” means any statute, law, ordinance, regulation, rule, code, order, constitution, treaty, common law, judgment, decree, other requirement or rule of law of any Governmental Authority.
“Liabilities” means all debts, liabilities, guarantees, assurances, commitments and obligations, whether fixed, contingent or absolute, asserted or unasserted, matured or unmatured, liquidated or unliquidated, accrued or not accrued, known or unknown, due or to become due, whenever or however arising (including, without limitation, whether arising out of any contract or tort based on negligence or strict liability) and whether or not the same would be required by generally accepted principles and accounting policies to be reflected in financial statements or disclosed in the notes thereto.
“Master Transaction Agreement” means the Master Transaction Agreement between the Parties of even date herewith.
“Person” means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization or a governmental entity or any department, agency or political subdivision thereof.
“Qualtrics Entities” means Qualtrics and its Subsidiaries and any entity which becomes a Subsidiary of Qualtrics after the date hereof, and “Qualtrics Entity” means any one of the Qualtrics Entities.
“Qualtrics IP” means, collectively, the Qualtrics Patents and the Qualtrics Copyrights and Trade Secrets.
“Qualtrics Business” means any business conducted by Qualtrics, including the sale, distribution and support of all products, services and technologies of, offered by or supported by Qualtrics and the Qualtrics Entities; provided, that the Qualtrics Business shall exclude (a) the SAP Business and (b) any third-party business that Qualtrics acquires after the Term that competes with the SAP Business.
“Qualtrics Copyrights and Trade Secrets” means all copyrights and trade secrets owned or controlled by, or licensed through, Qualtrics during the Term that are used in or necessary for the SAP Business, including any and all Improvements to the foregoing. For the avoidance of doubt, Qualtrics Copyrights and Trade Secrets do not include patent or trademark rights.
“Qualtrics Patents” means all patents and patent applications owned or controlled by Qualtrics during the Term, including any patents that issue after the Term that claim priority from such patents and patent applications to the extent such later issued patents provide Qualtrics rights to bring any Action for infringement that occurred during the Term.
“SAP Business” means any business conducted by SAP, including the sale, distribution and support of all products, services and technologies of, offered by or supported by SAP and its Affiliates; provided, that the SAP Business shall exclude the Qualtrics Business.
“SAP Entities” means SAP and its Subsidiaries (other than the Qualtrics Entities) and any entity which becomes a Subsidiary of SAP after the date hereof, and “SAP Entity” means any one of the SAP Entities.
“Subsidiary” means, as to any Person, a corporation, limited liability company, joint venture, partnership, trust, association or other entity in which such Person: (i) beneficially owns, either directly or indirectly, more than 50% of (A) the total combined voting power of all classes of voting securities of such entity, (B) the total combined equity interests, or (C) the capital or profits interest, in the case of a partnership; or (ii) otherwise has the power to vote, either directly or indirectly, sufficient securities to elect a majority of the board of directors or similar governing body. For the avoidance of doubt, for purposes of this Agreement, no Qualtrics Entity shall be deemed to be a Subsidiary of any SAP Entity.
“Third Party” means a Person other than the SAP Entities and the Qualtrics Entities.
(b)Each of the following terms is defined in the Section set forth opposite such term:
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TERM
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SECTION
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AAA
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Section 7.3
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Agreement
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Preamble
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Covenant Period
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Section 3.1
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Dispute
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Section 7.1
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Executive Escalation
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Section 7.2
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IPO
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Recitals
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IPO Registration Statement
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Recitals
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Licensee
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Section 2.3
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Licensed Products
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Section 2.3
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Notice of Arbitration
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Section 7.3
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Parties
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Preamble
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Party
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Preamble
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Qualtrics
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Preamble
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Qualtrics IP Materials
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Section 2.2
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SAP
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Preamble
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Term
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Section 6.1
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(c)For the purposes of this Agreement, capitalized terms used in this Agreement and not otherwise defined herein shall have the meanings set forth in the Master Transaction Agreement.
Section 1.2Internal References. Unless the context indicates otherwise, references to Articles, Sections and paragraphs shall refer to the corresponding articles, sections and paragraphs in this Agreement and references to the parties shall mean the parties to this Agreement.
ARTICLE II
LICENSES
Section 2.1License to SAP.
(a)Patent License. Qualtrics hereby grants, and agrees to cause any relevant entity within the Qualtrics Entities to grant, to SAP a non-exclusive, irrevocable, perpetual, sublicensable (to the extent provided in Section 2.3), assignable (solely to the extent provided in Section 2.4), royalty-free, worldwide, fully paid-up license under the Qualtrics Patents to make, use, offer to sell, sell (or otherwise offer), and import any products and services that are or were part of the SAP Business at or prior to the expiration of the Term (including natural extensions of such products or services), and the right to have Authorized Third Parties exercise such rights on SAP’s behalf pursuant to a permissible sublicense in accordance with Section 2.3.
(b)License to Copyrights and Trade Secrets. Qualtrics hereby grants, and agrees to cause any relevant entity within the Qualtrics Entities to grant, to SAP a non-exclusive, irrevocable, perpetual, sublicensable (to the extent provided in Section 2.3), assignable (solely to the extent provided in Section 2.4), royalty-free, worldwide, fully paid-up license under the Qualtrics Copyrights and Trade Secrets to use, copy, distribute, publicly perform, publicly display, modify and prepare derivative works of any such Qualtrics Copyrights and Trade Secrets solely in connection with the operation of the SAP Business and the right to have Authorized Third Parties exercise such rights on SAP’s behalf pursuant to a permissible sublicense in accordance with Section 2.3. Notwithstanding the foregoing, the license to Qualtrics Copyrights and Trade Secrets granted hereunder (i) does not include the right to market, sell or distribute any product(s) or service(s) of the Qualtrics Business; and (ii) does not extend to the development, creation, marketing, sale or distribution of any product or service that is (A) substantially similar to product(s) or services of the Qualtrics Business and (B) constituted, contains or is derived from a material portion of the Qualtrics Copyrights and Trade Screts. SAP will take measures to protect the confidentiality, ownership and enforceability of any licensed Qualtrics Copyrights and Trade Secrets that are commensurate with the measures SAP uses to protect its own copyrights and trade secrets.
(c)Reservation of Rights. SAP acknowledges and agrees that no right, title or interest in or to the Qualtrics IP is granted by Qualtrics except as expressly set forth in this Section 2.1. SAP shall not use the Qualtrics IP beyond the scope of, or for any other purposes than as set forth in the licenses granted in this Section 2.1.
(d)Third Party Intellectual Property Rights. SAP acknowledges and agrees that the licenses granted in this Section 2.1 shall not include any Third Party Intellectual Property Rights that are licensed to Qualtrics and are not sublicenseable to SAP or which are sublicensable to SAP but for which SAP has not elected in writing to receive a sublicense. Notwithstanding the foregoing, to the extent Third Party Intellectual Property Rights are included in the licenses granted to SAP in this Section 2.1, SAP acknowledges and agrees that the rights granted to SAP with respect to the portion of Qualtrics IP consisting of Third Party Intellectual Property Rights are conditioned upon SAP’s compliance with the terms of the applicable agreements governing such Intellectual Property Rights between Qualtrics and such Third Parties (including payment of royalties).
Section 2.2No Delivery. SAP acknowledges and agrees that the licenses granted by Qualtrics hereunder do not require Qualtrics to deliver or provide to the SAP Entities any documents, technology, specifications, designs, source code, object code, training or other materials containing or embodying the Qualtrics IP (collectively, the “Qualtrics IP Materials”), and SAP hereby agrees not to request or require disclosure of a material portion of the Qualtrics IP Materials to any SAP Entity or Third Party outside the scope of joint development or cooperation efforts between SAP Entities and Qualtrics Entities.
Section 2.3Sublicensing Rights. The grant of the licenses in this Article II includes the right to grant sublicenses within the scope of such license to: (a) any SAP Entity (each, a “Licensee”); (b) any Third Party engaged by a Licensee to provide development, support
or other services relating to any SAP Business product within the scope of the Licensee’s license (“Licensed Products”) for or on behalf of the Licensee; (c) any bona fide distributor or reseller of Licensed Products, but only to the extent necessary for such distributor or reseller to distribute and resell the Licensed Products; and (d) any end users of the Licensed Products, but only to the extent necessary for such end users to use the Licensed Products.
Section 2.4Assignment. The licenses set forth in this Article II may be assigned without consent from Qualtrics by SAP to any SAP Entity or (with notice to Qualtrics where permitted by applicable law and contracts by which SAP is bound and advance notice to Qualtrics where commercially reasonable) to any direct or indirect successor to all or substantially all of the business of SAP or to any acquirer of SAP (by merger, stock purchase or other form of transaction), which successor shall thereafter be deemed substituted as the Party hereto, effective upon such assignment, subject to written acceptance of such assignment by such successor; provided, that the definition of “SAP Business” as used throughout this Agreement shall be fixed to mean SAP Business as it existed prior to such acquisition or transaction. Notwithstanding anything in this Section 2.4 to the contrary, SAP’s rights to assign or sublicense any of the rights granted in this Article II shall not be deemed or interpreted to grant SAP the right to authorize any third party to exercise rights under such licenses to the extent that such exercise would be in excess of the rights expressly granted to SAP under this Agreement.
Section 2.5Bankruptcy Code Designation. The licenses granted in this Article II are licenses to “intellectual property” as the term is defined in 11 U.S.C. Section 101(35A) of the United States Code. All written agreements entered into in connection with the Parties’ performances hereunder from time to time shall be considered agreements “supplementary” to this Agreement for purposes of said Section 365(n).
ARTICLE III
COVENANT NOT TO SUE
Section 3.1SAP Covenant. SAP, on behalf of itself and the SAP Entities, covenants that, for a period of seven years following the expiration of the Term (the “Covenant Period”), neither it nor any SAP Entity will sue, threaten to sue, or cause or assist a Third Party in suing or threatening to sue (a) Qualtrics, (b) any Qualtrics Entity that is a Qualtrics Entity at the time of such expiration of the Term, (c) any Qualtrics Entity that is newly formed after the expiration of the Term as part of the natural growth of Qualtrics’ operations and governance and not as part of external mergers, acquisitions, investments or other similar activities; provided, that such newly formed Qualtrics Entity is not the assignee of pre-existing Qualtrics assets (that were not otherwise covered by this covenant) or third-party assets or, (d) subject to SAP’s written approval, any other Qualtrics Entity, or in each case their respective Authorized Third Parties, for any claim that the making, use, offer for sale, sale, import or distribution of any products or services that are or were part of the Qualtrics Business at or prior to the date of such expiration (including natural extensions of such products or services) infringes or violates any patent or patent application that is owned or controlled by SAP as of the date of such expiration, including any patents that issue after the Term that claim priority from such patents and patent applications to the extent such later issued patents provide SAP rights to bring any Action for
infringement that occurred during the Term. For the avoidance of doubt, such covenant will (i) also prohibit such suits, threats, causation or assistance after the Covenant Period to the extent they are for damages or claims for relief that arise from or relate to actions occurring during the Covenant Period, and (ii) not extend to any Third-Party products or services.
Section 3.2No Assignment. The rights set forth in this Article III may not be assigned or transferred, whether in whole or in part and whether by merger, stock purchase or other form of transaction, without prior written consent from SAP, and any attempt by Qualtrics to assign the rights granted hereunder in violation of this Section 3.2 shall be void and of no effect. For the avoidance of doubt, upon a Change of Control, the rights set forth in this Article III will remain in full force and effect with respect to Qualtrics Entities (to the extent applicable, pursuant to the terms of this Article III), but will not be transferred to Qualtrics’ new parent (or other Affiliates of the new parent) or shareholders.
ARTICLE IV
COVENANTS; RESPONSIBILITIES OF THE PARTIES
Section 4.1Sale of Intellectual Property Rights. Should Qualtrics sell, transfer or otherwise dispose of its rights in any of the Qualtrics IP, Qualtrics shall (a) ensure that the acquirer shall execute a written undertaking acknowledging the licenses granted to SAP pursuant to this Agreement, including without limitation all licenses granted hereunder, (b) following a Change of Control, provide notice to SAP of such sale, transfer or other disposal, and (c) upon SAP’s request, promptly provide a copy of such undertaking to SAP. For the avoidance of doubt, such written undertaking shall not be required by the mere non-exclusive license of Qualtrics IP (or other similar transaction) in the ordinary course of business without transfer of ownership.
Section 4.2Ownership; Responsibility for Intellectual Property Rights. As between the Parties, each Party owns and shall continue to own their respective Intellectual Property Rights, including all Improvements thereto, regardless of whether such Improvements are created or developed by the other Party or its Affiliates. Each Party shall assign and hereby assigns all right, title and interest in and to any and all such Improvements to the other Party’s Intellectual Property Rights to such other Party. Each Party shall have the right (but not the obligation) to prepare, file, prosecute, issue, maintain, assign, dispose of, enforce, abandon and terminate its own Intellectual Property Rights at its sole discretion and expense.
Section 4.3Notice of Sublicense Restrictions. To the extent Qualtrics has knowledge that any Third-Party Intellectual Property Rights sublicensed by Qualtrics to SAP under this Agreement are used in connection with any products or services of the SAP Business, Qualtrics shall notify SAP in writing of such Third-Party Intellectual Property Rights, along with any restrictions, limitations and payment obligations associated therewith.
Section 4.4Encumbrances. Except as expressly provided in Section 4.5 below, neither Party will take any action that will require a license or assignment of any of the other Party’s Intellectual Property Rights, including (a) licensing or distributing any of the other Party’s products that are not authorized under the Distribution Agreement, (b) subjecting any of
the other Party’s Intellectual Property Rights to any standards organization or open source license, or (c) including the other Party’s Intellectual Property Rights in any general or portfolio-wide licensed granted by such Party.
Section 4.5IP Cross Licenses. Notwithstanding the provisions of Section 4.4, during the Term as set forth in Section 6.1, SAP may include Qualtrics Patents in any general or portfolio-wide cross-licenses of Intellectual Property Rights entered into between SAP and Third Parties. If SAP includes Qualtrics Patents in any such general or portfolio-wide license, SAP will, (a) give Qualtrics notice of any such inclusion and, to the extent commercially reasonable, provide Qualtrics advance notice thereof, (b) disclose the terms of such cross-license to Qualtrics where permissible by applicable law and contracts by which SAP is bound; provided, that SAP will use commercially reasonable efforts to be able to make such disclosure, and (c) ensure that, to the extent such cross-license includes the Qualtrics Patents, the benefit of such cross license extends to Qualtrics to substantially the same extent it extends to SAP Entities, and ensure that the duration of such benefit to Qualtrics is the same as the duration of the license of the Qualtrics Patents.
Section 4.6Confidentiality. The following provisions of the Master Transaction Agreement are hereby incorporated by reference, mutatis mutandis: Section 3.5.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
Section 5.1Mutual Warranties. Each Party represents and warrants that: (a) it and its Affiliates have not and will not enter into any agreements, obligations, or commitments with any third party that conflict in any way with their obligations under this Agreement; (b) it has the full right, power, and authority to execute and deliver this Agreement and to perform its terms; (c) the execution and delivery of this Agreement and the consummation of the transactions required by this Agreement will not violate or conflict with any charter provision or bylaw of a Party or any of its Affiliates; and (d) this Agreement is enforceable against each Party according to its terms.
Section 5.2Disclaimer. EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT OR THE MASTER TRANSACTION AGREEMENT, NO EXPRESS OR IMPLIED WARRANTIES ARE GIVEN BY EITHER PARTY OR ITS AFFILIATES WITH RESPECT TO ANY INTELLECTUAL PROPERTY RIGHTS OR ANY OTHER MATTER OR SUBJECT ARISING OUT OF THIS AGREEMENT, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, ANY IMPLIED WARRANTY ARISING OUT OF COURSE OF DEALING OR USAGE OF TRADE, OR REGARDING THE VALIDITY, REGISTRABILITY, SCOPE, ENFORCEABILITY OR NON-INFRINGEMENT OF ANY INTELLECTUAL PROPERTY RIGHTS SUBJECT TO THIS AGREEMENT.
ARTICLE VI
TERM AND TERMINATION
Section 6.1Term. This Agreement and the rights and licenses granted hereunder shall become effective on the Effective Date and shall continue in effect until Qualtrics undergoes a Change of Control (the “Term”).
Section 6.2No Other Termination. The licenses granted by Qualtrics and the Qualtrics Entities hereunder shall be irrevocable and perpetual (or for the life of the Qualtrics Patents) and shall not be terminable by Qualtrics or the Qualtrics Entities, and the licenses and covenants granted under this Agreement shall continue in full force and effect in accordance with the applicable terms thereof, notwithstanding any material breach of any term hereof by any Party hereto. Nothing herein will be construed as a waiver of the right of either Party to seek equitable or other relief to ensure compliance with the license restrictions set forth in this Agreement.
Section 6.3Effect of Termination. Upon expiration of the Term, the licenses granted to SAP under Section 2.1 shall continue, and the covenant made by SAP under Section 3.1 shall apply, in each case, in accordance with the terms of this Agreement.
Section 6.4Survival. In addition to the provisions referenced in Section 6.3, the provisions of Articles I, II, III, VI, VII and VIII, and Sections 4.1 (for so long as SAP has ongoing rights under Section 2.1), 4.2, 4.6 and 5.2, shall survive any termination or expiration of this Agreement.
ARTICLE VII
DISPUTE RESOLUTION
Section 7.1Notice of Dispute. The Parties shall attempt to resolve any dispute, claim or controversy arising under, out of or in connection with this Agreement (a “Dispute”) amicably. In no event shall any Party commence any judicial or arbitral proceeding against another Party without first providing to the other Party to the Dispute written notice of the Dispute with sufficient detail, including reference to the contractual provisions at issue, to allow the other Party to evaluate the dispute and negotiate its resolution.
Section 7.2Executive Escalation. Upon receipt of a notice of Dispute as described in Section 7.1, the Dispute will be referred to the executive management representatives designated by each Party (“Executive Escalation”). Such representatives shall meet in person or by telephone (including videoconference) and in good faith attempt to settle the Dispute.
Section 7.3Binding Arbitration. If the Dispute has not been resolved by Executive Escalation for any reason (including a refusal by one or more Parties to participate in negotiations and discussions), within 120 days (which timeframe may be extended as mutually agreed by the Parties) of receipt of a notice of Dispute, either Party may refer the Dispute to final and binding arbitration administered under the commercial rules of the American Arbitration
Association (“AAA”), including its expedited procedures, except as modified herein, by sending a written notice of its intent to arbitrate to the other Party, (the “Notice of Arbitration”). Notwithstanding the foregoing, the following Disputes will not be subject to arbitration but will be determined by a court of competent jurisdiction as described in Section 8.12: (a) any Dispute arising out of or based upon fraud, intentional misrepresentation or intentional breach of covenant, for which a Party may pursue all available remedies in any court of competent jurisdiction or by arbitration as provided for in Section 8.02 and (b) any determination of the applicability of any of the foregoing exceptions to the agreement to arbitrate.
Section 7.4Procedure. There shall be three arbitrators: one appointed by SAP, one appointed by Qualtrics, and one appointed by the other two arbitrators. If the Parties are unable to agree upon arbitrators within 30 days of the receipt of the Notice of Arbitration, either Party may request the AAA to appoint the arbitrators. The language of arbitration shall be English. The place of arbitration shall be in New York, New York, unless otherwise agreed upon by the Parties. The award rendered by the arbitrator shall be final and binding on the Parties and shall be deemed enforceable in any court having jurisdiction thereof. The arbitrator shall have only the power to award damages, injunctive relief and other remedies to the extent the same would be available in a court of Law having jurisdiction of the matter. The arbitrator shall have the power to compel such discovery or production of relevant documents as is appropriate to the purposes of the arbitration in accomplishing fair, speedy and cost-effective confidential resolution of disputes. All discovery activities shall be expressly limited to matters directly relevant to the dispute being arbitrated. The arbitrator shall have no power to award: (i) damages in excess of or in contravention of this Article VII or (ii) attorneys’ fees or costs. The arbitrator shall promptly commence the arbitral proceeding and issue a written and reasoned award as promptly as is reasonable under the circumstances, but no later than six months after his or her appointment, unless the arbitrator determines that the interest of justice requires that this period be extended. All statutes of limitation applicable to any dispute shall apply to any arbitration proceeding. Judgment upon any award rendered in arbitration may be entered in any court having jurisdiction. Each Party acknowledges that it is giving up judicial rights to a jury trial under the foregoing provision.
Section 7.5No Limitation on Provisional Injunctive Relief. Nothing in this Agreement shall restrict or delay the ability of any Party to seek provisional injunctive relief from any federal or state court of competent jurisdiction located in Delaware, as set forth in Section 8.12. Without limitation to the above, each Party acknowledges that the unauthorized use or disclosure of the other Party’s confidential information or misuse of such Party’s Intellectual Property Rights could cause the non-breaching Party to incur irreparable harm and significant damages, the degree of which may be difficult to ascertain. Accordingly, each Party agrees that the non-breaching Party in such event shall have the right to seek immediate provisional relief to enjoin any unauthorized use or disclosure of its confidential information or Intellectual Property Rights, in addition to any other rights and remedies that it may have at Law or otherwise.
ARTICLE VIII
MISCELLANEOUS
Section 8.1Consent. Any consent of either Party pursuant to this Agreement shall not be effective unless it is in writing and evidenced by the signature of the General Counsel or another duly authorized signatory of such Party (or such other Person that the General Counsel has specifically authorized in writing to give such consent).
Section 8.2Limitation on Liability. IN NO EVENT SHALL A PARTY BE LIABLE TO ANY OTHER PARTY FOR ANY INDIRECT, INCIDENTAL, SPECIAL, PUNITIVE OR CONSEQUENTIAL DAMAGES IN ANY WAY RELATED TO OR ARISING FROM THIS AGREEMENT OR ANY INTELLECTUAL PROPERTY RIGHTS LICENSED OR OTHERWISE PROVIDED HEREUNDER, UNDER ANY THEORY OF LAW, INCLUDING, CONTRACT, TORT OR STRICT LIABILITY, WHETHER OR NOT THE OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
Section 8.3Interpretation. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Words in the singular shall be held to include the plural and vice versa and words of one gender shall be held to include the other gender as the context requires. The terms “hereof,” “herein” and “herewith” and words of similar import, unless otherwise stated, shall be construed to refer to this Agreement as a whole and not to any particular provision of this Agreement. Any reference herein to this Agreement, unless otherwise stated, shall be construed to refer to this Agreement as amended, supplemented or otherwise modified from time to time. The word “including” and words of similar import when used in this Agreement shall mean “including, without limitation,” unless the context otherwise requires or unless otherwise specified. The word “or” shall not be exclusive.
Section 8.4Binding Effect. This Agreement shall inure to the benefit of and be binding upon the Parties and their respective legal representatives and successors, and nothing in this Agreement, express or implied, is intended to confer upon any other Person any rights or remedies of any nature whatsoever under or by reason of this Agreement. Neither Party may assign this Agreement or any rights or obligations hereunder, without the prior written consent of the other Party, and any such assignment shall be void; provided, however, that either Party may assign this Agreement to a successor entity in conjunction with such Party’s reincorporation in another jurisdiction or into another business form
Section 8.5Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which shall constitute one and the same agreement.
Section 8.6Entire Agreement. This Agreement constitutes the entire agreement between the Parties with respect to the subject matter hereof and shall supersede all prior written and oral and all contemporaneous oral agreements and understandings with respect to the subject matter hereof and thereof.
Section 8.7Severability. If any term or other provision of this Agreement is determined by a court, administrative agency or arbitrator to be invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to either Party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the fullest extent possible.
Section 8.8Failure or Indulgence not Waiver; Remedies Cumulative. No failure or delay on the part of either Party hereto in the exercise of any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty or agreement herein, nor shall any single or partial exercise of any such right preclude other or further exercise thereof or of any other right. All rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any rights or remedies otherwise available.
Section 8.9Third Party Beneficiaries. None of the provisions of this Agreement shall be for the benefit of or enforceable by any Third Party, including any creditor of any Person. No such Third Party shall obtain any right under any provision of this Agreement or shall by reasons of any such provision make any claim in respect of any Liability (or otherwise) against either Party hereto.
Section 8.10Notices. Notices, offers, requests or other communications required or permitted to be given by any Party pursuant to the terms of this Agreement shall be given in writing to the respective Parties to the following addresses:
(a)If to SAP, to:
SAP SE
Dietmar-Hopp-Alee 16
Germany - 69190
Attention: Jochen Scholten
E-mail:
(b)If to Qualtrics, to:
Qualtrics International Inc.
333 W River Park Dr
Provo, UT 84604
Attention: Legal Department
E-mail:
or to such other address as the Party to whom notice is given may have previously furnished to the other in writing as provided herein. Any notice shall be sent by hand delivery, internationally recognized overnight courier or, within the United States, may also be sent via certified mail, return receipt requested and, in any event, shall be concurrently sent by e-mail. All notices shall be deemed to have been given when received, if hand delivered; when transmitted, if transmitted electronically; one working day after it is sent, if sent by internationally recognized overnight courier; and three days after it is postmarked, if mailed first class mail or certified mail, return receipt requested, with postage prepaid.
Section 8.11Governing Law. This Agreement, including the validity hereof and the rights and obligations of the Parties hereunder, shall be construed in accordance with, and all Disputes arising out of or relating to this Agreement shall be governed by, the laws of the State of Delaware applicable to contracts made and to be performed entirely in such State (without giving effect to the conflicts of laws provisions thereof).
Section 8.12Consent to Jurisdiction. THE PARTIES AGREE THAT JURISDICTION AND VENUE IN ANY ACTION BROUGHT BY ANY PARTY IN CONNECTION WITH THIS AGREEMENT, THE TRANSACTIONS, OR THE PERFORMANCE OF THE OBLIGATIONS IMPOSED HEREUNDER SHALL PROPERLY AND EXCLUSIVELY LIE IN ANY FEDERAL OR STATE COURT LOCATED IN THE STATE OF DELAWARE. EACH PARTY ALSO AGREES NOT TO BRING ANY ACTION (OTHER THAN APPEALS) IN CONNECTION WITH THIS AGREEMENT, THE TRANSACTIONS, OR THE PERFORMANCE OF THE OBLIGATIONS IMPOSED HEREUNDER IN ANY OTHER COURT. BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PARTY IRREVOCABLY SUBMITS TO THE JURISDICTION OF SUCH COURTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY WITH RESPECT TO ANY SUCH ACTION. THE PARTIES IRREVOCABLY AGREE THAT VENUE WOULD BE PROPER IN SUCH COURT, AND HEREBY WAIVE ANY OBJECTION THAT ANY SUCH COURT IS AN IMPROPER OR INCONVENIENT FORUM FOR THE RESOLUTION OF SUCH ACTION. THE PARTIES FURTHER AGREE THAT THE MAILING BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, OF ANY PROCESS REQUIRED BY ANY SUCH COURT SHALL CONSTITUTE VALID AND LAWFUL SERVICE OF PROCESS AGAINST THEM, WITHOUT NECESSITY FOR SERVICE BY ANY OTHER MEANS PROVIDED BY STATUTE OR RULE OF COURT.
Section 8.13Waiver of Jury Trial. EACH OF THE PARTIES ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY THAT MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH OF THE PARTIES HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT. EACH OF THE PARTIES CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER COMPANY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE OTHER PARTY WOULD NOT, IN THE EVENT OF ANY LITIGATION, SEEK TO
ENFORCE THE FOREGOING WAIVER, (B) EACH OF THE PARTIES UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) EACH OF THE PARTIES MAKES THIS WAIVER VOLUNTARILY AND (D) EACH OF THE PARTIES HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS Section 8.13.
Section 8.14Amendment. This Agreement may be amended only by an instrument in writing signed by or on behalf of each of the Parties.
Section 8.15Authority. Each of the Parties represent to the other Party that (a) it has the corporate or other requisite power and authority to execute, deliver and perform this Agreement, (b) the execution, delivery and performance of this Agreement by it have been duly authorized by all necessary corporate or other actions, (c) it has duly and validly executed and delivered this Agreement, and (d) this Agreement is its legal, valid and binding obligation, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors’ rights generally and general equity principles.
Section 8.16Master Transaction Agreement. In the event there is any inconsistency between the provisions of this Agreement and the provisions of the Master Transaction Agreement, the provisions of this Agreement shall govern.
[Signature Page Follows]
IN WITNESS WHEREOF, the Parties have caused this Agreement to be signed by their duly authorized representatives as of the date first set forth above.
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[Signature Page to Intellectual Property Matters Agreement]
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FORM OF
DISTRIBUTION AGREEMENT
dated as of [ ]
between
SAP SE
and
QUALTRICS INTERNATIONAL INC.
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DISTRIBUTION AGREEMENT
This Distribution Agreement (this “Agreement”) is dated as of the [ ] day of [ ], 202[ ] (the “Effective Date”), between Qualtrics International Inc., a Delaware corporation (“Qualtrics”), and SAP SE, a Societas Europaea registered in accordance with the corporate laws of Germany and the European Union (“SAP”). Qualtrics and SAP are sometimes referred to herein separately as a “Party” and together as the “Parties”. Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to them in Article X hereof.
RECITALS
WHEREAS, SAP, through Qualtrics, is engaged in the business (the “Qualtrics Business”) of providing a technology platform for organizations to collect, manage and take action on experience data, as more completely described in a Registration Statement on Form S-1 (File No. [ ]) filed with the Securities and Exchange Commission on [ ] under the Securities Act of 1933, as amended (the “IPO Registration Statement”);
WHEREAS, SAP and Qualtrics currently contemplate that Qualtrics will make an initial public offering (“IPO”) of its Class A common stock pursuant to the IPO Registration Statement; and
WHEREAS, to facilitate the Qualtrics Business, each Party distributes the other Party’s products and services;
WHEREAS, following consummation of the IPO, each of SAP and Qualtrics desire to agree to continue to distribute the other’s products and services, as more fully set forth in this Agreement (collectively, the “Go-To-Market Models”); and
WHEREAS, each Party desires to set forth in this Agreement the principal terms and conditions of the Go-To-Market Models pursuant to which, if agreed by the Parties, the SAP Entities and the Qualtrics Entities, respectively, may sell, distribute and market the other party’s solutions.
NOW, THEREFORE, in consideration of the foregoing and the terms, conditions, covenants and provisions of this Agreement, SAP and Qualtrics mutually covenant and agree as follows:
ARTICLE I
GO-TO-MARKET MODELS
Section 1.1Models. During the term of this Agreement, the Parties may, from time to time, agree to sell, resell and otherwise distribute one another’s products under the Go-To-Market-Models described below:
(a)SAP Reseller. If and to the extent agreed by the Parties, SAP may resell and distribute directly or indirectly (including through any SAP partner) any Qualtrics products under Qualtrics brand, whether as separate listed products, together with SAP products in a
bundled offering, or as embedded within a single SAP product offering, in each case in accordance with the terms set forth in Appendix A; and
(b)Qualtrics OEM. If and to the extent agreed by the Parties, Qualtrics may license SAP components, and Intellectual Property Rights embodied therein, that are embedded within a single Qualtrics product offering in accordance with the terms set forth in Appendix B.
Section 1.2Implementation of Models. The Parties shall agree on which Go-To-Market Models to implement in accordance with the Governance Process described in Article III and shall, in connection therewith, determine which SAP Entities and which Qualtrics Entities will provide and/or distribute products under such Go-To-Market Models.
Section 1.3Additional Models. During the term of the Agreement, the Parties may from time to time agree to implement additional Go-To-Market-Models under which they may distribute one another’s products. Any such additional Go-To-Market-Models will be agreed upon in accordance with the Governance Process described in Article III.
ARTICLE II
COMPLIANCE
Section 2.1Compliance with SAP Policies. Section 3.12 (Compliance Policies) of the Master Transaction Agreement is hereby incorporated herein by reference. If the Master Transaction Agreement terminates or expires, the compliance policies listed at https://portal.wdf.sap.corp/go/globalpolicies (and which SAP will otherwise make available to Qualtrics upon Qualtrics’ request), including all updates thereto, shall nevertheless continue to be effective under this Agreement and will remain in effect for the term of this Agreement. SAP will use reasonable efforts to notify Qualtrics of any such updates to the foregoing compliance policies.
ARTICLE III
GOVERNANCE PROCESS
Section 3.1Executive Sponsor Board.
(a)Composition. The Parties hereby establish an executive sponsor board, as of the Effective Date, to set the overall strategy and resolve disputes of the Parties under this Agreement (the “Executive Sponsor Board”). The Executive Sponsor Board will initially be comprised of individuals listed in Table 1 of Schedule 1, consisting of an equal number of members from each Party. Each Party may replace one or more of its representatives at any time upon five (5) business days prior written notice provided to the other Party, and such replacement representative should have an equivalent position and appropriate decision-making authority for the applicable Party. The Executive Sponsor Board will be co-chaired by one executive from each Party.
(b)Responsibilities. The Executive Sponsor Board’s responsibilities include:
i.setting forth overall strategy and providing end-to-end review for the collaboration of the Parties under the Agreement;
ii.resolving any escalations from the Go-To-Market Steering Committee; and
iii.addressing any other matters as otherwise raised by the Parties from time to time during the term of this Agreement.
(c)Meetings and Decision Making. A quorum (consisting of at least one representative from each Party) of the Executive Sponsor Board will meet at least quarterly (or more frequently as agreed by the members of the Executive Sponsor Board), at a mutually agreeable time and place (in person or by telephone or video). The Qualtrics and SAP Program Leads may participate in such meetings as observers, without decision making right (and their absence will not affect the quorum). In addition, each Party may request, through its representative on the Go-To-Market Steering Committee (as defined below), a special Executive Sponsor Board meeting upon reasonable advance notice. Other individuals from each Party may participate in such specially called Executive Sponsor Board meetings upon invitation, but without decision making rights. Any decision of the Executive Sponsor Board, in order to be valid, must be agreed to unanimously by all then-current members, and made in writing (which may include email). Furthermore, any decision of the Executive Sponsor Board that seeks to supplement or contradict any terms or conditions in this Agreement must be memorialized in a signed written amendment to this Agreement in accordance with the terms hereof to be effective.
Section 3.2Go-To-Market Steering Committee.
(a)Composition. The Parties hereby establish an operational steering and committee to resolve problems and make decisions on a regular basis to enable both Parties to achieve their business and product goals in connection with this Agreement (the “Go-To-Market Steering Committee”). The Go-To-Market Steering Committee will initially be comprised of the individuals listed in Table 2 of Schedule 1, consisting of an equal number of members from each Party. Each of Qualtrics and SAP may replace its representatives at any time upon providing five (5) business days written notice to the other, and such replacement representative should have an equivalent position title and appropriate decision-making authority for the applicable Party. Meetings of the Go-To-Market Steering Committee will be chaired in turn by one executive from Qualtrics or SAP.
(b)Responsibilities. The responsibilities of the Go-To-Market Steering include:
i.Determine whether and under which Go-To-Market-Models the Parties may sell, resell or otherwise distribute each other’s products and services, and in connection therewith, which SAP Entity(ies) and which Qualtrics Entity(ies) shall provide and distribute such products and services;
ii.Review product roadmap matters relating to the SAP reseller Go-To-Market Model described in Appendix A;
iii.ensure alignment with the Product Development Committee;
iv.agree on the product owner within SAP to ensure the SolEx Process Standards and Compliance Assessment (as defined in Appendix A) are followed;
v.considering and identifying technology useful or beneficial to the other party in the research, development and creation of products.
(c)Meetings and Decision Making. A quorum (consisting of at least a majority of representatives from Qualtrics and a majority of representatives from SAP) of the Go-To-Market Steering Committee will meet at least quarterly, at a mutually agreeable time and place (in person or by telephone or video). Any decision by the Go-To-Market Steering Committee, in order to be valid, must be agreed to unanimously by all then-current representative from each of Qualtrics and SAP, and must be made in writing (which may include email). If the Go-To-Market Steering fails to agree on a matter that requires its approval in accordance to this Section 3.2(c), it will immediately escalate such matter to the Executive Sponsor Board in accordance with Section 3.6.
Section 3.3Product Development Committee.
(a)Composition. The Parties hereby establish a Product Development Committee to ensure engagement and alignment among key executives at SAP and Qualtrics on a regular basis for those matters involving product development (the “Product Development Committee”). Though each Party’s product related input is discussed and considered by the Product Development Committee, each Party shall have final discretion for product development decisions for their respective products and services. The initial approved Product Development Committee members are listed in Table 3 of Schedule 1, consisting of an equal number of members from each Party. The Party that appoints the initial representative may replace its representative at any time upon providing five (5) business days written notice to the other, and such replacement representative should have an equivalent position and appropriate decision-making authority for the applicable Party.
(a)Responsibilities. The responsibilities of the Product Development Committee include:
i.receive and review regular and periodic updates from SAP or Qualtrics on the SAP Solutions and Qualtrics Solutions provided under this Agreement;
ii.discuss changes to the roadmap for the SAP Solutions and Qualtrics Solutions provided under this Agreement;
iii.agree on collaborative approaches of SAP and Qualtrics for identified opportunities;
iv.review co-innovation projects and opportunities with strategic customers and partners;
v.ensure alignment with the Go-To-Market Steering Committee;
vi.review and resolve product and technology-related customer issues and escalations;
vii.training and enabling support teams with respect to support collaboration models and product updates;
viii.ensure alignment between Qualtrics and SAP on support collaboration processes, support service delivery, support portfolio, support knowledge management, support infrastructure and architecture/technology strategy;
ix.ensure alignment on support and maintenance key performance indicators, adherence thereto, and follow up;
x.perform quality checks on customer tickets;
xi.collaborating in cases of customer complaints (e.g. low CSAT scores), SLA breach penalties, critical customer situations and escalations; and
xii.agreeing on industry events for the Parties.
Section 3.4Meetings and Decision Making. The Product Development Committee will meet at least monthly during the first six (6) months from the Effective Date, and then at least quarterly thereafter for the remainder of the term of this Agreement, at a mutually agreeable time and place (in person or by telephone or video). Any decision by the Product Development Committee, in order to be valid, must be agreed to unanimously by all then-current members, and made in writing (which may include email). Furthermore, no decision of the Product Development Committee may supplement or contradict any terms or conditions in the Agreement. If the Product Development Committee fails to agree on a matter that requires its approval, such matter will be immediately escalated to the Go-To-Market Steering Committee in accordance with Section 3.6.
(a)Alliance Lead. Each Party will appoint a dedicated alliance lead (an “Alliance Lead”). The initial approved Alliance Leads for each Party are listed in Table 4 of Schedule 1. The Alliance Leads will be responsible for driving the Qualtrics and SAP relationship to deliver global revenue and support the long-term growth of Qualtrics and SAP.
Section 3.5Escalations for Disputes and Deadlocks.
(a)Disputes and Deadlocks. The Parties will endeavor in good faith to promptly and reasonably settle any dispute or disagreement arising out of or relating to the activities contemplated under this Agreement, including but not limited to the items set forth in this Section 3.6 (each, a “Dispute”). A Dispute may include any claim or disagreement with
respect to activities conducted under, either Party’s obligations under, good faith exercise of its rights of, or receipt of benefits under, this Agreement. A Dispute may also include any deadlock scenario where the Go-To-Market Steering and Product Development Committee or cannot come to a resolution.
(b)Escalation Process. All Disputes will be escalated in accordance with the following process:
i.The Product Development Committee will attempt in good faith to resolve any Dispute on matters within its responsibilities set forth in this Article III within (10) business days after receiving written notice of such Dispute describing the details of the Dispute.
ii.If the Product Development Committee is unable to resolve a Dispute within such ten (10) business day period, or has a deadlock on matters that require its approval, it will immediately escalate in writing such Dispute to the Go-To-Market Steering Committee.
iii.If the Go-To-Market Steering Committee, after good faith efforts, is unable to resolve the Dispute within 10 (10) business days after receipt of such escalation of such Dispute by the Product Development Committee pursuant to Section 3.5(b)(ii), then the matter will be escalated the Executive Sponsor Board within five (5) business days.
iv.The Executive Sponsor Board will attempt in good faith to resolve any Dispute escalated to it by the Go-To-Market Steering Committee.
v.Any Dispute that is not resolved through the Escalation Process set forth herein shall be subject to the dispute resolution process described in Section 4.4.
Section 3.6Documentation. All decisions, approvals and/or resolutions made under this Article III will be made and documented in writing, and such written documents will be (a) promptly circulated to all members of the representatives of the Executive Sponsor Board, and/or relevant committees or teams established under this Article III, as applicable, and (b) duly maintained by such designated representatives that makes such decisions, approvals and/or resolutions. For clarity, e-mail is acceptable as a written communication, except for any change that seeks to supplement or contradict any terms or conditions in the Agreement. Any decision that seeks to supplement or contradict any terms or conditions in the Agreement must be memorialized in a signed written amendment to the Agreement to be effective.
ARTICLE IV
JOINT WARRANTIES AND COVENANTS
Section 4.1Other Agreements. SAP and Qualtrics agree to execute or cause to be executed by the appropriate parties and deliver, as appropriate, such other agreements,
instruments and other documents as may be necessary or desirable in order to affect the purposes of this Agreement.
Section 4.2Warranties. Each Party represents and warrants that:
(a)it has the right and authority to enter into this Agreement, to grant the licenses and other rights it purports to grant hereunder, and to carry out its obligations hereunder and thereunder;
(b)the execution, delivery and performance by such Party of this Agreement as the consummation by such Party of the transactions contemplated hereby have been duly authorized by all requisite action on the part of such Party necessary to authorize the execution, delivery and performance by such Party of this Agreement or the consummation of the transactions contemplated hereby; and
(c)this Agreement has been duly executed and delivered by such Party and, assuming the due authorization, execution and delivery by the other Party, this Agreement constitutes the valid and binding obligation of such Party, enforceable against such Party in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereinafter in effect relating to creditors rights generally and general equitable principles (whether considered in a proceeding in equity or at law).
(d)No Other Warranties. EXCEPT FOR THE EXPRESS LIMITED WARRANTIES STATED ABOVE OR EXPRESSLY STATED IN THE APPENDICES TO THIS AGREEMENT, NEITHER PARTY MAKES ANY WARRANTIES WHETHER EXPRESSED, IMPLIED OR STATUTORY REGARDING OR RELATING TO ANY PRODUCTS OR SERVICES FURNISHED OR PROVIDED TO THE OTHER PARTY UNDER THIS AGREEMENT. EACH PARTY SPECIFICALLY DISCLAIMS ALL IMPLIED WARRANTIES OF MERCHANTABILITY, NON-INFRINGEMENT AND FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE PRODUCTS AND SERVICES PROVIDED HEREUNDER, AND WITH RESPECT TO THE USE OF THE FOREGOING.
Section 4.3Confidentiality. Confidentiality terms are set forth in Section 3.5 (Confidentiality) of the Master Transaction Agreement and incorporated by reference. If the Master Transaction Agreement terminates or expires, the provisions of Section 3.5 (Confidentiality) of the Master Transaction Agreement shall nevertheless continue to be effective under this Agreement and will remain in effect for the term of this Agreement.
Section 4.4Dispute Resolution. Dispute resolution terms are set forth in Section 3.9 (Dispute Resolution) of the Master Transaction Agreement and incorporated by reference. If the Master Transaction Agreement terminates or expires, the provisions of Section
3.9 (Dispute Resolution) of the Master Transaction Agreement shall nevertheless continue to be effective under this Agreement and will remain in effect for the term of this Agreement.
Section 4.5Publicity. Publicity terms are set forth in Section 5.17 (Publicity) of the Master Transaction Agreement and incorporated by reference. If the Master Transaction Agreement terminates or expires, the provisions of Section 5.17 (Publicity) of the Master Transaction Agreement shall nevertheless continue to be effective under this Agreement and will remain in effect for the term of this Agreement.
Section 4.6Center of Excellence. Within twelve (12) months of the date of this Agreement, each Party will establish a Customer center of excellence (a “Customer Center of Excellence”, or “Customer COE”). The Customer COE is designated by each Party as a central point of contact for interaction with the other Party’s support organization. As a permanent center of excellence, the Customer COE supports each Party’s efficient implementation, innovation, operation and quality of business processes and systems related to the other Party’s products and services provided under this Agreement, based on the “Run SAP” methodology provided by SAP. Each Party’s Customer COE will fulfill the following basic functions:
(a)Solution GTM Planning and Strategy. Creation of comprehensive and scalable sales plays for field execution with focus on large enterprise deals that address selling the Qualtrics platform as part of the “Intelligent Enterprise.” Plan and provide enablement (readiness) including landing demonstrations, value proposition and content creation.
(b)Demand Generation and Business Development. Apply, adapt and enforce global strategy, initiatives to position Qualtrics for large enterprise deals; lead the development of solution relevant “Regional Qualtrics XM Sales Plays” working with sales teams.
(c)Information Management. Distribution of information (e.g. internal demonstrations, information events and marketing) about each Party’s products and services provided under this Agreement and the Customer COE within the other Party’s organization.
(d)Services Planning. Regularly engagement in a service planning process with the other Party’s Customer COE. The service planning starts during the initial implementation and will then be continued regularly.
ARTICLE V
RISK ALLOCATION
Section 5.1Mutual Releases. Mutual releases are set forth in Section 4.1 (Release of Pre-IPO Date Claims) of the Master Transaction Agreement and incorporated herein by reference. If the Master Transaction Agreement terminates or expires, the provisions of Section 4.1 (Release of Pre-IPO Date Claims) of the Master Transaction Agreement shall nevertheless continue to be effective under this Agreement and will remain in effect for the term of this Agreement.
Section 5.2Limitation of Liability. The limitation of liability terms set forth in Section 5.2 (Limitation of Liability) of the Master Transaction Agreement and incorporated by reference. If the Master Transaction Agreement terminates or expires, the provisions of Section 5.2 (Limitation of Liability) of the Master Transaction Agreement shall nevertheless continue to be effective under this Agreement and will remain in effect for the term of this Agreement.
ARTICLE VI
TAXES
Section 6.1Go-To-Market Models. The Parties agree that the terms of the applicable Go-To-Market Models, as set forth in Appendix A and Appendix B, or as otherwise agreed to by the Parties through the Governance Process, include and shall include the applicable provisions addressing tax matters,
ARTICLE VII
INTELLECTUAL PROPERTY AND INDEMNITIES
Section 7.1Proprietary Rights. As between the Parties, all right, title and interest in and to the SAP Solutions shall remain with SAP and/or with the respective provider or author of such SAP Solutions. Without limiting the foregoing, all Intellectual Property Rights in and to the SAP Solutions, including all improvements, modifications and derivative works thereto or thereof, shall remain with SAP and/or with the respective provider or author of such SAP Solutions. As between the Parties, all right, title and interest in and to the Qualtrics Solutions shall remain with Qualtrics and/or with the respective provider or author of such Qualtrics Solutions. Without limiting the foregoing, all Intellectual Property Rights in and to the Qualtrics Solutions, including all improvements, modifications and derivative works thereto or thereof, shall remain with Qualtrics and/or with the respective provider or author of such Qualtrics Solutions.
Section 7.2Third-Party Claims.
(a)Qualtrics IP Indemnity. Qualtrics shall defend, indemnify and hold harmless the SAP Entities and their Outbound Partners (collectively, the “SAP Indemnified Parties”) from and against any losses, expenses, damages (including punitive damages), liens, fines, awards, judgements, settlements, fees, penalties, and liabilities (collectively, “Losses”) arising out of, resulting from, or relating to any IP Indemnified Claims. If an IP Indemnified Claim under this Section occurs, or if Qualtrics determines that an Indemnified Claim is likely to occur, Qualtrics shall, at its option and without limiting its obligations under this Section: (i) obtain a right for the SAP Indemnified Parties to continue using such Qualtrics Solutions; (ii) modify such Qualtrics Solutions to make them non-infringing; or (iii) replace such Qualtrics Solutions with a non-infringing equivalent. If (i), (ii) or (iii) above are not reasonably available, either Party may, at its option, cease providing or distributing, as applicable, the infringing Qualtrics Solution, and Qualtrics will refund any pre-paid fees on a pro-rata basis for the allegedly infringing Qualtrics Solutions that have not been provided. Notwithstanding the foregoing, Qualtrics shall have no obligation under this Agreement for any IP Indemnified Claim resulting or arising from: (x) modifications made to the Qualtrics Solutions that were not
performed or provided by or on behalf of Qualtrics; or (y) the combination, operation or use by the SAP Indemnified Parties or anyone acting on their behalf, of the Qualtrics Solutions in connection with a third-party product or service (excluding any SAP Solution) where the IP Indemnified Claim relates to such combination.
(b)SAP IP Indemnity. SAP shall defend, indemnify and hold harmless the Qualtrics Entities and their Outbound Partners (collectively, the “Qualtrics Indemnified Parties”) from and against any Losses arising out of, resulting from, or relating to any IP Indemnified Claims. If an IP Indemnified Claim under this Section occurs, or if SAP determines that an Indemnified Claim is likely to occur, SAP shall, at its option and without limiting its obligations under this Section: (i) obtain a right for the Qualtrics Indemnified Parties to continue using such SAP Solutions; (ii) modify such SAP Solutions to make them non-infringing; or (iii) replace such SAP Solutions with a non-infringing equivalent. If (i), (ii) or (iii) above are not reasonably available, either Party may, at its option, cease providing or distributing, as applicable, the infringing SAP Solution, and SAP will refund any pre-paid fees on a pro-rata basis for the allegedly infringing SAP Solutions that have not been provided. Notwithstanding the foregoing, SAP shall have no obligation under this Agreement for any IP Indemnified Claim resulting or arising from: (x) modifications made to the SAP Solutions that were not performed or provided by or on behalf of SAP; or (y) the combination, operation or use by the Qualtrics Indemnified Parties or anyone acting on their behalf, of the SAP Solutions in connection with a third-party product or service (excluding any Qualtrics Solution) where the IP Indemnified Claim relates to such combination.
(c)General Indemnity. Until a Change of Control, each Party shall defend, indemnify and hold harmless the SAP Indemnified Parties or Qualtrics Indemnified Parties, as applicable, from and against any Losses arising out of, resulting from, or relating to any third-party claim or Action to the extent relating to or arising from the Qualtrics Solutions or SAP Solutions, as applicable, provided under this Agreement (“General Indemnified Claims”); provided that General Indemnified Claims shall not include IP Indemnified Claims.
(d)Reductions for Insurance Proceeds and other Recoveries.
i.The amount that any Indemnifying Party is or may be required to provide indemnification to or on behalf of any Indemnitee pursuant to this Section 7.2 shall be reduced (retroactively or prospectively) by any Insurance Proceeds or other amounts actually recovered from third parties by or on behalf of such Indemnitee in respect of the related Loss. The existence of a claim by an Indemnitee for monies from an insurer or against a third party in respect of any indemnifiable Loss shall not, however, delay any payment pursuant to the indemnification provisions contained herein and otherwise determined to be due and owing by an Indemnifying Party. Rather, the Indemnifying Party shall make payment in full of the amount determined to be due and owing by it against an assignment by the Indemnitee to the Indemnifying Party of the entire claim of the Indemnitee for Insurance Proceeds or against such third party. Notwithstanding any other provisions of this Agreement, it is the intention of the Parties that no insurer or any other third party shall be (x) entitled to a benefit it would not be entitled to receive in the
absence of the foregoing indemnification provisions, or (y) relieved of the responsibility to pay any claims for which it is obligated. If an Indemnitee has received the payment required by this Agreement from an Indemnifying Party in respect of any indemnifiable Loss and later receives Insurance Proceeds or other amounts in respect of such indemnifiable Loss, then such Indemnitee shall hold such Insurance Proceeds or other amounts in trust for the benefit of the Indemnifying Party (or Indemnifying Parties) and shall pay to the Indemnifying Party, as promptly as practicable after receipt, a sum equal to the amount of such Insurance Proceeds or other amounts received, up to the aggregate amount of any payments received from the Indemnifying Party pursuant to this Agreement in respect of such indemnifiable Loss (or, if there is more than one Indemnifying Party, the Indemnitee shall pay each Indemnifying Party, its proportionate share (based on payments received from the Indemnifying Parties) of such Insurance Proceeds).
ii.The amount that any Indemnifying Party is or may be required to provide indemnification to or on behalf of any Indemnitee pursuant to Section 7.2 shall be (x) increased to take account of any net Tax cost incurred by the Indemnitee arising from the receipt or accrual of an indemnification payment hereunder (grossed up for such increase) and (y) reduced to take account of any net Tax benefit realized by the Indemnitee arising from incurring or paying such loss or other liability. In computing the amount of any such Tax cost or Tax benefit, the Indemnitee shall be deemed to recognize all other items of income, gain, loss, deduction or credit before recognizing any item arising from the receipt or accrual of any indemnification payment hereunder or incurring or paying any indemnified Loss. Any indemnification payment hereunder shall initially be made without regard to this Section 7.2(d) and shall be increased or reduced to reflect any such net Tax cost (including gross-up) or net Tax benefit only after the Indemnitee has actually realized such cost or benefit. For purposes of this Agreement, an Indemnitee shall be deemed to have “actually realized” a net Tax cost or a net Tax benefit to the extent that, and at such time as, the amount of Taxes payable by such Indemnitee is increased above or reduced below, as the case may be, the amount of Taxes that such Indemnitee would be required to pay but for the receipt or accrual of the indemnification payment or the incurrence or payment of such Loss, as the case may be. The amount of any increase or reduction hereunder shall be adjusted to reflect any Final Determination with respect to the Indemnitee’s liability for Taxes, and payments between such indemnified parties to reflect such adjustment shall be made if necessary. Notwithstanding any other provision of this Agreement, to the extent permitted by applicable law, the Parties agree that any indemnity payment made hereunder shall be treated as a capital contribution by SAP America to Qualtrics or dividend distribution by Qualtrics to SAP America, as the case may be, immediately prior to the IPO Date and, accordingly, not includible in the taxable income of the recipient or deductible by the payor.
(e)Procedures for Defense, Settlement and Indemnification of the Third Party Claims.
i.If an Indemnitee shall receive notice or otherwise learn of the assertion by a Person who is not an SAP Entity or Qualtrics Entity of any claim or of the commencement by any such Person of any Action (collectively, a “Third Party Claim”) with respect to which an Indemnifying Party may be obligated to provide indemnification, SAP and Qualtrics (as applicable) will ensure that such Indemnitee shall give such Indemnifying Party written notice thereof within 30 days after becoming aware of such Third Party Claim. Any such notice shall describe the Third Party Claim in reasonable detail. Notwithstanding the foregoing, the delay or failure of any Indemnitee or other Person to give notice as provided in this Section 7.2(e) shall not relieve the related Indemnifying Party of its obligations under this ARTICLE VII, except to the extent that such Indemnifying Party is actually and substantially prejudiced by such delay or failure to give notice.
ii.An Indemnifying Party shall be entitled to participate in the defense of any Third Party Claim and, to the extent that it wishes, at its cost, risk and expense, to assume the defense thereof, with counsel reasonably satisfactory to the party seeking indemnification. After timely notice from the Indemnifying Party to the Indemnitee of such election to so assume the defense thereof, the Indemnifying Party shall not be liable to the party seeking indemnification for any legal expenses of other counsel or any other expenses subsequently incurred by Indemnitee in connection with the defense thereof, except that the Indemnifying Party shall bear the expenses of separate counsel for the Indemnitee if there exists a conflict of interest between the Indemnitee and the Indemnifying Party in connection with the defense of such Third Party Claim that would make the representation by the same counsel or the counsel selected by Indemnifying Party inappropriate or the Indemnitee would lose any defenses available to it which are different from or in addition to those available to the Indemnifying Party. The Indemnitee agrees to cooperate in all reasonable respects with the Indemnifying Party and its counsel in the defense against any Third Party Claim. The Indemnifying Party shall be entitled to compromise or settle any Third Party Claim as to which it is providing indemnification; provided, however, that such compromise or settlement shall be made only with the written consent of the Indemnitee, such consent not to be unreasonably withheld, conditioned or delayed.
iii.If an Indemnifying Party fails to assume the defense of a Third Party Claim within thirty (30) calendar days after receipt of notice of such claim, Indemnitee will, upon delivering notice to such effect to the Indemnifying Party, have the right to undertake the defense, compromise or settlement of such Third Party Claim on behalf of and for the account of the Indemnifying Party subject to the limitations as set forth in this Section 7.2(e); provided, however, that such Third Party Claim shall not be compromised or settled without the written consent of the Indemnifying Party, which consent shall not be unreasonably withheld, conditioned or delayed. If the Indemnitee assumes the defense of any Third Party Claim, it shall keep the Indemnifying Party reasonably informed of the
progress of any such defense, compromise or settlement. The Indemnifying Party shall reimburse all applicable such costs and expenses of the Indemnitee in the event it is ultimately determined that the Indemnifying Party is obligated to indemnify the Indemnitee with respect to such Third Party Claim. In no event shall an Indemnifying Party be liable for any settlement effected without its consent, which consent will not be unreasonably withheld, conditioned or delayed
ARTICLE VIII
TERMINATION AND EFFECTS OF TERMINATION
Section 8.1Term. Unless terminated earlier in accordance with this Article VIII, the initial term of this Agreement will begin on the Effective Date and expire upon the later of: (a) five (5) years from the Effective Date or (b) a Change of Control. If the term of the initial term of this Agreement expires in accordance with subsection (a), the term of this Agreement will renew automatically for one additional three (3) year term unless either Party terminates by providing at least eighteen (18) months’ written notice to the other Party. Following such three (3) year renewal term (if any), the term of this Agreement will renew automatically for successive eighteen (18) month terms unless either Party terminates by providing at least eighteen (18) months’ written notice to the other Party.
Section 8.2Termination; Amendment. This Agreement may be terminated or amended at any time and during the term of this Agreement by mutual consent of SAP and Qualtrics, evidenced by an instrument in writing signed on behalf of each of the Parties. In the event of termination pursuant to this Section 8.2, no Party shall have any liability of any kind to the other Party.
Section 8.3Termination for Breach. Either Party may terminate this Agreement upon written notice if the other Party is in material breach of this Agreement and the breaching Party fails to cure that breach within thirty (30) days after written notice thereof from the non-breaching Party.
Section 8.4Effect of Termination. Upon any termination of this Agreement, but subject to the rights granted to each Party under Section 8.5, each Party shall immediately discontinue the provision of the other Party’s products and services to new customers. In addition, each Party may also retain the use of the other Party’s products and services provided under this Agreement solely to the extent necessary for archival purposes which are mandatory according to the applicable law.
Section 8.5Transition. Subject to payment of the applicable fees as set forth in the Appendices hereof, so long as each Party continues to comply with the terms and conditions of the Agreement in all material respect (provided that any allegation of material breach shall be subject to the terms of Section 8.3, including the cure period set forth therein), and solely to the extent necessary for each Party to fulfil their respective contractual obligations under agreements with their respective customers effective at the time of termination or expiration of this Agreement, the terms of this Agreement, including all Appendices hereto, shall survive any termination or expiration of the Agreement for a transition period equal to the longer
of (a) twenty-four (24) months or (b) the period of time necessary for each Party to fulfil its contractual obligations under agreements with their respective customers effective at the time of termination or expiration of this Agreement; provided neither Party shall renew or allow their respective customers to renew any such agreement (the “Wind-Down Period”). Notwithstanding the foregoing, the Wind-Down Period shall be a period of seven (7) years solely with respect to maintenance and support services provided to each Party’s customers who are using the other Party’s products or services provided under this Agreement in connection with a bundled solution as of the time of termination or expiration of this Agreement. During the Wind-Down Period, each Party shall use commercially reasonable efforts to promptly transition their respective customers out of solutions that require or use the other Party’s products or services provided under this Agreement.
Section 8.6Survival. Following termination or expiration of this Agreement, those provisions which must survive to enable the Parties to exercise their rights and perform their obligations under Section 8.5 shall survive for the duration of the Wind-Down Period. In addition, provisions of Sections 4.2(d), 4.3, 4.4, 5.2, 8.5 and 8.6, and Articles VII, IX and X shall survive any termination or expiration of this Agreement.
ARTICLE IX
MISCELLANEOUS
Section 9.1Consent. Any consent of SAP or Qualtrics pursuant to this Agreement shall not be effective unless it is in writing and evidenced by the signature of the General Counsel of SAP or General Counsel of Qualtrics (or such other person that the General Counsel of SAP or General Counsel of Qualtrics has specifically authorized in writing to give such consent).
Section 9.2Assignment. Neither Party may assign this Agreement or any rights or obligations hereunder, without the prior written consent of the other Party, and any such assignment shall be void; provided, however, (a) either Party may assign this Agreement to a successor entity in conjunction with such Party’s reincorporation in another jurisdiction or into another business form, (b) SAP may assign this Agreement to any SAP Entity without consent from or prior notice to Qualtrics, and (c) Qualtrics may assign this Agreement to any Qualtrics Entity who is a Qualtrics Entity on the Effective Date without prior notice to or consent from SAP, not to be unreasonably withheld or delayed.
Section 9.3Interpretation. The headings contained in this Agreement, in any Exhibit or Appendix hereto are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Any capitalized term used in any Exhibit or Appendix but not otherwise defined therein, shall have the meaning assigned to such term in this Agreement. When a reference is made in this Agreement to an Article or a Section, Exhibit or Appendix, such reference shall be to an Article or Section of, or an Exhibit or Appendix to, this Agreement unless otherwise indicated. Words in the singular shall be held to include the plural and vice versa and words of one gender shall be held to include the other gender as the context requires. The terms “hereof,” “herein” “and “herewith” and words of similar import, unless otherwise stated, shall be construed to refer to this Agreement as a whole (including all of the
Schedules hereto) and not to any particular provision of this Agreement. Any reference herein to this Agreement, unless otherwise stated, shall be construed to refer to this Agreement as amended, supplemented or otherwise modified from time to time, as permitted by Section 9.16. The word “including” and words of similar import when used in this Agreement shall mean “including, without limitation,” unless the context otherwise requires or unless otherwise specified. The word “or” shall not be exclusive.
Section 9.4Binding Effect. This Agreement shall inure to the benefit of and be binding upon the Parties and their respective legal representatives and successors, and nothing in this Agreement, express or implied, is intended to confer upon any other Person any rights or remedies of any nature whatsoever under or by reason of this Agreement. This Agreement may be enforced separately by each SAP Entity and each Qualtrics Entity.
Section 9.5Counterparts. This Agreement, including the Exhibits and Appendices hereto and thereto and the other documents referred to herein or therein, may be executed in counterparts, each of which shall be deemed to be an original but all of which shall constitute one and the same agreement.
Section 9.6Entire Agreement. This Agreement and the Exhibits and Appendices referenced or attached hereto and thereto, constitute the entire agreement between the Parties with respect to the subject matter hereof and thereof and shall supersede all prior written and oral and all contemporaneous oral agreements and understandings with respect to the subject matter hereof and thereof.
Section 9.7Conflicting Agreements. In the event of conflict between this Agreement and the Master Transaction Agreement or other agreements executed in connection herewith, the provisions of the Master Transaction Agreement shall prevail, except to the extent the Master Transaction Agreement is expired or terminated, notwithstanding such expiration or termination, Sections 3.5, 3.9, 4.1, 5.2 and 5.17 will continue in effect with respect to this Agreement.
Section 9.8Severability. If any term or other provision of this Agreement or the Exhibits or Appendices attached hereto is determined by a court, administrative agency or arbitrator to be invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to either Party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the fullest extent possible.
Section 9.9Force Majeure.
(a)For purposes of this Section 9.9, “Force Majeure” means an event beyond the control of any Party, which by its nature could not have been foreseen by such Party, or, if it
could have been foreseen, was unavoidable, and includes without limitation, acts of God, storms, floods, riots, fires, natural disasters, labor disputes or stoppages, government acts or orders, epidemics, pandemics, outbreaks of communicable disease, quarantines, acts of terrorism, sabotage, civil commotion or civil unrest, interference by civil or military authorities, acts of war (declared or undeclared) and failure of energy sources.
(b)No Party shall be under any liability for failure to fulfill any obligation under this Agreement, so long as and to the extent to which the fulfillment of such obligation is prevented, frustrated, hindered, or delayed as a consequence of circumstances of Force Majeure.
Section 9.10Failure or Indulgence not Waiver; Remedies Cumulative. No failure or delay on the part of either Party hereto in the exercise of any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty or agreement herein, nor shall any single or partial exercise of any such right preclude other or further exercise thereof or of any other right. All rights and remedies existing under this Agreement or the Exhibits or Appendices attached hereto are cumulative to, and not exclusive of, any rights or remedies otherwise available.
Section 9.11Third Party Beneficiaries. Subject to section 9.4, none of the provisions of this Agreement shall be for the benefit of or enforceable by any third party, including any creditor of any Person. No such third party shall obtain any right under any provision of this Agreement or shall by reasons of any such provision make any claim in respect of any Liability (or otherwise) against either Party hereto.
Section 9.12Specific Performance. In the event of any actual or threatened default in, or breach of, any of the terms, conditions and provisions of this Agreement, the affected Party shall have the right to seek specific performance and injunctive or other equitable relief of its rights under this Agreement, in addition to any and all other rights and remedies at law or in equity, and all such rights and remedies shall be cumulative. The other Party shall not oppose the granting of such relief on the basis that money damages are an adequate remedy. The Parties agree that the remedies at law for any breach or threatened breach hereof, including monetary damages, may be inadequate compensation for any loss and that any defense in any action for specific performance that a remedy at law would be adequate is waived. Any requirements for the securing or posting of any bond with such remedy are waived.
Section 9.13Notices. Notices, offers, requests or other communications required or permitted to be given by either Party pursuant to the terms of this Agreement shall be given in writing to the respective Parties to the following addresses:
if to SAP:
SAP SE
Dietmar-Hopp-Alee 16
Germany - 69190
Attention: Jochen Scholten
E-mail:
if to Qualtrics:
Qualtrics International Inc.
333 W River Park Dr
Provo, UT 84604
Attention: Legal
E-mail:
or to such other address or e-mail as the Party to whom notice is given may have previously furnished to the other in writing as provided herein. Any notice involving non-performance, termination, or renewal shall be sent by hand delivery, recognized overnight courier or, within the United States, may also be sent via certified mail, return receipt requested. All other notices may also be sent by e-mail. All notices shall be deemed to have been given when received, if hand delivered; when transmitted, if transmitted electronically; one working day after it is sent, if sent by recognized overnight courier; and three days after it is postmarked, if mailed first class mail or certified mail, return receipt requested, with postage prepaid.
Section 9.14Governing Law and Jurisdiction. This Agreement, including the validity hereof and the rights and obligations of the Parties hereunder, shall be construed in accordance with and all Disputes arising out of or relating to this Agreement shall be governed by the laws of the State of Delaware applicable to contracts made and to be performed entirely in such State (without giving effect to the conflicts of laws provisions thereof).
Section 9.15Consent to Jurisdiction. THE PARTIES AGREE THAT JURISDICTION AND VENUE IN ANY ACTION BROUGHT BY ANY PARTY IN CONNECTION WITH THIS AGREEMENT, THE TRANSACTIONS, OR THE PERFORMANCE OF THE OBLIGATIONS IMPOSED HEREUNDER SHALL PROPERLY AND EXCLUSIVELY LIE IN ANY FEDERAL OR STATE COURT LOCATED IN THE STATE OF DELAWARE. EACH PARTY ALSO AGREES NOT TO BRING ANY ACTION IN CONNECTION WITH THIS AGREEMENT, THE TRANSACTIONS, OR THE PERFORMANCE OF THE OBLIGATIONS IMPOSED HEREUNDER IN ANY OTHER COURT. BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PARTY IRREVOCABLY SUBMITS TO THE JURISDICTION OF SUCH COURTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY WITH RESPECT TO ANY SUCH ACTION. THE PARTIES IRREVOCABLY AGREE THAT VENUE WOULD BE PROPER IN SUCH COURT, AND HEREBY WAIVE ANY OBJECTION THAT ANY SUCH COURT IS AN IMPROPER OR INCONVENIENT FORUM FOR THE RESOLUTION OF SUCH ACTION. THE PARTIES FURTHER AGREE THAT THE MAILING BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, OF ANY PROCESS REQUIRED BY ANY SUCH COURT SHALL CONSTITUTE VALID AND LAWFUL SERVICE OF PROCESS AGAINST THEM, WITHOUT NECESSITY FOR SERVICE BY ANY OTHER MEANS PROVIDED BY STATUTE OR RULE OF COURT.
Section 9.16Waiver of Jury Trial. EACH OF THE PARTIES ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY THAT MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT
ISSUES, AND THEREFORE EACH OF THE PARTIES HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT. EACH OF THE PARTIES CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER COMPANY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE OTHER PARTY WOULD NOT, IN THE EVENT OF ANY LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (B) EACH OF THE PARTIES UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) EACH OF THE PARTIES MAKES THIS WAIVER VOLUNTARILY AND (D) EACH OF THE PARTIES HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.16.
ARTICLE X
DEFINITIONS
Section 10.1Defined Terms. The following capitalized terms shall have the meanings given to them in this Section 10.1:
“Action” means any demand, action, suit, countersuit, arbitration, inquiry, proceeding or investigation by or before any federal, state, local, foreign or international governmental authority or any arbitration or mediation tribunal, other than any demand, action, suit, countersuit, arbitration, inquiry, proceeding or investigation relating to taxes.
“Agreement” shall mean this Distribution Agreement, together with the Appendices hereto, as the same may be amended from time to time in accordance with the provisions hereof.
“Change of Control” means the occurrence of any one or more of the following events:
(a)the sale or disposition, in one or a series of related transactions, of all or substantially all of the consolidated assets of the Qualtrics Entities, taken as a whole, to any “person” or “group” (as such terms are used for purposes of Sections 13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934, as amended) other than SAP or any of its direct or indirect wholly-owned Subsidiaries;
(b)any “person” or “group,” other than SAP or any of its direct or indirect wholly-owned Subsidiaries, is or becomes the beneficial owner, directly or indirectly, of more than fifty percent (50%) of the total voting power of the outstanding voting stock of Qualtrics, excluding as a result of any merger or consolidation that does not constitute a Change of Control pursuant to clause (c);
(c)any merger or consolidation of Qualtrics with or into any other person, unless immediately thereafter SAP or any of its direct or indirect wholly-owned Subsidiaries beneficially owns a majority of the outstanding shares of the common stock (or equivalent voting securities) of the surviving or successor entity (or the parent entity thereof); or
(d)SAP or any of its direct or indirect wholly-owned Subsidiaries ceases to have the ability to cause the election of that number of members of the board of directors of Qualtrics who would collectively have the right to vote a majority of the aggregate number of votes represented by all of the members of the board of directors of Qualtrics.
“Dispute” shall have the meaning set forth in Section 3.5 of this Agreement.
“Executive Sponsor Board” shall have the meaning set forth in Section 3.1 of this Agreement.
“Final Determination” shall have the meaning set forth in the Tax Sharing Agreement.
“General Indemnified Claims” shall have the meaning set forth in Section 7.2(c).
“Governance Process” means the governance process described in Article III of this Agreement.
“Governmental Authority” means any federal, state, local, foreign or international court, government, department, commission, board, bureau, agency, official or other regulatory, administrative or governmental authority, or any arbitration or mediation tribunal or panel.
“Indemnifying Party” means any party which may be obligated to provide indemnification to an Indemnitee pursuant to Section 7.2 of this Agreement.
“Indemnitee” means any party which may be entitled to indemnification from an Indemnifying Party pursuant to Section 7.2 of this Agreement.
“Insurance Policies” means insurance policies pursuant to which a Person makes a true risk transfer to an insurer.
“Insurance Proceeds” means those monies: (a) received by an insured from an insurance carrier; or (b) paid by an insurance carrier on behalf of the insured; or (c) from Insurance Policies.
“Intellectual Property Rights” means patents of any type, design rights, utility models or other similar invention rights, copyrights, mask work rights, trade secret or confidentiality rights, trademarks, trade names and service marks and any other intangible property rights, including applications and registrations for any of the foregoing, in any country, arising under statutory or common law or by contract and whether or not perfected, now existing or hereafter filed, issued, or acquired.
“IP Indemnified Claim” means any third-party claim or Action alleging that the SAP Solutions or Qualtrics Solutions, as applicable, provided and delivered pursuant to this Agreement (including any Appendices hereto) infringe, violate or misappropriate any third party’s Intellectual Property Right.
“IPO” shall have the meaning set forth in the recitals to this Agreement.
“IPO Date” means the closing of the IPO.
“IPO Registration Statement” shall have the meaning set forth in the recitals to this Agreement.
“Liabilities” means all debts, liabilities, guarantees, assurances, commitments and obligations, whether fixed, contingent or absolute, asserted or unasserted, matured or unmatured, liquidated or unliquidated, accrued or not accrued, known or unknown, due or to become due, whenever or however arising (including whether arising out of any contract or tort based on negligence or strict liability) and whether or not the same would be required by generally accepted principles and accounting policies to be reflected in financial statements or disclosed in the notes thereto.
“Loss” and “Losses” shall have the meaning set forth in Section 7.2(a).
“Master Transaction Agreement” means the Master Transaction Agreement between the Parties of even date herewith.
“Party” or “Parties” shall have the meaning set forth in the preamble to this Agreement.
“Person” means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization or a governmental entity or any department, agency or political subdivision thereof.
“Product Development Committee” shall have the meaning set forth in Section 3.3(a) of this Agreement.
“Program Lead” shall have the meaning set forth in Section 3.4 of this Agreement.
“Go-To-Market Steering Committee” shall have the meaning set forth in Section 3.2 of this Agreement.
“Outbound Partner(s)” means indirect channels and other contractual partners of the SAP Entities or the Qualtrics Entities, as applicable, that have rights to distribute or otherwise provide SAP Solutions or Qualtrics Solutions, respectively. This shall also include multi-tier indirect channels.
“Qualtrics” shall have the meaning set forth in the preamble to this Agreement.
“Qualtrics Business” shall have the meaning set forth in the recitals to this Agreement.
“Qualtrics Entities” means Qualtrics and its Subsidiaries and any entity which becomes a Subsidiary of Qualtrics after the date hereof, and “Qualtrics Entity” means any one of the Qualtrics Entities.
“Qualtrics Indemnified Parties” shall have the meaning set forth in Section 7.2(b).
“Qualtrics Solution(s)” shall mean any (i) software product(s) or cloud-based offering(s) of Qualtrics or the Qualtrics Entities, as well as (ii) third party product(s) or service(s) other than SAP Solutions, marketed and distributed to customers by Qualtrics, the Qualtrics Entities and their respective Outbound Partners.
“SAP” shall have the meaning set forth in the preamble to this Agreement.
“SAP Entities” means SAP and its Subsidiaries (other than the Qualtrics Entities) and any entity which becomes a Subsidiary of SAP after the date hereof, and “SAP Entity” means any one of the SAP Entities.
“SAP Indemnified Parties” shall have the meaning set forth in Section 7.2(a).
“SAP Solution(s)” means any (i) software product(s) or cloud-based offering(s) of SAP or the SAP Entities, as well as (ii) third party product(s) or service(s) other than Qualtrics Solutions, marketed and distributed to customers by SAP, the SAP Entities and their respective Outbound Partners.
“Subsidiary” of any Person means a corporation, limited liability company, joint venture, partnership, trust, association or other entity in which such Person: (a) beneficially owns, either directly or indirectly, more than 50% of (i) the total combined voting power of all classes of voting securities of such entity, (ii) the total combined equity interests, or (iii) the capital or profits interest, in the case of a partnership; or (b) otherwise has the power to vote, either directly or indirectly, sufficient securities to elect a majority of the board of directors or similar governing body. For the avoidance of doubt, for purposes of this Agreement, Qualtrics Entities shall not be deemed to be Subsidiaries of any member of SAP Entities.
“Tax” and “Taxes” shall have the meanings set forth in the Tax Sharing Agreement.
“Tax Sharing Agreement” means that certain Tax Sharing Agreement, substantially in the form attached to the IPO Registration Statement as Exhibit 10.3
IN WITNESS WHEREFORE, the Parties have signed this Agreement effective as of the date first set forth above.
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SAP SE
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Name:
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Title:
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By:
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Name:
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Title:
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QUALTRICS INTERNATIONAL INC.
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By:
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Name:
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Title:
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Appendix A
Master Reseller Agreement [Omitted pursuant to Item 601(a)(5) of Regulation S-K]
Appendix B
Outbound OEM Terms and Conditions [Omitted pursuant to Item 601(a)(5) of Regulation S-K]
Schedule 1
Governance Process Committee Members [Omitted pursuant to Item 601(a)(5) of Regulation S-K]
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FORM OF
INSURANCE MATTERS AGREEMENT
dated as of [ ]
between
QUALTRICS INTERNATIONAL INC.
and
SAP SE
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TABLE OF CONTENTS
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PAGE
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ARTICLE I
DEFINITIONS
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Section 1.1 Definitions.
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1
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Section 1.2 Interpretation
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3
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ARTICLE II
INSURANCE MATTERS
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Section 2.1 Qualtrics Insurance Coverage During Insurance Transition Period.
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4
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Section 2.2 Cooperation; Payment of Insurance Proceeds to Qualtrics; Agreement Not to Release Carriers
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5
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Section 2.3 Qualtrics Insurance Coverage After the Insurance Transition Period
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5
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Section 2.4 Deductibles and Self-Insured Obligations
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5
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Section 2.5 Procedures with Respect to Insured Qualtrics Liabilities.
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5
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Section 2.6 Directors and Officers Liability Insurance
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6
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Section 2.7 Changes in Qualtrics Risk Profile
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6
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Section 2.8 Cooperation
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7
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Section 2.9 No Assignment or Waiver
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7
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Section 2.10 Further Agreements
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7
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ARTICLE III
INDEMNIFICATION AND LIMITATION OF LIABILITY
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Section 3.1 Limitation of Liability
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7
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Section 3.2 Indemnification by Qualtrics
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7
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Section 3.3 Indemnification by SAP
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8
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ARTICLE IV
TERM AND TERMINATION
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Section 4.1 Term
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8
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Section 4.2 Termination.
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8
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Section 4.3 Effect of Termination
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9
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ARTICLE V
MISCELLANEOUS
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Section 5.1 Other Agreements
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9
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Section 5.2 No Agency
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9
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Section 5.3 Force Majeure.
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10
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Section 5.4 Entire Agreement
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10
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Section 5.5 Information
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10
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Section 5.6 Notices
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11
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Section 5.7 Governing Law
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11
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Section 5.8 Consent to Jurisdiction
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11
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Section 5.9 Waiver of Jury Trial
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12
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Section 5.10 Binding Effect; Assignment
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12
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Section 5.11 Severability
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12
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Section 5.12 Failure or Indulgence not Waiver; Remedies Cumulative
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13
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Section 5.13 Third Party Beneficiaries
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13
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Section 5.14 Amendment
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13
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Section 5.15 Counterparts
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13
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Section 5.16 Authority
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FORM OF
INSURANCE MATTERS AGREEMENT
This Insurance Matters Agreement is dated as of the [ ] day of [ ], 202[ ], between Qualtrics International Inc., a Delaware corporation (“Qualtrics”), and SAP SE, a European Company (Societas Europaea), registered in accordance with the corporate laws of Germany and the European Union (“SAP”). Qualtrics and SAP are sometimes referred to herein separately as a “Party” and together as the “Parties”.
RECITALS
WHEREAS, SAP is the indirect beneficial owner of all the issued and outstanding Class B common stock of Qualtrics;
WHEREAS, SAP currently contracts with third-party insurers to maintain Insurance Coverage (as defined below) for and on behalf of the Qualtrics Entities (as defined below), among others;
WHEREAS, the Parties wish to enter into this Agreement in connection with Qualtrics’ proposed initial public offering of Class A common stock (the “IPO”) to provide for, among other matters, certain agreements with respect to third-party insurance rights and other covenants and agreements among SAP and Qualtrics to take effect upon and after the consummation of the IPO; and
WHEREAS, from and after the consummation of the IPO, Qualtrics desires for SAP to continue to maintain Insurance Coverage for and on behalf of the Qualtrics Entities under the Schedule I Insurance Policies for a period of time, as more fully set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto, for themselves and their respective successors and assigns, hereby covenant and agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1Definitions.
(a)As used in this Agreement, the following terms shall have the following meanings, applicable both to the singular and the plural forms of the terms described:
“Agreement” means this Insurance Matters Agreement, including Schedule I hereto, as the same may be amended and supplemented from time to time in accordance with the provisions hereof.
“Contract” means any contract, agreement, lease, license, sales order, purchase order, instrument or other commitment that is binding on any Person or any part of such Person’s property under applicable law.
“Insurance Policies” means insurance policies pursuant to which a Person makes a true risk transfer to an insurer.
“Insurance Proceeds” means those monies: (i) received by an insured from an insurance carrier; (ii) paid by an insurance carrier on behalf of the insured; or (iii) from Insurance Policies.
“Insured Qualtrics Liability” means any Qualtrics Liability to the extent that it is covered under the terms of the Schedule I Insurance Policies.
“Liabilities” means all debts, liabilities, guarantees, assurances, commitments and obligations, whether fixed, contingent or absolute, asserted or unasserted, matured or unmatured, liquidated or unliquidated, accrued or not accrued, known or unknown, due or to become due, whenever or however arising (including whether arising out of any Contract or tort based on negligence or strict liability) and whether or not the same would be required by generally accepted principles and accounting policies to be reflected in financial statements or disclosed in the notes thereto.
“Master Transaction Agreement” means the Master Transaction Agreement between the Parties of even date herewith.
“Person” means any individual, partnership, limited liability company, joint venture, corporation, trust, unincorporated organization, government (including any department or agency thereof) or other entity.
“Qualtrics Entities” means Qualtrics and its Subsidiaries and any entity that becomes a Subsidiary of Qualtrics after the date hereof, and “Qualtrics Entity” means any one of the Qualtrics Entities.
“Qualtrics Liabilities” has the meaning set forth in the Master Transaction Agreement.
“SAP Entities” means SAP and its Subsidiaries (other than the Qualtrics Entities) and any entity that becomes a Subsidiary of SAP after the date hereof, and “SAP Entity” means any one of the SAP Entities.
“Schedule I” means the first Schedule attached hereto, as modified or amended from time to time, which lists the Insurance Policies to be maintained by SAP on behalf of or for the Qualtrics Entities and the allocation for calculating the payments to be paid by Qualtrics for its share of the insurance coverage under such Insurance Policies.
“Subsidiary” means, as to any Person, a corporation, limited liability company, joint venture, partnership, trust, association or other entity in which such Person: (i) beneficially
owns, either directly or indirectly, more than 50% of (A) the total combined voting power of all classes of voting securities of such entity, (B) the total combined equity interests, or (C) the capital or profits interest, in the case of a partnership; or (ii) otherwise has the power to vote, either directly or indirectly, sufficient securities to elect a majority of the board of directors or similar governing body. Notwithstanding the foregoing, for purposes of this Agreement, no Qualtrics Entity shall be deemed to be a Subsidiary of any SAP Entity.
(b)Each of the following terms is defined in the Section set forth opposite such term:
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TERM
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SECTION
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Action
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Section 2.5(b)
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Claims
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Section 2.2
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Force Majeure
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Section 5.3
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Insurance Coverage
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Section 2.1(a)
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Insurance Expenses
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Section 2.1(c)
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Insurance Transition Period
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Section 2.1(a)
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IPO
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Recitals
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IPO Date
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Section 2.1(a)
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Parties
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Preamble
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Party
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Preamble
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Qualtrics
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Preamble
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Qualtrics Covered Parties
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Section 2.1(a)
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Qualtrics Indemnified Person
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Section 3.1
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Recovery Expenses
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Section 2.5
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SAP
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Preamble
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SAP Indemnified Person
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Section 3.1
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Schedule I Insurance Policies
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Section 2.1(a)
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Third Party Claim
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Section 3.2
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Section 1.2Interpretation. The headings contained in this Agreement and Schedule I are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Any capitalized term used in Schedule I but not otherwise defined therein shall have the meaning assigned to such term in this Agreement. When a reference is made in this Agreement to an Article or a Section or Schedule, such reference shall be to an Article or Section of, or Schedule to, this Agreement unless otherwise indicated. Words in the singular shall be held to include the plural and vice versa and words of one gender shall be held to include the other gender as the context requires. The terms “hereof,” “herein” and “herewith” and words of similar import, unless otherwise stated, shall be construed to refer to this Agreement as a whole (including Schedule I) and not to any particular provision of this Agreement. Any reference herein to this Agreement, unless otherwise stated, shall be construed to refer to this Agreement as amended, supplemented or otherwise modified from time to time, as permitted by Section 5.14. The word “including” and words of similar import when used in this
Agreement shall mean “including, without limitation,” unless the context otherwise requires or unless otherwise specified. The word “or” shall not be exclusive.
ARTICLE II
INSURANCE MATTERS
Section 2.1Qualtrics Insurance Coverage During Insurance Transition Period.
(a)The Parties recognize that prior to the closing date of the IPO (the “IPO Date”), SAP has contracted with third-party insurers to maintain insurance coverage under the Insurance Policies listed in Schedule I attached hereto or any replacements thereof (as modified or amended from time to time, the “Schedule I Insurance Policies”) that cover and are for the benefit of, among others, the Qualtrics Entities and their respective directors, officers and employees (collectively, the “Qualtrics Covered Parties”). Throughout the period beginning on the IPO Date and ending upon the termination or expiration of this Agreement in accordance with ARTICLE IV hereof (the “Insurance Transition Period”), SAP shall continue to contract with third-party insurers to maintain insurance coverage (the “Insurance Coverage”) under the Schedule I Insurance Policies covering and for the benefit of the Qualtrics Covered Parties. For the avoidance of doubt, nothing in this Agreement shall restrict or prohibit Qualtrics from procuring, negotiating or purchasing its own Insurance Policies of any kind at any time, independent of SAP.
(b)SAP shall have the right to restructure, replace or amend any Insurance Coverage under any of the Schedule I Insurance Policies in its sole discretion and shall promptly notify Qualtrics of any such changes that require an update to Schedule I; provided, however, that: (i) where such changes affect Insurance Coverage applicable to Qualtrics Entities only, any restructuring, replacement or amendment of Insurance Coverage under any of the Schedule I Insurance Policies must be mutually agreed upon in advance in writing by SAP and Qualtrics; and (ii) where such changes affect one or more SAP Entities and one or more Qualtrics Entities, Qualtrics may elect to continue to remain covered under the applicable Schedule I Insurance Policies or terminate its participation in one or more such policies in accordance with Section 4.2(c).
(c)In connection with the renewal of any of the Schedule I Insurance Policies, SAP shall provide Qualtrics with copies of the policies applicable to Qualtrics and a summary of the material changes in such policies.
(d)Upon receipt of a written invoice from SAP, Qualtrics shall pay or reimburse SAP (or directly to the insurance broker or carrier, as appropriate), as the case may be, within 30 days for the Qualtrics Covered Parties’ share, as calculated based on the allocation models set forth in Schedule I, of the Insurance Coverage amounts, costs and expenses, including applicable taxes (collectively, “Insurance Expenses”) which SAP may incur in connection with the Schedule I Insurance Policies. Notwithstanding the preceding sentence, the reimbursement of Recovery Expenses (as defined below) shall be subject to Section 2.5 hereof. Such allocation models will calculate the Insurance Expenses and Recovery Expenses for the Qualtrics Covered Parties the same way they are calculated for other Subsidiaries of SAP. The written invoice shall
set forth in reasonable detail the amount and manner of calculation of the Insurance Expenses being charged and the Schedule I Insurance Policies and period of Insurance Coverage to which such Insurance Expenses relate.
Section 2.2Cooperation; Payment of Insurance Proceeds to Qualtrics; Agreement Not to Release Carriers. Subject to the provisions of Section 3.5 (Confidentiality) of the Master Transaction Agreement, each Party shall share such information as is reasonably necessary in order to permit the other Party to manage and conduct its insurance matters in an orderly fashion. SAP, at the request of Qualtrics, shall cooperate in recovering Insurance Proceeds under the Schedule I Insurance Policies (such recoveries or potential recoveries, “Claims”) and SAP shall promptly pay any such recovered Insurance Proceeds applicable to Qualtrics Liabilities over to Qualtrics. Neither SAP nor Qualtrics, nor any of their respective Subsidiaries, shall take any action which would intentionally jeopardize or otherwise interfere with the other Party’s ability to collect any proceeds payable pursuant to any Insurance Policy. Except as otherwise contemplated by this Agreement or any other Intercompany Agreement (as defined in the Master Transaction Agreement), neither SAP nor Qualtrics (and each Party shall ensure that no Subsidiary of such Party), without the consent of the other Party (such consent not to be unreasonably withheld, conditioned or delayed), shall provide any insurance carrier with a release, or amend, modify or waive any rights under any such policy or agreement, if such release, amendment, modification or waiver would adversely affect any rights or potential rights of the other Party or any of its Subsidiaries thereunder.
Section 2.3Qualtrics Insurance Coverage After the Insurance Transition Period. After the expiration of the Insurance Transition Period, Qualtrics shall be responsible for obtaining and maintaining any Insurance Policies in respect of the Qualtrics Entities’ risk of loss and such insurance arrangements shall be separate and apart from the Schedule I Insurance Policies, except that such expiration shall not be deemed to be a relinquishment of any rights of a Qualtrics Covered Party under any Schedule I Insurance Policies written on an occurrence basis issued prior to the termination of the Insurance Transition Period.
Section 2.4Deductibles and Self-Insured Obligations. Subject to the provisions of Section 2.1(b), solely with respect to Qualtrics Liabilities and Insured Qualtrics Liabilities, Qualtrics shall reimburse SAP for all amounts or, as applicable, its pro rata share of all amounts, necessary to exhaust or otherwise satisfy all applicable self-insured retentions, amounts for fronted policies, deductibles and retrospective premium adjustments and similar amounts not covered by the Schedule I Insurance Policies to the extent that SAP is required to pay any such amounts.
Section 2.5Procedures with Respect to Insured Qualtrics Liabilities.
(a)SAP and Qualtrics shall consult and cooperate with each other in determining whether to pursue insurance recoveries in respect of Claims involving both Qualtrics Liabilities and Liabilities of SAP. In respect of Claims involving solely Qualtrics Liabilities, Qualtrics shall determine in its sole discretion whether or not to pursue such Claims. Upon receipt of a reasonably detailed, itemized invoice from SAP, Qualtrics shall reimburse SAP within 30 days for all amounts reasonably incurred by SAP in pursuing Claims (“Recovery
Expenses”) from the Schedule I Insurance Policies in respect of Qualtrics Liabilities that may be covered by such policies. To the extent any such Recovery Expenses relate to pursuing Claims in respect of both Qualtrics Liabilities and Liabilities of SAP under such policies, Qualtrics shall only reimburse SAP for its pro rata share of Recovery Expenses relating to the Insured Qualtrics Liabilities, which shall be as determined by the Parties in good faith.
(b)All claims, actions or proceedings (collectively, “Actions”) against insurers to pursue Insurance Coverage relating to Qualtrics Liabilities under the Schedule I Insurance Policies, and related discussions and negotiations with the insurers, shall be managed by SAP; provided, that the management and control of litigation and outside counsel with respect to any other Actions (including any underlying Actions with third parties for which insurance coverage is claimed) shall be governed by the Master Transaction Agreement or another Intercompany Agreement, as applicable. Notwithstanding the preceding sentence, (i) SAP will keep Qualtrics informed on a current and reasonable basis in good faith and seek Qualtrics’ input and assistance related to any such Actions or discussions and negotiations as appropriate, (ii) Qualtrics will cooperate and provide such input and assistance in good faith, (iii) in respect of Claims involving solely Qualtrics Liabilities, Qualtrics and SAP will work together in good faith in respect of the discussions and negotiations with insurers in order to achieve resolutions in the best interests of Qualtrics and SAP and (iv) the settlement of any Claim in relation to any Qualtrics Liability under a Schedule I Insurance Policy shall require the consent of both SAP and Qualtrics, not to be unreasonably withheld, conditioned or delayed. For the avoidance of doubt, if Qualtrics desires to pursue a Claim under a Schedule I Insurance Policy, SAP will pursue such Claim unless coverage counsel advises that Insurance Coverage under the applicable policy is not available.
Section 2.6Directors and Officers Liability Insurance. If and as deemed reasonable and appropriate by Qualtrics’ board of directors, on and after the IPO Date, Qualtrics shall have obtained and shall maintain in effect directors and officers liability insurance policies or fiduciary liability insurance policies on terms deemed reasonable and appropriate by Qualtrics’ board of directors for each past or present director of Qualtrics or any of its Subsidiaries, as well as each individual who prior to the IPO Date becomes a director or officer of Qualtrics or any of its Subsidiaries. As between Qualtrics’ directors and officers liability insurance policies and the directors and officers liability insurance policies maintained by SAP, Qualtrics’ directors and officers liability insurance policies shall be primary in regard to Liabilities related to the Qualtrics Entities and their respective businesses.
Section 2.7Changes in Qualtrics Risk Profile. Qualtrics shall keep SAP reasonably informed on a prompt basis regarding changes in its risk exposure that would be reasonably likely to be required to be reported to an insurance carrier or that would otherwise materially affect the availability of coverage for the Qualtrics Entities under the Schedule I Insurance Policies. In the event that SAP reasonably determines that such risk exposure has materially increased, SAP shall provide prompt notice to Qualtrics with reasonable detail regarding the reasons for such determination and information about the cost and terms of continued coverage under the applicable policy. Qualtrics shall have the option to elect to either (a) bear the additional costs required in order to maintain the applicable coverage in effect, if
available, or (b) terminate the Qualtrics Entities’ participation in one or more of the Schedule I Insurance Policies, as applicable, in accordance with the terms of Section 4.2(c).
Section 2.8Cooperation. SAP and Qualtrics shall reasonably cooperate with each other in all respects and shall execute any additional documents which are reasonably necessary to effectuate the provisions of this ARTICLE II.
Section 2.9No Assignment or Waiver. This Agreement shall not be considered as an attempted assignment of any policy of insurance or as a contract of insurance and shall not be construed to waive any right or remedy of any SAP Entity or Qualtrics Entity in respect of any Insurance Policy or any other contract or policy of insurance.
Section 2.10Further Agreements. The Parties acknowledge that they intend to allocate financial obligations without violating any laws regarding insurance, self-insurance or other financial responsibility. If it is determined that any action undertaken pursuant to this Agreement or any related agreement is violative of any insurance, self-insurance or related financial responsibility law or regulation, the Parties agree to work together to do whatever is necessary to comply with such law or regulation while trying to accomplish, as much as possible, the allocation of financial obligations as intended in this Agreement or any such related agreement.
ARTICLE III
INDEMNIFICATION AND LIMITATION OF LIABILITY
Section 3.1Limitation of Liability. Each Party agrees, for itself and as agent for each of its Subsidiaries, that no SAP Entity or Qualtrics Entity or its respective directors, officers, agents and employees (each SAP Entity and each of its respective directors, officers, agents and employees, an “SAP Indemnified Person” and each Qualtrics Entity and each of its respective directors, officers, agents and employees, a “Qualtrics Indemnified Person”) shall have any Liability whatsoever as a result of this Agreement, including, with respect to SAP, as a result of the insurance policies and practices of SAP and its Subsidiaries as in effect at any time prior to the end of the Insurance Transition Period, the level or scope of any such insurance, the creditworthiness of any insurance carrier, the terms and conditions of any policy, or the adequacy or timeliness of any notice to any insurance carrier with respect to any Claim or otherwise, except for Liabilities resulting from such Party’s or its Subsidiaries’ (a) breach of this Agreement or any of the Schedule I Insurance Policies or (b) gross negligence, bad faith or willful misconduct in connection with this Agreement or the Schedule I Insurance Policies. In no event shall a Party or its Subsidiaries be liable for any indirect, incidental, special, punitive or consequential damages in any way related to or arising from this Agreement, under any theory of law, including contract, tort or strict liability, whether or not the other Party has been advised of the possibility of such damages.
Section 3.2Indemnification by Qualtrics. Qualtrics agrees to indemnify and hold harmless each SAP Indemnified Person from and against any damages related to, and to reimburse each SAP Indemnified Person for all reasonable expenses (including attorneys’ fees) as they are incurred in connection with, pursuing or defending any Action brought by a third
party (a “Third Party Claim”) arising from the Agreement in connection with the breach by, or the gross negligence, bad faith or willful misconduct of, any Qualtrics Indemnified Person in connection with this Agreement or the Schedule I Insurance Policies; provided, however, that Qualtrics shall not be responsible for any damages incurred by any SAP Indemnified Person to the extent they result from (a) any breach of this Agreement or the Schedule I Insurance Policies on the part of any SAP Indemnified Person or (b) the gross negligence, bad faith or willful misconduct of any SAP Indemnified Person in connection with this Agreement or the Schedule I Insurance Policies.
Section 3.3Indemnification by SAP. SAP agrees to indemnify and hold harmless each Qualtrics Indemnified Person from and against any damages related to, and to reimburse each Qualtrics Indemnified Person for all reasonable expenses (including attorneys’ fees) as they are incurred in connection with, pursuing or defending any Third Party Claim arising from the Agreement in connection with the breach by, or the gross negligence, bad faith or willful misconduct of, any SAP Indemnified Person in connection with this Agreement or the Schedule I Insurance Policies; provided, however, that SAP shall not be responsible for any damages incurred by any Qualtrics Indemnified Person to the extent they result from (a) any breach of this Agreement or the Schedule I Insurance Policies on the part of any Qualtrics Indemnified Person or (b) the gross negligence, bad faith or willful misconduct of any Qualtrics Indemnified Person in connection with this Agreement or the Schedule I Insurance Policies.
ARTICLE IV
TERM AND TERMINATION
Section 4.1Term. Except as otherwise provided in this ARTICLE IV or as otherwise agreed in writing by the Parties, this Agreement shall have a term commencing on the IPO Date and continuing indefinitely until this Agreement is validly terminated in accordance with Section 4.2.
Section 4.2Termination.
(a)This Agreement shall automatically terminate without further action by either Party upon the earlier of (i) the date on which the SAP Entities hold shares of Qualtrics common stock representing less than a majority of the votes entitled to be cast by all holders of Qualtrics common stock and (ii) the date on which none of the Qualtrics Entities remains covered under any of the Schedule I Insurance Policies.
(b)SAP may terminate the Qualtrics Entities’ participation in any one or more of the Schedule I Insurance Policies on 150 days’ notice to Qualtrics in advance of the applicable renewal date of such policy or policies, effective as of the renewal date of such policy or policies.
(c)Qualtrics may terminate the Qualtrics Entities’ participation in any one or more of the Schedule I Insurance Policies on 120 days’ notice to SAP in advance of the applicable renewal date of such policy or policies, effective as of the renewal date of such policy or policies.
(d)Either Party may terminate this Agreement at any time if the other Party shall have failed to perform any of its material obligations under this Agreement, such Party shall have notified the other Party in writing of such failure, and such failure shall have continued for a period of at least 30 days after receipt by the other Party of written notice of such failure, effective as of such 30th day.
Section 4.3Effect of Termination. Other than as required by law, upon the effective date of the termination of all or any portion of this Agreement pursuant to Section 4.2, SAP shall have no further obligation to maintain the applicable Insurance Coverage under the Schedule I Insurance Policies in respect of the Qualtrics Covered Parties, and Qualtrics shall have no obligation to pay for any applicable Insurance Expenses which SAP may incur in connection with such Insurance Policies or to make any other payments hereunder. Notwithstanding the above or any such termination, (a) Qualtrics shall remain liable to SAP for (i) the Qualtrics Covered Parties’ share of those Insurance Expenses and (ii) any Recovery Expenses, in each case, which SAP has incurred in connection with Insurance Coverage for the benefit of the Qualtrics Covered Parties pursuant to the Schedule I Insurance Policies for the period prior to the effective date of such termination, (b) to the extent Insurance Coverage remains available under occurrence-based Schedule I Insurance Policies, SAP will continue to pursue applicable Claims on Qualtrics’ behalf and (c) the provisions of ARTICLE III, this ARTICLE IV and ARTICLE V shall survive any such termination indefinitely. Upon SAP’s written request following the termination of this Agreement, Qualtrics shall promptly, and shall promptly cause its Subsidiaries to, either return or destroy all copies, reproductions and summaries thereof or based thereon (hard-copy and electronic) of the Schedule I Insurance Policies in its or their possession and Qualtrics shall provide a certification in writing to SAP that it has fully complied with this obligation. Notwithstanding the preceding sentence, Qualtrics shall not be required to return or destroy materials applicable to a pending Claim until such matter is finally resolved, nor shall Qualtrics be required to return or destroy such materials held in archival or back-up systems in accordance with applicable policies and/or legal requirements.
ARTICLE V
MISCELLANEOUS
Section 5.1Other Agreements. In the event there is any inconsistency between the provisions of this Agreement and the respective provisions of the Master Transaction Agreement, the provisions of this Agreement shall govern.
Section 5.2No Agency. Nothing in this Agreement shall constitute or be deemed to constitute a partnership or joint venture between the Parties hereto or constitute or be deemed to constitute the appointment of any Party as the agent or employee of the other Party for any purpose whatsoever, and neither Party shall have authority or power to bind the other Party or to contract in the name of, or create a liability against, the other Party in any way or for any purpose.
Section 5.3Force Majeure.
(a)For purposes of this Section 5.3, “Force Majeure” means an event beyond the control of either Party, which by its nature could not have reasonably been foreseen by such Party, which may include acts of God, storms, floods, riots, fires, sabotage, civil commotion or civil unrest, interference by civil or military authorities, acts of war (declared or undeclared), epidemics and pandemics and failure of energy sources.
(b)Continued maintenance of Insurance Coverage for the benefit of the Qualtrics Covered Parties pursuant to the Schedule I Insurance Policies may be suspended immediately to the extent caused by Force Majeure, including in the event that, due to Force Majeure, insurance coverage is no longer available at a reasonable price or on reasonable terms. The Party claiming suspension of such Insurance Coverage due to Force Majeure shall give prompt notice to the other Party of the occurrence of the event giving rise to the suspension and of its nature and anticipated duration. The Parties shall cooperate with each other to find alternative means and methods for the provision of the suspended insurance coverage.
(c)Without limiting the generality of Section 2.6, neither Party shall be under any liability for failure to fulfill any obligation under this Agreement, so long as and to the extent to which the fulfillment of such obligation is prevented, frustrated, hindered, or delayed as a consequence of circumstances of Force Majeure.
Section 5.4Entire Agreement. This Agreement (including Schedule I) constitutes the entire agreement between the Parties with respect to the subject matter hereof and shall supersede all prior written and oral and all contemporaneous oral agreements and understandings with respect to the subject matter hereof.
Section 5.5Information. Subject to applicable law and privileges, each Party hereto covenants with and agrees to provide to the other Party all information regarding itself and transactions under this Agreement that the other Party reasonably believes is required to comply with all applicable federal, state, county and local laws, ordinances, regulations and codes, including, but not limited to, securities laws and regulations.
Section 5.6Notices. Notices, offers, requests or other communications required or permitted to be given by either Party pursuant to the terms of this Agreement shall be given in writing to the respective Parties at the following addresses:
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(a)
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If to SAP:
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SAP SE
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Dietmar-Hopp-Allee 16
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69190 Walldorf, Germany
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Attention: Volker Ahrens
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E-mail:
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(b)
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If to Qualtrics:
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Qualtrics International Inc.
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333 W River Park Dr
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Provo, UT 84604
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Attention: Legal Department
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E-mail:
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or at such other address or e-mail as the Party to whom notice is given may have previously furnished to the other Party in writing as provided herein. Any notice shall be sent by hand delivery, internationally recognized overnight courier or, within the United States, may also be sent via certified mail, return receipt requested and, in any event, shall be concurrently sent by e-mail. All notices shall be deemed to have been given when received, if hand delivered; when transmitted, if transmitted electronically; one working day after it is sent, if sent by recognized overnight courier; and three days after it is postmarked, if mailed first class mail or certified mail, return receipt requested, with postage prepaid.
Section 5.7Governing Law. This Agreement, including the validity hereof and the rights and obligations of the Parties hereunder, shall be construed in accordance with and all Disputes arising out of or relating to this Agreement shall be governed by the laws of the State of Delaware applicable to contracts made and to be performed entirely in such State (without giving effect to the conflicts of laws provisions thereof).
Section 5.8Consent to Jurisdiction. THE PARTIES AGREE THAT JURISDICTION AND VENUE IN ANY ACTION BROUGHT BY ANY PARTY IN CONNECTION WITH THIS AGREEMENT OR THE PERFORMANCE OF THE OBLIGATIONS IMPOSED HEREUNDER SHALL PROPERLY AND EXCLUSIVELY LIE IN ANY FEDERAL OR STATE COURT LOCATED IN THE STATE OF DELAWARE. EACH PARTY ALSO AGREES NOT TO BRING ANY ACTION IN CONNECTION WITH THIS AGREEMENT OR THE PERFORMANCE OF THE OBLIGATIONS IMPOSED HEREUNDER IN ANY OTHER COURT. BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PARTY IRREVOCABLY SUBMITS TO THE JURISDICTION OF
SUCH COURTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY WITH RESPECT TO ANY SUCH ACTION. THE PARTIES IRREVOCABLY AGREE THAT VENUE WOULD BE PROPER IN SUCH COURT, AND HEREBY WAIVE ANY OBJECTION THAT ANY SUCH COURT IS AN IMPROPER OR INCONVENIENT FORUM FOR THE RESOLUTION OF SUCH ACTION. THE PARTIES FURTHER AGREE THAT THE MAILING BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, OF ANY PROCESS REQUIRED BY ANY SUCH COURT SHALL CONSTITUTE VALID AND LAWFUL SERVICE OF PROCESS AGAINST THEM, WITHOUT NECESSITY FOR SERVICE BY ANY OTHER MEANS PROVIDED BY STATUTE OR RULE OF COURT.
Section 5.9Waiver of Jury Trial. EACH OF THE PARTIES ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY THAT MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH OF THE PARTIES HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT. EACH OF THE PARTIES CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER COMPANY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE OTHER PARTY WOULD NOT, IN THE EVENT OF ANY LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (B) EACH OF THE PARTIES UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) EACH OF THE PARTIES MAKES THIS WAIVER VOLUNTARILY AND (D) EACH OF THE PARTIES HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS Section 5.9.
Section 5.10Binding Effect; Assignment. This Agreement shall inure to the benefit of and be binding upon the Parties and their respective legal representatives and successors. Neither Party may assign this Agreement or any rights or obligations hereunder, without the prior written consent of the other Party, and any such assignment shall be void; provided, however, that either Party may assign this Agreement to a successor entity in conjunction with such Party’s reincorporation in another jurisdiction or into another business form.
Section 5.11Severability. If any term or other provision of this Agreement or Schedule I is determined by a court, administrative agency or arbitrator to be invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to either Party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the fullest extent possible.
Section 5.12Failure or Indulgence not Waiver; Remedies Cumulative. No failure or delay on the part of either Party hereto in the exercise of any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty or agreement herein, nor shall any single or partial exercise of any such right preclude other or further exercise thereof or of any other right. All rights and remedies existing under this Agreement or the Schedules attached hereto are cumulative to, and not exclusive of, any rights or remedies otherwise available.
Section 5.13Third Party Beneficiaries. None of the provisions of this Agreement shall be for the benefit of or enforceable by any third party. No such third party shall obtain any right under any provision of this Agreement or shall by reasons of any such provision make any claim in respect of any Liability (or otherwise) against either Party.
Section 5.14Amendment. This Agreement may be amended at any time during the term of this Agreement only by an instrument in writing signed on behalf of each of the Parties.
Section 5.15Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which shall constitute one and the same agreement.
Section 5.16Authority. Each of the Parties represents to the other Party that (a) it has the corporate or other requisite power and authority to execute, deliver and perform this Agreement, (b) the execution, delivery and performance of this Agreement by it have been duly authorized by all necessary corporate or other actions, (c) it has duly and validly executed and delivered this Agreement, and (d) this Agreement is its legal, valid and binding obligation, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors’ rights generally and general equity principles.
[Signature Page Follows]
IN WITNESS WHEREOF, the Parties have caused this Agreement to be signed by their duly authorized representatives.
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SAP SE
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By:
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Name:
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Title:
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By:
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Name:
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Title:
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QUALTRICS INTERNATIONAL INC.
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By:
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Name:
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Title:
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[Signature Page to Insurance Matters Agreement]
SCHEDULE I
Insurance Policies and Allocation Model [Omitted pursuant to Item 601(a)(5) of Regulation S-K]
FORM OF
STOCKHOLDERS’ AGREEMENT
dated as of [__]
among
QUALTRICS INTERNATIONAL INC.,
SAP AMERICA, INC.,
SILVER LAKE PARTNERS VI DE (AIV), L.P.
and
Q II, LLC
TABLE OF CONTENTS
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PAGE
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ARTICLE I
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DEFINITIONS
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Section 1.1 Defined Terms
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1
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ARTICLE II
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COVENANTS AND OTHER MATTERS
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Section 2.1 Government Approvals
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Section 2.2 Company Board Matters
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Section 2.3 Section 16 Matters
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Section 2.4 Corporate Waiver
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ARTICLE III
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REGISTRATION RIGHTS
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Section 3.1 Demand Registration.
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Section 3.2 Piggyback Registration
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Section 3.3 Expenses
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Section 3.4 Blackout Period
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Section 3.5 Selection of Underwriters
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Section 3.6 Obligations of the Company
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Section 3.7 Obligations of Selling Holders
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Section 3.8 Underwriting; Due Diligence
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Section 3.9 Indemnification and Contribution
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Section 3.10 Rule 144 and Form S-3 Eligibility
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Section 3.11 Holdback Agreement
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Section 3.12 Term
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Section 3.13 No Superior Rights
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ARTICLE IV
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MISCELLANEOUS
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Section 4.1 Entire Agreement
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Section 4.2 Governing Law and Jurisdiction
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Section 4.3 Consent to Jurisdiction
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Section 4.4 Waiver of Jury Trial
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Section 4.5 Specific Performance
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Section 4.6 Termination; Amendments and Waivers
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Section 4.7 Notices
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Section 4.8 Counterparts; Signature
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Section 4.9 Binding Effect; Assignment
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Section 4.10 Severability
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Section 4.11 Failure or Indulgence not Waiver; Remedies Cumulative
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Section 4.12 Authority
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Section 4.13 Interpretation
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Section 4.14 Conflicting Agreements
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Section 4.15 Third Party Beneficiaries
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STOCKHOLDERS’ AGREEMENT
This Stockholders’ Agreement (this “Agreement”) is entered into as of [__], 202[_], by and among Qualtrics International Inc., a Delaware corporation (the “Company”), SAP America, Inc., a Delaware corporation (“SAP”), Silver Lake Partners VI DE (AIV), L.P., a Delaware limited partnership (“Silver Lake”), and Q II, LLC, a Utah limited liability company (“Q II”). Each of the foregoing is referred to as a “Party” and together as the “Parties.” Certain capitalized terms used in this Agreement are defined in Section 1.1.
RECITALS
WHEREAS, each of Silver Lake and Q II have purchased shares of the Company’s Class A common stock from the Company, pursuant to that certain Stock Purchase Agreement, dated December 8, 2020, by and between the Company and Q II and that certain Stock Purchase Agreement, dated [__], 2020, by and between the Company and Silver Lake (the “Silver Lake Stock Purchase Agreement”), respectively; and
WHEREAS, the Parties wish to enter into this Agreement in connection with the Company’s proposed initial public offering of Class A common stock (the “IPO”) to provide for, among other matters, certain agreements with respect to registration rights and other covenants and agreements among the Stockholders and the Company to take effect upon the consummation of the IPO.
NOW, THEREFORE, in consideration of the foregoing and the terms, conditions, covenants and provisions of this Agreement, the Parties mutually covenant and agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1Defined Terms. For purposes of this Agreement, the following terms, when used herein, shall have the meanings specified or referred to in this Section 1.1:
“Affiliate” means, with respect to any specified Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with such Person. As used herein, “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such other Person, whether through ownership of voting securities or other interests, by contract or otherwise. The terms “controlled” and “controlling” have meanings correlative to the foregoing.
“Affiliated Company” of any Stockholder means any entity that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with such Stockholder; provided, that the Company and its Subsidiaries shall not be an Affiliated Company of any Stockholder. As used herein, “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such entity, whether through ownership of voting securities or other interests, by contract or otherwise.
“Agreement” has the meaning set forth in the preamble hereto.
“beneficially own” has the meaning of such term defined in Rule 13d-3 under the Exchange Act.
“Blackout Period” has the meaning set forth in Section 3.4.
“Business Day” means any day other than a Saturday, Sunday, or a day on which all banking institutions of New York City are authorized or obligated by law or executive order to close.
“Cap Amount” has the meaning set forth in Section 3.1(d).
“Class A common stock” means shares of Class A common stock, $0.0001 par value, of the Company.
“Class B common stock” means shares of Class B common stock, $0.0001 par value, of the Company.
“Company” has the meaning set forth in the preamble hereto.
“Company Board” means the Board of Directors of the Company.
“Company Capital Stock” means all classes or series of capital stock of the Company.
“Company Common Stock” means all classes or series of common stock of the Company, excluding, for the avoidance of doubt, any preferred stock and any security convertible into or exercisable or exchangeable for, with or without consideration, any common stock or preferred stock of the Company.
“Company Group” means the Company and all Subsidiaries of the Company.
“Company Notice” has the meaning set forth in Section 3.2(a).
“Company Securities” has the meaning set forth in Section 3.2(b).
“Continuously Effective” with respect to a specified registration statement, means that such registration statement shall not cease to be effective and available for transfers of Registrable Securities in accordance with the method of distribution set forth therein during the period specified in the relevant provision of this Agreement.
“Demand Registration” has the meaning set forth in Section 3.1(a).
“Demand Registration Statement” has the meaning set forth in Section 3.1(a)
“Distribution” has the meaning set forth in the Amended and Restated Certificate of Incorporation of the Company, as in effect as of the date of this Agreement.
“Distribution Date” means the date on which a Distribution occurs.
“Effective Date” means the date a registration statement filed pursuant to ARTICLE III is declared effective by the SEC.
“Equity Securities” means (i) any common stock or preferred stock of the Company and (ii) any security convertible into or exercisable or exchangeable for, with or without consideration, any common stock or preferred stock of the Company, including any option, warrant or right to subscribe for or purchase any common stock or preferred stock of the Company.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the SEC thereunder.
“Filing Date” has the meaning set forth in Section 3.1(a).
“Governmental Approvals” means any notices, reports or other filings to be made, or any consents, registrations, approvals, permits or authorizations to be obtained from, any Governmental Entity.
“Governmental Entity” means any federal, state, local, foreign or international court, government, department, commission, board, bureau, agency, official or other regulatory, administrative or governmental authority.
“Holders” shall mean, collectively, the Stockholders and their Affiliated Companies who from time to time own Registrable Securities, each of such entities separately is sometimes referred to herein as a “Holder.”
“IPO” has the meaning set forth in the recitals of this Agreement.
“IPO Date” means the date of effectiveness of the registration statement relating to the IPO.
“Maximum Number” when used in connection with an Underwritten Offering, shall mean the maximum number of shares of Company Capital Stock (or amount of other Registrable Securities) that the Underwriters’ Representative has informed the Company may be included as part of such offering without adversely affecting the proposed offering pricing, the timing, the distribution method or probability of success of such offering.
“Party” or “Parties” has the meaning set forth in the preamble hereto.
“Person” means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization or a governmental body or authority.
“Registrable Securities” means (a) the Shares, (b) any other shares of Class A common stock issued or distributed as (or issuable upon the conversion or exercise of any warrant, right,
or other security that is issued or distributed as) a stock dividend, a stock split or other distribution with respect to, or in exchange for or in replacement of, the Shares, and (c) any other successor securities received by a Holder in respect of any of the foregoing (a) through (b), including, without limitation, pursuant to a merger, consolidation, corporate conversion or other extraordinary transaction; provided that in the event that any Registrable Securities (as defined without giving effect to this proviso) are being registered pursuant hereto, the Holder may include in such registration (subject to the limitations of this Agreement otherwise applicable to the inclusion of Registrable Securities) any Class A common stock or Class B common stock or securities acquired thereafter by such Holder, which shall also be deemed to be “Shares” and accordingly Registrable Securities, for purposes of such registration. As to any particular Registrable Securities held by any Holder, such securities shall cease to be Registrable Securities on the earliest to occur of: (A) a registration statement with respect to the sale by such Holder shall have been declared effective under the Securities Act and such Shares shall have been disposed of in accordance with such registration statement, (B) they shall have been sold in accordance with Rule 144, (C) so long as such Holder and its Affiliated Companies beneficially own less than 2% of the outstanding shares of Company Common Stock, such time as Rule 144 is available for the sale of all of such Holder’s Shares without volume limitation without registration, (D) they shall have been otherwise transferred by such Holder to a Person that is not an Affiliated Company of such Holder, new certificates or book entries for them not bearing a legend restricting further transfer shall have been delivered by the Company and subsequent disposition of them shall not require registration or qualification of them under the Securities Act or any state securities or blue sky law then in effect or (E) they shall have ceased to be outstanding.
“Registration Expenses” means any and all out-of-pocket expenses incident to performance of or compliance with this Agreement, including (a) all SEC registration and filing fees, (b) all fees and expenses of complying with securities or blue sky laws (including fees and disbursements of counsel for any underwriters in connection with blue sky qualifications of the Registrable Securities) or relating to the Financial Industry Regulatory Authority (including, if applicable, the fees and expenses of any “qualified independent underwriter” as such term is defined in FINRA Rule 5121), (c) all printing, messenger and delivery expenses, (d) all fees and expenses incurred in connection with listing the Registrable Securities on a securities exchange pursuant to the requirements hereof, (e) the fees and disbursements of counsel for the Company and of its independent public accountants, (f) all expenses in connection with the preparation, printing and filing of the registration statement, any preliminary prospectus or final prospectus and amendments and supplements thereto and the mailing and delivering of copies thereof to any Holders, underwriters and dealers and all expenses incidental to delivery of the Registrable Securities, (g) the reasonable fees and disbursements of one firm of counsel, other than the Company’s counsel, selected by the Holders of Registrable Securities being registered that made a Request for a Demand Registration, (h) any fees and disbursements of underwriters customarily paid by the issuers or sellers of securities, and the reasonable fees and expenses of any special experts retained in connection with the requested registration, but excluding underwriting discounts and commissions and transfer taxes, if any, and (i) the expenses incurred in connection with making “road show” presentations and holding meetings with potential investors to facilitate the sale of Registrable Securities in an Underwritten Offering.
“registration statement” means a registration statement filed by the Company with the SEC under the Securities Act.
“Request” has the meaning set forth in Section 3.1(a).
“Rule 144” means Rule 144 (or any successor rule to similar effect) promulgated under the Securities Act.
“Rule 415 Offering” means an offering on a delayed or continuous basis pursuant to Rule 415 (or any successor rule to similar effect) promulgated under the Securities Act.
“SAP” has the meaning set forth in the preamble hereto.
“SAP Group” means (x) prior to the Distribution Date, SAP and, for so long as SAP is a Subsidiary of SAP Parent, SAP Parent and all Subsidiaries of SAP Parent, and (y) following the Distribution Date, SAP Parent and all Subsidiaries of SAP Parent.
“SAP Parent” means SAP SE, a European Company (Societas Europaea) registered in accordance with the corporate laws of Germany and the European Union.
“SAP Securities” has the meaning set forth in Section 3.1(d).
“SEC” means the U.S. Securities and Exchange Commission.
“Secondary Indemnitors” has the meaning set forth in Section 2.02(d).
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated by the SEC thereunder.
“Selling Holder” has the meaning set forth in Section 3.6(e).
“Shares” means (i) the shares of Class A common stock held by any Holder immediately following the closing of the IPO, (ii) the shares of Class B common stock held by SAP immediately following the closing of the IPO; provided, however, that such shares of Class B common stock shall not be included in any registrations under ARTICLE III of this Agreement unless they have been distributed by SAP in a Distribution, and (iii) the shares of Class A common stock issued or issuable upon conversion or reclassification of the shares of Class B common stock held by SAP immediately following the closing of the IPO.
“Silver Lake” has the meaning set forth in the preamble hereto.
“Silver Lake Designee” has the meaning set forth in Section 2.2.
“Silver Lake Securities” has the meaning set forth in Section 3.1(d).
“Silver Lake Stock Purchase Agreement” has the meaning set forth in the recitals of this Agreement.
“Q II” has the meaning set forth in the preamble hereto.
“Q II Securities” has the meaning set forth in Section 3.1(d).
“Stockholder” means SAP, Silver Lake and Q II, and any other Person who acquires Shares in a transaction in which the rights under this Agreement are assigned pursuant to Section 4.9.
“Subsidiary” of any Person means a corporation, limited liability company, joint venture, partnership, trust, association or other entity in which such Person: (i) beneficially owns, either directly or indirectly, more than 50% of (A) the total combined voting power of all classes of voting securities of such entity, (B) the total combined equity interests of such entity, or (C) the capital or profits interest, in the case such entity is a partnership; or (ii) otherwise has the power to vote, either directly or indirectly, sufficient securities to elect a majority of the board of directors or similar governing body. For the avoidance of doubt, for purposes of this Agreement, the Company and its Subsidiaries shall not be deemed to be Subsidiaries of any member of the SAP Group.
“Underwriters’ Representative” when used in connection with an Underwritten Offering, shall mean the managing underwriter of such offering, or, in the case of a co-managed underwriting, the managing underwriters designated as the representative or representatives of the underwriters.
“Underwritten Offering” shall mean a registration in which securities of the Company are sold to one or more underwriters in a firm commitment underwriting for reoffering to the public.
ARTICLE II
COVENANTS AND OTHER MATTERS
Section 2.1Government Approvals. To the extent that any of the transactions contemplated by this Agreement requires any Governmental Approvals, the Parties will use their reasonable best efforts to obtain any such Governmental Approvals.
Section 2.2Company Board Matters.
(a)For so long as Silver Lake and any of its Affiliated Companies collectively beneficially own such number of shares of Company Common Stock that is more than both (a) 50% of the Shares acquired pursuant to the Silver Lake Stock Purchase Agreement and (b) 2% of the outstanding shares of Company Common Stock (the failure to own such number of shares as set forth in either clause (a) or (b) of the foregoing, a “Fall-Away Event”), SAP shall vote at any regular or special meeting of stockholders (or take any action by written consent with respect to) all Equity Securities then owned by it or its Affiliated Companies (or as to which they then have voting power) so that one member of the Company Board is a person designated by Silver Lake (the “Silver Lake Designee”). Initially, the Silver Lake Designee shall be Egon Durban and SAP shall take all actions necessary, including calling special Board and stockholders meetings to cause Egon Durban to be appointed as a member of the Company Board, effective immediately
following Closing (as defined in the Silver Lake Stock Purchase Agreement). Subject to the first sentence of this Section 2.2, in the event that Egon Durban ceases to serve in such role or if any vacancy otherwise occurs on the Company Board with respect to the Silver Lake Designee, SAP agrees to vote at any regular or special meeting of stockholders, take any action by written consent or otherwise take all actions within their power, in each case with respect to all Equity Securities then owned by it or its Affiliated Companies (or as to which they then have voting power), to fill the vacancy with respect to the Silver Lake Designee with another person designated by Silver Lake; provided, that Silver Lake must consult with the Company prior to naming such designee as the Silver Lake Designee and such designee must (i) be a managing director or other senior-level officer of Silver Lake and (ii) meet all independence and other requirements regarding service as a director of the Company under applicable law and stock exchange rules. For so long as Silver Lake is entitled to designate the Silver Lake Designee pursuant to this Section 2.2, SAP agrees to vote (and to act by written consent with respect to) all Equity Securities then owned by it or its Affiliated Companies (or as to which they then have voting power) to remove the individual serving as the Silver Lake Designee as a director of the Company, with or without cause, only upon the written request of Silver Lake. Except as otherwise required by applicable law, SAP shall not take any action to cause, directly or indirectly, the removal of the Silver Lake Designee, unless it is directed to do so by Silver Lake.
(b)The Company Board shall take all action (including calling special Board and stockholders meetings) necessary to cause Egon Durban, as the initial Silver Lake Designee, to be appointed as a member of the Company Board, effective as of the Closing. Following the Closing and until the occurrence of the Fall-Away Event, the Company shall take all action (including calling special Board and stockholders meetings) necessary to (i) nominate the Silver Lake Designee to be elected at each annual meeting of the Company’s stockholders automatically, without any action by Silver Lake or requirement for Silver Lake to comply with the notice requirements and procedures in Section 2.8 of the Company’s bylaws, (ii) recommend that holders of Company Capital Stock vote to elect the Silver Lake Designee, (iii) use its reasonable efforts to cause the election to the Company Board of a slate of directors that includes the Silver Lake Designee and (iv) in the event of the death, disability, retirement, resignation or removal (with or without cause) of the individual then serving as the Silver Lake Designee, replace such individual with another individual designated in writing by Silver Lake to be the new Silver Lake Designee (subject to the proviso in Section 2.2(a)) in order to fill any vacancy created by such death, disability, retirement, resignation or removal. If the Silver Lake Designee is not elected to serve as a director of the Company Board, the Company Board shall take all lawful actions to appoint the Silver Lake Designee as a director of the Company Board, including increasing the size of the Company Board and appointing the Silver Lake Designee to fill the vacancy created by such increase.
(c)For so long as the Silver Lake Designee is serving or participating on the Company Board, (i) the Company shall not implement or maintain any trading policy, equity ownership guidelines (including with respect to the use of Rule 10b5-1 plans and preclearance or notification to the Company of any trades in the Company’s securities) or similar guideline or policy with respect to the trading of securities of the Company that applies to any Stockholder in its capacity as such or any Stockholder’s Affiliates (including a policy that limits, prohibits, or
restricts any Stockholder or its Affiliates from entering into any hedging or derivative arrangements), in each case other than any director designee of such Stockholder (including in respect of Silver Lake, the Silver Lake Designee) solely in his or her individual capacity, (ii) any share ownership requirement for the Silver Lake Designee serving on the Company Board will be deemed satisfied by the securities owned by the Silver Lake and/or its Affiliates and under no circumstances shall any of such policies, procedures, processes, codes, rules, standards and guidelines impose any restrictions on the transfers of securities by Silver Lake or its Affiliates and (iii) under no circumstances shall any policy, procedure, code, rule, standard or guideline applicable to the Company Board be violated by the Silver Lake Designee (x) accepting an invitation to serve on another board of directors of a company whose principal lines(s) of business do not compete with the principal line(s) of business of the Company or failing to notify an officer or director of the Company prior to doing so, (y) receiving compensation from Silver Lake or its Affiliates, or (z) failing to offer his or her resignation from the Company Board except as otherwise expressly provided in this Agreement, and, in each case of (i), (ii) and (iii), it is agreed that any such policies in effect from time to time that purport to impose terms inconsistent with this Section 2.02(c) shall not apply to the extent inconsistent with this Section 2.2(c).
(d)The Company shall indemnify the Silver Lake Designee and provide the Silver Lake Designee with director and officer insurance to the same extent as it indemnifies and provides such insurance to other non-executive members of the Company Board. The Company hereby acknowledges that the Silver Lake Designee may have certain rights to indemnification, advancement of expenses and/or insurance provided by Silver Lake or its Affiliates (collectively, the “Secondary Indemnitors”). The Company hereby agrees and acknowledges that (i) it is the indemnitor of first resort with respect to the Silver Lake Designee (i.e., its obligations to the Silver Lake Designee are primary and any obligation of the Secondary Indemnitors to advance expenses or to provide indemnification for the same expenses or liabilities incurred by the Silver Lake Designee are secondary), (ii) it will be required to advance the full amount of expenses incurred by the Silver Lake Designee and will be liable for the full amount of all expenses and other liabilities to the extent legally permitted and as required by the Company’s Amended and Restated Certificate of Incorporation or bylaws of the Company (or any agreement between the Company and the Silver Lake Designee), without regard to any rights the Silver Lake Designee may have against the Secondary Indemnitors and (iii) it irrevocably waives, relinquishes and releases the Secondary Indemnitors from any and all claims against the Secondary Indemnitors for contribution, subrogation or any other recovery of any kind in respect thereof. The Company further agrees that no advancement or payment by the Secondary Indemnitors on behalf of Indemnitee with respect to any claim for which Indemnitee has sought indemnification from the Company will affect the foregoing and the Secondary Indemnitors will have a right of contribution and/or be subrogated to the extent of such advancement or payment to all of the rights of recovery of the Silver Lake Designee against the Company.
(e)For the avoidance of doubt, without limiting any other rights of Silver Lake or its Affiliates under this Agreement, the Silver Lake Designee shall be entitled to receive Board fees and compensation and expense reimbursement according to the Company’s standard policies with respect to service on the Company Board or any committee thereof.
Section 2.3Section 16 Matters. If the Company becomes a party to a consolidation, merger or other similar transaction, or if the Company reasonably believes there is otherwise any event or circumstance that may result in Silver Lake, its Affiliates and/or the Silver Lake Designee being deemed to have made a disposition or acquisition of equity securities of the Company or derivatives thereof for purposes of Section 16 of the Exchange Act (including any purchases of additional shares of Class A common stock by Silver Lake or any of its Affiliates, one or more private placements or otherwise), and if the Silver Lake Designee is serving or participating on the Company Board at such time or has served on the Company Board during the preceding six months, then upon request of Silver Lake or the Silver Lake Designee, (i) the Company Board or a committee composed solely of two or more “non-employee directors” as defined in Rule 16b-3 of the Exchange Act will pre-approve such acquisition or disposition of equity securities of the Company or derivatives thereof for the express purpose of exempting the interests of Silver Lake, its Affiliates or the Silver Lake Designee (in each case, to the extent such persons may be deemed to be a director or “directors by deputization”) in such transaction from Section 16(b) of the Exchange Act pursuant to Rule 16b-3 thereunder to the extent applicable and (ii) if the transaction involves (A) a merger or consolidation to which the Company is a party and the Company Capital Stock is, in whole or in part, converted into or exchanged for equity securities of a different issuer, (B) a potential acquisition or deemed acquisition, or disposition or deemed disposition, by Silver Lake, its Affiliates or the Silver Lake Designee of equity securities of such other issuer or derivatives thereof and (C) an Affiliate or other designee of Silver Lake or its Affiliated Companies will serve on the board of directors (or its equivalent) of such other issuer, then the Company shall require that such other issuer pre-approve any such acquisitions of equity securities or derivatives thereof for the express purpose of exempting the interests of Silver Lake, its Affiliates and the Silver Lake Designee (in each case, to the extent such persons may be deemed to be a director or “directors by deputization” of such other issuer) in such transactions from Section 16(b) of the Exchange Act pursuant to Rule 16b-3 thereunder to the extent applicable.
Section 2.4Corporate Waiver. To the fullest extent permitted by the Delaware General Corporation Law (the “DGCL”) and subject to applicable legal requirements and any express agreement that may from time to time be in effect, the Company agrees that the Silver Lake Designee, Silver Lake and its Affiliates or any portfolio company thereof (collectively, “Covered Persons”) may, and shall have no duty not to, (i) invest in, carry on and conduct, whether directly, or as a partner in any partnership, or as a joint venturer in any joint venture, or as an officer, director, stockholder, equityholder or investor in any person, or as a participant in any syndicate, pool, trust or association, any business of any kind, nature or description, whether or not such business is competitive with or in the same or similar lines of business as the Company or any of its Subsidiaries, (ii) do business with any client, customer, vendor or lessor of any of the Company or its Affiliates, and/or (iii) make investments in any kind of property in which the Company may make investments; provided, however, that no Covered Person may invest or make investments in any business on the basis of confidential information it has received from the Company or its Affiliates. To the fullest extent permitted by the DGCL, the Company renounces any interest or expectancy to participate in any business or investments of any Covered Person as currently conducted or as may be conducted in the future, and waives any claim against a Covered Person and shall indemnify a Covered Person against any claim that
such Covered Person is liable to the Company or its stockholders for breach of any fiduciary duty solely by reason of such person’s participation in any such business or investment. Except as set forth below, the Company agrees that in the event that a Covered Person acquires knowledge of a potential transaction or matter which may constitute a corporate opportunity for both (x) the Covered Person and (y) the Company or its Subsidiaries, the Covered Person shall not have any duty to offer or communicate information regarding such corporate opportunity to the Company or its Subsidiaries. To the fullest extent permitted by the DGCL, the Company hereby renounces any interest or expectancy in any potential transaction or matter of which the Covered Person acquires knowledge and waives any claim against each Covered Person and shall indemnify a Covered Person to the extent permitted by the DGCL against any claim, that such Covered Person is liable to the Company or its stockholders for breach of any fiduciary duty solely by reason of the fact that such Covered Person (A) pursues or acquires any corporate opportunity for its own account or the account of any Affiliate or other person, (B) directs, recommends, sells, assigns or otherwise transfers such corporate opportunity to another person or (C) does not communicate information regarding such corporate opportunity to the Company; provided, that, in each such case, any corporate opportunity which is expressly offered to a Covered Person in his or her capacity as a member of the Company Board shall belong to the Company. The Company shall pay in advance any reasonable out-of-pocket expenses incurred in defense of such claim as provided in this provision, except to the extent that it is determined by a final, non-appealable order of a Delaware court having competent jurisdiction (or any other judgment which is not appealed in the applicable time) that (i) a Covered Person has breached this Section 2.4 or (ii) the Silver Lake Designee has breached its fiduciary duties to the Company, in which case any such advanced expenses shall be promptly reimbursed to the Company.
ARTICLE III
REGISTRATION RIGHTS
Section 3.1Demand Registration.
(a)(i) SAP and its Affiliated Companies shall have the right, after the 180 day period following the IPO Date (or such other period as may be requested by the Company or an underwriter to facilitate compliance with applicable FINRA rules, or any successor provisions or amendments thereto), and (ii) Silver Lake and its Affiliated Companies shall have the right, after the two year period following the IPO Date, to request in writing (a “Request”) (which request shall specify the Registrable Securities intended to be disposed of by such requesting Holder, and the intended method of distribution thereof, including in a Rule 415 Offering, if the Company is then eligible to register such Registrable Securities on Form S-3 (or a successor form) for such offering) that the Company register such portion of the requesting Holder’s Registrable Securities as shall be specified in the Request (a “Demand Registration”) by filing with the SEC, as soon as practicable (the “Filing Date”) after the receipt of such a Request by the Company, a registration statement (a “Demand Registration Statement”) covering such Registrable Securities, and the Company shall use its reasonable best efforts to have such Demand Registration Statement become effective with the SEC concurrently with filing or as soon as practicable thereafter, and, subject to Section 3.4, to keep such Demand Registration Statement
Continuously Effective for a period of at least 24 months, in the case of a Rule 415 Offering, or, in all other cases, for a period of at least 180 days following the date on which such Demand Registration Statement is declared effective (or for such shorter period which will terminate when all of the Registrable Securities covered by such Demand Registration Statement shall have been sold pursuant thereto) (provided that such period shall be extended for a period of time equal to the period the Holder of Registrable Securities refrains from selling any securities included in such registration statement at the request of the Company or the Underwriters’ Representative pursuant to the provisions of this Agreement), including, if necessary, by filing with the SEC a post-effective amendment or a supplement to the Demand Registration Statement or the related prospectus or any document incorporated therein by reference or by filing any other required document or otherwise supplementing or amending the Demand Registration Statement, if required by the rules, regulations or instructions applicable to the registration form used by the Company for such Demand Registration Statement or by the Securities Act, the Exchange Act, any state securities or blue sky laws, or any rules and regulations thereunder; provided, that such period during which the Demand Registration Statement shall remain Continuously Effective shall, in the case of an Underwritten Offering, and subject to Section 3.4, be extended for such period (if any) as the underwriters shall reasonably require, including to satisfy, in the judgment of counsel to the underwriters, any prospectus delivery requirements imposed by applicable law.
(b)The Company shall not be obligated to effect more than two Demand Registrations in any calendar year for Silver Lake or more than one Demand Registration for SAP in any calendar quarter. For purposes of the preceding sentence, a Demand Registration shall not be deemed to have been effected for SAP and its Affiliated Companies or Silver Lake and its Affiliated Companies (and, therefore, not requested for purposes of paragraph (a) above), (i) unless a Demand Registration Statement with respect thereto has become effective, (ii) if after such Demand Registration Statement has become effective, the offer, sale or distribution of Registrable Securities thereunder is prevented by any stop order, injunction or other order or requirement of the SEC or other governmental agency or court for any reason not attributable to SAP or its Affiliated Companies, or to Silver Lake or its Affiliated Companies, as the case may be, and such effect is not thereafter eliminated or (iii) if the conditions to closing specified in the purchase agreement or underwriting agreement entered into in connection with any offering pursuant to such registration are not satisfied or waived other than by reason of a failure on the part of SAP or its Affiliated Companies, or Silver Lake and its Affiliated Companies, as the case may be. If the Company shall have complied with its obligations under ARTICLE III, a right to a Demand Registration pursuant to this Section 3.1 shall be deemed to have been satisfied upon the earlier of (i) the date as of which all of the Registrable Securities included therein shall have been sold to the underwriters or distributed pursuant to the Demand Registration Statement and (ii) the date as of which such Demand Registration Statement shall have been effective for an aggregate period of at least 24 months, in the case of a Rule 415 Offering, or, in all other cases, for a period of at least 180 days following the effectiveness of such Demand Registration Statement; provided that such period shall be extended for a period of time equal to the period the Holder of Registrable Securities refrains from selling any securities included in such registration statement at the request of the Company or the Underwriters’ Representative pursuant to the provisions of this Agreement.
(c)Any request made pursuant to this Section 3.1 shall be addressed to the attention of the General Counsel of the Company and shall specify the number of Registrable Securities to be registered (which shall be not less than 0.5% of the outstanding shares of Company Common Stock).
(d)Without the prior written consent of SAP, the Company may not include in a Demand Registration pursuant to this Section 3.1 shares of Company Capital Stock for the account of the Company or any Subsidiary of the Company, but, if and to the extent required by a contractual obligation (including Section 3.2), may, subject to compliance with Section 3.1(e), include shares of Company Capital Stock for the account of any other Person who holds shares of Company Capital Stock entitled to be included therein (including any other Holder entitled to be included therein pursuant to Section 3.2); provided, that if the Underwriters’ Representative of any offering described in this Section 3.1 shall have informed the Company and/or the Holder making the Request in writing that in its judgment there is a Maximum Number of shares of Company Capital Stock that SAP and its Affiliated Companies, Silver Lake and its Affiliated Companies, all other Holders and any other Persons entitled to participate in such Demand Registration may include in such offering, then the Company shall include in such Demand Registration: (i) first, (A) the number of Registrable Securities held by SAP and its Affiliated Companies (“SAP Securities”), if any, up to 1% of the aggregate outstanding Company Capital Stock, that are requested to be included in such registration, (B) the number of Registrable Securities held by Silver Lake and its Affiliated Companies (“Silver Lake Securities”), if any, up to 1% of the aggregate outstanding Company Capital Stock, that are requested to be included in such registration and (C) the number of Registrable Securities held by Q II and its Affiliated Companies (“Q II Securities”), if any, up to 0.25% of the aggregate outstanding Company Capital Stock, that are requested to be included in such registration pursuant to Section 3.2 (clauses (A)-(C) collectively, the “Cap Amount”), except that if the number of shares of Company Capital Stock that may be included in such registration is less than the Cap Amount, the reduction shall be applied pro rata among the SAP Securities, Silver Lake Securities and Q II Securities based on each of their pro rata share of the Cap Amount (i.e., 44.44% SAP Securities/44.44% Silver Lake Securities/11.12% Q II Securities); (ii) second, up to the full number of SAP Securities in excess of the Cap Amount, if any, that are requested to be included in such registration; (iii) third, up to the full number of Silver Lake Securities and Q II Securities in excess of the Cap Amount, if any, that are requested to be included in such registration on a pro rata basis based on the number of shares of Company Capital Stock held by such Holders; (iv) fourth, such number of shares of Company Capital Stock duly requested to be included in such registration by other Persons, pro rata on the basis of the amount of such other shares of Company Capital Stock requested to be included or such other allocation method determined by the Company; and (v) fifth, securities the Company proposes to sell.
(e)No Holder may participate in any Underwritten Offering under this Section 3.1 and no other Person shall be permitted to participate in any such offering pursuant to this Section 3.1 unless it completes and executes all customary questionnaires, powers of attorney, custody agreements, underwriting agreements and other customary documents required under the customary terms of such underwriting arrangements. In connection with any Underwritten Offering under Section 3.1 hereof, each participating Holder and the Company and,
except in the case of a Rule 415 Offering hereof, each other Selling Holder shall be a party to the underwriting agreement with the underwriters and may be required to make certain customary representations and warranties and provide certain customary indemnifications for the benefit of the underwriters.
(f)Any Holder having requested the Company to include any or all of its Registrable Securities in a registration statement under the Securities Act pursuant to Section 3.1 or Section 3.2 shall have the right to withdraw any such notice or direction with respect to any or all of the Registrable Securities designated by it for registration by giving written notice to such effect to the Company prior to the effective date of such registration statement. In the event of any such withdrawal, the Company shall not include such Registrable Securities in the applicable registration and such Registrable Securities shall continue to be Registrable Securities for all purposes of this Agreement (subject to the other terms and conditions of this Agreement). No such withdrawal shall affect the obligations of the Company with respect to the Registrable Securities not so withdrawn if any other Holder has requested pursuant to Section 3.1 or Section 3.2 that Registrable Securities be included in such registration; provided, however, that in the case of a Demand Registration, if such withdrawal shall reduce the number of Registrable Securities sought to be included in such registration below 0.5% of the outstanding shares of Company Common Stock, then the Company shall as promptly as practicable give each Holder seeking to register Registrable Securities notice to such effect and, within ten days following the mailing of such notice, such Holders still seeking registration shall, by written notice to the Company, elect to register additional Registrable Securities to satisfy the foregoing minimum offering size or elect that such registration statement not be filed or, if theretofore filed, be withdrawn. During such ten day period, the Company shall not file such registration statement if not theretofore filed or, if such registration statement has been theretofore filed, the Company shall not seek, and shall use reasonable best efforts to prevent, the effectiveness thereof.
Section 3.2Piggyback Registration.
(a)In the event that the Company at any time after (x) in the case of Silver Lake, two years after the IPO Date, and (y) in the case of Q II, 18 months after the IPO Date, proposes to register any Equity Securities under the Securities Act, either in connection with a primary offering for cash for the account of the Company (a “Primary Offering”), a secondary offering or a combined primary and secondary offering, the Company will each time it intends to effect such a registration, give written notice (a “Company Notice”) to all Holders of Registrable Securities who are no longer subject to contractual transfer restrictions with the Company in respect of such Registrable Securities at least ten Business Days prior to the initial filing of a registration statement with the SEC pertaining thereto, informing such Holders of (i) its intent to file such registration statement and whether such registration is for a Primary Offering, a secondary offering or a combined primary and secondary offering, (ii) the intended method of distribution, (iii) the number of each class of Equity Securities proposed to be registered, (iv) the proposed date of filing of such registration statement, (v) the proposed managing underwriter(s) (if any), (vi) a good faith estimate by the Company of the proposed minimum offering price of each class of Equity Securities, in each case of (ii) to (vi), to the extent then known, and (vii) the Holders’ right to request the registration of the Registrable Securities held by the Holders. Upon
the written request of the Holders made within seven Business Days after any such Company Notice is given (which request shall specify the number of Registrable Securities intended to be disposed of by such Holder and the intended distribution thereof; provided, that if (i) the Registrable Securities intended to be disposed of are Class A common stock and (ii) the applicable registration is intended to effect an offering of Class A common stock for cash for the account of the Company, such request need specify only the Registrable Securities intended to be disposed of by such Holder), unless SAP shall have responded to such Company Notice within such seven Business Day period Requesting a Demand Registration in priority to the registration described in such Company Notice (in which case, the Company shall first effect such Demand Registration in accordance with Section 3.1 and the cut-back provisions in Section 3.1(d) shall apply), the Company will use its reasonable best efforts to effect the registration under the Securities Act of all Registrable Securities which the Company has been so requested to register by the Holders to the extent required to permit the disposition (in accordance with the intended methods of distribution thereof or, in the case of a registration which is intended to effect a primary offering for cash for the account of the Company, in accordance with the Company’s intended method of distribution) of the Registrable Securities so requested to be registered, including, if necessary, by filing with the SEC a post-effective amendment or a supplement to the registration statement filed by the Company or the related prospectus or any document incorporated therein by reference or by filing any other required document or otherwise supplementing or amending the registration statement filed by the Company, if required by the rules, regulations or instructions applicable to the registration form used by the Company for such registration statement or by the Securities Act, any state securities or blue sky laws, or any rules and regulations thereunder; provided further, that if, at any time after giving written notice of its intention to register any Equity Securities in a Primary Offering and prior to the Effective Date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to register or to delay such registration of the Equity Securities, the Company shall give written notice of such determination to each Holder of Registrable Securities and, thereupon, (i) in the case of a determination not to register, the Company shall be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from its obligation to pay the Registration Expenses incurred in connection therewith or from the Company’s obligations with respect to any subsequent registration) and (ii) in the case of a determination to delay such registration, the Company shall be permitted to delay registration of any Registrable Securities requested to be included in such registration statement for the same period as the delay in registering such Equity Securities; provided that the Holders of Registrable Securities may continue the registration as a Demand Registration under Section 3.1.
(b)If, in connection with a Primary Offering pursuant to this Section 3.2 that is initiated by the Company, the Underwriters’ Representative of the offering registered thereon shall inform the Company in writing that in its judgment there is a Maximum Number of shares of Company Capital Stock that may be included therein, the Company shall include in such registration: (i) first, if such registration statement relates to an offering initiated by the Company of Equity Securities being offered for the account of the Company, the full number of Equity Securities that the Company proposes to offer for its own account (“Company Securities”); (ii) second, SAP Securities, Silver Lake Securities and Q II Securities up to the Cap Amount, except that if the number of shares of Company Capital Stock that may be included in
such registration is less than the Cap Amount, the reduction shall be applied pro rata among the SAP Securities, Silver Lake Securities and Q II Securities based on each of their pro rata share of the Cap Amount (i.e., 44.44% SAP Securities/44.44% Silver Lake Securities/11.12% Q II Securities); (iii) third, up to the full number of SAP Securities in excess of the Cap Amount, if any, that are requested to be included in such registration; (iv) fourth, up to the full number of Silver Lake Securities and Q II Securities in excess of the Cap Amount, if any, that are requested to be included in such registration on a pro rata basis based on the total number of shares of Company Capital Stock held by such Holder; (v) and fifth, such number of shares of Company Capital Stock duly requested to be included in such registration by other Persons, pro rata on the basis of the amount of such other shares of Company Capital Stock requested to be included or such other allocation method determined by the Company. If, in connection with a secondary offering or a combined primary and secondary offering pursuant to this Section 3.2, the Underwriters’ Representative of the offering registered thereon shall inform the Company and/or the Holder in writing that in its judgment there is a Maximum Number of shares of Company Capital Stock that may be included therein, the cutback provisions in Section 3.1(d) shall apply.
(c)No Holder may participate in any Underwritten Offering under this Section 3.2 and no other Person shall be permitted to participate in any such offering pursuant to this Section 3.2 unless it completes and executes all customary questionnaires, powers of attorney, custody agreements, underwriting agreements and other customary documents required under the customary terms of such underwriting arrangements. In connection with any Underwritten Offering under this Section 3.2, each participating Holder and the Company and each such other Person shall be a party to the underwriting agreement with the underwriters of such offering and may be required to make certain customary representations and warranties and provide certain customary indemnifications for the benefit of the underwriters.
(d)The Company shall not be required to effect any registration of Registrable Securities under this Section 3.2 incidental to the registration of any of its securities in connection with the Company’s issuance of registered shares of Company Capital Stock in mergers, acquisitions, reorganizations, exchange offers, subscription offers, dividend reinvestment plans or stock option or other executive or employee benefit or compensation plans.
(e)The registration rights granted pursuant to the provisions of this Section 3.2 shall be in addition to the registration rights granted pursuant to Section 3.1. No registration of Registrable Securities effected under this Section 3.2 shall relieve the Company of its obligation to effect a Demand Registration of Registrable Securities pursuant to Section 3.1.
Section 3.3Expenses. Except as provided herein, the Company shall pay all Registration Expenses in connection with all registrations of Registrable Securities effected hereunder. Notwithstanding the foregoing, each Holder of Registrable Securities and the Company shall be responsible for its own internal administrative and similar costs and expenses (including salaries of personnel), which shall not constitute Registration Expenses.
Section 3.4Blackout Period. Notwithstanding anything to the contrary contained in this Agreement, the Company may delay the filing or effectiveness of a Registration Statement or require the Holder to suspend the use of the prospectus for sale of Registrable
Securities under an effective Registration Statement if the Company Board reasonably determines in good faith that the registration and distribution of Registrable Securities would materially interfere with the Company’s ability to effect a pending material financing, merger, acquisition, consolidation, recapitalization, corporate reorganization or any other material corporate development involving the Company or any of its Subsidiaries or would require premature disclosure thereof or of other material non-public information that would be detrimental to the Company, including a primary offering by the Company or a secondary offering with respect to SAP Securities contemplated to occur within 45 days of the receipt of a Request pursuant to Section 3.1 (in which case such Holder shall have the rights afforded to it (if any) under Section 3.2) (a “Blackout Period”). The Company shall (a) promptly give SAP or Silver Lake, as applicable, written notice of such determination, (b) if requested by SAP or Silver Lake, as applicable, and to the extent such action would not violate applicable law, promptly deliver to SAP or Silver Lake, as applicable, a general statement of the reasons for such postponement or restriction on use and to the extent practicable an approximation of the anticipated delay, and (c) promptly give SAP or Silver Lake, as applicable, written notice at the conclusion of such Blackout Period. Notwithstanding the foregoing, (i) the Company will not invoke more than two Blackout Periods in any 12 month period and any Blackout Period shall not be in excess of 45 days and (ii) in the event that a Holder exercises a demand right pursuant to Section 3.1 and the related offering is expected to, or may, occur during a quarterly earnings blackout period of the Company (such blackout periods determined in accordance with such policy as the Company shall generally maintain and communicate to Holders from time to time), the Company and such Holder shall act reasonably and work cooperatively in view of such quarterly earnings blackout period. For the avoidance of doubt, (i) the Parties agree that an election by the Company that a registration statement for the registration and distribution of Registrable Securities shall not be usable, or shall be delayed, during a Blackout Period shall not act to reduce the period during which such registration statement shall remain effective pursuant to the terms of this ARTICLE III and (ii) any Blackout Period shall apply equally to each Holder and the Company shall not impose a Blackout Period with respect to any one Holder without imposing the same such Blackout Period to any other Holders.
Section 3.5Selection of Underwriters.
(a)Any time that a Demand Registration involves an Underwritten Offering, the investment banker(s) and manager(s) that will serve as managing underwriters (including which of such managing underwriters will serve as lead or co-lead) and underwriters and their respective economics with respect to the offering of such Registrable Securities shall be selected by (i) if any SAP Securities are to be registered in such Demand Registration, SAP, or (ii) if no SAP Securities are to be registered in such Demand Registration, the Holders of the majority of the Registerable Securities to be included in such Demand Registration.
(b)Any time that a registration involves a Primary Offering pursuant to this Section 3.5 that is initiated by the Company, the Company shall select the investment banker(s) and manager(s) that will serve as managing underwriters (including which of such managing underwriters will serve as lead or co-lead) and underwriters with respect to the offering of such Registrable Securities and their respective economics.
Section 3.6Obligations of the Company. If and whenever the Company is required to effect the registration of any Registrable Securities under the Securities Act as provided in this ARTICLE III, the Company shall as promptly as practicable:
(a)prepare, file and use its reasonable best efforts to cause to become effective a registration statement under the Securities Act relating to the Registrable Securities to be offered; provided, further, that before filing such Registration Statement or any amendments or supplements thereto, the Company will furnish to the holders which are including Registrable Securities in such registration (“Selling Holders”) and the lead managing underwriter(s), if any, copies of all such documents proposed to be filed, which documents will be subject to the review and reasonable comment (which comments will be considered in good faith by the Company) of the counsel (if any) to such holders and counsel (if any) to such underwriter(s), and other documents reasonably requested by any such counsel, including any comment letters from the SEC, and, if requested by any such counsel, provide such counsel and the lead managing underwriter(s), if any, reasonable opportunity to participate in the preparation of such Registration Statement and each prospectus (including any prospectus supplement) included or deemed included therein;
(b)prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus (including any issuer free writing prospectus required to be so filed) used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities until the earlier of (i) such time as all of such Registrable Securities have been disposed of in accordance with the intended methods of disposition set forth in such registration statement and (ii) the expiration of 24 months, in the case of a Rule 415 Offering, or, in all other cases, the expiration of 180 days after such registration statement becomes effective; provided, that such period shall be extended for such number of days that equals the number of days elapsing from (x) the date the written notice contemplated by Section 3.6(f) below is given by the Company to (y) the date on which the Company delivers to Holders of Registrable Securities the supplement or amendment contemplated by Section 3.6(f);
(c)furnish to Holders of Registrable Securities and to any underwriter of such Registrable Securities such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus included in such registration statement (including each preliminary prospectus, any summary prospectus and any issuer free writing prospectus), in conformity with the requirements of the Securities Act, such documents incorporated by reference in such registration statement or prospectus, and such other documents (including a copy of any and all transmittal letters or other correspondence to or received from the SEC or any other governmental agency or self-regulatory body or other body having jurisdiction (including any domestic or foreign securities exchange) relating to such offering) as Holders of Registrable Securities or such underwriter may reasonably request;
(d)use its reasonable best efforts to register or qualify all Registrable Securities covered by such registration statement under the securities or blue sky laws of such
jurisdictions as the Holders of such Registrable Securities or any underwriter to such Registrable Securities shall request, and use its reasonable best efforts to obtain all appropriate registrations, permits and consents in connection therewith, and do any and all other acts and things which may be necessary or advisable to enable the Holders of Registrable Securities or any such underwriter to consummate the disposition in such jurisdictions of its Registrable Securities covered by such registration statement; provided, that the Company shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any such jurisdiction wherein it is not so qualified or to consent to general service of process or taxation in any such jurisdiction where it is not then otherwise so subject;
(e)in the event of an Underwritten Offering, use its reasonable best efforts to furnish to each underwriter of such Underwritten Offering (i) an opinion and negative assurance letter of counsel for the Company dated the date of closing of the Underwritten Offering and (ii) a “comfort” letter signed by the independent public accountants who have audited the financial statements of the Company included in such registration statement dated the date of the underwriting agreement and a “bringdown letter” dated the date of closing of the Underwritten Offering, in each such case covering substantially the same matters with respect to such registration statement (and the prospectus included therein) as are customarily covered in opinions of issuer’s counsel and in accountants’ letters delivered to underwriters in underwritten public offerings of securities and, in the case of such accountants’ letter, with respect to events subsequent to the date of such financial statements;
(f)as promptly as practicable, notify each Selling Holder in writing (i) at any time when the registration statement, a prospectus or, prior to such time as a final prospectus is available, an issuer free writing prospectus relating to a registration made pursuant to Section 3.1 or Section 3.2, or any document incorporated by reference or deemed incorporated by reference therein contains an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading due to the occurrence of any event and (ii) of any request by the SEC or any other regulatory body or other body having jurisdiction for any amendment of or supplement to any registration statement or other document relating to such offering, and in either such case, at the request of the Selling Holders prepare and furnish to the Selling Holders a reasonable number of copies of a supplement to or an amendment of such registration statement, prospectus or, prior to such time as a final prospectus is available, such issuer free writing prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Registrable Securities, such registration statement and prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not misleading;
(g)as promptly as practicable notify in writing the Selling Holders and the underwriters, if any, of the following events: (A) the filing of such registration statement, any amendment thereto, the prospectus or any prospectus supplement related thereto or post-effective amendment to such Registration Statement or any free writing prospectus utilized in connection therewith, and, with respect to such registration statement or any post-effective amendment
thereto, when the same has become effective; (B) the issuance by the SEC of any stop order suspending the effectiveness of such registration statement or the initiation of any proceedings by any person for that purpose; (C) the receipt by the Company of any notification with respect to the suspension of the qualification of any Registrable Securities for sale under the securities or “blue sky” laws of any jurisdiction or the initiation or threat of any proceeding for such purpose and (D) if at any time the representations and warranties of the Company contained in any agreement (including any underwriting agreement) related to such registration cease to be true and correct in any material respect;
(h)use its reasonable best efforts to list all such Registrable Securities covered by such registration on each securities exchange on which a class of common equity securities of the Company is then listed;
(i)to the extent reasonably requested by the lead or managing underwriters in an Underwritten Offering, send appropriate officers of the Company to attend any “road shows” scheduled in connection with any such registration, with all out-of-pocket costs and expense incurred by the Company or such officers in connection with such attendance to be paid by the Company;
(j)furnish or cause to be furnished for delivery in connection with the closing of any offering of Registrable Securities pursuant to a registration effected pursuant to Section 3.1 or Section 3.2 unlegended certificates or book entries representing ownership of the Registrable Securities being sold in such denominations as shall be requested by the Selling Holders or the underwriters if such restrictions and legends are no longer required by the Securities Act or any applicable state securities laws or any agreement with the Company to which such Holder is a party;
(k)make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least 12 months beginning with the first day of the Company’s first full calendar quarter after the effective date of the Registration Statement which satisfies the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or any successor rule promulgated thereafter by the SEC); and
(l)use its reasonable best efforts to take all other reasonable and customary steps typically taken by issuers to effect the registration and disposition of such Registrable Securities as contemplated hereby, including using reasonable efforts to obtain the withdrawal of any order suspending the effectiveness of any registration statement, or the lifting of any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction at the earliest reasonable practicable date.
Section 3.7Obligations of Selling Holders. Each Selling Holder agrees by having its securities treated as Registrable Securities hereunder that, upon receipt of written notice from the Company specifying that the prospectus relating to a registration made pursuant to Section 3.1 or Section 3.2 contains an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading due to the occurrence of any
event, such Selling Holder will forthwith discontinue disposition of Registrable Securities until such Selling Holder is advised by the Company that the use of the prospectus may be resumed and is furnished with a supplemented or amended prospectus as contemplated by Section 3.6(f) above, and, if so directed by the Company, such Selling Holder will deliver to the Company all copies of the prospectus covering such Registrable Securities then in such Selling Holder’s possession at the time of receipt of such notice; provided, that the amount of time any Selling Holder is required to discontinue disposition of such Registrable Securities shall not exceed 45 days; provided, further, that the Company shall extend the time periods under Section 3.1 with respect to the length of time that the effectiveness of a registration statement must be maintained by the amount of time the Selling Holder is required to discontinue disposition of such Registrable Securities.
Section 3.8Underwriting; Due Diligence.
(a)If requested by the underwriters for any Underwritten Offering of Registrable Securities pursuant to a registration requested under this ARTICLE III, the Company shall enter into an underwriting agreement in a form reasonably satisfactory to the Company with such underwriters for such offering, which agreement will contain such representations and warranties by the Company and such other terms and provisions as are customarily contained in underwriting agreements with respect to secondary distributions, including indemnification and contribution provisions substantially to the effect and to the extent provided in Section 3.9, and agreements as to the provision of opinions of counsel and accountants’ letters to the effect and to the extent provided in Section 3.6(e). The Selling Holders on whose behalf the Registrable Securities are to be distributed by such underwriters shall be a party to any such underwriting agreement (or a party to a customary power of attorney, custody agreement and irrevocable election to sell) and the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriters, shall also be made to and for the benefit of such Selling Holders. Such underwriting agreement shall also contain such representations and warranties by such Selling Holders and such other terms and provisions as are customarily contained in underwriting agreements with respect to secondary distributions, including indemnification and contribution provisions substantially to the effect and to the extent provided in Section 3.9. If reasonably requested by the Company or the Underwriters’ Representative, (i) the Selling Holders will execute such custody agreements, stock powers, instruments of transfer and powers of attorney in connection with such Underwritten Offering as are customary for offerings of such kind and (ii) the Selling Holders will arrange for any necessary opinions of counsel with respect to the securities being sold by such Selling Holders and the reasonable and documented expenses of such counsel shall be deemed to be Registration Expenses payable by the Company.
(b)In connection with the preparation and filing of each registration statement registering Registrable Securities under the Securities Act pursuant to this ARTICLE III, the Company shall give the Selling Holders of such Registrable Securities and the underwriters, if any, and their respective counsel and accountants, such reasonable and customary access to its books and records and such opportunities to discuss the business of the Company with its officers and the independent public accountants who have certified the financial statements of the
Company as shall be reasonably necessary to enable them to exercise their due diligence responsibility; provided, that such Holders and the underwriters and their respective counsel and accountants shall use their reasonable best efforts to coordinate any such investigation of the books and records of the Company and any such discussions with the Company’s officers and accountants so that all such investigations occur at the same time and all such discussions occur at the same time.
Section 3.9Indemnification and Contribution.
(a)In the case of each offering of Registrable Securities made pursuant to this ARTICLE III, the Company agrees to indemnify and hold harmless, to the extent permitted by law, each Selling Holder, each underwriter of Registrable Securities so offered and each Person, if any, who controls any of the foregoing Persons within the meaning of the Securities Act and the officers, directors, members, partners, stockholders, Affiliates, employees, accountants, advisors and agents of each of the foregoing, against any and all losses, liabilities, costs (including reasonable expenses of investigation and reasonable attorney’s fees and disbursements), claims and damages, joint or several, to which they or any of them may become subject, under the Securities Act or otherwise, including any amount paid in settlement of any litigation commenced or threatened, insofar as such losses, liabilities, costs, claims and damages (or actions or proceedings in respect thereof, whether or not such indemnified Person is a party thereto) that arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the registration statement (or in any preliminary or final prospectus included therein or issuer free writing prospectus related thereto) or in any offering memorandum or other offering document relating to the offering and sale of such Registrable Securities, or any amendment thereof or supplement thereto, or in any document incorporated by reference therein, or 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; provided, that the Company shall not be liable to any Person in any such case to the extent that any such loss, liability, cost, claim or damage arises out of or relates to any untrue statement or alleged untrue statement, or any omission, if such statement or omission shall have been made in reliance upon and in conformity with information furnished to the Company in writing by or on behalf of such Person specifically for use in such registration statement (or in any preliminary or final prospectus included therein or issuer free writing prospectus related thereto), offering memorandum or other offering document, or any amendment thereof or supplement thereto. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of any Selling Holder or any other holder and shall survive the transfer of such securities. The foregoing indemnity agreement is in addition to any liability that the Company may otherwise have to each Selling Holder, or other holder or underwriter of the Registrable Securities or any controlling person of the foregoing and the officers, directors, members, partners, stockholders, Affiliates, employees, accountants, advisors and agents of each of the foregoing.
(b)In the case of each offering of Registrable Securities made pursuant to this ARTICLE III, each Selling Holder, by exercising its registration rights hereunder, severally and not jointly, agrees to indemnify and hold harmless, to the extent permitted by law, the Company, each underwriter who participates in such offering, each other Selling Holder or other holder
with securities included in such offering, and each Person, if any, who controls any of the foregoing Persons within the meaning of the Securities Act and the officers, directors, members, partners, stockholders, Affiliates, employees, accountants, advisors and agents of each of the foregoing, against any and all losses, liabilities, costs (including reasonable expenses of investigation and reasonable attorneys’ fees and disbursements), claims and damages to which they or any of them may become subject, under the Securities Act or otherwise, including any amount paid in settlement of any litigation commenced or threatened, insofar as such losses, liabilities, costs, claims and damages (or actions or proceedings in respect thereof, whether or not such indemnified Person is a party thereto) arise out of or are based upon any untrue statement or alleged untrue statement by such Selling Holder of a material fact contained in the registration statement (or in any preliminary or final prospectus included therein or issuer free writing prospectus related thereto) or in any offering memorandum or other offering document relating to the offering and sale of such Registrable Securities prepared by the Company or at its direction, or any amendment thereof or supplement thereto, or in any document incorporated by reference therein, or any omission by such Selling Holder or alleged omission by such Selling Holder to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, but in each case only to the extent that such statement or omission shall have been made in reliance on or in conformity with information furnished to the Company in writing by or on behalf of such Selling Holder specifically for use in such registration statement (or in any preliminary or final prospectus included therein or issuer free writing prospectus related thereto), offering memorandum or other offering document or any amendment thereof or supplement thereto. The foregoing indemnity is in addition to any liability which such Selling Holder may otherwise have to the Company, or controlling persons and the officers, directors, members, partners, stockholders, Affiliates, employees, accountants, advisors and agents of each of the foregoing; provided, that the obligations of each Selling Holder hereunder shall not apply to amounts paid in settlement of any such claims, losses, damages or liabilities (or actions in respect thereof) if such settlement is effected without the consent of such Holder (which consent shall not be unreasonably withheld, conditioned or delayed).
(c)Each party indemnified under paragraph (a) or (b) above shall, promptly after receipt of notice of a claim or action against such indemnified party in respect of which indemnity may be sought hereunder, notify the indemnifying party in writing of the claim or action; provided, that the failure to notify the indemnifying party shall not relieve it from any liability that it may have to an indemnified party on account of the indemnity agreement contained in paragraph (a) or (b) above except to the extent that the indemnifying party was actually and materially prejudiced by such failure (through the forfeiture of substantive rights or defenses), and in no event shall such failure relieve the indemnifying party from any other liability that it may have to such indemnified party. If any such claim or action shall be brought against an indemnified party, and it shall have notified the indemnifying party thereof, unless in such indemnified party’s reasonable judgment a conflict of interest between such indemnified party and indemnifying parties may exist in respect of such claim, the indemnifying party shall be entitled to participate therein, and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof with counsel satisfactory to the indemnified party. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable
to the indemnified party under this Section 3.9 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than reasonable costs of investigation (unless (i) the indemnified party and the indemnifying party shall have so mutually agreed, (ii) such indemnified party reasonably objects to such assumption on the grounds that there may be defenses available to it which are different from or in addition to the defenses available to such indemnifying party, (iii) the indemnifying party shall have failed within a reasonable period of time to assume such defense or, having assumed such defense, has not conducted the defense of such claim actively and diligently or (iv) the named parties in any such proceeding (including any impleaded parties) include both the indemnified party and the indemnifying party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interest between them, in which case the indemnified party shall be promptly reimbursed by the indemnifying party for the expenses incurred in connection with retaining one separate legal counsel, in addition to any local counsel (for the avoidance of doubt, for all indemnified parties in connection therewith)). In any such third party claim where the indemnifying party has assumed control of the defense thereof, the indemnifying party shall keep the indemnified party informed as to the status of such claim at all stages thereof (including all settlement negotiations and offers), promptly submit to such indemnified party copies of all pleadings, responsive pleadings, motions and other similar legal documents and paper received or filed in connection therewith, permit such indemnified party and their respective counsels to confer with the indemnifying party and its counsel with respect to the conduct of the defense thereof, and permit indemnified party and their respective counsel(s) a reasonable opportunity to review all legal papers to be submitted prior to their submission. Any indemnifying party against whom indemnity may be sought under this Section 3.9 shall not be liable to indemnify an indemnified party if such indemnified party settles such claim or action without the consent of the indemnifying party. The indemnifying party may not agree to any settlement of any such claim or action, without the prior written consent of the indemnified party, which consent shall not be unreasonably withheld unless such settlement (x) is solely for monetary damages for which the indemnifying party shall be responsible hereunder, the result of which any remedy or relief shall be applied to or against the indemnified party, (y) includes an unconditional release of such indemnified party in form and substance satisfactory to such indemnified party from all liability on claims that are the subject matter of such proceeding and (z) does not include any statement as to or any admission of fault, culpability or failure to act by or on behalf of any indemnified party. In any action hereunder as to which the indemnifying party has assumed the defense thereof with counsel satisfactory to the indemnified party, the indemnified party shall continue to be entitled to participate in the defense thereof, with counsel of its own choice, but the indemnifying party shall not be obligated hereunder to reimburse the indemnified party for the costs thereof.
(d)If the indemnification provided for in this Section 3.9 shall for any reason be unavailable (other than in accordance with its terms) to an indemnified party in respect of any loss, liability, cost, claim or damage referred to therein, then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, cost, claim or damage (i) as between such indemnified party on the one hand and the indemnifying party on the other, in such proportion as shall be appropriate to reflect the relative fault of such indemnified party and of the indemnifying
party in connection with such statements or omissions as well as any other relevant equitable considerations. The relative fault of such indemnified party on the one hand and of the indemnifying party on the other 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 such party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission, but not by reference to any indemnified party’s stock ownership in the Company. The amount paid or payable by an indemnified party as a result of the loss, cost, claim, damage or liability, or action in respect thereof, referred to above in this Section 3.9(d) shall be deemed to include, for purposes of this Section 3.9(d), any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. The parties agree that it would not be just and equitable if contribution pursuant to this Section 3.9 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in this paragraph. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.
(e)Notwithstanding any other provision of this Section 3.9, the obligation to indemnify or contribute shall be several, and not joint, among the Selling Holders who furnished or failed to furnish the information in a registration statement (or in any preliminary or final prospectus included therein or issuer free writing prospectus related thereto) or in any offering memorandum or other offering document relating to the offering and sale of Registrable Securities that resulted in any loss, liability, claim or damages. The liability of each such Selling Holder under this Section 3.9 shall not, in any event, exceed the amount of the net proceeds actually received by such Selling Holder from the sale of such Registrable Securities.
(f)Indemnification and contribution similar to that specified in the preceding paragraphs of this Section 3.9 (with appropriate modifications) shall be given by the Company, the Selling Holders and any underwriters with respect to any required registration or other qualification of securities under any state law or regulation or Governmental Entity.
(g)The obligations of the parties under this Section 3.9 shall be in addition to any liability which any party may otherwise have to any other party.
Section 3.10Rule 144 and Form S-3 Eligibility. The Company shall use its reasonable best efforts to ensure that the conditions to the availability of Rule 144 set forth in paragraph (c) thereof shall be satisfied. Upon the request of any Holder of Registrable Securities, the Company shall deliver to such Holder a written statement as to whether it has complied with such requirements. The Company further agrees to use its reasonable best efforts to cause all conditions to the availability of Form S-3 (or any successor form) under the Securities Act for the filing of registration statements under this Agreement to be met as soon as reasonably practicable after the IPO Date.
Section 3.11Holdback Agreement.
(a)If so requested by the Underwriters’ Representative for such offering, (i) in connection with the first offering of shares of common stock made by the Company pursuant to a registration statement following the closing of the IPO, each Holder shall and (ii) in connection with all other offerings of shares of common stock covered by a registration statement filed by the Company (whether or not Registrable Securities of such Holder are included therein), each Holder that holds more than 7.5% of the outstanding shares of Company Capital Stock on a fully-diluted basis shall, in each case of clauses (i) and (ii), agree not to effect any sale or distribution of its Shares, including any sale under Rule 144, without the prior written consent of the Underwriters’ Representative (otherwise than through the registered public offering then being made), within two days prior to or 90 days (or such lesser period as the Underwriters’ Representative may permit) after the Effective Date of the registration statement (or the commencement of the offering to the public of such Registrable Securities in the case of Rule 415 Offerings); provided that this Section 3.11(a) shall not apply to any Holder that does not hold Registrable Securities.
(b)If so requested by the Underwriters’ Representative in connection with an offering of any Registrable Securities, the Company shall agree not to effect any sale or distribution of Equity Securities, without the prior written consent of the Underwriters’ Representative (otherwise than through the registered public offering then being made or in connection with any acquisition or business combination transaction and other than in connection with stock options and employee benefit plans and compensation), within seven days prior to or 90 days (or such lesser period as the Underwriters’ Representative may permit) after the Effective Date of the registration statement (or the commencement of the offering to the public of such Registrable Securities in the case of Rule 415 Offerings) and shall use its reasonable best efforts to obtain and enforce similar agreements from any other Persons if requested by the Underwriters’ Representative.
(c)Notwithstanding anything else in this Section 3.11 to the contrary, nothing in this Agreement shall preclude SAP from distributing to any or all of its stockholders any or all of the Registrable Securities.
Section 3.12Term. This ARTICLE III shall remain in effect with respect to a Holder until all Registrable Securities held by such Holder and its Affiliated Companies have been disposed of by them or transferred by them to other Persons or otherwise cease to be Registrable Securities; provided that the provisions in Section 3.9 shall survive any termination of this ARTICLE III or this Agreement.
Section 3.13No Superior Rights. Without the prior written consent of SAP, the Company shall not provide registration rights of any kind, including rights similar to those set forth in this ARTICLE III, with respect to the Class A common stock, to any current or future stockholder of the Company that are materially more favorable to such stockholder than are provided to Stockholders under this ARTICLE III; provided that without the consent of Silver Lake, no such rights shall be granted to such stockholder that would adversely affect the rights of
Silver Lake under this Agreement unless (a) the rights granted to such stockholder are pari passu with Silver Lake’s rights or (b) the rights of SAP are similarly affected.
ARTICLE IV
MISCELLANEOUS
Section 4.1Entire Agreement. This Agreement constitutes the entire agreement among the Parties with respect to the subject matter hereof and shall supersede all prior written and oral and all contemporaneous oral agreements and understandings with respect to the subject matter hereof and thereof.
Section 4.2Governing Law and Jurisdiction. This Agreement, including the validity hereof and the rights and obligations of the Parties hereunder, shall be construed in accordance with and all Disputes arising out of or relating to this Agreement shall be governed by the laws of the State of Delaware applicable to contracts made and to be performed entirely in such State (without giving effect to the conflicts of laws provisions thereof).
Section 4.3Consent to Jurisdiction. THE PARTIES AGREE THAT JURISDICTION AND VENUE IN ANY ACTION BROUGHT BY ANY PARTY IN CONNECTION WITH THIS AGREEMENT OR THE PERFORMANCE OF THE OBLIGATIONS IMPOSED HEREUNDER SHALL PROPERLY AND EXCLUSIVELY LIE IN ANY FEDERAL OR STATE COURT LOCATED IN THE STATE OF DELAWARE. EACH PARTY ALSO AGREES NOT TO BRING ANY ACTION IN CONNECTION WITH THIS AGREEMENT OR THE PERFORMANCE OF THE OBLIGATIONS IMPOSED HEREUNDER IN ANY OTHER COURT. BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PARTY IRREVOCABLY SUBMITS TO THE JURISDICTION OF SUCH COURTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY WITH RESPECT TO ANY SUCH ACTION. THE PARTIES IRREVOCABLY AGREE THAT VENUE WOULD BE PROPER IN SUCH COURT, AND HEREBY WAIVE ANY OBJECTION THAT ANY SUCH COURT IS AN IMPROPER OR INCONVENIENT FORUM FOR THE RESOLUTION OF SUCH ACTION. THE PARTIES FURTHER AGREE THAT THE MAILING BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, OF ANY PROCESS REQUIRED BY ANY SUCH COURT SHALL CONSTITUTE VALID AND LAWFUL SERVICE OF PROCESS AGAINST THEM, WITHOUT NECESSITY FOR SERVICE BY ANY OTHER MEANS PROVIDED BY STATUTE OR RULE OF COURT.
Section 4.4Waiver of Jury Trial. EACH OF THE PARTIES ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY THAT MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH OF THE PARTIES HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT. EACH OF THE PARTIES CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE OTHER PARTY WOULD NOT, IN THE EVENT OF ANY LITIGATION, SEEK TO
ENFORCE THE FOREGOING WAIVER, (B) EACH OF THE PARTIES UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) EACH OF THE PARTIES MAKES THIS WAIVER VOLUNTARILY AND (D) EACH OF THE PARTIES HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 4.4.
Section 4.5Specific Performance. In the event of any actual or threatened default in, or breach of, any of the terms, conditions and provisions of this Agreement, the affected Party shall have the right to specific performance and injunctive or other equitable relief of its rights under this Agreement, in addition to any and all other rights and remedies at law or in equity, and all such rights and remedies shall be cumulative. The other Party(ies) shall not oppose the granting of such relief on the basis that money damages are an adequate remedy. The Parties agree that the remedies at law for any breach or threatened breach hereof, including monetary damages, are inadequate compensation for any loss and that any defense in any action for specific performance that a remedy at law would be adequate is waived. Any requirements for the securing or posting of any bond with such remedy are waived.
Section 4.6Termination; Amendments and Waivers.
(a)This Agreement may not be terminated or amended except (i) with respect to any rights and obligations of SAP and its Affiliated Companies, by mutual consent of the Company and SAP, (ii) with respect to any rights and obligations of Silver Lake and its Affiliated Companies, by mutual consent of the Company and Silver Lake and (iii) with respect to any rights and obligations of Q II and its Affiliated Companies, by mutual consent of the Company and Q II, in each case of clauses (i) through (iii), evidenced by an instrument in writing signed on behalf of each such Party; provided that (i) any amendment or modification to ARTICLE II (Covenants and Other Matters) shall require the prior written consent of Silver Lake. The provisions of ARTICLE I (Definitions), Section 3.3 (Expenses), Section 3.9 (Indemnification and Contribution) and this ARTICLE V shall survive any termination of this Agreement pursuant to this Section 4.6.
(b)Notwithstanding anything herein to the contrary, any provision hereof may be waived by any waiving Party on such Party’s own behalf, without the consent of any other Party.
Section 4.7Notices. Notices, offers, requests or other communications required or permitted to be given by a Party pursuant to the terms of this Agreement shall be given in writing to the respective Parties at the following addresses:
if to the Company:
Qualtrics International, Inc.
333 W. River Park Drive
Provo, UT 84604
Attention: Legal Department
E-mail:
with a copy (which shall not constitute notice) to:
Shearman & Sterling LLP
1460 El Camino Real, 2nd Floor
Menlo Park, CA 94025
Attention: Daniel Mitz
E-mail: daniel.mitz@shearman.com
if to SAP:
SAP America, Inc.
3999 West Chester Pike
Newtown Square, PA 19073
Attention: Mary Beth Hanss
E-mail:
with a copy (which shall not constitute notice) to:
Shearman & Sterling LLP
1460 El Camino Real, 2nd Floor
Menlo Park, CA 94025
Attention: Daniel Mitz
E-mail: daniel.mitz@shearman.com
if to Silver Lake:
Silver Lake Partners
550 W 34th Street
New York, NY 10001
Attention: Andrew J. Schader
E-mail:
with a copy (which shall not constitute notice) to:
Simpson Thacher & Bartlett LLP
425 Lexington Avenue
New York, NY 10017
Attention: Kenneth B. Wallach and Hui Lin
E-mail: kwallach@stblaw.com; hui.lin@stblaw.com
if to Q II:
Q II, LLC
105 South State Street #513
Orem, Utah 84058-5419
Attention: Ryan Smith
E-mail:
with a copy (which shall not constitute notice) to:
The McCullough Group
405 S. Main Street, Suite 800
Salt Lake City, UT 84111
Attention: Scott M. McCullough
E-mail: scottm@tmglaw.com
or at such other address or e-mail as the Party to whom notice is given may have previously furnished to the other in writing as provided herein. Any notice involving non-performance, termination, or renewal shall be sent by hand delivery, recognized overnight courier or, within the United States, may also be sent via certified mail, return receipt requested. All other notices may also be sent by e-mail. All notices shall be deemed to have been given when received, if hand delivered; when transmitted, if transmitted electronically; one working day after it is sent, if sent by recognized overnight courier; and three days after it is postmarked, if mailed first class mail or certified mail, return receipt requested, with postage prepaid.
Section 4.8Counterparts; Signature. This Agreement and the other documents referred to herein or therein, may be executed in counterparts, each of which shall be deemed to be an original but all of which shall constitute one and the same agreement. If any signature is delivered by facsimile transmission or by PDF, such signature shall create a valid and binding obligation of the Party executing (or on whose behalf the signature is executed) with the same force and effect as if such facsimile or PDF signature were an original thereof.
Section 4.9Binding Effect; Assignment. This Agreement shall inure to the benefit of and be binding upon the Parties and their respective legal representatives and successors, and nothing in this Agreement, express or implied, is intended to confer upon any other Person any rights or remedies of any nature whatsoever under or by reason of this Agreement. No Party may assign this Agreement or any rights or obligations hereunder without the prior written consent of the Company, and any such assignment without consent shall be void; provided, however, (a) any Party may assign this Agreement to a successor entity in conjunction with such Party’s reincorporation in another jurisdiction or into another business form, (b) any Party may assign its registration rights under ARTICLE III to any of its Affiliated Companies in connection with a transfer of Registrable Securities by such Party to such Affiliated Companies and (c) in the event of a transfer by Silver Lake a number of shares constituting no less than 50% of the Shares acquired pursuant to the Silver Lake Stock Purchase Agreement to any Person, such Person shall be admitted as a party hereunder and assume Silver Lake’s rights and obligations under ARTICLE III of this Agreement with respect to such transferred shares upon its, his or her execution and delivery of a joinder agreement, in form and substance reasonably acceptable to the Company, agreeing to be bound by the terms and conditions of this Agreement as if such Person were a Holder party hereto; whereupon such Person will be treated for all purposes of this Agreement, with the same rights, benefits and obligations under ARTICLE III of this Agreement as were initially granted to Silver Lake with respect to the transferred shares.
Section 4.10Severability. If any term or other provision of this Agreement or is determined by a court, administrative agency or arbitrator to be invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any Party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the fullest extent possible.
Section 4.11Failure or Indulgence not Waiver; Remedies Cumulative. No failure or delay on the part of any Party in the exercise of any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty or agreement herein, nor shall any single or partial exercise of any such right preclude other or further exercise thereof or of any other right. All rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any rights or remedies otherwise available.
Section 4.12Authority. Each of the Parties represents to the other Parties that (a) it has the corporate or other requisite power and authority to execute, deliver and perform this Agreement, (b) the execution, delivery and performance of this Agreement by it have been duly authorized by all necessary corporate or other actions, (c) it has duly and validly executed and delivered this Agreement, and (d) this Agreement is a legal, valid and binding obligation, enforceable against it in accordance with its terms subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors’ rights generally and general equity principles.
Section 4.13Interpretation. The headings contained in this Agreement and in the table of contents to this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. When a reference is made in this Agreement to an Article or a Section, such reference shall be to an Article or Section of this Agreement unless otherwise indicated. Words in the singular shall be held to include the plural and vice versa and words of one gender shall be held to include the other gender as the context requires. The terms “hereof,” “herein” “and “herewith” and words of similar import, unless otherwise stated, shall be construed to refer to this Agreement as a whole and not to any particular provision of this Agreement. Any reference herein to this Agreement, unless otherwise stated, shall be construed to refer to this Agreement as amended, supplemented or otherwise modified from time to time, as permitted by Section 4.6. The word “including” and words of similar import when used in this Agreement shall mean “including, without limitation,” unless the context otherwise requires or unless otherwise specified. The word “or” shall not be exclusive. Any law defined or referred to herein or in any agreement or instrument that is referred to herein means such law as from time to time amended, modified or supplemented, including (in the case of statutes) by succession of comparable successor laws.
Section 4.14Conflicting Agreements. None of the provisions of this Agreement are intended to supersede any provision in any other agreement with respect to the respective
subject matters thereof. In the event of conflict between this Agreement and any other agreement executed in connection herewith, the provisions of such other agreement shall prevail.
Section 4.15Third Party Beneficiaries. None of the provisions of this Agreement shall be for the benefit of or enforceable by any third party, including any creditor of any Person, except as provided in Section 3.9. No such third party shall obtain any right under any provision of this Agreement or shall by reasons of any such provision make any claim in respect of any liability (or otherwise) against any Party.
[Signature Pages Follow]
IN WITNESS WHEREOF, the undersigned has duly executed this Agreement, or has caused this Agreement to be duly executed on its behalf, as of the day and year first hereinabove set forth.
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QUALTRICS INTERNATIONAL INC.
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By:
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Name:
Title:
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[Signature Page to Stockholders’ Agreement]
IN WITNESS WHEREOF, the undersigned has duly executed this Agreement, or has caused this Agreement to be duly executed on its behalf, as of the day and year first hereinabove set forth.
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SAP AMERICA, INC.
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By:
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Name:
Title:
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[Signature Page to Stockholders’ Agreement]
IN WITNESS WHEREOF, the undersigned has duly executed this Agreement, or has caused this Agreement to be duly executed on its behalf, as of the day and year first hereinabove set forth.
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SILVER LAKE PARTNERS VI DE (AIV), L.P.
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By: Silver Lake Technology Associates VI, L.P., its general partner
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By: SLTA VI (GP), L.L.C., its general partner
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By: Silver Lake Group, L.L.C., its managing
member
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By:
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Name:
Title:
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[Signature Page to Stockholders’ Agreement]
IN WITNESS WHEREOF, the undersigned has duly executed this Agreement, or has caused this Agreement to be duly executed on its behalf, as of the day and year first hereinabove set forth.
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Q II, LLC
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By:
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Name: Ryan Smith
Title: Manager
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[Signature Page to Stockholders’ Agreement]
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FORM OF
REAL ESTATE MATTERS AGREEMENT
dated as of [ ]
between
SAP SE
and
QUALTRICS INTERNATIONAL INC.
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TABLE OF CONTENTS
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PAGE
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ARTICLE I
DEFINITIONS
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Section 1.1 Definitions
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1
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Section 1.2 Internal References
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4
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ARTICLE II
PROVISION OF LICENSE SERVICES AND GUARANTIES
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Section 2.1 Provision of Real Estate License Services
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5
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Section 2.2 Additional Real Estate License Services
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5
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Section 2.3 Continuing Real Estate License Services
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5
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Section 2.4 Modifications
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5
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Section 2.5 Guaranties
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5
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ARTICLE III
License SERVICE COSTS; OTHER CHARGES
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6
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7
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ARTICLE IV
STANDARD OF PERFORMANCE AND INDEMNIFICATION
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Section 4.1 General Standard of Service
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8
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Section 4.2 Limitation of Liability
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8
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Section 4.3 Indemnification
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9
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ARTICLE V
TERM AND TERMINATION
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Section 5.1 Term
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10
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Section 5.2 Termination
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10
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Section 5.3 Effect of Termination
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11
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ARTICLE VI
MISCELLANEOUS
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Section 6.1 Ownership
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11
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Section 6.2 No Agency
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12
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Section 6.3 Force Majeure
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12
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Section 6.4 Entire Agreement
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12
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Section 6.5 Information
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12
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Section 6.6 Notices
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13
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Section 6.7 Governing Law
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13
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Section 6.8 Consent to Jurisdiction
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13
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Section 6.9 Waiver of Jury Trial
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14
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Section 6.10 Amendment
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14
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Section 6.11 Counterparts
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14
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Section 6.12 Binding Effect; Assignment
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14
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Section 6.13 Severability
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14
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Section 6.14 Failure or Indulgence not Waiver; Remedies Cumulative
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15
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Section 6.15 Authority
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15
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Section 6.16 Interpretation
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15
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Section 6.17 Third Party Beneficiaries
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15
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Section 6.18 Master Transaction Agreement
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16
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SCHEDULES
SCHEDULE I: Licensed Areas [Omitted pursuant to Item 601(a)(5) of Regulation S-K]
SCHEDULE II: Continuing Operating License Agreements [Omitted pursuant to Item 601(a)(5) of Regulation S-K]
SCHEDULE III: Guaranties [Omitted pursuant to Item 601(a)(5) of Regulation S-K]
REAL ESTATE MATTERS AGREEMENT
This Real Estate Matters Agreement is dated as of the [ ] day of [ ], 202[ ], among Qualtrics International Inc., a Delaware corporation (“Qualtrics”), SAP SE, a Societas Europaea registered in accordance with the corporate laws of Germany and the European Union (“SAP”). Qualtrics and SAP are sometimes referred to herein separately as a “Party” and together as the “Parties”.
RECITALS
WHEREAS, SAP is the indirect beneficial owner of all the issued and outstanding Class B common stock of Qualtrics;
WHEREAS, SAP, through Qualtrics, is engaged in the business (the “Qualtrics Business”) of providing a technology platform for experience management, as more completely described in a Registration Statement on Form S-1 (File No. [ ]) filed with the Securities and Exchange Commission under the Securities Act (the “IPO Registration Statement”);
WHEREAS, SAP and Qualtrics currently contemplate that Qualtrics will make an initial public offering (the “IPO”) of its Class A common stock pursuant to the IPO Registration Statement; and
WHEREAS, SAP directly or indirectly provides the Qualtrics Entities with the right to use and occupy certain spaces at its facilities and, following consummation of the IPO, Qualtrics desires SAP to continue to provide such rights to use and occupation to the Qualtrics Entities, as more fully set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto, for themselves and their respective successors and assigns, hereby covenant and agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1Definitions.
(a)As used in this Agreement, the following terms shall have the following meanings, applicable both to the singular and the plural forms of the terms described:
“Administrative Services Agreement” means the Administrative Services Agreement between the Parties of even date herewith.
“Agreement” means this Real Estate Matters Agreement, together with the Schedules hereto, as the same may be amended and supplemented from time to time in accordance with the provisions hereof.
“Change of Control” means the occurrence of any one or more of the following events:
(i)the sale or disposition, in one or a series of related transactions, of all or substantially all of the consolidated assets of the Qualtrics Entities, taken as a whole, to any “person” or “group” (as such terms are used for purposes of Sections 13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934, as amended) other than SAP or any of its direct or indirect wholly-owned Subsidiaries;
(ii)any “person” or “group,” other than SAP or any of its direct or indirect wholly-owned Subsidiaries, is or becomes the beneficial owner, directly or indirectly, of more than 50% of the total voting power of the outstanding voting stock of Qualtrics, excluding as a result of any merger or consolidation that does not constitute a Change of Control pursuant to clause (c);
(iii)any merger or consolidation of Qualtrics with or into any other person, unless immediately thereafter SAP or any of its direct or indirect wholly-owned Subsidiaries beneficially owns a majority of the outstanding shares of the common stock (or equivalent voting securities) of the surviving or successor entity (or the parent entity thereof); or
(iv)SAP or any of its direct or indirect wholly-owned Subsidiaries ceases to have the ability to cause the election of that number of members of the board of directors of Qualtrics who would collectively have the right to vote a majority of the aggregate number of votes represented by all of the members of the board of directors of Qualtrics.
“Contract” means any contract, agreement, lease, license, sales order, purchase order, instrument or other commitment that is binding on any Person or any part of such Person’s property under applicable law.
“Distribution Agreement” means the Distribution Agreement between the Parties of even date herewith.
“Employee Matters Agreement” means the Employee Matters Agreement between the Parties of even date herewith.
“Insurance Matters Agreement” means the Insurance Matters Agreement between the Parties of even date herewith.
“Intellectual Property Matters Agreement” means the Intellectual Property Matters Agreement between the Parties of even date herewith.
“IPO Date” means the date on which the IPO is consummated.
“Liabilities” means all debts, liabilities, guarantees, assurances, commitments and obligations, whether fixed, contingent or absolute, asserted or unasserted, matured or unmatured, liquidated or unliquidated, accrued or not accrued, known or unknown, due or to become due, whenever or however arising (including, without limitation, whether arising out of any Contract
or tort based on negligence or strict liability) and whether or not the same would be required by generally accepted principles and accounting policies to be reflected in financial statements or disclosed in the notes thereto.
“Losses” means any and all damages, losses, deficiencies, Liabilities, obligations, penalties, judgments, settlements, claims, payments, fines, interest, costs and expenses (including the costs and expenses of any and all actions and demands, assessments, judgments and settlements and compromises relating thereto and the reasonable costs and expenses of attorneys’, accountants’, consultants’ and other professionals’ fees and expenses incurred in the investigation or defense thereof or the enforcement of rights hereunder), excluding special, consequential, indirect and punitive damages (other than special, consequential, indirect and/or punitive damages awarded to any third party against an indemnitee).
“Master Transaction Agreement” means the Master Transaction Agreement between the Parties of even date herewith.
“Person” means any individual, partnership, limited liability company, joint venture, corporation, trust, unincorporated organization, government (including any department or agency thereof) or other entity.
“Qualtrics Entities” means Qualtrics and its Subsidiaries and any entity which becomes a Subsidiary of Qualtrics after the date hereof, and “Qualtrics Entity” means any one of the Qualtrics Entities.
“Real Estate License Services” means the real estate license services provided on Schedule I.
“SAP Entities” means SAP and its Subsidiaries (other than the Qualtrics Entities) and any entity which becomes a Subsidiary of SAP after the date hereof, and “SAP Entity” means any one of the SAP Entities.
“Schedule I” means the first Schedule attached hereto, as amended from time to time, which lists certain agreed upon Real Estate License Services to be provided by SAP to or on behalf of the Qualtrics Entities and sets forth the related allocation of space by facility, pricing and certain terms for such Real Estate License Services.
“Schedule II” means the second Schedule attached hereto which lists certain operating license agreements among one or more of the SAP Entities and one or more of the Qualtrics Entities relating to specific locations where such space is currently being shared.
“Schedule III” means the third Schedule attached hereto which sets forth certain Guaranties between SAP Entities and Qualtrics Entities that are currently in effect.
“Schedules” means any one or more of the schedules referred to in and attached to this Agreement.
“Subsidiary” means, as to any Person, a corporation, limited liability company, joint venture, partnership, trust, association or other entity in which such Person: (i) beneficially owns, either directly or indirectly, more than 50% of (A) the total combined voting power of all classes of voting securities of such entity, (B) the total combined equity interests, or (C) the capital or profits interest, in the case of a partnership; or (ii) otherwise has the power to vote, either directly or indirectly, sufficient securities to elect a majority of the board of directors or similar governing body. For the avoidance of doubt, for purposes of this Agreement, no Qualtrics Entity shall be deemed to be a Subsidiary of any SAP Entity.
“Tax” and “Taxes” shall have the meanings set forth in the Tax Sharing Agreement.
“Tax Sharing Agreement” means the Tax Sharing Agreement between the Parties of even date herewith.
“Transaction Agreements” means this Agreement, the Distribution Agreement, the Employee Matters Agreement, the Insurance Matters Agreement, the Intellectual Property Matters Agreement, the Administrative Services Agreement, the Master Transaction Agreement and the Tax Sharing Agreement.
(b)Each of the following terms is defined in the Section set forth opposite such term:
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TERM
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SECTION
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Additional Real Estate License Services
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Section 2.2
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Force Majeure
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Section 6.3(a)
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Guarantee
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Section 2.5
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Initial Term
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Section 5.1
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IPO
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Recitals
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IPO Registration Statement
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Recitals
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Parties
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Preamble
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Party
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Preamble
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Qualtrics
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Preamble
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Qualtrics Business
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Recitals
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Qualtrics Indemnified Person
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Section 4.2(b)
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Renewal Term
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Section 5.1
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SAP
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Preamble
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SAP Indemnified Person
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Section 4.2(a)
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Services Taxes
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Section 3.1(e)(i)
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Third Party Actions
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Section 4.3
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Section 1.2Internal References. Unless the context indicates otherwise, references to Articles, Sections and paragraphs shall refer to the corresponding articles, sections
and paragraphs in this Agreement and references to the parties shall mean the parties to this Agreement.
ARTICLE II
PROVISION OF LICENSE SERVICES AND GUARANTIES
Section 2.1Provision of Real Estate License Services. Subject to the terms and conditions of this Agreement and in consideration of the costs for Real Estate License Services described below, SAP agrees to cause the SAP Entity that owns the relevant furnished office space to provide to the Qualtrics Entities, and Qualtrics agrees to purchase from the relevant SAP Entity, the Real Estate License Services, until such Real Estate License Services are terminated in accordance with the provisions hereof.
Section 2.2Additional Real Estate License Services. In addition to the Real Estate License Services to be provided or procured by SAP in accordance with Section 2.1 and set forth on Schedule I, if requested by Qualtrics, and to the extent that SAP and Qualtrics may mutually agree in writing (including by amending any of the Schedules, providing a statement of work or any other written (including by email) evidence of a request for additional services and an acceptance of such request), SAP shall provide additional license services to Qualtrics (“Additional Real Estate License Services”). The scope of any such services, as well as the costs and other terms and conditions applicable to such services, shall be as mutually agreed by SAP and Qualtrics prior to the provision of such Additional Real Estate License Services. Qualtrics agrees to cause the relevant Qualtrics Entity to pay all amounts payable in respect of Additional Real Estate License Services to the SAP Entity that provided or procured the Additional Real Estate License Services.
Section 2.3Continuing Real Estate License Services. The Parties hereby agree that the real estate license agreements set forth on Schedule II shall remain in effect and continue following the consummation of the IPO in accordance with their terms, which terms shall govern in the event of any conflict with the terms of this Agreement.
Section 2.4Modifications. SAP may make changes from time to time in its standards and procedures for providing the Real Estate License Services; provided, however, that any such change shall also apply to SAP’s own facilities as well. If any such changes apply to Qualtrics Entities only, SAP will provide Qualtrics with 60 days’ prior written notice.
Section 2.5Guaranties. SAP and Qualtrics shall each use their reasonable efforts (to the extent practicable) to cause each SAP Entity to be removed and released in respect of all obligations under each guarantee, indemnity, surety bond, letter of credit and letter of comfort given or obtained by any SAP Entity for the benefit of any Qualtrics Entity or the Qualtrics business with respect to real estate (each, a “Guarantee”), including the Guarantee set forth on Schedule III, as soon as reasonably practicable after the IPO Date. From and after the IPO Date, Qualtrics shall indemnify, hold harmless and promptly reimburse the SAP Entities for any payments made by SAP Entities and for any and all Liabilities of the SAP Entities arising out of, or in performing, in whole or in part, any obligation in accordance with the underlying obligation under any Guarantee. Beginning on the date on which the SAP Entities hold shares of
Qualtrics common stock representing less than a majority of the votes entitled to be cast by all holders of Qualtrics common stock, if SAP continues to be a party to any Guarantee, until such time as the Guarantee is terminated, Qualtrics shall compensate SAP in accordance with the market rate based on the cost for a bank to issue a substitute guarantee, as determined by the Parties in good faith. Notwithstanding the foregoing, (a) in the event of a Change of Control that requires SAP’s approval pursuant to Article VI of Qualtrics’ Amended and Restated Certificate of Incorporation or Section 3.2 of the Master Transaction Agreement such that, in single transaction or series of transactions, a third party acquires Qualtrics common stock representing a majority of the votes entitled to be cast by all holders of Qualtrics common stock, it shall be a condition to the closing of such transaction(s) that any Guarantee remaining in effect at that time shall be terminated effective on or prior to the closing of such transaction(s) and in connection therewith, SAP and Qualtrics shall each use their reasonable efforts (to the extent practicable) to cause each SAP Entity to be removed and released in respect of all obligations under any such Guarantee(s) and (b) in the event of a Change of Control that does not require SAP’s approval pursuant to Article VI of Qualtrics’ Amended and Restated Certificate of Incorporation or Section 3.2 of the Master Transaction Agreement such that, in single transaction or series of transactions, a third party acquires Qualtrics common stock representing a majority of the votes entitled to be cast by all holders of Qualtrics common stock, it shall be a condition to the closing of such transaction(s) that any Guarantee remaining in effect at that time shall be terminated effective on or prior to the closing of such transaction(s).
ARTICLE III
LICENSE SERVICE COSTS; OTHER CHARGES
Section 3.1License Service Costs.
(a)Each License Service (other than Additional Real Estate License Services) will be provided at the price indicated on Schedule I.
(b)No later than 60 days prior to the end of the Initial Term or any Renewal Term, the Parties shall commence discussions to determine the appropriate Real Estate License Services to be provided pursuant to Schedule I in the subsequent Renewal Term based on a good faith review of the Real Estate License Services and the Qualtrics Entities’ future real estate requirements. The Parties shall use their reasonable best efforts to execute and deliver an amended Schedule I for the subsequent Renewal Term prior to the expiration of the then-current term set forth on Schedule I.
(c)Any Additional Real Estate License Services provided by SAP shall be provided at the costs set forth in Section 3.1 of the Administrative Services Agreement, unless otherwise agreed.
(d)In addition to the amounts payable pursuant to Section 3.1(a), in the event that SAP incurs pre-approved, reasonable and documented out-of-pocket expenses in connection with the provision of any License Service, including license fees and payments, reasonable travel costs and expenses, shipping and transportation costs, duties, non-recoverable taxes and other fees or expenses, but excluding payments made to employees of SAP pursuant to Section 3.1(a)
or Section 3.1(b) and payments to third party professional service providers or subcontractors (such included expenses, collectively, “Out-of-Pocket Costs”), Qualtrics shall reimburse SAP or the relevant SAP Entity, as the case may be, for all such Out-of-Pocket Costs in accordance with the invoicing procedures set forth in Section 3.2, without any markup.
(e)Taxes.
(i)All applicable sales, use, value added, GST, transfer, receipts, customs duties, consumption or other similar Taxes (and any other Taxes other than income Taxes and corporation Taxes), together with any interest, penalties or amounts imposed with respect thereto (collectively, “Service Taxes”) in connection with the Real Estate License Services or Additional Real Estate License Services shall be borne by the relevant Qualtrics Entity.
(ii)Income Taxes in connection with payments under this Agreement will be borne by the relevant SAP Entity. If a Qualtrics Entity is required to withhold any Taxes (other than Service Taxes) from payment any under this Agreement, the Qualtrics Entity shall be entitled to withhold or deduct such Taxes from the gross amount to be paid. However, the Qualtrics Entity shall cooperate with the SAP Entity to reduce any such withholding Tax payable pursuant to applicable law or an income tax treaty. The Qualtrics Entity will in the case of any withholding Tax (including withholding Taxes described under Section 3.01(e)(i)) provide to the SAP Entity a receipt from the relevant tax authority to which such withholding Tax has been paid.
(iii)SAP shall cooperate with Qualtrics and take any reasonably requested action which does not cause SAP to incur any cost or inconvenience (other than de minimis costs or inconveniences) in order to minimize any Services Taxes imposed on the provision of the Real Estate License Services or Additional Real Estate License Services including providing sales and use (or value added) tax exemption certificates or other documentation necessary to support tax exemptions. Each Party agrees to provide each other Party such information and data as reasonably requested from time to time, and to fully cooperate with each other Party, in connection with (A) the reporting of any Services Taxes payable pursuant to this Agreement, (B) any audit relating to any Services Taxes payable pursuant to this Agreement or (C) any assessment, refund, claim or proceeding relating to any such Services Taxes.
Section 3.2Payment.
(a)Unless otherwise set forth on a Schedule (or otherwise mutually agreed to by the Parties in writing), charges for Real Estate License Services shall be invoiced quarterly in arrears by SAP (or the relevant SAP Entity that provided or procuring the Real Estate License Services) within five business days prior to the end of a quarter. The invoice shall set forth in reasonable detail for the period covered by such invoice (i) the Real Estate License Services rendered, (ii) the aggregate amount charged for each applicable location, and (iii) such additional information as Qualtrics may reasonably request at least ten business days prior to the end of a quarter. Each invoice shall be directed to the Facilities Manager of Qualtrics or such other
individual designated in writing from time to time by such Facilities Manager. Unless otherwise agreed in writing between the Parties, all payments made pursuant an invoice shall be made in the local or functional currency of the SAP Entity indicated on the invoice. The Parties shall provide documentation supporting any amounts invoiced pursuant to this Section 3.2 as the Party receiving the invoice may from time to time reasonably request.
(b)Each invoice shall be payable within 60 days after receipt; provided, however, that if Qualtrics, in good faith, disputes any invoiced charge, payment of such charge may be made only after mutual resolution of such dispute. Qualtrics agrees to notify SAP promptly, and in no event later than 30 days following receipt of an invoice, of any disputed charge, listing all disputed items and providing a reasonably detailed description of each disputed item. Amounts not so disputed shall be deemed accepted and shall be paid, notwithstanding disputes on other items, within the period set forth in Section 3.2(a). The Parties shall seek to resolve all such disputes expeditiously and in good faith.
(c)During the term of this Agreement, each Party shall keep such books, records and accounts as are reasonably necessary to verify the calculation of the fees and related expense for Real Estate License Services provided hereunder. Each Party shall provide documentation supporting any amounts invoiced pursuant to this Section 3.2 as the other Party may from time to time reasonably request. Each Party shall have the right to review such books, records and accounts of the other Party at any time upon reasonable notice, and the Party requesting such review agrees to conduct any such review in a manner so as not to unreasonably interfere with the other Party’s normal business operations.
(d)Each Party hereby acknowledges and agrees that it shall have no right under this Agreement to offset any amounts owed (or to become due and owing) to another Party, whether under this Agreement or otherwise, against any other amount owed (or to become due and owing) to it by the other Party.
ARTICLE IV
STANDARD OF PERFORMANCE AND INDEMNIFICATION
Section 4.1General Standard of Service. Except as otherwise agreed to in writing by the Parties or as described in this Agreement, the nature and quality applicable to the provision of the Real Estate License Services hereunder shall be substantially the same as or consistent with those which similar SAP Entities exercise or employ in providing similar services within or to any SAP Entity.
Section 4.2Limitation of Liability.
(a)Except as provided in Section 4.3, Qualtrics agrees that none of the SAP Entities and their respective directors, officers, agents, and employees (each, of the SAP Entities and their respective directors, officers, agents, and employees, an “SAP Indemnified Person”) shall have any liability, whether direct or indirect, in contract or tort or otherwise, to any Qualtrics Entity or any other Person under the control of such Qualtrics Entity for or in connection with the Real Estate License Services rendered or to be rendered by any SAP
Indemnified Person pursuant to this Agreement, the transactions contemplated hereby or any SAP Indemnified Person’s actions or inactions in connection with any Real Estate License Services or such transactions, except for damages which have resulted from such SAP Indemnified Person’s breach, gross negligence, bad faith or willful misconduct in connection with the foregoing.
(b)Except as provided in Section 4.3, SAP agrees that none of the Qualtrics Entities and their respective directors, officers, agents, and employees (each, of the Qualtrics Entities and their respective directors, officers, agents, and employees, a “Qualtrics Indemnified Person”) shall have any liability, whether direct or indirect, in contract or tort or otherwise, to any SAP Entity or any other Person under the control of such SAP Entity for or in connection with the transactions contemplated hereby or any Qualtrics Indemnified Person’s actions or inactions in connection with such transactions, except for damages which have resulted from such Qualtrics Indemnified Person’s breach, gross negligence, bad faith or willful misconduct in connection with the foregoing.
(c)Notwithstanding the provisions of this Section 4.2, no Party shall be liable for any special, indirect, incidental, or consequential damages of any kind whatsoever (including, without limitation, attorneys’ fees) in any way due to, resulting from or arising in connection with any of the Real Estate License Services or the performance of or failure to perform such Party’s obligations under this Agreement. This disclaimer applies without limitation: (i) to claims arising from the provision of the Real Estate License Services or any failure or delay in connection therewith; (ii) to claims for lost profits; (iii) regardless of the form of action, whether in contract, tort (including negligence), strict liability, or otherwise; and (iv) regardless of whether such damages are foreseeable or whether such Party has been advised of the possibility of such damages.
(d)None of the SAP Entities shall have any liability to any Qualtrics Entity or any other Person for failure to perform SAP’s obligations under this Agreement or otherwise, where such failure to perform similarly affects the SAP Entities receiving the same or similar services and does not have a disproportionately adverse effect on the Qualtrics Entities, taken as a whole.
(e)In addition to the foregoing, each Party agrees that, in all circumstances, it shall use commercially reasonable efforts to mitigate and otherwise minimize damages to such Party and its Subsidiaries, individually and collectively, whether direct or indirect, due to, resulting from or arising in connection with any failure by the other Party to comply fully with such Party’s obligations under this Agreement.
Section 4.3Indemnification.
(a)Qualtrics agrees to indemnify and hold harmless each SAP Indemnified Person from and against any Losses arising out of or related to any claim, action or proceeding brought by a third party (collectively, “Third Party Actions”) arising out of or in connection with Real Estate License Services rendered or to be rendered by any SAP Indemnified Person pursuant to this Agreement, the transactions contemplated hereby or any SAP Indemnified
Person’s actions or inactions in connection with any such Real Estate License Services or transactions; provided, however, that Qualtrics shall not be responsible for any damages incurred by any SAP Indemnified Person that have resulted from any SAP Entity’s, or any such SAP Indemnified Person’s, breach of this Agreement or gross negligence or willful misconduct in connection with the Real Estate License Services.
(b)SAP agrees to indemnify and hold harmless each Qualtrics Indemnified Person from and against any Losses arising out of or related to any Third Party Action arising out of or in connection with any SAP Entity’s, or any such SAP Indemnified Person’s, breach of this Agreement or gross negligence or willful misconduct in connection with the Real Estate License Services .
(c)The provisions of Section 4.5 (Reductions for Insurance Proceeds and other Recoveries) and Section 4.6 (Procedures for Defense, Settlement and Indemnification of the Third Party Claims) of the Master Transaction Agreement are hereby incorporated by reference, mutatis mutandis, and shall apply to Third Party Actions. If the Master Transaction Agreement terminates or expires, the provisions of Section 4.5 (Reductions for Insurance Proceeds and other Recoveries) and Section 4.6 (Procedures for Defense, Settlement and Indemnification of the Third Party Claims) of the Master Transaction Agreement shall nevertheless continue to be effective under this Agreement and will remain in effect for the term of this Agreement.
(d)Qualtrics and SAP shall each reimburse the other for any and all Losses of SAP Indemnified Persons or Qualtrics Indemnified Persons, as applicable, arising out of or in connection with such Party’s breach of this Agreement or gross negligence or willful misconduct in connection with the Real Estate License Services, to the extent such Losses are not indemnifiable pursuant to Sections 4.3(a) or 4.3(b) above.
ARTICLE V
TERM AND TERMINATION
Section 5.1Term. Except as otherwise provided in this ARTICLE V or as otherwise agreed in writing by the Parties (including as provided in any Schedule), (a) this Agreement shall have an initial term from the IPO Date through the third anniversary of the IPO Date (the “Initial Term”), and will be renewed automatically thereafter for successive one year terms (each, a “Renewal Term”) unless either Party elects not to renew this Agreement by notice in writing to the other Party not less than 150 days prior to the end of the Initial Term or any Renewal Term (unless otherwise set forth in a Schedule with respect to any particular License Service), and (b) with respect to any License Service, the obligation of a Party to provide or to procure, and the obligation of the other Party to purchase, such License Service shall cease as of the applicable date set forth in Schedule I or Schedule II or the applicable date set forth in any agreement between the Parties pursuant to which Additional Real Estate License Services are provided (in each case as such dates may be extended with the consent of the Party providing or procuring a License Service and the Party receiving a License Service) or such earlier date determined in accordance with Section 5.2.
Section 5.2Termination.
(a)The Parties may by mutual agreement from time to time terminate this Agreement with respect to one or more of the Real Estate License Services, in whole or in part.
(b)Except as otherwise provided in any Schedule, (i) Qualtrics may terminate any License Service at any time upon at least 120 days prior written notice of such termination to SAP, effective as of such 120th day and (ii) SAP may terminate any License Service at any time upon at least 120 days prior written notice of such termination to Qualtrics, effective as of such 120th day.
(c)Except as provided in any agreement between the Parties pursuant to which Additional Real Estate License Services are provided, either Party may terminate any Additional License Service that is not reflected on an amendment to the Schedules at any time.
(d)A Party may terminate a License Service provided by such Party upon written notice in the event of the receiving Party’s material breach of this Agreement, which breach remains uncured 30 days after the breaching Party’s receipt of written notice thereof.
(e)This Agreement (including all Real Estate License Services) shall terminate automatically 60 days following a Change of Control; provided, however, that if any anticipated Change of Control has not been publicly announced 90 days in advance, SAP shall use reasonable efforts to provide prior written notice of such Change of Control and shall provide at least 60 days’ prior written notice.
Section 5.3Effect of Termination.
(a)Other than as required by law, upon the effective date of the expiration or termination of any License Service pursuant to Section 5.1 or Section 5.2, or upon termination of this Agreement in accordance with its terms (any such date, the “Termination Date”), the Parties shall have no further obligation to provide the terminated License Service (or any License Service, in the case of termination of this Agreement) and shall have no obligation to pay any fees relating to such terminated Real Estate License Services or to make any other payments hereunder; provided, however, that notwithstanding such termination, (i) each Party shall remain liable for fees owed and payable in respect of Real Estate License Services provided to it prior to the effective date of the termination; (ii) the Contracts set forth on Schedule II shall not terminate but shall remain in effect in accordance with their terms; and (iii) the provisions of Section 2.5 and ARTICLES IV, V, and VI shall survive any such termination indefinitely.
(b)Following termination of this Agreement with respect to any License Service, the Parties agree to cooperate with each other in providing for an orderly transition of such License Service to the receiving Party or to a successor service provider as designated by the receiving Party.
ARTICLE VI
MISCELLANEOUS
Section 6.1Ownership. This Agreement and the provision of the Real Estate License Services hereunder will not affect the ownership of any assets or responsibility for any liabilities. No Party will gain, by virtue of this Agreement or the Real Estate License Services provided hereunder, by implication or otherwise, any rights of ownership of any property or intellectual property rights owned by any other Party or their respective Subsidiaries.
Section 6.2No Agency. Nothing in this Agreement shall constitute or be deemed to constitute a partnership or joint venture by and among the Parties hereto or constitute or be deemed to constitute any Party the agent or employee of any other Party for any purpose whatsoever, and no Party shall have authority or power to bind any other Party or to contract in the name of, or create a liability against, any other Party in any way or for any purpose.
Section 6.3Force Majeure.
(a)For purposes of this Section 6.3, “Force Majeure” means an event beyond the control of any Party, which prevents a Party from performing any obligation under this Agreement (other than the payment of money), and includes acts of God, storms, floods, riots, fires, natural disasters, labor disputes or stoppages, government acts or orders, epidemics, pandemics, outbreaks of communicable disease, quarantines, acts of terrorism, sabotage, civil commotion or civil unrest, interference by civil or military authorities, acts of war (declared or undeclared) and failure of energy sources.
(b)Continued performance of a License Service may be suspended immediately to the extent caused by Force Majeure. The Party claiming suspension of a License Service due to Force Majeure will give prompt notice to the other of the occurrence of the event giving rise to the suspension and of its nature and anticipated duration. The Parties shall cooperate with each other to find alternative means and methods for the provision of the suspended License Service.
(c)No Party shall be under any liability for failure to fulfill any obligation under this Agreement, so long as and to the extent to which the fulfillment of such obligation is prevented, frustrated, hindered, or delayed as a consequence of circumstances of Force Majeure.
Section 6.4Entire Agreement. This Agreement (including the Schedules constituting a part of this Agreement) and any other writing signed by the Parties that specifically references or is specifically related to this Agreement constitute the entire agreement among the Parties with respect to the subject matter hereof and supersede all prior agreements, understandings and negotiations, both written and oral, between the Parties with respect to the subject matter hereof.
Section 6.5Information.. Subject to applicable law and privileges, each Party covenants with and agrees to provide to the other Party all information regarding itself and transactions under this Agreement that is reasonably required by the other Party to comply with
all applicable federal, state, county and local laws, ordinances, regulations and codes, including, but not limited to, securities laws and regulations.
Section 6.6Notices. Notices, offers, requests or other communications required or permitted to be given by any Party pursuant to the terms of this Agreement shall be given in writing to the respective Parties to the following addresses:
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(a)
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If to SAP, to:
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SAP SE
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Dietmar-Hopp-Allee 16
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Germany – 69190
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Attention: Matthias Grimm
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E-mail:
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(b)
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If to Qualtrics, to:
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Qualtrics International Inc.
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333 W River Park Dr
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Provo, UT 84604
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Attention: Legal Department
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E-mail:
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or to such other address as the Party to whom notice is given may have previously furnished to the other in writing as provided herein. Any notice shall be sent by hand delivery, internationally recognized overnight courier or, within the United States, may also be sent via certified mail, return receipt requested and, in any event, shall be concurrently sent by e-mail. All notices shall be deemed to have been given when received, if hand delivered; when transmitted, if transmitted electronically; one working day after it is sent, if sent by internationally recognized overnight courier; and three days after it is postmarked, if mailed first class mail or certified mail, return receipt requested, with postage prepaid.
Section 6.7Governing Law. This Agreement, including the validity hereof and the rights and obligations of the Parties hereunder, shall be construed in accordance with and all disputes, controversies or claims arising out of or relating to this Agreement shall be governed by the laws of the State of Delaware applicable to contracts made and to be performed entirely in such State (without giving effect to the conflicts of laws provisions thereof).
Section 6.8Consent to Jurisdiction. THE PARTIES AGREE THAT JURISDICTION AND VENUE IN ANY ACTION BROUGHT BY ANY PARTY IN CONNECTION WITH THIS AGREEMENT OR THE PERFORMANCE OF THE OBLIGATIONS IMPOSED HEREUNDER SHALL PROPERLY AND EXCLUSIVELY LIE IN ANY FEDERAL OR STATE COURT LOCATED IN THE STATE OF DELAWARE. EACH PARTY ALSO AGREES NOT TO BRING ANY ACTION IN CONNECTION WITH
THIS AGREEMENT OR THE PERFORMANCE OF THE OBLIGATIONS IMPOSED HEREUNDER IN ANY OTHER COURT. BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PARTY IRREVOCABLY SUBMITS TO THE JURISDICTION OF SUCH COURTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY WITH RESPECT TO ANY SUCH ACTION. THE PARTIES IRREVOCABLY AGREE THAT VENUE WOULD BE PROPER IN SUCH COURT, AND HEREBY WAIVE ANY OBJECTION THAT ANY SUCH COURT IS AN IMPROPER OR INCONVENIENT FORUM FOR THE RESOLUTION OF SUCH ACTION. THE PARTIES FURTHER AGREE THAT THE MAILING BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, OF ANY PROCESS REQUIRED BY ANY SUCH COURT SHALL CONSTITUTE VALID AND LAWFUL SERVICE OF PROCESS AGAINST THEM, WITHOUT NECESSITY FOR SERVICE BY ANY OTHER MEANS PROVIDED BY STATUTE OR RULE OF COURT.
Section 6.9Waiver of Jury Trial. EACH OF THE PARTIES ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY THAT MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH OF THE PARTIES HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT. EACH OF THE PARTIES CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER COMPANY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE OTHER PARTY WOULD NOT, IN THE EVENT OF ANY LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (B) EACH OF THE PARTIES UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) EACH OF THE PARTIES MAKES THIS WAIVER VOLUNTARILY AND (D) EACH OF THE PARTIES HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS Section 6.9.
Section 6.10Amendment. This Agreement may be amended only by an instrument in writing signed by or on behalf of each of the Parties.
Section 6.11Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which shall constitute one and the same agreement.
Section 6.12Binding Effect; Assignment. This Agreement shall inure to the benefit of and be binding upon the Parties and their respective legal representatives and successors. Neither Party may assign this Agreement or any rights or obligations hereunder, without the prior written consent of the other Party, and any such assignment shall be void; provided, however, that either Party may assign this Agreement to a successor entity in conjunction with such Party’s reincorporation in another jurisdiction or into another business form.
Section 6.13Severability. If any term or other provision of this Agreement or the Schedules attached hereto is determined by a court, administrative agency or arbitrator to be
invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to either Party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the fullest extent possible.
Section 6.14Failure or Indulgence not Waiver; Remedies Cumulative. No failure or delay on the part of either Party in the exercise of any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty or agreement herein, nor shall any single or partial exercise of any such right preclude other or further exercise thereof or of any other right. All rights and remedies existing under this Agreement or the Schedules attached hereto are cumulative to, and not exclusive of, any rights or remedies otherwise available.
Section 6.15Authority. Each of the Parties represent to the other Party that (a) it has the corporate or other requisite power and authority to execute, deliver and perform this Agreement, (b) the execution, delivery and performance of this Agreement by it have been duly authorized by all necessary corporate or other actions, (c) it has duly and validly executed and delivered this Agreement, and (d) this Agreement is its legal, valid and binding obligation, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors’ rights generally and general equity principles.
Section 6.16Interpretation. The headings contained in this Agreement, in any Schedule hereto and in the table of contents to this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Any capitalized term used in any Schedule but not otherwise defined therein shall have the meaning assigned to such term in this Agreement. When a reference is made in this Agreement to an Article or a Section or Schedule, such reference shall be to an Article or Section of, or a Schedule to, this Agreement unless otherwise indicated. Words in the singular shall be held to include the plural and vice versa and words of one gender shall be held to include the other gender as the context requires. The terms “hereof,” “herein” “and “herewith” and words of similar import, unless otherwise stated, shall be construed to refer to this Agreement as a whole (including all of the Schedules hereto) and not to any particular provision of this Agreement. Any reference herein to this Agreement, unless otherwise stated, shall be construed to refer to this Agreement as amended, supplemented or otherwise modified from time to time. The word “including” and words of similar import when used in this Agreement shall mean “including, without limitation,” unless the context otherwise requires or unless otherwise specified. The word “or” shall not be exclusive.
Section 6.17Third Party Beneficiaries. None of the provisions of this Agreement shall be for the benefit of or enforceable by any third party, including any employee
or creditor of any Person. No such third party shall obtain any right under any provision of this Agreement or shall by reasons of any such provision make any claim in respect of any Liability (or otherwise) against either Party.
Section 6.18Master Transaction Agreement. In the event there is any inconsistency between the provisions of this Agreement and the provisions of the Master Transaction Agreement, the provisions of this Agreement shall govern.
[Signature Page Follows]
IN WITNESS WHEREOF, the Parties have caused this Agreement to be signed by their duly authorized representatives.
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SAP SE
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By:
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Name:
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Title:
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By:
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Name:
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Title:
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QUALTRICS INTERNATIONAL INC.
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By:
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Name:
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Title:
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PROMISSORY NOTE 1
FOR VALUE RECEIVED, QUALTRICS INTERNATIONAL INC., a Delaware corporation (the “Maker”), hereby promises to pay to the order of SAP AMERICA, INC., a Delaware corporation (the “Payee”), and its successors and assigns, on or before the Maturity Date (as hereinafter defined), the principal sum of [ ] Dollars ($[ ])1 (the “Principal Amount”), together with interest from the date hereof to the Maturity Date (as defined below) on the principal balance hereof, pursuant to the terms and conditions contained herein.
This Promissory Note 1 (the “Note”) shall bear interest at a rate of [ ] per annum compounded semi-annually. All payments under this Note shall be in lawful money of the United States of America.
The Principal Amount and any accrued interest shall be due and payable in full on the date of the closing of the initial public offering of the Maker (the “Initial Payment Date”); provided, however, that if prior to the Initial Payment Date the underwriters have not exercised their right to purchase additional shares of Class A common stock to cover any over-allotments in connection with the Maker’s initial public offering as permitted in that certain Underwriting Agreement, dated January [ ], 2021 among the Maker, Qualtrics, LLC, SAP America, Inc. and Morgan Stanley & Co. LLC and J.P. Morgan Securities LLC, as representatives of the underwriters named therein (the “Over-allotment Option”), then the amount due and payable at the Initial Payment Date shall be automatically reduced by $[ ]2 and the interest due and payable on the Initial Payment Date shall be based on such reduced amount. The principal amount remaining outstanding on the Initial Payment Date after giving effect to such payment, together with the related accrued interest on such reduced amount (the “Remaining Principal Amount”) shall remain outstanding and shall not be payable on the Initial Payment Date. If such underwriters exercise all or a portion of the Over-allotment Option after the Initial Payment Date but prior to the date that is 30 days following the date of pricing of the initial public offering of Maker (the “Option Expiration Date”), then (i) in the case of an exercise of only a portion of the Over-allotment option, the Remaining Principal Amount (and related accrued interest) shall be automatically reduced to equal the amount of net proceeds to be received by the Maker in respect of such exercise of the Over-allotment Option, and (ii) the Remaining Principal Amount (and related accrued interest on such amount since the Initial Payment Date) shall become due and payable on the date that the net proceeds from the exercise of such Over-allotment Option are received by the Maker (the “Maturity Date”). If such underwriters do not exercise all or any portion of the Over-allotment Option prior to the Option Expiration Date, the Remaining Principal Amount shall automatically be reduced to $0 and this Note shall automatically be
1 NTD: Amount by which the sum of the anticipated net IPO proceeds (including the Over-allotment Option) plus the proceeds from the Ryan Smith and Silver Lake equity investments and any other private placement, less anticipated transaction expenses and cash required to settle SAP RSUs and Qualtrics rights that are not tendered in the exchange offer (assuming that all such awards held by eligible employees in Australia who do not qualify as “wholesale clients” for purposes of Section 761G of the Corporations Act 2001 are exchanged), exceeds $500M.
2 NTD: Amount equal to the of proceeds to the Maker less underwriter discounts and commission upon exercise by the underwriters of the entire Over-allotment Option.
cancelled and of no further force or effect. The Maker, for itself and its successors and assigns, hereby waives presentment, protest, notice of demand, demand for payment, notice of intention to accelerate maturity, notice of acceleration of maturity, notice of sale and all other notices of any kind whatsoever. Any failure by the Payee to exercise any right hereunder or otherwise available at law or in equity shall not be construed as a waiver of the right to exercise the same, or any other right or remedy, at any time.
The indebtedness evidenced by this Note is expressly subordinated in right of payment to the prior payment in full of any Senior Indebtedness in existence on the date of this Note. “Senior Indebtedness” shall mean, unless expressly subordinated to, or made on a parity with the amounts due under this Note, all amounts due in connection with (a) indebtedness of Maker to banks or other financial institutions and (b) any such indebtedness or any debentures, notes or other evidence of indebtedness issued in exchange for such Senior Indebtedness, or any indebtedness arising from the satisfaction of such Senior Indebtedness by a guarantor. The indebtedness evidenced by this Note shall rank pari passu in right of payment with all indebtedness due in connection with the Maker’s trade creditors.
No waiver, amendment or other modification of this Note shall be binding upon either the Maker or the Payee, unless in writing and signed by a duly-authorized representative of both parties. If any provision of this Note shall be prohibited or invalid under applicable law, such provision shall be ineffective but only to the extent of such prohibition or invalidity, and without invalidating the remainder of such provision or the remaining provisions of this Note.
Payee may assign or transfer any or all of the obligations hereunder. This Note shall be binding upon the Maker and its successors and assigns. This Note shall be governed by and construed in accordance with the laws of the State of Delaware.
(Signature Page Follows)
IN WITNESS WHEREOF, the Maker has caused this Note to be duly executed and effective as of the day and year first above written.
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QUALTRICS INTERNATIONAL INC.
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By:
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Name:
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Title:
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PROMISSORY NOTE 2
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$500,000,000
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January [ ], 2021
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FOR VALUE RECEIVED, QUALTRICS INTERNATIONAL INC., a Delaware corporation (the “Maker”), hereby promises to pay to the order of SAP AMERICA, INC., a Delaware corporation (the “Payee”), and its successors and assigns, on or before the Maturity Date (as hereinafter defined), the principal sum of Five Hundred Million Dollars ($500,000,000), together with interest from the date hereof to the Maturity Date (as defined below) on the principal balance hereof, pursuant to the terms and conditions contained herein.
This Promissory Note 2 (the “Note”) shall bear interest at a rate of [ ] per annum compounded semi-annually. No payments in respect of accrued interest will be due prior to the earlier of (i) the exercise of a Prepayment Right and (ii) the Maturity Date. All payments under this Note shall be in lawful money of the United States of America.
The principal balance evidenced by this Note and any accrued interest shall be due and payable in full on or before the earlier of (i) the date that is the 10-year anniversary of the closing date of the initial public offering of the Maker and (ii) the date on which the aggregate net cash proceeds of primary public offerings of shares of the Maker’s Class A common stock for the account of the Maker exceeds $500,000,000 (other than pursuant to a registration statement on Form S-4 or Form S-8, or any successor forms thereto) (the earlier of such dates in clauses (i) and (ii), the “Maturity Date”); provided, however, that the Maker shall have the right to prepay this Note in full or in part at any time (the “Prepayment Right”) at par and without prepayment penalties. If the Maker exercises its Prepayment Right, then, in the case of a partial prepayment, any interest accrued as of such date also shall be payable and such partial prepayment shall apply first towards any interest accrued as of such date and the remainder of any such partial prepayment shall then apply towards the unpaid principal. If the Maker exercises its Prepayment Right in full, all unpaid interest required to be paid on the note shall be payable, even if such interest has not accrued.
At any time following the date that is the six-month anniversary of the closing date of the initial public offering of the Maker, if the 30-day volume weighted average price per share of the Maker’s Class A common stock exceeds $[ ]1, the Payee shall have the right, exercisable by providing written notice to the Maker, to cause the Maker to effect one or more follow-on public offerings of shares of the Maker’s Class A common stock within 30 days following its receipt of such written notice from the Payee; provided, however, that the Maker shall have the ability to defer any such obligation to effect a follow-on public offering for up to 180 days if, in the good faith judgment of the independent members of the board of directors of Maker, effecting a follow-on public offering would be detrimental to the Maker at such time.
The Maker, for itself and its successors and assigns, hereby waives presentment, protest, notice of demand, demand for payment, notice of intention to accelerate maturity, notice of acceleration of maturity, notice of sale and all other notices of any kind whatsoever. Any failure
1 NTD: 125% of IPO price.
by the Payee to exercise any right hereunder or otherwise available at law or in equity shall not be construed as a waiver of the right to exercise the same, or any other right or remedy, at any time.
The indebtedness evidenced by this Note is expressly subordinated in right of payment to the prior payment in full of any Senior Indebtedness in existence on the date of this Note. “Senior Indebtedness” shall mean, unless expressly subordinated to, or made on a parity with the amounts due under this Note, all amounts due in connection with (a) indebtedness of Maker to banks or other financial institutions and (b) any such indebtedness or any debentures, notes or other evidence of indebtedness issued in exchange for such Senior Indebtedness, or any indebtedness arising from the satisfaction of such Senior Indebtedness by a guarantor. The indebtedness evidenced by this Note shall rank pari passu in right of payment with all indebtedness due in connection with the Maker’s trade creditors.
No waiver, amendment or other modification of this Note shall be binding upon either the Maker or the Payee, unless in writing and signed by a duly-authorized representative of both parties. If any provision of this Note shall be prohibited or invalid under applicable law, such provision shall be ineffective but only to the extent of such prohibition or invalidity, and without invalidating the remainder of such provision or the remaining provisions of this Note.
Payee may assign or transfer any or all of the obligations hereunder. This Note shall be binding upon the Maker and its successors and assigns. This Note shall be governed by and construed in accordance with the laws of the State of Delaware.
(Signature Page Follows)
IN WITNESS WHEREOF, the Maker has caused this Note to be duly executed and effective as of the day and year first above written.
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QUALTRICS INTERNATIONAL INC.
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By:
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Name:
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FORM OF
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (this “Agreement”) is made effective as of [_____], 2020 (the “Effective Date”), by and between Qualtrics International Inc., a Delaware corporation (the “Company”), and [_____], a director, officer or key employee of the Company or one of the Company’s subsidiaries or other service provider who satisfies the definition of Indemnifiable Person set forth below (“Indemnitee”).
RECITALS
A.The Company desires to attract and retain talented and experienced individuals to serve as representatives of the Company and its Subsidiaries and Affiliates (each as defined below) but is aware that such individuals are increasingly reluctant to serve as representatives of corporations unless they are protected by comprehensive liability insurance and indemnification due to increased exposure to litigation costs and risks resulting from their service to such corporations and due to the fact that such exposure frequently bears no relationship to the compensation of such representatives;
B.The members of the Board of Directors of the Company (the “Board”) have concluded that to attract and retain talented and experienced individuals to serve as representatives of the Company and its Subsidiaries and Affiliates and to encourage such individuals to take the business risks necessary for the success of the Company and its Subsidiaries and Affiliates, it is necessary for the Company to contractually indemnify certain of its representatives, and the representatives of its Subsidiaries and Affiliates, and to assume for itself the maximum liability permitted by law for Expenses and Other Liabilities (each as defined below) in connection with claims against such representatives in connection with their service to the Company and/or its Subsidiaries and Affiliates;
C.Section 145 of the Delaware General Corporation Law (“Section 145”) empowers (and in some instances requires) the Company to indemnify by agreement its officers, directors, employees and agents, and persons who serve at the request of the Company as directors, officers, employees or agents of other corporations, partnerships, joint ventures, trusts or other enterprises, and expressly provides that the indemnification provided thereby is not exclusive; and
D.The Company desires and has requested that Indemnitee serve or continue to serve as a representative of the Company and/or the Subsidiaries or Affiliates of the Company free from undue concern about inappropriate claims for damages arising out of or related to such service to the Company and/or the Subsidiaries or Affiliates of the Company.
AGREEMENT
Now, therefore, the parties hereto, intending to be legally bound, hereby agree as follows:
Section 1. Definitions.
(a)“Affiliate” means any corporation, partnership, limited liability company, joint venture, trust or other enterprise in respect of which Indemnitee is, was or will be serving as a director, officer, trustee, manager, member, partner, employee, agent, attorney, consultant, member of the entity’s governing body (whether constituted as a board of directors, board of managers, general partner or otherwise), fiduciary or in any other similar capacity at the request, election or direction of the Company, and including, but not limited to, any employee benefit plan of the Company or a Subsidiary or Affiliate of the Company.
(b)“Change in Control” means (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than a Subsidiary or a trustee or other fiduciary holding securities under an employee benefit plan of the Company or Subsidiary, becomes the “beneficial owner” (as defined in Rule 13d3 under said Act), directly or indirectly, of securities of the Company representing 50% or more of the total voting power represented by the Company’s then outstanding capital stock; (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board and any new director whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least twothirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation that would result in the outstanding capital stock of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into capital stock of the surviving entity) at least 50% of the total voting power represented by the capital stock of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company (in one transaction or a series of transactions) of all or substantially all of the Company’s assets.
(c)“Expenses” means all reasonable direct and indirect costs of any type or nature whatsoever (including, without limitation, all reasonable attorneys’ fees and related disbursements, and other outofpocket costs), paid or incurred by Indemnitee in connection with either the investigation, defense or appeal of, or being a witness in, a Proceeding (as defined below), or establishing or enforcing a right to indemnification under this Agreement, Section 145 or otherwise, including interest, assessments or other charges payable in respect of such costs; provided, however, that Expenses shall not include any judgments, fines, ERISA excise taxes or penalties or amounts paid in settlement (other than those approved in accordance with Section 7(d) herein) of a Proceeding.
(d)“Indemnifiable Event” means any event or occurrence related to Indemnitee’s service to the Company or any Subsidiary or Affiliate of the Company as an Indemnifiable Person (as defined below), or by reason of anything done or not done, or any act or omission, by Indemnitee in any such capacity.
(e)“Indemnifiable Person” means any person who is or was a director, officer, trustee, manager, member, partner, employee, agent, attorney, consultant, member of the entity’s governing body (whether constituted as a board of directors, board of managers, general partner or otherwise) or fiduciary of the Company or a Subsidiary or Affiliate of the Company.
(f)“Independent Counsel” means legal counsel that has not performed services for the Company or Indemnitee in the three years preceding the time in question (other than with respect to matters concerning the rights of Indemnitee under this Agreement, or of other indemnitees under similar agreements) and that would not, under applicable standards of professional conduct, have a conflict of interest in representing either the Company or Indemnitee.
(g)“Independent Director” means a member of the Board who was not party to the Proceeding (as defined below) for which a claim is made under this Agreement.
(h)“Other Liabilities” means any and all liabilities incurred by Indemnitee of any type whatsoever (including, but not limited to, judgments, fines, penalties, ERISA (or other benefit plan related) excise taxes or penalties, and amounts paid in settlement and all interest, taxes, assessments and other charges paid or payable in connection with or in respect of any such judgments, fines, penalties, ERISA (or other benefit plan related) excise taxes or penalties, or amounts paid in settlement).
(i)“Proceeding” means any threatened, pending or completed action, suit or other proceeding, whether civil, criminal, administrative, investigative, legislative or any other type whatsoever, preliminary, informal or formal, including any arbitration or other alternative dispute resolution and including any appeal of any of the foregoing.
(j)“Subsidiary” means any corporation, partnership, limited liability company, joint venture, trust or other enterprise of which more than 50% of the outstanding voting interest is owned directly or indirectly by the Company.
Section 2. Agreement to Serve. The Indemnitee agrees to serve and/or continue to serve as an Indemnifiable Person in the capacity or capacities in which Indemnitee currently serves the Company as an Indemnifiable Person, and any additional capacity in which Indemnitee may agree to serve, until such time as Indemnitee’s service in a particular capacity shall end according to the terms of an agreement, the Company’s Certificate of Incorporation or Bylaws, governing law, or otherwise. Nothing contained in this Agreement is intended to create any right to continued employment or other form of service for the Company or a Subsidiary or Affiliate of the Company by Indemnitee.
Section 3. Mandatory Indemnification.
(a)Agreement to Indemnity. In the event Indemnitee is a person who was or is a party to or witness in, or is threatened to be made a party to or witness or otherwise involved in, any Proceeding by reason of an Indemnifiable Event, the Company shall indemnify Indemnitee from and against any and all Expenses and Other Liabilities incurred by Indemnitee in connection with (including in preparation for) such Proceeding to the fullest extent not prohibited by the provisions of the Company’s Certificate of Incorporation or Bylaws and the Delaware General Corporation Law (“DGCL”), as the same may be amended from time to time (but, with respect to any amendment to the Company’s Certificate of Incorporation or Bylaws, only to the extent that such amendment permits the Company to provide broader indemnification rights than permitted prior to the adoption of such amendment).
(b)Exception for Amounts Paid by Insurance and Other Sources. Notwithstanding the foregoing [and subject to Section 12], the Company shall not be obligated to indemnify Indemnitee for Expenses or Other Liabilities of any type whatsoever (including, but not limited to judgments, fines, penalties, ERISA excise taxes or penalties and amounts paid in settlement) to the extent that such Expenses or Other Liabilities have been paid directly to Indemnitee (or paid directly to a third party on Indemnitee’s behalf) by any directors and officers insurance, fiduciary liability insurance or any other type of insurance maintained by the Company or by other indemnity arrangements with third parties.
Section 4. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of any Expenses or Other Liabilities but not entitled, however, to indemnification for the total amount of such Expenses or Other Liabilities, the Company shall nevertheless indemnify Indemnitee for such total amount except as to the portion thereof to which indemnification is prohibited by the provisions of the Company’s Certificate of Incorporation or Bylaws or the DGCL. In any review or Proceeding to determine the extent of indemnification, the Company shall bear the burden to establish, by clear and convincing evidence, the lack of a successful resolution of a particular claim, issue or matter and which amounts sought in indemnity are allocable to claims, issues or matters which were not successfully resolved.
Section 5. Liability Insurance. So long as Indemnitee shall continue to serve the Company or a Subsidiary or Affiliate of the Company as an Indemnifiable Person and thereafter so long as Indemnitee shall be subject to any possible claim or threatened, pending or completed Proceeding as a result of an Indemnifiable Event, the Company shall use reasonable efforts to maintain in full force and effect for the benefit of Indemnitee as an insured (a) liability insurance issued by one or more reputable insurers and having the policy amount and deductible deemed appropriate by the Board and providing in all respects coverage at least comparable to and in the same amount as that being provided to the Chairman of the Board, Chief Executive Officer, President or Chief Financial Officer of the Company when such insurance is purchased and (b) any replacement or substitute policies issued by one or more reputable insurers providing in all respects coverage at least comparable to and in the same amount as that being provided to the Chairman of the Board, Chief Executive Officer, President or Chief Financial Officer of the
Company when such replacement or substitute policies are purchased. The purchase, establishment and maintenance of any such insurance or other arrangements shall not in any way limit or affect the rights and obligations of the Company or of Indemnitee under this Agreement except as expressly provided herein, and the execution and delivery of this Agreement by the Company and Indemnitee shall not in any way limit or affect the rights and obligations of the Company or any other party or parties to any such insurance or other arrangement.
Section 6. Mandatory Advancement of Expenses. If requested by Indemnitee, the Company shall advance prior to the final disposition of any Proceeding all Expenses actually incurred by Indemnitee in connection with (including in preparation for) such Proceeding related to an Indemnifiable Event or in connection with establishing or enforcing a right to indemnification under this Agreement, Section 145 or otherwise. Indemnitee hereby undertakes to repay such amounts advanced if, and only if and to the extent that, it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Company under the provisions of this Agreement, the Company’s Certificate of Incorporation or Bylaws or the DGCL. The advances to be made hereunder shall be paid by the Company to Indemnitee or directly to a third party designated by Indemnitee within 10 business days following delivery of a written request therefor by Indemnitee to the Company. Indemnitee’s undertaking to repay any Expenses advanced to Indemnitee hereunder shall be unsecured and shall not be subject to the accrual or payment of any interest thereon. The Company shall not impose on Indemnitee additional conditions to advancement or require from Indemnitee additional undertakings regarding repayment other than the execution of this Agreement. The Company agrees that for the purposes of any advancement of Expenses for which Indemnitee has made a written demand in accordance with this Agreement, all expenses included in such demand that are certified by affidavit of Indemnitee’s counsel as being reasonable shall be presumed conclusively to be reasonable.
Section 7. Notice and Other Indemnification Procedures.
(a)Notification/Cooperation by Indemnitee. Promptly following the time that Indemnitee has notice of the commencement of or the threat of commencement of any Proceeding, Indemnitee shall, if Indemnitee believes that indemnification or advancement of Expenses with respect thereto may be sought from the Company under this Agreement, notify the Company of the commencement or threat of commencement of such Proceeding. However, a failure to so notify the Company promptly following Indemnitee’s receipt of such notice shall not relieve the Company from any liability that it may have to Indemnitee except to the extent that the Company is materially prejudiced in its defense of such Proceeding as a result of such failure. In addition, Indemnitee shall cooperate with, and provide information to, the Company as it may reasonably require and as shall be within Indemnitee’s power.
(b)Insurance and Other Matters. If, at the time of the receipt of notice of the commencement of a Proceeding pursuant to Section 7(a) above, the Company has directors and officers liability insurance in effect, the Company shall give prompt notice of the commencement of such Proceeding to the issuers of such insurance in accordance with the procedures set forth in the applicable policies and provide a copy thereof to Indemnitee. The Company shall thereafter
take all reasonable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of such Proceeding in accordance with the terms of such insurance policies.
(c)Assumption of Defense. In the event the Company shall be obligated to advance Expenses for any Proceeding against Indemnitee, the Company, if deemed appropriate by the Company, shall be entitled to assume the defense of such Proceeding as provided herein. Such defense by the Company may include the representation of two or more parties by one attorney or law firm as permitted under applicable ethical rules and legal requirements related to joint representations. Following delivery of written notice to Indemnitee of the Company’s election to assume the defense of such Proceeding, the approval by Indemnitee (which approval shall not be unreasonably withheld) of counsel designated by the Company and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees and expenses of other counsel subsequently incurred by Indemnitee with respect to the same Proceeding. If (i) the employment of counsel by Indemnitee has been previously authorized by the Company or (ii) the Company fails to employ counsel to assume the defense of such Proceeding, the fees and expenses of Indemnitee’s counsel shall be subject to indemnification and/or advancement pursuant to the terms of this Agreement. Nothing herein shall prevent Indemnitee from employing counsel for any such Proceeding at Indemnitee’s expense or providing the Company with information indicating that there may be a conflict of interest in the conduct of any such defense between (A) the Company and Indemnitee or (B) Indemnitee and any other party or parties being jointly represented, in which case the Company will not be entitled, without the written consent of Indemnitee, to assume such defense. In addition, the Company will not be entitled, without the written consent of Indemnitee, to assume the defense of any claim brought by or in the right of the Company.
(d)Settlement. The Company shall not be liable to indemnify Indemnitee under this Agreement or otherwise for any amounts paid in settlement of any Proceeding effected without the Company’s written consent; provided, however, that if a Change in Control has occurred, the Company shall be liable for indemnification of Indemnitee for amounts paid in settlement if the Independent Counsel has approved the settlement. Neither the Company nor any Subsidiary or Affiliate of the Company shall enter into a settlement of any Proceeding that might result in the imposition of any Expense, Other Liability, penalty, limitation or detriment on Indemnitee, whether indemnifiable under this Agreement or otherwise, without Indemnitee’s written consent. Neither the Company nor Indemnitee shall unreasonably withhold consent from any settlement of any Proceeding.
Section 8. Determination of Right to Indemnification.
(a)Success on the Merits or Otherwise. To the extent that Indemnitee has been successful on the merits or otherwise in defense of any Proceeding referred to in Section 3(a) above or in the defense of any claim, issue or matter described therein, the Company shall indemnify Indemnitee against Expenses and Other Liabilities actually and reasonably incurred in connection therewith.
(b)Indemnification in Other Situations. In the event that Section 8(a) is inapplicable, the Company shall also indemnify Indemnitee if he or she has not failed to meet the applicable standard of conduct for indemnification.
(c)Forum. Indemnitee shall be entitled to select the forum in which the determination of whether or not Indemnitee has met the applicable standard of conduct shall be decided, and such selection will be made from among the following:
(1)those members of the Board who are Independent Directors even though less than a quorum;
(2)by a committee of Independent Directors designated by a majority vote of Independent Directors, even though less than a quorum; or
(3)Independent Counsel selected by Indemnitee and approved by the Board, which approval shall not be unreasonably withheld, which Independent Counsel shall make such determination in a written opinion.
If Indemnitee is an officer or a director of the Company at the time that Indemnitee is selecting the forum, then Indemnitee shall not select Independent Counsel as such forum unless there are no Independent Directors or unless the Independent Directors agree to the selection of Independent Counsel as the forum. The selected forum shall be referred to herein as the “Reviewing Party.” Notwithstanding the foregoing, following any Change in Control, the Reviewing Party shall be Independent Counsel selected in the manner provided in clause (3) above.
(d)Procedures for Reviewing Party. As soon as practicable, and in no event later than 30 days after receipt by the Company of written notice of Indemnitee’s choice of forum pursuant to Section 8(c) above, the Company and Indemnitee shall each submit to the Reviewing Party such information as they believe is appropriate for the Reviewing Party to consider. The Reviewing Party shall arrive at its decision within a reasonable period of time following the receipt of all such information from the Company and Indemnitee, but in no event later than 30 days following the receipt of all such information, provided that the time by which the Reviewing Party must reach a decision may be extended by mutual agreement of the Company and Indemnitee. All Expenses associated with the process set forth in this Section 8(d), including but not limited to the Expenses of the Reviewing Party, shall be paid by the Company.
(e)Delaware Court of Chancery. In the event that (i) there is a final determination by any Reviewing Party that Indemnitee is not entitled to indemnification, in whole or in part, with respect to a specific Proceeding, (ii) the Company fails to respond or make a determination of entitlement to indemnification required by law within 60 days following receipt of a request for indemnification as described above, (iii) payment of indemnification is not made within such 60 day period, (iv) advancement of Expenses is not timely made in accordance with Section 6, or (v) the Company or any other person takes or threatens to take any action to declare this Agreement void or unenforceable, or institutes any
litigation or other action or proceeding designed to deny, or to recover from, the Indemnitee the benefits provided or intended to be provided to Indemnitee hereunder, Indemnitee shall have the right to apply to the Court of Chancery for the purpose of enforcing Indemnitee’s right to indemnification pursuant to this Agreement. Absent any such litigation, the final determination of the Reviewing Party will be conclusive and binding upon the parties.
(f)Expenses. To the fullest extent permitted by the DGCL, the Company shall indemnify Indemnitee against all Expenses incurred by Indemnitee in connection with any hearing or Proceeding under this Section 8 involving Indemnitee and against all Expenses and Other Liabilities incurred by Indemnitee in connection with any other Proceeding between the Company and Indemnitee involving the interpretation or enforcement of the rights of Indemnitee under this Agreement.
(g)Standard of Conduct Determination. For purposes of any determination of whether Indemnitee acted in accordance with the applicable standard of conduct under the DGCL that is a legally required condition to indemnification of the Indemnitee, Indemnitee shall be deemed to have acted in “good faith” if, in taking or failing to take the action in question, Indemnitee relied (i) on the records or books of account of the Company or a Subsidiary or Affiliate of the Company, including financial statements, (ii) on information, opinions, reports or statements provided to Indemnitee by the officers or other employees of the Company or a Subsidiary or Affiliate of the Company in the course of their duties, (iii) on the advice of legal counsel for the Company or a Subsidiary or Affiliate of the Company or (iv) on information or records given or reports made to the Company or a Subsidiary or Affiliate of the Company by an independent certified public accountant or by an appraiser or other expert selected by the Company or a Subsidiary or Affiliate of the Company, or by any other person (including legal counsel, accountants and financial advisors) as to matters Indemnitee reasonably believes are within such other person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Company. In connection with any determination as to whether Indemnitee is entitled to be indemnified hereunder, or to advancement of Expenses, the Reviewing Party or the court shall presume that Indemnitee has satisfied the applicable standard of conduct and is entitled to indemnification or advancement of Expenses, as the case may be, and the burden of proof shall be on the Company to establish, by clear and convincing evidence, that Indemnitee is not so entitled. The provisions of this Section 8(g) shall not be deemed to be exclusive or to limit in any way the other circumstances in which Indemnitee may be deemed to have met the applicable standard of conduct set forth in this Agreement. In addition, the knowledge and/or actions, or failures to act, of any other person serving the Company or a Subsidiary or Affiliate of the Company as an Indemnifiable Person shall not be imputed to Indemnitee for purposes of determining the right to indemnification hereunder.
Section 9. Exceptions. Any other provision herein to the contrary notwithstanding:
(a)Claims Initiated by Indemnitee. Prior to a Change in Control, the Company shall not be obligated pursuant to the terms of this Agreement to indemnify or advance Expenses to Indemnitee with respect to Proceedings or claims initiated or brought voluntarily by
Indemnitee and not by way of defense, except (i) with respect to Proceedings brought to establish or enforce a right to indemnification or advancement of Expenses under this Agreement, any other statute or law, as permitted under Section 145, or otherwise, (ii) where the Board has consented to the initiation of such Proceeding, (iii) with respect to Proceedings brought to discharge Indemnitee’s fiduciary responsibilities, whether under ERISA or otherwise, but such indemnification or advancement of Expenses may be provided by the Company in specific cases if the Board finds it to be appropriate or (iv) with respect to any compulsory counterclaim brought by Indemnitee with respect to a Proceeding otherwise indemnifiable under this Agreement.
(b)16(b) Actions. The Company shall not be obligated pursuant to the terms of this Agreement to indemnify Indemnitee on account of any suit in which judgment is rendered against Indemnitee for an accounting of profits made from the purchase or sale by Indemnitee of securities of the Company pursuant to the provisions of Section 16(b) of the Securities Exchange Act of l934, as amended, and amendments thereto or similar provisions of any federal, state or local statutory law.
(c)Unlawful Indemnification. The Company shall not be obligated pursuant to the terms of this Agreement to indemnify Indemnitee for Expenses and Other Liabilities if such indemnification has been ultimately determined by a final (not interlocutory) and non-appealable judgment or other adjudication of a court or arbitration or administrative body of competent jurisdiction as to which there is no further right or option of appeal, or the time within which an appeal must be filed has expired without such filing having been made, to be prohibited by law.
Section 10. Non-Exclusivity. The provisions for indemnification and advancement of Expenses set forth in this Agreement shall not be deemed exclusive of any other rights which Indemnitee may have under any provision of law, the Company’s Certificate of Incorporation or Bylaws, the vote of the Company’s stockholders or disinterested directors, other agreements, or otherwise, both as to acts or omissions in his or her official capacity and to acts or omissions in another capacity while serving the Company or a Subsidiary or Affiliate of the Company as an Indemnifiable Person. Indemnitee’s rights hereunder shall continue after Indemnitee has ceased serving the Company or a Subsidiary or Affiliate of the Company as an Indemnifiable Person and shall inure to the benefit of the heirs, executors and administrators of Indemnitee.
Section 11. Duration. All agreements and obligations of the Company contained herein shall continue during the period that Indemnitee is a director or officer or other service provider of the Company (or is serving at the request of the Company as a director, officer, employee, member, trustee or agent of one of the Company’s Subsidiaries or Affiliates) and shall continue thereafter (a) so long as Indemnitee may be subject to any possible claim or Proceeding relating to an Indemnifiable Event (including any rights of appeal thereto) and (b) throughout the pendency of any Proceeding (including any rights of appeal thereto) commenced by Indemnitee to enforce or interpret his or her rights under this Agreement, even if, in either case, he or she may have ceased to serve in such capacity at the time of any such Proceeding.
Section 12. [Company Obligations Primary. The Company hereby acknowledges that Indemnitee may have certain rights to indemnification, advancement of Expenses and/or insurance provided by [SAP SE and/or its subsidiaries (other than the Company and its subsidiaries) and certain of its affiliates] (collectively, the “Secondary Indemnitors”). The Company hereby agrees that (a) it is the indemnitor of first resort with respect to matters covered by this Agreement (i.e., its obligations to Indemnitee are primary and any obligation of the Secondary Indemnitors to advance expenses or to provide indemnification for the same expenses or liabilities incurred by Indemnitee are secondary), (b) it will be required to advance the full amount of expenses incurred by Indemnitee and will be liable for the full amount of all Expenses and Other Liabilities, each in accordance with the terms of this Agreement, to the extent legally permitted and as required by the Certificate of Incorporation or Bylaws of the Company (or any agreement between the Company and Indemnitee), without regard to any rights Indemnitee may have against the Secondary Indemnitors and (c) it irrevocably waives, relinquishes and releases the Secondary Indemnitors from any and all claims against the Secondary Indemnitors for contribution, subrogation or any other recovery of any kind in respect amounts owed by the Company under this Agreement. The Company further agrees that no advancement or payment by the Secondary Indemnitors on behalf of Indemnitee with respect to any claim for which Indemnitee has sought indemnification from the Company will affect the foregoing and the Secondary Indemnitors will have a right of contribution and/or be subrogated to the extent of such advancement or payment to all of the rights of recovery of Indemnitee against the Company. The Company and Indemnitee agree that the Secondary Indemnitors are express third-party beneficiaries of the terms hereof.]
Section 13. Severability. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever, (a) the validity, legality and enforceability of the remaining provisions of the Agreement (including, without limitation, all portions of any paragraphs of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby, and (b) to the fullest extent possible, the provisions of this Agreement (including, without limitation, all portions of any paragraphs of this Agreement containing any such provision held to be invalid, illegal or unenforceable that are not themselves invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable.
Section 14. Modification and Waiver. No supplement, modification, waiver or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar) and except as expressly provided herein, no such waiver shall constitute a continuing waiver. For the avoidance of doubt, this Agreement may not be terminated by the Company without Indemnitee’s prior written consent.
Section 15. No Duplication of Payments. [Subject to Section 12, ]the Company shall not be liable under this Agreement to make any payment to Indemnitee in respect of any Expenses or Other Liabilities to the extent Indemnitee has otherwise received payment
under any insurance policy, the Company’s Certificate of Incorporation or Bylaws or otherwise of the amounts otherwise indemnifiable by the Company hereunder.
Section 16. Mutual Acknowledgement. Both the Company and Indemnitee acknowledge that in certain instances, federal law or applicable public policy may prohibit the Company from indemnifying its directors, officers, employees, agents or fiduciaries under this Agreement or otherwise. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of the Company’s right under public policy to indemnify Indemnitee.
Section 17. Successors and Assigns. The terms of this Agreement shall bind, and shall inure to the benefit of, the successors and assigns of the parties hereto; provided, however, that neither party shall assign this Agreement without the prior written consent of the other.
Section 18. No Third-Party Beneficiaries. [Except as provided in Section 12, ]nothing in this Agreement is intended to confer on any person (other than the parties hereto or their respective successors and assigns) any rights, remedies, obligations or liabilities under or by reason of this Agreement.
Section 19. Notices. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given if (a) delivered by hand and a receipt is provided by the party to whom such communication is delivered, (b) mailed by certified or registered mail with postage prepaid, return receipt requested, on the signing by the recipient of an acknowledgement of receipt form accompanying delivery through the U.S. mail, (c) served personally by a process server, or (d) delivered to the recipient’s address by overnight delivery (e.g., FedEx, UPS or DHL) or other commercial delivery service. Addresses for notice to either party are as shown on the signature page of this Agreement, or as subsequently modified by written notice complying with the provisions of this Section 19. Delivery of communications to the Company with respect to this Agreement shall be sent to the attention of the Company’s General Counsel.
Section 20. No Presumptions. For purposes of this Agreement, the termination of any Proceeding, by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contendere or its equivalent, shall not, by itself, create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law or otherwise. In addition, neither the failure of the Company or a Reviewing Party to have made a determination as to whether Indemnitee has met any particular standard of conduct or had any particular belief, nor an actual determination by the Company or a Reviewing Party that Indemnitee has not met such standard of conduct or did not have such belief, prior to the commencement of Proceedings by Indemnitee to secure a judicial determination by exercising Indemnitee’s rights under Section 8(e) of this Agreement shall be a defense to Indemnitee’s claim or create a presumption that Indemnitee has failed to meet any particular standard of
conduct or did not have any particular belief or is not entitled to indemnification under applicable law or otherwise.
Section 21. Survival of Rights. The rights conferred on Indemnitee by this Agreement shall continue after Indemnitee has ceased to serve the Company or a Subsidiary or Affiliate of the Company as an Indemnifiable Person and shall inure to the benefit of Indemnitee’s heirs, executors and administrators.
Section 22. Subrogation. [Subject to Section 12, ]in the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce such rights.
Section 23. No Construction as Employment Agreement. Nothing contained in this Agreement shall be construed as giving Indemnitee any right to be retained in the service of the Company or any Subsidiary or Affiliate of the Company.
Section 24. Specific Performance. The parties recognize that if any provision of this Agreement is violated by the Company, Indemnitee may be without an adequate remedy at law. Accordingly, in the event of any such violation, Indemnitee shall be entitled, if Indemnitee so elects, to institute Proceedings, either in law or at equity, to obtain damages, to enforce specific performance, to enjoin such violation by the Company or to obtain any relief or any combination of the foregoing as Indemnitee may elect to pursue.
Section 25. Counterparts. This Agreement may be executed in counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.
Section 26. Headings. The headings of the sections and paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction or interpretation thereof.
Section 27. Governing Law. This Agreement shall be governed exclusively by and construed according to the laws of the State of Delaware, as applied to contracts between Delaware residents entered into and to be performed entirely within Delaware.
Section 28. Consent to Jurisdiction. The Company and Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of Delaware for all purposes in connection with any Proceeding which arises out of or relates to this Agreement.
[SIGNATURE PAGE FOLLOWS]
The parties hereto have entered into this Indemnification Agreement effective as of the Effective Date.
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QUALTRICS INTERNATIONAL INC.
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By:
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Name:
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Title:
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Address:
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333 West River Park Drive
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Provo, Utah 84604
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INDEMNITEE
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Name:
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Title:
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[Signature Page to Indemnification Agreement]
2021 QUALTRICS INTERNATIONAL INC.
EMPLOYEE OMNIBUS EQUITY PLAN
SECTION 1.GENERAL PURPOSE OF THE PLAN; DEFINITIONS
The name of the plan is the 2021 Qualtrics International Inc. Employee Omnibus Equity Plan (the “Plan”). The purpose of the Plan is to encourage and enable the officers, employees, Non-Employee Directors and Consultants of Qualtrics International Inc. (the “Company”) and its Affiliates upon whose judgment, initiative and efforts the Company largely depends for the successful conduct of its businesses to acquire a proprietary interest in the Company. It is anticipated that providing such persons with a direct stake in the Company’s welfare shall assure a closer identification of their interests with those of the Company and its stockholders, thereby stimulating their efforts on the Company’s behalf and strengthening their desire to remain with the Company.
The following terms shall be defined as set forth below:
“Act” means the U.S. Securities Act of 1933, as amended, and the rules and regulations thereunder.
“Administrator” means either the Board or the compensation committee of the Board or a similar committee performing the functions of the compensation committee and which is comprised of not less than two Non‑Employee Directors who are independent.
“Affiliate” means (i) an affiliate of the Company, as defined in Rule 12b-2 promulgated under Section 12 of the Exchange Act and (ii) any entity in which the Company has a significant equity interest.
“Award” or “Awards,” except where referring to a particular category of grant under the Plan, shall include Incentive Stock Options, Non-Qualified Stock Options, Stock Appreciation Rights, Restricted Stock Units, Restricted Stock Awards, Unrestricted Stock Awards, Cash-Based Awards and Dividend Equivalent Rights.
“Award Agreement” means a written or electronic document setting forth the terms and provisions applicable to an Award granted under the Plan. Each Award Agreement is subject to the terms and conditions of the Plan.
“Board” means the Board of Directors of the Company.
“Cash-Based Award” means an Award entitling the recipient to receive a cash-denominated payment.
“Class A common stock” means the Class A common stock, par value $0.0001 per share, of the Company.
“Class B common stock” means the Class B common stock, par value $0.0001 per share, of the Company.
“Code” means the U.S. Internal Revenue Code of 1986, as amended, and any successor Code, and related rules, regulations and interpretations.
“Consultant” means a consultant or adviser who provides bona fide services to the Company or an Affiliate as an independent contractor and who qualifies as a consultant or advisor under Instruction A.1.(a)(1) of Form S-8 under the Act.
“Dividend Equivalent Right” means an Award entitling the grantee to receive credits based on cash dividends that would have been paid on the shares of Stock specified in the Dividend Equivalent Right (or other award to which it relates) if such shares had been issued to and held by the grantee.
“Effective Date” means the date on which the Plan becomes effective as set forth in Section 19.
“Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.
“Exchange Offer” means the certain exchange offer made by the Company as described in the Registration Statement on Form S-4 (File No. [_______]) filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended.
“Fair Market Value” of the Stock on any given date means the fair market value of the Stock determined in good faith by the Administrator; provided, however, that if the Stock is listed on the National Association of Securities Dealers Automated Quotation System (“NASDAQ”), NASDAQ Global Market, The New York Stock Exchange or another national securities exchange or traded on any established market, the determination shall be made by reference to market quotations. If there are no market quotations for such date, the determination shall be made by reference to the last date preceding such date for which there are market quotations; provided further, however, that if the date for which Fair Market Value is determined is the Registration Date, the Fair Market Value shall be the “Price to the Public” (or equivalent) set forth on the cover page for the final prospectus relating to the Company’s initial public offering.
“Incentive Stock Option” means any Stock Option designated and qualified as an “incentive stock option” as defined in Section 422 of the Code.
“Non-Employee Director” means a member of the Board who is not also an employee of the Company or any Subsidiary.
“Non-Qualified Stock Option” means any Stock Option that is not an Incentive Stock Option.
“Option” or “Stock Option” means any option to purchase shares of Stock granted pursuant to Section 5.
“Option Shares” means the shares of Stock subject to an Option granted under this Plan.
“Registration Date” means the date upon which the registration statement on Form S-1 that is filed by the Company with respect to its initial public offering is declared effective by the U.S. Securities and Exchange Commission.
“Restricted Shares” means the shares of Stock underlying a Restricted Stock Award that remain subject to a risk of forfeiture or the Company’s right of repurchase.
“Restricted Stock Award” means an Award of Restricted Shares subject to such restrictions and conditions as the Administrator may determine at the time of grant.
“Restricted Stock Units” means an Award of stock units subject to such restrictions and conditions as the Administrator may determine at the time of grant.
“Sale Event” shall mean (i) the sale of all or substantially all of the assets of the Company on a consolidated basis to an unrelated person or entity, (ii) a merger, reorganization or consolidation pursuant to which the holders of the Company’s aggregate outstanding voting power and outstanding stock (Class A and Class B common stock) immediately prior to such transaction do not own a majority of the aggregate outstanding voting power and outstanding stock (Class A and Class B common stock) or other equity interests of the resulting or successor entity (or its ultimate parent, if applicable) immediately upon completion of such transaction, (iii) the sale of all of the Stock of the Company to an unrelated person, entity or group thereof acting in concert, or (iv) any other transaction in which the owners of the Company’s outstanding voting power immediately prior to such transaction do not own at least a majority of the outstanding voting power of the Company or any successor entity immediately upon completion of the transaction other than as a result of the acquisition of securities directly from the Company. Notwithstanding anything in the foregoing to the contrary, no Sale Event shall be deemed to have occurred for purposes of this Plan by virtue of either SAP America’s distribution of the Company’s shares to SAP or SAP’s distribution of the Company’s shares to its securityholders, in each case in a transaction intended to qualify as a distribution under Section 355 of the Code, as amended.
“Sale Price” means the value as determined by the Administrator of the consideration payable, or otherwise to be received by stockholders, per share of Stock pursuant to a Sale Event.
“SAP” means SAP SE, a European Company (Societas Europaea), established under the laws of Germany and the European Union.
“SAP America” means SAP America, Inc., a Delaware corporation and wholly-owned Subsidiary of SAP.
“Section 409A” means Section 409A of the Code and the regulations and other guidance promulgated thereunder.
“Service Relationship” means any relationship as an employee, Non‑Employee Director or Consultant of the Company or any Affiliate. A Service Relationship shall be deemed to continue without interruption in the event a grantee’s status changes from full-time employee to
part-time employee or a grantee’s status changes from employee to Consultant or Non-Employee Director or vice versa, provided that there is no interruption or other termination of Service Relationship in connection with the grantee’s change in capacity.
“Stock” means the Class A common stock, par value $0.0001 per share, of the Company, subject to adjustments pursuant to Section 3.
“Stock Appreciation Right” means an Award entitling the recipient to receive shares of Stock (or cash, to the extent explicitly provided for in the applicable Award Agreement) having a value equal to the excess of the Fair Market Value of the Stock on the date of exercise over the exercise price of the Stock Appreciation Right multiplied by the number of shares of Stock with respect to which the Stock Appreciation Right shall have been exercised.
“Subsidiary” means any corporation or other entity (other than the Company) in which the Company has at least a 50 percent interest, either directly or indirectly.
“Ten Percent Owner” means an employee who owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code) more than 10 percent of the combined voting power of all classes of stock of the Company or any parent or subsidiary corporation.
“Unrestricted Stock Award” means an Award of shares of Stock free of any restrictions.
SECTION 2.ADMINISTRATION OF PLAN; ADMINISTRATOR AUTHORITY TO SELECT GRANTEES AND DETERMINE AWARDS
(a)Administration of Plan. The Plan shall be administered by the Administrator.
(b)Powers of Administrator. The Administrator shall have the power and authority to grant Awards consistent with the terms of the Plan, including the full power and authority:
(i)to select the individuals to whom Awards may from time to time be granted;
(ii)to determine the time or times of grant, and the extent, if any, of Incentive Stock Options, Non-Qualified Stock Options, Stock Appreciation Rights, Restricted Stock Awards, Restricted Stock Units, Unrestricted Stock Awards, Cash-Based Awards, and Dividend Equivalent Rights, or any combination of the foregoing, granted to any one or more grantees;
(iii)to determine the number of shares of Stock to be covered by any Award;
(iv)to determine and modify from time to time the terms and conditions, including restrictions, not inconsistent with the terms of the Plan, of any Award, which terms and conditions may differ among individual Awards and grantees, and to approve the forms of Award Agreements;
(v)to accelerate at any time the exercisability or vesting of all or any portion of any Award;
(vi)subject to the provisions of Section 5(c), to extend at any time the period in which Stock Options may be exercised; and
(vii)at any time to adopt, alter and repeal such rules, guidelines and practices for administration of the Plan and for its own acts and proceedings as it shall deem advisable; to interpret and construe the terms and provisions of the Plan and any Award (including related written instruments); to make all determinations it deems advisable for the administration of the Plan; to decide all disputes arising in connection with the Plan; and to otherwise supervise the administration of the Plan.
All decisions and interpretations of the Administrator shall be binding on all persons, including the Company and Plan grantees.
(c)Delegation of Authority to Grant Awards. Subject to applicable law, the Administrator, in its discretion, may delegate to a committee consisting of one or more officers of the Company all or part of the Administrator’s authority and duties with respect to the granting of Awards to individuals who are (i) not subject to the reporting and other provisions of Section 16 of the Exchange Act and (ii) not members of the delegated committee. Any such delegation by the Administrator shall include a limitation as to the amount of Stock underlying Awards that may be granted during the period of the delegation and shall contain guidelines as to the determination of the exercise price and the vesting criteria. The Administrator may revoke or amend the terms of a delegation at any time but such action shall not invalidate any prior actions of the Administrator’s delegate or delegates that were consistent with the terms of the Plan.
(d)Award Agreement. Awards under the Plan shall be evidenced by Award Agreements that set forth the terms, conditions and limitations for each Award which may include, without limitation, the term of an Award and the provisions applicable in the event the Service Relationship terminates.
(e)Indemnification. Neither the Board nor the Administrator, nor any member of either or any delegate thereof, shall be liable for any act, omission, interpretation, construction or determination made in good faith in connection with the Plan, and the members of the Board and the Administrator (and any delegate thereof) shall be entitled in all cases to indemnification and reimbursement by the Company in respect of any claim, loss, damage or expense (including, without limitation, reasonable attorneys’ fees) arising or resulting therefrom to the fullest extent permitted by law and/or under the Company’s articles or bylaws or any directors’ and officers’ liability insurance coverage which may be in effect from time to time and/or any indemnification agreement between such individual and the Company.
(f)Non-U.S. Award Recipients. Notwithstanding any provision of the Plan to the contrary, in order to comply with the laws in other countries in which the Company and its Affiliates operate or have employees or other individuals eligible for Awards, the Administrator, in its sole discretion, shall have the power and authority to: (i) determine which Affiliates shall be covered by the Plan; (ii) determine which individuals outside the United States are eligible to participate in the Plan; (iii) modify the terms and conditions of any Award granted to individuals outside the United States to comply with applicable laws; (iv) establish subplans and modify
exercise procedures and other terms and procedures, to the extent the Administrator determines such actions to be necessary or advisable (and such subplans and/or modifications shall be incorporated into and made part of this Plan); provided, however, that no such subplans and/or modifications shall increase the share limitations contained in Section 3(a) hereof; and (v) take any action, before or after an Award is made, that the Administrator determines to be necessary or advisable to obtain approval or comply with any local governmental regulatory exemptions or approvals. Notwithstanding the foregoing, the Administrator may not take any actions hereunder, and no Awards shall be granted, that would violate the Exchange Act or any other applicable United States securities law, the Code, or any other applicable United States governing statute or law.
SECTION 3.STOCK ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION
(a)Stock Issuable. The maximum number of shares of Stock reserved and available for issuance under the Plan shall be 89,829,390 shares less the number of shares of Stock that would otherwise have been issued in connection with the Exchange Offer, but were not issued as a result of eligible employees’ election not to tender (the “Initial Limit”), subject to adjustment as provided in Section 3(c) hereof, plus on January 1, 2022 and each January 1 thereafter, through (and including) January 1, 2031, the number of shares of Stock reserved and available for issuance under the Plan shall be cumulatively increased by a number of Class A common shares of up to five percent of the number of shares of Class A and Class B common stock issued and outstanding on the immediately preceding December 31, as approved by the full Board (the “Annual Increase”). Subject to such overall limitation, the maximum number of shares of Stock that may be issued as Incentive Stock Options under the Plan may not exceed the sum of the Initial Limit plus 10% of the total shares of Class A common stock and Class B common stock outstanding as of the Effective Date. For purposes of the limitation described in this Section 3(a), the shares of Stock underlying any awards under the Plan that are forfeited, canceled, held back upon exercise of an Option or settlement of an Award to cover the exercise price or tax withholding, reacquired by the Company prior to vesting, satisfied without the issuance of Stock or otherwise terminated (other than by exercise) shall be added back to the shares of Stock available for issuance under the Plan and, to the extent permitted under Section 422 of the Code and the regulations promulgated thereunder, the shares of Stock that may be issued as Incentive Stock Options. In the event the Company repurchases shares of Stock on the open market, such shares shall not be added to the shares of Stock available for issuance under the Plan. Subject to such overall limitations, shares of Stock may be issued up to such maximum number pursuant to any type or types of Award. The shares available for issuance under the Plan may be authorized but unissued shares of Stock or shares of Stock reacquired by the Company.
(b)Maximum Awards to Non-Employee Directors. Notwithstanding anything to the contrary in this Plan, the value of all Awards awarded under this Plan and all other cash compensation paid by the Company to any Non-Employee Director in any calendar year shall not exceed $1,000,000. For the purpose of this limitation, the value of any Award shall be its grant date fair value, as determined in accordance with ASC 718 or successor provision but excluding the impact of estimated forfeitures related to service-based vesting provisions.
(c)Changes in Stock. Subject to Section 3(d) hereof, if, as a result of any reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar change in the Company’s capital stock, the outstanding shares of Stock are increased or decreased or are exchanged for a different number or kind of shares or other securities of the Company, or additional shares or new or different shares or other securities of the Company or other non-cash assets are distributed with respect to such shares of Stock or other securities, or, if, as a result of any merger or consolidation, sale of all or substantially all of the assets of the Company, the outstanding shares of Stock are converted into or exchanged for securities of the Company or any successor entity (or a parent or subsidiary thereof), the Administrator shall make an appropriate or proportionate adjustment in (i) the maximum number of shares reserved for issuance under the Plan, including the maximum number of shares that may be issued in the form of Incentive Stock Options, (ii) the number and kind of shares or other securities subject to any then outstanding Awards under the Plan, (iii) the repurchase price, if any, per share subject to each outstanding Restricted Stock Award, and (iv) the exercise price for each share subject to any then outstanding Stock Options and Stock Appreciation Rights under the Plan, without changing the aggregate exercise price (i.e., the exercise price multiplied by the number of shares subject to Stock Options and Stock Appreciation Rights) as to which such Stock Options and Stock Appreciation Rights remain exercisable. The Administrator shall also make equitable or proportionate adjustments in the number of shares subject to outstanding Awards and the exercise price and the terms of outstanding Awards to take into consideration cash dividends paid other than in the ordinary course or any other extraordinary corporate event. The adjustment by the Administrator shall be final, binding and conclusive. No fractional shares of Stock shall be issued under the Plan resulting from any such adjustment, but the Administrator in its discretion may make a cash payment in lieu of fractional shares.
(d)Mergers and Other Transactions. In the case of and subject to the consummation of a Sale Event, the parties thereto may cause the assumption or continuation of Awards theretofore granted by the successor entity, or the substitution of such Awards with new Awards of the successor entity or parent thereof, with appropriate adjustment as to the number and kind of shares and, if appropriate, the per share exercise prices, as such parties shall agree. To the extent the parties to such Sale Event do not provide for the assumption, continuation or substitution of Awards, upon the effective time of the Sale Event, the Plan and all outstanding Awards granted hereunder shall terminate. In such case, except as may be otherwise provided in the relevant Award Agreement, all Options and Stock Appreciation Rights with time-based vesting conditions or restrictions that are not vested and/or exercisable immediately prior to the effective time of the Sale Event shall become fully vested and exercisable as of the effective time of the Sale Event, all other Awards with time-based vesting, conditions or restrictions shall become fully vested and nonforfeitable as of the effective time of the Sale Event, and all Awards with conditions and restrictions relating to the attainment of performance goals may become vested and nonforfeitable in connection with a Sale Event in the Administrator’s discretion or to the extent specified in the relevant Award Agreement. In the event of such termination, (i) the Company shall have the option (in its sole discretion) to make or provide for a payment, in cash or in kind, to the grantees holding Options and Stock Appreciation Rights, in exchange for the cancellation thereof, in an amount equal to the difference between (A) the Sale Price multiplied by the number of shares of Stock subject to outstanding Options and Stock Appreciation Rights
(to the extent then exercisable at prices not in excess of the Sale Price) and (B) the aggregate exercise price of all such outstanding Options and Stock Appreciation Rights (provided that, in the case of an Option or Stock Appreciation Right with an exercise price equal to or less than the Sale Price, such Option or Stock Appreciation Right shall be cancelled for no consideration); or (ii) each grantee shall be permitted, within a specified period of time prior to the consummation of the Sale Event as determined by the Administrator, to exercise all outstanding Options and Stock Appreciation Rights (to the extent then exercisable) held by such grantee. The Company shall also have the option (in its sole discretion) to make or provide for a payment, in cash or in kind, to the grantees holding other Awards in an amount equal to the Sale Price multiplied by the number of vested shares of Stock under such Awards.
SECTION 4.ELIGIBILITY
Grantees under the Plan shall be such employees, Non-Employee Directors and Consultants of the Company and its Affiliates as are selected from time to time by the Administrator in its sole discretion; provided that Awards may not be granted to employees, Non-Employee Directors or Consultants who are providing services only to any “parent” of the Company, as such term is defined in Rule 405 of the Act, unless (i) the stock underlying the Awards is treated as “service recipient stock” under Section 409A or (ii) the Company has determined that such Awards are exempt from or otherwise comply with Section 409A.
SECTION 5.STOCK OPTIONS
(a)Award of Stock Options. The Administrator may grant Stock Options under the Plan. Any Stock Option granted under the Plan shall be in such form as the Administrator may from time to time approve.
Stock Options granted under the Plan may be either Incentive Stock Options or Non-Qualified Stock Options. Incentive Stock Options may be granted only to employees of the Company or any Subsidiary that is a “subsidiary corporation” within the meaning of Section 424(f) of the Code. To the extent that any Option does not qualify as an Incentive Stock Option, it shall be deemed a Non-Qualified Stock Option.
Stock Options granted pursuant to this Section 5 shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Administrator shall deem desirable. If the Administrator so determines, Stock Options may be granted in lieu of cash compensation at the optionee’s election, subject to such terms and conditions as the Administrator may establish.
(b)Exercise Price. The exercise price per share for the Stock covered by a Stock Option granted pursuant to this Section 5 shall be determined by the Administrator at the time of grant but shall not be less than 100 percent of the Fair Market Value on the date of grant. In the case of an Incentive Stock Option that is granted to a Ten Percent Owner, the exercise price of such Incentive Stock Option shall be not less than 110 percent of the Fair Market Value on the date of grant. Notwithstanding the foregoing, Stock Options may be granted with an exercise price per share that is less than 100 percent of the Fair Market Value on the date of grant (i)
pursuant to a transaction described in, and in a manner consistent with, Section 424(a) of the Code, (ii) to individuals who are not subject to U.S. income tax on the date of grant, or (iii) if the Stock Option is otherwise compliant with Section 409A.
(c)Option Term. The term of each Stock Option shall be fixed by the Administrator, but no Stock Option shall be exercisable more than ten years after the date the Stock Option is granted. In the case of an Incentive Stock Option that is granted to a Ten Percent Owner, the term of such Stock Option shall be no more than five years from the date of grant.
(d)Exercisability; Rights of a Stockholder. Stock Options shall become exercisable at such time or times, whether or not in installments, as shall be determined by the Administrator at or after the date of grant. The Administrator may at any time accelerate the exercisability of all or any portion of any Stock Option. An optionee shall have the rights of a stockholder only as to shares acquired upon the exercise of a Stock Option and not as to unexercised Stock Options.
(e)Method of Exercise. Stock Options may be exercised in whole or in part, by giving written or electronic notice of exercise to the Company, specifying the number of shares to be purchased. Payment of the purchase price may be made by one or more of the following methods except to the extent otherwise provided in the Option Award Agreement:
(i)In cash, by certified or bank check or other instrument acceptable to the Administrator;
(ii)Through the delivery (or attestation to the ownership following such procedures as the Company may prescribe) of shares of Stock that are not then subject to restrictions under any Company plan. Such surrendered shares shall be valued at Fair Market Value on the exercise date;
(iii)By the optionee delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company for the purchase price; provided that in the event the optionee chooses to pay the purchase price as so provided, the optionee and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the Company shall prescribe as a condition of such payment procedure; or
(iv)With respect to Stock Options that are not Incentive Stock Options, by a “net exercise” arrangement pursuant to which the Company shall reduce the number of shares of Stock issuable upon exercise by the largest whole number of shares with a Fair Market Value that does not exceed the aggregate exercise price.
Payment instruments shall be received subject to collection. The transfer to the optionee on the records of the Company or of the transfer agent of the shares of Stock to be purchased pursuant to the exercise of a Stock Option shall be contingent upon receipt from the optionee (or a purchaser acting in his stead in accordance with the provisions of the Stock Option) by the Company of the full purchase price for such shares and the fulfillment of any other requirements contained in the Option Award Agreement or applicable provisions of laws (including the
satisfaction of any taxes that the Company or an Affiliate is obligated to withhold with respect to the optionee). In the event an optionee chooses to pay the purchase price by previously-owned shares of Stock through the attestation method, the number of shares of Stock transferred to the optionee upon the exercise of the Stock Option shall be net of the number of attested shares. In the event that the Company establishes, for itself or using the services of a third party, an automated system for the exercise of Stock Options, such as a system using an internet website or interactive voice response, then the paperless exercise of Stock Options may be permitted through the use of such an automated system.
(f)Annual Limit on Incentive Stock Options. To the extent required for “incentive stock option” treatment under Section 422 of the Code, the aggregate Fair Market Value (determined as of the time of grant) of the shares of Stock with respect to which Incentive Stock Options granted under this Plan and any other plan of the Company or its parent and subsidiary corporations become exercisable for the first time by an optionee during any calendar year shall not exceed $100,000. To the extent that any Stock Option exceeds this limit, it shall constitute a Non-Qualified Stock Option.
SECTION 6.STOCK APPRECIATION RIGHTS
(a)Award of Stock Appreciation Rights. The Administrator may grant Stock Appreciation Rights under the Plan. A Stock Appreciation Right is an Award entitling the recipient to receive shares of Stock (or cash, to the extent explicitly provided for in the applicable Award Agreement) having a value equal to the excess of the Fair Market Value of a share of Stock on the date of exercise over the exercise price of the Stock Appreciation Right multiplied by the number of shares of Stock with respect to which the Stock Appreciation Right shall have been exercised.
(b)Exercise Price of Stock Appreciation Rights. The exercise price of a Stock Appreciation Right shall not be less than 100 percent of the Fair Market Value of the Stock on the date of grant.
(c)Grant and Exercise of Stock Appreciation Rights. Stock Appreciation Rights may be granted by the Administrator independently of any Stock Option granted pursuant to Section 5 of the Plan.
(d)Terms and Conditions of Stock Appreciation Rights. Stock Appreciation Rights shall be subject to such terms and conditions as shall be determined on the date of grant by the Administrator. The term of a Stock Appreciation Right may not exceed ten years. The terms and conditions of each such Award shall be determined by the Administrator, and such terms and conditions may differ among individual Awards and grantees.
SECTION 7.RESTRICTED STOCK AWARDS
(a)Nature of Restricted Stock Awards. The Administrator may grant Restricted Stock Awards under the Plan. A Restricted Stock Award is any Award of Restricted Shares subject to such restrictions and conditions as the Administrator may determine at the time of
grant. Conditions may be based on continuing employment (or other Service Relationship) and/or achievement of preestablished performance goals and objectives.
(b)Rights as a Stockholder. Upon the grant of the Restricted Stock Award and payment of any applicable purchase price, a grantee shall have the rights of a stockholder with respect to the voting of the Restricted Shares and receipt of dividends; provided that if the lapse of restrictions with respect to the Restricted Stock Award is tied to the attainment of performance goals, any dividends paid by the Company during the performance period shall accrue and shall not be paid to the grantee until and to the extent the performance goals are met with respect to the Restricted Stock Award. Unless the Administrator shall otherwise determine, (i) uncertificated Restricted Shares shall be accompanied by a notation on the records of the Company or the transfer agent to the effect that they are subject to forfeiture until such Restricted Shares are vested as provided in Section 7(d) below, and (ii) certificated Restricted Shares shall remain in the possession of the Company until such Restricted Shares are vested as provided in Section 7(d) below, and the grantee shall be required, as a condition of the grant, to deliver to the Company such instruments of transfer as the Administrator may prescribe.
(c)Restrictions. Restricted Shares may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of except as specifically provided herein or in the Restricted Stock Award Agreement. Except as may otherwise be provided by the Administrator either in the Award Agreement or, subject to Section 15 below, in writing after the Award is issued, if a grantee’s employment (or other Service Relationship) with the Company and its Affiliates terminates for any reason, any Restricted Shares that have not vested at the time of termination shall automatically and without any requirement of notice to such grantee from or other action by or on behalf of, the Company be deemed to have been reacquired by the Company at its original purchase price (if any) from such grantee or such grantee’s legal representative simultaneously with such termination of employment (or other Service Relationship), and thereafter shall cease to represent any ownership of the Company by the grantee or rights of the grantee as a stockholder. Following such deemed reacquisition of Restricted Shares that are represented by physical certificates, a grantee shall surrender such certificates to the Company upon request without consideration.
(d)Vesting of Restricted Shares. The Administrator at the time of grant shall specify the date or dates and/or the attainment of pre-established performance goals, objectives and other conditions on which the non-transferability of the Restricted Shares and the Company’s right of repurchase or forfeiture shall lapse. Subsequent to such date or dates and/or the attainment of such pre-established performance goals, objectives and other conditions, the shares on which all restrictions have lapsed shall no longer be Restricted Shares and shall be deemed “vested.”
SECTION 8.RESTRICTED STOCK UNITS
(a)Nature of Restricted Stock Units. The Administrator may grant Restricted Stock Units under the Plan. A Restricted Stock Unit is an Award of stock units that may be settled in shares of Stock (or cash, to the extent explicitly provided for in the Award Agreement) upon the satisfaction of such restrictions and conditions at the time of grant. Conditions may be based on continuing employment (or other Service Relationship) and/or achievement of pre-established
performance goals and objectives. The terms and conditions of each such Award shall be determined by the Administrator, and such terms and conditions may differ among individual Awards and grantees. Except in the case of Restricted Stock Units with a deferred settlement date that complies with Section 409A, at the end of the vesting period, the Restricted Stock Units, to the extent vested, shall be settled in the form of shares of Stock. Restricted Stock Units with deferred settlement dates are subject to Section 409A and shall contain such additional terms and conditions as the Administrator shall determine in its sole discretion in order to comply with the requirements of Section 409A.
(b)Election to Receive Restricted Stock Units in Lieu of Compensation. The Administrator may, in its sole discretion, permit a grantee to elect to receive a portion of future cash compensation otherwise due to such grantee in the form of an award of Restricted Stock Units. Any such election shall be made in writing and shall be delivered to the Company no later than the date specified by the Administrator and in accordance with Section 409A and such other rules and procedures established by the Administrator. Any such future cash compensation that the grantee elects to defer shall be converted to a fixed number of Restricted Stock Units based on the Fair Market Value of Stock on the date the compensation would otherwise have been paid to the grantee if such payment had not been deferred as provided herein. The Administrator shall have the sole right to determine whether and under what circumstances to permit such elections and to impose such limitations and other terms and conditions thereon as the Administrator deems appropriate. Any Restricted Stock Units that are elected to be received in lieu of cash compensation shall be fully vested, unless otherwise provided in the Award Agreement.
(c)Rights as a Stockholder. A grantee shall have the rights as a stockholder only as to shares of Stock acquired by the grantee upon settlement of Restricted Stock Units; provided, however, that the grantee may be credited with Dividend Equivalent Rights with respect to the stock units underlying his or her Restricted Stock Units, subject to the provisions of Section 11 and such terms and conditions as the Administrator may determine.
(d)Termination. Except as may otherwise be provided by the Administrator either in the Award Agreement or, subject to Section 15 below, in writing after the Award is issued, a grantee’s right in all Restricted Stock Units that have not vested shall automatically terminate upon the grantee’s termination of employment (or cessation of Service Relationship) with the Company and its Affiliates for any reason.
SECTION 9.UNRESTRICTED STOCK AWARDS
Grant or Sale of Unrestricted Stock. The Administrator may grant (or sell at par value or such higher purchase price determined by the Administrator) an Unrestricted Stock Award under the Plan. An Unrestricted Stock Award is an Award pursuant to which the grantee may receive shares of Stock free of any restrictions under the Plan. Unrestricted Stock Awards may be granted in respect of past services or other valid consideration, or in lieu of cash compensation due to such grantee.
SECTION 10.CASH-BASED AWARDS
Grant of Cash-Based Awards. The Administrator may grant Cash-Based Awards under the Plan. A Cash-Based Award is an Award that entitles the grantee to a payment in cash upon the attainment of specified performance goals, including continued employment (or other Service Relationship). The Administrator shall determine the maximum duration of the Cash-Based Award, the amount of cash to which the Cash-Based Award pertains, the conditions upon which the Cash-Based Award shall become vested or payable, and such other provisions as the Administrator shall determine. Each Cash-Based Award shall specify a cash-denominated payment amount, formula or payment ranges as determined by the Administrator. Payment, if any, with respect to a Cash-Based Award shall be made in accordance with the terms of the Award and may be made in cash.
SECTION 11.DIVIDEND EQUIVALENT RIGHTS
(a)Dividend Equivalent Rights. The Administrator may grant Dividend Equivalent Rights under the Plan. A Dividend Equivalent Right is an Award entitling the grantee to receive credits based on cash dividends that would have been paid on the shares of Stock specified in the Dividend Equivalent Right (or other Award to which it relates) if such shares had been issued to the grantee. A Dividend Equivalent Right may be granted hereunder to any grantee as a component of an award of Restricted Stock Units or as a freestanding award. The terms and conditions of Dividend Equivalent Rights shall be specified in the Award Agreement. Dividend equivalents credited to the holder of a Dividend Equivalent Right may be paid currently or may be deemed to be reinvested in additional shares of Stock, which may thereafter accrue additional equivalents. Any such reinvestment shall be at Fair Market Value on the date of reinvestment or such other price as may then apply under a dividend reinvestment plan sponsored by the Company, if any. Dividend Equivalent Rights may be settled in cash or shares of Stock or a combination thereof, in a single installment or installments. A Dividend Equivalent Right granted as a component of an Award of Restricted Stock Units shall provide that such Dividend Equivalent Right shall be settled only upon settlement or payment of, or lapse of restrictions on, such other Award, and that such Dividend Equivalent Right shall expire or be forfeited or annulled under the same conditions as such other Award.
(b)Termination. Except as may otherwise be provided by the Administrator either in the Award Agreement or, subject to Section 15 below, in writing after the Award is issued, a grantee’s rights in all Dividend Equivalent Rights shall automatically terminate upon the grantee’s termination of employment (or cessation of Service Relationship) with the Company and its Affiliates for any reason.
SECTION 12.TRANSFERABILITY OF AWARDS
(a)Transferability. Except as provided in Section 12(b) below, during a grantee’s lifetime, his or her Awards shall be exercisable only by the grantee, or by the grantee’s legal representative or guardian in the event of the grantee’s incapacity. No Awards shall be sold, assigned, transferred or otherwise encumbered or disposed of by a grantee other than by shall or by the laws of descent and distribution or pursuant to a domestic relations order. No Awards
shall be subject, in whole or in part, to attachment, execution, or levy of any kind, and any purported transfer in violation hereof shall be null and void.
(b)Administrator Action. Notwithstanding Section 12(a), the Administrator, in its discretion, may provide either in the Award Agreement regarding a given Award or by subsequent written approval that the grantee (who is an employee or Non-Employee Director) may transfer his or her Award to his or her immediate family members, to trusts for the benefit of such family members, or to partnerships in which such family members are the only partners, provided that the transferee agrees in writing with the Company to be bound by all of the terms and conditions of this Plan and the applicable Award Agreement. In no event may an Award be transferred by a grantee for value.
(c)Family Member. For purposes of Section 12(b), “family member” shall mean a grantee’s child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person sharing the grantee’s household (other than a tenant of the grantee), a trust in which these persons (or the grantee) have more than 50 percent of the beneficial interest, a foundation in which these persons (or the grantee) control the management of assets, and any other entity in which these persons (or the grantee) own more than 50 percent of the voting interests.
(d)Designation of Beneficiary. To the extent permitted by the Company and valid under applicable law, each grantee to whom an Award has been made under the Plan may designate a beneficiary or beneficiaries to exercise any Award or receive any payment under any Award payable on or after the grantee’s death. Any such designation shall be on a form provided for that purpose by the Administrator and shall not be effective until received by the Administrator. If no beneficiary has been designated by a deceased grantee, or if the designated beneficiaries have predeceased the grantee, the beneficiary shall be the grantee’s estate.
SECTION 13.TAX WITHHOLDING
(a)Payment by Grantee. Each grantee shall, no later than the date as of which the value of an Award or of any Stock or other amounts received thereunder first becomes includable in the gross income of the grantee for tax purposes, pay to the Company or any applicable Affiliate, or make arrangements satisfactory to the Administrator regarding payment of, any U.S. and non-U.S. federal, state or local taxes of any kind required by law to be withheld by the Company or any applicable Affiliate with respect to such income. The Company and its Affiliates shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the grantee or to satisfy all applicable withholding obligations by any other method of withholding that the Company and its Affiliates deem appropriate. The Company’s obligation to deliver evidence of book entry (or stock certificates) to any grantee is subject to and conditioned on all applicable tax withholding obligations being satisfied by the grantee.
(b)Payment in Stock. Any tax withholding obligation required of the Company or any applicable Affiliate may be satisfied, in whole or in part, by the Company withholding from
shares of Stock to be issued pursuant to any Award a number of shares with an aggregate Fair Market Value (as of the date the withholding is determined) that would satisfy the withholding amount due; provided, however, that the amount withheld does not exceed the maximum statutory rate or such lesser amount as is necessary to avoid liability accounting treatment. The tax withholding obligation may also be satisfied, in whole or in part, by an arrangement whereby a certain number of shares of Stock issued pursuant to any Award are immediately sold and proceeds from such sale are remitted to the Company or any applicable Affiliate in an amount that would satisfy the withholding amount due.
SECTION 14.SECTION 409A AWARDS
Awards are intended to be exempt from Section 409A to the greatest extent possible and to otherwise comply with Section 409A. The Plan and all Awards shall be interpreted in accordance with such intent. To the extent that any Award is determined to constitute “nonqualified deferred compensation” within the meaning of Section 409A (a “409A Award”), the Award shall be subject to such additional rules and requirements as specified by the Administrator from time to time in order to comply with Section 409A. In this regard, if any amount under a 409A Award is payable upon a “separation from service” (within the meaning of Section 409A) to a grantee who is then considered a “specified employee” (within the meaning of Section 409A), then no such payment shall be made prior to the date that is the earlier of (i) six months and one day after the grantee’s separation from service, or (ii) the grantee’s death, but only to the extent such delay is necessary to prevent such payment from being subject to interest, penalties and/or additional tax imposed pursuant to Section 409A. Further, the settlement of any 409A Award may not be accelerated except to the extent permitted by Section 409A.
SECTION 15.TERMINATION OF SERVICE RELATIONSHIP, TRANSFER, LEAVE OF ABSENCE, ETC.
(a)Termination of Service Relationship. If the grantee’s Service Relationship is with an Affiliate and such Affiliate ceases to be an Affiliate, the grantee shall be deemed to have terminated his or her Service Relationship for purposes of the Plan.
(b)For purposes of the Plan, the following events shall not be deemed a termination of Service Relationship:
(i)a transfer to the Service Relationship of the Company from an Affiliate or from the Company to an Affiliate, or from one Affiliate to another; or
(ii)an approved leave of absence, if the employee’s right to re-employment is guaranteed either by a statute or by contract or under the policy pursuant to which the leave of absence was granted or if the Administrator otherwise so provides in writing.
SECTION 16.AMENDMENTS AND TERMINATION
The Board may, at any time, amend or discontinue the Plan and the Administrator may, at any time, amend or cancel any outstanding Award for the purpose of satisfying changes in law or
for any other lawful purpose, but no such action shall materially and adversely affect rights under any outstanding Award without the holder’s consent. The Administrator is specifically authorized to exercise its discretion to reduce the exercise price of outstanding Stock Options or Stock Appreciation Rights or effect the repricing of such Awards through cancellation and re-grants. To the extent required under the rules of any securities exchange or market system on which the Stock is listed, or to the extent determined by the Administrator to be required by the Code to ensure that Incentive Stock Options granted under the Plan are qualified under Section 422 of the Code, Plan amendments shall be subject to approval by the Company stockholders entitled to vote at a meeting of stockholders. Nothing in this Section 16 shall limit the Administrator’s authority to take any action permitted pursuant to Section 3(c) or 3(d).
SECTION 17.STATUS OF PLAN
With respect to the portion of any Award that has not been exercised and any payments in cash, Stock or other consideration not received by a grantee, a grantee shall have no rights greater than those of a general creditor of the Company unless the Administrator shall otherwise expressly determine in connection with any Award or Awards. In its sole discretion, the Administrator may authorize the creation of trusts or other arrangements to meet the Company’s obligations to deliver Stock or make payments with respect to Awards hereunder, provided that the existence of such trusts or other arrangements is consistent with the foregoing sentence.
SECTION 18.GENERAL PROVISIONS
(a)No Distribution. The Administrator may require each person acquiring Stock pursuant to an Award to represent to and agree with the Company in writing that such person is acquiring the shares without a view to distribution thereof.
(b)Issuance of Stock. To the extent certificated, stock certificates to grantees under this Plan shall be deemed delivered for all purposes when the Company or a stock transfer agent of the Company shall have mailed such certificates in the United States mail, addressed to the grantee, at the grantee’s last known address on file with the Company. Uncertificated Stock shall be deemed delivered for all purposes when the Company or a Stock transfer agent of the Company shall have given to the grantee by electronic mail (with proof of receipt) or by United States mail, addressed to the grantee, at the grantee’s last known address on file with the Company, notice of issuance and recorded the issuance in its records (which may include electronic “book entry” records). Notwithstanding anything herein to the contrary, the Company shall not be required to issue or deliver any evidence of book entry or certificates evidencing shares of Stock pursuant to the exercise or settlement of any Award, unless and until the Administrator has determined, with advice of counsel (to the extent the Administrator deems such advice necessary or advisable), that the issuance and delivery is in compliance with all applicable laws, regulations of governmental authorities and, if applicable, the requirements of any exchange on which the shares of Stock are listed, quoted or traded. Any Stock issued pursuant to the Plan shall be subject to any stop-transfer orders and other restrictions as the Administrator deems necessary or advisable to comply with federal, state or foreign jurisdiction, securities or other laws, rules and quotation system on which the Stock is listed, quoted or traded. The Administrator may place legends on any Stock certificate or notations on any book entry to
reference restrictions applicable to the Stock. In addition to the terms and conditions provided herein, the Administrator may require that an individual make such reasonable covenants, agreements, and representations as the Administrator, in its discretion, deems necessary or advisable in order to comply with any such laws, regulations, or requirements. The Administrator shall have the right to require any individual to comply with any timing or other restrictions with respect to the settlement or exercise of any Award, including a window-period limitation, as may be imposed in the discretion of the Administrator.
(c)Stockholder Rights. Until Stock is deemed delivered in accordance with Section 18(b), no right to vote or receive dividends or any other rights of a stockholder shall exist with respect to shares of Stock to be issued in connection with an Award, notwithstanding the exercise of a Stock Option or any other action by the grantee with respect to an Award.
(d)Other Incentive Arrangements; No Rights to Continued Service Relationship. Nothing contained in this Plan shall prevent the Board from adopting other or additional incentive arrangements, including trusts, and such arrangements may be either generally applicable or applicable only in specific cases. The adoption of this Plan and the grant of Awards do not confer upon any grantee any right to continued employment or other Service Relationship with the Company or any Affiliate.
(e)Trading Policy Restrictions. Option exercises and other Awards under the Plan shall be subject to the Company’s insider trading policies and procedures, as in effect from time to time.
(f)Clawback Policy. Awards under the Plan shall be subject to the Company’s clawback policy, as in effect from time to time.
SECTION 19.EFFECTIVE DATE OF PLAN
This Plan shall become effective upon the date immediately preceding the Registration Date following stockholder approval in accordance with applicable state law, the Company’s bylaws and articles of incorporation, and applicable stock exchange rules. No grants of Stock Options and other Awards may be made hereunder after the tenth anniversary of the Effective Date and no grants of Incentive Stock Options may be made hereunder after the tenth anniversary of the date the Plan is approved by the Board.
SECTION 20.GOVERNING LAW
This Plan and all Awards and actions taken thereunder shall be governed by, and construed in accordance with the General Corporation Law of the State of Delaware as to matters within the scope thereof, and as to all other matters shall be governed by and construed in accordance with the internal laws of the State of Utah, applied without regard to conflict of law principles.
DATE APPROVED BY BOARD OF DIRECTORS:
DATE APPROVED BY STOCKHOLDERS:
2021 Qualtrics International Inc. UK Sub-Plan
(the “UK Sub Plan”)
to the
2021 QUALTRICS INTERNATIONAL INC. EMPLOYEE OMNIBUS EQUITY PLAN Plan (the “2021 Plan”)
Adopted by the Board as of December 15, 2020 pursuant to and in accordance with Section 2(f) of the 2021 Plan. The UK Sub Plan is hereby made part of the 2021 Plan, and is not a separate distinct plan on its own.
Introduction
The purpose of the UK Sub Plan is to provide for alterations and amendments to the 2021 Plan in respect of its operation in the United Kingdom, so as to facilitate the participation of United Kingdom employees in the 2021 Plan.
Words and expressions defined in the 2021 Plan shall have the same meaning when used in the UK Sub Plan (unless otherwise stated herein) and all references to the 2021 Plan shall be to the 2021 Plan as amended by the UK Sub Plan. The provisions of the 2021 Plan shall apply to the provisions of the UK Sub Plan except where expressly varied herein. References to Sections in the UK Sub Plan are references to Sections of the 2021 Plan. In the event of any discrepancy between the provisions of the 2021 Plan and the provisions of the UK Sub Plan, the provisions of the UK Sub Plan shall take precedence.
Operative Provisions
Awards may be granted under the UK Sub Plan in accordance with such provisions as would be applicable if the provisions of the 2021 Plan were here set out in full, subject to the following modifications:
The general purpose of the 2021 Plan in Section 1 shall be amended to include the words underlined below and deletion of the words shown in strikethrough:
The name of the plan is the 2021 Qualtrics International Inc. Employee Omnibus Equity Plan (the “Plan”). The purpose of the Plan is to encourage and enable the officers, bona fide employees (including executive officers), Non-Employee Directors and Consultants of Qualtrics International Inc. (the “Company”) and its Affiliates upon whose judgment, initiative and efforts the Company largely depends for the successful conduct of its businesses to acquire a proprietary interest in the Company. It is anticipated that providing such persons with a direct stake in the Company’s welfare will assure a closer identification of their interests with those of the Company and its stockholders, thereby stimulating their efforts on the Company’s behalf and strengthening their desire to remain with the Company.
The definition of “Affiliate” set forth in Section 1 shall be amended to include the words underlined below:
“Affiliate” means (i) an affiliate of the Company, as defined in Rule 12b-2 promulgated under Section 12 of the Exchange Act (provided always that any such entity or affiliate is a member of the same group as the Company for the purposes of Articles 60 of the Financial Services and Markets Act 2000 (Financial Promotions) Order 2005) and (ii) any entity in which the Company has a significant equity interest.
Section 4 (Eligibility) shall be amended to include the words underlined below and deletion of the words shown in strikethrough:
Grantees under the Plan will be such bona fide employees, Non-Employee Directors and Consultants of the Company and its Affiliates as are selected from time to time by the Administrator in its sole discretion; provided that Awards may not be granted to bona fide employees, Non-Employee Directors or Consultants who are providing services only to any “parent” of the Company, as such term is defined in Rule 405 of the Act, unless (i) the stock underlying the Awards is treated as “service recipient stock” under Section 409A or (ii) the Company has determined that such Awards are exempt from or otherwise comply with Section 409A.
The definition of “Subsidiary” set forth in Section 1 shall be amended to include the words underlined below:
“Subsidiary” means any corporation or other entity (other than the Company) in which the Company has at least a 50 percent interest, either directly or indirectly, provided that such corporation or other entity is a member of the same group as the Company for the purposes of Articles 60 of the Financial Services and Markets Act 2000 (Financial Promotions) Order 2005.
Section 2 of the 2021 Plan shall be amended to include the following definitions:
“the UK Sub Plan” means the United Kingdom Sub Plan to the 2021 Plan;
“HMRC” means Her Majesty's Revenue & Customs (in the United Kingdom).
“ITEPA” means the Income Tax (Earnings & Pensions) Act 2003 (as amended, modified, replaced or restated from time to time) of the United Kingdom.
Section 13 shall be amended as follows: (i) the current wording in Section 13 shall be included in a new sub-section 13(c), and (ii) a new subsection 13(c) shall be included with the following underlined wording:
ITEPA s.431 Election. In the event that any Award acquired falls within the meaning of 'restricted securities' for the purposes of Chapter 2 of Part 7 to ITEPA, it may be a condition of the Award that the Award holder, if specified by the Administrator at any time, enters into a joint election with the Company (or his/her employer company, if different) under section 431(1) of ITEPA in order to disapply all restrictions attaching to such Stock (in the form prescribed or agreed by HMRC) and in order to elect to pay income tax (if any) computed by reference to the unrestricted market value (as defined in ITEPA) of the Stock no later than 14 days after the acquisition of such Stock (or such longer period as HMRC may direct).
Section 18(d) of the 2021 Plan shall be renumbered as section 18(d)(i) and a new section 18(d)(ii) shall be added with the following provisions:
Participation in the UK Sub Plan is a matter entirely separate from any pension right or entitlement an Award holder may have and from that Award holder's terms and conditions of employment and in particular (but without limiting the generality of the foregoing) if an Award holder ceases to be an employee within the Company or an Affiliate he or she will not be entitled to any compensation for any loss of any right or benefit or prospective right or benefit pursuant to or in connection with the UK Sub Plan whether such compensation is claimed by way of damages for wrongful dismissal or other breach of contract or by way of compensation for loss of office or otherwise howsoever.
A new Section 18(g) shall be added with the following provisions:
FATCA. By participating in the UK Sub Plan, each Award holder agrees to give all such assistance and representations and supply or procure to be supplied (including by way of updates) all such information and execute and deliver (or procure the execution and delivery of) all such documents that the Company or Adminstrator requests in writing for the purpose of enabling it or any Affiliate (or the Adminstrator or any external administrator) to comply with the Foreign Account Tax Compliance Act (“FATCA”), any exchange of information agreement (“IGA”) or any similar, equivalent or related applicable laws, rules or regulations in any jurisdiction. Each Award holder further agrees and authorizes the Company and its Affiliates to disclose such information to any governmental authorities (including, but not limited to, HMRC and the Internal Revenue
Service) if it is required to be disclosed pursuant to FATCA, any IGA or any similar, equivalent or related applicable laws, rules or regulations.
RESTRICTED STOCK UNIT AWARD AGREEMENT
FOR NON-EMPLOYEE DIRECTORS
UNDER THE 2021 QUALTRICS INTERNATIONAL INC.
EMPLOYEE OMNIBUS EQUITY PLAN
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Name of Grantee:
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No. of Restricted Stock Units:
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Grant Date:
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Pursuant to the 2021 Qualtrics International Inc. Employee Omnibus Equity Plan as amended through the date hereof (the “Plan”), Qualtrics International Inc. (the “Company”) hereby grants an award of the number of Restricted Stock Units listed above (an “Award”) to the individual named above (the “Grantee”). Each Restricted Stock Unit shall relate to one share of Class A common stock, par value $0.0001 per share (the “Stock”) of the Company.
1.Restrictions on Transfer of Award. This Award may not be sold, transferred, pledged, assigned or otherwise encumbered or disposed of by the Grantee, and any shares of Stock issuable with respect to the Award may not be sold, transferred, pledged, assigned or otherwise encumbered or disposed of until (i) the Restricted Stock Units have vested as provided in Paragraph 2 of this Agreement and (ii) shares of Stock have been issued to the Grantee in accordance with the terms of the Plan and this Agreement.
2.Vesting of Restricted Stock Units. The restrictions and conditions of Paragraph 1 of this Agreement shall lapse on the Vesting Date or Dates specified in the following schedule so long as the Grantee remains in service as a member of the Board on such Dates. If a series of Vesting Dates is specified, then the restrictions and conditions in Paragraph 1 shall lapse only with respect to the number of Restricted Stock Units specified as vested on such date.
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Incremental Number of
Restricted Stock Units Vested
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Vesting Date
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The Administrator may at any time accelerate the vesting schedule specified in this Paragraph 2.
3.Termination of Service. If the Grantee’s service with the Company and its Subsidiaries terminates for any reason (including death or disability) prior to the satisfaction of the vesting conditions set forth in Paragraph 2 above, any Restricted Stock Units that have not vested as of such date shall automatically and without notice terminate and be forfeited, and neither the Grantee nor any of his or her successors, heirs, assigns, or personal representatives shall thereafter have any further rights or interests in such unvested Restricted Stock Units.
4.Issuance of Shares of Stock. As soon as practicable following each Vesting Date (but in no event later than two and one-half months after the end of the year in which the Vesting Date occurs), the Company shall issue to the Grantee the number of shares of Stock equal to the aggregate number of Restricted Stock Units that have vested pursuant to Paragraph 2 of this Agreement on such date and the Grantee shall thereafter have all the rights of a stockholder of the Company with respect to such shares.
5.Incorporation of Plan. Notwithstanding anything herein to the contrary, this Agreement shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Administrator set forth in Section 2(b) of the Plan. Capitalized terms in this Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.
6.Section 409A of the Code. This Agreement shall be interpreted in such a manner that all provisions relating to the settlement of the Award are exempt from the requirements of Section 409A of the Code as “short-term deferrals” as described in Section 409A of the Code.
7.No Obligation to Continue as a Director. Neither the Plan nor this Award confers upon the Grantee any rights with respect to continuance as a Director.
8.Integration. This Agreement constitutes the entire agreement between the parties with respect to this Award and supersedes all prior agreements and discussions between the parties concerning such subject matter.
9.Data Privacy Consent. In order to administer the Plan and this Agreement and to implement or structure future equity grants, the Company, its subsidiaries and affiliates and certain agents thereof (together, the “Relevant Companies”) may process any and all personal or professional data, including but not limited to Social Security or other identification number, home address and telephone number, date of birth and other information that is necessary or desirable for the administration of the Plan and/or this Agreement (the “Relevant Information”). By entering into this Agreement, the Grantee (i) authorizes the Company to collect, process, register and transfer to the Relevant Companies all Relevant Information; (ii) waives any privacy rights the Grantee may have with respect to the Relevant Information; (iii) authorizes the Relevant Companies to store and transmit such information in electronic form; and (iv) authorizes the transfer of the Relevant Information to any jurisdiction in which the Relevant Companies consider appropriate. The Grantee shall have access to, and the right to change, the Relevant Information. Relevant Information shall only be used in accordance with applicable law.
10.Notices. Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or delivered to the Grantee at the address on file with the Company or, in either case, at such other address as one party may subsequently furnish to the other party in writing.
(Signature page follows.)
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QUALTRICS INTERNATIONAL INC.
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By:
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Title:
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The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned. Electronic acceptance of this Agreement pursuant to the Company’s instructions to the Grantee (including through an online acceptance process) is acceptable.
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Dated:
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Grantee’s Signature
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Grantee’s name and address:
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RESTRICTED STOCK UNIT AWARD AGREEMENT
FOR U.S. EMPLOYEES
UNDER THE 2021 QUALTRICS INTERNATIONAL INC.
EMPLOYEE OMNIBUS EQUITY PLAN
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Name of Grantee:
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No. of Restricted Stock Units:
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Grant Date:
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Pursuant to the 2021 Qualtrics International Inc. Employee Omnibus Equity Plan as amended through the date hereof (the “Plan”), Qualtrics International Inc. (the “Company”) hereby grants an award of the number of Restricted Stock Units listed above (an “Award”) to the individual named above (the “Grantee”). Each Restricted Stock Unit shall relate to one share of Class A common stock, par value $0.0001 per share (the “Stock”) of the Company.
1.Restrictions on Transfer of Award. This Award may not be sold, transferred, pledged, assigned or otherwise encumbered or disposed of by the Grantee, and any shares of Stock issuable with respect to the Award may not be sold, transferred, pledged, assigned or otherwise encumbered or disposed of until (i) the Restricted Stock Units have vested as provided in Paragraph 2 of this Agreement and (ii) shares of Stock have been issued to the Grantee in accordance with the terms of the Plan and this Agreement.
2.Vesting of Restricted Stock Units. The restrictions and conditions of Paragraph 1 of this Agreement shall lapse on the Vesting Date or Dates specified in the following schedule so long as the Grantee remains an employee of the Company or an Affiliate on such Dates. If a series of Vesting Dates is specified, then the restrictions and conditions in Paragraph 1 shall lapse only with respect to the number of Restricted Stock Units specified as vested on such date.
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Incremental Number of
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Vesting Date
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The Administrator may at any time accelerate the vesting schedule specified in this Paragraph 2.
3.Termination of Employment. If the Grantee’s employment by the Company and its Affiliates terminates for any reason (including death or disability) prior to the satisfaction of the vesting conditions set forth in Paragraph 2 above, any Restricted Stock Units that have not vested as of such date shall automatically and without notice terminate and be forfeited, and neither the Grantee nor any of his or her successors, heirs, assigns, or personal representatives shall thereafter have any further rights or interests in such unvested Restricted Stock Units.
4.Issuance of Shares of Stock. As soon as practicable following each Vesting Date (but in no event later than two and one-half months after the end of the year in which the Vesting Date occurs), the Company shall issue to the Grantee the number of shares of Stock equal to the aggregate number of Restricted Stock Units that have vested pursuant to Paragraph 2 of this Agreement on such date and the Grantee shall thereafter have all the rights of a stockholder of the Company with respect to such shares.
5.Incorporation of Plan. Notwithstanding anything herein to the contrary, this Agreement shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Administrator set forth in Section 2(b) of the Plan. Capitalized terms in this Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.
6.Tax Withholding. The Grantee shall, not later than the date as of which the receipt of this Award becomes a taxable event for Federal income tax purposes, pay to the Company or make arrangements satisfactory to the Administrator for payment of any Federal, state, and local taxes required by law to be withheld on account of such taxable event. The Company shall have the authority to cause the required tax withholding obligation to be satisfied, in whole or in part, by withholding from shares of Stock to be issued to the Grantee a number of shares of Stock with an aggregate Fair Market Value that would satisfy the withholding amount due.
7.Section 409A of the Code. This Agreement shall be interpreted in such a manner that all provisions relating to the settlement of the Award are exempt from the requirements of Section 409A of the Code as “short-term deferrals” as described in Section 409A of the Code.
8.No Obligation to Continue Employment. Neither the Company nor any Affiliate is obligated by or as a result of the Plan or this Agreement to continue the Grantee in employment and neither the Plan nor this Agreement shall interfere in any way with the right of the Company or any Affiliate to terminate the employment of the Grantee at any time.
9.Integration. This Agreement constitutes the entire agreement between the parties with respect to this Award and supersedes all prior agreements and discussions between the parties concerning such subject matter.
10.Data Privacy Consent. In order to administer the Plan and this Agreement and to implement or structure future equity grants, the Company, its subsidiaries and affiliates and certain agents thereof (together, the “Relevant Companies”) may process any and all personal or professional data, including but not limited to Social Security or other identification number, home address and telephone number, date of birth and other information that is necessary or desirable for the administration of the Plan and/or this Agreement (the “Relevant Information”). By entering into this Agreement, the Grantee (i) authorizes the Company to collect, process, register and transfer to the Relevant Companies all Relevant Information; (ii) waives any privacy rights the Grantee may have with respect to the Relevant Information; (iii) authorizes the Relevant Companies to store and transmit such information in electronic form; and (iv) authorizes the transfer of the Relevant Information to any jurisdiction in which the Relevant
Companies consider appropriate. The Grantee shall have access to, and the right to change, the Relevant Information. Relevant Information shall only be used in accordance with applicable law.
11.Notices. Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or delivered to the Grantee at the address on file with the Company or, in either case, at such other address as one party may subsequently furnish to the other party in writing.
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QUALTRICS INTERNATIONAL INC.
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By:
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Title:
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The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned. Electronic acceptance of this Agreement pursuant to the Company’s instructions to the Grantee (including through an online acceptance process) is acceptable.
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Dated:
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Grantee’s Signature
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Grantee’s name and address:
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RESTRICTED STOCK UNIT AWARD AGREEMENT
FOR NON-U.S. EMPLOYEES
UNDER THE 2021 QUALTRICS INTERNATIONAL INC.
EMPLOYEE OMNIBUS EQUITY PLAN
†
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WARNING STATEMENT
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You are being offered Restricted Stock Units in Qualtrics International Inc.
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New Zealand law normally requires people who offer financial products to give information to investors before they invest. This requires those offering financial products to have disclosed information that is important for investors to make an informed decision.
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The usual rules do not apply to this offer because it is a small offer. As a result, you may not be given all the information usually required. You will also have fewer other legal protections for this investment.
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Ask questions, read all documents carefully, and seek independent financial advice before committing yourself.
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___________________
†Cover page must be included for all employees based in New Zealand.
RESTRICTED STOCK UNIT AWARD AGREEMENT
FOR NON-U.S. EMPLOYEES
UNDER THE 2021 QUALTRICS INTERNATIONAL INC.
EMPLOYEE OMNIBUS EQUITY PLAN
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Name of Grantee:
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No. of Restricted Stock Units:
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Grant Date:
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Pursuant to the 2021 Qualtrics International Inc. Employee Omnibus Equity Plan as amended through the date hereof (the “Plan”) and this Restricted Stock Unit Award Agreement for Non-U.S. Employees, including any special terms and conditions for the Grantee’s country set forth in the appendix attached hereto (the “Appendix” and, together, the “Agreement”), Qualtrics International Inc. (the “Company”) hereby grants an award of the number of Restricted Stock Units listed above (the “Award”) to the individual named above (the “Grantee”). Each Restricted Stock Unit shall relate to one share of Class A common stock, par value $0.0001 per share (the “Stock”), of the Company.
1.Restrictions on Transfer of Award. This Award may not be sold, transferred, pledged, assigned or otherwise encumbered or disposed of by the Grantee, and any shares of Stock issuable with respect to the Award may not be sold, transferred, pledged, assigned or otherwise encumbered or disposed of until (i) the Restricted Stock Units have vested as provided in Paragraph 2 of this Agreement and (ii) shares of Stock have been issued to the Grantee in accordance with the terms of the Plan and this Agreement.
2.Vesting of Restricted Stock Units. The restrictions and conditions of Paragraph 1 of this Agreement shall lapse on the Vesting Date or Dates specified in the following schedule so long as the Grantee remains an employee of the Company or an Affiliate on such Dates. If a series of Vesting Dates is specified, then the restrictions and conditions in Paragraph 1 shall lapse only with respect to the number of Restricted Stock Units specified as vested on such date.
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Incremental Number of
Restricted Stock Units Vested
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Vesting Date
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The Administrator may at any time accelerate the vesting schedule specified in this Paragraph 2.
3.Termination of Employment.
(a)If the Grantee’s employment by the Company and its Affiliates terminates for any reason (including death or disability) prior to the satisfaction of the vesting conditions set forth in Paragraph 2 above, any Restricted Stock Units that have not vested as of such date shall automatically and without notice terminate and be forfeited, and neither the Grantee nor any of his or her successors, heirs, assigns, or personal representatives shall thereafter have any further rights or interests in such unvested Restricted Stock Units.
(b)For purposes of the Award, the Grantee’s employment shall be considered terminated as of the date the Grantee is no longer actively providing services to the Company or its Affiliates (regardless of the reason for such termination and whether or not later found to be invalid or in breach of labor laws in the jurisdiction where the Grantee is employed or the terms of the Grantee’s employment agreement, if any), and unless otherwise determined by the Company, the Grantee’s right to vest in the Award, if any, shall terminate as of such date and shall not be extended by any notice period (e.g., the Grantee’s period of service would not include any contractual notice period or any period of “garden leave” or similar period mandated under labor laws in the jurisdiction where the Grantee is employed or the terms of the Grantee’s employment agreement, if any). The Administrator shall have the exclusive discretion to determine when the Grantee is no longer actively providing services for purposes of the Award (including whether the Grantee may still be considered to be providing services while on a leave of absence).
4.Issuance of Shares of Stock. As soon as practicable following each Vesting Date (but in no event later than two and one-half months after the end of the year in which the Vesting Date occurs), the Company shall issue to the Grantee the number of shares of Stock equal to the aggregate number of Restricted Stock Units that have vested pursuant to Paragraph 2 of this Agreement on such date and the Grantee shall thereafter have all the rights of a stockholder of the Company with respect to such shares.
5.Incorporation of Plan. Notwithstanding anything herein to the contrary, this Agreement shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Administrator set forth in Section 2(b) of the Plan. Capitalized terms in this Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.
6.Responsibility for Taxes.
(a)The Grantee acknowledges that, regardless of any action taken by the Company or, if different, any Affiliate employing or retaining the Grantee (the “Employer”), the ultimate liability for all income tax, social insurance, payroll tax, fringe benefits tax, payment on account or other tax related items related to the Grantee’s participation in the Plan and legally applicable to the Grantee (“Tax-Related Items”) is and remains the Grantee’s responsibility and may exceed the amount, if any, actually withheld by the Company or the Employer. The Grantee further acknowledges that the Company and/or the Employer (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of
the Award, including, but not limited to, the grant, vesting or settlement of the Restricted Stock Units, the subsequent sale of shares of Stock acquired pursuant to such settlement and the receipt of any dividends; and (ii) do not commit to and are under no obligation to structure the terms of the grant or any aspect of the Restricted Stock Units to reduce or eliminate the Grantee’s liability for TaxRelated Items or achieve any particular tax result. Further, if the Grantee is subject to Tax-Related Items in more than one jurisdiction, the Grantee acknowledges that the Company and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.
(b)Prior to any relevant taxable or tax withholding event, as applicable, the Grantee agrees to make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all Tax-Related Items. In this regard, the Grantee authorizes the Company and/or the Employer, or their respective agents, at their discretion, to satisfy any applicable withholding obligations with regard to all Tax-Related Items by one or a combination of the following: (i) withholding from the Grantee’s wages or other cash compensation paid to the Grantee by the Company and/or the Employer; (ii) withholding from proceeds of the sale of shares of Stock acquired upon settlement of the Restricted Stock Units either through a voluntary sale or through a mandatory sale arranged by the Company (on the Grantee’s behalf pursuant to this authorization without further consent); (iii) withholding from shares of Stock to be issued to the Grantee upon settlement of the Restricted Stock Units; or (iv) any other method of withholding determined by the Company and permitted by applicable law.
(c)The Company and/or the Employer may withhold or account for Tax-Related Items by considering statutory withholding amounts or other withholding rates, including maximum rates applicable in the Grantee’s jurisdiction(s), in which case the Grantee may receive a refund of any over-withheld amount in cash and shall have no entitlement to the equivalent amount in shares of Stock. If the obligation for Tax-Related Items is satisfied by withholding in shares of Stock, for tax purposes, the Grantee is deemed to have been issued the full number of shares of Stock subject to the vested Restricted Stock Units, notwithstanding that a number of the shares of Stock are held back solely for the purpose of paying the Tax-Related Items.
(d)The Grantee agrees to pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold or account for as a result of the Grantee’s participation in the Plan that cannot be satisfied by the means previously described. The Company may refuse to issue or deliver the shares of Stock, or the proceeds of the sale of shares of Stock, if the Grantee fails to comply with his or her obligations in connection with the Tax-Related Items.
7.Section 409A of the Code. To the extent the Grantee is a U.S. taxpayer, this Agreement shall be interpreted in such a manner that all provisions relating to the settlement of the Award are exempt from the requirements of Section 409A of the Code as “short-term deferrals” as described in Section 409A of the Code.
8.No Obligation to Continue Employment. The grant of the Award shall not be interpreted as forming an employment or service contract with the Company, and shall not be
construed as giving the Grantee the right to be retained in the employ of, or to continue providing services to, the Employer, nor any other Affiliate or the Company. Neither the Plan nor this Agreement shall interfere in any way with the right of the Employer to terminate the employment of the Grantee at any time.
9.Integration. This Agreement constitutes the entire agreement between the parties with respect to this Award and supersedes all prior agreements and discussions between the parties concerning such subject matter.
10.Data Privacy Information and Consent.
(a)Data Collection and Usage. The Company and the Employer collect, process and use certain personal information about the Grantee, including, but not limited to, the Grantee’s name, home address, telephone number, email address, date of birth, social insurance number, passport or other identification number, salary, nationality, job title, any shares of Stock or directorships held in the Company, details of all awards granted under the Plan or any other entitlement to Stock awarded, canceled, exercised, vested, unvested or outstanding in the Grantee’s favor (“Data”), for purposes of implementing, administering and managing the Plan. Unless otherwise provided in the Appendix related to the Grantee’s country or jurisdiction, the legal basis, where required, for the processing of Data is the explicit declaration of the Grantee's consent the Grantee provides when signing or electronically agreeing to this Agreement.
(b)Stock Plan Administration Service Providers. The Company transfers Data to Solium Capital ULC and certain of its affiliates (“Shareworks”), which is assisting the Company with the implementation, administration and management of the Plan. The Company may select a different service provider or additional service providers and share Data with such other provider serving in a similar manner. The Grantee may be asked to agree on separate terms and data processing practices with Shareworks, with such agreement being a condition to the ability to participate in the Plan.
(c)International Data Transfers. The Company and Shareworks are based in the U.S. and Canada, respectively. The Grantee’s country or jurisdiction may have different data privacy laws and protections than the U.S. and Canada. Unless otherwise provided in the Appendix related to the Grantee’s country or jurisdiction, the Company’s legal basis for the transfer of Data, even to third countries without an adequate level of protection issued by the European Commission, where required, is the Grantee’s consent. To the extent required by applicable law, the Company shall implement appropriate safeguards for international transfers of Data, including, for example, by executing standard contractual clauses approved for such use by the European Commission.
(d)Data Retention. The Company shall hold and use Data only as long as is necessary to implement, administer and manage the Grantee’s participation in the Plan, or as required to comply with legal or regulatory obligations, including under tax, exchange control, labor and securities laws. This period may extend beyond the Grantee's period of employment with the Employer. When the Company or the Employer no longer need Data for any of the
above purposes, they shall cease processing it in this context and remove it from all of their systems used for such purposes to the fullest extent practicable.
(e)Voluntariness and Consequences of Consent Denial or Withdrawal. Participation in the Plan is voluntary and the Grantee is providing the consents herein on a purely voluntary basis. If the Grantee does not consent, or if the Grantee later seeks to revoke the consent, the Grantee’s salary from or employment with the Employer shall not be affected; the only consequence of refusing or withdrawing consent is that the Company would not be able to grant the Award or other awards under the Plan or administer or maintain such awards.
(f)Data Subject Rights. The Grantee may have a number of rights under data privacy laws in his or her jurisdiction. Depending on where the Grantee is based, such rights may include the right to (i) request access to or copies of Data the Company processes, (ii) rectify incorrect Data, (iii) delete Data, (iv) restrict the processing of Data, (v) restrict the portability of Data, (vi) revoke consent, (vii) lodge complaints with competent authorities in the Grantee’s jurisdiction, and/or (viii) receive a list with the names and addresses of any potential recipients of Data. To receive clarification regarding these rights or to exercise these rights, the Grantee can contact his or her local human resources representative.
(g)Other Legal Basis and Additional Consent. The Grantee understands that the Company may rely on a different legal basis for the collection, processing or transfer of Data in the future and/or request the Grantee to provide another data privacy consent. If applicable, upon request of the Company or the Employer, the Grantee shall provide a separate executed data privacy agreement (or any other agreements or consents) that the Company and/or the Employer may deem necessary to obtain from the Grantee for the purpose of administering his or her participation in the Plan in compliance with the data privacy laws in the Grantee’s country, either now or in the future. The Grantee understands and agrees that the Grantee shall not be able to participate in the Plan, if the Grantee fails to provide any such agreement requested by the Company and/or the Employer.
11.Nature of Grant. In accepting the grant of the Award, the Grantee acknowledges, understands and agrees that:
(a)the Plan is established voluntarily by the Company, it is discretionary in nature and may be amended, suspended or terminated by the Company at any time, to the extent permitted by the Plan;
(b)the grant of the Award is exceptional, voluntary and occasional and does not create any contractual or other right to receive future grants of Restricted Stock Units, or benefits in lieu of Restricted Stock Units, even if Restricted Stock Units have been granted in the past;
(c)all decisions with respect to future Restricted Stock Units or other grants, if any, shall be at the sole discretion of the Company;
(d)the Grantee is voluntarily participating in the Plan;
(e)the Restricted Stock Units and any shares of Stock subject to the Restricted Stock Units, and the income from and value of the same, are not intended to replace any pension rights or compensation;
(f)unless otherwise agreed with the Company, the Restricted Stock Units and the shares of Stock subject to the Restricted Stock Units, and the income from and value of the same, are not granted as consideration for, or in connection with, the service the Grantee may provide as a director of an Affiliate;
(g)the Restricted Stock Units and any shares of Stock subject to the Restricted Stock Units, and the income from and value of the same, are not part of normal or expected compensation for any purpose, including, without limitation, calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, bonuses, long-service awards, holiday pay, pension or retirement or welfare benefits or similar mandatory payments;
(h)the future value of the shares of Stock underlying the Restricted Stock Units is unknown, indeterminable, and cannot be predicted with certainty;
(i)no claim or entitlement to compensation or damages shall arise from forfeiture of the Restricted Stock Units resulting from the termination of the Grantee’s employment (for any reason whatsoever, whether or not later found to be invalid or in breach of labor laws in the jurisdiction where the Grantee is employed or the terms of the Grantee’s employment agreement, if any);
(j)unless otherwise provided in the Plan or by the Company in its discretion, the Restricted Stock Units and the benefits evidenced by this Agreement do not create any entitlement to have the Restricted Stock Units or any such benefits transferred to, or assumed by, another company nor to be exchanged, cashed out or substituted for, in connection with any corporate transaction affecting the shares of Stock of the Company; and
(k)neither the Company, the Employer nor any other Affiliate shall be liable for any foreign exchange rate fluctuation between the Grantee’s local currency and the U.S. dollar that may affect the value of the Restricted Stock Units or of any amounts due to the Grantee pursuant to the settlement of the Restricted Stock Units or the subsequent sale of any shares of Stock acquired upon settlement.
12.Compliance with Law. Notwithstanding any other provision of the Plan or this Agreement, unless there is an available exemption from any registration, qualification or other legal requirement applicable to the shares of Stock, the Company shall not be required to deliver any shares of Stock issuable upon settlement of the Award prior to the completion of any registration or qualification of the Stock under any local, state, federal or foreign securities or exchange control law or under rulings or regulations of the U.S. Securities and Exchange Commission (“SEC”) or of any other governmental regulatory body, or prior to obtaining any approval or other clearance from any local, state, federal or foreign governmental agency, which registration, qualification or approval the Company shall, in its absolute discretion, deem necessary or advisable. The Grantee understands that the Company is under no obligation to
register or qualify the shares of Stock subject to the Award with the SEC or any state or foreign securities commission or to seek approval or clearance from any governmental authority for the issuance or sale of the Stock. Further, the Grantee agrees that the Company shall have unilateral authority to amend the Plan and this Agreement without the Grantee’s consent to the extent necessary to comply with securities or other laws applicable to the issuance of the Stock.
13.Appendix. The Restricted Stock Units shall be subject to the additional terms and conditions set forth in the Appendix attached hereto for the Grantee’s country, if any. Moreover, if the Grantee relocates to one of the countries included in the Appendix during the life of the Restricted Stock Units, the terms and conditions for such country shall apply to the Grantee, to the extent the Company determines that the application of such terms and conditions is necessary or advisable for legal or administrative reasons.
14.Language. The Grantee acknowledges that he or she is proficient in the English language, or has consulted with an advisor who is sufficiently proficient in English, so as to allow the Grantee to understand the terms and conditions of this Agreement. If the Grantee has received this Agreement, or any other documents related to the Award and/or the Plan translated into a language other than English and if the meaning of the translated version is different than the English version, the English version shall control.
15.Notices. Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or delivered to the Grantee at the address on file with the Company or, in either case, at such other address as one party may subsequently furnish to the other party in writing.
16.Waivers. The Grantee acknowledges that a waiver by the Company of breach of any provision of this Agreement shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by the Grantee or any other grantees.
17.Governing Law and Venue. This Agreement shall be governed by, and construed in accordance with, the General Corporation Law of the State of Delaware as to matters within the scope thereof, and as to all other matters shall be governed by and construed in accordance with, the internal laws of the State of Utah, applied without regard to conflict of law principles. Unless the Grantee and the Company and/or the Employer have agreed otherwise in a separate written alternative dispute resolution agreement, for purposes of litigating any dispute that arises directly or indirectly from the relationship of the parties evidenced by the Award or this Agreement, the parties hereby submit to and consent to the exclusive jurisdiction of the State of Utah and agree that such litigation shall be conducted only in the courts of Utah County, Utah, or the U.S. District Court for the District of Utah, where this grant is made and/or to be performed, and no other courts.
18.Severability. The provisions of this Agreement are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.
19.Imposition of Other Requirements. The Company reserves the right to impose other requirements on the Award and the shares of Stock acquired upon settlement of the Restricted Stock Units, to the extent the Company determines it is necessary or advisable for legal or administrative reasons, and to require the Grantee to accept any additional agreements or undertakings that may be necessary to accomplish the foregoing.
20.Electronic Delivery and Acceptance. The Company may, in its sole discretion, decide to deliver any documents related to current or future participation in the Plan by electronic means. The Grantee hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.
21.Insider Trading Restrictions / Market Abuse Laws. By accepting the Award, the Grantee acknowledges that he or she is bound by all the terms and conditions of the Company’s insider trading policy as may be in effect from time to time. The Grantee further acknowledges that, depending on the Grantee’s or his or her broker’s country or the country in which the shares of Stock are listed, he or she may be subject to insider trading restrictions and/or market abuse laws which may affect the Grantee’s ability to accept, acquire, sell or otherwise dispose of shares of Stock, rights to shares of Stock (e.g., Restricted Stock Units) or rights linked to the value of shares of Stock under the Plan during such times as the Grantee is considered to have “inside information” regarding the Company (as defined by the laws in the applicable jurisdictions). Local insider trading laws and regulations may prohibit the cancellation or amendment of orders the Grantee placed before the Grantee possessed inside information. Furthermore, the Grantee could be prohibited from (i) disclosing the inside information to any third party, which may include fellow employees and (ii) “tipping” third parties or causing them otherwise to buy or sell securities. Any restrictions under these laws or regulations are separate from and in addition to any restrictions that may be imposed under the Company’s insider trading policy as may be in effect from time to time. The Grantee acknowledges that it is the Grantee’s responsibility to comply with any applicable restrictions, and the Grantee should speak to his or her personal advisor on this matter.
22.Foreign Asset/Account, Exchange Control and Tax Reporting. Depending on the Grantee’s country, the Grantee may be subject to foreign asset/account, exchange control, tax reporting or other requirements which may affect the Grantee’s ability acquire or hold Restricted Stock Units or shares of Stock under the Plan or cash received from participating in the Plan (including dividends and the proceeds arising from the sale of shares of Stock) in a brokerage/bank account outside the Grantee’s country. The applicable laws of the Grantee’s country may require that he or she report such Restricted Stock Units, shares of Stock, accounts, assets or transactions to the applicable authorities in such country and/or repatriate funds received in connection with the Plan to the Grantee’s country within a certain time period or according to certain procedures. The Grantee acknowledges that he or she is responsible for ensuring
compliance with any applicable requirements and should consult his or her personal legal advisor to ensure compliance with applicable laws.
(Signature page follows.)
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QUALTRICS INTERNATIONAL INC.
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By:
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Title:
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The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned. Electronic acceptance of this Agreement pursuant to the Company’s instructions to the Grantee (including through an online acceptance process) is acceptable.
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Dated:
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Grantee’s Signature
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Grantee’s name and address:
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By accepting this Agreement and providing an additional signature below, the Grantee declares that the Grantee expressly agrees with the data processing practices described in Paragraph 10 hereof and consents to the collection, processing and use of Data by the Company and the transfer of Data to the recipients mentioned in Paragraph 10 hereof, including recipients located in countries which do not provide an adequate level of protection from a European (or other non-U.S.) data protection law perspective, for the purposes described in Paragraph 10 hereof. The Grantee understands that providing his or her signature below is a condition of receiving the Award and that the Company may forfeit the Award if a signature is not obtained. The Grantee understands that he or she may withdraw consent at any time with future effect for any or no reason as described in Paragraph 10 hereof.
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Grantee:
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APPENDIX
TO
RESTRICTED STOCK UNIT AWARD AGREEMENT
FOR NON-U.S. EMPLOYEES
UNDER THE 2021 QUALTRICS INTERNATIONAL INC.
EMPLOYEE OMNIBUS EQUITY PLAN
Capitalized terms used but not defined in this Appendix shall have the same meanings assigned to them in the Plan and/or the Restricted Stock Unit Award Agreement for Non-U.S. Employees.
Terms and Conditions
This Appendix includes additional terms and conditions that govern the Award if the Grantee works and/or resides in one of the countries listed below. If the Grantee is a citizen or resident of a country other than the one in which the Grantee is currently working and/or residing (or is considered as such for local law purposes), or the Grantee transfers employment and/or residency to a different country after the Award is granted, the Company shall, in its discretion, determine the extent to which the terms and conditions contained herein shall apply to the Grantee.
Notifications
This Appendix also includes information regarding certain other issues of which the Grantee should be aware with respect to the Grantee’s participation in the Plan. The information is based on the securities, exchange control and other laws in effect in the respective countries as of December 2020. Such laws are often complex and change frequently. As a result, the Grantee should not rely on the information noted herein as the only source of information relating to the consequences of participation in the Plan because the information may be out-of-date at the time the Grantee vests in the Award or sells any shares of Stock acquired under the Plan.
In addition, the information contained herein is general in nature and may not apply to the Grantee’s particular situation. As a result, the Company is not in a position to assure the Grantee of any particular result. Accordingly, the Grantee should seek appropriate professional advice as to how the relevant laws in the Grantee’s country may apply to the Grantee’s individual situation.
If the Grantee is a citizen or resident of a country other than the one in which the Grantee is currently working and/or residing (or is considered as such for local law purposes), or if the Grantee transfers employment and/or residency to a different country after the Award is granted, the notifications contained in this Appendix may not be applicable to the Grantee in the same manner.
ARGENTINA
Securities Law Information. The Grantee acknowledges that the Plan is being offered and the documentation thereof is being delivered to the Grantee in its capacity as an employee of the Company or its Affiliate and is not aimed at the general public. By receiving and accepting the
Award, the Grantee (i) acknowledges that the Company or the Employer has not made, and shall not make, any application to obtain an authorization from the Argentinian Securities and Exchange Commission (Comisión Nacional de Valores) for the public offering of the underlying shares in Argentina, or otherwise taken any action that would permit a public offering of the underlying shares in Argentina within the meaning of Argentine Capital Markets Law No. 26,831, as amended, supplemented or otherwise modified from time to time (the “CML”) and of the Argentine Securities Exchange Commission General Resolution No.622/2013, as amended, supplemented or otherwise modified from time to time, and ancillary regulations; (ii) acknowledges that the Argentine Securities Exchange Commission has not approved the offering of the underlying shares nor any document relating to its offering; and (iii) agrees that it shall not sell or offer to sell any shares acquired upon settlement of the Award in Argentina other than pursuant to transactions that would not qualify as a public offering under Section 2 of the CML. The Grantee accepts that the information contained in the Plan documents may not (i) be reproduced or used, in whole or in part, for any purpose whatsoever other than as a representation of his or her holding of shares, or (ii) be furnished to or discussed with any person (other than its personal advisors on a confidential basis) without the express written permission of the Company or his or her Employer. In any case the Grantee should consult with its personal advisor to ensure that it is properly complying with applicable regulations in Argentina.
Exchange Control Information and Reporting Obligations. The Grantee acknowledges that he or she may be required to comply with the reporting regime established by Communication “A” 6401 (as amended and supplemented) of the Argentine Central Bank with respect to his or her foreign indebtedness and foreign assets, since Argentine residents (both legal entities and individuals) having foreign debt that is outstanding or that has been cancelled within a given calendar quarter, are required to comply with said reporting regime on a quarterly basis. If the balance of foreign assets and liabilities equals or exceeds US$ 50 million at the end of the calendar year, the Grantee must also file an annual presentation. In addition, holding of available external liquid assets as provided in Communication “A” 7030 (as amended and supplemented) of the Argentine Central Bank or performing sales of securities with local settlement in foreign currency or transfers of them to depository agencies abroad may limit the ability to purchase foreign currency in the Argentine foreign exchange market. The Grantee should consult with his or her personal advisor to ensure that it is properly complying with applicable foreign exchange regulations in Argentina.
Further, the Grantee acknowledges that he or she shall comply with applicable reporting obligations. In this sense, the Federal Tax Authority’s (“FTA”) General Resolution No. 4,697/2020 has established a reporting regime that shall be complied with by Argentine domiciled individuals in relation to their shares held in foreign entities, as well as a registration regime related to the transfer of shares held in foreign entities performed by individuals domiciled in Argentina without public offer.
Plan Document Acknowledgement. By accepting the Award, the Grantee acknowledges that he or she has received a copy of the Plan and the Agreement, has reviewed the Plan and the Agreement in their entirety and fully understands and expressly accepts and approves all the terms and provisions of the Plan and the Agreement, including this Appendix. The Grantee
declares to have fluent understanding of the English language and have received due advice on the legal and accountant effects and consequences of the Plan.
The Grantee is duly aware that the participation in the Plan is entirely voluntary on the part of each Grantee, has no impact on his or her employment relationship with the Employer and constitutes an expectation right to the awards that may eventually arise from the Plan, subject to the fulfilment of the required requirements.
By accepting the Award, the Grantee consents to participate in the Plan at his or her sole and voluntary decision and acknowledges that the Company does not guarantee any benefit or gain in connection with the awards offered under the Plan.
The Grantee understands that the Company has in its sole discretion decided to grant the Award under the Plan, subject to the fulfillment of certain and specific requirements described in the Plan. Consequently, the Grantee understands that the benefits that could eventually arise from the Plan do not constitute granted rights for the future and may be amended, modified or terminated at any time. The Award is granted on the assumption and condition that the Restricted Stock Units and the shares of Stock issued upon settlement of the Restricted Stock Units shall not become a part of any employment contract (either with the Company or an Affiliate) and shall not be considered a mandatory benefit or any other right whatsoever.
As a condition of the Award, unless otherwise provided by the Company, the Grantee’s termination of employment for any reason shall automatically result in the forfeiture and loss of the shares of stock subject to the unvested portion of the Restricted Stock Units. In particular, and without limitation to the provisions of the Plan, the Grantee understands and agrees that any unvested portion of the Restricted Stock Units as of the date of the Grantee’s termination of employment shall be cancelled without entitlement to the underlying shares of stock or to any amount as indemnification if the Grantee terminates employment by reason of, including, but not limited to, resignation, retirement, mutual agreement, indirect dismissal, dismissal without cause, dismissal for cause and individual or collective dismissal on objective grounds.
Finally, the Grantee understands that the grant of the Award would not be made to the Grantee but for the assumptions and conditions referred to herein; therefore, the Grantee acknowledges and freely accepts that should any or all of the assumptions be mistaken or should any of the conditions not be met for any reason, then the grant of the Award shall be null and void.
Responsibility for Taxes. The Grantee acknowledges that he or she shall have to bear and be responsible for any taxes and where applicable the employee portion of any social security charges or employee contributions that the Employer is obliged to withhold or pay as a result of his or her participation in this Plan. The Grantee hereby irrevocably authorizes the Employer, to the extent legally permitted to deduct any such taxes, social security charges and/or contributions from his or her salary (including all accrued entitlements), and from any redemption amount to
which he or her may be entitled to under this Plan, or to sell, or have sold, without any prior notice whatsoever all or part of the Awards and deduct the amount due from the proceeds.
Personal Asset Tax. Individuals who are residents of Argentina and undivided estates are subject to a wealth tax on their worldwide assets. This tax is levied on assets held by 31 December of each year. Argentina set a more burdensome tax treatment for the assets of Argentine residents located abroad (from 0.70 to 2.25%) (unless some requirements are met, including a partial “repatriation” of certain assets). The non-taxable minimum threshold applicable to individuals and undivided estates resident in Argentina for tax periods 2019 and onwards is ARS 2.000.000.
Data Privacy. The provisions of this Appendix are exclusively applicable to Grantees domiciled in the Argentine Republic. In case of contradiction between the provisions of the Restricted Stock Unit Award Agreement for Non-U.S. Employees and this Appendix, the provisions of this Appendix shall prevail.
The Grantee acknowledges and expressly consents by submitting the subscription form the collection and processing of the personal data provided by she or he, as well as the processing of any other personal data that his or her Employer may hold related to she or he which may be necessary for the participation in the Plan. Such collection and processing shall be performed at all times in accordance with the Argentine Data Protection Act No. 25,326, National Decree No. 1558/2001, dispositions issued by the Access to Public Information Agency and any other applicable law. Such personal data shall be retained for the time necessary to conclude the transaction and for the purposes of the Plan.
Data Controller: The Data Controller is the Company. Please note that the Grantee’s personal data shall be stored in a database duly registered with the Access to Public Information Agency on behalf of your employer and that “the Access to Public Information Agency, as the enforcing authority of Act 25.326, has the power to attend the reports and claims from those who are affected in their rights consequence of non-fulfilment of data protection provisions”
Data owners’ rights: The Grantee has the right to access, modify and correct, as well as to delete all of his or her personal information by submitting a request in writing to the Data Protection Officer, Erin Goodsell, available by phone at [ ] and by email at [ ]. The Argentine Access to Public Information Agency is the enforcing authority of the Data Protection Act No. 25.326, and has the power to process reports and claims regarding non-fulfillment of data protection provisions (La Agencia de Acceso a la Información Pública, en su carácter de Órgano de Control de la Ley Nº 25.326, tiene la atribución de atender las denuncias y reclamos que interpongan quienes resulten afectados en sus derechos por incumplimiento de las normas vigentes en materia de protección de datos personales).
International data transfer: The Grantee acknowledges and accepts that the Company and Shareworks are based in the U.S. and Canada, respectively, and that, pursuant to the Argentine
data protection regulations, this jurisdiction is considered as not granting adequate levels of protection.
Security: When storing and processing the Grantee’s personally identifiable information, the Company and Shareworks shall comply with the security levels set forth in the Argentine data protection regulations. In this sense, the Company and Shareworks shall implement the technical and organizational security measures set forth in the Access to Public Information Resolution 47/2018 in order to protect the Grantee´s personal information against accidental or unlawful destruction, accidental loss, alteration, unauthorized disclosure or access, and against all other unlawful forms of processing.
AUSTRALIA
Terms and Conditions
Australian Offer Document. The Grantee understands that the offering of the Plan in Australia is intended to qualify for an exemption from a range of financial services regulatory requirements under Class Order 14/1000 issued by the Australian Securities & Investments Commission. Participation in the Plan is subject to the Grantee receiving the Australian Offer Document and the terms and conditions set forth in the Australian Offer Document and the Plan documentation provided to the Grantee. The Australian Offer Document contains important information in relation to the Plan which the Grantee should read and may wish to seek advice in relation to. The value of the Awards and the Stock can go down as well as up and that there are a number of risks applicable to them, including market and international business risk and USD:AUD currency risk.
Notifications
Securities Law Information. If the Grantee acquires shares of Stock under the Plan and offers the Stock for sale to a person or entity resident in Australia, the offer may be subject to disclosure requirements under Australian law. The Grantee should consult with his or her personal legal advisor before making any such offer in Australia.
Tax Information. The Plan is a plan to which Subdivision 83A-C of the Income Tax Assessment Act 1997 (Cth) applies (subject to conditions in the Act).
Exchange Control Information. Exchange control reporting is required for cash transactions exceeding AUD 10,000 and for international fund transfers. If an Australian bank is assisting with the transaction, the Grantee should confirm with the bank if it shall file the report on the Grantee’s behalf.
BRAZIL
Terms and Conditions
Administrator's Power and Authority. Notwithstanding anything to the contrary in Sections 2(b), 2(f) and 8(a) of the Plan, the discretion of the Administrator to determine the eligibility of
employees hired under Brazilian law to participate in the Plan and the terms and conditions that apply to each grantee may be limited by equal pay and non-discrimination principles and regulations in Brazil.
Payroll Deductions. Payroll deductions set forth in the Plan and the Agreement involving a Grantee hired under an employment agreement governed by Brazilian law shall not exceed 30% of such Grantees’ estimated gross monthly compensation (or such other maximum amount as may be permitted under Brazilian law at the time of such payroll deduction). In particular, any permission from the Administrator for a Grantee to elect to receive Restricted Stock Units in lieu of compensation pursuant to Section 8(b) of the Plan can only be structured in Brazil by means of payroll deductions expressly authorized in writing by the relevant Grantee, which proceeds shall be applied to acquire Restricted Stock Units for such Grantee. Any such payroll deduction would be subject to the limitation above.
Data Privacy. For purposes of complying with Brazilian Law nº 13.709/18 (the “Brazilian Data Protection Law”), the following provisions supplement Paragraph 10 of the Agreement and the express consent for Data processing wording provided on the signature page of the Agreement:
1.Item (h) is hereby included in Section 10 of the Agreement:
(h)Data Controller. The Company is the Data Controller (as defined in the Brazilian Data Protection Law), as it shall be responsible for the decisions regarding the processing of Data under the Plan. The Company’s contact information for purpose of the Brazilian Data Protection Law is as follows: phone number [ ], e-mail address [ ], or mail address (333 W River Park Drive, Provo, UT USA 84604 ).
2.Sections 10(c), 10(e) and 10(f) of the Agreement and the express consent for Data processing wording provided on the signature page of the Agreement are hereby amended as follows:
c)International Data Transfers. The Company and Shareworks are based in the U.S. and Canada, respectively. The Grantee’s country or jurisdiction may have different data privacy laws and protections than the U.S. and Canada. The Company’s legal basis for the transfer of Data, where required, is the Grantee’s consent. To the extent required by applicable law, the Company shall implement appropriate safeguards for international transfers of Data, including, for example, by executing standard contractual clauses approved for such use by the European Commission. The international transfer and processing of the Grantee's Data is necessary and essential for implementing, administering and managing the Plan and the Grantee's participation in the Plan.
(e)Voluntariness and Consequences of Consent Denial or Withdrawal. Participation in the Plan is voluntary and the Grantee is providing the consents herein on a purely voluntary basis. If the Grantee does not consent with the processing of his or her data under the Plan, or if the Grantee later seeks to revoke such consent, the Grantee’s salary from or employment with the Employer shall not be affected. However, in case the Grantee refuses or withdraws consent, the Company shall not be able to grant the Award or other awards under the Plan, or
administer or maintain such awards. The Grantee may exercise his or her rights provided under the Brazilian General Data Protection Law and listed herein under Section 10(f) by contacting his or her local human resources representative.
(f)Data Subject Rights. The Grantee may have a number of rights under data privacy laws in his or her jurisdiction. Depending on where the Grantee is based, such rights may include the right to (i) request access to or copies of Data the Company processes, (ii) rectify incorrect Data, (iii) delete Data, (iv) restrict the processing of Data, (v) restrict the portability of Data, (vi) lodge complaints with competent authorities in the Grantee’s jurisdiction, and/or (vii) receive a list with the names and addresses of any potential recipients of Data. To receive clarification regarding these rights or to exercise these rights, the Grantee can contact his or her local human resources representative. In particular, pursuant to the Brazilian Data Protection Law, the Grantee shall have the right to (i) confirm the existence of processing of his/her Data; (ii) access his/her Data; (iii) correct incomplete, inaccurate or outdated Data, (iv) anonymizing, blocking or eliminating unnecessary, excessive or Data processing in non-compliance with the provisions of the Brazilian General Data Protection Law, (v) perform Data portability; (vi) delete Data; (vii) obtain information about the public and private entities with which his/her employer has shared his/her Data; (viii) obtain information about the possibility of not providing consent for Data processing and about the consequences of such denial; and (ix) revoke his/her consent for Data processing. To receive clarifications regarding these rights or to exercise these rights, the Grantee can contact his or her local human resources representative.
“By accepting this Agreement and providing an additional signature below, the Grantee declares that the Grantee expressly agrees with the Data processing practices described in Paragraph 10 hereof and consents to the collection, production, reception, classification, use, access, reproduction, transmission, distribution, processing, including internationally, archiving, storage, deletion, evaluation or control, modification, communication, transfer, dissemination or extraction of Data by the Company and the service providers referred to under Paragraph 10(b) hereof, and the transfer of Data to the recipients mentioned in Paragraph 10 hereof, including recipients located in countries which do not provide an adequate level of protection from a European (or other non-U.S.) data protection law perspective, for the purposes described in Paragraph 10 hereof. The Grantee understands that providing his or her signature below is a condition of receiving the Award and that the Company may forfeit the Award if a signature is not obtained. The Grantee understands that he or she may withdraw consent at any time with future effect for any or no reason as described in Paragraph 10 hereof.”
Nature of Grant. Paragraph 11(g) of the Agreement is hereby amended as follows:
(g)any income from and value of the Restricted Stock Units and any shares of Stock subject to the Restricted Stock Units, are part of the Grantees’ compensation for labor and tax purposes in Brazil, including, without limitation, calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, bonuses, long-service awards, holiday pay, pension or retirement or welfare benefits or similar mandatory payments;
Language. The parties acknowledge that it is their express wish that the Agreement, as well as all documents, notices and legal proceedings entered into, given or instituted pursuant hereto or relating directly or indirectly hereto, be drawn up in English.
O Outorgado reconhece ser fluente em inglês e declara ter lido e compreendido todos os termos do Plano. Caso quaisquer documentos do Plano tenham sido fornecidos ao Outorgado traduzidos para outra língua que não o inglês, as versões em inglês de tais documentos deverão prevalecer em relação às respectivas traduções. As partes reconhecem e declaram sua intenção expressa de que este Contrato, bem como todos os demais documentos, notificações e procedimentos celebrados, realizados ou instituidos de acordo com este Contrato, ou direta ou indiretamente relacionado a este Contrato, sejam redigidos em inglês.
Notifications
Securities Law Information. The Awards referred to herein and the shares resulting from any Awards referred to herein have note and shall not be registered with the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários - CVM). The Awards referred to herein and the shares resulting from any Awards referred to herein cannot be offered or sold in Brazil, except in circumstances that do not characterize a public offer or unauthorized distribution of securities in Brazil.
Exchange Controls. The inflow and outflow of funds to and from Brazil (including, for instance remittances of funds to Brazil arising from dividends and other distributions on shares resulting from any Awards or any sale proceeds thereof) requires the closing of a foreign transaction with a Brazilian bank.
Foreign Asset/Account Reporting Information. Brazilian residents must report to the Brazilian Central Bank (i) on an annual basis, investments held outside of Brazil (including shares of Stock acquired under the Plan) involving amounts equal to or higher than US$ 1,000,000 (or its equivalent in any other foreign currency; (ii) on a quarterly basis, investments held outside of Brazil (including shares of Stock acquired under the Plan) involving amounts equal to or higher than US$ 100,000,000 (or its equivalent in any other foreign currency). The Grantee should consult his or her personal legal advisor to ensure compliance with applicable reporting obligations.
CANADA
Terms and Conditions
Award Payable Only in Stock. Notwithstanding anything to the contrary in Section 8(a) of the Plan, the Restricted Stock Units shall be paid in shares of Stock only and do not provide the Grantee with any right to receive (or any obligation to accept) a cash payment. This provision is without prejudice to the application of Paragraph 6 of the Restricted Stock Unit Award Agreement for Non-U.S. Employees.
Withholding Taxes. For greater certainty, the withholding discretion for Tax-Related Items provided to the Company and/or the Employer under Paragraph 6(b) of the Restricted Stock Unit Award Agreement for Non-U.S. Employees shall only apply in the absence of adequate arrangements for such withholdings that are satisfactory to the Company and/or the Employer being made by the Grantee.
Termination of Employment. The following provisions replace Paragraph 3(b) of the Restricted Stock Unit Award Agreement for Non-U.S. Employees:
For purposes of the Award, the date of the Grantee’s termination of employment shall be the date that is the earliest of (i) the date on which the Grantee’s employment is terminated, (ii) the date on which the Grantee receives notice of termination, or (iii) the date on which the Grantee is no longer actively providing services to the Company or any Subsidiary, in each case, regardless of any notice period or period of pay in lieu of such notice required under applicable employment laws in the jurisdiction where the Grantee is employed (including, but not limited to statutory law, regulatory law and/or common law) or the terms of the Grantee’s employment agreement, if any. The Administrator shall have the exclusive discretion to determine when the Grantee is no longer actively providing services for purposes of the Award (including whether the Grantee may still be considered to be providing services while on a leave of absence).
The following provisions apply if the Grantee resides in Quebec:
Language. The parties acknowledge that it is their express wish that the Agreement, as well as all documents, notices and legal proceedings entered into, given or instituted pursuant hereto or relating directly or indirectly hereto, be drawn up in English.
Les parties reconnaissent avoir exigé la rédaction en anglais de cette convention, ainsi que de tous documents, avis et procédures judiciaires, exécutés, donnés ou intentés en vertu de, ou liés directement ou indirectement à, la présente convention.
Data Privacy. The Grantee hereby authorizes the Company and the Company’s representatives to discuss with and obtain all relevant information from all personnel, professional or non-professional, involved in the administration and operation of the Plan. The Grantee further authorizes the Company and any Subsidiary and the Administrator to disclose and discuss the Plan with their advisors and to record all relevant information and keep such information in the Grantee’s employee file.
Signature. The following provisions replace the additional signature block of the Restricted Stock Unit Award Agreement for Non-U.S. Employees:
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By accepting this Agreement and providing an additional signature below, the Grantee declares that the Grantee expressly agrees with the provisions regarding termination of employment described in Paragraph 3 hereof and the attached Appendix for the Grantee’s country. The Grantee understands that providing his or her signature below is a condition of receiving the Award and that the Company may forfeit the Award if a signature is not obtained.
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Notifications
Securities Law Information. The Grantee is permitted to sell shares of Stock acquired under the Plan through the designated broker appointed under the Plan, if any, provided the resale of shares of Stock acquired under the Plan takes place outside Canada through the facilities of a stock exchange on which the Stock is listed and otherwise complies with all applicable securities laws.
Foreign Asset/Account Reporting Information. Canadian taxpayers must report annually on Form T1135 (Foreign Income Verification Statement) the foreign property (including shares of Stock acquired under the Plan) held if the total value of such foreign property exceeds C$100,000 at any time during the year. Unvested Restricted Stock Units also must be reported (generally at nil cost) on Form 1135 if the C$100,000 threshold is exceeded due to other foreign property held. If shares of Stock are acquired, their cost generally is the adjusted cost base (“ACB”) of the shares. The ACB ordinarily would equal the fair market value of the shares of Stock at the time of acquisition, but if the Grantee owns other shares, this ACB may have to be averaged with the ACB of the other shares. The Form T1135 must be filed at the same time the individual files his or her annual tax return. The Grantee should consult his or her personal legal advisor to ensure compliance with applicable reporting obligations.
COLOMBIA
Securities Law. The Grantee acknowledges and agrees that as the Grantees in Colombia are limited to a small number, the Plan and the Agreement qualify as a private placement and do not trigger securities law requirements. In fact, only offers of shares to undetermined persons or to 100 or more determined persons are considered to be public offerings requiring registration. Furthermore, the offering of Restricted Stock Units qualifies as a private placement based on the fact that these units are neither negotiable nor incorporated into securities that are traded on a stock market.
Exchange Law. The Grantee acknowledges that any proceeds that may arise from the disposal of the Award must generally be repatriated, but under certain circumstances, this requirement may be waived, but the Grantee shall be subject to certain reporting requirements.
Language Consent. By accepting the Award, the Grantee confirms having read and understood the documents relating to this grant (the Plan and the Agreement) which were provided to the Grantee in English. The Grantee accepts the terms of those documents accordingly.
Data Privacy. The Grantee hereby authorizes the Company and the Company’s representatives to transfer, discuss with and obtain all relevant information from all personnel, professional or non-professional, involved in the administration and operation of the Plan. The Grantee further authorizes the Company, my Employer and the Administrator to disclose and discuss all the information relating to the Plan with their advisors and to record all relevant information and keep such information in the Grantee’s employee file and to transfer the same as required for purposes of the Plan.
The Grantee acknowledges and agrees that any direct or indirect benefit, in cash or in kind, derived from the plan shall not be considered as salary nor as a constituent part of it for any purpose.
COSTA RICA
Terms and Conditions
Tax Information. By accepting the Award, the Grantee acknowledges that granting of vested shares by the foreign company as part of the compensation package of the employee is considered a salary benefit for tax purposes in Costa Rica. This means that the giving of vested shares is subject to payment of salary tax at the Costa Rican level.
During the vesting period, meaning from the moment when the shares are awarded to the employee until the moment when the shares vest, no tax payment applies. The reason is that the employee at that point only has a mere expectation and not a real benefit yet. Once the vesting period has elapsed, the employer has the obligation to withhold the salary tax. At the moment the shares vest and they are distributed to the employee, the applicable salary tax rate is 15% upon the stock value or the difference in the given share price.
Securities Law Information. The Restricted Stock Units are being granted pursuant to the “Stock Plan” exemption under Article 7(b) of the Rules on Public Offering of Securities. The Plan has not been listed or registered before the Costa Rican General Superintendence of Securities.
DENMARK
Termination of Employment. Notwithstanding any provisions of the Agreement to the contrary, the treatment of the Award upon the Grantee’s termination of employment shall be governed by the Danish Act on the Use of Rights to Purchase or Subscribe for Shares etc. in Employment Relationships (the “Stock Option Act”), as in effect at the time of the Grantee’s termination of employment.
Language Consent. By accepting the Award, the Grantee confirms having read and understood the documents relating to this Agreement which were provided to the Grantee in English. The
Grantee acknowledges having received an “Employer Information Statement” in Danish, which is being provided to comply with the Stock Option Act.
Data Privacy. The Company is data controller for the processing of the Grantee’s Data. The Company’s global data protection officer’s contact information is as follows: Erin Goodsell, [ ], [ ].
The Company transfers Data to Shareworks. The transfer is in accordance with the adequacy decision issued by the European Commission in respect of Canada. The European Commission’s adequacy decision is available at: https://eur-lex.europa.eu/legal-content/en/TXT/?uri=CELEX%3A32002D0002.
The Grantee has the right to lodge a complaint concerning the protection of the Grantee’s Data to the supervisory authority of the Grantee’s country of residence or work or the place where the Grantee’s rights have been subject to violation, the Danish Supervisory Authority being Datatilsynet whose contact information is available on the Authority’s website, at www.datatilsynet.dk.
The Company and/or its Subsidiaries and Affiliates shall collect and process information relating to me, the Grantee, in accordance with the privacy notices located on the internal intranet of the Company (https://odo-public-api.corp.qualtrics.com/odo-api/wiki/file/1/1b/SAP_Data_Protection_and_Privacy_Policy.pdf).
FRANCE
Terms and Conditions
Language Consent. By accepting the Award, the Grantee confirms having read and understood the documents relating to this grant (the Plan and the Agreement) which were provided to the Grantee in English. The Grantee accepts the terms of those documents accordingly.
Reconnaissance Relative à la Langue Utilisée. En acceptant le attribution, le Bénéficiaire confirme avoir lu et compris les documents relatifs à cette attribution (le Plan et ce Contrat) qui ont été communiqués au Bénéficiaire en langue anglaise. Le Bénéficiaire accepte les termes de ces documents en connaissance de cause.
Data Privacy. The Company and/or its Subsidiaries and Affiliates shall collect and process information relating to me, the Grantee, in accordance with the privacy notices located on the internal intranet of the Company (https://odo-public-api.corp.qualtrics.com/odo-api/wiki/file/1/1b/SAP_Data_Protection_and_Privacy_Policy.pdf).
Notifications
Tax Information. The Award is not intended to be a French tax-qualified award.
Foreign Asset/Account Reporting Information. French residents are required to report all foreign accounts (whether open, current or closed) to the French tax authorities on their annual tax
returns. Failure to complete this reporting triggers penalties. The Grantee should consult his or her personal advisor to ensure compliance with applicable reporting obligations.
GERMANY
Terms and Conditions
Language Consent. By accepting the Award, the Grantee confirms having read and understood the documents relating to this grant (the Plan and the Agreement) which were provided to the Grantee in English. The Grantee accepts the terms of those documents accordingly.
Zustimmung in Bezug auf die verwendete Sprache. Mit der Annahme der Zuwendung bestätigt der Zuwendungsempfänger, dass er die Dokumente in Bezug auf diese Zuwendung (den Plan und die Vereinbarung), die dem Zuwendungsempfänger in englischer Sprache zur Verfügung gestellt wurden, gelesen und verstanden hat. Der Zuwendungsempfänger akzeptiert den Inhalt dieser Dokumente.
Data Privacy. The Company and/or its Subsidiaries and Affiliates shall collect and process information relating to me, the Grantee, in accordance with the privacy notices located on the internal intranet of the Company (https://odo-public-api.corp.qualtrics.com/odo-api/wiki/file/1/1b/SAP_Data_Protection_and_Privacy_Policy.pdf).
Notifications
Exchange Control Information. German residents must electronically report cross-border payments in excess of €12,500 to the German Federal Bank (Bundesbank) on a monthly basis. In case of payments in connection with securities (including any proceeds realized upon the sale of shares of Stock or the receipt of any dividends), the report must be made by the fifth day of the month following the month in which the payment was received. The form of report (“Allgemeines Meldeportal Statistik”) can be accessed via the Bundesbank’s website (www.bundesbank.de). The Grantee should consult his or her personal advisor to ensure compliance with applicable reporting obligations.
HONG KONG
Terms and Conditions
Data Privacy Information and Consent. The following supplements Paragraph 10 of the Agreement:
The Company, Shareworks, and the Employer shall comply with the Personal Data (Privacy) Ordinance of Hong Kong in relation to the Grantee’s Data.
By signing or electronically agreeing to this Agreement, the Grantee (i) consents to his or her Data being transferred outside of Hong Kong to the Company and Shareworks, which are located in the U.S. and Canada respectively, and any other service providers, for the purposes set out in Paragraph 10 of this Agreement; and (ii) further acknowledges that the jurisdictions where the
recipients of his or her Data as mentioned in Paragraph 10 of this Agreement are located may not provide an adequate level of protection from a Hong Kong data protection law perspective.
INDIA
Terms and Conditions
Eligibility. For purposes of this Agreement, the Grantee, shall be considered an employee of the Company or an Affiliate. The Grantee recognizes that the Company has in its sole discretion, decided to grant the Award under the Plan to individuals who may be employees of the Company or its Affiliates.
Nature of Grant. Nothing in the Plan or this Agreement shall create an employer-employee relationship between the Company and the Grantee. The Grantee understands and agrees that the Award shall not become a part of his or her employment contract or constitute a component of his or her “salary”. Consequently, the Award (or its money equivalent) shall not be considered for purposes of calculating benefits, such as provident fund, gratuity or other related compensation (other than in case of Award in lieu of compensation). Furthermore, the benefits received cannot be taken into consideration for any dismissal claims.
Notifications
Securities Law Information. The Award shall be considered a private placement and no prospectus, disclosure or financial requirements shall be triggered. The offering of the Plan in India qualifies for exemption from the provisions of the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014. It is therefore not subject to registration with the Indian securities regulator.
Exchange Control Information. It is the Grantee’s responsibility to comply with the foreign exchange control laws and regulations in India. The Grantee must make the purchase remittance under the extant liberalized remittance scheme of the Foreign Exchange Management Act, 1999, whereunder an Indian resident can buy securities of a foreign company for an amount not exceeding US$ 250,000 in a financial year (i.e., April 1st of one calendar year to March 31st of the next calendar year). The Grantee recognizes that this limit is the aggregate amount that he or she can remit in a financial year and shall include his or her remittances towards all permissible current and capital account transactions. All transfer of funds into or out of India must be initiated through a bank account held by the Grantee with a bank in India. The Grantee may sell the shares received provided the proceeds thereof are repatriated to India immediately on receipt thereof and in any case not later than 90 days from the date of sale.
Tax Information. The Award shall be taxed upon vesting. However, the fair market value of the shares of Stock at the time of acquisition must be ascertained in accordance with the fair market value as determined by a licensed Indian Merchant Banker.
The Grantees, who are Indian tax residents, shall be subject to taxation in India on their global income, subject to benefits available, if any, under the avoidance of double taxation treaty
between India and the U.S. Thus, in case of earned foreign-sourced income, namely, investment income, i.e., dividend and capital gains, such incomes must be included in the total taxable income and disclosed in the prescribed schedule of the income-tax return (ITR). For more specific advice, please consult a tax advisor.
Without limitation to Paragraph 6 of the Agreement, the Grantee shall be liable for all taxes arising from the Award and undertakes to pay all taxes under the applicable laws. The Grantee agrees to indemnify and keep indemnified the Company or the Employer against any taxes that they are required to pay or withhold or have paid or shall pay to the Indian tax authorities on the Grantee’s behalf.
Foreign Asset/Account Reporting Information. Indian tax residents holding foreign securities (including shares of Stock acquired under the Plan) must report details of the foreign assets held in Schedule FA of the ITR, and the income earned therefrom along with nature and head of income under which such income has been offered to tax. The Grantee should consult with his or her personal tax advisor to ensure compliance with applicable reporting obligations.
Data Privacy. By acknowledging the Award, the Grantee agrees that some of his or her personal identifiable information must be provided to certain employees of the Company, its Affiliates, the Employer or to the Administrator. The Grantee hereby authorizes the Company, its Affiliate, the Employer, and the Administrator to disclose and discuss the personal information, the Plan and related matters with their advisors and to record and maintain all relevant information. The Grantee understands that the personal information may be transferred, processed, and stored outside of India in a country that may not have the same data protection laws as India for the purposes mentioned in the Award.
IRELAND
Terms and Conditions
Nature of Grant. The following provision supplements Paragraph 11 of the Restricted Stock Unit Award Agreement for Non-U.S. Employees:
In accepting the Award, the Grantee understands and agrees that the benefits received under the Plan shall not be taken into account for any redundancy or unfair dismissal claim.
Data Privacy. The Company and/or its Subsidiaries and Affiliates shall collect and process information relating to me, the Grantee, in accordance with the privacy notices located on the internal intranet of the Company (https://odo-public-api.corp.qualtrics.com/odo-api/wiki/file/1/1b/SAP_Data_Protection_and_Privacy_Policy.pdf).
Notifications
Director Notification Obligation. Unless their interest in the Company represents one percent or less of the Company’s share capital or does not carry the right to vote, directors, shadow directors or secretaries of an Irish Subsidiary must notify the Irish Subsidiary in writing within
five business days of receiving or disposing of an interest in the Company (e.g., Awards granted under the Plan, shares of Stock, etc.), or within five business days of becoming aware of the event giving rise to the notification requirement or within five business days of becoming a director or secretary if such an interest exists at the time. This notification requirement also applies with respect to the interests of the spouse or children under the age of 18 of the director, shadow director or secretary (whose interests shall be attributed to the director, shadow director or secretary).
ITALY
Terms and Conditions
Online Subscription. Online subscription for Italian employees is possible, provided that access to online subscription resources is clearly personally reserved to the employees and appropriate safety measures are in place. Corporate emails and corporate intranet with specific username and password appear as appropriate instruments for purpose of online subscription, provided that such tools used are directly related to the issuer or to its controlled companies.
Plan Document Acknowledgement. By accepting the Award, the Grantee acknowledges that he or she has received a copy of the Plan and the Agreement and has reviewed the Plan and the Agreement in their entirety and fully understands and accepts all provisions of the Plan and the Agreement.
The Grantee further acknowledges having read, and specifically and expressly approves, the following provisions of the Agreement: (i) Paragraph 1 - Restrictions on Transfer of Award; (ii) Paragraph 2 - Vesting of Restricted Stock Units, (iii) Paragraph 3 - Termination of Employment, (iv) Paragraph 4 - Issuance of Shares of Stock, (v) Paragraph 6 - Responsibility for Taxes, (vi) Paragraph 10 - Data Privacy Information and Consent, (vii) Paragraph 11 - Nature of Grant, (viii) Paragraph 14 – Language, (ix) Paragraph 16 - Waivers, (x) Paragraph 17 - Governing Law and Venue, (xi) Paragraph 18 – Severability, (xii) Paragraph 19 - Imposition of Other Requirements, and (xiii) Paragraph 20 – Electronic Delivery and Acceptance.
Data Privacy. The Company and/or its Subsidiaries and Affiliates shall collect and process information relating to me, the Grantee, in accordance with the privacy notices located on the internal intranet of the Company (https://odo-public-api.corp.qualtrics.com/odo-api/wiki/file/1/1b/SAP_Data_Protection_and_Privacy_Policy.pdf).
Notifications
Foreign Asset/Account Reporting Information. Italian residents who, during the fiscal year, hold investments abroad or foreign financial assets (e.g., cash, shares of Stock, as well as, in certain cases, any vested options/rights to acquire/receive shares, but excluding unvested non-transferable options/rights) which may generate income taxable in Italy are required to report such on their annual tax returns (Income of Individuals Form, RW Schedule) or on a special form if no tax return is due. The same reporting obligations apply to Italian residents who, even if they do not directly hold investments abroad or foreign financial assets, are beneficial owners of
the investment pursuant to Italian money laundering provisions. Such reporting obligations do not apply if the foreign financial assets are deposited/subdeposited with an Italian-based financial intermediary in charge of the collection of income deriving therefrom to the extent the income is subject to Italian withholding or substitute tax by the same intermediary. The Grantee should consult his or her personal advisor to ensure compliance with applicable reporting obligations.
Foreign Financial Asset Tax. If foreign financial assets are held abroad by Italian-resident individuals directly and no relationship of custody, administration or management is in place with an Italian intermediary, the value of the financial assets held outside of Italy by individuals resident of Italy is subject to a foreign asset tax (so called “IVAFE”) at an annual rate of two per thousand (0.2%). The taxable amount shall be the fair market value of the financial assets (e.g., shares of Stock) assessed at the end of the calendar year or, if the assets are no more held at the end of the year, at the end of the holding period (in case of ownership for a fraction of the year, a pro rata calculation is made). No tax payment duties arise if the amount of the comprehensive foreign financial assets held abroad does not exceed €6,000.1 The potential double taxation is avoided by allowing Italian residents to credit net worth foreign taxes (if any) paid abroad against, and up to the amount of, the Italian foreign asset tax.
JAPAN
Notifications
Foreign Asset/Account Reporting Information. Japanese residents (excluding non-permanent residents) are required to report details of any assets held outside Japan as of December 31 (including shares of Stock acquired under the Plan), to the extent such assets have a total net fair market value exceeding ¥50 million. Such report shall be due by March 15 each year. The Grantee should consult with his or her personal tax advisor to ensure compliance with applicable reporting obligations.
Exchange Control Information. Japanese residents must file a post facto report with the Ministry of Finance through the Bank of Japan within 20 days after a Vesting Date if a total net fair market value of shares of Stock acquired on such Vesting Date under the Plan is in excess of ¥100 million yen. The Grantee should consult his or her personal advisor to ensure compliance with applicable reporting obligations.
MALAYSIA
Securities Law Information. The Award and this Agreement are not intended for person(s) who is/are not employee of the Company or its Affiliates. In accepting the Award, the Grantee acknowledges that he or she is an employee of the Company or its Affiliate.
Exchange Control Information. Insofar as the Grantee is a resident individual with domestic Ringgit Malaysia borrowing, the Grantee declares that (i) his/her investment abroad in the
1 Please note that if the shares are held through an Italian-based financial intermediary, Italian resident individuals are subject to a stamp duty on communications regarding such financial assets at an annual rate of 0.2%. The taxable amount will be the fair market value of the financial assets (e.g., shares) at the end of the year or, if the assets are no more held at the end of the year, at the end of the holding period (in case of ownership for a fraction of the year, a pro rata calculation is made).
aggregate (including the value of the Award) using, among others, foreign currency funds sourced from conversion of Ringgit Malaysia for the current calendar year does not and shall not exceed RM1 million equivalent; and (ii) his/her investment abroad for the current calendar year (including the value of the Award) in aggregate using foreign currency borrowing obtained from a Malaysian Central Bank licensed onshore bank or a non-resident of Malaysia does not and shall not exceed RM10 million equivalent.
Notis dan kebenaran privasi data.
Pengumpulan data dan penggunaan. Penerima Anugerah RSU (“Penerima Anugerah”) “2021 Qualtrics International Inc. Employee Omnibus Equity Plan” (“Pelan”) yang dianugerah oleh Qualtrics International Inc. (“Syarikat”), dengan menandatangani perjanjian ini (termasuk secara fizikal atau elektronik) memberi kebenaran kepada Syarikat dan subsidiari yang menggaji Penerima Anugerah (“Majikan”) termasuk mengumpul, memproses dan mengguna data peribadi, termasuk tetapi tidak terhad kepada nama Penerima Anugerah, alamat, nombor telefon, alamat emel, tarikh lahir, numbor insurans social, pasport atau nombor identifikasi lain, gaji, kewarganegaraan, pangkat jawatan, saham atau jawatan sebagai pengarah dalam Syarikat, butir-butir semua anugerah yang diberi dalam Pelan atau hak-hak ke atas saham yang dianugerahi, dibatalkan, dilaksanakan, diletakhak atau tidak atau yang masih tertunggang dari segi hak Penerima Anugerah (“Data”), untuk perlaksanaan, pentadbiran dan pengurusan Pelan atau hak-hak berkenaan anugerah saham Syarikat yang lain. Selainkan dinyatakan di dalam lampiran ini berkaitan dengan negara atau lokasi Penerima Anugerah, asas undang-undang, sekiranya diperlukan, untuk pemprosesan Data adalah perisytiharan kebenaran eksplisit yang diberikan oleh Penerima Anugerah apabila Penerima Anugerah menandatangani perjanjian ini (termasuk secara fizikal atau elektronik).
Pentadbiran Pelan oleh pembekal perkhidmatan. Syarikat akan memindah Data kepada Solium Capital ULC dan sekutunya (“Shareworks”), yang membantu Syarikat dengan perlaksanaan, pentadbiran dan pengurusan Pelan. Syarikat juga mungkin melantik pembekal perkhidmatan yang lain dan berkongsi Data dengan pembekal perkhidmatan yang tersebut. Penerima anugerah mungkin akan diminta untuk bersetuju dengan terma-terma dan amalan-amalan pemprosesan data Shareworks yang berlainan dan persetujuan tersebut adalah syarat untuk menyertai Pelan ini.
Pemindahan data antarabangsa. Syarikat dan Shareworks adalah entiti yang beroperasi di Amerika Syarikat dan Kanada. Penerima Anugerah mungkin bermastautin di negara yang mempunyai undang-undang perlindungan data peribadi yang lain. Penerima Anugerah dengan menandatangani perjanjan ini bersetuju terhadap pemindahan Data ke Amerika Syarikat dan Kanada. Selainkan dinyatakan di dalam lampiran ini berkaitan degan negara atau lokasi Penerima Anugerah, asas undang-undang Syarikat untuk pemindahan Data, termasuk pemindahan ke negara-negara lain tanpa perlindungan yang memaidai dikeluarkan oleh Suruhanjaya Eropah, sekiranya diperlukan, adalah kebenaran Penerima Anugerah. Syarikat akan melaksanakan perlindungan yang sesuai untuk pemindahan Data antarabangsa setakat diperlukan oleh undang-undang yang terpakai, termasuk contohnya, menandatangani klausa kontrak yang standard dan yang diluluskan oleh Suruhanjaya Eropah.
Pengekalan Data. Syarikat akan memegang dan menggunakan Data selagi Data tersebut adalah diperlukan untuk melaksanakan, mentadbir dan menguruskan penyertaan Penerima Anugerah dalam Pelan, atau diperlukan untuk pematuhan dengan kewajipan di bawah undang-undang dan peraturan, termasuk berkenaan dengan percukaian, kawalan pertukaran, buruh dan undang-undang sekuriti. Apabila Syarikat atau Majikan tidak lagi memerlukan Data untuk tujuan yang disebut di atas, mereka akan berhenti memproses dalam konteks di atas dan menyingkir data tersebut daripada system yang diguna oleh mereka untuk tujuan tersebut setakat yang mungkin.
Kesukarelaan dan implikasi penafian dan penarikbalikan kebenaran. Penyertaan dalam Pelan ini adalah secara sukarela dan Penerima Anugerah memberi kebenaran di bawah perjanjian ini secara sukarela. Sekiranya Penerima Anugerah tidak memberi kebenaran, atau menarik balik kebenaran di masa kemudian, gaji Penerima Anugerah daripada penggajian di bawah Majikan tidak akan terjejas. Implikasi yang akan timbul daripada keenggannan atau pernarikbalikan kebenaran adalah Syarikat tidak dapat memberi anugerah- anugerah di bawah Pelan atau mentadbir atau mengekalkan anugerah tersebut.
Hak-hak subjek data. Penerima Anugerah mempunyai hak-hak di bawah undang-undang perlindungan data peribadi di negaranya. Bergantung kepada undang-undang tersebut, hak-hak yang tersebut termasuk (i) meminta akses ke atau Salinan Data yang diproses oleh Syarikat, (ii) pembetulan Data yang khilaf, (iii) pembuangan Data, (iv) penyekatan pemprosesan Data, (v) penyekatan kemudahalihan Data, (vi) pembatalan kebenaran; (vii) membuat aduan kepada pihak berkuasa di negara Penerima Anugerah, dan/atau (viii) menerima satu senarai name dan alamat penerima yang berkemungkinan menerima Data. Untuk penjelasan berkenaan hak-hak dan perlaksanaan hak-hak tersebut, Penerima Anugerah boleh menghubungi jabatan sumber manusia Majikan.
Asas undang-undang atau kebenaran tambahan yang lain. Penerima Anugerah memahami bahawa Syarikat mungkin bergantung kepada asas undang-undang yang berlainan untuk pengumpulan, pemprosesan dan pemindahan Data di masa hadapan dan/atau meminta Penerima Anugerah untuk memberi kebenaran data privasi yang lain. Sekiranya terpakai, atas permintaan Syarikat atau Majikan, Penerima Anugerah akan memberi kebenaran melalui perjanjian data privasi yang dilaksanakan (atau perjanjian atau kebenaran yang lain) yang diperlukan oleh Syarikat dan/atau Majikan untuk pentadbiran penyertaan Penerima Anugerah dalam Pelan yang mematuhi undang-undang perlindungan data peribadi di negara Penerima Anugerah, sama ada sekarang atau di masa hadapan. Penerima Anugerah memahami dan bersetuju bahawa Penerima Anugerah tidak dapat menyertai Pelan ini sekiranya Penerima Anugerah tidak menyediakan perjanjian tersebut yang diminta oleh Syarikat dan/atau Majikan.
Sila rujuk ke perenggan 10(a) sehingga 10 (g) perjanjian ini berkenaan dengan maklumat privasi data peribadi dan kebenaran yang diperlukan dalam Bahasa Inggeris.
MEXICO
Securities Notice. Neither the Restricted Stock Units nor the shares of Stock subject to the Restricted Stock Units have been registered with the National Register of Securities maintained by the Mexican National Banking and Securities Commission and may not be offered or sold
publicly in Mexico. The Plan and any materials received in connection with the Restricted Stock Units may not be publicly distributed in Mexico. Such materials are addressed to the Grantee only because of the Grantee’s existing labor relationship with the Company and may not be reproduced or copied in any form. The offer contained in such materials is addressed solely to the present employees of the Company and its Affiliates, and any rights under such offering may not be assigned or transferred.
Labor Law Disclaimer. Please note that the Award is provided to the Grantee by the Company, not by the Grantee’s Employer. The decision to include a beneficiary in this or any future offering is taken by the Company in its sole discretion. This Agreement does not form part of the Grantee’s employment agreement and does not amend or supplement such agreement. Participation in the Plan does not entitle you to future benefits or payments of a similar nature or value, and does not entitle the Grantee to any compensation in the event that the Grantee loses rights under the Plan or this Agreement as a result of the termination of the Grantee’s employment. Benefits or payments that the Grantee may receive or be eligible for under the Plan shall not be taken into consideration in determining the amount of any future benefits, payments or other entitlements that may be due to the Grantee (including in cases of termination of employment).
NETHERLANDS
Terms and Conditions
Responsibility for Taxes. The arrangements concerning taxes and Tax-Related Items (including but not limited to Section 13 of the Plan and Paragraph 6 of the Restricted Stock Unit Award Agreement for Non-U.S. Employees) shall apply to the maximum extent permitted by law.
Data Privacy. The Company and/or its Subsidiaries and Affiliates shall collect and process information relating to me, the Grantee, in accordance with the privacy notices located on the internal intranet of the Company (https://odo-public-api.corp.qualtrics.com/odo-api/wiki/file/1/1b/SAP_Data_Protection_and_Privacy_Policy.pdf).
Notifications
Securities Law Information. This Award is offered to fewer than 150 persons in the Netherlands and is therefore not subject to the requirement to prepare an approved prospectus in accordance with Article 3 of the EU Prospectus Regulation (Regulation (EU) 2017/1129). The Restricted Stock Unit Award Agreement for Non-U.S. Employees and the Plan have not been nor shall they be registered with tor approved by the Netherlands Authority for the Financial Markets (Stichting Autoriteit Financiële Markten) (the Dutch securities regulator), and none of these documents constitutes a public offering prospectus, and neither this document nor any materials relating to the shares of Stock may be publicly distributed or otherwise made publicly available in the Netherlands.
Exchange Control Information. The Dutch Central Bank (De Nederlandsche Bank, “DNB”) may designate certain Dutch residents as being required to notify the DCB of specific transactions
with foreign countries but it is unlikely that employees shall be so designated as a result of their participation in the Plan.
NEW ZEALAND
Notifications
Tax Information. The Plan is an “employee share scheme” to which the Income Tax Act 2007 and the Tax Administration Act 1994 apply.
POLAND
Terms and Conditions
Data Privacy. The Company and/or its Subsidiaries and Affiliates shall collect and process information relating to me, the Grantee, in accordance with the privacy notices located on the internal intranet of the Company (https://odo-public-api.corp.qualtrics.com/odo-api/wiki/file/1/1b/SAP_Data_Protection_and_Privacy_Policy.pdf).
Notifications
Exchange Control Information. Polish residents holding foreign securities (including shares of Stock) and maintaining accounts abroad must report information to the National Bank of Poland on transactions and balances of the securities and cash deposited in such accounts if the value of such securities and cash (when combined with all other assets held abroad) exceeds PLN 7,000,000. If required, the reports must be filed on a quarterly basis on special forms available on the website of the National Bank of Poland. Any transfer of funds in excess of €15,000 must be effected through a bank account in Poland (however, if such transfer of funds is connected with the business activity of independent contractors or entrepreneurs, then the applicable threshold is PLN 15,000). The Grantee should maintain evidence of such foreign exchange transactions for five years, in case of a request for production of the same by the National Bank of Poland.
SINGAPORE
Securities Law Restrictions. The Restricted Stock Units are being granted pursuant to an exemption from the prospectus requirements under the Securities and Futures Act (Cap. 289 of Singapore) (“SFA”). The Grantee acknowledges that the Plan has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, the Plan, this Agreement and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the Restricted Stock Units may not be circulated or distributed, nor may the Restricted Stock Units or shares of Stock subject to the Restricted Stock Units 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 pursuant to, and in accordance with, the conditions of an exemption under any provision of Subdivision (4) of Division 1 of Part XIII of the SFA.
Classification of Award. The Restricted Stock Units and shares of Stock subject to the Restricted Stock Units are prescribed capital markets products (as defined in the Securities and Futures (Capital Markets Products) Regulations 2018) and Excluded Investment Products (as defined in MAS Notice SFA 04-N12: Notice on the Sale of Investment Products and MAS Notice FAA-N16: Notice on Recommendations on Investment Products).
Chief Executive Officer and Director Notification Obligation. The Chief Executive Officer (“CEO”) and the directors, associate directors and shadow directors of a Singapore Subsidiary are subject to certain notification requirements under the Companies Act, Chapter 50 of Singapore. The CEO, directors, associate directors and shadow directors must notify the Singapore Subsidiary in writing of an interest (e.g., Restricted Stock Units, shares of Stock, etc.) in the Singapore Subsidiary or any of its related company within two business days of (i) its acquisition or disposal, (ii) any change in a previously disclosed interest (e.g. when the shares of Stock are sold), or (iii) becoming the CEO or a director, associate director or shadow director.
SOUTH KOREA
Notifications
Securities Law Information. An offer of shares by an offshore parent company to local employees of its majority-owned subsidiary in South Korea pursuant to an employee share plan established for employee welfare is considered as a private placement exempt from any disclosure requirements under the securities law of South Korea.
Foreign Asset/Account Reporting Information. A South Korea tax resident is required to report their bank and financial accounts in a foreign country to the Korean tax authority by June 30th of the following year if the aggregate balance of these accounts exceed KRW 500 million at the end of any month during a calendar year. A foreign tax resident who has resided in Korea for no more than five years in aggregate during a ten-year period from the end of a tax year can be exempted from the reporting obligation.
SPAIN
Terms and Conditions
Data Subject Rights. The following provision replaces Paragraph 10(f) of the Restricted Stock Unit Award Agreement for Non-U.S. Employees:
The Grantee may have a number of rights under data privacy laws in his or her jurisdiction. Depending on where the Grantee is based, such rights may include the right to (i) request access to or copies of Data the Company processes, (ii) rectify incorrect Data, (iii) delete Data, (iv) restrict the processing of Data, (v) request the portability of Data, (vi) revoke consent, (vii) lodge complaints with competent authorities in the Grantee’s jurisdiction, that for Spain is the Spanish Data Protection Agency (www.aepd.es), and/or (viii) receive a list with the names and addresses of any potential recipients of Data. To receive clarification regarding these rights or to exercise these rights, the Grantee can contact his or her local human resources representative.
Data Privacy. The Company and/or its Subsidiaries and Affiliates shall collect and process information relating to me, the Grantee, in accordance with the privacy notices located on the internal intranet of the Company (https://odo-public-api.corp.qualtrics.com/odo-api/wiki/file/1/1b/SAP_Data_Protection_and_Privacy_Policy.pdf).
Acknowledgement. By accepting the Award, the Grantee acknowledges that he or she has received a copy of the Plan and the Agreement and has reviewed the Plan and the Agreement in their entirety and fully understands and accepts all provisions of the Plan and the Agreement.
The Grantee further acknowledges having read, and specifically and expressly approves, the following provisions of the Agreement: (i) Paragraph 2 - Vesting of Restricted Stock Units, (ii) Paragraph 3 - Termination of Employment, (iii) Paragraph 4 - Issuance of Shares of Stock, (iv) Paragraph 6 - Responsibility for Taxes, (v) Paragraph 10 - Data Privacy Information and Consent, (vi) Paragraph 11 - Nature of Grant, (vii) Paragraph 17 - Governing Law and Venue, and (viii) Paragraph 19 - Imposition of Other Requirements.
Nature of Grant. This provision supplements Paragraph 11 of the Restricted Stock Unit Award Agreement for Non-U.S. Employees:
The Grantee understands that the Company has unilaterally, gratuitously and in its sole discretion decided to grant the Award under the Plan to individuals who may be employees of the Company or any Subsidiary throughout the world. The decision is a limited decision that is entered into upon the express assumption and condition that any grant shall not economically or otherwise bind the Company or any Subsidiary. Consequently, the Grantee understands that the Award is granted on the assumption and condition that the Restricted Stock Units and the shares of Stock issued upon settlement of the Restricted Stock Units shall not become a part of any employment contract (either with the Company or Subsidiary) and shall not be considered a mandatory benefit, salary for any purposes (including severance compensation) or any other right whatsoever.
As a condition of the grant of the Award, unless otherwise provided by the Company, the Grantee’s termination of employment for any reason shall automatically result in the forfeiture and loss of the shares of Stock subject to the unvested portion of the Restricted Stock Units. In particular, and without limitation to the provisions of the Plan, the Grantee understands and agrees that any unvested portion of the Restricted Stock Units as of the date of the Grantee’s termination of employment shall be cancelled without entitlement to the underlying shares of Stock or to any amount as indemnification if the Grantee terminates employment by reason of, including, but not limited to, resignation, retirement, disciplinary dismissal adjudged to be with cause, disciplinary dismissal adjudged or recognized to be without cause (i.e., subject to a “despido improcedente”), individual or collective dismissal on objective grounds, whether adjudged or recognized to be with or without cause, material modification of the terms of employment under Article 41 of the Workers’ Statute, relocation under Article 40 of the Workers’ Statute, and/or Article 50 of the Workers’ Statute, unilateral withdrawal by the Employer and under Article 10.3 of the Royal Decree 1382/1985.
Finally, the Grantee understands that the grant of the Award would not be made to the Grantee but for the assumptions and conditions referred to herein; thus, the Grantee acknowledges and freely accepts that should any or all of the assumptions be mistaken or should any of the conditions not be met for any reason, then the grant of the Award shall be null and void.
Notifications
Securities Law Information. No “offer of securities to the public,” as defined under Spanish law, has taken place or shall take place in the Spanish territory. The Agreement and the Plan have not been nor shall they be registered with the Comisión Nacional del Mercado de Valores (the Spanish securities regulator), and none of these documents constitutes a public offering prospectus.
Exchange Control Information. It is the Grantee’s responsibility to comply with exchange control regulations in Spain. The Grantee must declare the acquisition of shares of Stock for statistical purposes to the Spanish Dirección General de Comercio Internacional e Inversiones (the “DGCI”) of the Ministry of Economy and Competitiveness. Generally, the declaration must be filed a D-6 form in January for shares of Stock owned as of December 31 of each year. However, if the value of the shares of Stock or the sale proceeds exceed €1,502,530 (or if I hold 10% or more of the share capital of the Company), a declaration must be filed within one month of the acquisition or sale, as applicable.
When receiving foreign currency payments in excess of €50,000 derived from the ownership of Stock (e.g., as a result of the sale of Stock or the receipt of dividends), the Grantee must inform the financial institution receiving the payment of the basis upon which such payment is made. The Grantee shall likely need to provide the institution with the following information: (i) the Grantee’s name, address, and fiscal identification number, (ii) the name and corporate domicile of the Company, (iii) the amount of the payment, (iv) the currency used, (v) the country of origin, (vi) the reasons for the payment, and (vii) any additional information that may be required.
Further, the Grantee is required to declare electronically to the Bank of Spain any securities accounts (including brokerage accounts held abroad), as well as the shares of Stock held in such accounts if the value of the transactions during the prior tax year or the balances in such accounts as of December 31 of the prior tax year exceed €1,000,000. Notwithstanding the above, the Grantee may be required to provide with this information to Bank of Spain under specific request.
Foreign Asset/Account Reporting Information. To the extent that the Grantee holds shares/units of Stock and/or has bank accounts outside Spain with a value in excess of €50,000 (for each type of asset) as of December 31 of one fiscal year, the Grantee shall be required to report information on such assets on his or her tax return (tax form 720) for such year. After such shares/units of Stock and/or accounts are initially reported in a specific fiscal year, the reporting obligation shall apply for subsequent years only if the value of any previously-reported units/shares of Stock or accounts increases by more than €20,000 or are sold/cancelled. The reporting must be completed, in general terms, by March 31 following the end of the relevant year.
In any case, the Grantee, acknowledges that the Company is neither assessing from a financial nor a tax perspective and the Grantee should consult his or her personal advisor to ensure compliance with applicable reporting obligations.
SWEDEN
Data Privacy. The Company and/or its Subsidiaries and Affiliates shall collect and process information relating to me, the Grantee, in accordance with the privacy notices located on the internal intranet of the Company (https://odo-public-api.corp.qualtrics.com/odo-api/wiki/file/1/1b/SAP_Data_Protection_and_Privacy_Policy.pdf).
SWITZERLAND
Notifications
Securities Law Information. In Switzerland, the grant of Restricted Stock Units is exempt from the requirement to prepare and publish a prospectus under the Swiss Financial Services Act (FINSA). This Agreement does not constitute a prospectus pursuant to the FINSA and no such prospectus has been or shall be prepared for or in connection with the Restricted Stock Unit grant pursuant to the Plan. This Agreement is neither subject to any governmental approval nor must be filed with any Swiss authorities.
TAIWAN
Terms and Conditions
Data Privacy Information and Consent. The following amendments are made to Paragraph 10 of the Agreement:
In Paragraph 10(a), delete “The Company and the Employer collect, process and use” and insert “The Company and the Employer collect, process and use by way of the internal intranet of the Company”.
In Paragraph 10(f)(ii), delete “rectify incorrect Data” and insert “supplement Data or rectify incorrect Data”.
In Paragraph 10(f)(iv), delete “restrict the processing of Data” and insert “restrict or suspend the collecting, processing, and using of Data”.
Nature of Grant. The following provision supplements Paragraph 11 of the Agreement:
The Grantee acknowledges and agrees that the benefits received under the Plan is not “regular payment” and the grant thereof is discretionary benefits, rather than the fixed compensation for work, and thus should neither be considered as wage under the Labor Standards Act of Taiwan nor for severance or pension payments or entitling employees to claim similar benefits in the future.
Notifications
Securities Law Legends. The offering, distribution, and resale of Stock or any interest therein under the Plan have not been and shall not be approved by or registered with the Taiwan Financial Supervisory Commission pursuant to the Securities and Exchange Act of Taiwan and thus cannot be offered, distributed or resold in Taiwan through a public offering or in circumstance which constitutes an offer within the meaning of the Securities and Exchange Act of Taiwan.
Exchange Control Information. Each Grantee in Taiwan is subject to the following regulation and control by the Central Bank of the ROC (Taiwan) for foreign exchange transactions in connection with the Plan. A prior filing of a duly completed and executed declaration form to the handling bank is required for any single foreign exchange transaction or remittance of NT$ 500,000 or more, and if a remittance reaching or exceeding US$ 500,000 by an individual, or US$ 1 million by a corporate entity, he/she shall be required to submit the supporting documents evidencing the purpose of the remittance, in addition to the declaration. If inward/outward remittance and conversion of foreign currencies exceeds the annual foreign exchange quota (US$5 million per calendar year for a Taiwan citizen), a prior foreign exchange approval from the Central Bank of the ROC (Taiwan) is required. For an individual who is not Taiwan citizen, any single foreign exchange transaction or remittance in excess of US$100,000 shall not require foreign exchange approval of the Central Bank of the ROC (Taiwan).
THAILAND
Terms and Conditions
Responsibility for Taxes. Notwithstanding Paragraphs 11(f) and (g) of this Agreement, the Grantee, shall be required to calculate his/her year-end personal income tax by including any economic value receiving under the Equity Plan as income derived from Thai source (i.e. due to the employment in Thailand) for the relevant year. The Grantee must consult his or her personal advisor to ensure the compliance with Thai tax laws.
Notifications
Securities Law Information.
Restricted Stock Units under Section 8(a) of the Plan: The Award is not considered as an offering and is therefore not subject to the registration or report with the Securities and Exchange Commission of Thailand (the “Thai SEC”). Therefore, neither this document nor any materials relating to the shares of Stock are required to be submitted, approved, or reported to the Thai SEC.
Restricted Stock Units under Section 8(b) of the Plan: The Grantee acknowledges that the conversion of any future cash compensation to a fixed number of the Restricted Stock Units is considered as an offering via private placement by a foreign company in Thailand. The Grantee acknowledges that the Company may be subject to duty to report the sale result and submit the
report form together with other materials relevant to this Plan to the Thai SEC as required by the Thai SEC and agrees to provide any materials, documents or information, support and cooperate with the Company to achieve the submission of such report.
UNITED ARAB EMIRATES
Terms and Conditions
Nature of Grant. The following provisions supplement Paragraph 11 of the Restricted Stock Unit Award Agreement for Non-U.S. Employees:
The Grantee acknowledges that the Award and related benefits do not constitute a component of his or her “wages” for any legal purpose. Therefore, the Award and related benefits shall not be included and/or considered for purposes of calculating any and all labor benefits, such as social insurance contributions, end of service gratuity and/or any other labor-related amounts which may be payable.
Notifications
Securities Law Information. The Agreement, the Plan and other incidental communication materials concerning the Award (“Materials”) are intended for distribution only to employees of the Company or its Subsidiaries. The information contained in these Materials does not constitute an offer of securities registered under the laws of the United Arab Emirates (“UAE”) relating to funds, investments or otherwise. The Materials have not been approved by the UAE Central Bank, the Securities and Commodities Authority (“SCA”), the Dubai Financial Services Authority, the Financial Services Regulatory Authority, the Dubai International Financial Centre, the Abu Dhabi Global Market or any other authority in the UAE. Furthermore, no authorization, permit or license has been granted by the SCA or any authority in the UAE to market, offer, place or sell the shares in the UAE. These Materials are strictly private and confidential and are being distributed only to select employees of the Company or its Subsidiaries. These Materials (a) do not constitute a public offer, or an advertisement or solicitation to the general public; (b) are intended only for the original recipients hereof to whom these documents are personally provided and may not be reproduced or used for any other purpose. The Plan is not offered or intended to be sold directly or indirectly to the public in the UAE.
Further, the shares of Stock underlying the Award may be illiquid and/or subject to restrictions on their resale. The Grantee should conduct his or her own due diligence on the Restricted Stock Units and the shares of Stock. If the Grantee is in any doubt about any of the contents of the grant or other incidental documents, he or she should obtain independent professional advice.
UNITED KINGDOM
Any Award made to an eligible employee in the UK under the Plan shall be made pursuant to and be governed by the provisions of the 2021 Qualtrics International Inc. UK Sub Plan (the “UK Sub Plan”). Accordingly, for Grantees based in the UK, references to the Plan in the
Restricted Stock Unit Award Agreement for Non-U.S. Employees to which this Appendix relates shall be deemed to be references to the UK Sub Plan.
Terms and Conditions
Award Payable Only in Stock. Notwithstanding anything to the contrary in Section 8(a) of the Plan, the Restricted Stock Units shall be paid in shares of Stock only and do not provide the Grantee with any right to receive a cash payment. This provision is without prejudice to the application of Paragraph 6 of the Restricted Stock Unit Award Agreement for Non-U.S. Employees.
Responsibility for Taxes. The following provisions supplement Paragraph 6 of the Restricted Stock Unit Award Agreement for Non-U.S. Employees:
Without limitation to Paragraph 6 of the Restricted Stock Unit Award Agreement for Non-U.S. Employees, the Grantee agrees that the Grantee is liable for all Tax-Related Items and hereby covenants to pay all such Tax-Related Items as and when requested by the Company or, if different, the Employer or by Her Majesty’s Revenue and Customs (“HMRC”) (or any other tax authority or any other relevant authority). The Grantee also agrees to indemnify and keep indemnified the Company or the Employer against any Tax-Related Items that they are required to pay or withhold or have paid or shall pay to HMRC (or any other tax authority or any other relevant authority) on the Grantee’s behalf.
Notwithstanding the foregoing, if the Grantee is a director or executive officer of the Company (within the meaning of Section 13(k) of the Exchange Act), the terms of the immediately foregoing provision shall not apply if the indemnification is viewed as a loan. In such case, if the amount of any income tax due is not collected from or paid by the Grantee within 90 days of the end of the U.K. tax year in which an event giving rise to the indemnification described above occurs, the amount of any uncollected income taxes may constitute a benefit to the Grantee on which additional income tax and National Insurance contributions (“NICs”) may be payable. The Grantee shall be responsible for reporting and paying any income tax due on this additional benefit directly to HMRC under the self-assessment regime and for paying to the Company or the Employer, as applicable, any employee NICs due on this additional benefit, which the Company or the Employer may recover from the Grantee by any of the means referred to in Paragraph 6 of the Restricted Stock Unit Award Agreement for Non-U.S. Employees.
In the event that any Class A common stock acquired falls within the meaning of ‘restricted securities’ for the purposes of Chapter 2 of Part 7 to the Income Tax (Earnings and Pensions) Act 2003 (“ITEPA”), I agree to, if at any time specified by the Company or my Employer, enter into a joint election with the Company (or my Employer, if different) under section 431(1) of ITEPA in order to disapply all restrictions attaching to such Stock (in the form prescribed or agreed by HMRC) and in order to elect to pay income tax (if any) computed by reference to the unrestricted market value (as defined in ITEPA) of the Stock no later than 14 days after the acquisition of such Stock (or such longer period as HMRC may direct).
Data Privacy. The Company and/or its Subsidiaries and Affiliates shall collect and process information relating to me, the Grantee, in accordance with the privacy notices located on the internal intranet of the Company (https://odo-public-api.corp.qualtrics.com/odo-api/wiki/file/1/1b/SAP_Data_Protection_and_Privacy_Policy.pdf).
RESTRICTED STOCK AWARD AGREEMENT
UNDER THE 2021 QUALTRICS INTERNATIONAL INC.
EMPLOYEE OMNIBUS EQUITY PLAN
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Name of Grantee:
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No. of Restricted Stock Units:
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Grant Date:
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Pursuant to the 2021 Qualtrics International Inc. Employee Omnibus Equity Plan as amended through the date hereof (the “Plan”), Qualtrics International Inc. (the “Company”) hereby grants a Restricted Stock Award (an “Award”) to the individual named above (the “Grantee”). Upon acceptance of this Award, the Grantee shall receive the number of shares of Class A common stock, par value $0.0001 per share (the “Stock”) of the Company specified above, subject to the restrictions and conditions set forth herein and in the Plan. The Company acknowledges the receipt from the Grantee of consideration with respect to the par value of the Stock in the form of cash, past or future services rendered to the Company by the Grantee or such other form of consideration as is acceptable to the Administrator.
1.Award. The Restricted Shares awarded hereunder shall be issued and held by the Company’s transfer agent in book entry form, and the Grantee’s name shall be entered as the stockholder of record on the books of the Company. Thereupon, the Grantee shall have all the rights of a stockholder with respect to such shares, including voting and dividend rights, subject, however, to the restrictions and conditions specified in Paragraph 2 below. The Grantee shall (i) sign and deliver to the Company a copy of this Award Agreement and (ii) deliver to the Company a stock power endorsed in blank.
2.Restrictions and Conditions.
(a)Any book entries for the Restricted Shares granted herein shall bear an appropriate legend, as determined by the Administrator in its sole discretion, to the effect that such shares are subject to restrictions as set forth herein and in the Plan.
(b)Restricted Shares granted herein may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of by the Grantee prior to vesting.
(c)If the Grantee’s employment with the Company and its Affiliates is voluntarily or involuntarily terminated for any reason (including death) prior to vesting of Restricted Shares granted herein, all Restricted Shares shall immediately and automatically be forfeited and returned to the Company.
3.Vesting of Restricted Shares. The restrictions and conditions in Paragraph 2 of this Agreement shall lapse on the Vesting Date or Dates specified in the following schedule so long as the Grantee remains an employee of the Company or an Affiliate on such Dates. If a
series of Vesting Dates is specified, then the restrictions and conditions in Paragraph 2 shall lapse only with respect to the number of Restricted Shares specified as vested on such date.
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Incremental Number of
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Subsequent to such Vesting Date or Dates, the shares of Stock on which all restrictions and conditions have lapsed shall no longer be deemed Restricted Shares. The Administrator may at any time accelerate the vesting schedule specified in this Paragraph 3.
4.Dividends. Dividends on Restricted Shares shall be paid currently to the Grantee.
5.Incorporation of Plan. Notwithstanding anything herein to the contrary, this Award shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Administrator set forth in Section 2(b) of the Plan. Capitalized terms in this Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.
6.Transferability. This Agreement is personal to the Grantee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by shall or the laws of descent and distribution.
7.Tax Withholding. The Grantee shall, not later than the date as of which the receipt of this Award becomes a taxable event for Federal income tax purposes, pay to the Company or make arrangements satisfactory to the Administrator for payment of any Federal, state, and local taxes required by law to be withheld on account of such taxable event. Except in the case where an election is made pursuant to Paragraph 8 below, the Company shall have the authority to cause the required tax withholding obligation to be satisfied, in whole or in part, by withholding from shares of Stock to be issued or released by the transfer agent a number of shares of Stock with an aggregate Fair Market Value that would satisfy the withholding amount due.
8.Election Under Section 83(b). The Grantee and the Company hereby agree that the Grantee may, within 30 days following the Grant Date of this Award, file with the Internal Revenue Service and the Company an election under Section 83(b) of the Internal Revenue Code. In the event the Grantee makes such an election, he or she agrees to provide a copy of the election to the Company. The Grantee acknowledges that he or she is responsible for obtaining the advice of his or her tax advisors with regard to the Section 83(b) election and that he or she is relying solely on such advisors and not on any statements or representations of the Company or any of its agents with regard to such election.
9.No Obligation to Continue Employment. Neither the Company nor any Affiliate is obligated by or as a result of the Plan or this Agreement to continue the Grantee’s employment and neither the Plan nor this Agreement shall interfere in any way with the right of the Company or any Affiliate to terminate the employment of the Grantee at any time.
10.Integration. This Agreement constitutes the entire agreement between the parties with respect to this Award and supersedes all prior agreements and discussions between the parties concerning such subject matter.
11.Data Privacy Consent. In order to administer the Plan and this Agreement and to implement or structure future equity grants, the Company, its subsidiaries and affiliates and certain agents thereof (together, the “Relevant Companies”) may process any and all personal or professional data, including but not limited to Social Security or other identification number, home address and telephone number, date of birth and other information that is necessary or desirable for the administration of the Plan and/or this Agreement (the “Relevant Information”). By entering into this Agreement, the Grantee (i) authorizes the Company to collect, process, register and transfer to the Relevant Companies all Relevant Information; (ii) waives any privacy rights the Grantee may have with respect to the Relevant Information; (iii) authorizes the Relevant Companies to store and transmit such information in electronic form; and (iv) authorizes the transfer of the Relevant Information to any jurisdiction in which the Relevant Companies consider appropriate. The Grantee shall have access to, and the right to change, the Relevant Information. Relevant Information shall only be used in accordance with applicable law.
12.Notices. Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or delivered to the Grantee at the address on file with the Company or, in either case, at such other address as one party may subsequently furnish to the other party in writing.
(Signature page follows.)
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QUALTRICS INTERNATIONAL INC.
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By:
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Title:
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The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned. Electronic acceptance of this Agreement pursuant to the Company’s instructions to the Grantee (including through an online acceptance process) is acceptable.
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Dated:
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Grantee’s Signature
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Grantee’s name and address:
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INCENTIVE STOCK OPTION AGREEMENT
UNDER THE 2021 QUALTRICS INTERNATIONAL INC.
EMPLOYEE OMNIBUS EQUITY PLAN
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Name of Optionee:
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No. of Option Shares:
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Option Exercise Price per Share:
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$
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FMV on Grant Date (110% of FMV if a 10% owner)
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Grant Date:
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Expiration Date:
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up to 10 years (5 if a 10% owner)
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Pursuant to the 2021 Qualtrics International Inc. Employee Omnibus Equity Plan as amended through the date hereof (the “Plan”), Qualtrics International Inc. (the “Company”) hereby grants to the individual named above (the “Optionee”) an option (the “Stock Option”) to purchase on or prior to the Expiration Date specified above all or part of the number of shares of Class A common stock, par value $0.0001 per share (the “Stock”), of the Company specified above at the Option Exercise Price per Share specified above subject to the terms and conditions set forth herein and in the Plan.
1)Exercisability Schedule. No portion of this Stock Option may be exercised until such portion shall have become exercisable. Except as set forth below, and subject to the discretion of the Administrator (as defined in Section 2 of the Plan) to accelerate the exercisability schedule hereunder, this Stock Option shall be exercisable with respect to the following number of Option Shares on the dates indicated so long as the Optionee remains an employee of the Company or a Subsidiary on such dates:
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Incremental Number of
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Exercisability Date
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* Max. of $100,000 per yr.
Once exercisable, this Stock Option shall continue to be exercisable at any time or times prior to the close of business on the Expiration Date, subject to the provisions hereof and of the Plan.
2)Manner of Exercise.
(a)The Optionee may exercise this Stock Option only in the following manner: from time to time on or prior to the Expiration Date of this Stock Option, the Optionee may give written notice to the Administrator of his or her election to purchase some or all of the Option Shares purchasable at the time of such notice. This notice shall specify the number of Option Shares to be purchased.
Payment of the purchase price for the Option Shares may be made by one or more of the following methods: (i) in cash, by certified or bank check or other instrument acceptable to the Administrator; (ii) through the delivery (or attestation to the ownership) of shares of Stock that have been purchased by the Optionee on the open market or that are beneficially owned by the Optionee and are not then subject to any restrictions under any Company plan and that otherwise satisfy any holding periods as may be required by the Administrator; or (iii) by the Optionee delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company to pay the option purchase price, provided that in the event the Optionee chooses to pay the option purchase price as so provided, the Optionee and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the Administrator shall prescribe as a condition of such payment procedure; or (iv) a combination of (i), (ii) and (iii) above. Payment instruments shall be received subject to collection.
The transfer to the Optionee on the records of the Company or of the transfer agent of the Option Shares shall be contingent upon (i) the Company’s receipt from the Optionee of the full purchase price for the Option Shares, as set forth above, (ii) the fulfillment of any other requirements contained herein or in the Plan or in any other agreement or provision of laws, and (iii) the receipt by the Company of any agreement, statement or other evidence that the Company may require to satisfy itself that the issuance of Stock to be purchased pursuant to the exercise of Stock Options under the Plan and any subsequent resale of the shares of Stock shall be in compliance with applicable laws and regulations. In the event the Optionee chooses to pay the purchase price by previously-owned shares of Stock through the attestation method, the number of shares of Stock transferred to the Optionee upon the exercise of the Stock Option shall be net of the Option Shares attested to.
(b)The shares of Stock purchased upon exercise of this Stock Option shall be transferred to the Optionee on the records of the Company or of the transfer agent upon compliance to the satisfaction of the Administrator with all requirements under applicable laws or regulations in connection with such transfer and with the requirements hereof and of the Plan. The determination of the Administrator as to such compliance shall be final and binding on the Optionee. The Optionee shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Stock subject to this Stock Option unless and until this Stock Option shall have been exercised pursuant to the terms hereof, the Company or the transfer agent shall have transferred the shares to the Optionee, and the Optionee’s name shall have been
entered as the stockholder of record on the books of the Company. Thereupon, the Optionee shall have full voting, dividend and other ownership rights with respect to such shares of Stock.
(c)The minimum number of shares with respect to which this Stock Option may be exercised at any one time shall be 100 shares, unless the number of shares with respect to which this Stock Option is being exercised is the total number of shares subject to exercise under this Stock Option at the time.
(d)Notwithstanding any other provision hereof or of the Plan, no portion of this Stock Option shall be exercisable after the Expiration Date hereof.
3)Termination of Employment. If the Optionee’s employment with the Company or a Subsidiary is terminated, the period within which to exercise the Stock Option may be subject to earlier termination as set forth below.
(a)Termination Due to Death. If the Optionee’s employment terminates by reason of the Optionee’s death, any portion of this Stock Option outstanding on such date, to the extent exercisable on the date of death, may thereafter be exercised by the Optionee’s legal representative or legatee for a period of 12 months from the date of death or until the Expiration Date, if earlier. Any portion of this Stock Option that is not exercisable on the date of death shall terminate immediately and be of no further force or effect.
(b)Termination Due to Disability. If the Optionee’s employment terminates by reason of the Optionee’s disability (as determined by the Administrator), any portion of this Stock Option outstanding on such date, to the extent exercisable on the date of such termination, may thereafter be exercised by the Optionee for a period of 12 months from the date of disability or until the Expiration Date, if earlier. Any portion of this Stock Option that is not exercisable on the date of disability shall terminate immediately and be of no further force or effect.
(c)Termination for Cause. If the Optionee’s employment terminates for Cause, any portion of this Stock Option outstanding on such date shall terminate immediately and be of no further force and effect. For purposes hereof, “Cause” shall mean, unless otherwise provided in an employment agreement between the Company and the Optionee:
(i)If the Optionee is a party to an employment or service agreement with the Company and such agreement provides for a definition of Cause, the definition contained therein; or
(ii)If no such agreement exists, or if such agreement does not define Cause, a determination by the Administrator that the Optionee shall be dismissed as a result of (i) any material breach by the Optionee of any agreement between the Optionee and the Company; (ii) the conviction of, indictment for or plea of nolo contendere by the Optionee to a felony or a crime involving moral turpitude; (iii) the Optionee’s material failure to comply with a policy of the Company; (iv) the Optionee’s unauthorized disclosure of confidential information of the Company to a third-party; (v) the Optionee’s participation in any act of fraud, embezzlement or dishonesty against the Company or any
of its subsidiaries or affiliates; (vi) the Optionee’s failure to reasonably cooperate with an internal investigation or an investigation by regulatory or law enforcement authorities, after being instructed by the Company to cooperate or (vii) any material misconduct or shallful and deliberate non-performance (other than by reason of disability) by the Optionee of the Optionee’s duties to the Company.
(d)Other Termination. If the Optionee’s employment terminates for any reason other than the Optionee’s death, the Optionee’s disability, or Cause, and unless otherwise determined by the Administrator, any portion of this Stock Option outstanding on such date may be exercised, to the extent exercisable on the date of termination, for a period of three months from the date of termination or until the Expiration Date, if earlier. Any portion of this Stock Option that is not exercisable on the date of termination shall terminate immediately and be of no further force or effect.
The Administrator’s determination of the reason for termination of the Optionee’s employment shall be conclusive and binding on the Optionee and his or her representatives or legatees.
4)Incorporation of Plan. Notwithstanding anything herein to the contrary, this Stock Option shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Administrator set forth in Section 2(b) of the Plan. Capitalized terms in this Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.
5)Transferability. This Agreement is personal to the Optionee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by shall or the laws of descent and distribution. This Stock Option is exercisable, during the Optionee’s lifetime, only by the Optionee, and thereafter, only by the Optionee’s legal representative or legatee.
6)Status of the Stock Option. This Stock Option is intended to qualify as an “incentive stock option” under Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), but the Company does not represent or warrant that this Stock Option qualifies as such. The Optionee should consult with his or her own tax advisors regarding the tax effects of this Stock Option and the requirements necessary to obtain favorable income tax treatment under Section 422 of the Code, including, but not limited to, holding period requirements. To the extent any portion of this Stock Option does not so qualify as an “incentive stock option,” such portion shall be deemed to be a non-qualified stock option. If the Optionee intends to dispose or does dispose (whether by sale, gift, transfer or otherwise) of any Option Shares within the one-year period beginning on the date after the transfer of such shares to him or her, or within the two-year period beginning on the day after the grant of this Stock Option, he or she shall so notify the Company within 30 days after such disposition.
7)Tax Withholding. The Optionee shall, not later than the date as of which the exercise of this Stock Option becomes a taxable event for Federal income tax purposes, pay to the Company or make arrangements satisfactory to the Administrator for payment of any
Federal, state, and local taxes required by law to be withheld on account of such taxable event. The Company shall have the authority to cause the required tax withholding obligation to be satisfied, in whole or in part, by withholding from shares of Stock to be issued to the Optionee a number of shares of Stock with an aggregate Fair Market Value that would satisfy the withholding amount due.
8)No Obligation to Continue Employment. Neither the Company nor any Subsidiary is obligated by or as a result of the Plan or this Agreement to continue the Optionee’s employment and neither the Plan nor this Agreement shall interfere in any way with the right of the Company or any Subsidiary to terminate the employment of the Optionee at any time.
9)Integration. This Agreement constitutes the entire agreement between the parties with respect to this Stock Option and supersedes all prior agreements and discussions between the parties concerning such subject matter.
10)Data Privacy Consent. In order to administer the Plan and this Agreement and to implement or structure future equity grants, the Company, its subsidiaries and affiliates and certain agents thereof (together, the “Relevant Companies”) may process any and all personal or professional data, including but not limited to Social Security or other identification number, home address and telephone number, date of birth and other information that is necessary or desirable for the administration of the Plan and/or this Agreement (the “Relevant Information”). By entering into this Agreement, the Optionee (i) authorizes the Company to collect, process, register and transfer to the Relevant Companies all Relevant Information; (ii) waives any privacy rights the Optionee may have with respect to the Relevant Information; (iii) authorizes the Relevant Companies to store and transmit such information in electronic form; and (iv) authorizes the transfer of the Relevant Information to any jurisdiction in which the Relevant Companies consider appropriate. The Optionee shall have access to, and the right to change, the Relevant Information. Relevant Information shall only be used in accordance with applicable law.
11)Notices. Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or delivered to the Optionee at the address on file with the Company or, in either case, at such other address as one party may subsequently furnish to the other party in writing.
(Signature page follows.)
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QUALTRICS INTERNATIONAL INC.
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By:
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Title:
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The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned. Electronic acceptance of this Agreement pursuant to the Company’s instructions to the Optionee (including through an online acceptance process) is acceptable.
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Dated:
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Optionee’s Signature
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Optionee’s name and address:
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NON-QUALIFIED STOCK OPTION AGREEMENT
FOR COMPANY EMPLOYEES
UNDER THE 2021 QUALTRICS INTERNATIONAL INC.
EMPLOYEE OMNIBUS EQUITY PLAN
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Name of Optionee:
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No. of Option Shares:
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Option Exercise Price per Share:
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$
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FMV on Grant Date
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Grant Date:
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Expiration Date:
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Pursuant to the 2021 Qualtrics International Inc. Employee Omnibus Equity Plan as amended through the date hereof (the “Plan”), Qualtrics International Inc. (the “Company”) hereby grants to the individual named above (the “Optionee”) an option (the “Stock Option”) to purchase on or prior to the Expiration Date specified above all or part of the number of shares of Class A common stock, par value $0.0001 per share (the “Stock”) of the Company specified above at the Option Exercise Price per Share specified above subject to the terms and conditions set forth herein and in the Plan. This Stock Option is not intended to be an “incentive stock option” under Section 422 of the Internal Revenue Code of 1986, as amended.
1)Exercisability Schedule. No portion of this Stock Option may be exercised until such portion shall have become exercisable. Except as set forth below, and subject to the discretion of the Administrator (as defined in Section 2 of the Plan) to accelerate the exercisability schedule hereunder, this Stock Option shall be exercisable with respect to the following number of Option Shares on the dates indicated so long as Optionee remains an employee of the Company or an Affiliate on such dates:
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Incremental Number of
Option Shares Exercisable
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Exercisability Date
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Once exercisable, this Stock Option shall continue to be exercisable at any time or times prior to the close of business on the Expiration Date, subject to the provisions hereof and of the Plan.
2)Manner of Exercise.
(a)The Optionee may exercise this Stock Option only in the following manner: from time to time on or prior to the Expiration Date of this Stock Option, the Optionee may give written notice to the Administrator of his or her election to purchase some or all of the Option Shares purchasable at the time of such notice. This notice shall specify the number of Option Shares to be purchased.
Payment of the purchase price for the Option Shares may be made by one or more of the following methods: (i) in cash, by certified or bank check or other instrument acceptable to the Administrator; (ii) through the delivery (or attestation to the ownership) of shares of Stock that have been purchased by the Optionee on the open market or that are beneficially owned by the Optionee and are not then subject to any restrictions under any Company plan and that otherwise satisfy any holding periods as may be required by the Administrator; (iii) by the Optionee delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company to pay the option purchase price, provided that in the event the Optionee chooses to pay the option purchase price as so provided, the Optionee and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the Administrator shall prescribe as a condition of such payment procedure; (iv) by a “net exercise” arrangement pursuant to which the Company shall reduce the number of shares of Stock issuable upon exercise by the largest whole number of shares with a Fair Market Value that does not exceed the aggregate exercise price; or (v) a combination of (i), (ii), (iii) and (iv) above. Payment instruments shall be received subject to collection.
The transfer to the Optionee on the records of the Company or of the transfer agent of the Option Shares shall be contingent upon (i) the Company’s receipt from the Optionee of the full purchase price for the Option Shares, as set forth above, (ii) the fulfillment of any other requirements contained herein or in the Plan or in any other agreement or provision of laws, and (iii) the receipt by the Company of any agreement, statement or other evidence that the Company may require to satisfy itself that the issuance of Stock to be purchased pursuant to the exercise of Stock Options under the Plan and any subsequent resale of the shares of Stock shall be in compliance with applicable laws and regulations. In the event the Optionee chooses to pay the purchase price by previously-owned shares of Stock through the attestation method, the number of shares of Stock transferred to the Optionee upon the exercise of the Stock Option shall be net of the Option Shares attested to.
(b)The shares of Stock purchased upon exercise of this Stock Option shall be transferred to the Optionee on the records of the Company or of the transfer agent upon compliance to the satisfaction of the Administrator with all requirements under applicable laws or regulations in connection with such transfer and with the requirements hereof and of the Plan. The determination of the Administrator as to such compliance shall be final and binding on the Optionee. The Optionee shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Stock subject to this Stock Option unless and until this Stock Option shall have been exercised pursuant to the terms hereof, the Company or the transfer
agent shall have transferred the shares to the Optionee, and the Optionee’s name shall have been entered as the stockholder of record on the books of the Company. Thereupon, the Optionee shall have full voting, dividend and other ownership rights with respect to such shares of Stock.
(c)The minimum number of shares with respect to which this Stock Option may be exercised at any one time shall be 100 shares, unless the number of shares with respect to which this Stock Option is being exercised is the total number of shares subject to exercise under this Stock Option at the time.
(d)Notwithstanding any other provision hereof or of the Plan, no portion of this Stock Option shall be exercisable after the Expiration Date hereof.
3)Termination of Employment. If the Optionee’s employment by the Company or an Affiliate is terminated, the period within which to exercise the Stock Option may be subject to earlier termination as set forth below.
(a)Termination Due to Death. If the Optionee’s employment terminates by reason of the Optionee’s death, any portion of this Stock Option outstanding on such date, to the extent exercisable on the date of death, may thereafter be exercised by the Optionee’s legal representative or legatee for a period of 12 months from the date of death or until the Expiration Date, if earlier. Any portion of this Stock Option that is not exercisable on the date of death shall terminate immediately and be of no further force or effect.
(b)Termination Due to Disability. If the Optionee’s employment terminates by reason of the Optionee’s disability (as determined by the Administrator), any portion of this Stock Option outstanding on such date, to the extent exercisable on the date of such termination, may thereafter be exercised by the Optionee for a period of 12 months from the date of disability or until the Expiration Date, if earlier. Any portion of this Stock Option that is not exercisable on the date of disability shall terminate immediately and be of no further force or effect.
(c)Termination for Cause. If the Optionee’s employment terminates for Cause, any portion of this Stock Option outstanding on such date shall terminate immediately and be of no further force and effect. For purposes hereof, “Cause” shall mean, unless otherwise provided in an employment agreement between the Company and the Optionee:
(i)If the Optionee is a party to an employment or service agreement with the Company and such agreement provides for a definition of Cause, the definition contained therein; or
(ii)If no such agreement exists, or if such agreement does not define Cause, a determination by the Administrator that the Optionee shall be dismissed as a result of (i) any material breach by the Optionee of any agreement between the Optionee and the Company or, if different, any Affiliate employing or retaining the Optionee (the “Employer”); (ii) the conviction of, indictment for or plea of nolo contendere by the Optionee to a felony or a crime involving moral turpitude; (iii) the Optionee’s material failure to comply with a policy of the Company or the Employer; (iv) the Optionee’s
unauthorized disclosure of confidential information of the Company to a third-party; (v) the Optionee’s participation in any act of fraud, embezzlement or dishonesty against the Company or any of its subsidiaries or affiliates; (vi) the Optionee’s failure to reasonably cooperate with an internal investigation or an investigation by regulatory or law enforcement authorities, after being instructed by the Company to cooperate or (vii) any material misconduct or shallful and deliberate non-performance (other than by reason of disability) by the Optionee of the Optionee’s duties to the Company or the Employer.
(d)Other Termination. If the Optionee’s employment terminates for any reason other than the Optionee’s death, the Optionee’s disability or Cause, and unless otherwise determined by the Administrator, any portion of this Stock Option outstanding on such date may be exercised, to the extent exercisable on the date of termination, for a period of three months from the date of termination or until the Expiration Date, if earlier. Any portion of this Stock Option that is not exercisable on the date of termination shall terminate immediately and be of no further force or effect.
The Administrator’s determination of the reason for termination of the Optionee’s employment shall be conclusive and binding on the Optionee and his or her representatives or legatees.
4)Incorporation of Plan. Notwithstanding anything herein to the contrary, this Stock Option shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Administrator set forth in Section 2(b) of the Plan. Capitalized terms in this Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.
5)Transferability. This Agreement is personal to the Optionee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by shall or the laws of descent and distribution. This Stock Option is exercisable, during the Optionee’s lifetime, only by the Optionee, and thereafter, only by the Optionee’s legal representative or legatee.
6)Tax Withholding. The Optionee shall, not later than the date as of which the exercise of this Stock Option becomes a taxable event for Federal income tax purposes, pay to the Company or make arrangements satisfactory to the Administrator for payment of any Federal, state, and local taxes required by law to be withheld on account of such taxable event. The Company shall have the authority to cause the required tax withholding obligation to be satisfied, in whole or in part, by withholding from shares of Stock to be issued to the Optionee a number of shares of Stock with an aggregate Fair Market Value that would satisfy the withholding amount due.
7)No Obligation to Continue Employment. Neither the Company nor the Employer is obligated by or as a result of the Plan or this Agreement to continue the Optionee’s
employment and neither the Plan nor this Agreement shall interfere in any way with the right of the Company or the Employer to terminate employment of the Optionee at any time.
8)Integration. This Agreement constitutes the entire agreement between the parties with respect to this Stock Option and supersedes all prior agreements and discussions between the parties concerning such subject matter.
9)Data Privacy Consent. In order to administer the Plan and this Agreement and to implement or structure future equity grants, the Company, its subsidiaries and affiliates and certain agents thereof (together, the “Relevant Companies”) may process any and all personal or professional data, including but not limited to Social Security or other identification number, home address and telephone number, date of birth and other information that is necessary or desirable for the administration of the Plan and/or this Agreement (the “Relevant Information”). By entering into this Agreement, the Optionee (i) authorizes the Company to collect, process, register and transfer to the Relevant Companies all Relevant Information; (ii) waives any privacy rights the Optionee may have with respect to the Relevant Information; (iii) authorizes the Relevant Companies to store and transmit such information in electronic form; and (iv) authorizes the transfer of the Relevant Information to any jurisdiction in which the Relevant Companies consider appropriate. The Optionee shall have access to, and the right to change, the Relevant Information. Relevant Information shall only be used in accordance with applicable law.
10)Notices. Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or delivered to the Optionee at the address on file with the Company or, in either case, at such other address as one party may subsequently furnish to the other party in writing.
(Signature page follows.)
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QUALTRICS INTERNATIONAL INC.
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By:
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Title:
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The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned. Electronic acceptance of this Agreement pursuant to the Company’s instructions to the Optionee (including through an online acceptance process) is acceptable.
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Dated:
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Optionee’s Signature
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Optionee’s name and address:
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NON-QUALIFIED STOCK OPTION AGREEMENT
FOR NON-EMPLOYEE DIRECTORS
UNDER THE 2021 QUALTRICS INTERNATIONAL INC.
EMPLOYEE OMNIBUS EQUITY PLAN
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Name of Optionee:
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No. of Option Shares:
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Option Exercise Price per Share:
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$
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FMV on Grant Date
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Grant Date:
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Expiration Date:
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No more than 10 years
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Pursuant to the 2021 Qualtrics International Inc. Employee Omnibus Equity Plan as amended through the date hereof (the “Plan”), Qualtrics International Inc. (the “Company”) hereby grants to the individual named above (the “Optionee”), who is a Director of the Company but is not an employee of the Company, an option (the “Stock Option”) to purchase on or prior to the Expiration Date specified above all or part of the number of shares of Class A common stock, par value $0.0001 per share (the “Stock”), of the Company specified above at the Option Exercise Price per Share specified above subject to the terms and conditions set forth herein and in the Plan. This Stock Option is not intended to be an “incentive stock option” under Section 422 of the Internal Revenue Code of 1986, as amended.
1)Exercisability Schedule. No portion of this Stock Option may be exercised until such portion shall have become exercisable. Except as set forth below, and subject to the discretion of the Administrator (as defined in Section 2 of the Plan) to accelerate the exercisability schedule hereunder, this Stock Option shall be exercisable with respect to the following number of Option Shares on the dates indicated so long as the Optionee remains in service as a member of the Board on such dates:
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Incremental Number of
Option Shares Exercisable*
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Exercisability Date
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____________(___%)
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____________(___%)
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____________(___%)
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____________(___%)
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____________(___%)
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______________
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Once exercisable, this Stock Option shall continue to be exercisable at any time or times prior to the close of business on the Expiration Date, subject to the provisions hereof and of the Plan.
2)Manner of Exercise.
(a)The Optionee may exercise this Stock Option only in the following manner: from time to time on or prior to the Expiration Date of this Stock Option, the Optionee may give written notice to the Administrator of his or her election to purchase some or all of the Option Shares purchasable at the time of such notice. This notice shall specify the number of Option Shares to be purchased.
Payment of the purchase price for the Option Shares may be made by one or more of the following methods: (i) in cash, by certified or bank check or other instrument acceptable to the Administrator; (ii) through the delivery (or attestation to the ownership) of shares of Stock that have been purchased by the Optionee on the open market or that are beneficially owned by the Optionee and are not then subject to any restrictions under any Company plan and that otherwise satisfy any holding periods as may be required by the Administrator; (iii) by the Optionee delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company to pay the option purchase price, provided that in the event the Optionee chooses to pay the option purchase price as so provided, the Optionee and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the Administrator shall prescribe as a condition of such payment procedure; (iv) by a “net exercise” arrangement pursuant to which the Company shall reduce the number of shares of Stock issuable upon exercise by the largest whole number of shares with a Fair Market Value that does not exceed the aggregate exercise price; or (v) a combination of (i), (ii), (iii) and (iv) above. Payment instruments shall be received subject to collection.
The transfer to the Optionee on the records of the Company or of the transfer agent of the Option Shares shall be contingent upon (i) the Company’s receipt from the Optionee of the full purchase price for the Option Shares, as set forth above, (ii) the fulfillment of any other requirements contained herein or in the Plan or in any other agreement or provision of laws, and (iii) the receipt by the Company of any agreement, statement or other evidence that the Company may require to satisfy itself that the issuance of Stock to be purchased pursuant to the exercise of Stock Options under the Plan and any subsequent resale of the shares of Stock shall be in compliance with applicable laws and regulations. In the event the Optionee chooses to pay the purchase price by previously-owned shares of Stock through the attestation method, the number of shares of Stock transferred to the Optionee upon the exercise of the Stock Option shall be net of the Option Shares attested to.
(b)The shares of Stock purchased upon exercise of this Stock Option shall be transferred to the Optionee on the records of the Company or of the transfer agent upon compliance to the satisfaction of the Administrator with all requirements under applicable laws or regulations in connection with such transfer and with the requirements hereof and of the Plan. The determination of the Administrator as to such compliance shall be final and binding on the Optionee. The Optionee shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Stock subject to this Stock Option unless and until this Stock Option shall have been exercised pursuant to the terms hereof, the Company or the transfer
agent shall have transferred the shares to the Optionee, and the Optionee’s name shall have been entered as the stockholder of record on the books of the Company. Thereupon, the Optionee shall have full voting, dividend and other ownership rights with respect to such shares of Stock.
(c)The minimum number of shares with respect to which this Stock Option may be exercised at any one time shall be 100 shares, unless the number of shares with respect to which this Stock Option is being exercised is the total number of shares subject to exercise under this Stock Option at the time.
(d)Notwithstanding any other provision hereof or of the Plan, no portion of this Stock Option shall be exercisable after the Expiration Date hereof.
3)Termination as Director. If the Optionee ceases to be a Director of the Company, the period within which to exercise the Stock Option may be subject to earlier termination as set forth below.
(a)Termination Due to Death. If the Optionee’s service as a Director terminates by reason of the Optionee’s death, any portion of this Stock Option outstanding on such date, to the extent exercisable on the date of death, may thereafter be exercised by the Optionee’s legal representative or legatee for a period of 12 months from the date of death or until the Expiration Date, if earlier. Any portion of this Stock Option that is not exercisable on the date of death shall terminate immediately and be of no further force or effect.
(b)Other Termination. If the Optionee ceases to be a Director for any reason other than the Optionee’s death, any portion of this Stock Option outstanding on such date may be exercised, to the extent exercisable on the date the Optionee ceased to be a Director, for a period of six months from the date the Optionee ceased to be a Director or until the Expiration Date, if earlier. Any portion of this Stock Option that is not exercisable on the date the Optionee ceases to be a Director shall terminate immediately and be of no further force or effect.
4)Incorporation of Plan. Notwithstanding anything herein to the contrary, this Stock Option shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Administrator set forth in Section 2(b) of the Plan. Capitalized terms in this Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.
5)Transferability. This Agreement is personal to the Optionee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by shall or the laws of descent and distribution. This Stock Option is exercisable, during the Optionee’s
lifetime, only by the Optionee, and thereafter, only by the Optionee’s legal representative or legatee.
6)No Obligation to Continue as a Director. Neither the Plan nor this Stock Option confers upon the Optionee any rights with respect to continuance as a Director.
7)Integration. This Agreement constitutes the entire agreement between the parties with respect to this Stock Option and supersedes all prior agreements and discussions between the parties concerning such subject matter.
8)Data Privacy Consent. In order to administer the Plan and this Agreement and to implement or structure future equity grants, the Company, its subsidiaries and affiliates and certain agents thereof (together, the “Relevant Companies”) may process any and all personal or professional data, including but not limited to Social Security or other identification number, home address and telephone number, date of birth and other information that is necessary or desirable for the administration of the Plan and/or this Agreement (the “Relevant Information”). By entering into this Agreement, the Optionee (i) authorizes the Company to collect, process, register and transfer to the Relevant Companies all Relevant Information; (ii) waives any privacy rights the Optionee may have with respect to the Relevant Information; (iii) authorizes the Relevant Companies to store and transmit such information in electronic form; and (iv) authorizes the transfer of the Relevant Information to any jurisdiction in which the Relevant Companies consider appropriate. The Optionee shall have access to, and the right to change, the Relevant Information. Relevant Information shall only be used in accordance with applicable law.
9)Notices. Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or delivered to the Optionee at the address on file with the Company or, in either case, at such other address as one party may subsequently furnish to the other party in writing.
(Signature page follows.)
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QUALTRICS INTERNATIONAL INC.
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By:
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Title:
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The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned. Electronic acceptance of this Agreement pursuant to the Company’s instructions to the Optionee (including through an online acceptance process) is acceptable.
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Dated:
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Optionee’s Signature
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Optionee’s name and address:
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2021 QUALTRICS INTERNATIONAL INC.
EMPLOYEE STOCK PURCHASE PLAN
The purpose of the 2021 Qualtrics International Inc. Employee Stock Purchase Plan (the “Plan”) is to provide eligible employees of Qualtrics International Inc. (the “Company”) and each Designated Company (as defined in Section 11) with opportunities to purchase shares of the Company’s Class A common stock, par value $0.0001 per share (the “Common Stock”). 12,000,000 shares of Common Stock in the aggregate have been approved and reserved for this purpose, plus on January 1, 2022 and each January 1 thereafter through (and including) January 1, 2031, the number of shares of Common Stock reserved and available for issuance under the Plan shall be cumulatively increased by the least of: (i) two percent of the number of shares reserved for issuance by the Company under this Plan, (ii) one percent of the number of shares of Common Stock and Class B common stock of the Company issued and outstanding on the immediately preceding December 31 and (iii) such lesser number of shares of Common Stock determined by the Administrator (as defined in Section 1).
The Plan includes two components: a Code Section 423 Component (the “423 Component”) and a non-Code Section 423 Component (the “Non-423 Component”). It is intended for the 423 Component to constitute an “employee stock purchase plan” within the meaning of Section 423(b) of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), and the 423 Component shall be interpreted in accordance with that intent. Under the Non-423 Component, which does not qualify as an “employee stock purchase plan” within the meaning of Section 423(b) of the Code, options shall be granted pursuant to rules, procedures or sub-plans adopted by the Administrator designed to achieve tax, securities laws or other objectives for eligible employees. Except as otherwise provided herein, the Non-423 Component shall operate and be administered in the same manner as the 423 Component.
Unless otherwise defined herein, capitalized terms in this Plan shall have the meaning ascribed to them in Section 11.
1.Administration. The Plan shall be administered by the person or persons (the “Administrator”) appointed by the Company’s Board of Directors (the “Board”) for such purpose. The Administrator has full authority at any time to: (i) adopt, alter and repeal such rules, guidelines and practices for the administration of the Plan and for its own acts and proceedings as it shall deem advisable; (ii) interpret and construe the terms and provisions of the Plan; (iii) make all determinations it deems advisable for the administration of the Plan, including to accommodate the specific requirements of local laws, regulations and procedures for jurisdictions outside the United States; (iv) decide all disputes arising in connection with the Plan; and (v) otherwise supervise the administration of the Plan. All interpretations and decisions of the Administrator shall be binding on all persons, including the Company and the Participants. No member of the Board or individual exercising administrative authority with respect to the Plan shall be liable for any action or determination made in good faith with respect to the Plan or any option granted hereunder.
2.Offerings. The Company shall make one or more offerings to eligible employees to purchase Common Stock under the Plan (“Offerings”) consisting of one or more Purchase
Periods. Unless otherwise determined by the Administrator, the initial Offering shall begin on the Registration Date and shall end on January 31, 2023 (the “Initial Offering”) and the next two Offerings shall commence on the first trading day on or following each of August 1, 2021 and February 1, 2022 and shall end on January 31, 2023. Thereafter, unless otherwise determined by the Administrator, subsequent Offerings shall begin on the first trading day on or after each February 1 and August 1 and shall end on the last trading day on or before July 31 and January 31, respectively. The Administrator may, in its discretion, designate a different period for any Offering, provided that no Offering shall exceed 27 months in duration. Unless the Administrator otherwise determines, each Offering shall be divided into equal six-month Purchase Periods, except that the first Purchase Period in the Initial Offering shall commence on the Registration Date and shall end on the last trading day on or before July 31, 2021.
3.Eligibility. All individuals classified as employees on the payroll records of the Company and each Designated Company are eligible to participate in any one or more of the Offerings under the Plan, provided that, unless otherwise determined by the Administrator, as of the first day of the applicable Offering (the “Offering Date”) they are customarily employed by the Company or a Designated Company for more than 20 hours a week and for more than five months in any calendar year, provided, however, that employees who are employed for 20 hours or less a week or for five months or less in any calendar year may be eligible to participate in the Plan if required by applicable law or regulations. Notwithstanding any other provision herein, individuals who are not contemporaneously classified as employees of the Company or a Designated Company for purposes of the Company’s or applicable Designated Company’s payroll system are not considered to be eligible employees of the Company or any Designated Company and shall not be eligible to participate in the Plan. In the event any such individuals are reclassified as employees of the Company or a Designated Company for any purpose, including, without limitation, common law or statutory employees, by any action of any third party, including, without limitation, any government agency, or as a result of any private lawsuit, action or administrative proceeding, such individuals shall, notwithstanding such reclassification, remain ineligible for participation. Notwithstanding the foregoing, the exclusive means for individuals who are not contemporaneously classified as employees of the Company or a Designated Company on the Company’s or Designated Company’s payroll system to become eligible to participate in this Plan is through an amendment to this Plan, duly executed by the Company, which specifically renders such individuals eligible to participate herein.
4.Participation.
(a)Participants on Effective Date. Each eligible employee at the time of the Initial Public Offering shall be deemed to be a Participant at such time. If an eligible employee is deemed to be a Participant pursuant to this Section 4(a), such individual shall be deemed not to have authorized payroll deductions and shall not purchase any Common Stock hereunder unless he or she thereafter authorizes payroll deductions by submitting an enrollment form (in the manner described in Section 4(c)) within 60 days of the commencement of the Initial Offering. If such a Participant does not authorize payroll deductions by submitting an enrollment form within 60 days of the commencement of the Initial Offering, that Participant shall be deemed to have withdrawn from the Plan.
(b)Participants in Subsequent Offerings. An eligible employee who is not a Participant in any prior Offering may participate in a subsequent Offering by submitting an enrollment form (in the manner described in Section 4(c)) at least 15 business days before the Offering Date (or by such other deadline as shall be established by the Administrator for the Offering).
(c)Enrollment. The enrollment form (which may be in an electronic format or such other method as determined by the Company in accordance with the Company’s practices) shall (a) state a whole percentage to be deducted from an eligible employee’s Compensation per pay period, (b) authorize the purchase of Common Stock in each Offering in accordance with the terms of the Plan and (c) specify the exact name or names in which shares of Common Stock purchased for such individual are to be issued pursuant to Section 10. An employee who does not enroll in accordance with these procedures shall be deemed to have waived the right to participate. Unless a Participant files a new enrollment form or withdraws from the Plan, such Participant’s deductions and purchases shall continue at the same percentage of Compensation for future Offerings, provided he or she remains eligible.
(d)Notwithstanding the foregoing, participation in the Plan shall neither be permitted nor denied contrary to the requirements of the Code.
5.Employee Contributions. Each eligible employee may authorize payroll deductions at a minimum of one (1) percent up to a maximum of 20 percent of such employee’s Compensation for each pay period. The Company shall maintain book accounts showing the amount of payroll deductions made by each Participant for each Purchase Period. No interest shall accrue or be paid on payroll deductions, except as may be required by applicable law. If payroll deductions for purposes of the Plan are prohibited or otherwise problematic under applicable law (as determined by the Administrator in its discretion), the Administrator may require Participants to contribute to the Plan by such other means as determined by the Administrator. Any reference to “payroll deductions” in this Section 5 (or in any other section of the Plan) shall similarly cover contributions by other means made pursuant to this Section 5.
6.Deduction Changes. Except in the event of a Participant increasing his or her payroll deduction from zero (0) percent during the first Offering as specified in Section 4(a) or as may be determined by the Administrator in advance of an Offering, a Participant may not increase or decrease his or her payroll deduction during any Offering, but may increase or decrease his or her payroll deduction with respect to the next Offering (subject to the limitations of Section 5) by filing a new enrollment form at least 15 business days before the next Offering Date (or by such other deadline as shall be established by the Administrator for the Offering). The Administrator may, in advance of any Offering, establish rules permitting a Participant to increase, decrease or terminate his or her payroll deduction during an Offering.
7.Withdrawal. A Participant may withdraw from participation in the Plan by submitting to the Company a revised enrollment form indicating his or her election to withdraw (in accordance with such procedures as may be established by the Administrator). The Participant’s withdrawal shall be effective as of the next business day. Following a Participant’s withdrawal, the Company shall promptly refund such individual’s entire account balance under
the Plan to him or her (after payment for any Common Stock purchased before the effective date of withdrawal). Partial withdrawals are not permitted. Such an employee may not begin participation again during the remainder of the Offering, but may enroll in a subsequent Offering in accordance with Section 4. Unless the Administrator, in its sole discretion, chooses otherwise prior to an Offering Date, and to the extent permitted by applicable law, in the event that the Fair Market Value of the Common Stock is lower on an Exercise Date of an Offering (other than the last Exercise Date thereof) than it was on the Offering Date for that Offering, all employees participating in such Offering on the Exercise Date shall be deemed to have withdrawn from the Offering immediately after the exercise of their option on such Exercise Date and to have enrolled as Participants in a new Offering which begins on or about the day following such Exercise Date.
8.Grant of Options. On each Offering Date, the Company shall grant to each Participant in the Plan an option (“Option”) to purchase, on the last day of a Purchase Period (the “Exercise Date”) and at the Option Price hereinafter provided for, the lowest of (a) a number of shares of Common Stock determined by dividing such Participant’s accumulated payroll deductions on such Exercise Date by the Option Price (as defined herein); (b) a number of shares determined by dividing $15,000 by the Fair Market Value of the Common Stock on the Offering Date; or (c) such other lesser maximum number of shares as shall have been established by the Administrator in advance of the Offering; provided, however, that such Option shall be subject to the limitations set forth below. Each Participant’s Option shall be exercisable only to the extent of such Participant’s accumulated payroll deductions on the Exercise Date. The purchase price for each share purchased under each Option (the “Option Price”) shall be 85 percent of the Fair Market Value of the Common Stock on the Offering Date or the Exercise Date, whichever is less.
Notwithstanding the foregoing, no Participant may be granted an Option hereunder if such Participant, immediately after the Option was granted, would be treated as owning stock possessing five (5) percent or more of the total combined voting power or value of all classes of stock of the Company or any Parent or Subsidiary. For purposes of the preceding sentence, the attribution rules of Section 424(d) of the Code shall apply in determining the stock ownership of a Participant, and all stock which the Participant has a contractual right to purchase shall be treated as stock owned by the Participant. In addition, no Participant may be granted an Option which permits his or her rights to purchase stock under the Plan, and any other employee stock purchase plan of the Company and its Parents and Subsidiaries, to accrue at a rate which exceeds $25,000 of the fair market value of such stock (determined on the option grant date or dates) for each calendar year in which the Option is outstanding at any time. The purpose of the limitation in the preceding sentence is to comply with Section 423(b)(8) of the Code and shall be applied taking Options into account in the order in which they were granted.
9.Exercise of Option and Purchase of Shares. Each employee who continues to be a Participant in the Plan on the Exercise Date shall be deemed to have exercised his or her Option on such date and shall acquire from the Company such number of whole shares of Common Stock reserved for the purpose of the Plan as his or her accumulated payroll deductions on such date shall purchase at the Option Price, subject to any other limitations contained in the Plan;
provided that, with respect to the Initial Offering, the exercise of each Option shall be conditioned on the closing of the Company’s Initial Public Offering on or before the Exercise Date. Unless otherwise determined by the Administrator in advance of an Offering, any amount remaining in a Participant’s account after the purchase of shares on an Exercise Date of an Offering solely by reason of the inability to purchase a fractional share shall be carried forward to the next Purchase Period and, if such Exercise Date is the final Exercise Date of an Offering, shall be carried forward to the next Offering; any other balance remaining in a Participant’s account at the end of an Offering shall be refunded to the Participant promptly.
10.Issuance of Certificates. Certificates representing shares of Common Stock purchased under the Plan may be issued only in the name of the employee, in the name of the employee and another person of legal age as joint tenants with rights of survivorship, or in the name of a broker authorized by the employee to be his, her or their, nominee for such purpose.
11.Definitions.
The term “Affiliate” means any entity that, directly or indirectly through one or more intermediaries, controls, is controlled by or is under the common control with, the Company.
The term “Compensation” means the amount of base pay, prior to salary reduction (such as pursuant to Sections 125, 132(f) or 401(k) of the Code), but excluding overtime, commissions, incentive or bonus awards, allowances and reimbursements for expenses such as relocation allowances or travel expenses, income or gains related to Company stock options or other share-based awards, and similar items. The Administrator shall have the discretion to determine the application of this definition to Participants outside the United States.
The term “Designated Company” means any present or future Subsidiary or Affiliate that has been designated by the Administrator to participate in the Plan. The Administrator may so designate any Subsidiary or Affiliate, or revoke any such designation, at any time and from time to time, either before or after the Plan is approved by the stockholders, and may further designate such companies or Participants as participating in the 423 Component or the Non-423 Component. The Administrator may also determine which Affiliates or eligible employees may be excluded from participation in the Plan, to the extent consistent with Section 423 of the Code or as implemented under the Non-423 Component, and determine which Designated Company or Companies shall participate in separate Offerings (to the extent that the Company makes separate Offerings). For purposes of the 423 Component, only the Company and its Subsidiaries may be Designated Companies; provided, however, that at any given time, a Subsidiary that is a Designated Company under the 423 Component shall not be a Designated Company under the Non-423 Component.
The term “Fair Market Value of the Common Stock” on any given date means the fair market value of the Common Stock determined in good faith by the Administrator; provided, however, that if the Common Stock is admitted to quotation on the National Association of Securities Dealers Automated Quotation System (“NASDAQ”), NASDAQ Global Market, the New York Stock Exchange or another national securities exchange, the determination shall be made by reference to the closing price on such date. If there is no closing price for such date, the
determination shall be made by reference to the last date preceding such date for which there is a closing price. Notwithstanding the foregoing, if the date for which the Fair Market Value of the Common Stock is determined is the Registration Date, the Fair Market Value of the Common Stock shall be the “Price to the Public” (or equivalent) set forth on the cover page for the final prospectus relating to the Company’s Initial Public Offering.
The term “Initial Public Offering” means the first underwritten, firm commitment public offering pursuant to an effective registration statement under the U.S. Securities Act of 1933, as amended, covering the offer and sale by the Company of its Common Stock.
The term “Parent” means a “parent corporation” with respect to the Company, as defined in Section 424(e) of the Code.
The term “Participant” means an individual who is eligible as determined in Section 3 and who has complied with the provisions of Section 4.
The term “Purchase Period” means a period of time specified within an Offering beginning on the Offering Date or on the next day following an Exercise Date within an Offering and ending on an Exercise Date. An Offering may consist of one or more Purchase Periods.
The term “Registration Date” means the date upon which the registration statement on Form S-1 that is filed by the Company with respect to its Initial Public Offering is declared effective by the U.S. Securities and Exchange Commission (the “SEC”).
The term “Sale Event” means: (i) the sale of all or substantially all of the assets of the Company on a consolidated basis to an unrelated person or entity; (ii) a merger, reorganization or consolidation pursuant to which the holders of the Company’s aggregate outstanding voting power and outstanding stock (Class A and Class B common stock) immediately prior to such transaction do not own a majority of the aggregate outstanding voting power and outstanding stock (Class A and Class B common stock) or other equity interests of the resulting or successor entity (or its ultimate parent, if applicable) immediately upon completion of such transaction; (iii) the sale of all of the Common Stock to an unrelated person, entity or group thereof acting in concert; or (iv) any other transaction in which the owners of the Company’s outstanding voting power immediately prior to such transaction do not own at least a majority of the outstanding voting power of the Company or any successor entity immediately upon completion of the transaction other than as a result of the acquisition of securities directly from the Company. Notwithstanding anything in the foregoing to the contrary, no Sale Event shall be deemed to have occurred for purposes of this Plan by virtue of either SAP America’s distribution of the Company’s shares to SAP or SAP’s distribution of the Company’s shares to its securityholders, in each case in a transaction intended to qualify as a distribution under Section 355 of the Code.
The term “SAP” means SAP SE, a European Company (Societas Europaea), established under the laws of Germany and the European Union.
The term “SAP America” means SAP America, Inc., a Delaware corporation and wholly-owned Subsidiary of SAP.
The term “Subsidiary” means a “subsidiary corporation” with respect to the Company, as defined in Section 424(f) of the Code.
12.Rights on Termination or Transfer of Employment. If a Participant’s employment terminates for any reason before the Exercise Date for any Offering, no payroll deduction shall be taken from any pay due and owing to the Participant and the balance in the Participant’s account shall be paid to such Participant or, in the case of such Participant’s death, to the legal representative of his or her estate as if such Participant had withdrawn from the Plan under Section 7. An employee shall be deemed to have terminated employment, for this purpose, if the corporation that employs him or her, having been a Designated Company, ceases to be a Subsidiary or Affiliate, or if the employee is transferred to any corporation other than the Company or a Designated Company. Unless otherwise determined by the Administrator, a Participant whose employment transfers between, or whose employment terminates with an immediate rehire (with no break in service) by, Designated Companies or a Designated Company and the Company shall not be treated as having terminated employment for purposes of participating in the Plan or an Offering; provided, however, that if a Participant transfers from an Offering under the 423 Component to an Offering under the Non-423 Component, the exercise of the Participant’s Option shall be qualified under the 423 Component only to the extent that such exercise complies with Section 423 of the Code. If a Participant transfers from an Offering under the Non-423 Component to an Offering under the 423 Component, the exercise of the Participant’s Option shall remain non-qualified under the Non-423 Component. Further, an employee shall not be deemed to have terminated employment for purposes of this Section 12, if the employee is on an approved leave of absence where the employee’s right to reemployment is guaranteed either by a statute or by contract or under the policy pursuant to which the leave of absence was granted or if the Administrator otherwise provides in writing.
13.Special Rules and Sub-Plans. Notwithstanding anything herein to the contrary, the Administrator may adopt special rules or sub-plans applicable to the employees of a particular Designated Company, whenever the Administrator determines that such rules are necessary or appropriate for the implementation of the Plan in a jurisdiction where such Designated Company has employees, regarding, without limitation, eligibility to participate in the Plan, handling and making of payroll deductions or contribution by other means, establishment of bank or trust accounts to hold payroll deductions, payment of interest, conversion of local currency, obligations to pay payroll tax, withholding procedures and handling of share issuances, any of which may vary according to applicable requirements; provided that if such special rules or sub-plans are inconsistent with the requirements of Section 423(b) of the Code, the employees subject to such special rules or sub-plans shall participate in the Non-423 Component.
14.Optionees Not Stockholders. Neither the granting of an Option to a Participant nor the deductions from his or her pay shall result in such Participant becoming a holder of the shares of Common Stock covered by an Option under the Plan until such shares have been purchased by and issued to him or her.
15.Rights Not Transferable. Rights under the Plan are not transferable by a Participant other than by shall or the laws of descent and distribution, and are exercisable during the Participant’s lifetime only by the Participant.
16.Application of Funds. All funds received or held by the Company under the Plan may be combined with other corporate funds and may be used for any corporate purpose, unless otherwise required under applicable law.
17.Adjustment in Case of Changes Affecting Common Stock. In the event of a subdivision of outstanding shares of Common Stock, the payment of a dividend in Common Stock or any other change affecting the Common Stock, the number of shares approved for the Plan and the share limitation set forth in Section 8 shall be equitably or proportionately adjusted to give proper effect to such event.
18.Sale Event. Each outstanding purchase right shall automatically be exercised, immediately prior to the effective date of any Sale Event, by applying the payroll deductions of each Participant for the Purchase Period in which such Sale Event occurs to the purchase of whole shares of Common Stock at the Option Price, with the Exercise Date being the date immediately prior to the effective date of such Sale Event. Any such purchase shall be subject to any other limitations contained in the Plan. The Company shall use its best efforts to provide at least ten days’ prior written notice of the occurrence of any Sale Event, and Participants shall, following the receipt of such notice, have the right to terminate their outstanding purchase rights prior to the effective date of the Sale Event. Notwithstanding the foregoing provisions of this Section 18 to the contrary, the Administrator may in its discretion determine that any outstanding purchase rights shall be terminated prior to the effective date of a Sale Event, in which case all payroll deductions for the Purchase Period in which such purchase rights are terminated shall be promptly refunded.
19.Amendment of the Plan. The Board may at any time and from time to time amend the Plan in any respect, except that without the approval within 12 months of such Board action by the stockholders, no amendment shall be made increasing the number of shares approved for the Plan or making any other change that would require stockholder approval in order for the 423 Component of the Plan, as amended, to qualify as an “employee stock purchase plan” under Section 423(b) of the Code.
20.Insufficient Shares. If the total number of shares of Common Stock that would otherwise be purchased on any Exercise Date plus the number of shares purchased under previous Offerings under the Plan exceeds the maximum number of shares issuable under the Plan, the shares then available shall be apportioned among Participants in proportion to the amount of payroll deductions accumulated on behalf of each Participant that would otherwise be used to purchase Common Stock on such Exercise Date.
21.Termination of the Plan. The Plan may be terminated at any time by the Board. Upon termination of the Plan, all amounts in the accounts of Participants shall be promptly refunded. The Plan shall automatically terminate on the ten-year anniversary of the Registration Date.
22.Governmental Regulations. The Company’s obligation to sell and deliver Common Stock under the Plan is subject to the completion of any registration or qualification of the Common Stock under any U.S. or non-U.S. local, state or federal securities or exchange control law, or under rulings or regulations of the SEC or of any other governmental regulatory body, and to obtaining any approval or other clearance from any U.S. and non-U.S. local, state or federal governmental agency, which registration, qualification or approval the Company shall, in its absolute discretion, deem necessary or advisable. The Company is under no obligation to register or qualify the Common Stock with the SEC or any other U.S. or non-U.S. securities commission or to seek approval or clearance from any governmental authority for the issuance or sale of such stock.
23.Governing Law. This Plan and all Options and actions taken thereunder shall be governed by, and construed in accordance with, the laws of the State of Delaware, applied without regard to conflict of law principles.
24.Issuance of Shares. Shares may be issued upon exercise of an Option from authorized but unissued Common Stock, from shares held in the treasury of the Company, or from any other proper source.
25.Tax Withholding. Participation in the Plan is subject to any applicable U.S. and non-U.S. federal, state or local tax withholding requirements on income the Participant realizes in connection with the Plan. Each Participant agrees, by entering the Plan, that the Company or any Subsidiary or Affiliate may, but shall not be obligated to, withhold from a Participant’s wages, salary or other compensation at any time the amount necessary for the Company or any Subsidiary or Affiliate to meet applicable withholding obligations, including any withholding required to make available to the Company or any Subsidiary or Affiliate any tax deductions or benefits attributable to the sale or disposition of Common Stock by such Participant. In addition, the Company or any Subsidiary or Affiliate may, but shall not be obligated to, withhold from the proceeds of the sale of Common Stock or any other method of withholding that the Company or any Subsidiary or Affiliate deems appropriate to the extent permitted by U.S. Treasury Regulation Section 1.423-2(f) with respect to the 423 Component. The Company shall not be required to issue any Common Stock under the Plan until such obligations are satisfied.
26.Code Section 409A. The 423 Component of the Plan is exempt from the application of Section 409A of the Code and any ambiguities herein shall be interpreted to so be exempt from Section 409A of the Code. The Non-423 Component is intended to be exempt from the application of Section 409A of the Code as options granted thereunder are intended to constitute “short term deferrals” and any ambiguities herein shall be interpreted such that those options shall so be exempt from Section 409A of the Code. In furtherance of the foregoing and notwithstanding any provision in the Plan to the contrary, if the Administrator determines that an option granted under the Plan may be subject to Section 409A of the Code or that any provision in the Plan would cause an option under the Plan to be subject to Section 409A of the Code, the Administrator may amend the terms of the Plan and/or of an outstanding option granted under the Plan, or take such other action the Administrator determines is necessary or appropriate, in each case, without the Participant’s consent, to exempt any outstanding option or future option
that may be granted under the Plan from or to allow any such options to comply with Section 409A of the Code, but only to the extent any such amendments or action by the Administrator would not violate Section 409A of the Code. Notwithstanding the foregoing, the Company shall have no liability to a Participant or any other party if the option to purchase Common Stock under the Plan that is intended to be exempt from or compliant with Section 409A of the Code is not so exempt or compliant or for any action taken by the Administrator with respect thereto. The Company makes no representation that the option to purchase Common Stock under the Plan is compliant with Section 409A of the Code.
27.Notification Upon Sale of Shares Under 423 Component. Each Participant agrees, by entering the 423 Component of the Plan, to give the Company prompt notice of any disposition of shares purchased under the Plan where such disposition occurs within two years after the date of grant of the Option pursuant to which such shares were purchased or within one year after the date such shares were purchased.
28.Effective Date and Sole Stockholder Approval. The Plan shall take effect on the date immediately preceding the Registration Date following approval by the Company’s sole stockholder.
2021 QUALTRICS INTERNATIONAL INC. ESPP UK SUB-PLAN
(the “ESPP UK Sub Plan”)
to the
2021 QUALTRICS INTERNATIONAL INC. EMPLOYEE STOCK PURCHASE PLAN
(the “2021 ESPP”)
Adopted by the Board as of December 15, 2020 pursuant to and in accordance with Section 13 of the 2021 ESPP. The ESPP UK Sub Plan is hereby made part of the 2021 ESPP, and is not a separate distinct plan on its own.
Introduction
The purpose of the UK ESPP Sub Plan is to provide for alterations and amendments to the 2021 ESPP in respect of its operation in the United Kingdom, so as to facilitate the participation of United Kingdom employees in the 2021 ESPP.
Words and expressions defined in the 2021 ESPP shall have the same meaning when used in the ESPP UK Sub Plan (unless otherwise stated herein) and all references to the 2021 ESPP shall be to the 2021 ESPP as amended by the ESPP UK Sub Plan. The provisions of the 2021 ESPP shall apply to the provisions of the ESPP UK Sub Plan except where expressly varied herein. References to Sections in the ESPP UK Sub Plan are references to Sections of the 2021 ESPP. In the event of any discrepancy between the provisions of the 2021 ESPP and the provisions of the ESPP UK Sub Plan, the provisions of the ESPP UK Sub Plan shall take precedence.
Operative Provisions
Options may be granted under the ESPP UK Sub Plan in accordance with such provisions as would be applicable if the provisions of the 2021 ESPP were here set out in full, subject to the following modifications:
Section 3 of the 2021 ESPP shall be amended to include the words underlined below:
All individuals classified as bona fide employees on the payroll records of the Company and each Designated Company are eligible to participate in any one or more of the Offerings under the Plan, provided that, unless otherwise determined by the Administrator, as of the first day of the applicable Offering (the “Offering Date”) they are customarily employed by the Company or a Designated Company for more than 20 hours a week and for more than five months in any calendar year, provided, however, that bona fide employees who are employed for 20 hours or less a week or for five months or less in any calendar year may be eligible to participate in the Plan if required by applicable law or regulations. Notwithstanding any other provision herein, individuals who are not contemporaneously classified as bona fide employees of the Company or a Designated Company for purposes of the Company’s or applicable Designated Company’s payroll system are not considered to be eligible employees of the Company or any Designated Company and shall not be eligible to participate in the Plan. In the event any such individuals are reclassified as bona fide employees of the
Company or a Designated Company for any purpose, including, without limitation, common law or statutory employees, by any action of any third party, including, without limitation, any government agency, or as a result of any private lawsuit, action or administrative proceeding, such individuals shall, notwithstanding such reclassification, remain ineligible for participation. Notwithstanding the foregoing, the exclusive means for individuals who are not contemporaneously classified as employees of the Company or a Designated Company on the Company’s or Designated Company’s payroll system to become eligible to participate in this Plan is through an amendment to this Plan, duly executed by the Company, which specifically renders such individuals eligible to participate herein.
The definition of “Affiliate” set forth in Section 11 shall be amended to include the words underlined below:
“Affiliate” means any entity that, directly or indirectly through one or more intermediaries, controls, is controlled by or is under the common control with, the Company (provided always that any such entity is a member of the same group as the Company for the purposes of Articles 60 of the Financial Services and Markets Act 2000 (Financial Promotions) Order 2005).
The definition of “Subsidiary” set forth in Section 11 shall be amended to include the words underlined below:
“Subsidiary” means a “subsidiary corporation” with respect to the Company, as defined in Section 424(f) of the Code; provided that such corporation or other entity is a member of the same group as the Company for the purposes of Articles 60 of the Financial Services and Markets Act 2000 (Financial Promotions) Order 2005.
QUALTRICS EMPLOYMENT AGREEMENT
This Employment Agreement (the “Agreement”) is made by and between Qualtrics, LLC, a Delaware limited liability company (“Qualtrics”), and the employee whose signature appears below (“Employee,” each a ‘‘Party” and, together with Qualtrics, the “Parties”) and is effective as of Employee’s date of signature (the “Effective Date”). Qualtrics is in the business of providing software and services related to surveys, data collection, data analysis, reporting and dashboards, experience management, research, customer experience, and/or employee experience (collectively, the “Business”). Employee desires to be employed by Qualtrics, and as a condition of such employment, Employee agrees to the terms and covenants in this Agreement. Employee acknowledges the sufficiency of the consideration Employee is receiving, including without limitation the compensation and other benefits from Qualtrics, Employee’s continued employment with Qualtrics, and any awards or forms of equity in Qualtrics or its affiliates. Qualtrics and Employee further agree as follows:
(1) Employment. Qualtrics hereby employs, or continues to employ, Employee, and Employee agrees to be employed, or to continue to be employed, by Qualtrics. Employee will devote Employee’s full business time and attention to achieving the purposes and discharging the responsibilities assigned to Employee. Employee will comply with all rules, policies and procedures of Qualtrics as modified from time to time, including without limitation rules, policies and procedures set forth in the Qualtrics’ employee handbook and similar materials. Employee will perform all of Employee’s responsibilities in compliance with all applicable laws and will ensure that the operations that Employee manages or participates in are in compliance with all applicable laws. Employee may be given access to company property for use during their employment at Qualtrics, including a laptop or other computer equipment (“Hardware”). Qualtrics reserves the right to inspect Employee’s loaned Hardware for violation of any Qualtrics security policy. During Employee’s employment, Employee will not engage in any other business activity that, in the reasonable judgment of Qualtrics, conflicts with the duties of Employee under this Agreement, whether or not such activity is pursued for gain, profit or other pecuniary advantage.
(2) At-Will Employment. Employee’s employment with Qualtrics is “at-will.” This means that Employee’s employment is not for any specified period of time and can be terminated by Employee or by Qualtrics at any time, with or without advance notice or additional payment, with or without cause and for any reason or no reason at all. It also means that Employee’s job duties, title, responsibilities, reporting level, compensation and benefits, as well as Qualtrics’ personnel policies, procedures and employee handbook, may be changed at any time, with or without notice for any reason or no reason at all, in Qualtrics’ sole and absolute discretion. The “at-will” nature of Employee’s employment shall remain unchanged during Employee’s tenure as an employee and may not be changed, except in a writing expressly stating its intent to alter the terms of this Agreement that is signed by Employee and an executive officer of Qualtrics.
(3) Compensation; Other Benefits. Employee’s compensation will be determined at the commencement of employment, and may increase or decrease from time to time in the sole discretion of Qualtrics. Compensation is payable in bi-monthly installments, subject to withholdings and deductions as authorized by the employee or as required or permitted by law.
Employee may be eligible to participate in employee benefit programs that are generally available to Qualtrics’ U.S. employees, which may include programs such as medical insurance, 401(k), disability and life insurance plans. Nothing herein shall require the adoption or maintenance of any such program or plan. Employee will be provided such holidays, sick leave and vacation as Qualtrics makes available to its employees generally and in accordance with applicable law. To the extent permitted by law, Employee consents to a deduction from any amounts Qualtrics owes to Employee to offset any amounts Employee owes to Qualtrics. In the event that Employee owes Qualtrics some amount, whether or not Qualtrics elects to make any set-off in whole or in part, if Qualtrics does not recover by means of set-off the full amount Employee owes it, Employee agrees to pay the unpaid balance to Qualtrics immediately.
(4) Non-solicitation. Employee covenants and agrees that, during Employee’s employment by Qualtrics and for a period of twelve (12) months after the termination of Employee’s employment for any reason, Employee will not:
(a) Directly or indirectly solicit, employ, hire, offer to hire, become a business partner with or entice away from Qualtrics any person who is or has been within the past twelve (12) months an employee of Qualtrics or any of its affiliates (collectively “Qualtrics Employees”);
(b) Directly or indirectly solicit, divert, take away, or attempt to solicit, divert or take away, (i) any prospective customers of Qualtrics or its affiliates that Employee solicited or interacted with during Employee’s period of employment or (ii) any person or entity that is a customer or has been a customer of Qualtrics or its affiliates within the past twelve (12) months (collectively “Qualtrics Customers”);
(c) Directly or indirectly persuade or attempt to persuade any Qualtrics Employee, Qualtrics Customer, or consultant, agent, supplier or vendor of Qualtrics or any of its affiliates, to alter or discontinue its relationship with Qualtrics or any of its affiliates or to do any act that is inconsistent with the interests of Qualtrics or any of its affiliates.
Because Qualtrics does business on the internet with customers throughout the United States and around the world, to the fullest extent allowed under applicable law, there is no geographic limitation to this Section (4).
Qualtrics and Employee agree that: (i) this provision does not impose an undue hardship on Employee and is not injurious to the public; (ii) this provision is necessary to protect the business of Qualtrics and its affiliates; (iii) the duration and geographic scope of this Section (4) are reasonable; and (iv) adequate consideration supports this Section (4).
(5) Confidential Information. Employee recognizes that Qualtrics’ business and continued success depend upon the use and protection of confidential and/or proprietary information to which Employee has access (all such information being “Confidential Information”). For purposes of this Agreement, the phrase “Confidential Information” includes without limitation, for Qualtrics and its current or future subsidiaries and affiliates, whether or not specifically designated as confidential or proprietary: (i) information and technology developed by Qualtrics;
(ii) all business plans, marketing strategies and trade secrets, including information concerning Qualtrics’ development of new products and services; (iii) information concerning Qualtrics’ existing and prospective markets and customers; (iv) confidential information Qualtrics received from customers, consultants, vendors, or suppliers; (v) financial information relating to Qualtrics and/or Qualtrics’ customers, consultants, vendors, or suppliers; (vi) information concerning any personnel of Qualtrics (other than Employee), including without limitation, skills, compensation and personal information; and (vii) technical and non-technical data and information related to technology, software, software code, software development tools, software programs, designs, specifications, compilations, inventions, improvements, methods, processes, procedures and techniques; provided, however, that “Confidential Information” does not include information that (a) was lawfully in Employee’s possession without confidentiality restrictions prior to disclosure of such information by Qualtrics; (b) was, or at any time becomes, available in the public domain other than through a violation of this Agreement; (c) is documented by Employee as having been developed by Employee independently and outside the scope of Employee’s employment; (d) is furnished to Employee by a third party not under an obligation of confidentiality to Qualtrics; or (e) information that is related to the terms and conditions of Employee’s employment. Employee agrees that during Employee’s employment and after termination of such employment, irrespective of cause, Employee will not directly or indirectly use or divulge, or permit others to use or divulge, any Confidential Information for any reason, except as expressly authorized in writing by Qualtrics or required by law or court order. Employee’s confidentiality obligation under this Agreement is in addition to any obligations Employee has under state or federal law.
Employee agrees to deliver to Qualtrics immediately upon termination of Employee’s employment, or at any time Qualtrics so requests, all tangible documents and items containing any Confidential Information, together with all copies of such items in Employee’s possession or control, and to delete or destroy any other copies thereof in Employee’s possession. Employee’s obligations under this Section (5) are indefinite in term and shall survive the termination of this Agreement.
In accordance with the Defend Trade Secrets Act of 2016, Employee will not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that: (a) 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 (b) is made in a complaint or other document that is filed under seal in a lawsuit or other proceeding.
(6) Work Product and Copyrights. Employee agrees that (a) all right, title and interest in and to the materials resulting from the performance of Employee’s duties at Qualtrics and all copies thereof, including works in progress, in whatever media, (the “Work”), will be and remain owned by Qualtrics upon creation; (b) Employee will mark all Work with Qualtrics’ copyright or other proprietary notice as directed by Qualtrics; (c) to the extent that any portion of the Work constitutes a work protectable under the copyright laws of the United States (the “Copyright Law”), all such Work will be considered a “work made for hire” as such term is used and defined in the Copyright Law, and Qualtrics will be considered the “author” of such portion of the Work and the sole and exclusive owner throughout the world of copyright therein; (d) if any portion of the Work does not qualify as a “work made for hire” as such term is used and defined in the
Copyright Law, Employee hereby irrevocably assigns and agrees to assign to Qualtrics or its affiliates, successors or nominees, without further consideration, all right, title and interest in and to such Work or in any such portion thereof and any copyright or other intellectual property rights therein throughout the world to the fullest extent permitted by applicable law; (e) Employee hereby waives and agrees not to assert any moral rights Employee may have or acquire in any such Work and agrees to provide written waivers from time to time as requested by Qualtrics; (f) Employee will execute and deliver to Qualtrics, upon request, appropriate assignments of such Work and copyright therein and such other documents and instruments as Qualtrics may request to fully and completely assign such Work and copyright therein to Qualtrics or its affiliates, successors or nominees; and (g) Employee hereby appoints Qualtrics as attorney-in-fact to execute and deliver any such documents on Employee’s behalf in the event Employee should fail or refuse to do so within a reasonable period following Qualtrics’ request.
(7) Inventions and Patents. For purposes of this Agreement, “Inventions” includes information, inventions, contributions, improvements, ideas, designs, designations, know-how or discoveries, whether protectable or not, and whether or not conceived or made during work hours and all related intellectual property rights throughout the world. Employee agrees that all Inventions conceived or made by Employee during the period of employment with Qualtrics belong to Qualtrics, provided they grow out of Employee’s work with Qualtrics or are related in some manner to the Business, including, without limitation, research and product development, and projected business of Qualtrics or its affiliated companies. Accordingly, Employee agrees that, both during and after the term of Employee’s employment, Employee: (a) shall make adequate written records of such Inventions, which records will be Qualtrics’ property; (b) hereby irrevocably assigns, and agrees to assign, to Qualtrics, at its request, any rights Employee may have to such Inventions for the U.S. and all foreign countries to the fullest extent permitted by applicable law; (c) waives and agrees not to assert any moral rights Employee may have or acquire in any such Inventions and agree to provide written waivers from time to time as requested by Qualtrics; and (d) shall assist Qualtrics (at Qualtrics’ expense) in obtaining and maintaining patents, copyright or other registrations with respect to such Inventions and hereby appoints Qualtrics as attorney-in-fact to execute and deliver any such documents on Employee’s behalf in the event Employee should fail or refuse to do so within a reasonable period following Qualtrics’ request.
Employee understands and agrees that Qualtrics or its designee will determine, in its sole and absolute discretion, whether an application for patent will be filed on any Invention that is the property of Qualtrics, as set forth above, and whether such an application will be abandoned prior to issuance of a patent. Qualtrics will pay a bonus to be split among the inventors (as determined by Qualtrics) of an Invention upon Qualtrics’ filing of a patent application and again upon the successful grant of a patent.
Employee further agrees that Employee will promptly disclose in writing to Qualtrics during the term of Employee’s employment and for one (1) year thereafter, all Inventions whether developed during the time of such employment or during one (1) year thereafter, whether or not Qualtrics has rights in such Inventions, so that Employee’s rights and Qualtrics’ rights in such Inventions can be determined. Except as set forth on the signature page of this Agreement and any pages thereafter, Employee represents and warrants that Employee has no Inventions,
software, writings or other works of authorship useful to Qualtrics in the normal course of the Business, which were conceived, made or written prior to Employee’s start date at Qualtrics and which are excluded from the operation of this Agreement. However, if, when acting within the scope of Employee’s employment or otherwise on behalf of Qualtrics, Employee uses or (except pursuant to the preceding sentence) discloses Employee’s own or any third party’s confidential information or intellectual property (or if any Work or Invention cannot be fully made, used, reproduced, distributed and otherwise exploited without using or violating the foregoing), Qualtrics will have and Employee hereby grants Company a perpetual, irrevocable, worldwide royaltyfree, non-exclusive, sublicensable right and license to exploit and exercise all such confidential information and intellectual property rights.
(8) Remedies. Employee agrees that Employee’s violation of any of Sections (4)-(7) of this Agreement would cause Qualtrics irreparable harm which would not be adequately compensated by monetary damages and that an injunction may be granted by any court or courts having jurisdiction, restraining Employee from violation of the terms of this Agreement, upon any breach or threatened breach of Employee of the obligations set forth in any of Sections (4)-(7). The preceding sentence shall not be construed to limit Qualtrics from any other relief or damages to which it may be entitled as a result of Employee’s breach of any provision of this Agreement including Sections (4)-(7).
(9) Disclosure. Employee agrees fully and completely to reveal the terms of this Agreement to any future employer or potential employer of Employee.
(10) Representations of Employee. Employee represents and warrants to Qualtrics that (i) Employee is not in possession or control of any documents that in any way constitute confidential, proprietary or trade secret information of a third party (including any former employer); (ii) Employee is not subject to a non-competition agreement that would preclude Employee’s employment with Qualtrics; (iii) Employee has identified all confidentiality, proprietary, information, non-solicitation or similar agreements or obligations that it has with any third party and that, in the course of Employee’s work for Qualtrics, Employee will not violate any such agreements or obligations; and (iv) Employee, in the course of Employee’s work for Qualtrics, will not use or disclose any tangible or intangible information that constitutes confidential, proprietary, or trade secret information of a third party (including a former employer) except pursuant to written authorization to do so (e.g., a technology license between Qualtrics and a third party). Employee agrees to indemnify Qualtrics and to hold it harmless against any and all liabilities or claims arising out of any violation of any of the foregoing representations or warranties made by Employee.
(11) Assignability. This is a personal service contract and is not assignable by the Employee. Qualtrics may assign its rights and obligations under this Agreement without Employee’s consent at any time for any reason or no reason at all. This Agreement is binding upon Employee and Employee’s heirs, personal representatives and permitted assigns and on Qualtrics and its successors and assigns.
(12) Notices. Any notices required or permitted to be given hereunder are sufficient if in writing and delivered by hand, by registered or certified mail, or by overnight courier, to Employee at the address written below or to Qualtrics at 333 River Park Drive, Provo, UT
84604, Attn: Legal Department. Notices shall be deemed to have been given (i) upon delivery, if delivered by hand, (ii) seven days after mailing, if mailed, or (iii) one business day after delivery, if delivered by courier.
(13) Severability. If any provision of this Agreement or compliance by any of the Parties with any provision of this Agreement constitutes a violation of any law, or is or becomes unenforceable or void, then such provision shall be deemed modified only to the extent necessary so that it is no longer in violation of law, unenforceable or void, and such provision will be enforced to the fullest extent permitted by law. The Parties shall engage in good faith negotiations to modify and replace any provision which is declared invalid or unenforceable with a valid and enforceable provision, the economic effect of which comes as close as possible to that of the invalid or unenforceable provision which it replaces.
(14) Waivers. No failure or delay on the part of either Party to exercise any right or remedy hereunder will operate as a waiver thereof. No single or partial waiver of a breach of any provision of this Agreement will operate or be construed as a waiver of any subsequent breach. No single or partial exercise of any right or remedy hereunder will preclude any other or further exercise thereof or the exercise of any other right or remedy granted hereunder or by law. No action, inaction or waiver by Qualtrics with respect to its rights or remedies under any other agreement will operate as a waiver under this Agreement.
(15) Arbitration; Forum. To the maximum extent permitted by law, each Party agrees to submit any dispute, controversy, or claim arising out of or related to this Agreement and/or the Parties’ relationship (including the termination of such relationship) to binding arbitration. Notwithstanding the foregoing, the Parties agree that any dispute, controversy, or claim based upon Sections (4), (5), (6), (7) and/or noncompetition or sexual harassment (“Court-Eligible Claims”) may be brought by either Party in federal or state court. Arbitration shall be administered exclusively by the American Arbitration Association (“AAA”) and shall be conducted consistent with the rules, regulations, and requirements thereof. The applicable AAA rules may be found at https://www.adr.org/sites/default/files/ document_repository/EmploymentRules_Web.pdf. The arbitration shall take place in the State of Utah, and the AAA shall apply federal law, including the Federal Arbitration Act, and the laws of the State of Utah (without regard to its conflicts of law provisions), including as to the validity, construction and performance of this Agreement. Any arbitral award determination shall be final and binding upon the Parties. With respect to any Court-Eligible Claims that are brought to court, the Parties consent to the exclusive jurisdiction and venue of the federal or state courts in Salt Lake County, Utah.
(16) Utah Law Governs. The rights and obligations of the Parties under this Agreement shall be consumed and enforced in accordance with, and governed by, the laws of the State of Utah, without regard to its conflicts of law provisions.
(17) Class Action, Collective Action, and Representative Action Waiver. The Parties agree that any disputes under this Agreement or the employment relationship generally will be conducted on an individual basis only and that claims by either Party in arbitration or otherwise may only be brought in the Party’s individual capacity, may not be brought on a class action, collective action, or representative basis, and may not be consolidated with other persons or
entities. Further, each Party agrees to waive their respective rights to participate in any and all class actions, collective actions, and/or other representative actions, including participating as a named plaintiff or as a member of a class action, collective action, and/or other representative action, for any and all claims under this Agreement. Accordingly, there shall be no right or authority for any claims to be brought, heard or arbitrated as a class action, collective action, or representative action (“Class Action Waiver”). The Class Action Waiver shall be severable from this Agreement in any case in which: (a) the claim is filed or pursued as a class action, collective action, or representative action; and (b) this Class Action Waiver is found to be unenforceable. In such instances, the class action, collective action, or non-PAGA representative action must be litigated in a civil court in accordance with Section (15). This Class Action Waiver shall be severable in any case in which the dispute is filed or pursued as an individual action and severance is necessary to ensure that the individual action proceeds in arbitration. Claims under the California Labor Code Private Attorneys General Act, Cal. Lab. Code§ 2698 et seq. (“PAGA”), are not subject to the arbitration provisions in this Agreement.
(18) Counterparts. This Agreement may be executed in counterparts in different places, at different times and on different dates, and in that case all executed counterparts taken together collectively constitute a single binding agreement.
(19) Entire Agreement; Headings. This Agreement (and any Addendums to it) contains the entire agreement of the Parties with respect to the relationship between Employee and Qualtrics and supersedes all prior agreements and understandings. This Agreement may be changed only by an agreement in writing signed by the Party against whom enforcement of any waiver, change, modification, extension or discharge is sought, and any such signing by Qualtrics must be by one of its executive officers. The headings contained in this Agreement are for convenience only and do not limit or otherwise affect the provisions of this Agreement.
[Signature page follows]
IN WITNESS WHEREOF, the Parties have duly signed and delivered this Agreement as of the Effective Date.
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QUALTRICS, LLC
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EMPLOYEE
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/s/ Chris Beckstead
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/s/ John Thimsen
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Signature
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Signature
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Print Name:
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Chris Beckstead
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Print Name:
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John Thimsen
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Title:
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VP, Finance
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Date:
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Aug 22, 2018
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Address:
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Inventions:
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[Attach pages for additional inventions if necessary]
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EMPLOYMENT AGREEMENT NON-COMPETE ADDENDUM
This Employment Agreement Non-Compete Addendum (the “Addendum”) is an addendum to the Employment Agreement (the “Agreement”) that exists between Qualtrics, LLC, a Delaware limited liability company, (“Qualtrics”) and the employee whose signature appears below (“Employee,” each a “Party” and together with Qualtrics, the “Parties”), and is made by and between the Parties, effective as of Employee’s date of signature (the “Addendum Effective Date”). This Addendum is made for the purpose of adding to the provisions of the Agreement and all the terms of the Agreement shall remain in full force and effect. Qualtrics and Employee agree as follows:
Non-com petition Restriction. To the extent allowed under applicable law, Employee covenants and agrees that, from here-on during Employee’s employment by Qualtrics and for a period of twelve (12) months after the termination of Employee’s employment for any reason, Employee will not directly or indirectly own, manage, operate, control, serve as a consultant to, be employed by or participate in (or be connected in any manner with the ownership, management, operation or control of) any organization that engages in or competes with any portion of the Business (as defined in the Agreement). Examples of such organizations include without limitation Confirmit, Focus Vision, Foresee, MaritzCX, Medallia, QuestionPro, Satmetrix, SurveyMonkey, Verint and Vision Critical.
Limitations. Because Qualtrics does business on the internet with customers throughout the United States and around the world, to the fullest extent allowed under applicable law, there is no geographic limitation to this non-competition restriction. Notwithstanding Employee’s obligations under this Addendum, Employee will be entitled to own, as a passive investor, up to five percent (5%) of any publicly traded company without violating this Addendum.
Acknowledgments. Qualtrics and Employee acknowledge and agree that: (i) this Addendum does not impose an undue hardship on Employee and is not injurious to the public; (ii) this Addendum is reasonably necessary to protect the business of Qualtrics and its affiliates given the nature of Employee’s responsibilities with Qualtrics; (iii) the terms of this Addendum, including its duration and geographic scope, are reasonable; and (iv) adequate consideration supports this Addendum. Employee acknowledges the consideration Employee is receiving, including without limitation the compensation and other benefits set forth in the Agreement, Employee’s continued employment with Qualtrics, and/or any awards or other forms of equity in Qualtrics or its affiliates.
Exception to Section 15 Arbitration Requirements. Notwithstanding Section (15) of the attached Qualtrics Employment Agreement, the Parties agree that any dispute, controversy, or claim arising under this Addendum may be brought by either Party in federal or state court situated in Salt Lake County, Utah. The Parties agree that federal and state courts in Salt Lake County shall have jurisdiction over any matter arising under this Addendum and consent to venue and personal jurisdiction.
IN WITNESS WHEREOF, the parties have duly signed and delivered this Agreement as of the Effective Date.
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QUALTRICS, LLC
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EMPLOYEE
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/s/ Chris Beckstead
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/s/ John Thimsen
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Signature
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Signature
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Print Name:
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Chris Beckstead
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Print Name:
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John Thimsen
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Title:
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VP, Finance
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Date:
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Aug 22, 2018
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Bill McMurray,
Thank you for your hard work at Qualtrics, and congratulations on your advancement to Chief Revenue Officer, L10. As part of this advancement, you will receive a compensation adjustment, effective 18 May 2020. Your updated compensation is shown below.
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Current Base:
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AUD
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500,000
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New Base:
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AUD
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950,000
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Current Variable:
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AUD
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500,000
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New Variable:
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AUD
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950,000
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Current Total:
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AUD
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1,000,000
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New Total:
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AUD
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1,900,000
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In conjunction with this new role, you will be nominated for an RSU grant under the SAP SE Move SAP Plan, subject to approval by the SAP SE Executive Board. It is intended that you will receive a grant approximately equal to a grant value of USD 1,500,000; however, the grant shall be made in Euros as of the grant date, and thus the actual grant value shall be subject to currency fluctuation. This grant is subject to your commencement of employment in the role and continuous employment through the grant date.
You will continue to receive your annual retention bonus of AUD 600,000, paid quarterly, through the end of 2021, at which point said benefit will expire. You will also be nominated for an additional RSU grant in March 2021 of USD 1,000,000 ‒ 1,500,000, depending upon performance and equity budget availability. This grant is subject to your continuous employment in the role through the grant date.
Upon your relocation to the U.S. in 2021, you will be reimbursed for your relocation expenses (within reason, as approved by the Qualtrics President and/or COO and the Compensation Team), and your compensation will be updated as follows:
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New Base:
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USD
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600,000
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New Variable:
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USD
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600,000
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New Total:
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USD
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1,200,000
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Thanks again for all you do to help the company deliver exceptional products and services.
CERTAIN IDENTIFIED INFORMATION HAS BEEN EXCLUDED FROM THE EXHIBIT BECAUSE IT IS BOTH NOT MATERIAL AND WOULD LIKELY CAUSE COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED. [***] INDICATES THAT INFORMATION HAS BEEN REDACTED.
OFFICE LEASE AGREEMENT
BY AND BETWEEN
SCD 2U LLC
(as Landlord)
AND
QUALTRICS, LLC
(as Tenant)
2+U
Seattle, WA
LEASE SUMMARY
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The Building
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(a)
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Building Name:
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2+U
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(b)
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Building Address:
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1201 2nd Avenue, Seattle, Washington 98101
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(c)
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Building Rentable Area:
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701,768 (estimated)
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(d)
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Office Rentable Area:
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686,176 (estimated)
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(e)
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Retail Rentable Area:
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15,592 (estimated)
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The Premises
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(a)
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Floor Locations:
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Floors 15 through 27
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(b)
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Premises Rentable Area:
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275,223 (estimated)
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(c)
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Suite Number:
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2700
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Term
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(a)
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Initial Term:
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Commencing on the Rent Commencement Date and expiring at 11:59 p.m. on the last day of the One Hundred Sixty-Third (163rd) full calendar month from and after the Rent Commencement Date
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(b)
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Lease Commencement Date:
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Within five (5) business days after full execution and delivery of this Lease and Landlord’s receipt of the Lease Guaranty
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(c)
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Extension Options:
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Two (2) options for five (5) years each
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(d)
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Rent Commencement Date:
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The earlier of Substantial Completion of the Tenant Improvements pursuant to Exhibit B or July 1, 2020
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(e)
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Abatement Period:
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[***] of the first Lease Year starting on the Rent Commencement Date
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Base Rent
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Time Period
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Annual Rate per Square Foot
of Premises Rentable Area
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Monthly Base Rent**
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Months 1 - 12
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[***]
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[***]
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Months 13 - 24
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[***]
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[***]
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Months 25 - 36
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[***]
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[***]
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Months 37 - 48
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[***]
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[***]
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Months 49 - 60
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[***]
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[***]
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Months 61 - 72
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[***]
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[***]
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Months 73 - 84
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[***]
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[***]
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Months 85 - 96
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[***]
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[***]
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Months 97 - 108
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[***]
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[***]
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Months 109 - 120
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[***]
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[***]
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Months 121 - 132
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[***]
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[***]
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Months 133 - 144
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[***]
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[***]
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Months 145 - 156
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[***]
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[***]
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Months 157 - 163
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[***]
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[***]
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* Subject to abatement during Abatement Period, as described in Section 4.4 of the Lease.
** Subject to recalculation upon confirmation of the Premises rentable area pursuant to Rider 2, Paragraph 1.
Parking Allotment
One (1) parking permit for every 1,500 square feet of Premises rentable area (approximately 183 parking permits) subject to adjustment pursuant to Article XXIV below.
Security
Tenant shall provide a lease guaranty from SAP SE, a European Company (Societas Europaea, SE) established under the laws of Germany and the European Union, registered with the commercial register of the local court of Mannheim, Germany, under HRB 719915, in the form attached hereto as Exhibit I.
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Brokers
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(a)
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Tenant's Broker:
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Colliers International (Tony Ford and Joe Riley)
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(b)
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Landlord's Broker
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CBRE, Inc. (John Hansen) and Newmark Grubb Knight Frank (Jesse Ottele)
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Initial Addresses for Notices
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Landlord:
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Tenant:
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SCD 2U LLC
221 Yale Avenue N, Suite 400
Seattle, WA 98109
Attn: EVP – Commercial Development
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Qualtrics, LLC
c/o SAP America, Inc.
3999 West Chester Pike
Newtown Square, PA 19073
Attn: Director of Real Estate
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With a copy to:
Skanska USA Commercial Development
1776 Wilson Blvd., Suite 250
Arlington, VA 22209
Attn: General Counsel – Commercial
Development
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With a copy to:
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Qualtrics, LLC
333 W. River Park Drive
Provo, UT 84604
Attn: Michael Shields
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With a copy to:
Davis Wright Tremaine LLP
920 Fifth Avenue, Suite 3300
Seattle, WA 98104
Attn: Lisa Peterson
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Initial Address for Payments of Rent Landlord will provide prior to the Rent Commencement Date
TABLE OF CONTENTS
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Page
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ARTICLE I KEY DEFINITIONS
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1
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ARTICLE II PREMISES
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2
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ARTICLE III TERM
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3
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ARTICLE IV BASE RENT
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3
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ARTICLE V OPERATING CHARGES AND REAL ESTATE TAXES
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4
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ARTICLE VI USE OF PREMISES
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4
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ARTICLE VII ASSIGNMENT AND SUBLETTING
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9
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ARTICLE VIII MAINTENANCE AND REPAIRS
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13
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ARTICLE IX ALTERATIONS
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14
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ARTICLE X SIGNS
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16
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ARTICLE XI GUARANTY
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18
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ARTICLE XII INSPECTION
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18
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ARTICLE XIII INSURANCE
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19
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ARTICLE XIV SERVICES, UTILITIES AND COMMON AREAS
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19
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ARTICLE XV LIABILITY OF LANDLORD
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22
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ARTICLE XVI RULES
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24
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ARTICLE XVII DAMAGE OR DESTRUCTION
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24
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ARTICLE XVIII CONDEMNATION
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26
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ARTICLE XIX DEFAULT
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27
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ARTICLE XX BANKRUPTCY
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30
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ARTICLE XXI SUBORDINATION
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31
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ARTICLE XXII HOLDING OVER
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32
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ARTICLE XXIII COVENANTS OF LANDLORD
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33
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ARTICLE XXIV PARKING
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34
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ARTICLE XXV GENERAL PROVISIONS
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35
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ARTICLE XXVI GREEN PROVISIONS
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41
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LIST OF EXHIBITS
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RIDER 1
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–
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Additional Definitions
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RIDER 2
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–
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Additional Provisions
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RIDER 3
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–
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State and Local Specific Provisions
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EXHIBIT A-1
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–
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Legal Description
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EXHIBIT A-2
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–
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Plan Showing Premises
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EXHIBIT B
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–
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Work Agreement
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EXHIBIT C
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–
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[Reserved]
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EXHIBIT D-1
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–
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Certificate Affirming the Lease Commencement Date
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EXHIBIT D-2
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–
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Certificate Affirming the Rent Commencement Date
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EXHIBIT E
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–
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Operating Charges and Real Estate Taxes
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EXHIBIT F
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–
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[Reserved]
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EXHIBIT G
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–
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Tenant Insurance Requirements
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EXHIBIT H
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–
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Insurance Requirements for Contractors
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EXHIBIT I
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–
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Guaranty of Lease
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TABLE OF DEFINED TERMS
Definitions of the following terms can be found at the following locations in this Lease:
Defined Term Section Reference
Abatement Period............................................4.4
Acceptance Notice....................................Rider 2
ADA..........................................................Rider 1
Affiliate.......................................................7.1(c)
Amenities.......................................................14.4
Antenna.....................................................Rider 2
Anticipated Possession Date............................1.7
Arbiter.......................................................Rider 2
Availability Notice...................................Rider 2
Bankruptcy...........................Exhibit I, Article 20
Bankruptcy Code......................................Rider 1
Base Rent.........................................................1.9
Bike Room................................................14.4(d)
Broker(s)........................................................1.11
Building .................................. Rider 1, 15.1, 1.1
Building Hours..............................................1.15
Building Structure and Systems...............Rider 1
Case...............................................................20.1
Claims..............................................Rider 1, 15.1
Code.............................................................25.32
Conference Facilities................................14.4(b)
Construction Allowance................................1.21
Controllable Operating Charges...............Rider 2
Cosmetic Changes....................................Rider 1
Day............................................................Rider 1
Default Rate...................................................19.5
Determination Period................................Rider 2
Early Termination Date............................Rider 2
Early Termination Right...........................Rider 2
Election Notice...........................Rider 2, Rider 2
Environmental Default.............................Rider 1
Environmental Law..................................Rider 1
Event of Bankruptcy.................................Rider 1
Event of Default..........................Rider 2, Rider 1
Executive Order...........................................25.25
Expansion Date.........................................Rider 2
Expansion Space.......................................Rider 2
Expiration Date................................................1.6
Extension Option........................Rider 2, Rider 2
Extension Period.........................Rider 2, Rider 2
Fitness Facility..........................................14.4(a)
General Partner.........................................Rider 1
Green Standards.............................................26.1
Ground Lease............................................Rider 1
Guarantor(s)...................................................1.16
Defined Term Section Reference
Guaranty.................................................Exhibit I
Hazardous Materials..........................Rider 1, 6.4
Holidays.........................................................1.20
Including or include..................................Rider 1
Initial Tenant.............................................Rider 2
Insolvency Laws.......................................Rider 1
Interim Tenant..........................................Rider 2
Land.................................................................1.1
Landlord Insured Parties.......................Exhibit G
Landlord Notice Address...............................1.13
Landlord Payment Address...........................1.14
Landlord’s Calculation.............................Rider 2
Landlord’s Representative........................Rider 1
Landlord’s Work.......................................Rider 1
Laws..........................................................Rider 1
Lease Commencement Date.....................3.1, 1.4
Lease Term......................................................1.3
Lease Year................................................Rider 1
Market Rent..............................................Rider 2
Mortgages.................................................Rider 1
New Premises..............................................25.31
Offer Space...............................................Rider 2
Office Area......................................................1.1
Open Space...............................................14.4(e)
Operating Charges.................................Exhibit E
Operator.........................................................24.1
Parking Allotment.........................................1.19
Parking Facility.............................................24.1
Pass-Through Expenses............................Rider 1
Permitted Person.......................................Rider 1
Permitted Recipient...............................Exhibit E
Permitted Transferee.................................Rider 1
Premises...........................................................1.2
Prime Rate................................................Rider 1
Proposed Sublease Commencement Date....Rider 1
Proposed Sublet Space..............................Rider 1
Real Estate Taxes......................................Rider 1
Reconciliation Statement.......................Exhibit E
Regulations..................................................25.32
REIT............................................................25.32
Rent Commencement Date..............................1.5
Retail Area.....................................................1.17
Retail Area Charges..............................Exhibit E
Right of First Offer...................................Rider 2
Rooftop Terrace........................................14.4(c)
Defined Term Section Reference
Security Deposit Amount..............................1.10
Service Provider......................................25.32(b)
Structural Alterations............................…Rider 1
Telecomm Equipment...........................…Rider 1
Tenant Construction Period.........................…1.8
Tenant Items.........................................…Rider 1
Tenant Notice Address..............................…1.12
Tenant’s Calculation.............................…Rider 2
Tenant’s Proportionate Share....................…1.18
Tenant’s Request Notice.......................…Rider 1
Tenant’s Work......................................…Rider 1
Termination Fee....................................…Rider 2
Termination Notice...............................…Rider 2
Total Area....................................................…1.1
Trustee.......................................................…20.1
OFFICE LEASE AGREEMENT
THIS OFFICE LEASE AGREEMENT (this “Lease”) is dated as of the 20th day of September, 2019 (the “Effective Date”), by and between SCD 2U LLC, a Delaware limited liability company (“Landlord”), and QUALTRICS, LLC, a Delaware limited liability company (“Tenant”).
ARTICLE I
KEY DEFINITIONS
When used throughout this Lease, the following capitalized terms shall have the meanings given below.
1.1Building: a thirty-eight (38) story (above grade) building containing approximately Six Hundred Eighty-six Thousand One Hundred Seventy-six (686,176) square feet of office rentable area (“Office Area”) and Seven Hundred One Thousand Seven Hundred Sixty-eight (701,768) square feet of total building rentable area (“Total Area”), situated on the real property legally described on Exhibit A-1 (the “Land”) and currently known as 2+U. The Building also includes approximately Three Thousand Four Hundred Eighty-seven (3,487) square feet of storage space which may be available for rent by Building tenants on a first come first serve basis.
1.2Premises: approximately Two Hundred Seventy-five Thousand Two Hundred Twenty- three (275,223) square feet of office rentable area on the fifteenth (15th) through the twenty-seventh (27th) floors of the Building, as depicted on the floor plans attached hereto as Exhibit A-2.
1.3Lease Term: The period commencing on the Rent Commencement Date and expiring at 11:59 p.m. on the last day of the One Hundred Sixty-Third (163rd) full calendar month from and after the Rent Commencement Date, subject to Section 3.1.
1.4Lease Commencement Date: the date on which Landlord tenders possession of the Premises to Tenant in its current “as is” condition, which Landlord covenants and agrees shall occur no later than five (5) business days after full execution and delivery of this Lease and Landlord’s receipt of the Lease Guaranty.
1.5Rent Commencement Date: as determined under the Lease Summary. The first Lease Year and the Abatement Period shall commence on the Rent Commencement Date.
1.6Expiration Date: 11:59 p.m. (local time at the Building) on the last day of the Lease
Term.
1.7Anticipated Possession Date: Upon full execution and delivery of this Lease and Landlord’s receipt of the Lease Guaranty.
1.8Tenant Construction Period: the period from and including the Lease Commencement Date through and including the day before the Rent Commencement Date.
1.9Base Rent: As set forth in the Lease Summary above.
1.10Security Deposit Amount: As set forth in the Lease Summary above.
1.11Broker(s): As set forth in the Lease Summary above.
1.12Tenant Notice Address: As set forth in the Lease Summary above, unless changed pursuant to Section 25.6 below.
1.13Landlord Notice Address: As set forth in the Lease Summary above, unless changed pursuant to Section 25.6 below.
1.14Landlord Payment Address: As set forth in the Lease Summary above, unless changed pursuant to Section 25.6 below.
1.15Building Hours: 7:00 a.m. to 6:00 p.m. Monday through Friday (excluding Holidays) and 8:00 a.m. to 1:00 pm on Saturday (excluding Holidays).
1.16Guarantor: SAP SE, a European Company (Societas Europaea, SE) established under the laws of Germany and the European Union, registered with the commercial register of the local court of Mannheim, Germany, under HRB 719915.
1.17Retail Area: Approximately Fifteen Thousand Five Hundred Ninety-two (15,592) square feet of rentable area in the Building, comprised of premises permitted for use for retail purposes allowed by applicable Laws.
1.18Tenant’s Proportionate Share: 40.11% for Operating Charges, and 39.22% for Real Estate Taxes.
1.19Parking Allotment: The number of monthly parking permits described in the Lease Summary which shall be purchased by Tenant for use by its employees.
1.20Holidays: All federal holidays recognized by the United States federal government.
1.21Construction Allowance: The sum of [***], based upon the product of [***] and the number of square feet of rentable area in the initial Premises described in the Lease Summary, as adjusted pursuant to this Lease.
1.22Additional Allowance: The sum of [***].
ARTICLE II
PREMISES
2.1.Tenant leases the Premises from Landlord for the term and upon the conditions and covenants set forth in this Lease. Tenant will have the non-exclusive right to use the common and public areas of the Building designated by Landlord from time to time for their intended uses. Except as may otherwise be expressly provided in this Lease, the lease of the Premises does not include the right to use the roof, mechanical rooms, electrical closets, shafts, stacks, pipes, conduits, wires, ducts and appurtenant fixtures, janitorial closets, telephone rooms, or other areas treated by Landlord as common area or office amenity space or non-common or non-public areas of any portion of the Building, all of which are expressly excluded from the Premises and reserved to Landlord. Notwithstanding the foregoing, Tenant shall have the non-exclusive right to use, in common with other tenants, occupants and users of the Building, the plenums, risers, electrical closets, and Landlord-constructed IDF rooms designated to serve the Premises in accordance with plans and specifications to be approved by Landlord in its reasonable discretion, but only (a) with Landlord’s prior consent (not to be unreasonably withheld, conditioned or
delayed) and when accompanied by Landlord’s representative, (b) by properly licensed and trained technicians, and (c) in accordance with Landlord’s reasonable rules, regulations and requirements in connection therewith (it being understood, however, that any Tenant-constructed IDF rooms within the Premises shall be exclusively reserved for Tenant’s usage). Tenant’s utilization of plenums, risers, electrical closets, and IDF rooms shall be in no greater proportion than the ratio by which the square feet of rentable area in the Premises compares to the square feet of rentable area in the Building.
ARTICLE III
TERM
3.1Lease Commencement Date. All of the provisions of this Lease shall be in full force. and effect from and after the Effective Date provided, however, that Tenant shall not be obligated to pay Base Rent or Pass-Through Expenses during the Tenant Construction Period. Although this Lease is binding upon the parties upon execution and delivery, the Lease Term shall commence on and shall be measured from the Rent Commencement Date and shall continue after the Rent Commencement Date for the period specified in Section 1.3 (plus, if the Rent Commencement Date is not the first day of a month, the partial month in which the Rent Commencement Date occurs). The Lease Term shall also include any properly exercised Extension Period under Paragraph 3 of Rider 2 to this Lease.
3.2Confirmation. Promptly after the Lease Commencement Date is ascertained, Landlord and Tenant shall execute the certificate attached to this Lease as Exhibit D-1. Promptly after the Rent Commencement Date is ascertained, Landlord and Tenant shall execute the certificate confirming the Rent Commencement Date attached to this Lease as Exhibit D-2. Failure to execute any such certificate shall not affect the Lease Commencement Date, the Rent Commencement Date or the expiration of the Lease Term.
3.3Delay. Possession of the Premises will be deemed to have been tendered to Tenant on the Anticipated Possession Date set forth in Section 1.7. Tenant is leasing the Premises in their current as-is condition and has inspected the Premises prior to execution and delivery of this Lease and has confirmed that the Premises is in the condition required hereunder.
ARTICLE IV
BASE RENT
4.1General. Tenant shall pay the annual Base Rent in equal monthly installments in advance on the first day of each month during a Lease Year. Within five (5) business days after the full execution and delivery of this Lease by Landlord and Tenant, Tenant shall pay an amount equal to the first full monthly installment of Base Rent and Tenant’s Proportionate Share of Operating Charges and Real Estate Taxes payable following the Abatement Period, which amount shall be credited toward the monthly installment of Base Rent and Tenant’s Proportionate Share of Operating Charges and Real Estate Taxes first payable hereunder. Tenant shall not be entitled to take possession until such sums are received by Landlord. If such sums are not received when due, Landlord shall have the right to terminate this Lease in accordance with this provision. If Landlord wishes to terminate this Lease under this provision, Landlord shall notify Tenant in writing and if Tenant has not paid such sums within ten (10) days after its receipt of such written notice, this Lease shall terminate. If the Rent Commencement Date is not the first day of a month, then the Base Rent and Tenant’s Proportionate Share of Operating Charges and Real Estate Taxes from the Rent Commencement Date until the first day of the following month shall be prorated on a per diem basis based on the number of days in said partial month, and Tenant shall pay such prorated installment thereof on the Rent Commencement Date. All sums payable by Tenant under this Lease shall be paid to Landlord in legal tender of the United States, without setoff, deduction or demand (except as expressly set forth in this Lease), at the Landlord Payment Address, or to such other party or
such other address as Landlord may designate in writing. At either party’s option, Tenant shall make payments by electronic transfer of funds.
4.1Late Payment. Landlord’s acceptance of rent after it shall have become due and payable shall not excuse a delay upon any subsequent occasion or constitute a waiver of any of Landlord’s rights hereunder. All checks tendered to Landlord from anyone other than Tenant may, at Landlord’s discretion, be deemed payments for the account of Tenant. Acceptance by Landlord, in its discretion, of rent from anyone other than Tenant shall not be deemed to operate as (a) an attornment to Landlord by the payor of such rent and/or additional rent, (b) the consent of Landlord to an assignment of this Lease or subletting by Tenant of the Premises to such payor, (c) a modification of any of the provisions of this Lease, (d) an acknowledgement or agreement by Landlord that such payor has any right to possess or otherwise use or occupy the Premises, or (e) a waiver of Landlord’s right to refuse to accept future payments from anyone other than Tenant.
4.2Insufficient Funds. If any sum payable by Tenant under this Lease is paid by check which is returned due to insufficient funds, stop payment order, or otherwise, then: (a) such event shall be treated as a failure to pay such sum when due; and (b) in addition to all other rights and remedies of Landlord hereunder, Landlord shall be entitled to impose a returned check charge equal to Two Hundred Fifty Dollars ($250.00) to cover Landlord’s administrative expenses and overhead for processing.
4.3Rent Abatement Period. Notwithstanding the foregoing, provided no default by Tenant has occurred under this Lease (beyond applicable notice and cure periods), Base Rent otherwise payable hereunder shall be abated during [***] after the Rent Commencement Date (the “Abatement Period”). If Tenant defaults under this Lease (beyond applicable notice and cure periods) at any time during the Abatement Period, no further rent abatement will be recognized and Tenant shall immediately pay Landlord the amount of the rent abatement previously recognized. Tenant shall pay all other sums due under this Lease during the Abatement Period including parking fees and Tenant’s Proportionate Share of Operating Charges and Tenant’s Proportionate Share of Real Estate Taxes.
ARTICLE V
OPERATING CHARGES AND REAL ESTATE TAXES
5.1Starting on the earlier of (a) the Rent Commencement Date or (b) the date Tenant commences its normal business operations in the Premises, Tenant shall pay as additional rent Tenant’s Proportionate Share of Operating Charges and Tenant’s Proportionate Share of Real Estate Taxes (as both such terms are defined in Exhibit E) for each calendar year falling entirely or partly within the Lease Term in accordance with the provisions set forth in Exhibit E attached hereto.
ARTICLE VI
USE OF PREMISES
6.1Permitted Use. Tenant shall use and occupy the Premises solely for general (non- medical and non-governmental) office and administrative purposes compatible with first class office buildings in the Building’s submarket (the “Permitted Use”), and for no other use or purpose. Tenant may not use any part of the Premises as a flexible workplace center (provided, however, that the foregoing shall not be deemed to prohibit or restrict Tenant from permitting its Business Affiliates (as defined below) from using or occupying space in the Premises in accordance with Section 7.1(c) below)). Tenant shall not use or occupy the Premises for any unlawful purpose, or in any manner that will violate the certificate of occupancy for the Premises or the Building, or that will constitute waste, nuisance or unreasonable annoyance to Landlord or any other tenant or user of the Building, or in any manner that
will increase the number of parking spaces required for the Building or its full occupancy as required by applicable Law (as defined in Rider 1).
6.2Compliance with Laws.
(a)Tenant shall comply with all Laws concerning the use, occupancy and condition of the Premises (including the restrooms, access corridors and elevator lobbies on floors fully leased by Tenant) and all Alterations, machinery, equipment, furnishings, fixtures and improvements installed or constructed therein by or on behalf of Tenant or exclusively serving the Premises, all of which shall be complied with in a timely manner at Tenant’s sole expense; provided, however, Tenant shall not be responsible for compliance with any such Laws requiring (i) Structural Alterations; or (ii) repairs or modifications to the Building Structure and Systems or to infrastructure or equipment serving another tenant’s premises unless such repairs or modifications shall be required (x) because of Tenant’s particular manner of use of the Premises (as opposed to office use generally), or (y) in connection with Alterations performed by or on behalf of Tenant. To the extent required by applicable Laws, Tenant shall comply with the terms of any transportation management plan applicable to the Building from time to time, including participating in any survey, reporting and commute trip reduction requirements. If any such Law (i) requires an occupancy or use permit or license for the Premises or the operation of the business conducted therein, or (ii) requires Tenant’s employees to obtain licenses or permits to conduct business in the Premises, then Tenant shall obtain (prior to the date required under applicable Laws) and keep current such permits or licenses at Tenant’s expense and shall promptly deliver a copy thereof to Landlord. Except as set forth in Subsection 6.2(b), below, it is expressly understood that if any change in the use of the Premises by Tenant, or any Alterations to the Premises by Tenant, or any future Law related to Tenant’s particular use or occupancy of the Premises requires a new or additional permit from, or approval by, any governmental agency having jurisdiction over the Building, such permit or approval shall be obtained by Tenant on its own behalf and at its sole expense.
(b)Notwithstanding the foregoing, Landlord at its expense (subject to reimbursement pursuant to Exhibit E, if and to the extent permitted thereby) shall comply with Laws (including, without limitation, the ADA, building and fire codes, and Environmental Laws) to the extent the same apply directly to the Building Structure and Systems (excluding the portions exclusively serving the Premises) and common areas of the Building; provided, however, that to the extent any non-compliance is a result of Tenant’s particular use or occupancy of the Premises (as opposed to office use generally) or as a result of any Alterations performed by or on behalf of Tenant, then such compliance shall be at Tenant’s cost. Landlord shall be entitled to the full benefit of any grandfathering allowed by law and nothing herein shall require Landlord to comply with any Laws unless, and then only to the extent that, such Laws are applied to the Building and enforced against Landlord by any governmental authority with jurisdiction.
(c)Tenant, at its expense, shall install and maintain fire extinguishers and other fire protection devices as may be required within the Premises from time to time by any agency having jurisdiction thereof and/or the underwriters insuring the Building. Except to the extent specifically allocated to Landlord above, Tenant, at its expense, shall be solely responsible for taking any and all measures which are required to comply with the ADA concerning the Premises (including suite entry doors and related items), the business conducted therein, and the particular needs of its employees and invitees. Any Alterations made or constructed by or for Tenant for the purpose of complying with the ADA or which otherwise require compliance with the ADA shall be done in accordance with this Lease; provided, that Landlord’s consent to such Alterations shall not constitute either Landlord’s assumption, in whole or in part, of Tenant’s responsibility for compliance with the ADA, or representation or confirmation by Landlord that such Alterations comply with the provisions of the ADA.
(d)Use of the Premises is subject to all covenants, conditions and restrictions of record; provided, however, that Landlord covenants and agrees that none of the foregoing, whether existing now or instituted in the future, shall materially increase Tenant’s obligations or materially decrease Tenant’s rights expressly set forth in this Lease. Tenant shall not use any space in the Building or the Land for the sale of goods to the public at large or for the sale at auction of goods or property of any kind. Tenant shall not conduct any operations, sales, promotions, advertising or special events outside the Premises, whether in the common areas of the Building or otherwise on the Land.
(e)Notwithstanding anything to the contrary in this Lease, Tenant shall not use, occupy or permit any portion of the Premises to be used or occupied for (i) the warehousing, manufacture, distribution or sale of liquor, marijuana or cannabis or any products containing marijuana or cannabis or any derivative thereof and shall not engage in, or allow any of Tenant’s Licensees, members, or Agents to engage in, any activity at the Building that would be a violation of any state or federal laws relating to the use, manufacture, sale, possession, cultivation, an/or distribution of any controlled substances, including marijuana for any purpose including commercial, recreational and medicinal purposes, or (ii) any pornographic or obscene purposes, any commercial sex establishment, any pornographic, obscene, nude or semi-nude performances, modeling, materials, activities or sexual conduct.
6.3Use Fees. Tenant shall pay before delinquency any business, rent or other taxes or fees that are now or hereafter levied, assessed or imposed upon Tenant’s use or occupancy of the Premises, the conduct of Tenant’s business at the Premises, or Tenant’s equipment, fixtures, furnishings, inventory or personal property. If any such tax or fee is enacted or altered so that such tax or fee is levied against Landlord or so that Landlord is responsible for collection or payment thereof, then Tenant shall pay as additional rent the amount of such tax or fee, plus any delinquency fees or professional fees related thereto.
6.4Hazardous Materials. Tenant shall not allow, cause or permit any Hazardous Materials to be generated, used, treated, released, stored or disposed of in or about the Building or the Land, provided that Tenant may use and store normal and reasonable quantities of standard cleaning and office materials in the Premises as may be reasonably necessary for Tenant to conduct normal general office use operations in the Premises so long as such materials are properly, safely and lawfully stored and used by Tenant and the quantity of same does not equal or exceed a “reportable quantity” as defined in 40 C.F.R. 302 and 305, as amended, or any applicable state or local law that requires reporting.
(a)At the expiration or earlier termination of this Lease, with respect to conditions existing on account of Tenant’s use or occupancy of the Premises, Tenant shall surrender the Premises to Landlord free of Hazardous Materials and in compliance with all Environmental Laws. If Landlord has consented to allow Tenant to use Hazardous Materials (other than customary cleaning and office supplies) in the Premises, Landlord may require, at Tenant’s sole expense at the end of the Lease Term, a clean site certification, environmental audit or site assessment.
(b)Notwithstanding the termination or any other provision of this Lease, Tenant shall indemnify, defend (with counsel reasonably approved by Landlord) and hold Landlord and Landlord’s Representatives harmless from and against any and all Claims (including indirect and consequential damages, to the extent awarded in a final judgment) of any kind or nature, known or unknown, contingent or otherwise, which arise out of or are in any way related to an Environmental Default (including, but not limited to, attorneys’, consultant, laboratory and expert fees and any diminution in the value of the Building, damages for the loss or restriction on use of any space or amenity of the Building), whether before, during or after the Lease Term arising from or related to the generation, use, presence, transportation, storage, treatment, disposal, spill, release or discharge of Hazardous
Materials in or about the Premises or the Building by Tenant or any Agent or by an Environmental Default (as defined in Rider 1) by Tenant.
(c)Tenant shall: (i) give Landlord immediate verbal and follow up written notice of any actual or threatened Environmental Default with respect to conditions existing on account of Tenant’s use or occupancy of the Premises or any action or inaction of Tenant or any Agent when Tenant had a duty to act, which Environmental Default Tenant shall cure in accordance with all Environmental Laws and only after Tenant has obtained Landlord’s prior written consent, which shall not be unreasonably withheld, conditioned or delayed; and (ii) promptly deliver to Landlord copies of any notices or other items received from or submitted to any governmental or quasi-governmental agency, or any claim instituted or threatened by any third party, concerning the Premises, the occupancy or use thereof, or the existence or potential existence of Hazardous Materials therein. Tenant covenants to promptly investigate, clean up and otherwise remediate, at Tenant’s sole cost and expense, any spill, release or discharge of Hazardous Materials caused by an Environmental Default. Such investigation, clean up and remediation shall be performed in accordance with all Environmental Laws and to the satisfaction of Landlord and only after Tenant has obtained Landlord’s written consent.
(d)Upon any Environmental Default, in addition to all other rights available to Landlord under this Lease, at law or in equity, Landlord shall have the right but not the obligation to immediately enter the Premises, to supervise and approve any actions taken by Tenant to address the Environmental Default, and, if Tenant fails to promptly address same in accordance with this Lease, to perform, at Tenant’s sole cost and expense, any lawful action necessary to address same.
(e)If Landlord has reasonable grounds to believe that Tenant is not in compliance with this Section or if Landlord has agreed that Tenant may use Hazardous Materials other than customary cleaning and office supplies, Landlord shall have the right but not the obligation, at all times during the Lease Term, to inspect the Premises and conduct tests and investigations and take samples to determine whether Tenant is in compliance with the provisions of this Article, and to request lists of all Hazardous Materials used, stored or located at the Premises. In the event that it is determined that Tenant has in fact violated this Section, the cost of all such inspections, tests and investigations shall be borne by Tenant. Landlord will use its reasonable efforts to provide Tenant with notice of any such inspection in advance thereof. At any time during the Lease Term, Landlord may perform an environmental site assessment or environmental audit of the Premises to assess with a reasonable degree of certainty the presence or absence of any Hazardous Materials and the potential costs in connection with abatement, cleanup, or removal of any Hazardous Materials found on, under, at, or within the Premises. Tenant will reasonably cooperate with Landlord and allow Landlord and Landlord’s agents reasonable access to any and all parts of the Premises and to the records of Tenant with respect to the Premises for the purpose of performing such environmental site assessment or environmental audit.
(f)Landlord represents that, to Landlord’s knowledge, the Premises, the Building and the Land are not in violation of any Environmental Law as such Environmental Law was applied to the Land and the Building by applicable governmental agencies during development of the Building. Landlord shall remedy any violation of this warranty at its sole cost to the extent required by applicable governmental agencies. Tenant has been advised that remediation was performed as part of the development and applicable records may be obtained from the Department of Ecology. Landlord will provide a copy of the “No Further Action” letter issued by the Department of Ecology upon request.
(g)Notwithstanding any contrary provision contained in this Lease, Landlord shall be responsible for compliance with any Environmental Laws which would require Tenant to remediate any Hazardous Materials located within the Premises on the date of delivery of possession of the Premises to Tenant to the extent any such Hazardous Materials violate any Environmental Law as interpreted and
applied to the Premises as of such date. Notwithstanding anything to the contrary contained in this Lease, but subject to applicable limitations on Landlord’s liability and waivers of subrogation, Landlord will indemnify, defend (with counsel reasonably approved by Tenant) and hold Tenant and Tenant’s affiliates, shareholders, partners, directors, officers, employees, agents and representatives, harmless from and against any claim, cost, damage, expense (including without limitation reasonable attorneys’ fees and costs of defense including consultant, laboratory and expert fees but excluding any indirect, punitive or consequential damages other than consequential damages awarded to a third party in a final judgment against an indemnified party based on a third party claim covered by Landlord’s indemnity obligation), loss, liability, or judgment now or hereafter arising as a result of any claim associated with any required clean-up or other actions arising from (i) Landlord’s breach of the representation under Section 6.4(f) or (ii) Landlord’s release of any Hazardous Materials in violation of any applicable Environmental Laws in effect as of the date the Hazardous Materials were first placed on, in or under the Premises, Land or Building. Landlord shall also be responsible for compliance with any Environmental Laws for areas outside the Premises and outside other tenants’ premises, except to the extent any such compliance is required with respect to Hazardous Materials introduced by Tenant or its Agents.
6.5Telecommunications Equipment.
(a)All telephone and telecommunications services desired by Tenant shall be ordered and utilized at the sole expense of Tenant. Unless Landlord otherwise consents in writing (such consent not to be unreasonably withheld, conditioned or delayed), all of Tenant’s Telecomm Equipment shall be and remain solely in the Premises and the telephone closet(s) designated by Landlord. Landlord shall have no responsibility for the maintenance of Tenant’s Telecomm Equipment. Landlord shall have the right, upon reasonable prior notice to Tenant (except in the event of an emergency), to interrupt or turn off telecommunications facilities as necessary in connection with repairs to the Building or installation of telecommunications equipment for other tenants (provided, however, that, except in an emergency, Landlord shall schedule interruptions or shutoffs outside of Building Hours and shall give Tenant reasonable advance notice thereof). Tenant shall not utilize any wireless communications equipment (other than usual and customary cellular telephones), including antennae and satellite receiver dishes, at the Premises or the Building, without Landlord’s prior written consent, which may be granted or withheld in Landlord’s reasonable discretion; provided, however, that Tenant may install and use a wireless intranet, Internet and/or communications network in the Premises (a “Wi-Fi Network”) so long as said Wi-Fi Network does not cause any interference with other tenants in the Building or the normal operations of the Building, including, but not limited to, interference with other communications equipment.
(b)Landlord may manage directly or may retain a third party service provider to manage the riser space in the Building. If Tenant does not wish to retain a telecommunications provider already providing service in the Building and if space is then available in the Building for an additional provider, Tenant shall have the right to select its own telecommunications provider (“ Tenant’s Telecom Provider”) on the condition that Tenant and Tenant’s Telecom Provider comply with all of the policies and procedures for telecommunications providers in the Building. Tenant’s Telecom Provider is subject to the reasonable approval of Landlord (or its designated riser manager) and Tenant’s Telecom Provider must execute Landlord’s standard form of access agreement. Subject to compliance with the terms of this Section, Landlord approves Verizon as Tenant’s Telecom Provider. Landlord shall have the right to charge fees to Tenant’s Telecom Provider in connection with the services being performed by Tenant’s Telecom Provider at the reasonable, prevailing rates, from time to time, then being charged by Landlord to other telecommunication service providers in the Building. Subject to: (i) the foregoing provisions of this Section 6.5(b), and (ii) the terms of the access agreement between Landlord and Tenant’s Telecom Provider, and (iii) compliance with the provisions of Section 2.1 above and the Landlord’s construction rules, regulations and procedures, Landlord shall permit Tenant’s Telecom Provider (x) to install cabling
to the Premises, and (y) to have access to the Premises to install telecommunications equipment, using Tenant’s proportionate share of available space in the risers pursuant to Section 2.1 above. All such installations and replacements from time to time shall be made by Tenant or the applicable service provider in accordance with Article IX and this Section 6.5.
ARTICLE VII
ASSIGNMENT AND SUBLETTING
7.1General Requirements. Tenant shall not assign, transfer or otherwise encumber (collectively, “assign”) this Lease or all or any of Tenant’s rights hereunder or interest herein, or sublet or permit anyone to use or occupy (collectively, “sublet”) the Premises or any part thereof, without obtaining the prior written consent of Landlord, which consent may be withheld or granted in Landlord’s sole and absolute discretion (subject to the remainder of this Article VII). Notwithstanding any of the foregoing to the contrary, provided no Event of Default (as defined in Rider 1) exists under this Lease, and subject to Landlord’s rights and Tenant’s obligations pursuant to Sections 7.3, 7.4 and 7.5 below, Landlord shall not unreasonably withhold, condition or delay its consent to any proposed direct sublease of the entire Premises or any portion of the Premises or an assignment of the Lease in its entirety. For purposes of the immediately preceding sentence, it shall be reasonable for Landlord to withhold its consent if, for example: (i) the proposed subtenant or assignee is engaged in a business, or the Premises will be used in a manner, that is inconsistent with the first class image of the Building, or would cause Landlord to be in violation of any covenant or restriction contained in another lease or other agreement at the Building; or (ii) Landlord is not reasonably satisfied with the financial condition of the proposed assignee or subtenant (in light of the obligations under the sublease); or (iii) the proposed use of the Premises is not in compliance with Article VI or is not compatible with the other uses within, and the terms of other leases with respect to, the Building; or (iv) intentionally omitted; or (v) the initial Tenant is insolvent or will not remain fully liable as a primary obligor for the payment of all rent and other charges payable by Tenant under this Lease and for the performance of all other obligations of Tenant under this Lease; or (vi) the proposed subtenant or assignee is a governmental or quasi-governmental agency; or (vii) the holders of Mortgages encumbering the Building who under the loan documents would have the right to disapprove the proposed transaction do not consent (Landlord hereby agreeing to use commercially reasonable efforts to obtain such consent if Landlord otherwise approves such transaction); or (viii) the proposed subtenant or assignee is either (A) an existing tenant of the Building (or any parent, subsidiary or affiliate thereof) if Landlord has comparable space available in the Building for a comparable term, or (B) for a period of one hundred eighty (180) days following the submission of a written proposal for the lease of space, any other person or entity with which Landlord has been negotiating for the rental of space in the Building. In agreeing to act reasonably, Landlord is agreeing to act in a manner consistent with other institutional owners of class A office properties and may consider the financial terms of the proposed assignment or sublease and the impact of the proposed assignment or sublease on Landlord’s own leasing efforts and the value of the Building but may not deny consent solely because the sublease rent rate is less than the rate Landlord would obtain under a direct Lease. Landlord may condition its consent to any proposed assignment or sublease on such conditions as Landlord may reasonably require, including receipt of an additional security deposit or lease guaranty if Tenant will cease to exist or no longer has adequate resources to perform under the Lease and the sublease is for a material amount of space for all or substantially all of the remaining term, construction of improvements deemed necessary or appropriate by Landlord by reason of a sublease, changes to the floor plan of the subleased space to ensure that the subleased premises consist of a leasable increment of space, and reaffirmation of any guaranty by any guarantor of Tenant’s obligations. Except as otherwise expressly set forth herein, no assignment or right of occupancy hereunder may be effectuated by operation of law or otherwise without the prior written consent of Landlord.
(a)General. Any attempted assignment, transfer, or other encumbrance of this Lease or all or any of Tenant’s rights hereunder or interest herein, any sublet or permission to use or occupy the Premises or any part thereof not in accordance with this Article VII, shall be void and of no force or effect. Any assignment or subletting, Landlord’s consent thereto, the listing or posting of any name other than Tenant’s, or Landlord’s collection or acceptance of rent from any assignee or subtenant shall not be construed either as waiving or releasing Tenant from any of its liabilities or obligations under this Lease as a principal and not as a guarantor or surety, or as relieving Tenant or any assignee or subtenant from the obligation of obtaining Landlord’s prior written consent to any subsequent assignment or subletting. As security for this Lease, Tenant hereby assigns to Landlord the rent due from any assignee or subtenant of Tenant. During any period that there exists an uncured Event of Default under this Lease, Tenant hereby authorizes each such assignee or subtenant to pay said rent directly to Landlord upon receipt of notice from Landlord specifying same. Landlord’s collection of such rent shall not be construed as an acceptance of such assignee or subtenant as a tenant.
(b)Limitations. Tenant shall not mortgage, pledge, hypothecate or encumber (collectively “pledge”) this Lease or Tenant’s leasehold interest or leasehold improvements without Landlord’s prior written consent, which consent may be granted or withheld in Landlord’s sole and absolute discretion. Tenant shall pay to Landlord all reasonable, out-of-pocket, third party expenses (including reasonable attorneys’ fees and accounting costs) incurred by Landlord in connection with Tenant’s request for consent to any assignment, subletting, or pledge, and Landlord’s receipt of such sum (which shall be no less than one thousand dollars ($1,000) in any event) shall be a condition to Landlord providing such consent. If (i) Landlord is not asked to review more than a single set of revisions to Landlord’s standard form of consent, (ii) Landlord is not asked to review more than a single draft of the transaction documents, and (iii) Landlord is not asked to amend the Lease or waive any rights under the Lease or to sign any document other than the Landlord’s form of consent, such costs will not exceed $5,000.00 (such amount to increase by 5% per year over the Term). Any sublease, assignment or pledge shall, at Landlord’s option, be effected on forms reasonably approved by Landlord. Tenant shall not be entitled to receive monetary damages based upon a claim that Landlord wrongfully withheld its consent to a proposed assignment or sublease and Tenant’s sole remedy shall be an action for specific performance or declaratory judgment. Tenant shall deliver to Landlord a fully executed copy of Landlord’s standard consent document (subject to such revisions as may be agreed upon by the parties) and each agreement evidencing a sublease, assignment or pledge within ten (10) days after execution thereof.
(c)Permitted Transfers. Notwithstanding anything contained in this Article VII to the contrary, provided that Tenant is not then in default (beyond applicable notice and cure periods) under this Lease, Tenant may, upon not less than ten (10) days’ prior written notice to Landlord (which notice shall contain a written certificate from Tenant, signed by an authorized representative of Tenant, containing a representation as to the true, correct and complete legal and beneficial relationship of Tenant and the proposed assignee, transferee or subtenant) but without Landlord’s prior written consent and without being subject to Landlord’s rights and Tenant’s obligations set forth in Sections 7.4 and 7.5 below, assign or transfer its entire interest in this Lease or sublease the entire or any portion of the Premises to any of the following (each, an “Affiliate”): (i) to a corporation or other business entity (herein sometimes referred to as a “successor corporation”) into or with which Tenant shall be merged or consolidated, or to which substantially all of the assets of Tenant may be transferred or sold, provided that such successor corporation shall have a net worth and liquidity at least equal to the greater of the net worth and liquidity of Tenant as of the date hereof or as of the date of the transaction, or such lesser net worth and liquidity as may be otherwise reasonably acceptable to Landlord taking into account the net worth and liquidity of Tenant given that the original Tenant under this Lease is not being released, and provided that the successor corporation shall assume in writing all of the obligations and liabilities of Tenant under this Lease and the proposed use of the Premises is in compliance with Article VI; or (ii) to a corporation or other business entity (herein sometimes referred to as a “related corporation”) which shall
control, be controlled by or be under common control with Tenant, provided that such related corporation shall (in the case of an assignment) assume in writing all of the obligations and liabilities of Tenant under this Lease (without relieving Tenant therefrom) and the proposed use of the Premises is in compliance with Article VI and (in the case of a sublease) such related corporation shall agree to be bound by all of the terms and conditions of this Lease with respect to the subleased space during the sublease term (however, in case of a sublease, such related corporation’s rental obligation shall be as described in the sublease in question) and the proposed use of the subleased portion of the Premises is in compliance with Article VI. In the event of any such assignment or subletting, Tenant shall remain fully liable as a primary obligor for the payment of all rent and other charges required hereunder and for the performance of all obligations to be performed by Tenant hereunder. For purposes of clause (ii) above, “control” shall be deemed to be direct or indirect ownership of more than fifty percent (50%) of the stock or other voting interest of Tenant or the related corporation or other business entity, as the case may be. Notwithstanding the foregoing, if Tenant structures one or more assignment or sublease transactions to an entity that meets the definition of an Affiliate as specified above for the purpose of circumventing the restrictions on subleases and assignments provided elsewhere in this Article VII, then such subtenant(s) or assignee(s) shall conclusively be deemed not to be an Affiliate and subject to all such restrictions.
In addition, Tenant may allow its clients, contractors, customers, strategic partners or other entities with whom Tenant has or is then establishing a bona fide business relationship unrelated to use of office space (each, a “Business Affiliate”) to use portions of the Premises from time to time on a temporary basis for joint projects with Tenant on the terms of this paragraph without such arrangements being considered a sublease or assignment. Space used by such Business Affiliates may not be separately demised and no signage may be installed for such users. These arrangements may not exceed ten percent (10%) of the Premises and Tenant may not charge rent for such use.
7.2Operation of Law. If Tenant is or becomes a partnership, a limited liability company, or any other type of legal entity, then any event (whether voluntary, concurrent or related) resulting in a dissolution of Tenant, any withdrawal or change (whether voluntary, involuntary or by operation of law) of the partners, owners or members, as applicable, whether in a single transaction or in a series of related or unrelated transactions, owning a controlling interest in Tenant (including each general partner or manager, as applicable), or any structural or other change having the effect of limiting the liability of the partners or owners shall be deemed an assignment of this Lease subject to the provisions of this Article. If Tenant is or becomes a corporation or a partnership with a corporate general partner, then any event (whether voluntary, concurrent or related) resulting in a dissolution, merger, consolidation or other reorganization of Tenant (or such corporate general partner), or the sale or transfer or relinquishment of the interest of shareholders who, as of the date of this Lease, own a controlling interest of the capital stock of Tenant (or such corporate general partner) whether in a single transaction or in a series of related or unrelated transactions, shall be deemed an assignment of this Lease subject to the provisions of this Article; provided, however, that if Tenant is a corporation whose stock is traded through a national or regional exchange or over the counter market, then the foregoing portion of this sentence shall be applicable only if such event has or is intended to have the effect of limiting Tenant’s liability under this Lease.
7.3Request Notice. If at any time during the Lease Term Tenant desires to assign, sublet or pledge all or part of this Lease or the Premises, then in connection with Tenant’s request to Landlord for Landlord’s consent thereto, Tenant shall give to Landlord a Tenant’s Request Notice (as defined in
Rider 1). Landlord shall respond to the Tenant’s Request Notice within twenty (20) days after receipt of the full and complete Tenant’s Request Notice.
7.4Recapture. After the first five (5) Lease Years, if (a) Tenant subleases three (3) or more full floors under one or more subleases, and (b) the proposed sublease would be for a term equal to all or
substantially all of the remaining Lease Term, Landlord shall have the right in its sole and absolute discretion to terminate this Lease with respect to the Proposed Sublet Space by sending Tenant written notice of such termination (the “Recapture Notice”) within twenty (20) days after Landlord’s receipt of a full and complete Tenant’s Request Notice. This recapture right shall not apply to any assignment or sublease with a Permitted Transferee. If Landlord delivers a Recapture Notice, Tenant may avoid such recapture by withdrawing Tenant’s Request Notice by written notice to Landlord within ten (10) days after receipt of the Recapture Notice. If the Proposed Sublet Space does not constitute the entire Premises and Landlord exercises its option to terminate this Lease with respect to the Proposed Sublet Space, then (a) Tenant shall tender the Proposed Sublet Space to Landlord on the Proposed Sublease Commencement Date and such space shall thereafter be deleted from the Premises, and (b) as to that portion of the Premises which is not part of the Proposed Sublet Space, this Lease shall remain in full force and effect except that Base Rent and additional rent shall be reduced pro rata. If Landlord exercises its recapture right hereunder, Landlord shall be responsible for the cost of any construction required to permit the operation of the Proposed Sublet Space and to separate the Proposed Sublet Space from the balance of the Premises. If the Proposed Sublet Space constitutes the entire Premises and Landlord elects to terminate this Lease, then Tenant shall tender the Proposed Sublet Space to Landlord, and this Lease shall terminate, on the Proposed Sublease Commencement Date. If Tenant’s Request Notice does not specify a particular Proposed Sublease Commencement Date, then the effective date of the termination shall be specified by Landlord in its notice of termination.
7.5Profit Share. If any sublease or assignment (whether by operation of law or otherwise, including without limitation an assignment pursuant to the provisions of the Bankruptcy Code or any other Insolvency Law) provides that the subtenant or assignee thereunder is to pay any amount in excess of the sum of (a) the rent and other charges due under this Lease plus (b) the reasonable out-of-pocket expenses (excluding, however, any costs attributable to vacancy periods or “downtime”), which Tenant reasonably incurred in connection with the procurement of such sublease, assignment or other transfer (which expenses shall be amortized on a straight-line basis over the initial sublease term for the purposes hereof), then whether such net excess be in the form of an increased monthly or annual rental, a lump sum payment, payment for the sale, transfer or lease of Tenant’s fixtures, leasehold improvements, furniture and other personal property, or any other form of payment having the effect of a “disguised” rental payment. Tenant shall pay to Landlord, along with the next monthly installment of Base Rent due, fifty percent (50%) of any such net excess or other premium applicable to the sublease or assignment, which amount shall be calculated and paid by Tenant to Landlord on a monthly basis as additional rent at the times and in the manner set forth in this Lease for the payment of Base Rent. If the subleased or assigned space does not constitute the entire Premises, the existence of such excess shall be determined on a pro rata basis. Acceptance by Landlord of any payments due under this Section shall not be deemed to constitute approval by Landlord of any sublease or assignment, nor shall such acceptance waive any rights of Landlord hereunder. Tenant shall provide sufficient documentation for Landlord to determine the amount payable to Landlord under this Section.
7.6Attornment. All restrictions and obligations imposed pursuant to this Lease on Tenant shall be deemed to extend to any subtenant, assignee, licensee, concessionaire or other occupant or transferee, and Tenant shall cause such persons to comply with such restrictions and obligations. Any assignee shall be deemed to have assumed obligations as if such assignee had originally executed this Lease and at Landlord’s request shall execute promptly a document confirming such assumption. Each sublease is subject to the condition that if the Lease Term is terminated or Landlord succeeds to Tenant’s interest in the Premises by voluntary surrender or otherwise, the sublease shall terminate unless Landlord, at Landlord’s option, elects by written notice to the subtenant to have the subtenant be bound to Landlord for the balance of the term of such sublease and, in such event, such subtenant shall attorn to and recognize Landlord as its landlord under the then executory terms of such sublease, which attornment shall be on Landlord’s standard form.
ARTICLE VIII
MAINTENANCE AND REPAIRS
8.1Tenant Maintenance Obligation. Except for Landlord’s express obligations under this Lease, Tenant, at Tenant’s sole cost and expense, shall promptly make all repairs and replacements and perform all maintenance in and to the Premises to keep the Premises in first-class operating condition and repair, in a clean, safe and tenantable condition, well-ventilated and moisture controlled (if Tenant installs showers or kitchens) and otherwise in accordance with the requirements of this Lease, except for ordinary wear and tear consistent with a continual program of repair and maintenance and as otherwise provided in Article XIII or Article XVII. For purposes of this Section 8.1, the Premises shall be deemed to include the restrooms, access corridors, and elevator lobbies (but not the elevators) on floors fully leased by Tenant. The 19th floor is not deemed to be fully leased by Tenant, and other tenants or occupants of the Building shall have access to common area restrooms, access corridors and elevator lobbies in connection with their use of Amenities on the 19th floor. Except for Landlord’s express obligations under this Lease, Tenant shall also maintain, repair and replace all fixtures, furnishings and equipment located in, or exclusively serving, the Premises in clean, safe and sanitary condition, shall take good care thereof and make all required repairs and replacements thereto. Without limiting the generality of the foregoing, Tenant shall maintain throughout the Lease Term, at Tenant’s sole cost and expense, all Tenant Items (as defined in Rider 1) and shall keep in force customary maintenance and service contracts therefor. Tenant shall give Landlord prompt written notice of any defects or damage to the structure of, or equipment or fixtures in, the Building or any part thereof, or any mold or moisture damage, of which Tenant has actual knowledge. Tenant shall suffer no waste or injury to any part of the Premises, and shall, at the expiration or earlier termination of the Lease Term, surrender the Premises in an order and condition equal to or better than that following completion of the initial Alterations under Exhibit B, except for ordinary wear and tear and as otherwise provided in Article XIII or Article XVII. Except as otherwise provided in Article XVII, all injury, breakage and damage to any part of the Building or the Land other than the Premises caused by negligence or willful misconduct of any Agent of Tenant or Tenant, shall at Landlord’s sole option be repaired by Landlord or Tenant and in either event, at Tenant’s expense. If Tenant fails to commence and diligently prosecute to completion repair of any such injury, breakage or damage within a reasonable period (not to exceed thirty (30) days) following Tenant’s receipt of notice from Landlord, then Landlord shall have the right at Landlord’s option to make any such repair and to charge Tenant for all costs and expenses reasonably incurred in connection therewith. Landlord shall provide and install replacement tubes for Building standard light fixtures (subject to reimbursement pursuant to Exhibit E). All other bulbs and tubes for the Premises shall be provided and installed at Tenant’s expense; provided that if Tenant elects to supply the bulbs or tubes to Landlord, then Landlord shall provide the labor involved for such replacement at no cost to Tenant (except for the reimbursement pursuant to Exhibit E).
8.2Landlord Maintenance Obligation. Except as otherwise expressly provided in this Lease, Landlord at its expense (subject to reimbursement pursuant to Exhibit E if and to the extent permitted thereby) shall keep the Building Structure and Systems clean and in good operating condition except for normal wear and tear consistent with a class A office building and, promptly after becoming aware of any item needing repair or replacement, will make such repair or replacement thereto. Notwithstanding any of the foregoing to the contrary, maintenance and repair of all Tenant Items shall be the sole responsibility of Tenant and Tenant Items shall be deemed not to be a part of the Building Structure and Systems.
ARTICLE IX
ALTERATIONS
9.1Initial Improvements. The initial improvement of the Premises under this Lease shall be accomplished by Tenant using an approved contractor in accordance with Exhibit B and all other applicable provisions of this Lease (including, without limitation, Articles IX and XIII). Tenant has had an opportunity to inspect the Premises and shall accept the Premises in its “AS IS” “WITH ALL FAULTS” condition as of the Lease Commencement Date WITHOUT REPRESENTATION OR WARRANTY by Landlord, except as expressly set forth in this Lease. Landlord is under no obligation to make any structural or other Alterations in or to the Premises or the Building except as may be otherwise expressly provided in this Lease, including Exhibit B. Alterations shall be deemed to include, without limitation, any original improvements to the Premises pursuant to Exhibit B and all trade fixtures.
9.2Alterations. Tenant shall not make or permit anyone to make any Alterations in or to the Premises or the Building, without the prior written consent of Landlord, which consent may be withheld or granted in Landlord’s sole and absolute discretion with respect to Structural Alterations and those non- structural Alterations which are visible from outside the Premises, and which consent shall not be unreasonably withheld, conditioned or delayed with respect to all other non-structural Alterations. Notwithstanding the foregoing, Tenant shall have the right to make Cosmetic Changes (as defined in Rider 1) within the Premises without requiring the consent of Landlord.
(a)Any Alterations made by Tenant shall be made: (i) in a good, workerlike, and first class manner; (ii) using new or comparable materials only; (iii) by a contractor reasonably approved in writing by Landlord, (iv) on days and at times reasonably approved in writing by Landlord; (v) under the supervision of an architect reasonably approved in writing by Landlord; (vi) if Landlord’s consent is required pursuant to Section 9.2 above, in accordance with plans and specifications reasonably acceptable to Landlord, which plans and specifications shall be approved in writing by Landlord at Landlord’s standard charge; (vii) in accordance with all Laws and in compliance with the Building rules and regulations and Landlord’s standard operating procedures as adopted by Landlord from time to time; (viii) after Landlord has notified Tenant that Landlord has obtained any required consent of the holder of any Mortgage; and (ix) after obtaining public liability, worker’s compensation and builder’s risk insurance policies required pursuant to Exhibit H to this Lease. Furthermore, Tenant shall (A) require its contractor and any sub-contractor or sub-subcontractors that will perform any work in the Building on behalf of Tenant to agree in writing to indemnify and hold Landlord harmless from and against all Claims suffered by or claimed against Landlord, directly or indirectly, based on, arising out of, or resulting from any act or omission by such contractor, sub-contractor or sub-subcontractor with respect to such entity’s work, (B) require said contractor, sub-contractors and sub-subcontractors to obtain and maintain insurance as set forth in Exhibit H to this Lease, which policies shall cover every person who will perform any work with respect to such Alteration; and (C) obtain and deliver to Landlord (1) written, unconditional full or partial (as applicable) waivers of mechanics’ and materialmen’s liens against the Premises and the Building within fifteen (15) business days after the applicable portion of the Alterations are completed from all parties with lien rights under applicable Laws, and (2) written full and final lien waivers from all such parties upon completion.
(b)If any lien (or a petition to establish such lien) is filed in connection with any Alteration made by or on behalf of Tenant (including Alterations under Exhibit B), such lien (or petition) shall be discharged by Tenant within twenty (20) days thereafter, at Tenant’s sole cost and expense, by the payment thereof or by the filing of a reasonably acceptable bond that complies with all applicable Laws, including RCW Chapter 60.04. If Tenant does not pay the lien claim or provide a bond within that time period, Landlord may discharge or remove the lien by any means it deems appropriate to protect its interests and all costs incurred (including the cost of a bond or payment, reasonable attorneys’ fees and
other expenses) together with interest at the Default Rate from the date of the payment until full reimbursement is received shall be paid by Tenant to Landlord upon demand. If the lien is not so released or bonded over, Landlord may require Tenant to suspend work until the lien is released or bonded over. In addition, Tenant shall indemnify Landlord for any damages Landlord may suffer or incur as a result of such lien. If Landlord gives its consent to the making of any Alteration, such consent shall not be deemed to be an agreement or consent by Landlord to subject its interest in the Premises or the Building to any liens which may be filed in connection therewith nor shall Tenant be deemed to be Landlord’s construction agent. Tenant acknowledges that any Alterations are accomplished for Tenant’s account, Landlord having no obligation or responsibility in respect thereof.
(c)Landlord’s approval of any plans and drawings (and changes thereto) regarding any Alterations or any contractor or subcontractor performing such Alterations shall not constitute Landlord’s representation that such approved plans, drawings, changes or Alterations comply with all Laws. Any deficiency in design or construction of any Alteration, although same had prior approval of Landlord, shall be solely the responsibility of Tenant. All Structural Alterations, any Alterations that could impact systems not exclusively serving the Premises, Alterations to the heating, ventilation and air conditioning system of the Premises or the Building, the fire and life safety system, the roof of the Building or any other areas outside the Premises shall, at Landlord’s election, be performed by Landlord’s designated contractor or subcontractor at Tenant’s expense. In connection with any Alteration (excluding the initial Alterations under Exhibit B, Landlord shall be paid a construction supervision fee in an amount equal to the amount paid by Landlord to Landlord’s property manager plus one-half percent (0.5%) of the total hard costs of such Alteration. The fee paid to Landlord’s property manager shall not exceed market rates. As of the date of this Lease, Landlord’s property manager is entitled to a fee equal to three percent (3%) of the actual hard and soft costs of construction for any project with a total cost of less than $100,000 and two percent (2%) of the actual hard and soft costs of construction for any project with a total cost of $100,000 or more. Except with respect to Cosmetic Changes, promptly after the completion of an Alteration, Tenant at its expense shall deliver to Landlord three (3) sets of accurate as built (or record) drawings and, CAD files showing such Alteration in place.
(d)Notwithstanding anything contained in this Lease to the contrary, the performance of any Alterations pursuant to the provisions of this Article IX or of any other provisions of this Lease or the Exhibits hereto shall not be done in a manner which would violate any union contracts affecting the Building, or by which Landlord is bound, or create any work stoppage, picketing, labor disruption, disharmony or dispute or any interference with the business of Landlord or any tenant or occupant of the Building. Tenant shall immediately stop the performance of any Alterations or other activity if Landlord notifies Tenant that continuing such Alteration or activity would violate any union contracts affecting the Building, or by which Landlord is bound, or create any work stoppage, picketing, labor disruption, disharmony or dispute or any interference with the business of Landlord or any tenant or occupant of the Building.
9.3Removal and Restoration. If any Alterations that require Landlord’s consent and that are not standard office improvements maintained in the condition required hereunder are made without the prior written consent of Landlord, then, if either an emergency condition exists, or the Lease Term has expired, or Tenant fails to commence and diligently prosecute to completion, removal and correction of such Alterations and restoration of the Premises and the Building to their condition immediately prior thereto within a reasonable period (not to exceed thirty (30) days) following Tenant’s receipt of notice from Landlord, Landlord shall have the right, at Tenant’s expense, to so remove and correct such Alterations and restore the Premises and the Building. All Alterations to the Building outside the Premises made by either party (excluding Tenant’s signage), and all Alterations to the Premises paid for by or on behalf of Landlord (including through a tenant improvement or construction allowance) shall immediately become the property of Landlord. All Alterations shall remain upon and be surrendered with
the Premises as a part thereof at the expiration or earlier termination of the Lease Term; provided, however, that (a) Tenant shall have the right to remove, prior to the expiration or earlier termination of the Lease Term, all movable furniture, furnishings, trade fixtures that can be removed without damage to or leaving gaps in the remaining improvements or causing any equipment installed in the Premises by or on behalf of Tenant to become non-functional, at no cost to Landlord, and (b) upon the expiration or earlier termination of the Lease Term, Tenant shall remove at its expense (i) all movable furniture, furnishings, trade fixtures and equipment installed in the Premises by or on behalf of Tenant at no cost to Landlord, and (ii) all telecommunications, security, data, computer and similar equipment, cabling and wiring (“cabling”), unless Landlord directs Tenant to leave the cabling in place, and (iii) all Alterations in the Premises or the Building which Landlord designates in writing for removal (such designation to have been made, if at all, at the time Landlord first approved such Alterations). This removal obligation shall survive the expiration or sooner termination of the Lease. Landlord shall designate which Alterations may be subject to removal simultaneously with Landlord’s approval of such Alterations; provided, however, that any Alterations made without Landlord approval are subject to removal and restoration. Notwithstanding the foregoing, Tenant shall not be required to remove Alterations consisting of standard buildout items that are typically installed by similar tenants in multi-tenanted, multi-story, first-class office buildings (such as partitions) provided that such Alterations have been maintained in accordance with the terms of this Lease. Landlord may designate any non-standard Alterations, including commercial kitchens and internal staircases, for removal and restoration. All cabling must be removed and all improvements that are not properly maintained throughout the Term must be removed. If such removal causes damage or injury to the Premises or the Building, then Tenant shall repair such damage or injury and, if the Lease Term has expired, Landlord shall have the right, at Tenant’s expense, to repair all damage and injury to the Premises or the Building caused by such removal as aforesaid. If such furniture, furnishings and equipment are not removed by Tenant prior to the expiration or earlier termination of the Lease Term, the same shall at Landlord’s option be deemed abandoned or become the property of Landlord to be surrendered with the Premises as a part thereof; provided, however, that Landlord shall have the right at Tenant’s expense to remove from the Premises any or all such items or any other item or to require Tenant to do the same, except as otherwise provided in this Section. If Tenant fails to return the Premises to Landlord as required by this Section, then Tenant shall pay to Landlord all costs reasonably incurred by Landlord in effectuating such return. At Landlord’s option, Landlord may consider Tenant to have remained in possession of the Premises until such work is completed and during such period the terms of Article XXII shall apply. The provisions of this paragraph shall survive the expiration or earlier termination of this Lease.
9.4Access Control Systems. Tenant shall have the right to install an access control system for the Premises that is compatible with the Base Building’s access control system so that Tenant has the ability to coordinate its access control system for the Premises with Landlord’s Base Building access control system. The Base Building access control system will provide card-key access in elevators and at Building entrances and, for parking permit holders, the Parking Facility.
ARTICLE X
SIGNS
10.1Interior Signage. Landlord will list, at Landlord’s expense, the name of Tenant (and any permitted subtenants and assignees) in the main Building directory. Tenant may install signage in the elevator lobby on each full floor of the Premises at Tenant’s cost.
10.2Exterior Signage and Building Name. Tenant shall have the right, at Tenant’s cost, to install a sign using the words “Qualtrics”, “Qualtrics XM”, “SAP Qualtrics” or a derivation thereof, using Tenant’s standard typeface on the Building façade above the 2nd Avenue entrance in the location depicted on Exhibit J attached hereto. Landlord will list Tenant’s name in building standard format on the
exterior monument signs on 1st and 2nd Avenues at Tenant’s expense. Tenant must provide a signage plan and specifications for the exterior sign and obtain Landlord’s approval prior to installation. Landlord shall not unreasonably withhold, condition or delay its approval. Tenant may identify the Building by the name Qualtrics Tower in its internal and external communications (including on business cards, letterhead and website) and in its public relations. Within 30 days of the execution of this Lease, Landlord and Tenant shall issue a joint press release announcing execution of this Lease, which shall be in form and substance satisfactory to both parties and shall identify the Building as “Qualtrics Tower”. Landlord is not required to identify the Building as Qualtrics Tower in Landlord’s own branding, public relations and other marketing materials (except in the initial press release described above) nor to revise its signage plans to include that name, but in no event shall Landlord publicly dispute that the office tower portion of the Building (which excludes the retail village, Open Space and Arts Space) is named Qualtrics Tower. For avoidance of doubt, Landlord referring to the Building as “2+U” shall not be deemed to violate the prior sentence provided that Landlord shall not refer to the Building or any part of the Building as “2+U Tower” but may refer to the office tower portion of the Building as “the Tower”. So long as Tenant retains the right to exterior façade signage and the right to identify the Building by name, Landlord shall not grant naming rights for the Building to any other party or tenant. In the event that Tenant changes its name, Tenant shall be permitted to similarly change Tenant’s signage and the Building name only to a name reasonably acceptable to Landlord, it being understood that Tenant may not otherwise change the name it uses to identify the Building without Landlord’s approval. The signage rights under this paragraph are personal to the Tenant originally named herein and any Permitted Transferee who has assumed all of Tenant’s obligations under this Lease and whose name is reasonably acceptable to Landlord and may not be exercised by or for the benefit of any other party. All exterior signage shall be contingent on receipt of permits and approvals from the City of Seattle. The right to exterior façade signage and the right to identify the Building by name shall remain in effect only so long as Tenant leases the entire initial Premises and occupies at least One Hundred Thirty-seven Thousand Six Hundred Twelve (137,612) square feet of rentable area in the Building and Landlord may remove or require Tenant to remove Tenant’s exterior façade signage and to cease designating the Building name if such condition is not satisfied. For purposes of the foregoing, Tenant shall not be deemed to occupy any space that has been sublet unless the sublessee qualifies as a Permitted Transferee. Further, Landlord may remove or require Tenant to remove Tenant’s exterior signage on or before the Early Termination Date in the event that Tenant exercises the Early Termination Right (as defined in Rider 2). Tenant shall maintain its exterior sign in good condition and repair and shall remove such sign on the expiration or earlier termination of this Lease and shall restore any damage caused by the installation or removal thereof (including restoration of discolored surfaces to match adjacent areas and patching of holes). If Tenant fails to properly maintain or remove any sign, Landlord may do so at Tenant’s expense. Any actual cost incurred by Landlord in connection with such maintenance or removal shall be deemed additional rent and shall be paid by Tenant to Landlord within thirty (30) days after notice. Landlord may temporarily remove the sign as necessary for repairs and maintenance of the Building provided the sign is reinstalled promptly upon completion thereof and provided that any such removal shall be for the minimum time period required in order to complete such repairs or maintenance.
10.3General. Except as provided above Tenant shall not place, inscribe, paint, affix or otherwise display any sign, advertisement, picture, lettering or notice of any kind on any part of (or visible from) the exterior of the Building (including in or on windows) or in any common areas of the Building, without the prior written approval of Landlord, which may be granted or withheld in Landlord’s sole and absolute discretion. All signage (including the signage allowed under Sections 10.1 and 10.2) must be approved by Landlord prior to fabrication or installation (such approval not to be unreasonably withheld, conditioned or delayed). If any such item that has not been approved by Landlord is so displayed, then, if Tenant fails to remove such items within a reasonable period (not to exceed ten (10) days) following Tenant’s receipt of notice from Landlord, Landlord shall have the right to remove such item at Tenant’s expense.
10.4Additional Signage Rights. Landlord reserves the right to affix, install and display signs, advertisements and notices on any part of the exterior or interior of the Building; provided, however, that Landlord shall only affix, install or display signs on the interior of the Premises which pertain to the management or operation of the Building or are required by Law. Notwithstanding the foregoing, for so long as Tenant has the right to its exterior façade signage pursuant to Section 10.2 above, Landlord shall not have the right to install or to permit others to install (a) any other signage identifying another office tenant on the Building façade on 2nd Avenue if such signage is (i) located above the height of Tenant’s signage on the Building façade on 2nd Avenue, (ii) in the “Protected Sign Area” depicted on Exhibit J attached hereto, or (iii) larger than Tenant’s signage on the Building façade on 2nd Avenue or (b) any other signage identifying another office tenant on the Building façade on any other side of the Building (i.e. other than 2nd Avenue) if such signage is larger than Tenant’s signage on the Building façade on 2nd Avenue. The foregoing restriction shall not apply to signage for retail tenants or to Landlord’s own signage except that so long as Tenant retains the right to exterior façade signage and the right to identify the Building by name, (x) Landlord shall not have the right to install or to permit others to install any signage in the Protected Sign Area and (y) Landlord shall not have the right to install building-top signage that would contradict or cause confusion as to the name of the office tower portion of the Building (which excludes the retail village, Open Space and Arts Space) as Qualtrics Tower.
ARTICLE XI
GUARANTY
11.1Guaranty. Simultaneously with Tenant’s execution of this Lease, Tenant shall deliver to Landlord a Guaranty of Lease executed by the Guarantor in the form attached hereto as Exhibit I (the “Guaranty”). Failure to provide the Guaranty shall be a material default under this Lease and shall entitle Landlord to terminate this Lease immediately. If requested by Landlord during the Term, Tenant shall cause Guarantor to reaffirm the Guaranty in writing. It shall be an Event of Default under this Lease if (a) Guarantor ceases to exist as an ongoing business with assets comparable to the Guarantor’s assets at the time the Guaranty is signed, or (b) Guarantor refuses to submit to jurisdiction of a United States court in either case unless, within ten (10) business days after written demand, Tenant provides a substitute guaranty from an entity formed in the United States approved by Landlord in its reasonable discretion or provides a cash security deposit in an amount reasonably determined by Landlord.
ARTICLE XII
INSPECTION
12.1Tenant shall permit Landlord, Landlord’s Representatives, and the holder of any Mortgage, to enter the Premises at any time and from time to time during normal business hours (except in the case of an emergency), without charge therefor and without diminution of the rent payable by Tenant, in order to examine, inspect or protect the Premises and the Building, to make such alterations, improvements and/or repairs as in the sole but reasonable judgment of Landlord may be deemed necessary or desirable, or to exhibit the same to brokers, prospective tenants (during the last twelve (12) months of the Lease Term), lenders, purchasers and others. Except in the event of an emergency, Landlord shall give Tenant advance notice (which may be made by telephone or email) of any such entry and permit Tenant to have a representative present at such time; and Landlord shall use commercially reasonable efforts to minimize disruption to Tenant’s normal business operations in the Premises in connection with any such entry (but same shall not prohibit Landlord from performing maintenance and repairs during business hours nor require Landlord to employ overtime or other premium pay labor or other costs in connection therewith unless Tenant pays such excess costs). Janitorial service within the Premises shall be provided after Building Hours.
ARTICLE XIII
INSURANCE
13.1Increase in Cost. Tenant shall not conduct or permit to be conducted any activity (other than the Permitted Use), or place or permit to be placed any equipment or other item in or about the Premises or the Building, which will in any way increase the rate of property insurance or other insurance on the Building. If any increase in the rate of property or other insurance is due to any activity, equipment or other item of Tenant, then (whether or not Landlord has consented to such activity, equipment or other item) Tenant shall pay as additional rent the amount of such increase. Landlord shall exclude from Operating Charges any such increase attributable to any other tenants of the Building. The statement of any applicable insurance company or insurance rating organization (or other organization exercising similar functions in connection with the prevention of fire or the correction of hazardous conditions) that an increase is due to any such activity, equipment or other item of Tenant or another Building tenant shall be conclusive evidence thereof.
13.2Required Coverage. Throughout the Lease Term, each of Tenant and Landlord shall obtain and maintain, at its respective sole cost and expense, except as provided in Exhibit E attached hereto, insurance coverages of the type and in such amounts as set forth in Exhibit G attached hereto.
ARTICLE XIV
SERVICES, UTILITIES AND COMMON AREAS
14.1Service and Utilities. Subject to Tenant’s obligations specified in this Lease, from and after the Rent Commencement Date, Landlord will provide to the Premises the following services and utilities in accordance with applicable Law and in a manner commensurate with operation and maintenance of a class A downtown office building: (a) heating, cooling and ventilation during Building Hours (b) Building standard janitorial service after 5:30 p.m. on Monday through Friday (or, at Landlord’s option, Sunday through Thursday) only (excluding Holidays), (c) electric power from the utility provider sufficient for customary lighting purposes and normal office use, (d) standard hot and cold water in bathrooms provided by Landlord and cold water in kitchenettes/pantry areas (Tenant shall be responsible for installing water heaters to serve such areas); (e) passenger elevator service (with at least two (2) elevators in operation at all times, except in the event of an emergency), (f) landscaping and snow removal during the seasons they are required, (g) exterior window cleaning service, and (h) access controls, lobby staff and roving tours by unarmed personnel. If Tenant requires heating, cooling or ventilation beyond the Building Hours, then Landlord will furnish the same upon request in accordance with the Landlord’s customary procedures for the Building. Water usage in excess of that described in clause (d) above shall be considered excess usage and shall be provided at Tenant’s cost under Section 14.3. Tenant shall pay for such extra service in accordance with Landlord’s then current schedule of costs and charges, which shall reflect Landlord’s reasonably estimated cost of providing such service (including, without limitation, a reasonable activation fee and Landlord’s reasonable allocation of the costs for electricity, water, sewer, water treatment, labor, metering, filtration, equipment depreciation, wear and tear and repairs and maintenance to provide such services) but without a profit increment. HVAC services provided by Landlord to Tenant are based upon an assumed maximum premises population in the Premises of one (1) person per 120 square feet of rentable area, which limit Tenant shall in no event exceed. Notwithstanding anything above to the contrary, Tenant shall have access to the Building twenty four (24) hours per day each day of the year (except in the event of an emergency and subject to Landlord’s reasonable security requirements) subject to reasonable periods of closure for testing of mechanical and life safety equipment and repairs and maintenance. To the extent allowed by Law, Landlord will attempt to schedule such testing outside of Building Hours. Landlord shall provide a card key (or similar type of) access system to provide access to the Building and the Parking Facility (defined in Section 24.1) at times other than Building Hours. An initial supply of up to 2,100 access
cards shall be provided to Tenant at no cost to Tenant and Landlord may charge Tenant for all additional or replacement cards at Landlord’s then-current standard and reasonable charge. Tenant is responsible for all access cards issued to Tenant and must immediately deactivate the card of any person who is no longer authorized to access the Premises. Such access cards shall be issued by Landlord to the specific individuals that are designated by Tenant. All persons entering or exiting the Building at times other than the Building Hours shall, at Landlord’s discretion, be required to sign in and out.
14.2Costs. As part of its initial Alterations, Tenant shall install, operate and maintain Building standard submeters to ascertain Tenant’s actual electricity consumption in the Premises. Tenant shall pay Landlord for Tenant’s electrical consumption for the Premises as measured by the submeters at the then current rates and charges charged by the electric service provider selected and used by Landlord.
14.3Excess Usage. Tenant shall reimburse Landlord for the cost of any excess water, sewer and chiller usage in the Premises. All water uses except for the water to be provided under Section 14.1(d) above is excess and must be identified in advance. Landlord may install or may require Tenant to install, at Tenant’s expense, submeters to ascertain Tenant’s actual water consumption in all or any part of the Premises that is not devoted to standard office use, including but not limited to Tenant installed showers, washing machines, cafeterias and commercial kitchens (as opposed to kitchenette or pantry areas), and areas used for laboratory or research and development purposes provided that the foregoing shall not be deemed to be permission for any such uses.
14.4Amenities. Subject to Tenant’s obligations specified in the Lease, as part of the initial development of the Building, Landlord shall provide the Fitness Facility, Bike Room, Conference Facilities, Rooftop Terrace and Arts Space (collectively, the “Amenities”). Tenant and its employees whose primary work location is the Premises shall have the non-exclusive right to use the Amenities during the Lease Term.
(a)Fitness Facility: Landlord shall provide unstaffed fitness facilities in the Building including locker facilities, showers, saunas, restrooms, and exercise equipment with towel service (the “Fitness Facility”), which shall be available to Tenant and Tenant’s employees free of direct rental charge (except as part of Pass-Through Expenses). Landlord may not charge Tenant’s employees a monthly access fee for general access and use of the Fitness Facility but may charge for classes or other specific services. Tenant’s employees whose primary work location is the Premises shall have the non- exclusive right to utilize the Fitness Facility twenty-four (24) hours per day each day of the year (except in the event of an emergency or if Landlord finds it reasonably necessary for security or other reasons to modify the hours of the Fitness Facility). Use of the Fitness Facility will be limited to tenants of the Building and their employees, on a non-exclusive basis. Tenant and its employees shall use the Fitness Facility at their own risk and will provide such reasonable certifications of waiver of liability as Landlord may reasonably request from time to time. Without limiting the generality of the foregoing, each user of the Fitness Facility shall be required to execute and deliver a waiver of liability in a reasonable form to be provided by Landlord. Notwithstanding anything in this Lease to the contrary, as part of Operating Charges, Landlord shall have the right at any time, in its sole and absolute discretion, to staff the Fitness Facility (or not) and contract or terminate any party hired in connection therewith. As used herein, the reference to “Tenant’s employees” also includes the employees of Tenant’s subtenants and/or Business Affiliates whose primary work location is the Premises, to the extent Tenant authorizes any such employees to use the Fitness Facility.
(b)Conference and Event Space: Landlord shall provide unstaffed conference rooms and event space in separate locations within the Building (the “Conference Facilities”), which shall be available to Tenant free of direct rental charge (except as part of Pass-Through Expenses). Tenant shall have the non-exclusive right to use the Conference Facilities. The Conference Facilities will be
available for reservations through Landlord’s customary reservations system provided that Tenant may not reserve the Conference Facilities for more than its Proportionate Share of time available for reserved use. Tenant shall schedule Tenant’s use of the Conference Facilities with Landlord’s property manager a reasonable period of time as determined by Landlord in its reasonable discretion in advance of Tenant’s use of the Conference Facilities. In the event of scheduling conflicts or high periods of usage, Landlord shall have the right to determine availability in its reasonable discretion. Landlord reserves the right to charge a reservations fee if tenants reserve the Conference Facilities and fail to either cancel the reservation or use the Conference Facilities at the reserved time. If Tenant requests set-up or technology assistance with respect to its use of the Conference Facilities or if Landlord incurs additional out of pocket costs as a result of Tenant’s use (e.g. excess janitorial or security costs), Tenant shall pay Landlord’s customary fee for those services. The Conference Facilities do not include the areas in the Building dedicated to arts and cultural uses under the master use permit for the Building.
(c)Rooftop Terrace: Subject to applicable regulatory prohibitions and restrictions, the Building shall contain a rooftop terrace on floor 19 (which excludes the inside event space) which is the top of the low-rise portion of the office building (the “Rooftop Terrace”) that will be available for use by Tenant and its employees on a non-exclusive basis during and outside of the Building Hours, except (i) in the event of emergency and (ii) where Landlord has permitted another tenant temporary exclusive use of the Rooftop Terrace. With prior authorization from Landlord and subject to availability and to compliance with rules and regulations established by Landlord (including Tenant’s executing Landlord’s commercially reasonable form of waiver and use agreement and reimbursing Landlord as additional rent for all costs associated therewith including, but not limited to, clean up and security costs), Tenant shall have the right to hold exclusive reserved events on the Rooftop Terrace during or outside of Building Hours but may not reserve the Rooftop Terrace for more than its Proportionate Share of time available for private events. Landlord shall manage time available for private events on an equitable basis so that each tenant has the opportunity to reserve the Rooftop Terrace for private events for its Proportionate Share of time available for private events during seasons with good weather. Private events scheduled outside of Building Hours may incur additional charges. The Rooftop Terrace is a non-smoking area. Tenant shall use the Rooftop Terrace at its own risk and Landlord shall not be liable to Tenant or any of its invitees for injuries received while using the Rooftop Terrace and adjacent area (except to the extent caused by the gross negligence or willful misconduct of Landlord or Landlord’s Representatives acting within the scope of their authority). If Landlord provides set-up, cleaning or other services with respect to Tenant’s use of the Rooftop Terrace, Tenant shall be billed on a reasonable basis for those services.
(d)Bicycle Room. Landlord shall provide one or more dedicated areas for parking and storage of bicycles and bicycle trailers, electric bike charging, as well as a bicycle work room in the Building’s Parking Facility (the “Bike Room”). The Bike Room shall be for the exclusive use of occupants of the Building (including employees of Tenant whose primary work location is the Premises) and shall be in addition to the public bicycle racks included as part of the Open Space. Tenant shall not have the right to more than its Proportionate Share of available Bike Room access cards.
(e)Arts and Cultural Space. The Building includes certain interior space that is dedicated to certain arts and cultural uses (collectively, the “Arts Space”) which will be operated in accordance with the land use permits applicable to the Building. Building tenants may schedule use of Arts Space from time to time. In addition to the Landlord’s rules and regulations, use of the Arts Space is subject to the terms of the Building’s land use permits and related agreements as well as to any rules, regulations or other requirements imposed by the City of Seattle from time to time.
(f)Open Space. In addition to the Amenities, the Building includes a multi-level covered plaza and outdoor patio areas, at or near the ground floor of the Building (collectively, the “Open Space”) that are available for non-exclusive use by Building tenants in common with members of the
general public in accordance with the land use permits applicable to the Building. In addition to the Landlord’s rules and regulations, use of the Open Space is subject to the terms of the Building’s land use permits and related agreements as well as to any rules, regulations or other requirements imposed by the City of Seattle from time to time.
(g)Use of Amenities and Open Space. Use of the Open Space and the Amenities shall, in addition to the foregoing provisions of Sections 14.4(a), 14.4(b) and 14.4(c), be in accordance with all applicable provisions of this Lease (including, without limitation, the insurance and indemnity provisions) and subject to such reasonable rules and regulations as Landlord may reasonably promulgate and enforce from time to time. As part of Operating Charges, Landlord shall maintain the Amenities in first-class condition and repair. Landlord shall have the right at any time, in its sole but reasonable discretion, to: (1) modify the hours of operation of any of the Amenities; (2) modify the size, type, capacity or configuration of the Amenities; (3) relocate any of the Amenities to another portion of the Building; (4) perform any other reasonable act with respect to the Amenities; or (5) add additional amenities for use by Building tenants. In the event that Landlord makes any modification with respect to the Amenities pursuant to the immediately preceding sentence, the costs of such modification shall be included within Operating Charges except as excluded pursuant to the definition of Operating Charges. Notwithstanding anything herein to the contrary, Landlord shall not eliminate any of the Amenities during the first three (3) years of the Lease Term or make any changes to the Amenities (or their operation) that essentially deprive Tenant of their benefit. Further, Landlord shall make reasonable efforts to enforce its rules and regulations with respect to the Amenities so that the use thereof by any other tenants or occupants in the Building (including, without limitation, with respect to the Conference Facilities and/or Rooftop Terrace) shall not be conducted in a manner which substantially and unreasonably interferes with Tenant’s use of the Premises. If Tenant is bothered by odors or unreasonably loud noises from the Conference Facilities and/or Rooftop Terrace and brings them to Landlord’s attention while they are occurring, Landlord shall make commercially reasonable efforts to cause the users of the Conference Facilities and/or Rooftop Terrace to stop making the odors or unreasonably loud noises.
ARTICLE XV
LIABILITY OF LANDLORD
15.1Claims. Landlord and Landlord’s Representatives shall not be liable to Tenant, any Agent or any other person or entity for any damage, injury, loss or claim based on or arising out of any cause whatsoever (except as otherwise provided in this Lease), including the following: repair to any portion of the Premises or the Building; interruption in the use of the Premises or the Building or any equipment therein; any accident or damage resulting from any use or operation (by Landlord, Tenant or any other person or entity) of elevators or heating, cooling, electrical, sewage or plumbing equipment or apparatus; termination of this Lease by reason of damage to the Premises or the Building; any fire, robbery, theft, vandalism, mysterious disappearance or any other crime or casualty; actions of any other tenant of the Building or of any other person or entity; failure or inability to furnish any service specified in this Lease; and leakage in any part of the Premises or the Building from water, rain, ice or snow that may leak into, or flow from, any part of the Premises or the Building, or from drains, pipes or plumbing fixtures in the Premises or the Building. If any condition exists which may be the basis of a claim of constructive eviction, then Tenant shall give Landlord written notice thereof and a reasonable opportunity to correct such condition, and in the interim Tenant shall not claim that it has been constructively evicted or is entitled to a rent abatement (except as otherwise expressly set forth in this Lease). Any property placed by Tenant or any Agent in or about the Premises or the Building shall be at the sole risk of Tenant, and Landlord shall not in any manner be held responsible therefor (except to the extent any loss of or damage to any such property is caused by the negligence or willful misconduct of Landlord, its contractors or Landlord’s Representatives). Any person receiving an article delivered for Tenant shall be acting as Tenant’s agent for such purpose and not as Landlord’s agent. For purposes of this Article, the
term “Building” shall be deemed to include the Land. Notwithstanding the foregoing provisions of this Section, Landlord shall not be released from liability to Tenant for any damage, injury, loss or claim to the extent caused by the negligence or willful misconduct of Landlord, or Landlord’s Representatives; provided, however, that neither Landlord nor any of Landlord’s Representatives (nor any past, present or future board member, partner, trustee, director, member, officer, employee, agent, representative or advisor of any of them) shall under any circumstances be liable for (a) any exemplary, punitive, consequential or indirect damages (or for any interruption of or loss to business) in connection with or relating to this Lease or (b) any criminal act or breach of security by unrelated third parties.
15.2Indemnities.
(a)Tenant Indemnification of Landlord. Except to the extent caused by the negligence or willful misconduct of Landlord, or its contractors or Landlord’s Representatives or any breach of this Lease by Landlord, Tenant shall reimburse Landlord, its parent, subsidiaries and related entities, the holder of each Mortgage and each of their respective managers, members, directors, officers, employees and agents for (as additional rent), and shall indemnify, defend upon request and hold them harmless from and against all Claims suffered by or claimed against them by third parties to the extent caused by: (i) the use and occupancy of the Premises, the Open Space or any of the Amenities or other common areas of the Building by Tenant or its Agents, (ii) any negligent or willful act or omission of Tenant or any Agent, (iii) any breach of Tenant’s obligations under this Lease beyond any applicable notice and cure period, including failure to comply with Laws or surrender the Premises upon the expiration or earlier termination of the Lease Term, or (iv) any entry by Tenant or any Agent upon the Land prior to the Lease Commencement Date. Except as set forth in Section 6.4 or in Article XXII, in no event, however, shall Tenant have any liability to Landlord for (i) consequential damages or (ii) any Claims arising out of any criminal act or breach of security by an unrelated third party who is not an Agent.
(b)Landlord Indemnification of Tenant. Except to the extent caused by the negligence or willful misconduct of Tenant or an Agent of Tenant or any breach of this Lease by Tenant, Landlord shall reimburse Tenant, its parent, subsidiaries and related entities, and each of their respective managers, members, directors, officers, employees and agents, and shall indemnify, defend upon request and hold them harmless from and against all Claims suffered or claimed against them by third parties to the extent caused by: (i) any negligence or willful misconduct of Landlord or its employees or authorized agents acting within the scope of their authority, (ii) any breach of this Lease beyond any applicable notice and cure period, or (iii) Landlord’s use or control of the common areas of the Building and the Building Structure and Systems. Except as set forth in Section 6.4, in no event, however, shall Landlord have any liability to Tenant for (i) interruption or loss to Tenant’s business or any consequential damages or (ii) any Claims arising out of any criminal act or breach of security by an unrelated third party.
15.3Transfer. In the event Landlord transfers the Building and this Lease to a new owner, the transferring Landlord shall not be liable for any obligation or liability based on or arising out of any event or condition occurring after the date of such transfer (provided that the transferee assumes in writing Landlord’s obligations hereunder arising from and after the transfer date). Each Landlord shall be liable under this Article XV only for Claims arising out of events occurring during the period of its ownership. Within five (5) days after request, Tenant shall attorn to any transferee landlord and execute, acknowledge and deliver any commercially reasonable document submitted to Tenant confirming such attornment provided such transferee assumes the obligations of Landlord hereunder which accrue from and after the date of the transfer.
15.4No Setoff. The obligations of Tenant under this Lease are separate and independent covenants and agreements, such that all such obligations of Tenant, including the obligation to pay Base
Rent, additional rent and other sums due hereunder, shall continue unaffected, unless the requirement to pay or perform the same shall have been terminated or abated pursuant to an express provision of this Lease. Such waiver and acknowledgements by Tenant are a material inducement to Landlord entering into this Lease. To the extent of any conflicts or inconsistencies between the terms and provisions of this Section 15.4 and the terms and provisions of the remainder of this Lease, the terms and provisions of this Section 15.4 shall control. Except as otherwise expressly set forth in this Lease, Tenant shall not have the right to set off or deduct any amount allegedly owed to Tenant pursuant to any claim against Landlord from any rent or other sum payable to Landlord. Tenant’s sole remedy for recovering upon such claim shall be to institute an independent action against Landlord. No counterclaims may be raised in any unlawful detainer proceeding initiated by Landlord; provided, however, that the foregoing shall not prohibit Tenant from asserting a compulsory counterclaim in any unlawful detainer proceeding instituted by Landlord against the Tenant that is required to be brought by applicable statute and any compulsory counterclaim will be deemed forever waived if not then asserted by Tenant.
15.5Limitation of Liability. If Tenant or any Agent is awarded a money judgment against Landlord, then recourse for satisfaction of such judgment shall be limited to execution against Landlord’s estate and interest in the Building which shall be deemed to include (subject to rights of the holder of any Mortgages) proceeds actually received by Landlord from any sale of the Building (net of all expenses of sale), insurance or condemnation proceeds, and rental income from the Building (net of all expenses) to the extent all of the foregoing are held in an account for Landlord and have not been applied or distributed by Landlord in the ordinary course of business (i.e., not as a fraud against creditors). No other asset of Landlord, and no asset of any of Landlord’s Representatives or the holder of any Mortgage (or any past, present or future board member, partner, director, member, officer, trustee, employee, agent, representative or advisor of any of them (each, an “officer”)) or any other person or entity, shall be available to satisfy or be subject to any such judgment. No such Landlord’s Representative, holder of a Mortgage, officer or other person or entity shall be held to have personal liability for satisfaction of any claim or judgment against Landlord whatsoever under this Lease.
ARTICLE XVI
RULES
16.1Tenant and Agents shall abide by and observe any rules and regulations and any amendments or supplements to such rules and regulations that Landlord may reasonably promulgate from time to time provided that written notice thereof is given and such rules and regulations are consistent with prudent practices of first-class office buildings in the vicinity of the Building. All rules shall be binding upon Tenant and enforceable by Landlord as if they were contained herein except that if a rule conflicts with an express right granted to Tenant under this Lease, the language in this Lease shall control. Nothing contained in this Lease shall be construed as imposing upon Landlord any duty or obligation to enforce such rules, or the terms, conditions or covenants contained in any other lease, as against any other tenant, and Landlord shall not be liable to Tenant for the violation of such rules by any other tenant or its employees, agents, assignees, subtenants, invitees or licensees. Landlord shall use reasonable efforts not to enforce any rule or regulation in a manner which unreasonably discriminates among similarly situated tenants.
ARTICLE XVII
DAMAGE OR DESTRUCTION
17.1General. If the Premises or the Building are totally or partially damaged or destroyed thereby rendering the Premises totally or partially inaccessible or unusable, then, Landlord shall diligently repair and restore the Premises (such restoration of the Premises to exclude any Alterations or any other contents of the Premises installed by or on behalf of Tenant (including, without limitation, Tenant’s trade
fixtures, decorations, furnishings, equipment or personal property)) and the Building to substantially the same condition they were in prior to such damage or destruction; provided, however, that if in Landlord’s reasonable judgment such repair and restoration cannot be completed within one hundred eighty (180) days after the occurrence of such damage or destruction (taking into account the time needed for effecting a satisfactory settlement with any insurance company involved, removal of debris, preparation of plans and issuance of all required governmental permits), then Landlord shall have the right to terminate this Lease by giving written notice of termination within forty-five (45) days after the occurrence of such damage or destruction.
(a)If this Lease is terminated pursuant to this Article, then rent shall be apportioned (based on the portion of the Premises which is usable or used after such damage or destruction) and paid to the earlier of the date of termination or the date Tenant completely vacates and abandons the Premises on account of such damage and Landlord shall be entitled to any insurance proceeds received by Tenant that are attributable to Tenant’s Work (as defined in Exhibit B) and other improvements insured or required to be insured by Tenant that would remain in the Premises at the end of the Lease Term.
(b)If this Lease is not terminated as a result of such damage or destruction, then until such repair and restoration of the Premises are substantially complete, Tenant shall be required to pay rent only for the portion of the Premises that is usable while such repair and restoration are being made; provided, however, that (i) if such damage or destruction was caused by the negligence or willful misconduct of Tenant or any Agent, then Tenant shall not be entitled to any such rent reduction except to the extent Landlord receives rent loss insurance proceeds allocable to this Lease; and (ii) if Tenant fails to pay over to Landlord insurance proceeds within ten (10) business days after receipt thereof from Tenant’s insurance (to the extent such insurance proceeds are payable to Landlord hereunder) any such rent abatement shall end on the date when Landlord would have been able to substantially complete repair and restoration of the Premises had Tenant timely paid Landlord such insurance proceeds.
(c)After receipt of all insurance proceeds (including proceeds of insurance maintained by Tenant), Landlord shall proceed with and bear the expenses of such repair and restoration of the Premises and the Building; provided, however, that (i) if such damage or destruction was caused by the negligence or willful misconduct of Tenant or any Agent, then Tenant shall pay Landlord’s deductible and the amount by which such expenses exceed the insurance proceeds, if any, actually received by Landlord on account of such damage or destruction (or, if Landlord fails to maintain the insurance required by Section 13.2, that Landlord would have received to the extent Landlord maintained such insurance required by Section 13.2), (ii) Tenant shall pay the amount by which the cost of restoring any item which Landlord is required to restore and Tenant is required to insure exceeds the insurance proceeds received with respect thereto, and (iii) Landlord shall not be required to repair or restore any Alterations installed in the Premises including Alterations made as part of Tenant’s Work (except to the extent Landlord receives proceeds therefor from Tenant’s insurance) or any other contents of the Premises installed therein by or on behalf of Tenant or anyone claiming through Tenant or anyone claiming through Tenant (including, without limitation, Tenant’s trade fixtures, decorations, furnishings, equipment or personal property).
(d)Notwithstanding anything herein to the contrary, Landlord shall have the right to terminate this Lease if (i) insurance proceeds plus deductibles are insufficient to pay the full cost of such repair and restoration (so long as Landlord maintains the insurance required by Section 13.2), (ii) the holder of any Mortgage fails or refuses to make such insurance proceeds available for such repair and restoration, (iii) zoning or other applicable Laws or regulations do not permit such repair and restoration, or (iv) the damage to the Building exceeds thirty five percent (35%) of the replacement value of the Building.
(e)If Landlord’s restoration as required by the first paragraph of this Section 17.1 is not substantially completed on or before the date (“Outside Restoration Date”) that is the later of (i) two hundred seventy (270) days after the date of the occurrence of such damage or destruction, or (ii) the date that is two hundred seventy (270) days after Landlord receives the insurance proceeds necessary to fund such restoration (which Outside Restoration Date shall be subject to extension where the delay in completion of such work is due to events described in Section 25.21) then Tenant shall have the right to terminate this Lease at any time after the expiration of such period until the restoration is substantially completed, such termination to take effect as of the sixtieth (60th) day after the date of receipt by Landlord of Tenant’s notice of termination, with the same force and effect as if such date were the date originally established as the expiration date hereof; provided that if restoration is substantially completed within sixty (60) days after Tenant’s notice of termination, then Tenant’s notice of termination shall be of no force and effect and this Lease and the Lease Term shall continue in full force and effect. Notwithstanding the foregoing, the Outside Restoration Date shall not be more than fifteen (15) months after the date of the occurrence of such damage or destruction
17.2Termination Right. Within forty-five (45) days after the occurrence of the damage or destruction described in Section 17.1, Landlord shall determine in its sole but reasonable judgment whether the repairs and restoration can be substantially completed within one hundred eighty (180) days after the date of such damage or destruction and shall notify Tenant of such determination. In the event that (a) Landlord has not already elected to terminate this Lease pursuant to this Article, and (b) Landlord’s notification indicates that the repairs and restoration cannot be substantially completed within one hundred eighty (180) days after the date of such damage or destruction, then Tenant shall have the right exercisable no later than ten (10) business days after delivery of such notice to terminate this Lease by providing written notice to Landlord (which date of such termination shall be not more than thirty (30) days after the date of Tenant’s notice to Landlord). Notwithstanding any of the foregoing to the contrary, Tenant shall not have the right to terminate this Lease if the acts or omissions of Tenant or any Agent shall have caused the damage or destruction.
ARTICLE XVIII
CONDEMNATION
18.1General. If one third or more of the Premises, or the use or occupancy thereof, shall be taken or condemned by any governmental or quasi-governmental authority for any public or quasi-public use or purpose or sold under threat of such a taking or condemnation (collectively, “condemned”), then this Lease shall terminate on the day prior to the date title thereto vests in such authority and rent shall be apportioned as of such date. If less than one third of the Premises or occupancy thereof is condemned, then this Lease shall continue in full force and effect as to the part of the Premises not so condemned, except that as of the date title vests in such authority this Lease shall terminate with respect to the part of the Premises so condemned (and thereafter Tenant shall pay the rent only for the remaining portion of the Premises not so condemned). Landlord shall notify Tenant of any condemnation contemplated by this Section promptly after Landlord receives notice thereof. Within ten (10) days after receipt of such notice, Tenant shall have the right to terminate this Lease with respect to the remainder of the Premises not so condemned as of the date title vests in such authority if such condemnation renders said remainder of the Premises unusable for their intended purpose. Notwithstanding anything herein to the contrary, if twenty five percent (25%) or more of the Land or the Building is condemned, then whether or not any portion of the Premises is condemned, Landlord shall have the right to terminate this Lease as of the date title vests in such authority.
18.2Tenant Rights. All awards, damages and other compensation paid on account of such condemnation shall belong to Landlord, and Tenant assigns to Landlord all rights to such awards, damages and compensation. Tenant shall not make any claim against Landlord or such authority for any
portion of such award, damages or compensation attributable to damage to the Premises, value of the unexpired portion of the Lease Term, loss of profits or goodwill, leasehold improvements or severance damages. Nothing contained herein, however, shall prevent Tenant from pursuing a separate claim against the authority for relocation or moving expenses and for the value of furnishings, equipment and trade fixtures installed in the Premises at Tenant’s expense and which Tenant is entitled pursuant to this Lease to remove at the expiration or earlier termination of the Lease Term, provided that such claim shall in no way diminish the award, damages or compensation payable to or recoverable by Landlord in connection with such condemnation.
ARTICLE XIX
DEFAULT
19.1General. If there shall be an Event of Default (even if prior to the Lease Commencement Date), then the provisions of this Article XIX shall apply. Landlord shall have the right, at its sole option, to terminate this Lease. In addition, with or without terminating this Lease, Landlord may re-enter, terminate Tenant’s right of possession and take possession of the Premises. If necessary, Landlord may proceed to recover possession of the Premises under applicable Laws, or by such other proceedings, including re-entry and possession, as may be applicable. If Landlord elects to terminate this Lease and/or elects to terminate Tenant’s right of possession, all obligations contained in this Lease on the part of Landlord to be done and performed shall cease without prejudice, however, to Tenant’s liability for all Base Rent, additional rent and other sums specified herein. Whether or not this Lease and/or Tenant’s right of possession is terminated, following an Event of Default Landlord shall have the right, at its sole option, to terminate any renewal or expansion right contained in this Lease and to grant or withhold any consent or approval pursuant to this Lease in its sole and absolute discretion.
(a)If an Event of Default has occurred and Tenant has vacated the Premises, and if Landlord has terminated this Lease as a result of such Event of Default, then Landlord shall thereafter use reasonable efforts to re-let the Premises promptly after Landlord regains full legal possession; provided, however, that Tenant agrees that Landlord shall not have any duty to give higher priority to reletting of the Premises over the leasing other space in the Building and that Landlord shall have no obligation to solicit or entertain negotiations with any other prospective tenant for the Premises until Landlord obtains full and complete possession of the Premises (including, without limitation, the final and unappealable legal right to relet the Premises free of any claim of Tenant. In no event shall Landlord be required to re- let the Premises: (i) before leasing similar vacant space in the Building; or (ii) for a rental less than the then-current fair market rental value for office space in the Building; (iii) to any tenant that does not meet Landlord’s then-current criteria for direct leases of a comparable amount of space; or (iv) under any terms that would require Landlord to incur any expenses greater than the sum that Tenant pays to Landlord as damages.
(b)If an Event of Default has occurred, promptly after Landlord regains full legal possession of the Premises Landlord shall use commercially reasonable efforts to mitigate its damages. Tenant hereby expressly waives, for itself and all persons claiming by, through or under it, any right of redemption, re-entry or restoration of the operation of this Lease under any present or future Law, including without limitation any such right which Tenant would otherwise have in case Tenant shall be dispossessed for any cause, or in case Landlord shall obtain possession of the Premises as herein provided. In connection therewith, upon the occurrence of an Event of Default, Landlord may relet the Premises or any part thereof, alone or together with other premises, for such term(s) (which may extend beyond the date on which the Lease Term would have expired but for Tenant’s Event of Default) and on such terms and conditions (which may include any concessions or allowances granted by Landlord) as Landlord, in its sole but reasonable discretion, may determine, but Landlord shall not be liable for, nor shall Tenant’s obligations hereunder be diminished by reason of, any failure by Landlord
(notwithstanding Landlord’s reasonable efforts) to relet all or any portion of the Premises or to collect any rent due upon such reletting. In the event that Landlord relets the Premises or any part thereof for a term which extends beyond the date on which the Lease Term would have expired but for Tenant’s Event of Default, any obligation under this Article XIX for Tenant to reimburse Landlord for the reletting costs (including, without limitation, advertising fees, brokerage fees, and placing the Premises in rentable condition) shall be prorated accordingly (with Landlord being responsible for the portion of such costs allocable to any period after the date on which the Lease Term would have expired but for Tenant’s Event of Default).
19.2Damages. Upon the occurrence of an Event of Default, whether or not this Lease is terminated or any suit is instituted, Tenant shall be liable for any Base Rent, additional rent, damages or other sum which may be due or sustained prior to such Event of Default, for the unamortized balance of any abatement amount granted by Landlord in connection with this Lease (such amount being amortized over the initial Lease Term on a straight-line basis, without interest), and for all costs, fees and expenses (including, but not limited to, reasonable attorneys’ fees and costs, brokerage fees, expenses incurred in placing the Premises in first class rentable condition, advertising expenses, and any concessions or allowances granted by Landlord) reasonably incurred by Landlord in pursuit of its remedies hereunder and/or in recovering possession of the Premises and renting the Premises to others from time to time. Tenant shall also be liable for additional damages which at Landlord’s election shall, to the extent permitted by applicable Law, be either: (a) an amount equal to the Base Rent and additional rent due or which would have become due from the date of Tenant’s Event of Default through the remainder of the Lease Term, less the amount of rental, if any, which Landlord receives during such period from others to whom the Premises may be rented (other than any additional rent received by Landlord as a result of any failure of such other person to perform any of its obligations to Landlord), which amount shall be computed and payable in monthly installments, in advance, on the first day of each calendar month following Tenant’s Event of Default and continuing until the date on which the Lease Term would have expired but for Tenant’s Event of Default, it being understood that separate suits may be brought from time to time to collect any such damages for any month(s) (and any such separate suit shall not in any manner prejudice the right of Landlord to collect any damages for any subsequent month(s)), or Landlord may defer initiating any such suit until after the expiration of the Lease Term (in which event such deferral shall not be construed as a waiver of Landlord’s rights as set forth herein and Landlord’s cause of action shall be deemed not to have accrued until the expiration of the Lease Term); or (b) as liquidated, final damages, an amount equal to the difference between (i) all Base Rent, additional rent and other sums due or which would be due and payable under this Lease as of the date of Tenant’s Event of Default through the end of the scheduled Lease Term, and (ii) the fair market value rental of the Premises over the same period (net of all expenses (including reasonable attorneys’ fees) and all vacancy periods reasonably projected by Landlord to be incurred in connection with the reletting of the Premises), as determined by Landlord in its reasonable discretion, which difference shall be discounted to present value at a rate equal to one (1) whole percentage point above the discount rate in effect on the date of payment at the Federal Reserve Bank nearest the Building, and which resulting amount shall be payable to Landlord in a lump sum within thirty (30) days following demand (which demand shall include reasonable supporting documentation with respect to the amount claimed by Landlord hereunder), it being understood that upon payment of such liquidated and agreed final damages, Tenant shall be released from further liability under this Lease with respect to the period after the date of such payment, and that Landlord may bring suit to collect any such damages at any time after an Event of Default shall have occurred. For purposes hereof, if Landlord elects to require Tenant to pay damages in accordance with this Paragraph clause (b) above, the total rent shall be computed by assuming the Operating Charges and Real Estate Taxes to be the same as were payable for the twelve (12) calendar months (or if less than twelve (12) calendar months have been elapsed since the Effective Date, the partial year) immediately preceding such termination of re- entry and with an annual rate of increase of three percent (3%). Tenant shall pay all expenses (including reasonable attorneys’ fees) reasonably incurred by Landlord in connection with or as a result of any Event
of Default whether or not a suit is instituted. Nothing herein shall be construed to affect or prejudice Landlord’s right to prove, and claim in full, unpaid rent accrued prior to termination of this Lease. If Landlord is entitled, or Tenant is required, pursuant to any provision hereof to take any action upon the termination of the Lease Term, then Landlord shall be entitled, and Tenant shall be required, to take such action also upon the termination of Tenant’s right of possession.
19.3Rights and Remedies Cumulative. All rights and remedies of Landlord set forth in this Lease are cumulative and in addition to all other rights and remedies available to Landlord at law or in equity. The exercise by Landlord of any such right or remedy shall not prevent the concurrent or subsequent exercise of any other right or remedy. No delay or failure by Landlord or Tenant to exercise or enforce any of its respective rights or remedies or the other party’s obligations (except to the extent a time period is specified in this Lease therefor) shall constitute a waiver of any such or subsequent rights, remedies or obligations. Neither party shall be deemed to have waived any default by the other party unless such waiver expressly is set forth in a written instrument signed by the party against whom such waiver is asserted. If Landlord waives in writing any default by Tenant, such waiver shall not be construed as a waiver of any covenant, condition or agreement set forth in this Lease except as to the specific circumstances described in such written waiver.
19.4No Waiver. If Landlord shall institute proceedings against Tenant and a compromise or settlement thereof shall be made, then the same shall not constitute a waiver of the same or of any other covenant, condition or agreement set forth herein, nor of any of Landlord’s rights hereunder. Neither the payment by Tenant of a lesser amount than the monthly installment of Base Rent, additional rent or of any sums due hereunder nor any endorsement or statement on any check or letter accompanying a check for payment of rent or other sums payable hereunder shall be deemed an accord and satisfaction. Landlord may accept the same without prejudice to Landlord’s right to recover the balance of such rent or other sums or to pursue any other remedy. Notwithstanding any request or designation by Tenant, Landlord may apply any payment received from Tenant to any payment then due. No re-entry by Landlord, and no acceptance by Landlord of keys from Tenant, shall be considered an acceptance of a surrender of this Lease.
19.5Default Rate. If Tenant fails to make any payment to any third party or to do any act herein required to be made or done by Tenant, then Landlord may, after written notice to Tenant, but shall not be required to, make such payment or do such act. The taking of such action by Landlord shall not be considered a cure of such default by Tenant or prevent Landlord from pursuing any remedy it is otherwise entitled to in connection with such default. If Landlord elects to make such payment or do such act, then all expenses incurred by Landlord, plus interest thereon at a rate (the “Default Rate”) equal to the greater of twelve percent (12%) per annum or the rate per annum which is three (3) whole percentage points higher than the Prime Rate from the date incurred by Landlord to the date of payment thereof by Tenant, shall constitute additional rent due hereunder; provided, however, that nothing contained herein shall be construed as permitting Landlord to charge or receive interest in excess of the maximum rate then allowed by applicable Law.
19.6Late Charges. If Tenant fails to make any payment of Base Rent, additional rent or any other sum on or before the date such payment is due and payable (without regard to any grace period), then Landlord shall have the right to impose upon Tenant in writing a late charge of five percent (5%) of the amount of such payment. In addition, such payment and such late fee shall bear interest at the Default Rate from the date such payment or late fee, respectively, became due to the date of payment thereof by Tenant; provided, however, that nothing contained herein shall be construed as permitting Landlord to charge or receive interest in excess of the maximum rate then allowed by applicable Law. Such late charge and interest shall constitute additional rent due hereunder without any notice or demand. Notwithstanding the foregoing, such late charge and interest shall not apply to the first two late payments
in any calendar year, provided that Tenant cures such late payment within five (5) business days after written notice thereof.
19.7Security Lien. Landlord waives all contractual, statutory and constitutional liens held by Landlord, whether now or in the future, with respect to the computers, files, software, and proprietary information (including any equipment containing any of the foregoing) located in or at the Premises. If any of such materials remain in the Premises after termination of this Lease, Tenant shall be deemed to be in possession of the Premises until all of such materials have been removed.
19.8Joint and Several Liability. If more than one natural person or entity shall constitute Tenant, then the liability of each such person or entity shall be joint and several. No waiver, release or modification of the obligations of any such person or entity shall affect the obligations of any other such person or entity.
19.9Landlord Default. If (a) Landlord fails to provide janitorial service within the Premises to the standard required hereunder, and (b) such failure is not cured within thirty (30) days after Tenant delivers a written notice to Landlord and the holder of any Mortgage that has been identified to Tenant in writing identifying in reasonable detail the alleged default by Landlord and stating in bold, capital letters “FAILURE TO ACT MAY RESULT IN TENANT EXERCISING SELF-HELP RIGHTS”, then Tenant will have the right (but not the obligation) to provide janitorial service within the Premises provided Landlord does not commence to cure such default within such thirty (30) day period and thereafter proceed with due diligence to complete the cure. Tenant agrees that Tenant’s rights to exercise any such self-help remedy shall be strictly limited to the Premises and, if Tenant is entitled and elects to rectify any default as aforesaid, Tenant will effect such cure in a reasonable manner to the same standard as Landlord is required to satisfy and so as not to interfere unreasonably with the rights of third parties, including other tenants. Landlord shall reimburse Tenant for the reasonable costs and expenses incurred by Tenant in rectifying defaults as aforesaid within thirty (30) days after written demand accompanied by supporting invoices. If Landlord fails to reimburse Tenant for the amounts under this Section 19.9 within said 30- day period, after Tenant delivers a written notice to Landlord and the holder of any Mortgage that has been identified to Tenant in writing setting forth the amount due and stating in bold, capital letters “FAILURE TO MAKE A PAYMENT MAY RESULT IN TENANT OFFSETTING AGAINST RENT”, offset the amount stated in such notice against its payment of rent payable under this Lease. Tenant agrees that the cure or rectification by any party entitled to receive notice hereunder will be deemed a cure or rectification by Landlord hereunder. Any act done by Tenant pursuant to this Section 19.9 will not constitute a waiver by Tenant of any such default by Landlord or a waiver of any covenant, term or condition herein contained or the performance thereof.
If Landlord disputes Tenant’s right to exercise self-help or offset rights, then in the event Tenant does not prevail in such dispute, Tenant shall promptly pay to Landlord an amount equal to the sum of the amount so set off, if any, plus interest thereon at the Default Rate, plus Landlord’s costs and expenses incurred in connection with such dispute (including without limitation, reasonable attorneys’ fees, costs and disbursements).
ARTICLE XX
BANKRUPTCY
20.1Upon occurrence of an Event of Bankruptcy (as defined in Rider 1), Landlord shall have all rights and remedies available pursuant to Article XIX; provided, however, that while a case (the “Case”) in which Tenant is the subject debtor under the Bankruptcy Code is pending, Landlord’s right to terminate this Lease shall be subject, to the extent required by the Bankruptcy Code, to any rights of Tenant or its trustee in bankruptcy (collectively, “Trustee”) to assume or assume and assign this Lease
pursuant to the Bankruptcy Code. After the commencement of a Case: (i) Trustee shall perform all post- petition obligations of Tenant under this Lease; and (ii) if Landlord is entitled to damages (including, without limitation, unpaid rent) pursuant to the terms of this Lease, then all such damages shall be entitled to administrative expense priority pursuant to the Bankruptcy Code. Any person or entity to which this Lease is assigned pursuant to the Bankruptcy Code shall be deemed without further act or deed to have assumed all of the obligations arising under this Lease on and after the date of assignment, and any such assignee shall upon request execute and deliver to Landlord an instrument confirming such assumption. Trustee shall not have the right to assume or assume and assign this Lease unless Trustee promptly (a) cures all defaults under this Lease, (b) compensates Landlord for damages incurred as a result of such defaults, (c) provides adequate assurance of future performance on the part of Trustee as debtor in possession or Trustee’s assignee, and (d) complies with all other requirements of the Bankruptcy Code. If Trustee desires to assume and assign this Lease to any person who shall have made a bona fide offer, then Trustee shall give Landlord written notice of such proposed assignment (which notice shall set forth the name and address of such person, all of the terms and conditions of such offer, and the adequate assurance to be provided Landlord to assure such person’s future performance under this Lease) no later than fifteen (15) days after receipt by Trustee of such offer, but in no event later than thirty (30) days prior to the date Trustee shall make application to the appropriate court for authority and approval to enter into such assignment and assumption, and Landlord shall thereupon have the prior right and option, to be exercised by notice to Trustee given at any time prior to the effective date of such proposed assignment, to accept (or to cause Landlord’s designee to accept) an assignment of this Lease upon the same terms and conditions and for the same consideration, if any, as the bona fide offer made by such person, less any brokerage commissions which may be payable out of the consideration to be paid by such person for the assignment of this Lease. If Trustee fails to assume or assume and assign this Lease in accordance with the requirements of the Bankruptcy Code within sixty (60) days after the initiation of the Case (or such other period as may be provided by the Bankruptcy Code or allowed by the United States Bankruptcy Court for same), then Trustee shall be deemed to have rejected this Lease. If this Lease is rejected or deemed rejected, then Landlord shall have all rights and remedies available to it pursuant to Article XIX.
ARTICLE XXI
SUBORDINATION
21.1General. This Lease is subject and subordinate to the lien, provisions, operation and effect of all Mortgages, to all funds and indebtedness intended to be secured thereby, and to all renewals, extensions, modifications, recastings or refinancings thereof. Said subordination and the provisions of this Section shall be self-operative and no further instrument of subordination shall be required to effect such subordination. The holder of any Mortgage to which this Lease is subordinate shall have the right (subject to any required approval of the holders of any superior Mortgage) at any time to declare this Lease to be superior to the lien, provisions, operation and effect of such Mortgage. Landlord represents and warrants that the Building is not encumbered by any Mortgage as of the Effective Date, except for the Ground Lease. Notwithstanding anything to the contrary, with respect to any future Mortgage to which this Lease would be subordinated, such subordination shall be conditioned on Tenant’s receipt of a nondisturbance agreement which provides that Tenant’s rights under this Lease shall not be disturbed so long as Tenant is not in default (beyond applicable notice and cure periods) hereunder, subject to standard lender carve-outs. Landlord shall cooperate with Tenant to facilitate negotiation of commercially reasonable changes to the holder’s standard form at no material cost to Landlord.
21.2Attornment. Tenant shall at Landlord’s request promptly execute any requisite document confirming such subordination within ten (10) business days following such request on the commercially reasonable form of the holder of any Mortgage. Tenant waives the provisions of any statute or rule of law now or hereafter in effect which may give or purport to give Tenant any right to terminate or otherwise adversely affect this Lease and Tenant’s obligations hereunder in the event any
foreclosure proceeding is prosecuted or completed or in the event the Building, the Land or Landlord’s interest therein is transferred by foreclosure, by deed in lieu of foreclosure or otherwise. Upon any such transfer, Tenant shall attorn to such transferee and shall recognize such transferee as the landlord under this Lease. Tenant agrees that upon any such attornment, such transferee shall not be (a) bound by or required to credit Tenant with any prepayment of the Base Rent or additional rent more than thirty (30) days in advance or any deposit, rental security or any other sums deposited with any prior landlord under the Lease (including Landlord) unless said sum is actually received by such transferee, (b) bound by any amendment, modification or termination of this Lease made without the consent of the holder of each Mortgage existing as of the date of such amendment (except as may otherwise be unilaterally effectuated by Tenant in accordance with the terms and provisions of this Lease), (c) liable for any breach, act or omission of any prior landlord under the Lease (including Landlord) or any damages arising therefrom; (d) subject to any offsets or defenses which Tenant might have against any prior landlord (including Landlord), (e) bound by any obligation which may appear in this Lease to maintain the Amenities, if any, (f) liable for any late completion of any construction of the Premises or tenant improvement work to the Premises commenced or agreed to by any prior landlord under the Lease (including Landlord), (g) liable for payment of any damages or penalties payable by any prior landlord under the Lease (including Landlord) to Tenant including but not limited to penalties for failure to deliver the Premises in a timely fashion, or (h) bound by any obligation which may appear in this Lease to pay any sum of money to Tenant; provided, however, that after succeeding to Landlord’s interest under this Lease, such transferee shall (i) perform in accordance with the terms of this Lease all obligations of Landlord arising after the date of transfer, (ii) perform in accordance with the terms of this Lease any repair or maintenance obligation of Landlord (regardless of whether the need for such repair or maintenance arose prior to the date of such transfer) and (iii) be responsible for any portion of the Construction Allowance not previously paid hereunder to Tenant in accordance with the terms of Exhibit B, but not more than the amount Tenant identifies as outstanding on the estoppel certificate executed by Tenant and delivered to such transferee prior to the date it takes title. Within ten (10) business days after the request of such transferee, Tenant shall execute, acknowledge and deliver any requisite or appropriate document submitted to Tenant confirming such attornment.
ARTICLE XXII
HOLDING OVER
22.1If Tenant (or anyone claiming through Tenant) does not immediately surrender the Premises or any portion thereof in the condition required hereunder upon the expiration or earlier termination of the Lease Term, then Tenant shall be in holdover and the Base Rent payable by Tenant hereunder for each month or partial month of such holdover shall equal one hundred fifty percent (150%) of the Base Rent in effect immediately prior to such holdover period. In addition, Tenant shall continue to pay additional rent and other sums that would have been payable pursuant to the provisions of this Lease if the Lease Term had continued during such holdover period including Pass-Through Expenses. Such holdover fee shall be computed by Landlord and paid by Tenant on a monthly basis and shall be payable on the first day of such holdover period and the first day of each calendar month thereafter during such holdover period until the Premises has been vacated and possession thereof surrendered by Tenant to Landlord in the condition required under this Lease. Notwithstanding any other provision of this Lease, Landlord’s acceptance of such holdover fee shall not in any manner adversely affect Landlord’s other rights and remedies, including Landlord’s right to evict Tenant and to recover all damages. Any such holdover shall be deemed to be a tenancy at sufferance and not a tenancy at will or tenancy from month to month. In no event shall any holdover be deemed a permitted extension or renewal of the Lease Term, and nothing contained herein shall be construed to constitute Landlord’s consent to any holdover or to give Tenant any right with respect thereto. In the event that any such holdover continues for a period of sixty (60) days or more, Tenant shall indemnify, defend, protect and hold Landlord harmless from and against any and all claims for damages by any other tenant or third person to whom Landlord may have
leased all or any part of the Premises effective on or after the termination of this Lease, and shall pay Landlord for any loss, cost, expense, damages and liabilities incurred by Landlord as a result of such holding over, including, without limitation, reasonable attorneys’ fees and Landlord’s lost revenues.
ARTICLE XXIII
COVENANTS OF LANDLORD
23.1Quiet Enjoyment. Landlord covenants that it has the right to enter into this Lease, and that if Tenant shall perform timely all of its obligations hereunder, then, subject to the provisions of this Lease, Tenant shall have the right during the Lease Term to occupy and enjoy the full possession of the Premises without hindrance or objection by any persons lawfully claiming under Landlord to have title to the Premises superior to Tenant. The foregoing covenant of quiet enjoyment is in lieu of any other covenant, express or implied.
23.2Reservation of Rights. Subject to other applicable terms and provisions expressly provided in this Lease, Landlord reserves the following rights: (a) to change the street address provided that Tenant’s access to the Premises is not materially and adversely affected; (b) to change the arrangement and location of entrances, passageways, doors, doorways, corridors, elevators, stairs, toilets or other public parts of, and make additions to, the Building provided that Tenant’s access to the Premises is not materially and adversely affected; (c) to erect, use and maintain pipes, wires, structural supports, ducts and conduits in and through the plenum areas of the Premises (provided, however, that the same shall not be visible within the interior of the Premises provided Tenant installs a ceiling grid and tiles throughout the Premises); (d) to grant to anyone the exclusive right to conduct any particular business in the Building not inconsistent with Tenant’s Permitted Use of the Premises; (e) to exclusively use and/or lease the roof areas, the sidewalks and other exterior areas; (f) to resubdivide the Land or to combine the Land with other lands; (g) to relocate any parking areas designated for Tenant’s use, provided the same are on the Land; (h) intentionally omitted; (i) to construct improvements (including kiosks) on the Land and in the public and common areas of the Building; (j) to add, remove or change any amenities provided in the Building to respond to market conditions and user demands (except as otherwise provided in this Lease); and (k) if any excavation or other substructure work shall be made or authorized to be made upon land adjacent to the Building or the Land, to enter the Premises for the purpose of doing such work as is required to preserve the walls of the Building and to preserve the land from injury or damage and to support such walls and land by proper foundations. Before exercising its rights under Subsection (c) above, Landlord shall consult with Tenant regarding the design of any intrusions to be located within the Premises. Subject to the other applicable terms and provisions expressly provided in this Lease, Landlord may exercise any or all of the foregoing rights without being deemed to be guilty of an eviction, actual or constructive, or a disturbance of Tenant’s business or use or occupancy of the Premises and Tenant shall have no claim against Landlord in connection therewith. With respect to (b), (c), (e), (g), (i), (j), and (k) above, Landlord shall use commercially reasonable efforts to minimize the adverse impacts on Tenant’s normal business operations in the Premises and Tenant’s access thereto, or, subject to Section 10.2, the visibility of Tenant’s exterior signage (subject, however, in all cases to governmental requirements, emergencies and/or temporary maintenance and repair activities). Such efforts shall not require Landlord to employ contractors or labor at overtime or other premium pay rates or incur any other overtime costs. Smoking is prohibited in the Building. Smoking is prohibited on all decks and in the plaza and Tenant shall ensure that its Agents do not smoke in such areas.
23.3No Interference. Notwithstanding anything contained in this Lease to the contrary, Landlord may at any time elect to alter, rehabilitate, renovate or otherwise improve all or any portion of the Building, the Premises or property of which the Premises are a part so long as such construction does not adversely affect Tenant’s normal business operations in the Premises or Tenant’s access thereto, or, subject to Section 10.2, the visibility of Tenant’s exterior signage. Without limiting the generality of the
foregoing, Tenant acknowledges that Landlord may undertake major renovations (including work with respect to the exterior façade, elevators, windows and columns and the construction of additional floors). In connection with any such work, Landlord may erect scaffoldings, sidewalk bridges, and other appurtenances, and certain windows in the Premises may be permanently blocked due to the addition of building amenities. Tenant agrees not to interfere with such work, and that such alterations shall not constitute an actual or constructive eviction, in whole or in part, and rent shall not abate while such work is being undertaken by reason of loss or interruption of the business of the Tenant or otherwise, nor shall Tenant have any claims against Landlord by reason of such work; provided, that in all such cases, Landlord shall not exercise any such rights in a manner which would materially and adversely affect during Building Hours Tenant’s normal business operations in the Premises or Tenant’s access thereto, or, subject to Section 10.2, the visibility of Tenant’s exterior signage.
ARTICLE XXIV
PARKING
24.1General. Commencing on the earlier of the Rent Commencement Date or the date Tenant commences operations in the Premises, Tenant shall purchase and Landlord shall provide (or cause the Parking Facility operator (the “Operator”) to provide) to Tenant monthly parking permits for the unreserved parking of standard sized passenger automobiles in the garage of the Building (the “Parking Facility”) in an amount equal to the Parking Allotment.
24.2Reduction in Parking Allocation. Tenant shall have a one-time right effective as of the last day of the second (2nd) Lease Year to reduce the Parking Allocation by no more than twenty-five percent (25%) (approximately 46 spaces). Tenant must notify Landlord in writing no later than the date that is thirty (30) days before the last day of the second (2nd) Lease Year how many parking passes it wishes to relinquish. The reduction in the Parking Allocation shall be permanent and once reduced, Landlord shall have no duty to provide the original Parking Allocation.
24.3Parking Charges and Rules. Landlord will provide for the parking requirements of the Building with a combination of self-parking, valet parking, valet-assisted parking and stacked parking. Unless reserved spaces are included in the Parking Allotment and paid for, the permits shall be for non- exclusive, unassigned, unreserved parking spaces. Tenant shall pay a monthly charge for each parking permit included in the Parking Allotment. The monthly charge for such permits shall be the prevailing rate charged from time to time by Landlord or the Operator, plus all taxes or other governmental surcharges. A limited number of reserved spaces may be available in the Parking Facility from time to time at a rate equal to 200% of the rate for unreserved parking permits. Such charges shall be paid monthly in advance to Landlord or, at Landlord’s option, directly to the Operator. At Landlord’s option, contracts for parking permits shall be with the Operator and shall contain the same terms as are usually contained in contracts with other customers of the Operator (provided that, in the event of any conflict between the terms of such contract and this Lease, the terms of this Lease shall control). Tenant shall not use the Parking Facility for the servicing or storage of vehicles. Tenant shall not assign, sublet or transfer any of its rights hereunder, except in connection with any assignment or sublease permitted pursuant to Article VII hereof where parking is provided for in the sublease or assignment. Landlord reserves the right to institute a valet parking system, a valet assist parking system or stacked parking in all or part of the Parking Facility or to otherwise change the operations of the Parking Facility to maximize available parking. Tenant and its employees shall observe reasonable safety precautions in the use of the Parking Facility and shall at all times abide by all rules and regulations governing the use of the Parking Facility. If Landlord, in its sole and absolute discretion, grants to any other tenant of the Building the exclusive right to use any particular parking spaces, then neither Tenant nor its employees or visitors shall use such spaces (provided, however, that Landlord shall not take any such action in a manner that would otherwise cause the parking ratio to fall below the level needed to meet Tenant’s Parking Allotment. The Parking
Facility will remain open on Monday through Friday (excluding Holidays) during normal business hours; however, the holders of Tenant’s parking permits may enter and exit the Parking Facility at any time subject to certain reasonable access requirements. Landlord reserves the right to close the Parking Facility during periods of unusually inclement weather or as may be required for alterations, improvements or repairs. At all times when the Parking Facility is closed, monthly permit holders shall be afforded access by means of a magnetic card or other procedure provided by Landlord or the Operator. If all or any portion of the Parking Facility shall be damaged or rendered unusable by fire or other casualty or any taking pursuant to eminent domain proceeding (or deed in lieu thereof), and as a result thereof Landlord or the Parking Facility Operator is unable to make available to Tenant the parking provided for herein, then the number of cars which Tenant shall be entitled to park hereunder (i.e., the Parking Allotment) shall be proportionately reduced so that the number of cars which Tenant may park in the Parking Facility after the casualty or condemnation in question shall bear the same ratio to the total number of cars which can be parked in the Parking Facility at such time as the number of cars Tenant had the right to park in the Parking Facility prior to such casualty or condemnation bore to the aggregate number of cars which could be parked therein at that time (it being understood, however, that Landlord shall use commercially reasonable efforts to locate and provide Tenant with alternate parking spaces at Tenant’s cost within a reasonable proximity to the Premises in order to account for the corresponding loss of parking spaces in the Parking Facility). Landlord does not assume any responsibility, and shall not be held liable, for any damage or loss to any automobile or personal property in or about the Parking Facility, or for any injury sustained by any person in or about the Parking Facility. Landlord shall not be liable to Tenant and this Lease shall not be affected if any parking rights hereunder are impaired by any Law imposed after the Effective Date. Landlord reserves the right to determine whether the parking facilities are becoming crowded and to allocate and assign parking spaces among Tenant and the other tenants provided that the Parking Allotment will not be reduced thereby.
ARTICLE XXV
GENERAL PROVISIONS
25.1No Representations. Tenant acknowledges that neither Landlord nor any broker, agent or employee of Landlord has made any representation or promise with respect to the Premises or any portion of the Building except as herein expressly set forth, and no right, privilege, easement or license is being acquired by Tenant except as herein expressly set forth.
25.2Relationship. Nothing contained in this Lease shall be construed as creating any relationship between Landlord and Tenant other than that of landlord and tenant, and no other estate shall pass out of Landlord. Tenant shall not use the name of the Building for any purpose other than as the address of the business to be conducted by Tenant in the Premises, or use the name of the Building as Tenant’s business address after Tenant vacates the Premises.
25.3Brokers. Landlord and Tenant each represents and warrants to the other that in connection with this Lease it has not employed or dealt with any broker, agent or finder, other than the Brokers identified in the Lease Summary. Landlord shall pay any commissions owed to the Brokers pursuant to separate written agreements between Landlord and each of such Brokers. Tenant shall indemnify and hold Landlord harmless from and against any claim for brokerage or other commissions, or for a lien under any applicable broker’s lien law, asserted by any broker, agent or finder employed by (including allegations of engagement) Tenant or Tenant’s Broker or with whom Tenant or Tenant’s Broker has dealt, other than the amount Landlord has contractually agreed to pay the Brokers. Landlord shall indemnify, defend and hold Tenant harmless from and against any claim for brokerage or other commissions, or for a lien under any applicable broker’s lien law, asserted by any broker, agent or finder employed by (including allegations of engagement) Landlord or Landlord’s Broker or with whom
Landlord or Landlord’s Broker has dealt. Each party’s indemnification set forth in this Section shall survive the expiration or earlier termination of the Lease Term.
25.4Estoppel Certificate. At any time and from time to time, upon not less than ten (10) business days’ prior written notice, Tenant (and each subtenant subleasing two or more floors) shall execute, acknowledge and deliver to Landlord and/or any other person or entity designated by Landlord, a written statement certifying, to the extent true: (a) that this Lease is unmodified and in full force and effect (or if there have been modifications, that this Lease is in full force and effect as modified and stating the modifications); (b) the dates to which the rent and any other charges have been paid; (c) to Tenant’s actual knowledge, whether or not Landlord is in default in the performance of any obligation, and if so, specifying the nature of such default; (d) the address to which notices to Tenant are to be sent; (e) that this Lease is subject and subordinate to all Mortgages encumbering the Building or the Land (subject to the terms of Article XXI hereof or any fully executed SNDA); (f) that Tenant has accepted the Premises and that all work thereto has been completed (or if such work has not been completed, specifying the incomplete work); and (g) such other matters as Landlord may reasonably request. Any such statement may be relied upon by any owner of the Building or the Land, any prospective purchaser of the Building or the Land, any holder or prospective holder of a Mortgage or any other person or entity. Tenant acknowledges that time is of the essence to the delivery of such statements and that Tenant’s failure to deliver timely such statements may cause substantial damages resulting from, for example, delays in obtaining financing, and if such statement is not executed and delivered within five (5) days after receipt of a second written notice stating in bold, capital letters “FAILURE TO RETURN THIS ESTOPPEL WITHIN FIVE DAYS WILL RESULT IN A PENALTY OF $1.000 A DAY” Tenant agrees to pay a late fee equal to One Thousand Dollars ($1,000.00) per day for each day until the certificate is executed and returned to Landlord.
25.5TRIAL BY JURY WAIVER. LANDLORD, TENANT, ALL GUARANTORS AND ALL GENERAL PARTNERS, EACH WAIVES TRIAL BY JURY IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT IN CONNECTION WITH ANY MATTER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT HEREUNDER, TENANT’S USE OR OCCUPANCY OF THE PREMISES, AND/OR ANY CLAIM OF INJURY OR DAMAGE. LANDLORD, TENANT, ALL GUARANTORS AND ALL GENERAL PARTNERS EACH WAIVES ANY OBJECTION TO THE VENUE OF ANY ACTION FILED IN ANY COURT SITUATED IN THE JURISDICTION IN WHICH THE BUILDING IS LOCATED, AND WAIVES ANY RIGHT, CLAIM OR POWER, UNDER THE DOCTRINE OF FORUM NON CONVENIENS OR OTHERWISE, TO TRANSFER ANY SUCH ACTION TO ANY OTHER COURT.
25.6Notices. All notices or other communications required under this Lease shall be in writing and shall be deemed duly given and received when delivered in person (with documented receipt therefor), on the next business day after deposit with a recognized overnight delivery service, or on the third day after being sent by certified or registered mail, return receipt requested, postage prepaid, to the following addresses: (a) if to Landlord, at the Landlord Notice Address specified in Article I; and (b) if to Tenant, at the Tenant Notice Address specified in Article I. Either party may change its address for the giving of notices by written notice given in accordance with this Section. If Landlord or the holder of any Mortgage notifies Tenant in writing that a copy of any notice to Landlord shall be sent to such holder at a specified address, then Tenant shall send (in the manner specified in this Section and at the same time such notice is sent to Landlord) a copy of each such notice to such holder, and no such notice shall be considered duly sent unless such copy is so sent to such holder. Any such holder shall have right, for a period of thirty (30) days after receipt of such notice, to cure any Landlord default before Tenant may exercise any remedy; provided, however, that (i) in the case of a Landlord default arising from an act or omission which cannot be reasonably remedied within said thirty (30) day period, then the holder of any
Mortgage shall have as long as reasonably necessary (but not more than one hundred twenty (120) days in the aggregate plus any time needed for the holder of the Mortgage to obtain legal possession of the Building and the Land) to remedy such act or omission provided that (A) such holder commences such remedy and notifies Tenant within said thirty (30) day period of holder’s desire to remedy, and (B) such holder pursues completion of such remedy with due diligence following such giving of notice and following the time when such holder should have become entitled under the Mortgage to remedy the same), and (ii) in the case of an emergency, such holder’s cure right hereunder shall not limit or restrict Tenant’s rights and remedies under Section 19.9 above. Any cure of Landlord’s default by such holder shall be treated as performance by Landlord.
25.7Severability. Each provision of this Lease shall be valid and enforceable to the fullest extent permitted by law. If any provision of this Lease or the application thereof to any person or circumstance shall to any extent be invalid or unenforceable, then such provision shall be deemed to be replaced by the valid and enforceable provision most substantively similar to such invalid or unenforceable provision, and the remainder of this Lease and the application of such provision to persons or circumstances other than those as to which it is invalid or unenforceable shall not be affected thereby. Nothing contained in this Lease shall be construed as permitting Landlord to charge or receive interest in excess of the maximum rate allowed by law.
25.8Pronouns. Feminine, masculine or neuter pronouns shall be substituted for those of another form, and the plural or singular shall be substituted for the other number, in any place in which the context may require such substitution.
25.9Successors and Assigns. The provisions of this Lease shall be binding upon and inure to the benefit of the parties and each of their respective representatives, successors and assigns, subject to the provisions herein restricting assignment or subletting by Tenant.
25.10Merger. This Lease contains and embodies the entire agreement of the parties hereto and supersedes all prior agreements, negotiations, letters of intent, proposals, representations, warranties, understandings, suggestions and discussions, whether written or oral, between the parties hereto. Any representation, inducement, warranty, understanding or agreement that is not expressly set forth in this Lease shall be of no force or effect. Without limiting the generality of the foregoing, Tenant acknowledges that Tenant has made an independent investigation of the potential for success at the Building and Landlord has not represented, implied or suggested that Tenant would be given an exclusive use for the operation of the business to be conducted in the Premises or that Landlord would not lease space in the Building to a competing or other tenant. This Lease may be modified or changed in any manner only by an instrument signed by both parties. This Lease includes and incorporates all Exhibits attached hereto. Tenant shall, at Landlord’s request, promptly execute any requisite document, certificate or instrument that is reasonably necessary or desirable to clarify or carry out the force and effect of any terms or conditions of, or obligations of Tenant under, this Lease.
25.11Jurisdiction. This Lease shall be governed by the Laws of the jurisdiction in which the Building is located, without regard to the application of choice of law principles. There shall be no presumption that this Lease be construed more strictly against the party who itself or through its agent prepared it (it being agreed that all parties hereto have participated in the preparation of this Lease and that each party had the opportunity to consult legal counsel before the execution of this Lease). No custom or practice which may evolve between the parties in the administration of the terms of this Lease shall be construed to waive Landlord’s right to insist on Tenant’s strict performance of the terms of this Lease.
25.12Headings. Headings and subheadings are used for convenience and shall not be considered when construing this Lease.
25.13Effectiveness. The submission of an unsigned copy of this document to Tenant shall not constitute an offer or option to lease the Premises. This Lease shall become effective and binding only upon execution and delivery by both Landlord and Tenant. This Lease shall be effective as of the Effective Date which shall be inserted by Landlord on the first page of this Lease upon its full execution and delivery by Landlord and Tenant.
25.14Time of the Essence. Time is of the essence with respect to each of Tenant’s and Landlord’s obligations hereunder.
25.15Counterparts. This Lease may be executed in multiple counterparts, each of which shall be deemed an original and all of which together constitute one and the same document. Signatures delivered by facsimile or other electronic means shall have the same binding effect as original signatures.
25.16Recordation. Neither this Lease nor a memorandum thereof shall be recorded.
25.17Modifications. Landlord reserves the right to make reasonable changes and
modifications to the plans and specifications for the Building (other than the Premises) without Tenant’s consent, provided such changes or modifications do not materially and adversely change the character of same.
25.18Measurement. The rentable area in the Building and the Premises shall be determined from time to time in accordance with the BOMA 2017 for Office Buildings: Standard Methods of Measurement (ANSI/BOMA Z65.1-2017) calculation methodology with accompanying guidelines published by the Building Owners and Managers Association which includes an allocation of Building amenity areas, common areas and service areas. The rentable areas set forth in the Lease Summary are estimates only and are subject to confirmation pursuant to Rider 2 of this Lease.
25.19Additional Rent. Except as otherwise provided in this Lease, any additional rent or other sum owed by Tenant to Landlord, and any cost, expense, damage or liability incurred by Landlord for which Tenant is liable, shall be considered additional rent payable pursuant to this Lease to be paid by Tenant within the time specified herein or if no specific time is specified then no later than thirty (30) days after the date Landlord notifies Tenant of the amount thereof. Landlord shall have the same rights and remedies with respect to additional rent as apply to Base Rent.
25.20Survival. Tenant’s liabilities and obligations with respect to the period prior to the expiration or earlier termination of the Lease Term shall survive such expiration or earlier termination.
25.21Force Majeure. If Landlord or Tenant is in any way delayed or prevented from performing any obligation (except, with respect to Tenant, its obligations to pay rent and other sums due under this Lease (including all exhibits to this Lease), any obligation with respect to insurance pursuant to Article XIII, any obligation to give notice with respect to extensions or expansions, and any holdover) due to fire, act of God, governmental act or failure to act, strike, labor dispute, inability to procure materials, or any cause beyond Landlord’s or Tenant’s (as applicable) reasonable control (whether similar or dissimilar to the foregoing events), then the time for performance of such obligation shall be excused for the period of such delay or prevention and extended for a period equal to the period of such delay or prevention. No force majeure event shall delay or excuse the timely payment of all items of rent by Tenant. Financial disability or hardship shall never constitute a force majeure event.
25.22Review. Landlord’s review, approval and consent powers (including the right to review plans and specifications) are for its benefit only. Such review, approval or consent (or conditions imposed in connection therewith) shall be deemed not to constitute a representation concerning legality, safety or any other matter and in no way confers adequacy of design to satisfy Tenant’s performance, technical or legal objectives as stipulated by code or other regulatory obligation. In any instance in which Landlord has agreed to act reasonably under this Lease, Landlord is agreeing to act in a manner consistent with the standards followed by large institutional owners of commercial real estate and may consider its own subjective interests, including the impact of the requested action on the value of the Building or on Landlord’s income. Except where a different standard is specifically stated, Landlord may act or refuse to act in its sole and subjective discretion.
25.23Deletions. The deletion of any printed, typed or other portion of this Lease shall not evidence the parties’ intention to contradict such deleted portion. Such deleted portion shall be deemed not to have been inserted in this Lease. Prior drafts shall not be used to interpret the final Lease.
25.24Keys. At the expiration or earlier termination of the Lease Term, Tenant shall deliver to Landlord all keys and security cards to the Building and the Premises, whether such keys were furnished by Landlord or otherwise procured by Tenant, and shall inform Landlord of the combination or access code of each lock, safe and vault, if any, in the Premises.
25.25Authority and OFAC. Tenant represents and warrants that the person executing and delivering this Lease on Tenant’s behalf is duly authorized to so act; that Tenant is duly organized, is qualified to do business in the jurisdiction in which the Building is located, is in good standing under the Laws of the state of its organization and the Laws of the jurisdiction in which the Building is located, and has the power and authority to enter into this Lease, and that all action required to authorize Tenant and such person to enter into this Lease has been duly taken. Each of Landlord and Tenant, each as to itself, hereby represents and warrants its compliance with all applicable anti-money laundering Laws, including, without limitation, the USA Patriot Act, and the Laws administered by the United States Treasury Department’s Office of Foreign Assets Control, including, without limitation, Executive Order 13224 (“Executive Order”). Each of Landlord and Tenant further represents and warrants (i) that it is not, and it is not owned or controlled directly or indirectly by any person or entity, on the SDN List published by the United States Treasury Department’s Office of Foreign Assets Control and (ii) that it is not a person otherwise identified by government or legal authority as a person with whom a U.S. Person is prohibited from transacting business. As of the Effective Date, a list of such designations and the text of the Executive Order are published under the internet website address
www.ustreas.gov/offices/enforcement/ofac.
25.26Light and Air; Noise. Any elimination or shutting off of light, air, or view by reason construction on adjacent land shall in no way affect this Lease or impose any liability on Landlord. Normal construction noises shall in no way affect this Lease or impose any liability on Landlord although Landlord shall require tenants (including Tenant) to perform unreasonably loud construction activities (such as core drilling and saw cutting) outside of Building Hours. If Tenant is bothered by unreasonably loud noises from construction within the Building during Building Hours and brings them to Landlord’s attention while they are occurring, Landlord shall make commercially reasonable efforts to cause the unreasonably loud noises from construction within the Building to cease, unless an emergency exists that requires the work to be performed during Building Hours.
25.27Costs and Legal Fees. In the event Landlord or Tenant is required or elects to take legal action against the other party to enforce the provisions of this Lease, then the prevailing party in such action shall be entitled to collect from the other party its costs and expenses incurred in connection with the legal action (including, without limitation, reasonable attorneys’ fees and court costs).
Notwithstanding the foregoing, if Landlord shall take any legal action for collection of rent or file any eviction proceedings (whether summary or otherwise) for the nonpayment of rent, and Tenant shall make payment of such rent prior to the rendering of any judgment, the Landlord shall be entitled to collect and Tenant shall pay as additional rent all filing fees and other costs in connection therewith (including reasonable attorneys’ fees). Tenant hereby acknowledges and agrees that Landlord may as a condition to the effectiveness of its approval or consent to any request by Tenant require that Tenant reimburse Landlord for the amount of any reasonable attorneys’, architects’ and/or engineers’ fees and other reasonable costs and expenses incurred by or on behalf of Landlord in acting upon or in any manner relating to such request, but that Tenant shall be and remain obligated to reimburse Landlord as aforesaid whether or not Landlord requires such reimbursement from Tenant as a condition to the effectiveness of any approval or consent and whether or not Landlord shall have granted or thereafter grant such approval or consent. The specific cost reimbursement provisions in Sections 7.1(b) and 9.2(c) and Exhibit B shall control when they apply.
25.28No Third Party Beneficiary. This Lease (including all exhibits hereto) is for the sole benefit of Landlord and Tenant, and no third party shall be deemed a third party beneficiary of this Lease (including all exhibits hereto) or any covenants or conditions contained herein without the express written consent of Landlord and Tenant.
25.29Confidentiality. Each of Landlord and Tenant shall keep the terms and conditions of this Lease and any dispute hereunder, strictly confidential and shall not disclose same to any person or entity except that (a) Tenant may disclose the terms to any Permitted Person (as defined in Rider 1) who has a legitimate business reason to know such terms, and (b) Landlord may disclose the terms to (i) its employees, directors, officers, managers, (ii) its property manager, tax advisors, auditors, accountants, affiliates, lawyers, consultants and advisors (and each of their employees, directors, officers and managers), and (iii) actual or prospective purchasers, investors and lenders and each of their employees, directors, officers and managers. Prior to disclosing same, as described above, Landlord or Tenant shall instruct each recipient to abide by this confidentiality provision. Each party may also disclose the terms of this Lease in any legal proceedings between the parties or as otherwise directed by court rule or order. Any press release regarding the existence of this Lease and Tenant’s leasing of space at the Building shall be subject to Tenant’s prior approval.
25.30Building Development. Tenant acknowledges that some portion of the Building or common areas may be under construction after the Lease Term commences. Tenant shall have no claim against Landlord for any loss or damage relating to such construction or lack of construction after the Rent Commencement Date so long as (a) all Building systems serving the Premises, the Amenities, and the public lobbies and corridors are operational, (b) all Amenities and public lobbies/corridors are completed and usable by Tenant, (c) no such construction activity shall be conducted during Building Hours if the same would materially interfere with Tenant’s use and occupancy of the Premises for its normal business operations, and (d) Tenant has reasonable access to the Premises and to the number of parking spaces in the Parking Facility required hereunder.
25.31Substitution of Premises. Intentionally omitted.
25.32REIT. This provision shall be given effect if at any time Landlord is a real estate investment trust (“REIT”). Landlord and Tenant intend that all amounts payable by Tenant to Landlord shall qualify as “rents from real property,” and will otherwise not constitute “unrelated business taxable income” or “impermissible tenant services income,” all within the meaning of both Sections 512(b)(3) and 856(d) of the Internal Revenue Code of 1986, as amended (the “Code”) and the U.S. Department of Treasury Regulations promulgated thereunder (the “Regulations”). In the event that Landlord determines that there is any risk that any amount payable under the Lease may not qualify as “rents from real
property” or will otherwise constitute unrelated business taxable income or impermissible tenant services income within the meaning of Sections 512(b)(3) or 856(d) of the Code and the Regulations promulgated thereunder, Tenant agrees (a) to cooperate with Landlord by entering into such amendment or amendments as Landlord deems necessary to qualify all amounts payable under the Lease as “rents from real property” (provided, however, that nothing herein shall operate to increase Tenant’s monetary obligations under this Lease) and (b) to permit (and, upon request, to acknowledge in writing) an assignment of the obligation to provide certain services under the Lease, and, upon request, to enter into direct agreements with the parties furnishing such services (which shall include but not be limited to a taxable REIT subsidiary of Landlord).
(a)Tenant agrees that it will not enter into any sublease, license, concession or other agreement for any use or occupancy of the Premises which provides for a rental or other payment for such use or occupancy based in whole or in part on the net income or profits derived by any person or entity from the Premises so leased, used or occupied. Nothing in the foregoing sentence, however, shall be construed as permitting or constituting Landlord’s approval of any sublease, license, concession, or other use or occupancy agreement not otherwise approved by Landlord in accordance with the provisions of Article VII.
(b)If Landlord or any affiliate of Landlord has elected or at any time during the Term elects to qualify as a REIT, any services required or permitted to be performed by Landlord pursuant to this Lease, the charge or cost of which may be treated as impermissible tenant service income under the Laws governing a REIT, may be performed by a taxable REIT subsidiary that is affiliated with either Landlord or Landlord’s property manager or by an independent contractor of Landlord or Landlord’s property manager (the “Service Provider”). If Tenant is subject to a charge under this Lease for any service, then, at Landlord’s direction, Tenant will pay such charge either to Landlord for further payment to the Service Provider or directly to the Service Provider, and, in either case, (i) Landlord will credit such payment against any charge for such service made by Landlord to Tenant under this Lease, and (ii) such payment to the Service Provider will not relieve Landlord from any obligation under this Lease concerning the provision of such service. Any charges payable by Tenant to the Service Provider shall not increase Tenant’s monetary obligations under this Lease above what would be due from Tenant if the payment was made directly to or the service performed by Landlord.
ARTICLE XXVI
GREEN PROVISIONS
26.1LEED. Landlord is pursuing LEED Platinum Certification through the U.S. Green Building Council. Landlord may pursue any other LEED Certification with the U.S. Green Building Council and may apply for any other third-party rating system (including Energy Star) concerning the environmental compliance or sustainability of the Building or the Premises as the same may change from time to time (collectively, the “Green Standards”) as Landlord desires from time to time. In that regard, Tenant acknowledges that the Building will be constructed with the goal of achieving a LEED or other certification of sustainability (although the foregoing shall not be construed as any guarantee that any aspirational metric or status will necessarily be achieved or maintained).
(a)Tenant will also comply with other comparable or replacement standards relating to sustainable or “green” building operations provided they do not, alone or in combination with other requirements imposed by Landlord (as opposed to those requirements imposed by applicable Laws) materially and adversely affect the functionality or usability of the Premises for the Permitted Use or cause Tenant to incur materially greater out-of-pocket costs than the costs of operating in a LEED Platinum certified building.
(b)Tenant not shall take any action that could cause the Building to lose its certification or status under any applicable Green Standard. In particular, Tenant shall comply with all restrictions set forth in the Green Standards on use of water and power and shall utilize windows and/or window coverings as reasonably directed by Landlord to minimize heat gain or loss in the Building. Tenant and Landlord acknowledge that this Section is a material term of this Lease. Landlord shall be responsible for all reporting under any certification or rating system applicable to the Base Building and the cost shall be included in Operating Charges. Tenant shall use commercially reasonable efforts to accurately respond to all requests from Landlord with respect to Tenant’s sustainability practices and as required to comply with or report on the Green Standards or for Landlord to compile reports for any governmental agency or certifying body.
26.2Sustainability Practices. This Building may be operated pursuant to Landlord’s sustainable building practices, as same may be in effect or modified from time to time. Landlord’s sustainability practices address, without limitation, whole-building operations and maintenance issues including chemical use; indoor air quality; energy efficiency; water efficiency; recycling programs; exterior maintenance programs; and systems upgrades to meet green building energy, water, and lighting performance standards. Tenant shall use commercially reasonable efforts to provide energy and carbon reduction measures, as per the current local energy code and industry best practices. New equipment, where available, will be Energy Star compliant. New plumbing fixtures, where available, will comply with the U.S. EPA’s Water Sense program. From time to time, Tenant shall provide to Landlord such information (to the extent in Tenant’s possession) regarding the number of Tenant’s employees working in the Premises and Tenant’s energy and utility usage as reasonably requested by Landlord from time to time in connection with Landlord’s sustainability practices.
26.3Recycling. Tenant covenants and agrees, at its sole cost and expense: (a) to comply with all present and future governmental requirements regarding the collection, sorting, separation, and recycling of garbage, trash, rubbish and other refuse in the Premises (collectively, “trash”); (b) to comply with Landlord’s reasonable recycling and composting policies (as such policies may be amended or supplemented from time to time), as part of Landlord’s sustainability practices where it may be more stringent than applicable Laws. Landlord reserves the right to refuse to collect or accept from Tenant any waste that is not separated and sorted as required by governmental requirements and Landlord’s recycling and composting policies (to the extent Landlord is otherwise obligated to collect such waste pursuant to the terms of this Lease), and to require Tenant, if Tenant does not so separate and sort its waste, to arrange for such collection at Tenant’s sole cost and expense, utilizing a contractor reasonably satisfactory to Landlord. Tenant shall pay all costs, expenses, fines, administrative costs, penalties or damages that may be imposed on Landlord or Tenant by reason of Tenant’s failure to comply with the provisions of this Section 26.3.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, Landlord has executed this Lease as of the day and year first above
written.
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LANDLORD
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SCD 2U LLC, a Delaware limited liability company
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By:
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/s/ Murphy McCullough
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Name:
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Murphy McCullough
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Title:
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Manager
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By:
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/s/ Robert W. Ward
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Name:
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Robert W. Ward
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Title:
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Manager
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State of
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Virginia
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) SS/
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Country of
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Arlington
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I,__Lanai Carol Bea___, a Notary Public in and for the aforesaid jurisdiction, do hereby certify that_Robert W. Ward__ personally appeared before me, on the 19th day of
September, 2019, who is personally well known to me as, or satisfactorily proven to be the person named as, Manager of SCD 2U LLC, a limited liability company, in the foregoing instrument and acknowledged said instrument to be the act and deed of said limited liability company.
WITNESS my hand and Notarial Seal this_19th__day of__September_, 2019.
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/s/ Lanai Carol Bea
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[signature of notary]
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[Landlord Signature and Notary Page]
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STATE OF WASHINGTON
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) ss.
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COUNTY OF KING
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On this_20_day of September, 2019, before me, a Notary Public in and for the State of Washington, personally appeared___Murphy McCullough__[name], personally known to me (or proved to me on the basis of satisfactory evidence) to be the person who executed this instrument, on oath stated that s/he was authorized to execute the instrument, and acknowledged it as the Manager of SCD 2U LLC, to be the free and voluntary act and deed of said limited liability company for the uses and purposes mentioned in the instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal the day and year first above written.
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/s/ Marlene Bailey
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NOTARY PUBLIC in and for the State of Washington,
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residing at
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Seattle, WA
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My appointment expires
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4/18/2020
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Print Name
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[Landlord Signature and Notary Page]
IN WITNESS WHEREOF, Tenant has executed this Lease as of the day and year first above
written.
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TENANT:
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QUALTRICS, LLC, a Delaware limited liability company
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By:
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/s/ Tyler Waltman
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Name:
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Tyler Waltman
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Title:
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Managing Counsel
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STATE OF
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UTAH
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COUNTY OF
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UTAH
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On this_23rd__day of September, 2019, before me, a Notary Public in and for the State of
___Utah___, personally appeared_Tyler Waltman__[name], personally known to me (or proved to me on the basis of satisfactory evidence) to be the person who executed this instrument, on oath stated that s/he was authorized to execute the instrument, and acknowledged it as the
_Managing Counsel_____[title] of QUALTRICS, LLC, to be the free and voluntary act and deed of said limited liability company for the uses and purposes mentioned in the instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal the day and year first above written.
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/s/ Erin Rotter
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NOTARY PUBLIC in and for the State of Washington,
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residing at
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My appointment expires
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August 1, 2021
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Print Name
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Erin Rotter
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[Tenant Signature and Notary Page]
RIDER 1 TO OFFICE LEASE – GENERAL DEFINITIONS
This Rider 1 is attached to and made a part of the Office Lease Agreement by and between SCD 2U LLC, as Landlord and QUALTRICS, LLC, as Tenant.
ADA: the Americans with Disabilities Act and the regulations promulgated thereunder, as the same may be amended from time to time.
Agent: any agent, employee, subtenant, assignee, contractor, client, licensee, customer, invitee or guest of Tenant or any Business Affiliate and the holder of each access card given to Tenant.
Alterations: alterations, decorations, additions, installations, demolitions, improvements or other changes.
Base Building: the portions of the Building to be constructed by Landlord which is limited to the elements identified in the column entitled “Landlord Shell and Core” on Schedule 1 to Exhibit B.
Base Building Contractor: Skanska USA Building Inc., who has been retained by Landlord to construct the Base Building.
Building: The high-rise and low-rise office building together with all other buildings, structures and improvements now or hereafter located on the Land.
Building Structure and Systems: the exterior and common area walls, main lobby in the Building, slab floors, exterior windows, load bearing elements, foundations, roof and common areas that form a part of the Building, and the Building standard mechanical, electrical, HVAC and plumbing systems, pipes and conduits that are provided by Landlord in the operation of the Building.
Claims: all reasonable costs, damages, claims, judgments, liabilities, expenses (including reasonable attorneys’ fees), losses, fines, penalties and court and administrative proceedings costs.
Cosmetic Changes: those minor, non-structural Alterations of a decorative nature consistent with a first-class office building for which a building permit is not required that do not affect the exterior appearance of the Premises or the Building, or affect the Building’s electrical, ventilation, plumbing, elevator, mechanical, air conditioning or other systems, such as painting, carpeting and hanging pictures. Cosmetic Changes do not include any Structural Alterations and Cosmetic Changes cannot impact the Building Structure and Systems.
Day: Unless business day is specified, the word “day” means “calendar day”, and the computation of time shall include all Saturdays, Sundays and holidays for purposes of determining time periods under this Lease. Business days shall mean Monday through Friday of each week, excluding Holidays. Where a time period is stated as a number of days or months following a certain event, the day on which the triggering event occurs shall not be included when calculating the time period.
Environmental Default: any of the following by Tenant or any Agent of Tenant: a violation of an Environmental Law (regardless of whether any governmental agency cites Tenant for such violation); or a release, spill or discharge of a Hazardous Material on or from the Premises, the Land or the Building; or any failure by Tenant to comply with Section 6.4 of this Lease.
Environmental Law: any present and future Law and any amendments (whether common law, statute, rule, order, regulation or otherwise), permits and other requirements or guidelines of
governmental authorities applicable to the Building or the Land and relating to the environment and environmental conditions or to any Hazardous Material (including, without limitation, CERCLA, 42 U.S.C. § 9601 et seq., the Resource Conservation and Recovery Act of 1976, 42 U.S.C. § 6901 et seq., the Hazardous Materials Transportation Act, 49 U.S.C. § 1801 et seq., the Federal Water Pollution Control Act, 33 U.S.C. § 1251 et seq., the Clean Air Act, 42 U.S.C. § 7401 et seq., the Toxic Substances Control Act, 15 U.S.C. § 2601 et seq., the Safe Drinking Water Act, 42 U.S.C. § 300f et seq., the Emergency Planning and Community Right-To-Know Act, 42 U.S.C. § 1101 et seq., the Occupational Safety and Health Act, 29 U.S.C. § 651 et seq., and any so called “Super Fund” or “Super Lien” law, any Law requiring the filing of reports and notices relating to hazardous substances, environmental laws administered by the Environmental Protection Agency, and any similar state and local Laws, all amendments thereto and all regulations, orders, decisions, and decrees now or hereafter promulgated thereunder concerning the environment, industrial hygiene or public health or safety).
Event of Bankruptcy: the occurrence with respect to Tenant or any Guarantor of any of the following: (a) such person becoming insolvent, as that term is defined in Title 11 of the United States Code (the “Bankruptcy Code”) or under the insolvency laws of any state (the “Insolvency Laws”);
(b) appointment of a receiver or custodian for any property of such person, or the institution of a foreclosure or attachment action upon any property of such person, where such appointment or action is not withdrawn, dismissed or otherwise rescinded within sixty (60) days thereafter; (c) filing by such person of a voluntary petition under the provisions of the Bankruptcy Code or Insolvency Laws; (d) filing of an involuntary petition against such person as the subject debtor under the Bankruptcy Code or Insolvency Laws, which either (1) is not dismissed within sixty (60) days after filing, or (2) results in the issuance of an order for relief against the debtor; (e) such person making or consenting to an assignment for the benefit of creditors or a composition of creditors; or (f) an admission by Tenant or Guarantor of its inability to pay debts as they become due.
Event of Default: Each of the following shall constitute an “Event of Default”: (a) Tenant’s failure to make when due any payment of the Base Rent, Pass-Through Expenses, additional rent or other sum when due hereunder provided that for the first late payment in any calendar year such late payment shall not be an Event of Default unless such payment is not received by Landlord within five (5) business days after written notice; (b) Tenant’s failure to perform or observe any covenant or condition of this Lease not otherwise specifically described in this paragraph, which failure shall continue for a period of twenty (20) days after Landlord sends Tenant written notice thereof; provided, however, that if such cure cannot reasonably be effected within such twenty (20) day period and Tenant begins such cure within such twenty (20) day period and thereafter is pursuing such cure in good faith and with diligence and continuity during such twenty (20) day period, then Tenant shall have such additional time as is reasonably necessary to effect such cure up to a maximum of ninety (90) days; (c) Tenant shall desert or abandon the Premises or the same shall become, or shall appear to have become, vacant (whether or not the keys shall have been surrendered or the rent shall have been paid) unless Tenant has made adequate arrangements to protect against damage occurring in the Premises; (d) an Event of Bankruptcy with respect to Tenant or any Guarantor; (e) Tenant or any Guarantor’s dissolution or liquidation; (f) any Environmental Default that is not cured within ten (10) business days after Landlord sends written notice thereof; provided, however, that if such cure cannot reasonably be effected within such 10-business day period and Tenant begins such cure within such 10-business day period and thereafter is pursuing such cure in good faith and with diligence and continuity during such 10-business day period, then Tenant shall have such additional time as is reasonably necessary to effect such cure up to a maximum of ninety (90) days; or (g) any sublease, assignment or mortgage not permitted by Article VII.
Ground Lease: The Ground Lease dated February 7, 2017, between Landlord, as ground lessee and 2nd Avenue Real Estate Investments LLC, as ground lessor, a memorandum of which is recorded in the real property records of King County, Washington.
Hazardous Materials: (a) asbestos and any asbestos containing material and any substance that is then defined or listed in, or otherwise classified pursuant to, any Environmental Law or any other applicable Law as a “hazardous substance,” “hazardous material,” “hazardous waste,” “infectious waste,” “toxic substance,” “toxic pollutant” or any other formulation intended to define, list, or classify substances by reason of deleterious properties such as ignitability, corrosivity, reactivity, carcinogenicity, toxicity, reproductive toxicity, or Toxicity Characteristic Leaching Procedure (TCLP) toxicity, including toxic mold, (b) any petroleum and drilling fluids, produced waters, and other wastes associated with the exploration, development or production of crude oil, natural gas, or geothermal resources, and (c) any petroleum product, polychlorinated biphenyls, urea formaldehyde, radon gas, radioactive material (including any source, special nuclear, or by product material), medical waste, chlorofluorocarbon, lead or lead based product, and any other substance whose presence could be detrimental to the Building or the Land or hazardous to health or the environment.
Including or include: including, but not limited to; including, without limitation; and words of similar import.
Landlord’s Representatives: Landlord’s affiliates, shareholders, partners, directors, officers, employees, agents and representatives.
Landlord’s Work: As defined in Exhibit B, if any.
Laws: all present and future governmental laws (including, without limitation, Environmental Laws (as hereinabove defined) and the ADA), ordinances (including without limitation, zoning ordinances and land use requirements), regulations, orders, requirements, statutes, codes, by-laws and court decisions of the jurisdiction in which the Building is located or the federal government.
Lease Year: a period of twelve (12) consecutive months commencing on the Rent Commencement Date, and each successive twelve (12) month period thereafter; provided, however, that if the Rent Commencement Date is not the first day of a month, then the second Lease Year shall commence on the first day of the month immediately following the first anniversary of the Rent Commencement Date.
Mortgages: mortgages, deeds of trust, ground leases (including the Ground Lease) or other security instruments which may now or hereafter encumber any portion of the Building or the land upon which the Building is situated.
Pass-Through Expenses: Tenant’s Proportionate Share of Operating Charges and Tenant’s Proportionate Share of Real Estate Taxes.
Permitted Person: the officers and directors of Tenant, the employees of Tenant who are involved in lease administration, Tenant’s respective certified public accountants, lenders and attorneys who have responsibilities related to the Lease, or any person or entity to whom disclosure is required by applicable judicial or governmental authority.
Permitted Transferee: any Affiliate, related corporation or successor corporation that assumes all of Tenant’s obligations under this Lease upon an assignment permitted without Landlord’s consent pursuant to Section 7.1(c) of this Lease.
Prime Rate: the prime rate published in the Money Rates section of the Wall Street Journal or another comparable publication selected by Landlord if the foregoing ceases to publish such a rate.
Proposed Sublease Commencement Date: the anticipated commencement date of the proposed assignment, subletting or other transaction.
Proposed Sublet Space: the area proposed to be assigned, sublet or otherwise encumbered.
Ready for Buildout Condition: construction of the Landlord’s Work has progressed to the point that the construction of the Tenant’s Work can proceed while Base Building Contractor completes the Landlord’s Work. Without limiting the foregoing, in order for the Premises to be Ready for Buildout Condition, the items described below shall have been completed by the Base Building Contractor but only to the extent Landlord is responsible for such work under Schedule 1 to Exhibit B. If there is any conflict between this definition and Schedule 1 to Exhibit B, Schedule 1 to Exhibit B shall control. A certificate of occupancy is not required for the Premises to be in Ready for Buildout Condition.
(1)A permanent roof is in place and work on the exterior enclosure is complete except for materials hoist and tower crane build back areas.
(2)Vertical transportation and/or hoisting is in place for Tenant’s non-exclusive use in accordance with Landlord and Base Building Contractor’s site rules.
(3)Permanent or temporary utilities shall be complete to a point, including but not limited to electrical power and water stubbed out to the Premises sufficient for Tenant to begin and execute Tenant’s Work and the Tenant’s contractor and subcontractors to make typical connections for such temporary utilities.
(4)The Base Building sprinkler system shall be installed in locations required by the Landlord’s plans for the Base Building to a point that does not impede the Tenant’s Work (but testing, inspection and final connection to Base Building fire alarm system shall be ongoing). After Landlord has completed testing and inspections of the Base Building sprinkler system, Tenant shall be allowed to modify the system to accommodate its layout.
(5)Base Building fire alarm devices shall be installed to a point that does not impede the Tenant’s Work in locations required by the Landlord’s plans for the Base Building (but inspection and testing shall be ongoing). Landlord will install temporary fire alarm devices suitable for shell space on each floor of the Premises. Relocation and permanent installation of the temporary fire alarm devices and installation of any additional devices will be Tenant’s Work. After relocation and permanent installation, Tenant must ensure all installed fire alarm devices are connected to the Base Building system.
(6)Hydronic piping and ducting stubbed to the Premises per Landlord’s plans for the Base Building. Testing, inspection, commissioning and implementation of the remaining Base Building HVAC system shall be ongoing.
(7)The egress stairs between the floors included in the Premises, including permanent lighting, that complies with OSHA and other governmental requirements for construction, are in place and available for use.
(8)Floor area in the Premises shall be level to the standard set forth in Landlord’s plans for the Base Building, free from debris and construction materials and broom clean. Landlord may
store materials to be installed in the Premises on Tenant’s floors if needed, in a manner that does not unreasonably impede the Tenant’s Work.
(9)The inside surface of all exterior walls shall be ready for Tenant’s drywall and finishes. Landlord shall provide aluminum sill which shall be stocked on the floor.
(10)Sleeves and pathways shall be installed in order to allow the Tenant’s contractor to pull wire cable from the Building telephone room to the Premises.
Real Estate Taxes: (1) all real estate taxes, vault and/or public space rentals, rates and assessments (including general and special assessments, if any), ordinary and extraordinary, foreseen and unforeseen, which are imposed upon Landlord or assessed against the Building or the Land, or Landlord’s personal property used in connection therewith, (2) any other present or future taxes or charges that are imposed upon Landlord or assessed against the Building which are in the nature of or in substitution for real estate taxes, including any tax levied on or measured by the gross rents payable by tenants of the Building, any public safety fee or similar charge, any transit, sales, rental, use, receipts or occupancy tax or fee, and any assessment imposed in connection with business improvement or similar districts or in connection with public funding for the construction of waterfront or other neighborhood improvements or a sports or other public venue, and (3) reasonable expenses (including, without limitation, reasonable attorneys’ and consultants’ fees and court costs) incurred in reviewing, protesting or seeking a reduction or abatement of, or defending or otherwise participating in any challenge to, real estate taxes, whether or not such protest or reduction is ultimately successful (provided, however, that such review, protest, or reduction attempt is undertaken in good faith by Landlord with the reasonable expectation to reduce Real Estate Taxes for the Building). Tenant shall not initiate or participate in any contest of Real Estate Taxes without Landlord’s prior written consent in its sole discretion but Landlord will, upon request from Tenant, consult with Tenant about the advisability of contesting Real Estate Taxes. Subject to the foregoing, Real Estate Taxes shall not include any inheritance, estate, gift, franchise, corporation, gross or net income or net profits tax assessed against Landlord from the operation of the Building. Real Estate Taxes shall not include any interest charges or penalties incurred as a result of Landlord’s failure to timely pay Real Estate Taxes; provided, however, that if the taxing authority permits a taxpayer to elect to pay in installments, then, for purposes of determining the amount of Real Estate Taxes, Landlord shall be deemed to have paid such Real Estate Taxes in the maximum number of permitted installments and all interest charges resulting therefrom shall be deemed Real Estate Taxes.
Structural Alterations: any Alteration that will or may affect the Building Structure and Systems or necessitate any changes, replacements or additions to the load-bearing or exterior walls, non- drop (i.e., the deck structure) ceilings, partitions (load-bearing or demising), columns or floor, or to the fire protection, water, sewer, waterproofing, windows, building skin, vertical transportation system, security, electrical, mechanical, plumbing, HVAC or any other Base Building systems, of the Premises or the Building.
Telecomm Equipment: telecommunications equipment (including wiring) and any wiring or other infrastructure to which such telecommunications equipment may be connected.
Tenant Items: all non-Building standard supplemental heating, ventilation and air conditioning equipment and systems serving exclusively the Premises, any special fire protection equipment installed by or on behalf of Tenant, any of Tenant’s Telecomm Equipment, computer equipment, kitchen/galley equipment and fixtures, all other furniture, furnishings, equipment and systems of Tenant, and all Alterations.
Tenant’s Request Notice: a written notice to Landlord containing: the identity of the proposed assignee, subtenant or other party and a description of its business; the terms of the proposed assignment, subletting or other transaction (including a copy of the proposed document for same); the Proposed Sublease Commencement Date; the Proposed Sublet Space; financial statements for the proposed assignee or subtenant or other party (audited, if available) for the prior two (2) years certified by an authorized officer of such party or a certified public accounting firm, or other evidence of financial responsibility of such proposed assignee, subtenant or other party; and a certification executed by Tenant and such party stating whether or not any premium or other consideration is being paid for the assignment, sublease or other transaction.
Tenant’s Work: As defined in Exhibit B, if any.
RIDER 2 TO OFFICE LEASE – ADDITIONAL PROVISIONS
This Rider 2 is attached to and made a part of the Office Lease Agreement by and between SCD 2U LLC, as Landlord and QUALTRICS, LLC, as Tenant. All terms used in this Rider that are defined in the Lease shall have the same meanings as provided in the Lease.
1.Measurement. Within a reasonable period of time after completion of the Building, Landlord shall cause its architect to calculate the rentable area of the Premises and the Building in accordance with the measurement standard set forth in Section 25.18 of the Lease and to provide a written report on such measurement with drawings depicting the areas and how each area is classified and measured (“Landlord’s Calculation”) and Landlord shall promptly provide Tenant with a copy of Landlord’s Calculation. Tenant shall have the right, at Tenant’s sole cost and expense, to have
Landlord’s Calculation confirmed (by an architect selected by Tenant who is licensed in Washington and is experienced in measuring rentable area under the specified standard in downtown Seattle) in accordance with the measurement standard set forth in Section 25.18. Tenant’s architect shall indicate any areas of dispute by making notations on a copy of Landlord’s Calculation and shall provide a written report with a comparable level of detail as Landlord’s Calculation. If the measurement determined by Tenant’s architect (“Tenant’s Calculation”) differs by no more than two percent (2%) (higher or lower) from Landlord’s Calculation, then Landlord’s Calculation shall control. If Tenant’s Calculation differs from Landlord’s Calculation by more than two percent (2%) (higher or lower), then Tenant shall give Landlord written notice thereof (together with a copy of Tenant’s Calculation documentation and the
marked copy of Landlord’s Calculation described above) not later than sixty (60) days following Tenant’s receipt of Landlord’s Calculation, and Landlord and Tenant, in coordination with their respective architects shall endeavor in good faith to resolve the discrepancy. If Landlord and Tenant are not able to resolve such discrepancy, then Landlord and Tenant (in coordination with their respective architects) shall jointly appoint an independent architect (who is licensed in Washington and is experienced in measuring rentable area under the specified standard in downtown Seattle) within ten (10) days following a written notice requesting same from either Landlord or Tenant to the other, to resolve such discrepancy. The determination of such independent architect shall be binding on both Landlord and Tenant. If such independent architect determines that the rentable area differs by no more than two percent (2%) (higher or lower) from Landlord’s Calculation, then the fees of such independent architect shall be borne solely by Tenant; otherwise the fees of such independent architect shall be split 50/50. If Tenant fails to exercise its rights as provided above, Landlord’s Calculation shall be binding and conclusive upon Landlord and Tenant. Upon confirmation of the measurement pursuant to this Paragraph 1 of Rider 2, by Landlord’s architect, Landlord and Tenant shall promptly enter into an amendment to this Lease modifying such rentable area of the Premises, the Construction Allowance, the installments of Base Rent set forth in Section 1.9 of the Lease, and all other terms of this Lease that vary based on the measurement of rentable area. Notwithstanding anything herein to the contrary the rentable area of the initial Premises shall not be more than 288,984 square feet as a result of Landlord’s Calculation under this provision.
2.Options to Extend. Tenant shall have the right (each an “Extension Option”) to extend the Lease Term for two (2) consecutive periods of five (5) years (each an “Extension Period”) on the following terms and conditions. If Tenant wishes to exercise an Extension Option it shall give Landlord written notice (the “Election Notice”) no later than twelve (12) months prior to commencement of the Extension Period. Time is of the essence and late notice shall not be effective. The Election Notice shall be irrevocable. Notwithstanding the foregoing, if either (a) an Event of Default is outstanding when Tenant delivers the Election Notice or at the time the Extension Period is to commence, or (b) within the immediately preceding twelve (12) months Landlord gave Tenant more than one (1) notice of an alleged default which ripened into an actual Event of Default, then Landlord shall not be required to give effect to Tenant’s Election Notice. If the above conditions are satisfied with respect to the exercise of the
Extension Option or if Landlord elects in its discretion to recognize the Election Notice even though the conditions are not satisfied, then the Lease Term shall be extended on the same legal terms and conditions contained in this Lease except that Base Rent for the Extension Period shall be determined as provided below and the applicable Extension Option shall be of no further force and effect. Landlord shall not be obligated to provide any concessions or allowances to Tenant or to pay any fee or commission to the brokers identified in the Lease Summary if Tenant exercises an Extension Option (except as may otherwise have been agreed to by Landlord pursuant to any separate fully executed agreement between Landlord and said brokers). Tenant may not exercise the second Extension Option unless the first Extension Option was validly exercised. If Tenant exercises an Extension Option, Base Rent for the Extension Period shall be the Market Rent for the Premises during the Extension Period determined pursuant to Paragraph 4 below. Landlord and Tenant shall, upon request of either party after the determination of the Market Rent, execute an amendment to this Lease, to document the extension and the Market Rent applicable to the Extension Period. The Extension Options are personal to the Tenant originally named herein and any Permitted Transferee who has assumed all of Tenant’s obligations under this Lease and may not be exercised by or for the benefit of any other party.
3.Right of First Offer. Subject to the pre-existing expansion rights of all tenants under leases executed prior to the date of this Lease, Tenant shall have an ongoing right (the “Right of First Offer”) to lease any office space in the Building (the “Offer Space”) on the following terms and conditions. The Offer Space shall not include any of the retail, restaurant or event spaces or the space used for property management functions. Each floor of the Offer Space is currently leased to a third party (each of which, together with its successors, assigns and subtenants, is referred to herein as an “Initial Tenant”). When Landlord determines that one or more floors of the Offer Space will be available to lease on a direct basis, Landlord shall deliver written notice to Tenant (the “Availability Notice”). The Availability Notice shall describe the Offer Space that is then available (the “Available Space”) and shall include the rent schedule applicable to the Available Space and any improvement allowance or other incentives or concessions Landlord is offering (the “Economic Terms”). The Economic Terms in the Availability Notice shall be comparable to the terms Landlord would offer to an unrelated third party leasing the Available Space as of the time Tenant will begin paying Base Rent on the Available Space after consideration of the current market trends and adjusted to reflect a term comparable to the period for which Tenant will pay Base Rent on the Available Space. The Availability Notice does not need to identify a prospective tenant with whom Landlord is negotiating or any other confidential terms.
3.1Acceptance. Tenant may exercise its Right of First Offer for all of the Available Space by delivering irrevocable written notice (an “Acceptance Notice”) to Landlord no later than twenty (20) days after delivery of the Availability Notice to Tenant. Time is of the essence of this provision and late notice shall not be effective. If Tenant wishes to exercise the Right of First Offer but does not agree with Landlord’s determination of the Economic Terms in the Availability Notice, Tenant may elect in the Acceptance Notice to have the Economic Terms applicable to the Available Space determined using the arbitration procedures set forth in Paragraph 4 of this Rider 2. To make this election, Tenant’s
Acceptance Notice must include Tenant’s determination of the Economic Terms for the Available Space as of the time Tenant will begin paying Base Rent on the Available Space after consideration of the current market trends and adjusted to reflect a term comparable to the period for which Tenant will pay Base Rent on the Available Space. If Tenant’s Acceptance Notice does not include such information, then Tenant shall be deemed to have accepted the Economic Terms in Landlord’s Availability Notice. Landlord cannot be compelled to pay any concessions or allowances to Tenant except as provided in the Availability Notice, but market rate concessions and allowances shall be considered in establishing the Base Rent schedule that is part of the Economic Terms. If the Economic Terms (determined either by agreement of the parties or by the Arbiter under Paragraph 4 of this Rider 2) are established using market rate concessions and allowances, Landlord may, at Landlord’s sole option, elect to pay such concessions
and allowances or to adjust the Base Rent schedule to provide equivalent economics as adjusted for a term comparable to the period for which Tenant will pay Base Rent on the Available Space.
If Tenant delivers an Acceptance Notice, then, once the Economic Terms have been determined, Landlord shall prepare and the parties shall execute an amendment to this Lease reflecting the inclusion of all of the Available Space as part of the Premises and the Economic Terms for the Available Space. Tenant’s Proportionate Share shall be adjusted to include the rentable area of the Available Space effective as of the date possession of the Available Space is delivered to Tenant. All of the terms and conditions of this Lease shall apply to the Available Space except that the Economic Terms determined under the procedures in this Paragraph shall take precedence with respect to the Available Space. Tenant will lease the Available Space in its then-current as-is condition and Landlord shall not be required to make improvements to or contribute funds toward any improvements in the Available Space, except as stated in the Availability Notice accepted by Tenant.
3.2Waiver. If Tenant does not deliver an Acceptance Notice within twenty (20) days after delivery of the Availability Notice, Landlord may lease the Available Space to any third party without providing any additional notice to Tenant and the Right of First Offer shall be of no further force and effect with respect to that portion of the Offer Space unless and until the space again becomes available to lease on a direct basis from Landlord. Tenant must lease all of the Available Space described in the Availability Notice but, if the Available Space described in the Availability Notice is less than all of the Offer Space, the Right of First Offer shall remain in effect for the balance of the Offer Space.
3.3Limitations. Landlord may extend or renew the lease with any Initial Tenant or may execute a new lease with any Initial Tenant without offering the Offer Space to Tenant. Notwithstanding anything to the contrary, Landlord shall have no obligation to provide an Availability Notice and Tenant shall not have the right to exercise Tenant’s Right of First Offer during any period when a monetary Event of Default for which Landlord has given Tenant written notice (even if written notice is not otherwise required under this Lease) is outstanding under this Lease or if within the immediately preceding twelve (12) months Landlord gave Tenant more than one (1) notice of an alleged monetary default which ripened into an actual Event of Default. Tenant’s Right of First Offer shall terminate and shall be of no further force and effect if Tenant does not elect to lease the Available Space described in three (3) Availability Notices over the Term. During the last three (3) years of the Term or during an Extension Period, Tenant may not exercise the Right of First Offer unless Tenant has the right to and simultaneously exercises an Extension Option. If Tenant exercises the Right of First Offer and a monetary Event of Default by Tenant occurs prior to Tenant’s occupancy of the Offer Space, Landlord may elect, by written notice to Tenant, to nullify Tenant’s Acceptance Notice, in which event Tenant shall have no further rights with respect to the Offer Space. Landlord shall not be required to pay any
brokerage fee or commission to Tenant’s broker identified in the Lease Summary with respect to any Offer Space (except as may be otherwise required pursuant to any separate fully executed agreement between Landlord and said broker).
3.4Personal Right. The Right of First Offer is personal to the Tenant originally named herein and any Permitted Transferee who has assumed all of Tenant’s obligations under this Lease and may not be exercised by or for the benefit of any other party.
3.5Termination. The Right of First Offer shall immediately terminate if Tenant exercises its Early Termination Right under Paragraph 5.
4.Determination of Rent for Extension Period and for Offer Space. If Tenant exercises an Extension Option, Base Rent for the Extension Period shall be the Market Rent for the Premises during
the Extension Period determined in accordance with the procedures set forth below. If Tenant elects to have Economic Terms for any Available Space determined by arbitration, Base Rent for the Available Space shall be the Market Rent determined in accordance with the procedures set forth below after consideration of the current market trends and adjusted to reflect a term comparable to the period for which Tenant will pay Base Rent on the Available Space.
4.1“Market Rent” for an Extension Period means the prevailing market rental rate, including annual increases, that a willing tenant would pay and a willing landlord would accept in an arm’s length bona fide negotiation for a five year extension of a direct lease. “Market Rent” for the Available Space means the prevailing market rental rate, including annual increases, that a willing tenant would pay and a willing landlord would accept in an arm’s length bona fide negotiation for a direct lease with a term comparable to the remaining Lease Term at the time Tenant will begin paying Base Rent on the Available Space. In each case, the Market Rent shall be determined by comparison to comparable leases of space in a multi-tenant building of comparable age, quality, design and permitted use, located in a modern class A high-rise with comparable views in the downtown Seattle submarket and comparable proximity to public amenities and public transportation in Seattle, Washington, and having an amount of space comparable to the amount to which the rent determination will apply, a comparable term, and taking into consideration all other relevant factors including the extent of service provided or to be provided, the means of reimbursing Landlord for operating costs, the time the particular rate under consideration became or is to become effective, as well as all tenant concessions, allowances, and inducements. Brokerage commissions shall not be considered in establishing Market Rent. Comparable transactions in which the rent for a renewal or expansion was discounted to a rate below the fair market rate shall be adjusted to reflect the fair market rate before the discount was applied. Transactions in which the rent was established more than a year before the first day of the Extension Period or the first day on which Tenant will pay Base Rent on the Available Space shall not be considered in establishing Market Rent. Sublease transactions shall not be considered in establishing Market Rent. Expansion transactions shall not be considered in establishing Market Rent for an Extension Period. Landlord cannot be compelled to pay any concessions or allowances to Tenant but market rate concessions and allowances shall be considered in establishing Market Rent. For purposes of determining comparable quality and design, the Premises shall be considered in its then “as is” condition, it being the intent of Landlord and Tenant that the Base Rent for the Extension Period shall be the same as for comparable premises with improvements that have been customized for the occupant. Market Rent shall include annual increases commensurate with then market conditions.
4.2Beginning approximately nine (9) months before the first day of an Extension Period, Landlord and Tenant shall negotiate reasonably and in good faith for a period of thirty (30) days (the “Negotiation Period”) to come to a mutually agreed upon Base Rent for the Extension Period. For the Available Space, the Negotiation Period shall start upon delivery of Tenant’s Acceptance Notice. If Landlord and Tenant cannot agree upon Base Rent within the Negotiation Period, then Market Rent shall be determined as provided in Section 4.3 below.
4.3Within ten (10) days after expiration of the Negotiation Period, each party, at its own cost and by giving notice to the other party, shall appoint a real estate broker with substantial experience in office leasing in the downtown Seattle submarket or an appraiser with at least ten (10) years full-time commercial real estate experience in Seattle, Washington, to determine Market Rent. Each party shall advise the other in writing of the name and address of the advising party’s representative within said ten
(10) day period. If a party does not appoint a representative within ten (10) days after the other party has given written notice of the name of its representative, the single representative appointed shall be the sole representative and shall set the Market Rent acting as a neutral and not as an advocate for either party. If each party appoints a representative, the two representatives shall meet promptly and attempt to establish
Market Rent (including annual increases). If the two representatives are unable to agree within thirty (30) days after the second representative has been appointed (the “Determination Period”), Market Rent shall be determined using the following procedures.
4.4The two representatives shall attempt to select a third broker or appraiser (the “Arbiter”) who meets the qualifications provided herein within ten (10) days after the last day of the Determination Period. If the two representatives do not agree on the Arbiter within such ten (10) day period, either of the parties to this Lease, by giving five (5) days’ notice to the other party, may apply to the then presiding judge of the Superior Court of King County for the selection of a third broker or appraiser meeting the qualifications stated herein. In any event, the Arbiter, however selected, shall be a person who has not previously acted in any capacity for either party. Within ten (10) days after the appointment of the Arbiter, each party or its representative shall submit its final schedule of Market Rent (including annual increases) to the Arbiter who shall provide a copy to the other party only after both submissions are received. Each party may submit supporting evidence that it deems relevant to the fair market rent analysis, but excluding any prior negotiations with the other party. The Arbiter shall consider all written materials properly submitted and may, in the presence of both parties, request additional information be submitted in writing but shall not hold a hearing or take oral testimony.
4.5Within thirty (30) days after the selection of the Arbiter, the Arbiter shall set the Market Rent by selecting the proposed rent schedule that most closely approximates the Arbiter’s determination of Market Rent. The Arbiter shall have no right to propose a middle ground or any modification of either of the proposed rent schedules. The rent schedule the Arbiter chooses as most closely approximating the Arbiter’s determination of Market Rent shall be final and binding upon the parties.
4.6Each of the parties shall bear all of the costs and expenses of its representative plus one- half (1/2) of the costs of the Arbiter. If Base Rent has not been finalized prior to the first day of the Extension Period, Tenant will pay Base Rent at a rate equal to one hundred three percent (103%) of the Base Rent in effect immediately prior to the Extension Period until Base Rent is determined and the new Base Rent will be applied retroactively to the first day of the Extension Period. If Base Rent has not been finalized prior to the first day on which Tenant is required to pay rent on any Available Space, the Economic Terms for the Available Space will be applied retroactively to the date on which Tenant is required to pay begin paying rent on the Available Space. Any adjustment will be made with the next installment of Base Rent due after Base Rent is determined.
5.Early Termination Option. Provided that (a) no Event of Default is outstanding at the time of the Termination Notice, and (b) no portion of the Premises has been subleased for a term extending beyond the Early Termination Date (provided that, at the time it provides its Termination Notice, Tenant may cause any sublease with a term extending beyond the Early Termination Date to terminate as of the Early Termination Date to the extent the term of the sublease would not by its terms, terminate by reason of Tenant’s exercise of its right hereunder), Tenant shall have the right to terminate this Lease in its entirety effective as of 11:59 p.m. on the last day of [***] full calendar month of the Lease Term (the “Early Termination Date”), on the terms and conditions set forth in this Section (the “Early Termination Right”). To exercise the Early Termination Right, no later than the last day of [***] full calendar month of the Lease Term, Tenant must deliver to Landlord an irrevocable written notice clearly exercising the Early Termination Right (the “Termination Notice”).
5.1In order for Tenant’s exercise of the Early Termination Right to take effect, by no later than the later of (a) the date the Termination Notice is delivered or (b) thirty (30) days after Landlord provides a reasonably detailed calculation of the Early Termination Fee, Tenant must pay Landlord a fee
in the amount calculated pursuant to the following paragraph (the “Termination Fee”). Upon request from Tenant any time after the last day of [***] month after the Rent Commencement Date, Landlord will provide an estimated calculation of the Termination Fee. Tenant shall pay the amount set forth in such estimate when it delivers the Termination Notice and when the actual amount of the Termination Fee is calculated, any overpayment shall be credited or refunded back to Tenant or Tenant shall make an additional payment, as applicable.
5.2The Termination Fee shall be equal to the sum of (a) the unamortized Construction Allowance and the Additional Allowance, (b) the unamortized brokerage commissions paid by Landlord in connection with the negotiation and execution of this Lease, (c) the unamortized Base Rent abated during the Abatement Period, and (d) three (3) months of Base Rent, Operating Charges and Real Estate Taxes on the entire Premises calculated using the rate applicable immediately after the Early Termination Date. If Tenant leases any Offer Space, the Termination Fee shall include all of the costs described in clauses (a), (b) and (c) above and the unamortized balance of any other incentives or concessions paid by Landlord for the Offer Space. Amortization of such costs for the initial Premises shall be calculated over the balance of the Initial Term after the Abatement Period and for each increment of Offer Space shall be calculated over the rent paying Term for such Offer Space. For the avoidance of doubt, the portion of the Termination Fee described in clauses (a), (b) and (c) above plus the Base Rent under clause (d) to be paid with respect to the original Premises is equal to $15,240,949.
5.3Time is of the essence of this provision and neither late notice nor late payment shall be effective. If Tenant does not deliver a Termination Notice and the Termination Fee by the above deadlines, Tenant’s Early Termination Right shall immediately terminate and shall be of no further force or effect. Tenant acknowledges that this provision was specifically negotiated by the parties and is a material term of this Lease and Tenant hereby waives all equitable claims and defenses that might extend the period within which Tenant may exercise the Early Termination Right or pay the Termination Fee. If an Event of Default occurs any time after Tenant’s delivery of a Termination Notice, then in addition to any other remedies available to Landlord, Landlord shall, in its sole discretion, have the right to void the Termination Notice and the Early Termination Right shall not take effect. If Tenant exercises its Early Termination Right, the Extension Options and the Right of First Offer shall immediately terminate and shall be of no further force and effect.
5.4Personal Right. The Early Termination Right is personal to the Tenant originally named herein and any Permitted Transferee who has assumed all of Tenant’s obligations under this Lease and may not be exercised by or for the benefit of any other party.
6.Interruption of Services. If any Building equipment or machinery ceases to function properly for any cause within Landlord’s control, Landlord shall use commercially reasonable efforts to repair the same promptly. Landlord shall have no liability and Tenant shall not be entitled to any damages or rent abatement for any interruption of services and utilities to be provided by Landlord under Article XIV (a “Service Failure”) except as expressly set forth herein. Notwithstanding anything to the contrary in this Lease, if a Service Failure occurs by reason of the negligence or willful misconduct of
Landlord or Landlord’s property manager or either of their employees; and (a) the Service Failure materially interferes with Tenant’s use of the Premises or any portion thereof to such a degree that Tenant is unable to use, and actually ceases use of, the affected portion of the Premises, and (b) Tenant has given Landlord written notice describing the Service Failure and identifying the portion of the Premises rendered unusable by such Service Failure, and (c) the Service Failure continues for a continuous period of more than three (3) business days after Tenant’s written notice to Landlord then, as Tenant’s sole and exclusive remedy for such Service Failure, Rent shall be abated for the affected area of the Premises. The Rent abatement shall continue until the earlier to occur of (i) the restoration of the utility or service, or
(ii) the date on which such Service Failure no longer prevents Tenant from engaging in the Permitted Use in such portion of the Premises. Tenant shall not be entitled to any rent abatement hereunder if the Service Failure is the result of the negligence or willful misconduct of Tenant or Tenant’s agents, employees, contractors or invitees.
7.Roof Top Equipment. Subject to space availability, Tenant shall have the nonexclusive right to use a portion of the roof of the Building (such portion to be no greater than Tenant’s Proportionate Share of the available space on the roof for tenant-operated equipment) to install, maintain, repair, and replace satellite dishes or antenna and related equipment (the “Antenna”) at Tenant’s sole cost and expense. The Antenna shall be installed in a location designated by Landlord. Tenant may also install, maintain, remove and replace cables or lines within the Building outside the Premises (at locations designated by Landlord) to connect any Antenna to the Premises.
Tenant may use the Antenna only for Tenant’s general business purposes and may not grant any other party any right to use the Antenna for any purpose whatsoever. The Antenna may not be used for providing cellular phone service or commercial broadcasts. The Antenna may not interfere with the operation of any equipment used by Landlord or its service providers, or any equipment used by other occupants of the Building that is in place prior to the placement of the Antenna. If any interference occurs Landlord may immediately revoke Tenant’s right to use the Antenna determined to be causing such interference unless and until Tenant causes the cessation of such interference.
The design, appearance, size, location and method of installation of the Antenna, and the use thereof shall be subject to all applicable Laws and Landlord’s prior approval, which approval shall not be unreasonably withheld, conditioned or delayed provided that all terms and conditions of this Section have been satisfied. Tenant shall ensure that installation and maintenance of the Antenna do not void or limit any warranty Landlord may have on the roof or roof membrane. Tenant shall provide Landlord with full plans and specifications for any Antenna for Landlord’s approval prior to installation thereof including details regarding Tenant’s proposed method of installation. Tenant shall ensure that the Antenna is designed, installed and operated in a manner that complies with all Laws and in a manner that is compatible with the design of the Building and other equipment located on the roof of the Building and including appropriate screening as may be required by Law or by Landlord to protect the integrity of the Building design. Prior to commencement of any work under this Section, Tenant shall obtain and deliver to Landlord all necessary governmental permits.
Landlord makes no representation or warranty concerning (i) the use of the roof by Tenant, or (ii) the safety thereof, or (iii) that the installation of the Antenna will be permitted under applicable Laws, or
(iv) that such use or Antenna will function as intended. If Tenant’s use of the roof or the Antenna ceases to be permitted under applicable Laws, Tenant’s rights under this Section shall terminate and be of no further force or effect. Upon termination of Tenant’s rights under this Section or upon Lease termination, Tenant at its sole cost and expense shall promptly remove the Antenna and all related improvements, wiring, plumbing, and equipment from the Building and shall repair any damage caused by installation or removal of the Antenna. Tenant acknowledges and agrees that Landlord has not represented or warranted that Tenant will have unlimited access to riser space or other space outside the Premises to accommodate Tenant’s needs. Tenant shall indemnify and hold harmless Landlord from any claims, liabilities, suits, losses, loss of rents, liens, damages, penalties, costs or expenses, including reasonable attorneys’ and
consultants’ fees and court costs, demands, causes of action, or judgments, directly or indirectly relating to or arising out of or in connection with any use by Tenant of the roof and in connection with Tenant’s installation, maintenance, use or removal of any improvement, including any Antenna and related equipment in the Building, except to the extent arising from the gross negligence or willful misconduct of Landlord or its employees or contractors acting within the scope of their authority from Landlord. If
Landlord needs to do any work on the roof, Tenant shall relocate its Antenna as directed by Landlord at Tenant’s cost (and upon at least forty-five (45) days’ prior notice, except in the case of an emergency).
RIDER 3 TO OFFICE LEASE – STATE AND LOCAL SPECIFIC PROVISIONS
This Rider 3 is attached to and made a part of the Office Lease Agreement by and between SCD 2U LLC, as Landlord and QUALTRICS, LLC, as Tenant. All terms used in this Rider that are defined in the Lease shall have the same meanings as provided in the Lease.
1.All Payments Are Rent. If Tenant fails to pay any sum due under this Lease, including Base Rent, additional rent, and Pass-Through Expenses, and such failure constitutes an Event of Default under this Lease, such failure shall entitle Landlord to pursue any or all remedies specified in this Lease, as well as those remedies specified in RCW Chapter 59.12 or otherwise allowed by law or in equity.
2.Industrial Immunity. Solely for the purpose of effectuating the parties’ indemnification obligations under this Lease, and not for the benefit of any third parties (including but not limited to employees of the indemnifying party), each party agrees that it will not assert in any indemnity action under this Lease any immunity that it may be entitled to claim under the Washington State Industrial Insurance Act, Title 51 of the Revised Code of Washington in a direct action by its employees. The parties’ indemnification obligations under this Lease shall not be limited in any way by any limitation on the amount or type of damages, compensation or benefits payable to or for any third party under Worker Compensation Acts, Disability Benefit Acts or other employee benefit acts. This provision has been mutually negotiated by the parties and each party has had the opportunity to, and has been encouraged, to consult with independent counsel regarding this provision.
3.Concurrent Negligence. Notwithstanding anything in this Lease (including any exhibits to this Lease) to the contrary, if and to the extent RCW 4.24.115 (or any successor or comparable statute) is deemed to apply to any indemnity contained in this Lease then the indemnity shall be interpreted and applied so that (a) neither party is indemnifying the other against liability for damages arising out of any services referenced in said RCW 4.24.115 or out of any bodily injury to persons or damage to property, to the extent such damages, bodily injury or damage is caused by or resulting from the sole negligence of the indemnified party or its agents or employees; and (b) any indemnity for damages arising out of any of the foregoing services or any bodily injury to persons or damage to property caused by or resulting from the concurrent negligence of (i) the indemnitee or the indemnitee’s agents or employees, and (ii) the indemnitor or the indemnitor’s agents or employees, will be enforceable only to the extent of the indemnitor’s negligence or as otherwise permitted under RCW 4.24.115 or such other statute.
EXHIBIT A-1
LEGAL DESCRIPTION [Omitted pursuant to Item 601(a)(5) of Regulation S-K]
EXHIBIT A-2
PLAN SHOWING PREMISES [Omitted pursuant to Item 601(a)(5) of Regulation S-K]
EXHIBIT B
WORK AGREEMENT [Omitted pursuant to Item 601(a)(5) of Regulation S-K]
SCHEDULE 1 TO EXHIBIT B [Omitted pursuant to Item 601(a)(5) of Regulation S-K]
SCHEDULE 1 TO EXHIBIT B DESIGNATED SUBCONTRACTORS
[Omitted pursuant to Item 601(a)(5) of Regulation S-K]
EXHIBIT C
[Reserved]
EXHIBIT D-1
CERTIFICATE AFFIRMING THE LEASE COMMENCEMENT DATE [Omitted pursuant to Item 601(a)(5) of Regulation S-K]
EXHIBIT D-2
CERTIFICATE AFFIRMING THE RENT COMMENCEMENT DATE [Omitted pursuant to Item 601(a)(5) of Regulation S-K]
EXHIBIT E
OPERATING CHARGES AND REAL ESTATE TAXES [Omitted pursuant to Item 601(a)(5) of Regulation S-K]
EXHIBIT F
[Reserved]
EXHIBIT G
TENANT AND LANDLORD INSURANCE REQUIREMENTS [Omitted pursuant to Item 601(a)(5) of Regulation S-K]
EXHIBIT H
INSURANCE REQUIREMENTS FOR CONTRACTORS [Omitted pursuant to Item 601(a)(5) of Regulation S-K]
EXHIBIT I
FORM OF GUARANTY OF LEASE GUARANTY [Omitted pursuant to Item 601(a)(5) of Regulation S-K]
EXHIBIT J
EXTERIOR SIGNAGE [Omitted pursuant to Item 601(a)(5) of Regulation S-K]
CERTAIN IDENTIFIED INFORMATION HAS BEEN EXCLUDED FROM THE EXHIBIT BECAUSE IT IS BOTH NOT MATERIAL AND WOULD LIKELY CAUSE COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED. [***] INDICATES THAT INFORMATION HAS BEEN REDACTED.
SECOND AMENDMENT TO LEASE
THIS SECOND AMENDMENT TO LEASE (the “Amendment”) is entered into effective as of_______, 2020 (the “Effective Date”) by and between SCD 2U LLC, a Delaware limited liability company (“Landlord”), and QUALTRICS, LLC, a Delaware limited liability company (“Tenant”).
RECITALS
A.Landlord and Tenant are parties to that certain Office Lease Agreement dated as of September 20, 2019 (as amended by the First Amendment to Lease dated October 22, 2019, the “Lease”) pursuant to which Tenant leases certain premises at 2+U in Seattle, Washington.
B.Landlord has completed the area calculations under the Lease and the parties wish to amend the Lease to confirm certain information, on the terms and conditions set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are mutually acknowledged, the parties hereto agree as follows:
1.Premises. Page A-6 of Exhibit A-2 attached to the Lease showing the floor plan for floor 19 is deleted in its entirety and replaced with the floor plan attached hereto as Exhibit A-2.
2.Area Calculations. Notwithstanding anything in the Lease to the contrary, the parties agree that the following calculations are true and correct as of the date hereof and that Tenant’s measurement right under Paragraph 1 to Rider 2 to the Lease shall be of no further force or effect.
The Office Area contains 687,403 square feet of rentable area
The Retail Area contains 15,600 square feet of rentable area
The Total Area contains 703,003 square feet of rentable area
The Premises contains 275,715 square feet of rentable area
3.Proportionate Share. The parties acknowledge that Tenant’s Proportionate Share pursuant to Section 1.18 of the Lease has not changed based on the Premises area set forth above.
4.Parking Allotment. Tenant’s Parking Allotment based on the Premises area set forth above is 184 parking permits.
5.Construction Allowance. Tenant’s Construction Allowance based on the Premises area set forth above is [***].
6.Conflict. Capitalized terms used herein and not otherwise defined shall have the meanings given in the Lease. If there is any conflict between the terms, conditions and provisions of this Amendment and of the Lease, the terms, conditions and provisions of this Amendment shall prevail.
7.Authority. Each party represents and warrants that the person signing this Amendment on behalf of such party is authorized to execute and deliver this Amendment and that this Amendment will thereby become binding upon such party.
8.Miscellaneous. Except as expressly modified by this Amendment, all terms, covenants and provisions of the Lease shall remain unmodified and in full force and effect and are hereby expressly ratified and confirmed. This Amendment reflects the entire agreement of the parties with respect to amending the terms of the Lease and this Amendment supersedes all prior discussions and understandings regarding the amendment of the Lease. With respect to the subject matter hereof, neither party will be bound by any understanding, agreement, promise, representation or stipulation, express or implied, not specified herein.
9.Counterparts. This Amendment may be executed in counterparts, each of which will be deemed to be an original, but all of which together will constitute one and the same document.
[SIGNATURE PAGES FOLLOW]
IN WITNESS WHEREOF, Landlord has executed this Amendment as of the Effective Date.
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LANDLORD
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SCD 2U LLC, a Delaware limited liability company
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By:
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/s/ Robert Ward
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Name: Robert Ward
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Title: Manager
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By:
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/s/ Murphy McCullough
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Name: Murphy McCullough
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Title: Manager
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State of
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Virginia
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) SS/
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Country of
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Arlington
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I, ____Lanai Carol Bea_________, a Notary Public in and for the aforesaid jurisdiction, do hereby certify that ROBERT WARD personally appeared before me, on the_24th__ day of __August_, 2020, who is personally well known to me as, or satisfactorily proven to be the person named as, Manager of SCD 2U LLC, a limited liability company, in the foregoing instrument and acknowledged said instrument to be the act and deed of said limited liability company.
WITNESS my hand and Notarial Seal this _24th__ day of _August_, 2020.
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/s/ Lanai Carol Bea
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[signature of notary]
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STATE OF WASHINGTON
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) ss.
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COUNTY OF KING
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On this __________ day of July, 2020, before me, a Notary Public in and for the State of Washington, personally appeared MURPHY MCCULLOUGH, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person who executed this instrument, on oath stated that s/he was authorized to execute the instrument, and acknowledged it as the Manager of SCD 2U LLC, to be the free and voluntary act and deed of said limited liability company for the uses and purposes mentioned in the instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal the day and year first above written.
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/s/ Erica Vanwagoner
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NOTARY PUBLIC in and for the State of Washington,
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residing at
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My appointment expires
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2/18/2024
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Print Name
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Erica Vanwagoner
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IN WITNESS WHEREOF, Tenant has executed this Amendment as of the Effective Date.
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TENANT:
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QUALTRICS, LLC, a Delaware limited liability company
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By:
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/s/ Tyler Waltman
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Name:
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Tyler Waltman
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Title:
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Managing Counsel
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STATE OF UTAH )
) ss.
COUNTY OF UTAH )
On this _31st__ day of July, 2020, before me, a Notary Public in and for the State of Utah, personally appeared __Tyler Waltman__ [name], personally known to me (or proved to me on the basis of satisfactory evidence) to be the person who executed this instrument, on oath stated that s/he was authorized to execute the instrument, and acknowledged it as the __Managing Counsel__ [title] of QUALTRICS, LLC, to be the free and voluntary act and deed of said limited liability company for the uses and purposes mentioned in the instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal the day and year first above written.
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/s/ Erin Rotter
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NOTARY PUBLIC in and for the State of Utah,
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residing at
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My appointment expires
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August 1, 2021
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Print Name
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Erin Rotter
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EXHIBIT A-2 [Omitted pursuant to Item 601(a)(5) of Regulation S-K]
LEASE AGREEMENT
BETWEEN
TIMP CAMPUS LLC,
a Wyoming limited liability company
AS LANDLORD,
AND
QUALTRICS, LLC,
a Delaware limited liability company
AS TENANT
THIS IS A LEGAL AND BINDING CONTRACT. BEFORE SIGNING, READ THE ENTIRE DOCUMENT, INCLUDING THE GENERAL PRINTED PROVISIONS AND ATTACHMENTS. IF YOU HAVE ANY QUESTIONS, CONSULT YOUR ATTORNEY AND/OR ACCOUNTANT
SUMMARY OF BASIC LEASE INFORMATION AND DEFINITIONS
THIS SUMMARY OF BASIC LEASE INFORMATION AND DEFINITIONS ("Summary") is hereby incorporated into and made a part of the attached Lease Agreement which pertains to the Land and Building described in Paragraphs 5 and 6 of this Summary. All references in the Lease to the "Lease" shall include this Summary. All references in the Lease to any term defined in this Summary shall have the meaning set forth in this Summary for such term. Any initially capitalized terms used in this Summary and any initially capitalized terms in the Lease which are not otherwise defined in this Summary shall have the meaning given to such terms in the Lease. If there is any inconsistency between the Summary and the Lease, the provisions of the Lease shall control.
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1.
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LANDLORD
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Timp Campus LLC, a Wyoming limited liability company
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2.
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LANDLORD ADDRESS:
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Timp Campus LLC
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3.
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TENANT:
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Qualtrics, LLC, a Delaware limited liability company
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4.
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TENANT ADDRESS:
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333 W River Park Dr
Provo, Utah 84604
Attn: Legal Department
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5.LAND: That certain real property located in Utah County, State of Utah and more particularly described as follows: Lot 1, Plat A, Morinda Subdivision, Utah County, Serial No. 46:607:0001, consisting of approximately 17.18 acres.
6.BUILDING: An approximately 173,266 square foot office building constructed on the Land, the street address of which is 333 West River Park Drive, Provo, Utah.
7.IMPROVEMENTS: The Building and such other improvements as are affixed either to the Building or to the Land, including without limitation a downstairs storage space and data center and below-grade parking structure and server areas, all together containing approximately 211,824 gross square feet.
8.PREMISES: The Land and the Improvements (including the Building).
9.TERM: Unless extended or earlier terminated pursuant to the terms of this Lease, twelve (12) years with three (3) options for Tenant to extend the Term for a period of five (5) years each (as modified by extensions, early termination, or otherwise, the “Term”).
10.COMMENCEMENT DATE: October 15, 2018.
11.MONTHLY BASE RENT: The initial Monthly Base Rent will be $280,000.00 per month, subject to increase in accordance with the provisions of Section 5.06.
12.PREPAID RENT; SECURITY DEPOSIT: Prepaid Rent: $0.00; Security Deposit: $280,000.00.
13.PERMITTED USE: Executive and general office space (including without limitation, uses relating to technology and financial services), and ancillary uses thereto, including, but not limited to, storage, retail, data center, entertainment, company parties and events, and any related or ancillary uses).
14.BROKERS: None.
15.GUARANTOR: Qualtrics International Inc., a Delaware corporation (See Exhibit A attached hereto and made a part hereof)
16.INTEREST RATE: The lesser of: (a) the prime rate announced from time to time by Wells Fargo Bank, N.A. plus ten percent (10%); or, if Wells Fargo Bank, N.A. ceases to exist or ceases to publish such rate, then the rate announced from time to time by the largest (as measured by deposits) chartered bank operating in Utah, as its "prime rate" or "reference rate", plus ten percent (10%); or (b) the maximum rate permitted by law.
17.LEGAL REQUIREMENTS shall mean any and all laws, statutes, codes, acts, ordinances, orders, judgments, decrees, injunctions, rules, regulations, permits, licenses, authorizations, directions and requirements of, and agreements with, all governments and governmental departments, commissions, boards, courts, authorities, agencies, officials and officers, foreseen or unforeseen, ordinary or extraordinary, including, without limitation, any Environmental Law, which now or at any time hereafter may be applicable to the Premises or any part thereof.
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LEASE AGREEMENT
THIS LEASE AGREEMENT (referred to herein as the “Lease”), which includes the preceding Summary of Basic Lease Information and Definitions (the “Summary”) attached hereto and incorporated herein by this reference (the “Lease”) is made as of __________________, by and between, TIMP CAMPUS, LLC, a Wyoming limited liability company (the “Landlord”), and QUALTRICS, LLC, a Delaware limited liability company (hereinafter the ‘Tenant”).
W I T N E S S E T H:
In consideration of the rents, covenants and agreements hereinafter set forth, Landlord and Tenant mutually agree as follows:
ARTICLE 1 PREMISES
Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, the Premises described in Paragraph 8 of the Summary above. The Premises shall have the approximate square footage set forth in Paragraphs 5 to 7 of the Summary; provided, however, that Landlord makes no representation or warranty concerning the size or dimensions of the Premises and Tenant acknowledges and agrees that it has inspected the Premises to confirm that size and dimensions of the Premises is sufficient for Tenant’s anticipated use as provided herein. Such lease is upon, and subject to, the terms, covenants and conditions herein set forth and each party covenants, as a material part of the consideration for this Lease, to keep and perform their respective obligations under this Lease. During the Term, Tenant shall have the exclusive right to use and occupy the Premises and all parts thereof and Landlord shall not permit any other person to use or occupy the Premises, or any part thereof, without the prior written consent of Tenant, in Tenant’s sole discretion.
ARTICLE 2 AGREEMENTS AFFECTING THE PREMISES
Section 2.01 Underlying Agreements. As between Landlord and Tenant and notwithstanding any other provision in this Lease, Tenant hereby agrees to be bound by the documents and agreements of record with respect to the Premises, as listed in Exhibit B attached hereto. It is expressly agreed that Tenant shall not use or occupy the Premises in a manner contrary to or inconsistent with any of the provisions of any agreements of record.
Section 2.02 Future Agreements. Subject to Tenant’s prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed, during the Term, Landlord shall have the right to grant easements on, over, under and above the Premises, so long as they do not materially impair Tenant’s use or enjoyment of the Premises. Tenant expressly acknowledges and agrees that Landlord may, subject to Tenant’s prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed, record or establish (or both) the following (collectively, the “Governing Documents”): a plat or plats; a declaration of covenants, conditions and restrictions and rules and regulations; and an association, all for the governance of the Premises. Tenant agrees that the terms of the Governing Documents may
contain such terms as Landlord reasonably deems advisable, so long as such terms do not materially impair Tenant’s use or enjoyment of the Premises. Tenant agrees that should any Governing Documents be applicable to the Premises, Tenant will conduct itself in accordance with such Governing Documents.
ARTICLE 3 TERM
The Term of this Lease shall be for the period designated in Paragraph 9 of the Summary commencing on the Commencement Date and ending on the expiration of such period, unless the Term is sooner terminated as provided in this Lease. Notwithstanding the foregoing, if the Commencement Date falls on any day other than the first day of a calendar month then the term of this Lease and first Lease Year (as hereafter defined) will be measured from the first day of the month following the month in which the Commencement Date occurs. Tenant shall have the right, in Tenant’s sole and absolute discretion, so long as Tenant is not in default under this Lease beyond any applicable notice and cure period at the time of exercise, to extend the Term of this Lease for up to three (3) additional periods of five (5) years each by providing written notice of such extension to Landlord on or before the date that is one hundred eighty (180) days prior to the expiration of the Term (as so extended), subject to additional extension rights set forth in ARTICLE 24 herein. As used herein, “Lease Year” shall mean each twelve (12) month period of this Lease, commencing upon the Commencement Date if the Commencement Date falls on the first day of a calendar month, or, if the Commencement Date falls on any day other than the first day of a calendar month, the first day of the first calendar month following the Commencement Date.
ARTICLE 4 USE
Section 4.01 Permitted Use. Tenant shall use the Premises solely for the Permitted Use specified in Paragraph 13 of the Summary in strict compliance with this Lease and such other reasonable rules and regulations as Landlord may adopt from time to time and in accordance with all other Legal Requirements and for no other purpose. Tenant shall not use or occupy the Premises for any other use or purpose without the prior written consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed. Tenant shall obtain, at its sole cost and expense, all necessary permits, authorizations and approvals which may be required of any governmental entity for Tenant’s intended use.
Section 4.02 Landlord Representations. Landlord represents that, as of the Commencement Date, the Premises (a) is zoned for the Permitted Use, and (b) complies with all applicable Legal Requirements, including, but not limited to, the Americans With Disabilities Act (ADA).
Section 4.03 Prohibited Uses. Tenant will not (a) use, occupy or permit the use or occupancy of the Premises for any purpose or in any manner which is or may be, directly or indirectly, improper, immoral, unlawful or objectionable purpose, or violative of any Legal Requirement or a public or private nuisance, (b) keep or permit to be kept any substance in, or conduct or permit to be conducted any operation from, the Premises which might emit offensive odors or conditions, or make undue noise or create undue vibrations, (c) commit or permit to
remain any waste to Premises, (d) install or permit to remain any improvements to the Premises (other than window coverings which have first been approved in writing by Landlord) which exceed the structural loads of floors or walls of the Building, or adversely affect the mechanical, plumbing or electrical systems of the Building, or affect the structural integrity of the Building in any way, (e) commit or permit to be committed any action or circumstance in or about the Building which, directly or indirectly, would justify any insurance carrier in canceling or increasing the premium on the fire, extended coverage insurance policy or any other insurance policy maintained on the Building or contents, or (f) any use which conflicts with that certain Master Declaration of Protective Covenants, Conditions and Restrictions for Riverwoods Research and Business Park recorded in the office of the County Recorder of Utah County, State of Utah on October 24, 1991, as Entry No. 42273, in Book 2847, at pages 618, set seq., as amended as of the Commencement Date. Tenant shall not install, maintain or use an underground storage tank. Tenant will be permitted to host its company parties and events at the Premises, which may include fireworks displays, carnival rides, and other activities of a similar nature, which activities may be subject to obtaining approvals or permits from the appropriate governing authority; provided that Tenant will maintain insurance policies sufficient to cover the activities at such parties and events and will name Landlord as an additional insured thereon. Subject to Section 6.01 below, Tenant shall, at its sole cost and expense, promptly comply with all Legal Requirements (and shall so cause the Premises and the business conducted thereon to comply) and requirements of any board of fire underwriters or other similar body now or hereafter constituted in relation to or affecting the condition, use or occupancy of the Premises. The judgment of any court of competent jurisdiction or the admission of Tenant in any action against Tenant, whether Landlord be a party thereto or not, that Tenant has violated any Legal Requirements shall be conclusive of the fact as between Landlord and Tenant. Tenant shall promptly submit to Landlord copies of all documents, including reports, submissions, notices, orders, directives, findings and correspondence made by Tenant to any person or governmental authority, or given by any governmental authority or person to Tenant pursuant to Environmental Law. If any governmental authority requires any repairs, improvements or alterations to be made to the Premises during the Term, Tenant shall, subject to Section 6.01 below, make and pay for such repairs, improvements and alterations. To the extent such repairs, improvements and alterations require preparation of plans and specifications, such plans and specifications shall be approved by Landlord, which approval shall not be unreasonably withheld, conditioned or delayed, and such repairs, improvements and alterations shall be completed in accordance with the plans and specifications.
Section 4.04 Hazardous Substances. During the Term, Tenant shall: (i) at all times comply with any “Environmental Law” (as defined below in Section 4.05) governing the Premises or the use thereof by Tenant, (ii) not use, store, generate, treat, transport, or dispose of, or permit any of Tenant's concessionaires, licensees, employees, agents, contractors, or invitees to use, store, generate, treat, transport, or dispose of, any “Hazardous Substance” (as defined below in Section 4.05) on the Premises without first obtaining Landlord's written approval, provided, however, Tenant may use, without Landlord’s consent, materials such as adhesives, lubricants, ink, solvents and cleaning fluids of the kind and in amounts and in the manner customarily found and used in business offices in order to conduct its business at the Premises and to maintain and operate the business machines located in the Premises provided that such
materials are used, stored and disposed of by Tenant strictly in accordance with applicable Environmental Law, (iii) promptly and completely respond to and cleanup any release or presence of any Hazardous Substances upon the Premises that is caused by Tenant or Tenant’s agents, employees, contractors or invitees, and shall pay all costs incurred by Landlord as a result of any such release or presence, including, without limitation the costs of any “Environmental Cleanup Work” (as defined below in Section 4.05) and the preparation of any closure or other required plans (all of the foregoing of Tenant under this Section are hereinafter collectively “Tenant's Environmental Obligations”). EXCEPT TO THE EXTENT CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF LANDLORD OR ANY OF LANDLORD’S CONCESSIONAIRES, LICENSEES, AGENTS, EMPLOYEES, CONTRACTORS, OR INVITEES, TENANT HEREBY RELEASES, INDEMNIFIES, HOLDS HARMLESS AND AGREES TO DEFEND LANDLORD, AND ITS AFFILIATES, AND THEIR RESPECTIVE DIRECTORS, OFFICERS, SHAREHOLDERS, EMPLOYEES, REPRESENTATIVES AND AGENTS, FROM AND AGAINST ANY AND ALL CLAIMS, CAUSES OF ACTION, DAMAGES (INCLUDING, WITHOUT LIMITATION, ALL FORESEEABLE CONSEQUENTIAL DAMAGES BUT EXCLUDING ANY UNFORESEEABLE CONSEQUENTIAL DAMAGES), FINES, JUDGMENTS, PENALTIES, COSTS, LIABILITIES, LOSSES OR EXPENSES (INCLUDING, WITHOUT LIMITATION, ATTORNEYS’ FEES AND REASONABLE INVESTIGATIVE AND DISCOVERY COSTS) ARISING DURING OR AFTER THE TERM OF THIS LEASE ON ACCOUNT OF OR ARISING FROM: (A) THE VIOLATION OF ANY ENVIRONMENTAL LAWS BY TENANT OR TENANT’S AGENTS DURING THE TERM; (B) THE PRESENCE, USE, GENERATION, STORAGE, REMEDIATION, DISPOSAL OR RELEASE OF HAZARDOUS SUBSTANCE IN, ON, UNDER, OR ABOVE THE PREMISES ATTRIBUTABLE TO THE ACTS OR OMISSIONS OF TENANT OR TENANT’S AGENTS DURING THE TERM; (C) ANY BREACH OF THE REPRESENTATIONS AND WARRANTIES OF TENANT CONTAINED IN THIS SECTION 4.04 DURING THE TERM; AND (D) ANY VIOLATION OF THE OBLIGATIONS OF TENANT CONTAINED IN THIS SECTION 4.04 DURING THE TERM. WITHOUT LIMITATION OF THE FOREGOING, THE FOREGOING INDEMNIFICATION SHALL INCLUDE ANY AND ALL COSTS INCURRED DUE TO ANY INVESTIGATIONS OF THE PREMISES OR ANY CLEANUP, REMOVAL, REPAIR, REMEDIATION, DETOXIFICATION OR RESTORATION AND THE PREPARATION OF ANY CLOSURE OR OTHER PLANS REQUIRED OR PERMITTED BY ANY GOVERNMENTAL AUTHORITY, IN EACH CASE ARISING FROM ITEMS (A) THROUGH (D) ABOVE. Tenant shall promptly deliver to Landlord true and complete copies of any and all notices or correspondence or request from any governmental authority or third parties relating to the presence, release, use, storage, treatment, transportation, or disposal of Hazardous Substances, which notices, correspondence, or requests relate, in any way, to the Premises, or any part thereof. Tenant shall permit Landlord and Landlord's agents to enter into and upon the Premises, upon 24 hours’ written notice, at all reasonable times for the purpose of inspecting the Premises and verifying Tenant's compliance with these covenants. Notwithstanding the foregoing, Landlord (and not Tenant) shall be responsible for any Environmental Law violations, Hazardous Substances, or Environmental Cleanup Work resulting from conditions already present at the Premises as of the Commencement Date or that are caused by the acts or omissions of Landlord or Landlord’s agents, employees, contractors or invitees.
Section 4.05 Environmental Definitions. As used in this Lease, the terms “Environmental Cleanup Work” shall mean an obligation to perform work, cleanup, removal, repair, remediation, construction, alteration, demolition, renovation or installation in or in connection with the Premises in order to comply with any Environmental Law, “Environmental Law” shall mean any federal, state or local law, ordinance, regulation, order, permit, license, decree, common law or treaty now or hereafter in force regulating, relating to or imposing liability or standards concerning materials or substances known or suspected to be toxic or hazardous to health and safety, the environment or natural resources, or the use, generation, transport, treatment, removal, or recovery of Hazardous Substance (as hereafter defined), including building materials, and including, but not limited to, the following: the Solid Waste Disposal Act as amended by the Resource Conservation and Recovery Act of 1976 (42 U.S.C. Section 6901, et seq.), as amended, and all regulations promulgated thereunder; the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C. Section 9601, et seq.), as amended, and all regulations promulgated thereunder; the Hazardous Materials Transportation Act (49 U.S.C. Section 1801, et seq.), as amended, and all regulations promulgated thereunder; the Toxic Substances Control Act (15 U.S.C. Section 2601, et seq.), as amended, and all regulations promulgated thereunder; the Clean Air Act (42 U.S.C. Section 7401, et seq.), as amended, and all regulations promulgated thereunder; the Federal Water Pollution Control Act (33 U.S.C. Section 1251, et seq.), as amended, and all regulations promulgated thereunder; and the Occupational Safety and Health Act (29 U.S.C. Section 651, et seq.), as amended, and all regulations promulgated thereunder, and “Hazardous Substance” shall mean (a) “hazardous waste”, “hazardous substance”, “hazardous materials,” “extremely hazardous waste,” “acutely hazardous wastes,” “restricted hazardous waste,” “toxic substances,” petroleum products (including crude oil or any fraction thereof) or any other chemical, substance or material which is prohibited, limited or regulated under any Environmental law, and any other hazardous, radioactive, reactive, flammable, infectious, solid wastes, toxic or dangerous substances or materials, or related materials, as defined in, regulated by, or which form the basis of liability now or hereafter under any Environmental Law; (b) asbestos, (c) polychlorinated biphenyls (PCBs); (d) petroleum products or materials; (e) underground storage tanks, whether empty or filled or partially filled with any substance; (f) flammable explosives, (g) any substance the presence of which on the Premises is or becomes prohibited by Environmental Law; (h) urea formaldehyde foam insulation; and (i) any substance which under Environmental Law requires special handling or notification in its use, collection, storage, treatment or disposal. “Release” means any actual or threatened spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, presence, dumping, migrating on or from the Premises or adjacent property, or disposing of Hazardous Substance into the environment.
Section 4.06 Survival. Tenant’s representations, warranties, indemnifications and obligations under this Section shall survive the expiration or termination of this Lease.
ARTICLE 5 RENT
Section 5.01 Monthly Base Rent. Tenant agrees to pay Landlord, as basic rent for the Premises, the Monthly Base Rent in the amounts designated in Paragraph 11 of the Summary, as adjusted, from time to time, pursuant to Section 5.06.
Section 5.02 Additional Rent. Commencing on the date of this Lease, all amounts which Tenant is required to pay or discharge pursuant to this Lease in addition to the Monthly Base Rent, including, but not limited to all sums owed by Tenant to Landlord or paid to third parties by Landlord on behalf of Tenant, together with every fine, penalty, interest and cost which may be added for non-payment or late payment, shall constitute “Additional Rent.” Any amounts paid by Landlord to third parties on behalf of Tenant pursuant to this Lease or to cure any default of Tenant hereunder, including without limitation, Additional Rent, shall bear interest at the Interest Rate from the date Landlord paid such amounts; and further provided, any such obligation of Tenant to pay shall continue to bear interest at the Interest Rate after any breach of this Lease. Additional Rent shall be paid directly to Landlord at the address specified herein, or at such other place as Landlord may designate in writing. If Tenant fails to pay or discharge any Additional Rent, Landlord shall have all rights, powers and remedies provided herein and/or by applicable Law as in the case of non-payment of Rent.
Section 5.03 Payment of Rent. All “Rent” (including, but not limited to Monthly Base Rent and Additional Rent) shall be due in advance monthly installments on the first day of each calendar month during the Term. Rent shall be paid to Landlord at its address recited in Paragraph 2 of the Summary, or to such other person or at such other address as Landlord may from time to time designate in writing. Rent shall be paid without notice, demand, abatement, deduction or offset in legal tender of the United States of America. If the Term commences or ends on other than the first or the last day of a calendar month, the Rent for the partial month shall be prorated on the basis of the number of days during such month for which the Term was in effect.
Section 5.04 Delinquent Payments and Handling Charge. All Rent and other payments required of Tenant hereunder shall bear interest from five (5) business days after the date due until the date paid at the rate of interest specified in Paragraph 15 of the Summary. In no event, however, shall the charges permitted under this Section 5.04 or elsewhere in this Lease, to the extent the same are considered to be interest under applicable law, exceed the maximum rate of interest allowable under applicable law. Tenant acknowledges that late payment by Tenant to Landlord of any amount due under this Lease will cause Landlord to incur costs not contemplated by this Lease, the exact amount of such costs being extremely difficult and impractical to fix. Such costs include, without limitation, processing and accounting charges, and late charges that may be imposed on Landlord by the terms of any encumbrance or note secured by any encumbrancer covering the Premises. Therefore, if any amount due hereunder from Tenant is not received by Landlord within five (5) business days of when due, Tenant shall pay to Landlord, as a late charge, an additional sum of: (i) $2,500.00 for the first such instance of late payment, or (ii) five percent (5%) of the overdue amount for each instance of late payment thereafter. The Parties agree that this late charge represents a fair and reasonable estimate of the costs that Landlord will incur by reason of late payment by Tenant. Acceptance of any late charge shall not constitute a waiver of Tenant’s default with respect to the overdue amount nor prevent Landlord from exercising any of the other rights and remedies of Landlord under this Lease.
Section 5.05 Security Deposit. Concurrently with the commencement of this Lease, Tenant shall deposit with Landlord the Security Deposit (as defined in Paragraph 12 of the Summary) as security for the faithful performance by Tenant under this Lease. The Security Deposit shall be returned (without interest) to Tenant (or, at Landlord's option, to the last permitted assignee of Tenant's interest under this Lease) after the expiration of the Term, or sooner termination of this Lease and delivery of possession of the Premises to Landlord in accordance with ARTICLE 23 if, at such time, Tenant is not in default under this Lease beyond the expiration of applicable notice and cure periods. If Landlord's interest in this Lease is conveyed, transferred or assigned, Landlord shall transfer or credit the Security Deposit to Landlord's successor in interest, and Landlord shall thereafter be released from any liability for the return of the Security Deposit. Landlord may intermingle the Security Deposit with Landlord's own funds and shall not be deemed to be a trustee of the Security Deposit. If Tenant fails to timely pay or perform any obligation under this Lease, Landlord may, after the expiration of any applicable notice and cure periods but prior to, concurrently with or subsequent to exercising any other right or remedy, use, apply or retain all or any part of the Security Deposit for the payment of any monetary obligation due under this Lease, or to compensate Landlord for any other expense, loss or damage which Landlord may incur by reason of Tenant's failure, including any damage or deficiency in the reletting of the Premises. If all or any portion of the Security Deposit is so used, applied or retained, Tenant shall within ten (10) days of receiving notice of such action deposit with Landlord cash in an amount sufficient to restore the Security Deposit to the original amount. Landlord may withhold the Security Deposit after the expiration of the Term or sooner termination of this Lease until Tenant has paid the full Tenant’s share of any Impositions or any other amounts payable by Tenant under this Lease. The Security Deposit is not a limitation on Landlord's damages or other rights under this Lease, a payment of liquidated damages or prepaid Rent, and shall not be applied by Tenant to the Rent for the last (or any) month of the Term, or to any other amount due under this Lease. If this Lease is terminated due to any default of Tenant, any portion of the Security Deposit remaining at the time of such terminations shall immediately inure to the benefit of Landlord to the extent required to compensate Landlord for any unpaid rent or other costs and expenses incurred by Landlord in connection with this Lease as a result of such termination. In the event of bankruptcy or other debtor/creditor proceedings against Tenant, the Security Deposit shall be deemed to be applied first to the payment of rent and other charges due Landlord for all periods prior to the filing of such proceedings.
Section 5.06 Monthly Base Rent Adjustment. On the first day of each Lease Year (after the first Lease Year), the Monthly Base Rent shall be adjusted to be equal to 102.75% of the Monthly Base Rent for the immediately preceding Lease Year calculated by multiplying the current Monthly Base Rent by 1.0275.
ARTICLE 6 UTILITIES
Section 6.01 Tenant’s Obligations. Commencing on Commencement Date, Tenant shall contract in its name and shall pay directly to the utility company, before delinquency, all utility deposits and fees including any present or future installation, hook-up and/or service charges, together with any taxes thereon, for water, electricity, sewage, gas, telephone and any
other utility services supplied to the Premises. Tenant shall not install any equipment which will exceed or overload the capacity of existing utility facilities. If any equipment installed by Tenant (other than equipment installed at the time of construction of a New Improvement (as defined below), which shall be governed by ARTICLE 24) shall require additional utility facilities, Tenant shall first obtain Landlord’s written consent to such installation, which consent shall not be unreasonably withheld, conditioned or delayed, and such installation shall be at Tenant’s expense. Tenant shall be solely responsible to contract in its name and shall pay directly to the respective provider for telephone and internet service to the Premises. Except to the extent caused by the gross negligence or intentional misconduct of Landlord or any of Landlord’s agents, employees, contractors or invitees, Landlord shall not be liable for any interruption or failure in the supply of any utilities to the Premises
Section 6.02 Landlord’s Rights. If any utility charges are not paid when due (taking into account any express grace period), Landlord may pay the same and any amount so paid by Landlord shall be immediately due and owing from Tenant to Landlord as Additional Rent. In the event any utilities are furnished by Landlord, Tenant shall pay Landlord, upon demand, such utility amounts.
ARTICLE 7 CONDITION OF THE PREMISES
Section 7.01 Walk-through. Tenant will, on or before the Commencement Date, conduct with Landlord a walk-through of the Premises at a mutually agreed upon time. To the extent that Tenant observes any condition which does not substantially comply with the terms of this Lease, Tenant shall immediately notify Landlord of the same in writing.
Section 7.02 “AS IS” Condition. As of the Commencement Date, Tenant agrees that, to the best of Tenant’s knowledge, Landlord does not have any obligation to make any improvements to the Premises and Tenant accepts the Premises in their “As-Is” condition. Notwithstanding anything contained in this Section 7.02, Landlord acknowledges its ongoing obligations under this Lease, including Section 9.01; provided, however, Tenant acknowledges and agrees that to the best of Tenant’s knowledge, no such obligations of Landlord under Section 9.01 are due and owing as of the Commencement Date. EXCEPT AS EXPLICITLY PROVIDED FOR HEREIN, AS OF THE COMMENCEMENT DATE, TENANT SHALL BE DEEMED TO ACCEPT THE PREMISES WITHOUT WARRANTIES, EITHER EXPRESS OR IMPLIED. TENANT HEREBY WAIVES ANY AND ALL CLAIMS AGAINST LANDLORD ARISING FROM ANY BREACH OR DEFAULT BY LANDLORD’S PREDECESSOR-IN-INTEREST, WHETHER UNDER THEORIES OF SUCCESSOR LIABILITY OR OTHERWISE.
ARTICLE 8 OPERATION; REPORTING.
Section 8.01 Operation of Premises. Tenant shall utilize first quality trade fixtures and furnishings within the area of the Premises open to customers and the public. For the avoidance of doubt, the trade fixtures and furnishings in the Premises on the Commencement Date (and those of comparable quality) shall satisfy such first quality requirement. Tenant shall not vacate or abandon the Premises at any time during the Term of this Lease, and if Tenant shall abandon,
vacate, cease to operate or surrender the Premises for a period of more than thirty (30) days, or be dispossessed by process of law or otherwise for more than thirty (30) days, property belonging to Tenant left on the Premises, including trade fixtures and personal property, shall be deemed abandoned and shall, at Landlord’s election in its sole discretion, become the property of Landlord.
Section 8.02 Reporting. If required by the Landlord or the Landlord’s Mortgagee (as defined below), and no more than two (2) times per Lease Year, within fifteen (15) days after the request therefore, Tenant shall deliver to Landlord’s Mortgagee a financial statement for the most recent year available reflecting Tenant’s gross revenues and expenditures for the operation of the Premises. Such financial statements shall be prepared in accordance with generally acceptable accounting principles and certified as true in all material respects by an authorized officer, member/manager or general partner of Tenant.
ARTICLE 9 REPAIR AND MAINTENANCE
Section 9.01 Maintenance by Landlord. Landlord, at Landlord’s sole cost, shall repair and replace (upon such items reaching the end of their useful life (if applicable)), the foundation, footings, outer walls, load-bearing walls, roof (both as to structural and watertight integrity), vaults, risers, utility systems (to the point of delivery on each floor), and sewer lateral on the Premises, and the asphalt surface of the parking lot (excluding routine pot hole filling and crack sealing) located on the Land (collectively, “Landlord’s Structural Items”), except to the extent such repairs or replacements are necessitated by the negligence of Tenant or Tenant’s Agents (in which case, Tenant will pay for the proportion of the cost arising from such negligence and Landlord will pay for the remainder). Upon such items reaching the end of their useful life or requiring major repairs (i.e., the repair of any single component, or series of related components, that exceeds $15,000, which amount shall not include routine maintenance items), Landlord, at Landlord’s sole cost, shall replace or repair, as applicable, the HVAC system, elevator system, back-up generators and batteries, drainage systems, exterior downspouts, and exterior gutters (collectively, “Landlord’s Major System Items” and, together with Landlord’s Structural Items, “Landlord’s Maintenance Items”). Notwithstanding the preceding sentence, Tenant shall perform, or cause to be performed, routine maintenance of Landlord’s Major System Items in accordance with Section 9.02. This Section 9.01 shall not apply to damage resulting from a Taking (as to which ARTICLE 14 shall apply), or damage resulting from a casualty (as to which ARTICLE 15 shall apply), or to damage for which Tenant is otherwise responsible under this Lease. If, as a result of any change to Legal Requirements during the Term, any governmental authority requires any repairs, improvements or alterations to be made to Landlord’s Maintenance Items, Landlord shall promptly make and pay for such repairs, improvements and alterations. If Landlord fails to satisfy its obligations under this Section within thirty (30) days of receiving written notice from Tenant, then Tenant may perform on behalf of Landlord, and all of Tenant’s reasonable costs incurred shall be solely borne by Landlord; provided, however, if such obligations cannot be satisfied within such thirty (30) day period, Landlord shall not be in default and Tenant shall not be allowed to perform on behalf of Landlord so long as Landlord commences action to satisfy its obligations under this Section within such thirty (30) day period and thereafter diligently prosecutes such action to completion;
provided, further, that such period shall not be extended beyond sixty (60) days. Except as specifically provided above, Landlord shall not be called upon to make any improvements or repairs in or upon the Premises or the Building during the Term, it being the intention that this Lease shall be what is commonly referred to as a “triple net lease,” Tenant being responsible for all maintenance and repair expenses of every kind and nature, except as otherwise provided herein.
Section 9.02 Maintenance by Tenant. Except as provided otherwise in Section 9.01, Tenant, at Tenant's sole cost and expense, shall maintain the Premises and the Building in first class order, condition and repair, and clean, orderly, sanitary, and safe condition, including without limitation, providing routine maintenance for and replacement of all landscaping, entrances, vestibules, partitions, plate glass, window and window frames and moldings, exterior surfaces of walls, ceiling, floors, glass, doors, door openers, fixtures, lighting, electrical, plumbing, pipes, security system, electrical wiring and conduits, other mechanical systems, and equipment and appurtenances thereof (including without limitation sweeping, janitorial/cleaning, window washing, and routine maintenance and repair, lighting, electrical, plumbing, and snow and ice removal). Furthermore, Tenant, at Tenant's sole cost and expense, shall provide routine maintenance (but not replacement) of the elevator system, the HVAC system (including air conditioning fixtures and systems, air distribution systems, motors, controls, grills, thermostats, filters, and air handling units), and routine pot hole filling and crack sealing on the parking lot surface. Without limiting the foregoing, Tenant assumes all risks from breakage of glass on the Premises and will promptly replace all such breakage at its own expense. With the exception of the Landlord’s Maintenance Items, for which replacement shall be the Landlord’s responsibility in accordance with Section 9.01, if replacement of equipment, fixtures and appurtenances is necessary, Tenant shall replace the same with new and/or completely reconditioned equipment, fixtures and appurtenances, and repair all damages done in or by such replacement. Tenant will not commit or allow to remain any waste or damage to any portion of the Premises. Tenant shall repair or replace, subject to Landlord's direction and supervision, any damage to the Premises (including the structural components and the roof of the Building) caused by the gross negligence or intentional misconduct of Tenant or Tenant's agents, contractors or invitees. If Tenant fails to make such repairs or replacements within thirty (30) days of a written notice by Landlord requesting that Tenant do so (except to the extent such repairs or replacements are an emergency, in which case no notice is required), Landlord may make the same at Tenant's cost; provided, however, if such obligations cannot be satisfied within such thirty (30) day period, Tenant shall not be in default and Landlord shall not be allowed to perform on behalf of Tenant so long as Tenant commences action to satisfy its obligations under this Section within such thirty (30) day period and thereafter diligently prosecutes such action to completion; provided, further, that such period shall not be extended beyond sixty (60) days. Such cost shall be payable to Landlord by Tenant on demand as Additional Rent. Tenant shall enter into a contract with a reputable heating and air conditioning maintenance company for maintenance and repair services for the HVAC system, providing for regular inspection and maintenance of the HVAC system. Upon Landlord’s request, Tenant shall provide Landlord with a copy of the contract and/or copies of all maintenance or repair reports. In addition, Tenant agrees to keep the sidewalks or hallways adjacent to the Premises in a clean and sightly condition. If Tenant does not maintain the Premises as required hereunder, following the expiration of any applicable grace or cure
period expressly provided in this Lease Landlord may, but need not, do so and Tenant shall upon demand pay Landlord’s cost therefore. Tenant hereby waives all right to make repairs at the expense of Landlord as provided under any law, statute or ordinance now or hereafter in effect.
ARTICLE 10 IMPOSITIONS
Section 10.01 Payment of Impositions. Tenant shall pay all real estate, personal property, rental, water, sewer, transit, use, occupancy owners' association and other taxes, assessments, charges, excises and levies (including any interest, cost or penalties with respect thereto), general and special, ordinary and extraordinary, foreseen and unforeseen, of any kind and nature whatsoever which are assessed, levied, charged or imposed upon or with respect to the Premises, or a portion thereof, or the sidewalks, streets or alleyways adjacent thereto, or the ownership, use, occupancy or enjoyment thereof (including but not limited to mortgage taxes and other taxes and assessments passed on to Landlord by any Landlord’s Mortgagee with respect to the Premises), and all charges for any easement, license, permit or agreement maintained for the benefit of the Building and other governmental charges (collectively “Impositions”) accruing or becoming due during the term of this Lease. For those Impositions invoiced directly to Landlord (if any), upon Landlord’s request, Tenant shall pay the entire amount invoiced to Tenant by Landlord on or before five (5) business days before the date such Impositions must be paid, provided that Landlord provides Tenant with at least fifteen (15) days notice prior to when such Imposition must be paid.
Section 10.02 Right to Contest Impositions. Tenant, at its sole cost, shall have the right to contest, in accordance with the provisions of the laws relating to such contests, any real estate taxes, assessments, or other Impositions against the Premises and the failure of Tenant to pay such taxes, assessments, or charges shall not constitute a default by Tenant so long as Tenant complies with the provisions of this Section 10.02. Prior to initiating any contest or proceeding, Tenant shall give Landlord written notice of such contest, or proceeding and shall either deposit with Landlord, or furnish good and sufficient undertaking and sureties designating Landlord as the beneficiary thereof, in such amount as Landlord deems to be sufficient, considering the amount of such taxes, charges, assessments, any potential penalties and interest thereon, and any potential expenses that might be incurred by Landlord with respect thereto. Landlord shall not be required to join in any proceeding or contest brought by Tenant unless the provisions of any law require that the proceeding or contest be brought by or in the name of Landlord or any owner of the Premises. In that case, Landlord shall join in the proceeding or contest or permit such proceeding or contest to be brought in its name as long as Landlord is not required to bear any cost. Tenant, on final determination of the proceeding or contest, shall immediately pay or discharge any decision or judgment rendered, together with all costs, charges, interest and penalties incidental to the decision or judgment.
ARTICLE 11 TRANSFER BY TENANT
Section 11.01 Prohibition on Transfers. Tenant shall not directly or indirectly, absolutely or conditionally, voluntarily or involuntarily, whether by operation of law or otherwise, assign, transfer, mortgage, pledge, or encumber this Lease or any interest therein, and shall not sublet the Premises or any part thereof without the prior written consent of Landlord,
which shall not be unreasonably withheld, conditioned or delayed. Any attempt to assign this Lease or sublet the Premises without such consent shall be voidable by Landlord in its sole discretion. If Tenant desires at any time to assign this Lease or to sublet the Premises or any portion thereof, Tenant shall submit to Landlord, at least sixty (60) days prior to the proposed effective date of the assignment or sublease (“Proposed Effective Date”), in writing: (i) a notice of intention to assign or sublease setting forth the Proposed Effective Date, which shall be no less than sixty (60) days after Landlord’s receipt of such notice; (ii) the name of the proposed subtenant or assignee and a resume setting forth the business experience of the proposed subtenant or assignee; (iii) the nature of the proposed subtenant’s or assignee’s business to be carried on in the Premises; (iv) the terms and provisions of the proposed sublease or assignment; (v) such financial information as Landlord may reasonably require concerning the proposed subtenant or assignee, including but not limited to, a financial statement of the proposed subtenant or assignee compiled by a certified public accountant or otherwise certified to Landlord’s reasonable satisfaction; and (vi) references Landlord may call upon to verify any representations made with respect to the proposed sublessee or assignee, as well as its reputation for timely payment of obligations. Landlord will notify Tenant of its approval or disapproval of the proposed sublease or assignment thirty (30) days prior to the Proposed Effective Date. Notwithstanding anything else to the contrary contained in this Lease or ARTICLE 11, but in all events subject to the provisions of Section 11.03, Tenant may, without the consent of Landlord, assign the Lease or sublease the Premises to any affiliate of Tenant, any corporation or other business entity that acquires all or substantially all of the assets or stock of Tenant or any entity resulting from a merger, consolidation or reorganization of or with Tenant (collectively, a “Permitted Transferee”); provided, however, (i) the intended Permitted Transferee shall have a tangible net worth, as evidenced by financial statements delivered to Landlord and certified by an independent certified public accountant in accordance with generally accepted accounting principles that are consistently applied, that is greater than the Tenant’s tangible net worth as of the Commencement Date; and (ii) the proposed assignment or sublease is not a subterfuge by Tenant to avoid its obligations under this Lease or the restrictions under this ARTICLE 11. Tenant shall have the burden of establishing that all the terms of this Section 11.01 have been satisfied, and any attempted assignment to a Permitted Transferee that fails to meet the terms of this Section 11.01 shall be voidable by Landlord in its sole discretion.
Section 11.02 Fees for Review. In the event Tenant shall apply for an assignment, sublease, or encumbrance under this ARTICLE 11, Tenant shall pay to Landlord at the time Tenant shall apply for such assignment, sublease or encumbrance, the sum of $2,500.00 as a non-refundable fee for Landlord’s time and processing incurred in connection with reviewing such application.
Section 11.03 No Release of Guarantor. No consent by Landlord to any assignment or subletting by Tenant shall relieve Guarantor of any obligation to be performed by Guarantor under this Lease or the Lease Guaranty, whether occurring before or after such consent, assignment or subletting and Guarantor shall remain liable to Landlord under this Lease and the Lease Guaranty notwithstanding any such assignment or subletting. Furthermore, and notwithstanding anything to the contrary contained in this Lease, if Landlord requests in writing such reaffirmance by Guarantor, the effectiveness of any assignment or subletting by Tenant
shall be conditioned upon Guarantor reaffirming Guarantor’s obligations under the Lease Guaranty as to the proposed assignee or sublessee. The acceptance of rent by Landlord from any other person shall not be deemed to constitute consent to any assignment or subletting, or be a waiver by Landlord of any provision, or other transfer or be a release of Guaranty from any obligation under this Lease or the Lease Guaranty. Consent to one assignment, subletting, or other transfer shall not be deemed to constitute consent to any subsequent assignment, subletting, or other transfer.
Section 11.04 Assumption of Obligations. Each assignee or transferee, other than Landlord, shall assume all obligations of Tenant under this Lease and, except in the event of an assignment, sublease or transfer to a Permitted Transferee, shall be and remain liable jointly and severally with Tenant for the payment of rent, and for the due performance of all the terms, covenants, conditions and agreements herein contained on Tenant’s part to be performed for the term of this Lease, including payment of the full amount of rent set forth in the assignment or sublease. No assignment shall be binding on Landlord unless such assignee or Tenant shall deliver to Landlord a counterpart of such assignment which contains a covenant of assumption by the assignee reasonably satisfactory in substance and form to Landlord consistent with the above requirements (but the failure or refusal of the assignee to execute such instrument of assumption shall not release or discharge the assignee from its liability).
Section 11.05 Assignment. For the purpose of this Section, and without limiting the definition of “assignment” each of the following shall constitute an “assignment”: (i) if Tenant is a partnership, a withdrawal or change, voluntary, involuntary, or by operation of law, of any partner or the dissolution of the partnership; (ii) if Tenant consists of more than one person, a purported assignment, voluntary, involuntary, or by operation of law, from one person to another; and (iii) if Tenant is a corporation, any liquidation or dissolution.
Section 11.06 Liens. Without in any way limiting the generality of the foregoing, Tenant shall not grant, place or suffer, or permit to be granted, placed or suffered, against the Building or the Premises or any portion thereof, any lien, security interest, pledge, conditional sale contract, claim, charge or encumbrance (whether constitutional, statutory, contractual or otherwise) and, if any of the aforesaid does arise or is asserted, Tenant will, promptly and at Tenant's expense, cause the same to be released.
ARTICLE 12 ALTERATIONS BY TENANT
Section 12.01 Landlord Approval. Tenant shall not make (or permit to be made) any change, addition or improvement to the Premises (including, without limitation, the attachment of any fixture or equipment or the renovation of the north end of the third floor of the Building) (collectively, “Alterations”) unless such Alteration (a) equals or exceeds the Building standard and utilizes only new and first-grade materials and (b) is in conformity with all Legal Requirements, and is made after obtaining any required permits and licenses. Notwithstanding the foregoing to the contrary, Tenant may make non-structural, Cosmetic Alterations to the Premises without Landlord’s consent. “Cosmetic Alterations” shall mean Alterations that, in the aggregate, do not exceed $500,000.00 in cost per Lease Year. Tenant may only make Alterations that are not Cosmetic Alterations if each such Alteration (i) is made with prior
written consent of Landlord, (ii) to the extent the scope of the Alteration reasonably requires plans and specifications, is made pursuant to plans and specifications approved in advance by Landlord and prepared by a person approved in advance by Landlord, (iii) is made after Tenant has provided to Landlord such indemnification, insurance, and/or bonds requested by Landlord, including, without limitation, a performance and completion bond in such form and amount as may be satisfactory to Landlord to protect against claims and liens for labor performed and materials furnished, and to insure the completion of any change, addition or improvement, (iv) is carried out by persons approved by Landlord who, if required by Landlord, deliver to Landlord before commencement of their work proof of such insurance coverage as Landlord may require, with Landlord named as an additional insured. The parties acknowledge and agree that Tenant may elect at some point during the Term to renovate (in accordance with the terms of this Section 12.01, including any requirements for Landlord’s approval) the previously un-renovated portion of the north end of the third floor of the Building to better match the design, layout and finish of the remainder of the Building, which renovation may include the removal of the existing walls, bathrooms, fireplaces, wood paneling and other fixtures. Landlord and Tenant acknowledge and agree that Tenant shall be allowed to penetrate the roof membrane of the Premises in such area(s) approved in writing by Landlord; provided, however, that an independent roofing contractor, approved by Landlord, which approval shall not be unreasonably withheld, conditioned or delayed, shall seal such roof membrane penetration(s) at Tenant’s sole cost and expense. All Alterations (including all articles attached to the floor, wall or ceiling of the Premises) shall become the property of Landlord and shall, at Landlord's election, be (1) surrendered with the Premises as part thereof at the termination or expiration of the Term, without any payment, reimbursement or compensation therefor, or (2) if and to the extent Landlord indicated to Tenant in writing at the time Landlord consented to an Alteration that Landlord desired for such Alteration to be removed upon expiration of the Term, removed by Tenant at Tenant's expense with all damage caused by such removal repaired by Tenant. Tenant may remove Tenant's trade fixtures, office supplies, movable office furniture and equipment not attached to the Building, provided such removal is made prior to the expiration of the Term, no uncured Event of Default has occurred and Tenant promptly repairs all damage caused by such removal. Tenant shall indemnify, defend and hold harmless Landlord from and against all liens, claims, damages, losses, liabilities and expenses, including attorneys' fees, which may arise out of, or be connected in any way with, any such change, addition or improvement. Any consents or approvals to be given by Landlord in this Section 12.01 will not be unreasonably withheld, conditioned or delayed.
Section 12.02 Manner of Construction. All construction performed on or with respect to the Premises by Tenant or its designee shall be performed in a good and workmanlike and in a first-class manner, and in accordance with the plans approved by Landlord and with all applicable permits, authorizations, laws, ordinances, orders, regulations and requirements of all governmental authorities having jurisdiction of the Premises. Tenant shall carry “Builder’s All Risk” insurance in a reasonable amount to cover any construction performed on or with respect to the Premises by Tenant or its designee. Any Alterations involving adhesives (including, but not limited to, adhesives for carpet, carpet tile, plastic laminate, wall coverings, adhesives for wood, or sealants) shall be those with the lowest possible volatile organic compounds (VOC) content and which meet the requirement of the manufacturer of the products adhered or involved.
Tenant shall use adhesives and sealants with no formaldehyde or heavy metals. Adhesives and other materials used for the installation of carpets shall be limited to those having a flash point of 140 degrees F or higher. Newly installed gypsum board material must be Greenguard Gold Certified or have 0 grams per liter of VOCs. Any painted walls shall be painted with low VOC primer. Notwithstanding the foregoing and subject to compliance with all Environmental Law, which now or at any time hereafter may be applicable to the Premises or any part thereof, Tenant shall be permitted to use any adhesive, sealant, gypsum board and paint that has historically been used in the Building. Upon request, Tenant will provide Landlord with material safety data sheets (MSDS) or other appropriate documents for the following products, adhesives, caulking, sealants, insulating materials, fireproofing or fire stopping materials, paints and wall coverings, carpets, floor coverings, ceiling materials, floor and wall patching or leveling materials, lubricants, clear finishes for wood surfaces, janitorial cleaning products, and pest control products. All MSDS shall comply with Occupational Safety and Health Administration (OSHA) requirements. Tenant will comply with all recommended measures in the MSDS for the products used to protect the health and safety of personnel.
Section 12.03 Materialmen, Lien Claims. Tenant shall promptly pay all contractors and materialmen, so as to eliminate the possibility of a lien attaching to the Premises or any improvements constructed thereon. Tenant shall require any contractor or other person performing work on the Premises to be licensed by the state in which the Premises are located and, prior to Tenant’s commencement of Alterations in excess of $100,000, to obtain a performance, completion and payment bond naming Landlord as additional oblige and releasing the Premises from any lien claimed, which bond shall be in an amount equal to 110% of the estimated cost of such work. Tenant may contest the validity and/or amount of any lien imposed on the Premises, provided Tenant has caused such lien to be released of record by payment or posting of a proper bond. If Tenant shall be in default in paying any charge for which a bond or other lien claim has been filed and shall not have given Landlord security to protect the Premises and Landlord, then Landlord may, but shall not be obligated to, pay the claim. Any costs and attorneys’ fees incurred by Landlord in connection therewith, shall be immediately due and owing from Tenant to Landlord.
ARTICLE 13 ACCESS BY LANDLORD
Landlord and its employees shall have the right (and Landlord hereby reserves the right) to enter the Premises during business hours (a) at Tenant’s request, to inspect, repair, perform surveys of, or perform environmental investigations of, the Premises or the Building, (b) upon 48 hours’ written or verbal notice to Tenant, to show the Premises to bona fide prospective purchasers of the Building (or, during the last six (6) months of the Term, to prospective tenants of the Premises), or (c) upon 48 hours’ written or verbal notice (such notice to include the names and titles of the entering individuals) to Tenant (except in the case of emergency) to inspect and repair the Premises as reasonably necessary for Landlord to perform its obligations under Section 9.01. Entry into the Premises by Landlord in accordance with this ARTICLE 13 shall not constitute a trespass or an eviction (constructive or otherwise), or entitle Tenant to any abatement or reduction of Rent, or constitute grounds for any claim for damages for any injury to or interference with Tenant's business, for loss of occupancy or quiet enjoyment, or for
consequential damages. Except as expressly permitted in this ARTICLE 13, Landlord and its employees shall not enter the Premises during the Term. During the last six (6) months of the Term, Tenant shall permit Landlord to place upon the Premises signs advertising the Premises for sale, rent or lease.
ARTICLE 14 CONDEMNATION
If all of the Premises is Taken, or if so much of the Premises is Taken that, in the Agreed Opinion of the Parties (as defined below), the remainder cannot be restored to an economically viable, quality office building, or if the awards payable to Landlord as a result of any Taking are, in the Agreed Opinion of the Parties, inadequate to restore the remainder to an economically viable, quality office building, Landlord or Tenant may, at its election, exercisable by the giving of written notice to the other party within sixty (60) days after the date of the Taking, terminate this Lease as of the date of Taking or the date Tenant is deprived of possession of the Premises (whichever is later). If this Lease is not terminated as a result of a Taking, Landlord shall restore the Premises remaining after the Taking to a Building standard condition. During the period of restoration, Monthly Base Rent shall be abated proportionately to the extent the Premises are rendered untenantable and, after the period of restoration, Monthly Base Rent shall be proportionately reduced to the extent that the area of the Premises Taken or otherwise rendered untenantable bears to the area of the Premises just prior to the Taking. If any portion of Monthly Base Rent is abated under this ARTICLE 14, Landlord may elect to extend the expiration date of the Term for the period of the abatement. All awards, proceeds, compensation or other payments from or with respect to any Taking of the Premises or any portion thereof shall belong to Landlord, and Tenant hereby assigns to Landlord all of its right, title, interest and claim to same. Whether or not this Lease is terminated as a consequence of a Taking, all damages or compensation awarded for a partial or total Taking, including any award for severance damage and any sums compensating for diminution in the value of or deprivation of the leasehold estate under this Lease, shall be the sole and exclusive property of Landlord. Tenant may assert a claim for and recover from the condemning authority, but not from Landlord, such compensation as may be awarded on account of Tenant's moving and relocation expenses, and depreciation to and loss of Tenant's moveable personal property. Tenant shall have no claim against Landlord for the occurrence of any Taking, or for the termination of this Lease or a reduction in the Premises as a result of any Taking. As used herein, “Taking” or “Taken” shall mean the actual or constructive condemnation (including any temporary taking for a period of one year or longer), or the actual or constructive acquisition by or under the threat of condemnation, eminent domain or similar proceeding, by or at the direction of any governmental authority or agency. The “Agreed Opinion of the Parties” shall mean the agreed opinion of Landlord and Tenant after review and discussion of the circumstances, and if an agreed opinion cannot be reached by them then it shall mean the opinion of a qualified, independent third party hired by Landlord and Tenant (sharing the expense) to review the circumstances and form an opinion.
ARTICLE 15 CASUALTY
Section 15.01 General. Tenant shall give prompt notice to Landlord of any casualty to the Premises. If the Premises are totally destroyed, or the Premises are partially destroyed but in
the Agreed Opinion of the Parties they cannot be restored to an economically viable, quality office building, or if the insurance proceeds actually paid to Landlord as a result of any casualty are, in the Agreed Opinion of the Parties, inadequate to restore the portion remaining to an economically viable, quality office building, Landlord or Tenant may, at its election exercisable by the giving of written notice to the other party within sixty (60) days after the casualty, terminate this Lease as of the date of the casualty or the date Tenant is deprived of possession of the Premises (whichever is later). If this Lease is not terminated as a result of a casualty, Landlord shall (subject to Section 15.02) restore the Premises to a Building standard condition. During the period of restoration, Monthly Base Rent shall be abated proportionately to the extent the Premises are rendered untenantable and, after the period of restoration, Monthly Base Rent shall be proportionately reduced to the extent that the area of the Premises remaining tenantable after the casualty bears to the area of the Premises just prior to the casualty. If any portion of Monthly Base Rent is abated under this Section 15.01, Landlord may elect to extend the expiration date of the Term for the period of the abatement. Except for abatement of Monthly Base Rent, if any, Tenant shall have no claim against Landlord for any loss suffered by reason of any such damage, destruction, repair or restoration, nor may Tenant terminate this lease as the result of any statutory provision in effect on or after the date of this Lease pertaining to the damage and destruction of the Premises or the Building. The proceeds of all insurance carried by Tenant with respect to the Premises, excluding Tenant’s insurance on Tenant's furnishings, trade fixtures, leasehold improvements, equipment, merchandise and other personal property, shall be made available to Landlord for the purpose of the repair and replacement of the Building or, in the event that this Lease is terminated as a result of a casualty, shall be made available to Landlord or Landlord’s Mortgagee. Landlord shall not be required to repair any damage to or to make any restoration of any furnishings, trade fixtures, leasehold improvements, equipment, merchandise and other personal property installed in the Premises by Tenant or at the direct or indirect expense of Tenant.
Section 15.02 Acts of Tenant. Notwithstanding any provisions of this Lease to the contrary, if the Premises or the Premises are damaged or destroyed as a result of a casualty primarily arising from the acts or omissions of Tenant, or any of Tenant's officers, directors, shareholders, partners, employees, contractors, agents, invitees or representatives, (a) Tenant's obligation to pay Rent (including, but not limited to, Monthly Base Rent and Additional Rent) and to perform its other obligations under this Lease shall not be abated, reduced or altered in any manner, (b) Landlord shall not be obligated to repair or restore the Premises or the Premises, and (c) subject to Section 17.02, Tenant shall be obligated, at Tenant's cost, to repair and to restore the Premises or the Premises to the condition they were in just prior to the damage or destruction under the direction and supervision of, and to the satisfaction of, Landlord and any Landlord's Mortgagee.
ARTICLE 16 SUBORDINATION AND ATTORNMENT
Section 16.01 General. This Lease, Tenant's leasehold estate created hereby, and all Tenant's rights, titles and interests hereunder and in and to the Premises are subject and subordinate to any Mortgage presently existing or hereafter placed upon all or any portion of the Premises. Notwithstanding the foregoing, the subordination of this Lease to any mortgage shall
be conditioned upon the delivery to Tenant of a “Subordination, Non-Disturbance and Attornment Agreement” (“SNDA”) from Landlord’s Mortgagee, on such form as may be required by Landlord’s Mortgagee, and which provides, inter alia, that so long as Tenant is not in default hereunder (beyond any applicable notice and cure period) and attorns to Landlord’s Mortgagee or any successor-in-title thereto in the event of a foreclosure or deed-in-lieu of foreclosure, Tenant’s rights under this Lease, including its right of possession of the Premises, shall not be disturbed. Landlord and Landlord's Mortgagee may, at any time upon the giving of written notice to Tenant and without any compensation or consideration being payable to Tenant, make this Lease, and the aforesaid leasehold estate and rights, titles and interests, superior to any Mortgage. Upon the written request by Landlord or by Landlord's Mortgagee to Tenant, and within ten (10) days of the date of such request, and without any compensation or consideration being payable to Tenant, Tenant shall execute, have acknowledged and deliver a SNDA meeting the abovementioned requirements that confirms that this Lease, Tenant's leasehold estate in the Premises and all of Tenant's rights, titles and interests hereunder are subject and subordinate (or, at the election of Landlord or Landlord's Mortgagee, superior) to the Mortgage benefiting Landlord's Mortgagee. As used in this Lease, the term “Landlord's Mortgagee” shall mean the mortgagee of any mortgage, the beneficiary of any deed of trust, the pledgee of any pledge, the secured party of any security interest, the assignee of any assignment and the transferee of any other instrument of transfer (including the ground lessor of any ground lease on the Land) now or hereafter in existence on all or any portion of the Premises, and their successors, assigns and purchasers and “Mortgage” shall mean any such mortgage, deed or trust, pledge, security agreement, assignment or transfer instrument, including all renewals, extension and rearrangements thereof and of all debts secured thereby.
Section 16.02 Attornment. Upon the written request of any person or party succeeding to the interest of Landlord under this Lease, Tenant shall automatically become the tenant of and attorn to such successor in interest without any change in any of the terms of this Lease. No successor in interest shall be (a) bound by any payment of Rent for more than one month in advance, except payments of security for the performance by Tenant of Tenant's obligations under this Lease, or (b) subject to any offset, defense or damages arising out of a default or any obligations of any preceding Landlord. Tenant shall from time to time, if so requested by Landlord and if doing so will not materially and adversely affect Tenant's economic interests, rights or obligations under this Lease, join with Landlord in amending this Lease so as to meet the needs or requirements of any lender that is considering making or that has made a loan secured by all or any portion of the Premises.
ARTICLE 17 INSURANCE
Section 17.01 General. Tenant shall obtain and maintain throughout the Term the following policies of insurance:
(a) Commercial general liability insurance with a combined single limit for bodily injury and property damage of not less than Five Million Dollars ($5,000,000) per occurrence and Five Million Dollars ($5,000,000.00) aggregate, including, without
limitation, contractual liability coverage for the performance by Tenant of the indemnity agreements set forth in ARTICLE 18;
(b) Insurance covering the Building and any other improvements on the Premises, including boiler insurance and Tenant's leasehold improvements and personal property in or upon the Premises in an amount not less than one hundred percent (100%) of full replacement cost, providing protection against any peril generally included within the classification "Fire and Extended Coverage", together with insurance against sprinkler damage, vandalism and malicious mischief and a standard inflation guard endorsement. Tenant hereby assigns Landlord any and all proceeds payable with respect to such policies except to the extent such proceeds are payable with respect to any property that would remain the property of Tenant upon the termination of this Lease; provided, however, that to the extent required pursuant to the provisions of this ARTICLE 17, such proceeds shall be applied to the repair and restoration of the Premises.
(c) Worker's compensation insurance satisfying Tenant's obligations under the worker's compensation laws of the State of Utah.
(d) Business Interruption Insurance which shall provide Landlord coverage for the loss of rent payable hereunder for a period of at least one hundred eighty (180) days.
(e) Such other policy or policies of insurance as Landlord may reasonably require (including without limitation, flood insurance) or as Landlord is then requiring from one or more other tenants in the Building.
Such minimum limits shall in no event limit the liability of Tenant under this Lease. Such liability insurance shall name Landlord, and any other person specified from time to time by Landlord, as an additional insured; such property insurance shall name Landlord as a loss payee as Landlord's interests may appear; and both such liability and property insurance shall be with companies acceptable to Landlord, having a rating of not less than A:XII in the most recent issue of Best's Key Rating Guide, Property-Casualty. All liability policies maintained by Tenant shall contain a provision that Landlord and any other additional insured, although named as an insured, shall nevertheless be entitled to recover under such policies for any loss sustained by Landlord and Landlord's agents and employees as a result of the acts or omissions of Tenant. Tenant shall furnish Landlord with certificates of coverage. No such policy shall be cancelable or subject to reduction of coverage or other modification except after thirty (30) days' prior written notice to Landlord by the insurer. All such policies shall be written as primary policies, not contributing with and not in excess of the coverage which Landlord may carry, and shall only be subject to such deductibles as may be approved in advance by Landlord. Tenant shall, at least ten (10) days prior to the expiration of such policies, furnish Landlord with renewals of, or binders for, such policies. Tenant shall cause all other occupants of the Premises claiming by, through or under Tenant to execute and deliver to Landlord a waiver of claims similar to the waiver contained in this Section and to obtain such waiver of subrogation rights endorsements. At Landlord’s request, any Landlord's Mortgagee shall be afforded coverage under any policy required to be secured by Tenant under this Lease by use of a mortgagee's endorsement to the policy concerned.
Section 17.02 Waiver of Subrogation. Landlord and Tenant each hereby waive any right of recovery against the other (Tenant’s waiver of subrogation shall be in favor of Landlord and Landlord’s Mortgagee (if notified by Landlord)) and the partners, members, shareholders, officers, directors and authorized representatives of the other for any loss or damage that is covered by any policy of property insurance maintained by either party (or required by this Lease to be maintained) with respect to the Premises or the Building or any operation therein. If any such policy of insurance relating to this Lease or to the Premises or the Building does not permit the foregoing waiver or if the coverage under any such policy would be invalidated as a result of such waiver, the party maintaining such policy shall obtain from the insurer under such policy a waiver of all right of recovery by way of subrogation against either party in connection with any claim, loss or damage covered by such policy. Tenant hereby waives all claims, rights of recovery and causes of action that Tenant or any party claiming by, through or under Tenant may now or hereafter have by subrogation or otherwise against Landlord or against any of Landlord's officers, directors, members, shareholders, members, partners or employees for any loss or damage that may occur to the Premises, the Premises, Tenant's improvements or any of the contents of any of the foregoing by reason of fire or other casualty, or by reason of any other cause except gross negligence or willful misconduct, that could have been insured against under the terms of the fire and extended coverage insurance policies required to be obtained and maintained under this ARTICLE 17. Landlord and Tenant shall cause an endorsement to be issued to their respective insurance policies recognizing this waiver of subrogation.
ARTICLE 18 TENANT’S INDEMNITY.
Tenant shall defend, indemnify and hold harmless Landlord and Landlord's officers, directors, shareholders, members, partners and employees from and against liabilities, obligations, losses, damages, penalties, claims, actions, suits, costs, expenses and disbursements (including court costs and reasonable attorneys' fees) resulting from any injuries to or death of any person or damage to any property occurring during the Term in or about the Premises and primarily resulting from Tenant’s actions or occupancy on the Premises (including without limitation such injuries, death or damage resulting from Tenant’s company parties) (excluding any injuries, death or damage resulting from Landlord’s gross negligence or willful misconduct). The indemnity granted in this Section shall extend to any additional insurance premium charged to Landlord for any insurance policy by reason of Tenant’s failure to comply with Section 4.03 and/or the Legal Requirements; provided, that such indemnity shall not be Landlord’s exclusive remedy, nor shall it limit or compromise any other rights granted Landlord by this Lease or by law or equity. Nothing contained in this ARTICLE 18 shall be construed or deemed in any way to increase the scope of Tenant’s use set forth in Section 4.01 of this Lease.
ARTICLE 19 THIRD PARTIES; ACTS OF FORCE MAJEURE
Landlord shall have no liability to Tenant, or to Tenant's officers, directors, shareholders, partners, employees, agents, contractors or invitees, for bodily injury, death, property damage, business interruption, loss of profits, loss of trade secrets or other tenant or such other direct or consequential damages occasioned by (a) the acts or omissions of any other tenant's officers, directors, shareholders, partners, employees agents, contractors or other invitees within the
Premises, (b) Force Majeure, (c) vandalism, theft, burglary and other criminal acts (other than those committed by Landlord and its employees), (d) water leakage, or (e) the repair, replacement, maintenance, damage, destruction or relocation of the Premises. As used herein, the term “Force Majeure” shall mean any strikes, riots, acts of God, shortages of labor or materials, war, governmental laws, regulations or restrictions or any other causes of any kind whatsoever which are beyond the reasonable control of Landlord.
ARTICLE 20 QUIET ENJOYMENT
Provided Tenant has performed all its obligations under this Lease, Tenant shall and may peaceably and quietly have, hold, occupy, use and enjoy the Premises during the Term subject to the provisions of this Lease. Landlord shall warrant and defend for the Term of this Lease Tenant's right to occupancy of the Premises against the claims of any and all persons whosoever lawfully claiming the same or any part thereof, by, through or under Landlord, but not otherwise, subject to the provisions of this Lease. Landlord will cooperate with Tenant to enforce its exclusive use hereunder.
ARTICLE 21 DEFAULT BY TENANT
Section 21.01 Events of Default. Each of the following occurrences shall constitute Event of Default (herein so called):
(a) The failure of Tenant to pay Rent as and when due hereunder and continuance of such failure for a period of five (5) business days or more after written notice from Landlord to Tenant specifying the failure; provided, any such notice shall be in lieu of, and not in addition to, any statutory unlawful detainer notice provided for in the state in which the Premises are located.
(b) The failure of Tenant to perform, comply with or observe any other term, condition or provision in this Lease (including without limitation, Tenant’s obligations not to assign this Lease or sublet the Premises in contravention of Section 11.01), and the continuance of such failure for a period of fifteen (15) days after written notice from Landlord to Tenant specifying the failure;
(c) The abandonment of the Premises by Tenant or the failure of Tenant to occupy the Premises for more than thirty (30) days;
(d) The filing of a petition by or against Tenant (the term "Tenant" also meaning, for the purpose of this ARTICLE 21, any guarantor of the named Tenant's obligations hereunder) (1) in any bankruptcy or other insolvency proceeding, (2) seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution or other relief of the same or different kind under any provision of the United States Bankruptcy Code, codified at 11 U.S.C. §§ 101 et seq. as amended (the “Bankruptcy Code”) or any similar debtor relief law, or (3) for the appointment of a liquidator or receiver for all or substantially all of Tenant's property or for Tenant's interest in this Lease;
(e) Tenant making a general assignment for the benefit of creditors;
(f) The admission by Tenant in writing, signed by an authorized signatory, that it cannot meet its obligations as they become due or the making by Tenant of an assignment for the benefit of its creditors; or
(g) Tenant’s failure to cause a release, within fifteen (15) business days after receipt by Tenant of a notice informing Tenant of the filing of any lien arising out of any work performed, materials furnished, or obligations incurred by or for Tenant, which has been filed against the Premises.
Section 21.02 Remedies of Landlord. Upon any Event of Default, Landlord may, at Landlord's option and in addition to all other rights, remedies and recourse afforded Landlord hereunder or by law or equity, do any one or more of the following:
(a) At Landlord's option and without waiving any default by Tenant, Landlord shall have the right to continue this Lease in full force and effect and to collect all Monthly Base Rent, Additional Rent, and any other amounts to be paid by Tenant under this Lease as and when due. During any period that Tenant is in default, Landlord shall have the right, pursuant to legal proceedings or pursuant to any notice provided for by law, to enter and take possession of the Premises, without terminating this Lease, for the purpose of reletting the Premises or any part thereof and making any alterations and repairs that may be necessary or desirable in connection with such reletting. Any such reletting or relettings may be for such term or terms (including periods that exceed the balance of the term of this Lease), and upon such other terms, covenants and conditions as Landlord may in Landlord's sole discretion deem advisable. If the rent or rents received during any month and applied as provided above shall be insufficient to cover all such amounts including the Monthly Base Rent and any other amounts to be paid by Tenant pursuant to this Lease for such month, Tenant shall pay to Landlord any deficiency; such deficiencies shall be calculated and paid monthly. No entry or taking possession of the Premises by Landlord shall be construed as an election by Landlord to terminate this Lease, unless Landlord gives written notice of such election to Tenant or unless such termination shall be decreed by a court of competent jurisdiction. Notwithstanding any reletting by Landlord without termination, Landlord may at any time thereafter terminate this Lease for such previous default by giving written notice thereof to Tenant.
(b) Terminate Tenant's right to possession by notice to Tenant, in which case this Lease shall terminate and Tenant shall immediately surrender possession of the Premises to Landlord. In such event Landlord shall be entitled to recover from Tenant all damages incurred by Landlord by reason of Tenant's default, including without limitation the following: (1) all unpaid Rent which has been earned at the time of such termination plus (2) the amount by which the unpaid Rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that is proved could have been reasonably avoided; plus (3) any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform Tenant's
obligations under this Lease, or in addition to or in lieu of the foregoing such damages as may be permitted from time to time under applicable State law. Upon any such re-entry Landlord shall have the right to make any reasonable repairs, alterations or modifications to the Premises, which Landlord in Landlord's sole discretion deems reasonable and necessary.
(c) If an Event of Default specified in Section 21.01(c) occurs, Landlord may remove and store any property that remains on the Premises and, if Tenant does not claim such property within sixty (60) days after Landlord has delivered to Tenant notice of such storage, Landlord may appropriate, sell, destroy or otherwise dispose of the property in question without notice to Tenant or any other person, and without an obligation to account for such property.
Section 21.03 Payment by Tenant. Upon any Event of Default, Tenant shall also pay to Landlord all costs and expenses incurred by Landlord, including court costs and reasonable attorneys' fees, in (a) retaking or otherwise obtaining possession of the Premises, (b) removing and storing Tenant's or an other occupant's property, (c) repairing, restoring, altering, remodeling or otherwise putting the Premises into condition acceptable to a new tenant or tenants, (d) reletting all or a part of the Premises, (e) paying or performing the underlying obligation which Tenant failed to pay or perform, and (f) enforcing any of Landlord's rights, remedies of recourse arising as a consequence of the Event of Default. If Landlord elects to enter and take possession of the Premises, without terminating this Lease, Landlord may recover from Tenant:
(a) The unpaid Rent which had been earned at the time of Landlord’s entry and possession;
(b) Any other amounts owed by Tenant to Landlord as of the time of Landlord’s entry and possession; and
(c) Any other amounts that a court of competent jurisdiction, whether acting as part of an initial proceeding or supplemental proceeding, deems necessary or appropriate under applicable Law to compensate Landlord for Tenant’s failure to perform its obligations under this Lease.
Section 21.04 Chapter 7 Bankruptcy. In the event that Tenant shall become a debtor in a case filed under Chapter 7 of the United States Bankruptcy Code, and Tenant’s trustee or Tenant shall elect to assume this Lease for the purpose of assigning the same or otherwise, such election and assignment may be made only if the provisions of this Section are satisfied. If Tenant or Tenant's trustee shall fail to elect to assume this Lease within sixty (60) days after the filing of such petition or such additional time as provided by the court within such 60-day period, this Lease shall be deemed to have been rejected. Immediately thereupon Landlord shall be entitled to possession of the Premises without further obligation to Tenant or Tenant's trustee and this Lease, upon the election of Landlord, shall terminate, but Landlord's right to be compensated for damages in any such proceeding shall survive whether or not this Lease is terminated.
Section 21.05 Chapter 11 Bankruptcy. In the event that Tenant shall become a debtor in a case filed under Chapter 7 of the Bankruptcy Code which is transferred to Chapter 11, Tenant’s trustee or Tenant, as debtor-in-possession, must elect to assume this Lease within one hundred and twenty (120) days from the date of the filing of the petition under Chapter 11 or transfer thereto, or Tenant’s trustee or the debtor-in-possession shall be deemed to have rejected this Lease. In the event that Tenant, Tenant’s trustee or the debtor-in-possession has failed to perform all of Tenant's obligations under this Lease within the time periods (excluding grace periods) required for such performance, no election by Tenant’s trustee or the debtor-in-possession to assume this Lease, whether under Chapter 7 or Chapter 11, shall be permitted or effective unless each of the following conditions has been satisfied:
(a) Tenant’s trustee or the debtor-in-possession has cured all defaults under the Lease, or has provided Landlord with Adequate Assurance (as defined below) that it will cure all defaults susceptible of being cured by the payment of money within ten (10) days from the date of such assumption and that it will cure all other defaults under this Lease which are susceptible of being cured by the performance of any act promptly after the date of such assumption.
(b) Tenant’s trustee or the debtor-in-possession has compensated, or has provided Landlord with Adequate Assurance that within ten (10) days from the date of such assumption it will compensate Landlord for any actual pecuniary loss incurred by Landlord arising from the default of Tenant, Tenant’s trustee, or the debtor-in-possession, indicated in any statement of actual pecuniary loss sent by Landlord to Tenant’s trustee or the debtor-in-possession.
(c) Tenant’s trustee or the debtor-in-possession has provided Landlord with Adequate Assurance of the future performance of each of the obligations under this Lease of Tenant, Tenant's trustee or the debtor-in-possession, and if Tenant’s trustee or the debtor-in-possession has provided such Adequate Assurance, Tenant’s trustee or the debtor-in-possession shall also deposit with Landlord, as security for the timely payment of rent hereunder, an amount equal to six (6) monthly installment payments of the minimum rent, which shall be applied to the last installments of minimum rent that shall become due under this Lease, provided all the terms and provisions of this Lease shall have been complied with. The obligations imposed upon Tenant’s trustee or the debtor-in-possession by this subsection (c) shall continue with respect to Tenant or any assignee of this Lease after the completion of bankruptcy proceedings.
(d) Such assumption will not breach or cause a default under any provision of any other lease, mortgage, financing agreement or other agreement by which Landlord is bound relating to the Premises. For purposes of this Section, Landlord and Tenant acknowledge that “Adequate Assurance” shall mean no less than: Tenant’s trustee or the debtor-in-possession has and will continue to have sufficient unencumbered assets after the payment of all secured obligations and administrative expenses to assure Landlord that sufficient funds will be available to fulfill the obligations of Tenant under this Lease and there shall have been deposited with Landlord, or the Bankruptcy Court
shall have entered an order segregating sufficient cash payable to Landlord, and/or Tenant’s trustee or debtor-in-possession shall have been granted a valid and perfected first lien and security interest and/or mortgage in property of Tenant, Tenant’s trustee or the debtor-in-possession, acceptable as to value and kind to Landlord, to secure to Landlord the obligation of Tenant, Tenant’s trustee or the debtor-in-possession to cure the defaults under this Lease, monetary and/or non-monetary, within the time periods set forth above.
Section 21.06 Subsequent Petitions. In the event that this Lease is assumed in accordance with this ARTICLE 21, and thereafter Tenant is liquidated or files or has filed against it a subsequent petition under Chapter 7 or Chapter 11 of the Bankruptcy Code, Landlord may, at its option, terminate this Lease and all rights of Tenant hereunder, by giving Tenant notice of its election to so terminate within thirty (30) days after the occurrence of either of such events.
Section 21.07 Adequate Assurance of Future Performance by Assignee. If Tenant’s trustee or the debtor-in-possession has assumed the Lease pursuant to the terms and provisions of this Section for the purposes of assigning (or elects to assign) this Lease, this Lease may be so assigned only if the proposed assignee has provided Adequate Assurance of Future Performance of all of the terms, covenants and conditions of this Lease to be performed by Tenant. Landlord shall be entitled to receive all cash proceeds of such assignment. As used herein, “Adequate Assurance of Future Performance” shall mean that no less than each of the following conditions has been satisfied:
(a) The proposed assignee has furnished Landlord with either (i) a current financial statement audited by a certified public accountant indicating a net worth and working capital in amounts which Landlord reasonably determines to be sufficient to assure the future performance by such assignee, or (ii) guarantees, in form and substance satisfactory to Landlord, from one or more persons with a net worth which Landlord reasonably determines to be sufficient to secure Tenant’s obligations hereunder, and information with respect to the proposed assignee’s management ability, expertise and experience in Tenant’s business and Landlord has reasonably determined that the proposed assignee has the management expertise and experience to operate the business conducted on the Premises.
(b) Compliance with the provisions of 11 U.S.C. § 365(b)(3)(A) through and including (D).
(c) With respect to 11 U.S.C. § 365(b)(3)(C), Landlord shall not be required to obtain any consents or waivers from any third party under any lease, mortgage, financing agreement or other agreement for the breach of any provisions contained therein, or, if such consents are necessary, Landlord has obtained all consents or waivers from others required under any lease, mortgage, financing arrangement or other agreement by which Landlord is bound to permit Landlord to consent to such assignment without violating the terms of any such agreements.
(d) When, pursuant to the Bankruptcy Code, Tenant's trustee or the debtor-in-possession shall be obliged to pay reasonable use and occupancy charges for the use of the Premises, such charges shall not be less than the minimum rent, Common Area expenses and other charges due hereunder.
Section 21.08 Reletting. Upon termination of this Lease or upon termination of Tenant's right to possession of the Premises, Landlord shall use reasonable efforts to relet the Premises on such terms and conditions as Landlord in its sole discretion may determine (including a term different than the Term, rental concession, and alterations to and improvements of the Premises). Landlord shall not be liable for, nor shall Tenant's obligations hereunder be diminished because of, Landlord's failure to relet the Premises or collect rent due with respect to such reletting. If Landlord relets the Premises, rent Landlord receives from such reletting shall be applied to the payment of: first, any indebtedness from Tenant to Landlord other than Rent (if any); second, all costs, including for maintenance and alterations, incurred by Landlord in reletting; and third, Rent due and unpaid. In no event shall Tenant be entitled to the excess of any rent obtained by reletting over the Rent herein reserved.
Section 21.09 Landlord’s Right to Pay or Perform. Upon an Event of Default, Landlord may, but without obligation to do so and without thereby waiving or curing such Event of Default, pay or perform the underlying obligation for the account of Tenant, and enter the Premises and expend the Security Deposit, if any, and any other sums for such purpose.
Section 21.10 No Waiver; No Implied Surrender. Provisions of this Lease may only be waived by the party entitled to the benefit of the provision evidencing the waiver in writing. Thus, neither the acceptance of Rent by Landlord following an Event of Default (whether known to Landlord or not), nor any other custom or practice followed in connection with this Lease, shall constitute a waiver by Landlord or Tenant of such Event of Default or another Event of Default. Further, the failure by Landlord to complain of any action or inaction by Tenant, or to assert that any action or inaction by Tenant constitutes (or would constitute, with the giving of notice and the passage of time) an Event of Default, regardless of how long such failure continues, shall not extinguish, waive or in any way diminish the rights, remedies and recourse of Landlord with respect to such action or inaction. No waiver by Landlord of any provision of this Lease or of any breach by Tenant of any obligation of Tenant hereunder shall be deemed to be a waiver of any other provisions hereof, or of any subsequent breach by Tenant of the same or any other provision hereof. Landlord's consent to any act by Tenant requiring Landlord's consent shall not be deemed to render unnecessary the obtaining of Landlord's consent to any subsequent act of Tenant. No act or omission by Landlord (other than Landlord's execution of a document acknowledging such surrender) or Landlord's agents, including the delivery of the keys to the Premises, shall constitute an acceptance of a surrender of the Premises.
ARTICLE 22 DEFAULT BY LANDLORD
Landlord shall not be in default under this Lease, and Tenant shall not be entitled to exercise any right, remedy or recourse against Landlord or otherwise as a consequence of any alleged default by Landlord under this Lease, unless Landlord fails to perform any of its obligations hereunder and said failure continues for a period of thirty (30) days after Tenant
gives Landlord written notice thereof specifying, with reasonable particularity, the nature of Landlord's failure. If, however, the failure cannot reasonably be cured within the thirty (30) day period, Landlord shall not be in default hereunder if Landlord or Landlord's Mortgagee commences to cure the failure within the thirty (30) days and thereafter pursues the curing of same diligently to completion. In no event shall Tenant have the right to levy execution against any property of Landlord or its agents, officers, directors, shareholders, partners or principals, other than their interest in the Premises, in the event of any default by Landlord under this Lease. The foregoing shall not limit any right that Tenant might have to obtain specific performance of Landlord's obligations hereunder.
ARTICLE 23 RIGHT OF RE-ENTRY
Section 23.01 Surrender of Premises. Upon the expiration or termination of the Term for whatever cause, or upon the exercise by Landlord of its right to re-enter the Premises without terminating this Lease, Tenant shall immediately, quietly and peaceably surrender to Landlord possession of the Premises in "broom clean" and good order, condition and repair, except only for ordinary wear and tear, damage by casualty not covered by Section 15.02 and repairs to be made by Landlord pursuant to Section 15.01. If Tenant is in default under this Lease, Landlord shall have a lien on such personal property, trade fixtures and other property as set forth in Section 38-3-1, et seq., of the Utah Code Ann. (or any replacement provision). Landlord may require Tenant to remove any personal property, trade fixtures, other property, alterations, additions and improvements made to the Premises by Tenant or by Landlord for Tenant, and to restore the Premises to their condition on the date of this Lease. All personal property, trade fixtures and other property of Tenant not removed from the Premises on the abandonment of the Premises or on the expiration of the Term or sooner termination of this Lease for any cause shall, at Landlord’s option, conclusively be deemed to have been abandoned and may be appropriated, sold, stored, destroyed or otherwise disposed of by Landlord without notice to, and without any obligation to account to, Tenant or any other person. Tenant shall pay to Landlord all expenses incurred in connection with the disposition of such property in excess of any amount received by Landlord from such disposition. Tenant shall not be released from Tenant's obligations under this Lease in connection with surrender of the Premises until Landlord has inspected the Premises and delivered to Tenant a written release. If Tenant fails to surrender possession of the Premises in the condition herein required, Landlord may, at Tenant's expense, restore the Premises to such condition.
Section 23.02 Hazardous Substances. No spill, deposit, emission, leakage or other release of Hazardous Substance in the soils, groundwaters or waters shall be deemed to result in either wear and tear that would be normal for the term of the Lease; or a casualty to the Premises. Tenant shall be responsible to promptly and completely cleanup any such release as shall occur on the Premises during the term of the Lease and shall surrender the Premises free of any contamination or other damage caused by such occurrence during the term of the Lease. Tenant's obligation to clean up the Premises pursuant to the provisions of this ARTICLE 23 shall survive the expiration or other termination of this Lease.
ARTICLE 24 NEW IMPROVEMENTS
Section 24.01 New Improvements. At any time during the Term of this Lease, so long as Tenant is not in default under this Lease beyond any applicable notice and cure period at the time of exercise, Tenant may opt, in Tenant’s sole discretion, to add additional space to the Building or add a new building, parking structure, or other improvement to the Premises (each, a “New Improvement”), on one or more occasions. In such event, Tenant shall provide to Landlord plans and specifications for the proposed New Improvement. Landlord shall review the New Improvement, and within thirty (30) days of receipt of such plans and specifications shall either approve or disapprove of such New Improvement, such approval not to be unreasonably withheld, conditioned or delayed. Concurrently therewith, Landlord shall also notify Tenant whether it will construct the New Improvement itself (“Construction by Landlord”) or let Tenant construct the New Improvement (“Construction by Tenant”). If Landlord fails to submit such notice to Tenant within thirty (30) days, Landlord shall be deemed to have elected Construction by Tenant. Landlord and Tenant agree to work together in good faith to secure any necessary approvals from Landlord’s Mortgagee (but only for a Mortgage existing at the time of Tenant’s submission of plans and specifications for the proposed New Improvement) and any other legally required third parties (e.g., city zoning commissions), as necessary to enable construction of a New Improvement, whether completed as Construction by Landlord or Construction by Tenant. Any approvals required of Landlord’s Mortgagee under this ARTICLE 24 shall be required only if Landlord’s Mortgagee requires them and only in connection with Landlord’s Mortgagee acting in its capacity as an existing mortgagee on the Premises. Notwithstanding anything to the contrary contained herein, Landlord’s failure to obtain the requisite approvals from Landlord’s Mortgagee (acting in its capacity as an existing mortgagee on the Premises) or other legally required third parties, despite Landlord’s good faith efforts, shall not constitute a default of Landlord under this ARTICLE 24, and Tenant acknowledges and agrees that no construction of a New Improvement shall be permitted or required without any such necessary approval. In the event that Landlord unsuccessfully seeks construction financing from a lender in connection with construction of a New Improvement, as provided for under Section 24.03, then Landlord shall be deemed to have elected Construction by Tenant. In the event that Landlord successfully obtains construction financing from a lender in connection with Construction by Landlord of a New Improvement, Tenant and Landlord acknowledge and agree that such construction lender may impose commercially reasonable approval conditions (that are standard or common in connection with such financings) in connection with periodic loan disbursements in accordance with the terms of the underlying construction loan agreement. Any approvals required of Tenant and/or Landlord under this ARTICLE 24 shall be made without being unreasonably withheld, conditioned or delayed. Landlord agrees to use good faith efforts to obtain Landlord’s Mortgagee’s approval, and Landlord shall endeavor to require Landlord’s Mortgagee to not unreasonably withhold, condition or delay its approval.
Section 24.02 Construction by Tenant. The provisions of this Section 24.02 shall apply only in the event of Construction by Tenant. Tenant may, in its discretion, elect to cancel the New Improvement or construct the New Improvement at Tenant’s sole cost and expense. In the event Tenant proceeds with construction, Landlord will cooperate with Tenant to obtain all necessary approvals and permits, at no cost to Landlord. Upon the date of occupancy of the New
Improvement, the parties shall modify this Lease to include the New Improvement as part of the Premises; however, the Monthly Base Rent under this Lease shall not increase in connection with Construction by Tenant of a New Improvement. In the event of Construction by Tenant, Tenant shall reimburse Landlord for all of Landlord’s reasonable and actual costs incurred in connection with the construction of such New Improvements, including without limitation, any engineering, architectural, or design review fees or costs, legal fees incurred by Landlord and construction management and supervision fees in connection with such New Improvements.
Section 24.03 Construction by Landlord. The provisions of this Section 24.03 shall apply only in the event of Construction by Landlord. Landlord shall promptly commence construction of the New Improvement and diligently pursue such construction to prompt completion, at Landlord’s sole cost and expense. In the event that Landlord seeks to obtain financing for construction of the New Improvement but is unable to do so within ninety (90) days of receiving plans and specifications for the New Improvement from Tenant (provided that if Landlord begins seeking financing within thirty (30) days of receiving plans and specifications and works diligently to obtain financing thereafter, then such ninety (90) day period shall be extended to one hundred twenty (120) days), then Landlord may elect to proceed with Construction by Tenant instead, by notifying Tenant in writing of such election on or before the last day of such period. Upon the date of occupancy of the New Improvement, the parties shall modify this Lease to (i) include the New Improvement as part of the Premises and (ii) increase the Monthly Base Rent amount payable by an amount equal to 0.75% (i.e., 9% annually, divided by 12 months) multiplied by Landlord’s total construction costs for the New Improvement (which costs shall include hard and soft costs, costs relating to obtaining necessary permits and zoning approvals, reasonable legal fees, building fixtures and furnishings, construction period interest, real estate taxes and sewer and water charges and utilities, design and engineering and other "pre-development costs" and construction period professional management and supervision fees). By way of example, if Landlords total construction costs for a New Improvement were $10,000,000, then the additional Monthly Base Rent would be $75,000 (($10,000,000*9.0%)/12 months = $75,000). The additional Monthly Base Rent resulting from a New Improvement will continue to increase over the Term in accordance with Section 5.06 hereof. The amount of the Security Deposit shall proportionately increase as a result of any increase in the Monthly Base Rent pursuant to this Section 24.03. For the avoidance of doubt, there will not be any additional increase in the Monthly Base Rent due to an increase in the value of the Land that is already part of the Premises.
Section 24.04 Construction Standards. All work with respect to the construction of New Improvements shall be done (1) in a good and workmanlike manner, (2) using only new, first class quality materials that are consistent and compatible in design and quality with the existing Building, (3) in accordance with plans and specifications approved by Tenant, Landlord and Landlord’s Mortgagee, and all applicable state, county, and municipal laws and ordinances, (4) in accordance with a timeline and critical path schedule approved by Tenant, Landlord and Landlord’s Mortgagee, (5) in accordance with a budget (including any modifications to the budget) and expenses that are approved by Tenant, Landlord and Landlord’s Mortgagee, and (6) in the event of Construction by Tenant, subject to the insurance, indemnity and bonding requirements of ARTICLE 12 (Alterations by Tenant) ARTICLE 17 (Insurance) and ARTICLE
18 (Tenant’s Indemnity). Prior to delivery of possession of a New Improvement to Tenant, all persons who have performed work or provided materials for the design, engineering or construction of a New Improvement shall have been paid in full, and the requisite lien releases and lien waivers from all such persons providing labor or materials (or any such liens shall have been bonded over to the Owner's satisfaction) shall be obtained by Landlord in the event of Construction by Landlord, or by Tenant in the event of Construction by Tenant, as the case may be. All work with respect to the construction of the New Improvement shall be done pursuant to a construction contract approved by Tenant, Landlord and Landlord’s Mortgagee and with a contractor approved by Tenant, Landlord and Landlord’s Mortgagee and engaged pursuant to a competitive bidding process. The construction of a New Improvement shall be completed in substantial accordance with the approved plans and specifications, including all punchlist items and warranty work. In the event of Construction by Landlord, Tenant shall have the right to hire, at Tenant’s sole cost and expense, a construction advisor or other professional to supervise, inspect and approve construction of New Improvements.
Section 24.05 Term Extension. Upon the date of substantial completion of any New Improvement, the then-current Term of this Lease shall be amended to be the greater of (i) the then-remaining existing Term of the Lease (excluding options to extend), or (ii) the period from the date of occupancy of the New Improvement to the date falling ten (10) years thereafter. Additionally, Tenant shall thereafter have six (6) five (5)-year options to extend the Term of the Lease, each of which it may exercise, so long as Tenant is not in default under this Lease beyond any applicable notice and cure period at the time of exercise, by providing written notice of extension to Landlord on or before the date that is one hundred eighty (180) days prior to the expiration of the Term (as so extended). During any such extended Term, the Monthly Base Rent will continue to increase annually pursuant to Section 5.06 hereof. Except with respect to the calculation of Monthly Base Rent (which shall be performed in accordance with this ARTICLE 24), upon completion of a New Improvement, the term “Building” as used throughout this Lease shall be modified to include such New Improvement. Except as modified in this ARTICLE 24 (with respect to the calculation of Monthly Base Rent, definition of Building, scope of the Premises, and Term), all terms and conditions of this Lease will apply to any New Improvement.
ARTICLE 25 GENERAL PROVISIONS
Section 25.01 Independent Obligations; No Offset. The obligations of Tenant to pay Rent and to perform the other undertakings of Tenant hereunder constitute independent unconditional obligations to be performed at the times specified hereunder, regardless of any breach or default by Landlord hereunder. Tenant shall have no right, and Tenant hereby waives and relinquishes all rights which Tenant might otherwise have, to claim any nature of lien against the Premises or to withhold, deduct form or offset against any Rent or other sums to be paid to Landlord by Tenant.
Section 25.02 Time of Essence. Time is of the essence with respect to each date or time specified in this Lease by which an event is to occur.
Section 25.03 Applicable Law. THIS LEASE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF UTAH. ALL MONETARY AND OTHER OBLIGATIONS OF LANDLORD AND TENANT ARE PERFORMABLE IN THE COUNTY WHERE THE PREMISES IS LOCATED.
Section 25.04 Assignment by Landlord. Landlord shall have the right to assign, in whole or in part, any or all of its rights, titles or interests in and to the Premises or this Lease and, upon any such assignment, Landlord shall be relieved of all unaccrued liabilities and obligations hereunder to the extent of the interest so assigned.
Section 25.05 Estoppel Certificates. Tenant shall, from time to time and within fifteen (15) days of written request from either Landlord or Landlord's Mortgagee, and without compensation or consideration execute, have acknowledged and deliver a certificate setting forth the following: (a) the Commencement Date and expiration date; (b) that this Lease is in full force and effect and has not been assigned, modified, supplemented or amended (except by such writing as shall be stated); (c) that this Lease, as modified, supplemented or amended (if such is the case) constitutes the complete agreement between Landlord and Tenant with respect to the Premises, the Building, and the Premises, (d) the amount of advance Rent, if any (or none if such is the case), paid by Tenant; (e) the date to which Rent has been paid; and (f) the amount of the Security Deposit, if any. Landlord's Mortgagee and purchasers from either Landlord's Mortgagee or Landlord shall be entitled to rely on any estoppel certificate executed by Tenant.
Section 25.06 Signs. Subject to applicable law, the Legal Requirements, and all agreements of record, Tenant may place signs on the Premises; provided, such signage shall be of a neat character and design, consistent with the character and design of the Premises. Prior to installation or erection of any sign at the Premises, Tenant shall, at its cost, obtain all necessary consents, permits and approvals from all applicable governmental authorities. Tenant shall, at is sole cost and expense, maintain its signs in good and presentable condition and shall remove the same upon the expiration or termination of this Lease and repair any damage caused by such removal.
Section 25.07 Holding Over. Should Tenant, or any of its successors in interest, hold over the Premises, or any part thereof, after the expiration of the Term, then in addition to Landlord's other rights and remedies at law or in equity, unless otherwise agreed in writing, such holding over shall constitute and be construed as tenancy from month to month only, terminable on thirty (30) days’ written notice by either Party to the other, at a rental equal to one hundred twenty five percent (125%) of the Rent payable for the last month of the Lease Term for the first thirty (30) days of such Tenant holdover. Thereafter, Tenant shall become a tenant of sufferance at a rental equal to one hundred fifty percent (150%) of the Rent payable for the last month of the Lease Term. The holding over by Tenant for any part of a month shall entitle Landlord to collect the Rent called for under this Section 25.07 for the entirety of such month. The inclusion of this Section 25.07 shall not be construed as Landlord's consent for the Tenant to hold over. If Tenant fails to surrender the Premises upon the termination of this Lease, Tenant shall indemnify and hold Landlord harmless from loss or liability resulting from such failure, including, without
limiting the generality of the foregoing, any claims made by any succeeding tenant arising out of such failure.
Section 25.08 Notices. All notices and other communications given pursuant to this Lease shall be in writing and shall either be (i) mailed by first class United States mail, postage prepaid, registered or certified with return receipt requested, and addressed as set forth in this Section 25.08 (with an electronic copy to any listed email addresses), or (ii) delivered in person to the intended addressee (with an electronic copy to any email addresses set forth in this Section 25.08). Notice given pursuant to clause (i) shall be effective two (2) business days after deposit. Notice given pursuant to clause (ii) shall be effective upon receipt by the intended addressee. For the purposes of notice, the address of (a) Landlord shall be the address specified in Paragraph 2 of the Summary with required copies to:
Timp Campus LLC
and (b) Tenant shall be the address specified in Paragraph 4 of the Summary, with required copies to:
Steven E. Tyler, Esq
Holland & Hart LLP
222 South Main, Suite 2200
Salt Lake City, UT 84101
Each party shall have the continuing right to change its address for notice hereunder by the giving of fifteen (15) days' prior written notice to the other party in accordance with this Section 25.08.
Section 25.09 Entire Agreement; Binding Effect. This Lease constitutes the entire agreement between Landlord and Tenant relating to the subject matter hereof, and all prior agreements relative hereto which are not contained herein are terminated. This Lease may be amended only by a written document duly executed by Landlord and Tenant (and, if a Mortgage is then in effect, by the Landlord's Mortgagee entitled to the benefits thereof), and any alleged amendment which is not so documented shall not be effective as to either party. The provision of this Lease shall be binding upon and inure to the benefit of the parties hereto and their heirs, executors, administrators, successors and assigns; provided, however, that this Section 25.09 shall not negate, diminish or alter the restrictions on Transfer applicable to Tenant set forth elsewhere in this Lease.
Section 25.10 Severability. This Lease is intended to be performed in accordance with and only to the extent permitted by all Legal Requirements. If any provision of this Lease or the application thereof to any person or circumstances shall, for any reason and to any extent, be invalid or unenforceable, but the extent of the invalidity or unenforceability does not destroy the basis of the bargain between the parties as contained herein, the remainder of this Lease and the application of such provision to other persons or circumstances shall not be affected thereby, but rather shall be enforced to the greatest extent permitted by law.
Section 25.11 Number and Gender; Captions and References. Number and Gender, Captions and References. As the context of this Lease may require, pronouns shall include natural persons and legal entities of every kind and character, the singular number shall include the plural, and the neuter shall include the masculine and the feminine gender. Section headings in this Lease are for convenience of reference only and are not intended, to any extent and for any purpose, to limit or define any section hereof. Whenever the terms "hereof," "hereby," "herein," "hereunder," or words of similar import are used in this Lease, they shall be construed as referring to this Lease in its entirety rather than to a particular section or provision, unless the context specifically indicates to the contrary. Any reference to a particular "Section" shall be construed as referring to the indicated section of this Lease.
Section 25.12 Attorney’s Fees. In the event either party commences a legal proceeding to enforce an of the terms of this Lease, the prevailing party in such action shall have the right to recover reasonable attorneys" fees and costs from the other party, to be fixed by the court in the same action. "Legal proceedings" includes appeals from a lower court judgment as well as proceedings in the Federal Bankruptcy Court (“Bankruptcy Court”), whether or not they are adversary proceedings or contested matters. The “prevailing party” (a) as used in the context of proceedings in the Bankruptcy Court means the prevailing party in an adversary proceeding or contested matter, or any other actions taken by the non-bankrupt party which are reasonably necessary to protect its rights under this Lease, and (b) as used in the context of proceedings in any court other than the Bankruptcy Court means the party that prevails in obtaining a remedy or relief which most nearly reflects the remedy or relief which the party sought; so that, for example, the prevailing party may be a party which is ordered to pay One Hundred Dollars ($100) where the obligation to pay Eighty Dollars ($80) was undisputed and the claiming party alleged that it was entitled to One Thousand Dollars ($1,000).
Section 25.13 Brokers. Tenant and Landlord hereby warrant and represent unto the other that it has not incurred or authorized any brokerage commission, finder's fees or similar payments in connection with this Lease, other than as disclosed in Paragraph 14 of the Summary. Each party shall defend, indemnify and hold the other harmless from and against any claim for brokerage commission, finder's fees or similar payment arising by virtue of authorization of such party, or any Affiliate of such party, in connection with this Lease.
Section 25.14 Authority. The person executing this Lease on behalf of Tenant personally warrants and represents to landlord that (a) Tenant is a duly organized and existing legal entity, in good standing in the State of Utah, (b) Tenant has full right and authority to execute, deliver and perform this Lease, (c) the person executing this Lease on behalf of Tenant was authorized to do so, and (d) upon request of Landlord, such person will deliver to Landlord satisfactory evidence of his or her authority to execute this Lease on behalf of Tenant.
Section 25.15 Recording. Neither this Lease (including any Exhibit hereto) nor any memorandum hereto shall be recorded without the prior written consent of Landlord.
Section 25.16 Multiple Counterparts; Exhibits. This Lease may be executed electronically and/or in two or more counterparts, each of which shall be an original, but all of
which shall constitute but one instrument. All Exhibits and written addenda hereto are incorporated herein for any and all purposes.
Section 25.17 Miscellaneous. No amendment to this Lease shall be binding on Landlord or Tenant unless reduced to writing and signed by both parties. Each provision to be performed by Tenant shall be construed to be both a covenant and a condition. Venue on any action arising out of this Lease shall be proper only in the District Court of Utah County, State of Utah and/or the United States District Court for the District of Utah. The submission of this Lease to Tenant is not an offer to lease the Premises for Tenant. Landlord shall not be bound to Tenant until Tenant has duly executed and delivered duplicate copies of this Lease to Landlord and Landlord has duly executed and delivered one of those duplicate copies to Tenant
Section 25.18 Right of First Refusal. In the event that, during the Term, a third party shall submit a bona fide offer in writing (hereinafter referred to as the “Offer”), to Landlord for the purchase of all or any part of the Property and Landlord intends to accept such Offer, so long as Tenant is not in default under this Lease beyond any applicable notice and cure period at the time of exercise, then the following procedures shall apply:
(a) Landlord shall within a reasonable amount of time deliver a copy of such Offer to the Tenant (the “Notice”).
(b) Tenant shall have ten (10) days after receiving the Notice in which to advise Landlord in writing whether or not Tenant accepts the offer to purchase the Property or portion thereof that was the subject of the Offer on the same terms and conditions as contained in the Offer. Failure by the Tenant to advise Landlord with respect to the Offer within the aforesaid period shall be deemed to be a rejection of the Offer.
(c) In the event that Tenant does not accept the Offer pursuant to subsection (b) above, Landlord shall be free to sell the applicable portion of the Property described in the Offer to the party who made the original offer, free and clear of the encumbrance of this Right of First Refusal for a period of six (6) months after the acceptance of the Offer by Landlord, on the same terms as the Offer provided to Tenant.
Section 25.19 Lease Guaranty. Concurrently with the execution of this Lease, Tenant shall obtain and provide to Landlord a “Lease Guaranty,” in the form attached hereto as Exhibit A, signed and acknowledged by the “Guarantor” described therein, whereby the Guarantor guarantees payment and performance of the obligations of Tenant under this Lease. The Lease Guaranty is an integral part of this Lease and constitutes consideration given to Landlord to enter into this Lease. If Tenant fails to provide such Lease Guaranty as required in this Section 25.19, Landlord may terminate this Lease at any time upon delivery of written notice to Tenant, with such termination being effective immediately upon Tenant’s receipt of such notice.
Section 25.20 No Partnership. Landlord shall not in any way or for any purpose be deemed a partner, joint venturer, or member of any joint enterprise with Tenant.
Section 25.21 Subtenancies. The voluntary or other surrender of this Lease by Tenant or a mutual cancellation of this Lease shall not affect a merger and shall, at Landlord’s option, terminate all existing subtenancies or operate as an assignment to Landlord of any or all of such subtenancies.
Section 25.22 Assignment of Rents and Profits. In the event of default by Tenant hereunder, including, but not limited to, a default regarding rent or other charges due hereunder, Tenant hereby grants to and confers upon Landlord the right, power and authority to collect all rents and profits received by Tenant as a direct result of the possession by Tenant of the Premises. Such amounts shall include, but shall not be limited to, amounts due under sublease, license or concessionaire arrangements relating to the Premises. Upon any such default, Landlord shall have the right to collect such rents and profits, including those past due and unpaid. Landlord’s collection of such rents and profits shall not cure, waive or satisfy any default or notice of default hereunder.
Section 25.23 Waiver of Jury Trial. Landlord and Tenant each acknowledges that it is aware of and has had the advice of counsel of its choice with respect to its rights to trial by jury under the constitutions of the United States and the State in which the Premises are located, and each Party hereby expressly and knowingly waives and releases all such rights to trial by jury in any action, proceeding or counterclaim brought by either Party against the other (or against their officers, directors, employees, agents or subsidiary or affiliated entities) on any matters whatsoever arising out of or in any way connected with this Lease, and any dispute arising from or connected with such matter shall not be tried by jury.
Section 25.24 Confidentiality. Landlord and Tenant agree to exercise commercially reasonable efforts to maintain the confidentiality of, and not intentionally disclose, the business terms of this Lease, other than (a) as required by law, (b) to attorneys, accountants and other professionals, and (c) to entities controlling, controlled by, or under common control with Landlord or Tenant; provided, however, that Landlord may disclose the terms of this Lease to any individual or entity acquiring Landlord’s interest in the Premises.
Section 25.25 Tenant’s Certification.
(a) Certification. Tenant certifies that: (1) it is not acting, directly or indirectly, for or on behalf of any person, group, entity, or nation named by any Executive Order of the United States Treasury Department as a terrorist, Specially Designated National and Blocked Person, or other banned or blocked person, entity, nation, or transaction pursuant to any law, order, rule, or regulation that is enforced or administered by the Office of Foreign Assets Control; and (2) it has not executed this Lease, directly or indirectly on behalf of, or instigating or facilitating this Lease, directly or indirectly on behalf of, any such person, group, entity, or nation.
(b) Indemnification. Tenant hereby agrees to defend, indemnify, and hold harmless Landlord from and against any and all claims, damages, losses, risks, liabilities, and expenses (including attorney’s fees and costs) arising from or related to any breach of the foregoing certification in Section 25.25(a).
THE SUBMISSION OF THIS LEASE FOR EXAMINATION OR ITS NEGOTIATION OR THE NEGOTIATION OF THE TRANSACTION DESCRIBED HEREIN DOES NOT CONSTITUTE AN OFFER TO LEASE, AND THE EXECUTION OF THIS LEASE BY EITHER PARTY DOES NOT CONSTITUTE A BINDING CONTRACT UNTIL SUCH TIME AS THIS LEASE HAS BEEN EXECUTED BY AN AUTHORIZED REPRESENTATIVE OF BOTH PARTIES.
[SIGNATURES ON FOLLOWING PAGE]
EXECUTED as of the day and year first above written.
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LANDLORD:
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TIMP CAMPUS LLC,
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a Wyoming limited liability company
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By:
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/s/ Matthew Ireland
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Name:
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Matthew Ireland
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Title:
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Manager
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TENANT:
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QUALTRICS, LLC,
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a Delaware limited liability company
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By:
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/s/ Blake Tierney
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Name:
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Blake Tierney
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Title:
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Director, Legal
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EXHIBIT A
GUARANTY OF LEASE
THIS GUARANTY OF LEASE (this “Guaranty”) is made as of October 15, 2018, (the “Effective Date”) by QUALTRICS INTERNATIONAL INC., a Delaware corporation (“Guarantor”), in favor of TIMP CAMPUS LLC, a Wyoming limited liability company (“Landlord”).
RECITALS:
A.QUALTRICS, LLC, a Delaware limited liability company (“Tenant”), and Landlord have entered into that certain Lease (the “Lease”), dated October 15, 2018, with respect to the property as described therein (the “Premises”).
B.Guarantor has a financial interest in Tenant or an interest in ensuring Tenant’s successful business operations at the Premises.
C.Landlord would not execute the Lease if Guarantor did not execute and deliver to Landlord this Guaranty.
NOW THEREFORE, for and in consideration of the above recitals (which are hereby incorporated into this Guaranty by this reference), the execution of the Lease by Landlord and as a material inducement to Landlord to execute the Lease, Guarantor hereby agrees as follows:
AGREEMENT:
1.Guarantor absolutely, presently, continually, unconditionally and irrevocably guarantees the prompt payment by Tenant of all rentals and all other sums payable by Tenant under the Lease and the faithful and prompt performance by Tenant of each and every one of the terms, conditions and covenants of the Lease to be kept and performed by Tenant.
2.It is specifically agreed and understood that the terms, covenants and conditions of the Lease may be altered, affected, modified, amended, compromised, released or otherwise changed by agreement between Landlord and Tenant, or by course of conduct and Guarantor does guarantee and promise to perform all of the obligations of Tenant under the Lease as so altered, affected, modified, amended, compromised, released or changed and the Lease may be assigned by or with the consent of Landlord or any assignee of Landlord with notice to Guarantor and that this Guaranty shall thereupon and thereafter guaranty the performance of the Lease as so changed, modified, amended, compromised, released, altered or assigned.
3.This Guaranty shall not be released, modified or affected by failure or delay on the part of Landlord to enforce any of the rights or remedies of Landlord under the Lease, whether pursuant to the terms thereof or at law or in equity, or by any release of any person liable under the terms of the Lease (including, without limitation, Tenant) or any other guarantor, from any liability with respect to Guarantor’s obligations hereunder.
4.Guarantor’s liability under this Guaranty shall continue until all rents due under the Lease have been paid in full in cash and until all other obligations of Tenant to Landlord have been satisfied, and shall not be altered by virtue of any payment by Tenant of any amount due under the Lease. If all or any portion of Tenant’s obligations under the Lease is paid or performed by Tenant, the obligations of Guarantor hereunder shall continue and remain in full force and effect in the event that all or any part of such payment(s) or performance(s) is avoided or recovered directly or indirectly from Landlord as a preference, fraudulent transfer or otherwise.
5.Guarantor warrants and represents to Landlord that Guarantor now has and will continue to have full and complete access to any and all information concerning the Lease, the value of the assets owned or to be
acquired by Tenant, Tenant’s financial status and its ability to pay and perform the obligations owed to Landlord under the Lease. Guarantor further warrants and represents that Guarantor has reviewed and approved copies of the Lease and is fully informed of the remedies Landlord may pursue, with or without notice to Tenant, in the event of default under the Lease. So long as any of Guarantor’s obligations hereunder remains unsatisfied or owing to Landlord, Guarantor shall keep fully informed as to all aspects of Tenant’s financial condition and the performance of such obligations.
6.Guarantor hereby covenants and agrees with Landlord that if a default shall at any time occur in the payment of any sums due under the Lease by Tenant or in the performance of any other obligation of Tenant under the Lease, Guarantor shall and will forthwith upon written demand pay such sums, and any arrears thereof, to Landlord in legal currency of the United States of America for payment of public and private debts, and take all other reasonable actions necessary to cure such default and perform such obligations of Tenant.
7.The liability of Guarantor under this Guaranty is a guaranty of payment and performance and not of collection, and is not conditioned or contingent upon the pursuit by Landlord of any remedies which it now has or may hereafter have with respect to the Lease, at law, in equity or otherwise.
8.Guarantor hereby waives and agrees not to assert or take advantage of, to the extent permitted by law: (i) all notices to Guarantor, to Tenant, or to any other person, including, but not limited to, notices of the creation, renewal, extension, assignment, modification or accrual of any of the obligations owed to Landlord under the Lease, the enforcement of any right or remedy with respect thereto, and notice of any other matters relating thereto, (ii) notice of acceptance of this Guaranty; (iii) demand of payment, presentation and protest; (iv) any right to require Landlord to apply to any default any security deposit or other security it may hold under the Lease; (v) any and all defenses relating to Landlord’s failure to perfect a security interest in Tenant’s property and/or impairment of collateral; (vi) any statute of limitations affecting Guarantor’s liability hereunder or the enforcement thereof; (vii) any right or defense that may arise by reason of the incapability, lack or authority, death or disability of Tenant or any other person; and (viii) all principles or provisions of law which conflict with the terms of this Guaranty. Guarantor further agrees that Landlord may enforce this Guaranty upon the occurrence of a default under the Lease, notwithstanding any dispute between Landlord and Tenant with respect to the existence of such default or performance of the obligations under the Lease or any counterclaim, set-off or other claim which Tenant may allege against Landlord with respect thereto. Moreover, Guarantor agrees that Guarantor’s obligations shall not be affected by any circumstances which constitute a legal or equitable discharge of a guarantor or surety. Notwithstanding the Guarantor’s waivers under this Guaranty, Landlord agrees that if the original Tenant assigns all or any part of its interest under the Lease or subleases all or any part of the Premises in accordance with the terms and conditions of the Lease, then from and after the date that Landlord receives written notice of such assignment or sublease, Landlord will exercise reasonable commercial efforts to notify Guarantor of any defaults by Tenant, or of any creation, renewal, extension, assignment, modification, or accrual of any of the obligations owed to Landlord under the Lease.
9.Guarantor agrees that Landlord may enforce this Guaranty without the necessity of proceeding against Tenant or any other guarantor. Guarantor hereby waives the right to require Landlord to proceed against Tenant, to proceed against any other guarantor, to exercise any right or remedy under the Lease or to pursue any other remedy or to enforce any other right.
10.(a) Guarantor agrees that nothing contained in this Guaranty shall prevent Landlord from suing on the Lease or from exercising any rights available to it thereunder and that the exercise of any of such rights shall not constitute a legal or equitable discharge of Guarantor. In addition, Guarantor agrees that Landlord (not Tenant) shall have the right to designate the portion of Tenant’s obligations under the Lease that is satisfied by a partial payment by Tenant.
(b) Guarantor agrees that Guarantor shall have no right of subrogation against Tenant or any right of contribution against any other guarantor hereunder unless and until all amounts due under the Lease have been paid in full and all other obligations under the Lease have been satisfied. Guarantor further agrees that, to the extent the waiver of Guarantor’s rights of subrogation and contribution as set forth herein is found by a court of
competent jurisdiction to be void or voidable for any reason, any rights of subrogation Guarantor may have against Tenant shall be junior and subordinate to any rights Landlord may have against Tenant, and any rights of contribution Guarantor may have against any other guarantor shall be junior and subordinate to any rights Landlord may have against such other guarantor. Without limiting the generality of the above, if now or hereafter Tenant becomes insolvent, Guarantor hereby forever waives and relinquishes in favor of Landlord and Tenant and their respective successors, any claim or right to payment Guarantor may now or may hereafter have or acquire against Tenant by subrogation or otherwise. In the event of insolvency and subsequent liquidation of the assets of Tenant, through bankruptcy, by assignment for the benefit of creditors, by voluntary liquidation or otherwise, the assets of Tenant applicable to the payment of the claims of both Landlord and Guarantor shall be paid to Landlord and shall be first applied by Landlord to the obligations of Guarantor described in Section 1 of this Guaranty. Guarantor shall indemnify and hold harmless Landlord from and against any preference liability as well as the costs of defending a preference suit in a bankruptcy case or proceeding involving Tenant. Guarantor hereby waives any right of indemnity, reimbursement, contribution or subrogation from Tenant.
(c) The obligations of Guarantor under this Guaranty shall not be altered, limited or affected by any case or proceeding, voluntary or involuntary, involving the bankruptcy, insolvency, receivership, reorganization, liquidation or arrangement of Tenant or any defense which Tenant may have by reason of order, decree or decision of any court or administrative body resulting from any such case or proceeding, including, but not limited to, the effect of any deemed or actual rejection of the Lease by Tenant, as a debtor-in-possession, or its trustee in bankruptcy. Landlord shall have the sole right to accept or reject any plan on behalf of Guarantor proposed in such case or proceeding and to take any other action which Guarantor would be entitled to take, including, without limitation, the decision to file or not file a claim. Guarantor acknowledges and agrees that any payment which accrues with respect to Tenant’s obligations under the Lease (including, without limitation, the payment of rent) after the commencement of any such case or proceeding (or, if any such payment ceases to accrue by operation of law by reason of the commencement of such case or proceeding, such payment as would have accrued if such case or proceeding had not been commenced) shall be included in Guarantor’s obligations hereunder, as it is the intention of the parties that such obligations should be determined without regard to any rule or law or order which may relieve Tenant of any of its obligations under the Lease. Guarantor hereby permits any trustee in bankruptcy, receiver, debtor‑in‑possession, assignee for the benefit of creditors or similar person to pay Landlord, or allow the claim of Landlord in respect of, any such payment accruing after the date on which such case or proceeding is commenced. Guarantor hereby assigns to Landlord Guarantor’s right to receive any payments from any trustee in bankruptcy, receiver, debtor‑in‑possession, assignee for the benefit of creditors or similar person by way of dividend, adequate protection payment or otherwise, limited only as to the amounts guaranteed under this Guaranty.
(d) In the event of an initial public offering or other corporate reorganization by Guarantor or any of its affiliates, Guarantor agrees to use its best efforts and take and employ all necessary actions in good faith consistent with this Guaranty to ensure that the rights secured by Landlord through this Guaranty can be enjoyed by Landlord.
11.Any notice, statement, demand, consent, approval or other communication required or permitted to be given, rendered or made by either party to the other, pursuant to this Guaranty or pursuant to any applicable law or requirement of public authority, shall be in writing (whether or not so stated elsewhere in this Guaranty) and shall be deemed to have been properly given, rendered or made only if sent by U.S. certified or registered mail, postage prepaid, return receipt requested, or by a nationally-recognized commercial overnight courier, addressed to the other party at its respective address set forth below, and shall be deemed to have been given, rendered or made on the day it is received. By giving notice as provided above, either party may designate a different address for notices, statements, demands, consents, approvals or other communications intended for it.
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To Guarantor:
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Qualtrics International Inc.
Attn: Legal Department
333 W. River Park Drive
Provo, UT 84604
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with required copies to:
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and
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and
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Steven E. Tyler, Esq
Holland & Hart LLP
222 South Main, Suite 2200
Salt Lake City, UT 84101
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To Landlord:
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Timp Campus LLC
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with required copies to:
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Timp Campus LLC
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12.Guarantor represents and warrants to Landlord as follows:
(a) No consent of any other person, including, without limitation, any creditors of Guarantor, and no license, permit, approval or authorization of, exemption by, notice or report to, or registration, filing or declaration within any governmental authority is required by Guarantor in connection with this Guaranty or the execution, delivery, performance, validity or enforceability of this Guaranty and all obligations required hereunder. This Guaranty has been duly executed and delivered by Guarantor, and constitutes the legally valid and binding obligation of Guarantor enforceable against such Guarantor in accordance with its terms.
(b) To the best of Guarantor’s knowledge, the execution, delivery and performance of this Guaranty will not violate any provision of any existing law or regulation binding on Guarantor, or any order, judgment, award or decree of any court, arbitrator or governmental authority binding on Guarantor, or of any mortgage, indenture, lease, contract or other agreement, instrument or undertaking to which Guarantor is a party or by which Guarantor or any of Guarantor’s assets may be bound, and will not result in, or require, the creation or imposition of any lien on any of such Guarantor’s property, assets or revenues pursuant to the provisions of any such mortgage, indenture, lease, contract or other agreement, instrument or undertaking.
13.The obligations of Tenant under the Lease to execute and deliver estoppel statements, as therein provided, shall be deemed to also require Guarantor hereunder to do and provide the same relative to Guarantor.
14.This Guaranty shall be binding upon Guarantor, and Guarantor’s heirs, representatives, administrators, executors, successors and assigns, as applicable, and shall inure to the benefit of and shall be enforceable by Landlord, its successors, endorsees and assigns. As used herein, the singular shall include the plural, and the masculine shall include the feminine and neuter and vice versa, if the context so requires.
15.The term “Landlord” whenever used herein refers to and means Landlord specifically named in the Lease and also any assignee of such Landlord, whether by outright assignment or by assignment for security, and also any successor to the interest of such Landlord or of any assignee in the Lease or any part thereof, whether by assignment or otherwise. So long as Landlord’s interest in or to the Premises (as that term is used in the Lease) or the rents, issues and profits therefrom, or in, to or under the Lease, are subject to any mortgage or deed of trust or assignment for security, no acquisition by Guarantor of Landlord’s interest in the Premises or under the Lease shall affect the continuing obligations of Guarantor under this Guaranty, which obligations shall continue in full force and effect for the benefit of the mortgagee, beneficiary, trustee or assignee under such mortgage, deed of trust or assignment, of any purchaser at sale by judicial foreclosure or under private power of sale, and of the successors and assigns of any such mortgagee, beneficiary, trustee, assignee or purchaser.
16.The term “Tenant” whenever used herein refers to and means Tenant in the Lease specifically named and also any assignee or sublessee of such Tenant and also any successor to the interests of such Tenant, assignee or sublessee, whether by assignment, sublease or otherwise.
17.In the event of any dispute or litigation regarding the enforcement or validity of this Guaranty, the prevailing party shall be obligated to pay all charges, costs and expenses (including, without limitation, reasonable attorneys’ fees) reasonably incurred by the other party, whether or not any action or proceeding is commenced regarding such dispute and whether or not such litigation is prosecuted to judgment, including, but not limited to, all such charges, costs and expenses incurred in any case or proceeding under Title 11, United States Code, involving Guarantor.
18.This Guaranty shall be governed by and construed in accordance with the laws of the State of Utah. Guarantor hereby knowingly, intentionally, and irrevocably agrees that Landlord may bring any action or claim to enforce or interpret the provisions of this Guaranty in the State of Utah and County of Utah, and Guarantor irrevocably consents to personal jurisdiction in such State for the purposes of any such action or claim. Nothing in this Section 18 shall be deemed to preclude or prevent Landlord from bringing any action or claim to enforce or interpret the provisions of this Guaranty in any other appropriate place or forum.
In the interest of obtaining a speedier and less costly adjudication of any dispute, Landlord and Guarantor hereby knowingly, intentionally, and irrevocably waive the right to trial by jury in any legal action, proceeding, claim, or counterclaim brought by either of them against the other on all matters arising out of or related to this Guaranty, the Lease or the Premises.
19.Every provision of this Guaranty is intended to be severable. In the event any term or provision hereof is declared to be illegal or invalid for any reason whatsoever by a court of competent jurisdiction, such illegality or invalidity shall not affect the balance of the terms and provisions hereof, which terms and provisions shall remain binding and enforceable.
20.This Guaranty may be executed in any number of counterparts each of which shall be deemed an original and all of which shall constitute one and the same Guaranty with the same effect as if all parties had signed the same signature page. Any signature page of this Guaranty may be detached from any counterpart of this Guaranty and re‑attached to any other counterpart of this Guaranty identical in form hereto but having attached to it one or more additional signature pages.
21.No failure or delay on the part of Landlord to exercise any power, right or privilege under this Guaranty shall impair any such power, right or privilege, or be construed to be a waiver of any default or an acquiescence therein, nor shall any single or partial exercise of such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege.
22.This Guaranty shall constitute the entire agreement between Guarantor and Landlord with respect to the subject matter hereof. No provision of this Guaranty or right of Landlord hereunder may be waived nor may Guarantor be released from any obligation hereunder except by a writing duly executed by an authorized officer, director, manager, member, or trustee of Landlord.
23.The liability of Guarantor and all rights, powers and remedies of Landlord hereunder and under any other agreement now or at any time hereafter in force between Landlord and Guarantor relating to the Lease shall be cumulative and not alternative and such rights, powers and remedies shall be in addition to all rights, powers and remedies given to Landlord by law.
24.Any Guarantor hereunder understands, acknowledges and agrees that it shall be no defense to its obligation as a Guarantor hereunder or to the enforceability of this Guaranty that it does not have a direct interest in Tenant.
IN WITNESS WHEREOF, Guarantor has executed this Guaranty as of the day and year first above written.
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GUARANTOR:
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QUALTRICS INTERNATIONAL INC.
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By:
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/s/ Blake Tierney
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Name:
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Blake Tierney
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Title:
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Director, Legal
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EXHIBIT B
DOCUMENTS AND AGREEMENTS OF RECORD
1.The Premises is included within the incorporated city limits of Provo, a municipal corporation of the State of Utah, and is subject to any charges and assessments made thereby.
2.All Notes, Easements, Set Backs and Restrictions as shown on the recorded subdivision plat.
3.An Easement for the North Union Canal also known as the Provo Bench Canal, as disclosed by Notice of Interest recorded as Entry No. 19914 in Book 1839 at page 767, records of Utah County, Utah, Conveyance of Property and Easement, recorded as Entry No. 13176 in Book 821 at page 417 records of Utah County, Utah, and Conveyance of Property and Easement, recorded as Entry No. 948 in Book 644 at page 161, records of Utah County, Utah.
4.Maintenance and Open Space Preservation Agreement, dated October 4, 1991, by and between RIVERFRONT PROPERTIES, a Utah general partnership; and RIVERWOODS RESEARCH AND BUSINESS PARK OWNERS ASSOCIATION, a Utah nonprofit corporation; and PROVO CITY CORPORATION, a municipal corporation, recorded October 24, 1991 as Entry No. 42272 in Book 2847 at Page 610 Utah County Recorder's Office.
First Amendment to Maintenance and Open Space Preservation Agreement, dated August 31, 1992, by and between RIVERFRONT PROPERTIES, a Utah general partnership (Developer); RIVERWOODS RESEARCH AND BUSINESS PARK OWNERS ASSOCIATION, a Utah non-profit corporation (Association); and PROVO CITY CORPORATION, a municipal corporation of the State of Utah (City), recorded September 10, 1992 as Entry No. 47430 in Book 2998 at Page 772 Utah County Recorder's Office.
5.Master Declaration of Protective Covenants, Conditions and Restrictions for RIVERWOODS RESEARCH AND BUSINESS PARK, recorded October 24, 1991 as Entry No. 42273, in Book 2847 at Page 618 Utah County Recorder's Office.
First Amendment to Master Declaration of Protective Covenants, Conditions and Restrictions for RIVERWOODS RESEARCH AND BUSINESS PARK, recorded December 23, 1991 as Entry No. 50674 in Book 2869 at Page 154 Utah County Recorder's Office;
Second Amendment to Master Declaration of Protective Covenants, Conditions and Restrictions for RIVERWOODS RESEARCH AND BUSINESS PARK, recorded September 1992 as Entry No. 47431 in Book 2998 at Page 776 Utah County Recorder’s Office.
Supplementary Declaration of Protective Covenants, Conditions and Restrictions for RIVERWOODS RESEARCH AND BUSINESS PARK, recorded September 21, 1992 as Entry No. 49404 in Book 3004 at Page 277 Utah County Recorder's Office.
Third Amendment to Master Declaration of Protective Covenants, Conditions and Restrictions for RIVERWOODS RESEARCH AND BUSINESS PARK, Provo City, Utah County, state of Utah, recorded June 2, 2000 as Entry No. 43568:2000 of Official Records.
QUALTRICS INTERNATIONAL INC.
CLASS A COMMON STOCK PURCHASE AGREEMENT
THIS CLASS A COMMON STOCK PURCHASE AGREEMENT (this “Agreement”) is made as of December 8, 2020, by and between QUALTRICS INTERNATIONAL INC., a Delaware corporation (the “Company”), and Q II, LLC, a Utah limited liability company (the “Investor”).
THE PARTIES HEREBY AGREE AS FOLLOWS:
1.Purchase and Sale of Common Stock.
(a)On the terms and subject to the conditions of this Agreement, the Investor agrees to purchase from the Company, and the Company agrees to sell and issue to the Investor, 6,000,000 shares (the “Shares”) of Class A Common Stock of the Company, par value $0.0001 per share (the “Class A Common Stock”), at a price per share equal to $20.00 (the “Per Share Price”).
(b)The purchase and sale of the Shares hereunder shall take place remotely via the exchange of documents and signature pages at 10:00 a.m., Mountain time, on the date that is two (2) business days following the satisfaction of all of the conditions set forth in Sections 5 and 6 hereof, or at such other time and place as the Company and the Investor may mutually agree upon (the “Closing”); provided, however, that the Closing shall not occur prior to December 16, 2020. At the Closing, the Investor shall make payment of the purchase price for the Shares by wire transfer in immediately available funds to the account specified by the Company against delivery to the Investor of the Shares registered in the name of the Investor, which Shares shall be certificated shares.
(c)All references to numbers of shares and prices per share in this Agreement, including the number of Shares, the Per Share Price and the Repurchase Price, shall be appropriately adjusted to reflect any stock dividend, stock split, combination or other recapitalization or reclassification of shares by the Company occurring after the date of this Agreement.
2.Representations and Warranties of the Company. The Company hereby represents and warrants to the Investor that as of the date hereof and as of the date of Closing (except for the representations and warranties in Sections 2.5 and 2.6, which shall be made only as of the date hereof):
2.1Organization, Good Standing and Qualification.
(a)The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business as now conducted.
(b)The Company is duly qualified to transact business and is in good standing in each jurisdiction in which it is required to be so qualified or in good standing, except where the failure to so qualify or be in good standing would not be material and adverse to the Company.
2.2Authorization. All corporate action on the part of the Company, its officers, directors and stockholders necessary for the authorization, execution and delivery of this Agreement , the performance of all obligations of the Company under this Agreement, and the authorization, issuance, sale and delivery of the Shares being sold hereunder has been taken, and this Agreement constitutes a valid and legally binding obligation of the Company, enforceable in accordance with its terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors’ rights generally, and (b) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies.
2.3Valid Issuance of Common Stock. The Shares being purchased by the Investor hereunder, when issued, sold and delivered in accordance with the terms of this Agreement for the consideration expressed herein, will be duly and validly issued, fully paid and nonassessable and will be free of liens, encumbrances, pre-emptive rights or similar rights or restrictions on transfer other than restrictions on transfer under applicable state and federal securities laws or as contemplated hereby.
2.4Compliance with Other Instruments; No Consent.
(a)As of the date hereof, the Company is not in violation or default of its Certificate of Incorporation or Bylaws. As of the date of the Closing, the Company shall not be in violation or default of any provision of its Amended and Restated Certificate of Incorporation or Amended and Restated Bylaws. Except as would not be material to the Company, the Company is not in violation or default in any respect of any instrument, judgment, order, writ, decree or contract to which it is a party or by which it is bound, or, to its knowledge, of any provision of any federal or state statute, rule or regulation applicable to the Company.
(b)The execution, delivery and performance of this Agreement, and the consummation of the transactions contemplated by this Agreement will not (i) result in any material violation or default or be in conflict with or constitute, with or without the passage of time and giving of notice, either a material default under any such provision, instrument, judgment, order, writ, decree or contract or an event that results in the creation of any material lien, charge or encumbrance upon any assets of the Company or the suspension, revocation, impairment, forfeiture, or nonrenewal of any material permit, license, authorization, or approval applicable to the Company, its business or operations or any of its assets or properties, (ii) result in any violation or default of its (A) Certificate of Incorporation or Bylaws, as of the date hereof or (B) Amended and Restated Certificate of Incorporation or Amended and Restated Bylaws, as of the date of the Closing, or (iii) result in any material violation of any law, statute, rule or regulation, or of any judgment or order of any court, arbitrator or governmental or regulatory authority, in each case applicable to the Company.
(c)No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state or local governmental authority on the part of the Company is required in connection with the consummation of the transactions contemplated by this Agreement, except (i) as required under the HSR Act (as defined below) and (ii) the filings required by applicable state “blue sky” securities laws, rules and regulations and the declaration of the effectiveness of the Registration Statement by the SEC.
2.5Capitalization. As of the date hereof, the authorized capital stock of the Company consists of 100 shares of Common Stock, all of which are held by SAP America, Inc. As of the date of the Closing, the authorized capital stock of the Company shall consist of:
(a)Class A Common Stock. A total of 2,000,000,000 authorized shares of Class A Common Stock, none of which shall be issued and outstanding.
(b)Class B Common Stock. A total of 1,000,000,000 authorized shares of Class B Common Stock, of which 423,170,610 shall be issued and outstanding, all of which shall be held by SAP America, Inc.
(c)Preferred Stock. A total of 100,000,000 authorized shares of Preferred Stock, of which none shall be issued and outstanding.
2.6Registration Statement. As of the date hereof, the Registration Statement filed on November 21, 2020 with the United States Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the “Securities Act”), complied as of its filing date in all material respects with the requirements of the Securities Act and the rules and regulations of the SEC promulgated thereunder, and such Registration Statement does not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.
2.7Brokers or Finders. The Company has not engaged any brokers, finders or agents such that the Investor will incur, directly or indirectly, as a result of any action taken by the Company, any liability for brokerage or finders’ fees or agents’ commissions or any similar charges in connection with the sale of the Shares contemplated by this Agreement.
2.8Private Placement. Assuming the accuracy of the representations, warranties and covenants of the Investor set forth in Section 3 of this Agreement, no registration under the Securities Act is required for the offer and sale of the Shares by the Company to the Investor under this Agreement.
3.Representations and Warranties of the Investor. The Investor hereby represents and warrants to the Company as follows:
3.1Organization, Good Standing and Qualification. The Investor is a limited liability company duly organized, validly existing and in good standing under the laws of the
State of Utah. The sole manager of the Investor is, and the Investor is under the sole control of, Ryan Smith.
3.2Authorization. The Investor has full power and authority to enter into this Agreement, and this Agreement constitutes a valid and legally binding obligation of the Investor, enforceable in accordance with its terms except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, and (b) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies.
3.3Purchase Entirely for Own Account. By the Investor’s execution of this Agreement, the Investor hereby confirms that the Shares to be received by the Investor will be acquired for investment for the Investor’s own account, not as a nominee or agent, and not with a view to the distribution of any part thereof, and that the Investor has no present intention of selling, granting any participation in, or otherwise distributing the same, except as permitted by applicable federal or state securities laws. By executing this Agreement, the Investor further represents that the Investor does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to any of the Shares.
3.4Disclosure of Information. The Investor believes it has received all the information it considers necessary or appropriate for deciding whether to purchase the Shares. The Investor further represents that it has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Shares and the business, properties, prospects and financial condition of the Company. The foregoing, however, does not limit or modify the representations and warranties of the Company in Section 2 of this Agreement or the right of the Investor to rely thereon.
3.5Investment Experience. The Investor is an investor in securities of companies in the development stage and acknowledges that it is able to fend for itself, can bear the economic risk of its investment, and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Shares. The Investor also represents it has not been organized for the purpose of acquiring the Shares.
3.6Accredited Investor. The Investor is an “accredited investor” within the meaning of Regulation D, Rule 501(a), promulgated by the SEC under the Securities Act, as presently in effect.
3.7Brokers or Finders. The Investor has not engaged any brokers, finders or agents such that the Company will incur, directly or indirectly, as a result of any action taken by the Investor, any liability for brokerage or finders’ fees or agents’ commissions or any similar charges in connection with the sale of the Shares contemplated by this Agreement.
3.8Sufficiency of Funds. The Investor has sufficient cash on hand or access to available funds to enable it to make payment of the purchase price for the Shares and consummate the transactions contemplated by this Agreement.
3.9Restricted Securities. The Investor understands that the Shares will be characterized as “restricted securities” under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold without registration under the Securities Act only in certain limited circumstances. In this connection, the Investor represents that it is familiar with Rule 144 promulgated under the Securities Act, as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act.
3.10Legends. The Investor understands that the Shares may bear one or all of the following legends:
(a)“THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR UNDER THE SECURITIES LAWS OF ANY OTHER JURISDICTIONS. THESE SECURITIES MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS (PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM). INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.”
(b)“THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO RESTRICTIONS ON TRANSFER AND A RIGHT OF REPURCHASE AS SET FORTH IN AN AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SECURITIES, A COPY OF WHICH MAY BE OBTAINED AT THE ISSUER’S PRINCIPAL OFFICE. AS A RESULT OF SUCH AGREEMENT, EXCEPT IN CERTAIN CIRCUMSTANCES, THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF PRIOR TO 12 MONTHS AFTER THE EFFECTIVE DATE OF A REGISTRATION STATEMENT FILED BY THE COMPANY FOR ITS INITIAL PUBLIC OFFERING OF THE CLASS A COMMON STOCK OF THE ISSUER HEREOF. SUCH RESTRICTION IS BINDING ON TRANSFEREES OF THESE SHARES.”
(c)Any legend required by applicable state “blue sky” securities laws, rules and regulations.
4.Covenants.
4.1Lock-Up Agreement; Transfer Restrictions.
(a)The Investor hereby agrees that it will execute and deliver to the underwriters of the IPO a lock-up agreement in the form provided by such underwriters (the “Lock-Up Agreement”), which form shall be substantially the same as the form of lock-up agreement to be executed and delivered by SAP America, Inc.
(b)The Investor hereby agrees that it shall not, without the Company’s prior written consent, directly or indirectly, (i) sell, offer, transfer, assign, mortgage, hypothecate, gift, pledge or dispose of, or enter into or agree to enter into any contract, option or other arrangement or understanding with respect to the sale, offer, transfer, assignment, mortgage, hypothecation, gift, pledge or other disposition of (any of the foregoing, a “transfer”), any of the Shares or (ii) enter into or engage in any hedge, swap, short sale, derivative transaction or other agreement or arrangement that transfers to any third party, directly or indirectly, in whole or in part, any of the economic consequences of ownership of the Shares (such actions in clauses (i) and (ii), “Prohibited Transfers”), other than transfers permitted pursuant to the Lock-Up Agreement and Exempt Transfers (as defined below) made after the expiration or termination of the Lock-Up Agreement, until the date that is twelve (12) months following the effective date of the Registration Statement. Any purported Prohibited Transfer in violation of this Section 4.1(b) shall be null and void ab initio. In order to enforce this covenant, the Company shall have the right to place restrictive legends on the book-entry accounts representing the Shares and to impose stop transfer instructions with respect to the Shares until the end of such period. Notwithstanding the foregoing, nothing in this Section 4.1(b) shall prevent or restrict the Investor selling (only in the case of clause (A)), transferring or otherwise disposing of the Shares (A) in connection with a sale of the Company approved by the Board of Directors of the Company, (B) as a bona fide gift to a charity or educational institution, or (C) to any trust for bona fide estate planning purposes (such actions in clauses (A) through (C), “Exempt Transfers”); provided, however, that in the case of clauses (B) and (C), it shall be a condition to such transfer or other disposition that (x) the recipient execute and deliver an agreement stating that it is receiving and holding the subject Shares subject to the provisions in this Section 4.1(b) and (y) that such transfer or other disposition is made pursuant to a transaction in which there is no consideration actually paid for such transfer or other disposition.
4.2Regulatory Approvals
(a)Subject to the terms hereof, including Section 4.2(b), the Investor and the Company shall, and shall cause each of their respective subsidiaries (in the case of the Investor, shall also cause its “ultimate parent entity” as defined under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”) (such entity, the “Investor Ultimate Parent Entity”), and in the case of the Company, shall also cause SAP SE) to, cooperate and to use their respective commercially reasonable efforts to cause the waiting period for the Notification and Report Forms filed on November 13, 2020 pursuant to the HSR Act, to expire or be terminated, and to respond as promptly as reasonably practicable to any government requests for information pursuant to the HSR Act. Each party hereto shall (i) give the other party
prompt notice of any material request, inquiry, objection, charge or other Action (as defined below), actual or threatened, by or before any Governmental Entity (as defined below) with respect to the transactions contemplated by this Agreement, (ii) keep the other party informed as to the status of any such material request, inquiry, objection, charge or other action, suit, proceeding, claim, arbitration or investigation (collectively, “Action”), (iii) promptly inform the other party of any material communication to or from any Governmental Entity regarding the transactions contemplated by this Agreement and (iv) permit the other party to review in advance, and consider in good faith any comments made by the other party in relation to, any proposed substantive communication by such party to any Governmental Entity with respect to the transactions contemplated by this Agreement. The parties hereto will (A) use their commercially reasonable efforts to resolve any such request, inquiry, objection, charge or other action so as to permit consummation of the transactions contemplated by this Agreement, and (B) consult and cooperate with one another, and consider in good faith the views of one another, in connection with, and provide to the other party in advance, any analyses, appearances, presentations, memoranda, briefs, arguments, opinions and proposals made or submitted by or on behalf of any party hereto in connection with the transactions contemplated by this Agreement. Such cooperation shall include consulting with each other in advance of any meeting or substantive communication with any Governmental Entity and, to the extent permitted by law or such applicable Governmental Entity, providing each other the opportunity to participate in such meetings and other substantive conversations.
(b)Notwithstanding anything to the contrary in this Agreement, none of the Investor, the Company, or any of their respective subsidiaries (or in the case of the Investor, the Investor Ultimate Parent Entity, and in the case of the Company, SAP SE) shall be required to (i) respond to a request for additional information or documentary material issued by the Federal Trade Commission (“FTC”) or the United States Department of Justice (“DOJ”), (ii) contest, administratively or in court, any ruling, order or other action of the FTC or the DOJ or any third party respecting the transactions contemplated hereby, or (iii) become subject to, consent to, or offer or agree to, or otherwise take any action with respect to, any requirement, condition, limitation, understanding, agreement or order to (A) sell, license, assign, transfer, divest, hold separate or otherwise dispose of any assets, business or portion of business of the Company, the Investor or any of their respective subsidiaries (or in the case of the Investor, the Investor Ultimate Parent Entity, and in the case of the Company, SAP SE), (B) conduct, restrict, operate, invest or otherwise change the assets, business or portion of business of the Company, the Investor or any of their respective subsidiaries (or in the case of the Investor, the Investor Ultimate Parent Entity, and in the case of the Company, SAP SE) in any manner or (C) impose any restriction, requirement or limitation on the operation of the business or portion of the business of the Company, the Investor or any of their respective subsidiaries (or in the case of the Investor, the Investor Ultimate Parent Entity, and in the case of the Company, SAP SE).
(c)Notwithstanding anything to the contrary, nothing in this Section 4.2 shall be deemed to require the Company to (i) delay, postpone, or otherwise alter the timing for, or other plans or activities relating to, the IPO or (ii) file, or take or agree to take any action that would require the filing of, any amendment to its Registration Statement with the SEC.
(d)The filing fee under the HSR Act pursuant to this Section 4.2 shall be borne by the Investor.
For purposes of this Agreement, “Governmental Entity” means any foreign or domestic governmental authority, including any supranational, national, federal, territorial, state, commonwealth, province, territory, county, municipality, district, local governmental jurisdiction of any nature or any other governmental, self-regulatory or quasi-governmental authority of any nature (including any governmental department, division, agency, bureau, office, branch, court, arbitrator, commission, tribunal or other governmental instrumentality and any national or international stock exchange) or any political or other subdivision or part of any of the foregoing.
4.3Dividend Waiver. The Investor hereby waives any and all rights to receive any dividend declared by the Company with respect to any class or series of its capital stock prior to the closing of the IPO.
4.4Repurchase Right. The Shares when issued shall be unvested and shall be deemed to have vested in full on June 30, 2021 (the “Vesting Date”) if both (a) the closing of the IPO shall have occurred prior to the Vesting Date, and (b) Ryan Smith shall remain employed by the Company on the Vesting Date or his employment shall have been terminated prior to the Vesting Date by the Company without Cause (as defined in that certain Employment Agreement to be entered into prior to the closing of the IPO by and between the Company and Ryan Smith (the “Employment Agreement”)) or by Ryan Smith for Good Reason (as defined in the Employment Agreement). If such vesting does not occur, the Company may at any time during the 60-day period following the Vesting Date, by written notice to the Investor, repurchase all, but not less than all, of the Shares from the Investor for a price per share equal to the Per Share Price paid by the Investor (the “Repurchase Price”) (such repurchase right, the “Company Repurchase Right”); provided, however, that if the Company does not exercise the Company Repurchase Right, then the Shares shall be deemed to have vested in full upon the completion of such 60-day period. Ryan Smith shall make a protective election under Section 83(b) of the Internal Revenue Code in the form attached as Exhibit A with respect to the purchase of the Shares in recognition of the Company Repurchase Right. In the case of any exercise by the Company of the Company Repurchase Right, the Repurchase Price shall be paid by the Company to the Investor within five (5) business days after the delivery of the notice described above, by wire transfer of immediately available funds to an account designated by the Investor, against cancellation of the Shares of Class A Common Stock to be repurchased, and the Investor shall execute and deliver to the Company any acknowledgement or other document requested by the Company to evidence such cancellation. The Shares to be sold by the Investor to the Company pursuant to the Company Repurchase Right shall be sold free and clear of all liens, claims and encumbrances created by the Investor, but shall otherwise be sold without recourse, representation or warranty of any kind.
4.5Stockholders’ Agreement. In the event the Company shall enter into a stockholders’ agreement, investors’ rights agreement or similar agreement (any such agreement, the “Stockholders’ Agreement”) with any affiliate of Silver Lake Partners L.P. (“Silver Lake”) that purchases shares of Class A Common Stock in a private placement transaction to occur prior
to or substantially concurrent with the closing of the IPO, the Investor shall enter into such Stockholders’ Agreement in the form attached as Exhibit B, with such changes as may be agreed to between Company, Silver Lake and SAP SE.
5.Conditions of the Investor’s Obligations at Closing. The obligations of the Investor under Section 1.1 of this Agreement are subject to the performance by the Company of its covenants and other obligations under this Agreement in all material respects and to the fulfillment on or before the Closing of each of the following conditions:
5.1Representations and Warranties. The representations and warranties of the Company contained in Sections 2.1(b), 2.4(b) and (c), 2.6 and 2.7 shall be true on and as of the Closing (or in the case of Section 2.6, as of the date of this Agreement), without giving effect to any qualifications as to “materiality” set forth therein, except as would not reasonably be expected to have a Material Adverse Effect (as defined below). The representations and warranties of the Company contained in Sections 2.1(a), 2.2, 2.3, 2.4(a), 2.5, 2.6 and 2.8 shall be true on and as of the Closing (or in the case of Section 2.5, as of the date of this Agreement). The Company shall have delivered to the Investor a certificate, dated as of immediately prior to the Closing, signed by the chief executive officer of the Company, certifying to the foregoing matters in this Section 5.1 and Section 5.5.
5.2Absence of Injunctions, Decrees, Etc. During the period from the date of this Agreement to immediately prior to the Closing, no governmental authority of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any decision, injunction, decree, ruling, law or order permanently enjoining or otherwise prohibiting or making illegal the consummation of the transactions contemplated at the Closing.
5.3Governmental Approvals. The applicable waiting period under the HSR Act (including any extensions thereof) with respect to the transactions contemplated by this Agreement shall have expired or early termination of such waiting period shall have been granted.
5.4Certificate of Incorporation and Bylaws. The Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws, substantially in the forms set forth in Exhibit C and Exhibit D, respectively, shall have been adopted and shall be in full force and effect, and shall not have been amended, except in respect of such changes as may be required to respond to and resolve any comments provided by the SEC on the terms of such certificate of incorporation or bylaws.
5.5Absence of Material Adverse Effect. Since the date of this Agreement to the Closing, there shall not have been the occurrence of a Material Adverse Effect. As used herein, a “Material Adverse Effect” means any event, circumstance, change, development, effect or occurrence (collectively “Effect”) that, individually or in the aggregate with all other Effects, (a) has or would reasonably be expected to have a material adverse effect on the business, condition (financial or otherwise), assets, liabilities or operations of the Company or (b) would prevent, materially delay or materially impede the performance by the Company of its obligations under this Agreement or the consummation of the IPO; provided, however, that none
of the following shall be deemed to constitute, alone or in combination, or be taken into account in the determination of whether there has been or will be, a Material Adverse Effect: (i) any change or proposed change in or change in the interpretation of any law (including any quarantine, “shelter in place,” “stay at home,” workforce reduction, social distancing, shut down, closure, sequester, workplace safety or similar law promulgated by any Governmental Entity in connection with or in response to COVID-19) or accounting principles; (ii) events or conditions generally affecting the industries or geographies in which the Company operates; (iii) any downturn in general economic conditions, including changes in the credit, debt, securities, financial or capital markets (including changes in interest or exchange rates, prices of any security or market index or commodity or any disruption of such markets); (iv) acts of war, sabotage, civil unrest, terrorism, epidemics, pandemics or disease outbreaks (including COVID-19), or any escalation or worsening of any such acts of war, sabotage, civil unrest, terrorism epidemics, pandemics or disease outbreaks, or changes in global, national, regional, state or local political or social conditions; (v) any hurricane, tornado, flood, earthquake, natural disaster, or other acts of God; or (vi) any failure in and of itself to meet any projections, forecasts, guidance, estimates, milestones, budgets or financial or operating predictions of revenue, earnings, cash flow or cash position, provided that this clause (vi) shall not prevent a determination that any Effect underlying such failure has resulted in a Material Adverse Effect, except in the cases of clauses (i) through (v), to the extent that the Company is disproportionately affected thereby as compared with other participants in the industries or geographies in which the Company operates.
6.Conditions of the Company’s Obligations at Closing. The obligations of the Company under Section 1.1 of this Agreement are subject to the fulfillment on or before the Closing of each of the following conditions:
6.1Representations, Warranties and Covenants. The representations, warranties and covenants of the Investor contained in Section 3 shall be true and correct in all material respects on and as of the Closing. The Investor shall have delivered to the Company a certificate, dated as of immediately prior to the Closing, signed by the chief executive or similar officer of the Investor, certifying to the foregoing matters in this Section 6.1.
6.2Absence of Injunctions, Decrees, Etc. During the period from the date of this Agreement to immediately prior to the Closing, no governmental authority of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any decision, injunction, decree, ruling, law or order permanently enjoining or otherwise prohibiting or making illegal the consummation of the transactions contemplated at the Closing.
6.3Governmental Approvals. The applicable waiting period under the HSR Act (including any extensions thereof) with respect to the transactions contemplated by this Agreement shall have expired or early termination of such waiting period shall have been granted.
6.4Certificate of Incorporation and Bylaws. The Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws, substantially in the forms set forth in Exhibit C and Exhibit D, respectively, shall have been adopted and shall be in full force
and effect, and shall not have been amended, except in respect of such changes as may be required to respond to and resolve any comments provided by the SEC on the terms of such certificate of incorporation or bylaws.
6.5Finance and Investment Committee Approval. This Agreement shall have been approved by the SAP SE Finance and Investment Committee.
7.Termination. This Agreement shall terminate (a) at any time upon the written consent of the Company and the Investor, (b) upon the withdrawal by the Company of the Registration Statement, or (c) on the Vesting Date if the Closing has not occurred.
8.Miscellaneous.
8.1Publicity. No party shall issue any press release or make any other public announcement, including any website posting or social media post, that discloses the terms of this Agreement or the fact that the Investor has made or proposes to make an investment in the Company, except that this Agreement may be filed in connection with, and described in, the Registration Statement and otherwise as may be required by law or with the prior written consent of the other party. Each party will provide reasonable advance notice to the other parties prior to making any disclosure of this Agreement or the terms hereof in any filings made with the SEC, and will provide the other parties with reasonable opportunity to review and comment on such proposed disclosures.
8.2Survival of Warranties, Representations and Covenants. The warranties, representations and covenants of the Company and the Investor contained in or made pursuant to this Agreement or contained in any certificate delivered pursuant to this Agreement shall survive the execution and delivery of this Agreement and the Closing and shall in no way be affected by any investigation of the subject matter thereof made by or on behalf of the Investor or the Company.
8.3Successors and Assigns. This Agreement, and any and all rights, duties and obligations hereunder, shall not be assigned, transferred, delegated or sublicensed by the Investor without the prior written consent of the Company; provided, however, that after the Closing, the Shares and the rights, duties and obligations of the Investor hereunder may be assigned to an affiliate of the Investor without the prior written consent of the Company. Any attempt by the Investor without such permission to assign, transfer, delegate or sublicense any rights, duties or obligations that arise under this Agreement in a manner that is not permitted by the foregoing sentence to be made without such permission shall be void. Subject to the foregoing and except as otherwise provided herein, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto.
8.4Governing Law. This Agreement shall be governed in all respects by the internal laws of the State of Delaware as applied to agreements entered into among Delaware residents to be performed entirely within Delaware, without regard to principles of conflicts of law.
8.5Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument. The words “execution,” “signed,” “signature,” “delivery,” and words of like import in or relating to this Agreement or any document to be signed in connection with this Agreement shall be deemed to include electronic signatures, deliveries or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature, physical delivery thereof or the use of a paper-based recordkeeping system, as the case may be, and the parties hereto consent to conduct the transactions contemplated hereunder by electronic means.
8.6Notices. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, sent by facsimile or electronic mail (if to the Investor) or otherwise delivered by hand, messenger or courier service addressed:
(a)if to the Investor, to the Investor’s address or electronic mail address as shown on the Investor’s signature page to this Agreement, with a copy (which shall not constitute notice) to The McCullough Group, 405 S. Main Street, Suite 800, Salt Lake City, Utah 84111, Attention: Scott M. McCullough, [ ]; and
(b)if to the Company, to the attention of the General Counsel of the Company at 333 West River Park Drive, Provo, Utah 84604 (e-mail: [ ]), or at such other current address or electronic mail address as the Company shall have furnished to the Investor, with a copy (which shall not constitute notice) to Shearman & Sterling LLP, 1460 El Camino Real, 2nd Floor, Menlo Park, CA 94025, Attention: Daniel Mitz, Daniel.Mitz@shearman.com.
Each such notice or other communication shall for all purposes of this Agreement be treated as effective or having been given (i) if delivered by hand, messenger or courier service, when delivered (or if sent via a nationally-recognized overnight courier service, freight prepaid, specifying next-business-day delivery, one business day after deposit with the courier), or (ii) if sent via mail, at the earlier of its receipt or five days after the same has been deposited in a regularly-maintained receptacle for the deposit of the United States mail, addressed and mailed as aforesaid, or (iii) if sent via electronic mail, when directed to the relevant electronic mail address, if sent during normal business hours of the recipient, or if not sent during normal business hours of the recipient, then on the recipient’s next business day. In the event of any conflict between the Company’s books and records and this Agreement or any notice delivered hereunder, the Company’s books and records will control absent fraud or error.
8.7Brokers or Finders. The Company shall indemnify and hold harmless the Investor from any liability for any commission or compensation in the nature of a brokerage or finder’s fee or agent’s commission (and the costs and expenses of defending against such liability or asserted liability) for which the Investor or any of its constituent partners, members, officers, directors, employees or representatives is responsible to the extent such liability is attributable to any inaccuracy or breach of the representations and warranties contained in Section 2.7, and the Investor shall indemnify and hold harmless the Company from any liability for any commission or compensation in the nature of a brokerage or finder’s fee or agent’s
commission (and the costs and expenses of defending against such liability or asserted liability) for which the Company or any of its constituent partners, members, officers, directors, employees or representatives is responsible to the extent such liability is attributable to any inaccuracy or breach of the representations and warranties contained in Section 3.7.
8.8Amendments and Waivers. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Investor; provided, however, that any provision hereof may be waived by any waiving party on such party’s own behalf, without the consent of any other party.
8.9Severability. If any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, portions of such provision, or such provision in its entirety, to the extent necessary, shall be severed from this Agreement, and such court will replace such illegal, void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the same economic, business and other purposes of the illegal, void or unenforceable provision. The balance of this Agreement shall be enforceable in accordance with its terms.
8.10Entire Agreement. This Agreement and the documents referred to herein constitute the entire agreement among the parties. No party shall be liable or bound to any other party in any manner with regard to the subjects hereof or thereof by any warranties, representations or covenants except as specifically set forth herein or therein.
8.11Specific Performance. The parties to this Agreement hereby acknowledge and agree that the Company would be irreparably injured by a breach of this Agreement by the Investor, and the Investor would be irreparably injured by a breach of this Agreement by the Company, and that money damages are an inadequate remedy for an actual or threatened breach of this Agreement because of the difficulty of ascertaining the amount of damage that will be suffered by the aggrieved party in the event that this agreement is breached. Therefore, each of the parties to this Agreement agree to the granting of specific performance of this Agreement and injunctive or other equitable relief in favor of the aggrieved party as a remedy for any such breach, without proof of actual damages, and the parties to this Agreement further waive any requirement for the securing or posting of any bond in connection with any such remedy. Such remedy shall not be deemed to be the exclusive remedy for breach of this Agreement but shall be in addition to all other remedies available at law or in equity to the aggrieved party. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated.
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IN WITNESS WHEREOF, the parties have executed this Class A Common Stock Purchase Agreement as of the date first above written.
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QUALTRICS INTERNATIONAL INC.
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By:
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/s/ Chris Beckstead
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Name:
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Chris Beckstead
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Title:
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President
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Q II, LLC:
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By:
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/s/ Ryan Smith
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Name:
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Ryan Smith
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Title:
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Manager
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Address:
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[Signature Page to Class A Common Stock Purchase Agreement]
Exhibit A
Form of 83(b) Election [Omitted pursuant to Item 601(a)(5) of Regulation S-K]
Exhibit B
Form of Stockholders’ Agreement [Omitted pursuant to Item 601(a)(5) of Regulation S-K]
Exhibit C
Form of Amended and Restated Certificate of Incorporation [Omitted pursuant to Item 601(a)(5) of Regulation S-K]
Exhibit D
Form of Amended and Restated Bylaws [Omitted pursuant to Item 601(a)(5) of Regulation S-K]
Exhibit 10.22
Execution Version
QUALTRICS INTERNATIONAL INC.
CLASS A COMMON STOCK PURCHASE AGREEMENT
THIS CLASS A COMMON STOCK PURCHASE AGREEMENT (this “Agreement”) is made as of December 23, 2020, by and between QUALTRICS INTERNATIONAL INC., a Delaware corporation (the “Company”), and SILVER LAKE PARTNERS VI DE (AIV), L.P., a Delaware limited partnership (the “Investor”).
THE PARTIES HEREBY AGREE AS FOLLOWS:
1.Purchase and Sale of Common Stock.
(a)On the terms and subject to the conditions of this Agreement, the Investor agrees to purchase from the Company, and the Company agrees to sell and issue to the Investor:
(i)15,018,484 shares (together with the shares described in the following clause (ii), the “Shares”) of Class A Common Stock of the Company, par value $0.0001 per share (the “Class A Common Stock”), at a price per share equal to $21.64 (the “Fixed Price”); and
(ii)the number of shares of Class A Common Stock equal to $225,000,000 divided by the per share initial public offering price to the public (before underwriting discounts and expenses) in the IPO (as defined below) (the “IPO Price”), rounded down to the nearest whole share (with the total purchase price correspondingly reduced for such fractional share amount). The “IPO” shall mean the Company’s initial public offering of shares of Class A Common Stock made pursuant to a Registration Statement on Form S-1 (the “Registration Statement”).
(b)The purchase and sale of the Shares hereunder (the “Closing”) shall take place remotely via the exchange of documents and signature pages immediately following the IPO Closing (as defined below), subject to the satisfaction or waiver of all of the conditions set forth in Sections 5 and 6 hereof. At the Closing, the Investor shall make payment of the purchase price for the Shares by wire transfer in immediately available funds to the account specified by the Company against delivery to the Investor of the Shares registered in the name of the Investor, which Shares shall be uncertificated shares.
(c)All references to numbers of shares and prices per share in this Agreement, including the number of Shares to be purchased at the Fixed Price, the Fixed Price and the minimum number of Firm Shares (as defined below) (but not the IPO Price), shall be appropriately adjusted to reflect any stock dividend, stock split, combination or other recapitalization or reclassification of shares by the Company occurring after the date of this Agreement and prior to the determination of the IPO Price.
2.Representations and Warranties of the Company. The Company hereby represents and warrants to the Investor that as of the date hereof and as of the date of the Closing (except for the representations and warranties in Sections 2.5(a) and 2.6, which shall be made only as of the date hereof):
2.1Organization, Good Standing and Qualification.
(a)The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business as now conducted.
(b)The Company is duly qualified to transact business and is in good standing in each jurisdiction in which it is required to be so qualified or in good standing, except where the failure to so qualify or be in good standing would not be material and adverse to the Company.
2.2Authorization. All corporate action on the part of the Company, its officers, directors and stockholders necessary for the authorization, execution and delivery of this Agreement, the performance of all obligations of the Company under this Agreement, and the authorization, issuance, sale and delivery of the Shares being sold hereunder has been taken, and this Agreement constitutes a valid and legally binding obligation of the Company, enforceable in accordance with its terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors’ rights generally, and (b) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies.
2.3Valid Issuance of Common Stock. The Shares being purchased by the Investor hereunder, when issued, sold and delivered in accordance with the terms of this Agreement for the consideration expressed herein, will be duly and validly issued, fully paid and nonassessable and will be free of liens, encumbrances, pre-emptive rights or similar rights or restrictions on transfer other than restrictions on transfer under applicable state and federal securities laws or as contemplated hereby.
2.4Compliance with Other Instruments; No Consent.
(a)The Company is not in violation or default of any provision of its Amended and Restated Certificate of Incorporation or Amended and Restated Bylaws. Except as would not be material to the Company, the Company is not in violation or default of any instrument, judgment, order, writ, decree or contract to which it is a party or by which it is bound, or of any provision of any federal or state statute, rule or regulation applicable to the Company.
(b)The execution, delivery and performance of this Agreement, and the consummation of the transactions contemplated by this Agreement will not (i) result in any material violation or default or be in conflict with or constitute, with or without the passage of time and giving of notice, either a material default under any such provision, instrument, judgment, order, writ, decree or contract or an event that results in the creation of any material lien, charge or encumbrance upon any assets of the Company or the suspension, revocation, impairment,
forfeiture, or nonrenewal of any material permit, license, authorization, or approval applicable to the Company, its business or operations or any of its assets or properties, (ii) result in any violation or default of its Amended and Restated Certificate of Incorporation or Amended and Restated Bylaws, or (iii) result in any material violation of any law, statute, rule or regulation, or of any judgment or order of any court, arbitrator or governmental or regulatory authority, in each case applicable to the Company.
(c)No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state or local governmental authority on the part of the Company is required in connection with the consummation of the transactions contemplated by this Agreement, except (i) as required under the HSR Act (as defined below) and (ii) the filings required by applicable state “blue sky” securities laws, rules and regulations and the declaration of the effectiveness of the Registration Statement by the SEC.
2.5Capitalization.
(a)As of the date hereof, the authorized capital stock of the Company consists of: (i) 2,000,000,000 authorized shares of Class A Common Stock, none of which are issued and outstanding, (ii) 1,000,000,000 authorized shares of Class B Common Stock, of which 423,170,610 are issued and outstanding, all of which are held by SAP America, Inc., and (iii) 100,000,000 authorized shares of Preferred Stock, of which none are issued and outstanding.
(b)There will be no more than 600,000,000 shares of Class A Common Stock and Class B Common Stock outstanding immediately after the closing of the IPO (including (i) shares issuable or reserved for issuance pursuant to any outstanding restricted stock units, stock options and other equity awards issued or expected to be issued by the Company in connection with the IPO or expected to be issued by the Company on or prior to December 31, 2021 (but excluding any shares issued or reserved for issuance under the 2021 Qualtrics Employee Stock Purchase Plan) and (ii) any other security which is exercisable for, or convertible into, Class A Common Stock or Class B Common Stock), assuming the consummation of the transactions contemplated by this Agreement and any other private placement(s) of shares of Class A Common Stock or Class B Common Stock closing prior to or substantially concurrently with the closing of the IPO.
2.6Registration Statement. As of the date hereof, the Registration Statement filed on December 17, 2020 with United States Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the “Securities Act”), complied as of its filing date in all material respects with the requirements of the Securities Act and the rules and regulations of the SEC promulgated thereunder, and such Registration Statement does not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.
2.7Brokers or Finders. The Company has not engaged any brokers, finders or agents such that the Investor will incur, directly or indirectly, as a result of any action taken by the Company, any liability for brokerage or finders’ fees or agents’ commissions or any similar charges in connection with the sale of the Shares contemplated by this Agreement.
2.8Private Placement. Assuming the accuracy of the representations, warranties and covenants of the Investor set forth in Section 3 of this Agreement, no registration under the Securities Act is required for the offer and sale of the Shares by the Company to the Investor under this Agreement.
3.Representations and Warranties of the Investor. The Investor hereby represents and warrants to the Company as follows:
3.1Organization, Good Standing and Qualification. The Investor is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Delaware.
3.2Authorization. The Investor has full power and authority to enter into this Agreement, and this Agreement constitutes a valid and legally binding obligation of the Investor, enforceable in accordance with its terms except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, and (b) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies.
3.3Purchase Entirely for Own Account. By the Investor’s execution of this Agreement, the Investor hereby confirms that the Shares to be received by the Investor will be acquired for investment for the Investor’s own account, not as a nominee or agent, and not with a view to the distribution of any part thereof, and that the Investor has no present intention of selling, granting any participation in, or otherwise distributing the same, except as permitted by applicable federal or state securities laws. By executing this Agreement, the Investor further represents that the Investor does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to any of the Shares except as permitted to be assigned pursuant to Section 8.3.
3.4Disclosure of Information. The Investor believes it has received all the information it considers necessary or appropriate for deciding whether to purchase the Shares. The Investor further represents that it has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Shares and the business, properties, prospects and financial condition of the Company. The foregoing, however, does not limit or modify the representations and warranties of the Company in Section 2 of this Agreement or the right of the Investor to rely thereon.
3.5Investment Experience. The Investor is an investor in securities of companies in the development stage and acknowledges that it is able to fend for itself, can bear the economic risk of its investment, and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Shares. The Investor also represents it has not been organized for the purpose of acquiring the Shares.
3.6Accredited Investor. The Investor is an “accredited investor” within the meaning of Regulation D, Rule 501(a), promulgated by the SEC under the Securities Act, as presently in effect.
3.7Brokers or Finders. The Investor has not engaged any brokers, finders or agents such that the Company will incur, directly or indirectly, as a result of any action taken by the Investor, any liability for brokerage or finders’ fees or agents’ commissions or any similar charges in connection with the sale of the Shares contemplated by this Agreement.
3.8Sufficiency of Funds. The Investor has sufficient cash on hand, access to committed capital or other sources of available funds to enable it to make payment of the purchase price for the Shares and consummate the transactions contemplated by this Agreement.
3.9Restricted Securities. The Investor understands that the Shares will be characterized as “restricted securities” under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold without registration under the Securities Act only in certain limited circumstances. In this connection, the Investor represents that it is familiar with Rule 144 promulgated under the Securities Act, as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act.
3.10Legends. The Investor understands that the Shares may bear one or all of the following legends:
(a)“THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR UNDER THE SECURITIES LAWS OF ANY OTHER JURISDICTIONS. THESE SECURITIES MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS (PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM). INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.”
(b)“THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO RESTRICTIONS ON TRANSFER AS SET FORTH IN AN AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SECURITIES, A COPY OF WHICH MAY BE OBTAINED AT THE ISSUER’S PRINCIPAL OFFICE. AS A RESULT OF SUCH AGREEMENT, EXCEPT IN CERTAIN CIRCUMSTANCES, THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF PRIOR TO 24 MONTHS AFTER THE EFFECTIVE DATE OF A REGISTRATION STATEMENT FILED BY THE COMPANY FOR ITS INITIAL PUBLIC OFFERING OF THE CLASS A COMMON STOCK OF THE ISSUER HEREOF. SUCH RESTRICTION IS BINDING ON TRANSFEREES OF THESE SHARES.”
(c)Any legend required by applicable state “blue sky” securities laws, rules and regulations.
4.Covenants.
4.1.Lock-Up Agreement; Transfer Restrictions.
(a)The Investor hereby agrees that it will execute and deliver to the underwriters of the IPO, promptly upon the pricing of the IPO, a lock-up agreement in the form provided by such underwriters (the “Lock-Up Agreement”), which form shall be substantially the same as the form of lock-up agreement to be executed and delivered by SAP America, Inc.
(b)The Investor hereby agrees that following Closing and until the date that is twenty-four (24) months after the effective date of the Registration Statement (the “Lock-Up Period”), it shall not, without the Company’s prior written consent, directly or indirectly, (i) sell, offer, transfer, assign, mortgage, hypothecate, gift, pledge or dispose of, or enter into or agree to enter into any contract, option or other arrangement or understanding with respect to the sale, offer, transfer, assignment, mortgage, hypothecation, gift, pledge or other disposition of (any of the foregoing, a “transfer”), any of the Shares or (ii) enter into or engage in any hedge, swap, short sale, derivative transaction or other agreement or arrangement that transfers to any third party, directly or indirectly, in whole or in part, any of the economic consequences of ownership of the Shares (such actions in clauses (i) and (ii), “Prohibited Transfers”), other than Exempt Transfers as described in Section 4.1(c) made (x) prior to the expiration or termination of the Lock-Up Agreement if permitted pursuant to the Lock-Up Agreement, or (y) after the expiration or termination of the Lock-Up Agreement; provided that Exempt Transfers as described in Section 4.1(c)(ii) are permitted before the expiration of the Lock-Up Period or termination of the Lock-Up Agreement.
(c)For purposes of Section 4.1(b), “Exempt Transfers” shall mean any (i) transfer without consideration (other than cost plus nominal interest if such transfer is to a co-investment vehicle managed by the Investor) to an affiliate of the Investor or to one of its stockholders, members, partners or other equity holders that executes and delivers to the Company (1) a joinder becoming a party to this Agreement and (2) a duly completed and executed IRS Form W-9 (or similar applicable form), (ii) tender, sales, transfers or other dispositions of any Shares into any tender or exchange offer by a third party (including SAP SE and its affiliates, other than the Company and its Subsidiaries) or such other bona fide takeover bid by a third party (including SAP SE and its affiliates, other than the Company and its Subsidiaries) or other acquisition transaction, in each case, that is made to all of the holders of common stock of the Company for a number of outstanding shares of common stock representing a majority of the voting power of such common stock solely to the extent that the board of directors of the Company (the “Board of Directors”) has recommended such tender or exchange offer or such other takeover bid or other acquisition transaction and (iii) transfer effected pursuant to any merger, consolidation or similar transaction consummated by the Company.
(d)Any purported Prohibited Transfer in violation of this Section 4.1 shall be null and void ab initio. In order to enforce this covenant, the Company shall have the right to place restrictive legends on the book-entry accounts representing the Shares and to impose stop transfer instructions with respect to the Shares prior to the expiration of the Lock-Up Period. For the avoidance of doubt, the provisions of this Section 4.1 shall not apply to shares purchased in the
IPO or any shares (other than the Shares purchased pursuant to this Agreement) acquired following the IPO.
4.2.Regulatory Approvals
(a)Subject to the terms hereof, including Section 4.2(b), the Investor and the Company shall, and shall cause each of their respective subsidiaries (in the case of the Company, shall also cause SAP SE) to, cooperate and to use their respective commercially reasonable efforts to cause the waiting period for the Notification and Report Form with respect to the transactions contemplated by this Agreement filed on November 18, 2020 pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (“HSR Act”), to expire or be terminated, and to respond as promptly as reasonably practicable to any government requests for information pursuant to the HSR Act. Each party hereto shall (i) give the other party prompt notice of any material request, inquiry, objection, charge or other Action (as defined below), actual or threatened, by or before any Governmental Entity (as defined below) with respect to the transactions contemplated by this Agreement, (ii) keep the other party informed as to the status of any such material request, inquiry, objection, charge or other action, suit, proceeding, claim, arbitration or investigation (collectively, “Action”), (iii) promptly inform the other party of any material communication to or from any Governmental Entity regarding the transactions contemplated by this Agreement and (iv) permit the other party to review in advance, and consider in good faith any comments made by the other party in relation to, any proposed substantive communication by such party to any Governmental Entity with respect to the transactions contemplated by this Agreement. The parties hereto will (A) use their commercially reasonable efforts to resolve any such request, inquiry, objection, charge or other action so as to permit consummation of the transactions contemplated by this Agreement, and (B) consult and cooperate with one another, and consider in good faith the views of one another, in connection with, and provide to the other party in advance, any analyses, appearances, presentations, memoranda, briefs, arguments, opinions and proposals made or submitted by or on behalf of any party hereto in connection with the transactions contemplated by this Agreement. Such cooperation shall include consulting with each other in advance of any meeting or substantive communication with any Governmental Entity and, to the extent permitted by law or such applicable Governmental Entity, providing each other the opportunity to participate in such meetings and other substantive conversations.
(b)Notwithstanding anything to the contrary in this Agreement, none of the Investor, the Company, or any of their respective subsidiaries (or in the case of the Company, SAP SE) shall be required to (i) respond to a request for additional information or documentary material issued by the Federal Trade Commission (“FTC”) or the United States Department of Justice (“DOJ”), (ii) contest, administratively or in court, any ruling, order or other action of the FTC or DOJ or any third party respecting the transactions contemplated hereby, or (iii) become subject to, consent to, or offer or agree to, or otherwise take any action with respect to, any requirement, condition, limitation, understanding, agreement or order to (A) sell, license, assign, transfer, divest, hold separate or otherwise dispose of any assets, business or portion of business of the Company, the Investor or any of their respective subsidiaries (or in the case of the Company, SAP SE), (B) conduct, restrict, operate, invest or otherwise change the assets, business or portion of business of the Company, the Investor or any of their respective subsidiaries (or in the case of the Company, SAP SE) in any manner or (C) impose any restriction, requirement or limitation on
the operation of the business or portion of the business of the Company, the Investor or any of their respective subsidiaries (or in the case of the Company, SAP SE).
(c)Notwithstanding anything to the contrary, nothing in this Section 4.2 shall be deemed to require the Company to (i) delay, postpone, or otherwise alter the timing for, or other plans or activities relating to, the IPO or (ii) file, or take or agree to take any action that would require the filing of, any amendment to its Registration Statement with the SEC.
(d)The filing fee under the HSR Act pursuant to this Section 4.2 shall be borne by the Investor.
For purposes of this Agreement, “Governmental Entity” means any foreign or domestic governmental authority, including any supranational, national, federal, territorial, state, commonwealth, province, territory, county, municipality, district, local governmental jurisdiction of any nature or any other governmental, self-regulatory or quasi-governmental authority of any nature (including any governmental department, division, agency, bureau, office, branch, court, arbitrator, commission, tribunal or other governmental instrumentality and any national or international stock exchange) or any political or other subdivision or part of any of the foregoing.
4.3.Dividend Waiver. The Investor hereby waives any and all rights to receive any dividend declared by the Company with respect to any class or series of its capital stock prior to the closing of the IPO.
4.4.Most Favored Nation. Notwithstanding anything herein to the contrary, to the extent that any investor (other than entities affiliated with Ryan Smith) enters into any definitive agreement or arrangement with the Company for the purchase and sale of shares of Class A Common Stock from the Company in a private placement transaction prior to or substantially concurrent with the closing of the IPO on terms and conditions that are more favorable to such other investor than those set forth in this Agreement and the Stockholders’ Agreement are to the Investor, the Company will promptly advise the Investor of such fact and provide a copy of drafts and the execution version of such definitive agreement or arrangement and any proposed changes to the Stockholders’ Agreement to the Investor, and the Investor will have the right, exercisable by no later than 5:00 p.m., Mountain time, on the earlier of (a) the third business day after a copy of the execution version of such definitive agreement or arrangement is provided to the Investor, and (b) if the execution version of such definitive agreement or arrangement is signed and provided to the Investor within three business days prior to the expected launch of the roadshow for the IPO, the day that is one full business day after a copy of such execution version is provided to the Investor, to purchase the Shares on all of the terms and conditions set forth in such other definitive agreement or applicable to such arrangement, as the case may be, rather than the terms and conditions set forth in this Agreement, and to be subject to all of the rights and obligations of the Stockholders’ Agreement applicable to such other investor rather than those applicable to the Investor (other than, in each case, the terms and conditions described in the last sentence of this Section 4.4). Notwithstanding anything to the contrary contained herein, the foregoing shall not (A) apply to (i) any provision that is solely related to any regulation imposed on, or tax provisions applicable to, the investor that is party to such agreement (unless the Investor is subject to the same or similar regulations or requirements), (ii) any provision that is personal to such investor solely based on the place of organization or headquarters, or organizational form of (or regulations
applicable to) such investor (unless the Investor has the same or similar place of organization or headquarters, or organizational form, or regulations applicable to the investor), (iii) any provision that relates to lock-up agreements, transfer restrictions or registration rights, or (iv) any provision that relates to commercial rights that primarily involve or are ancillary to the provision of services, the purchase or sale of goods or other assets, or the grant or receipt of rights under a license or (B) cause or result in any change that adversely affects the rights that the Investor will have pursuant to the Stockholders’ Agreement related to service by its representative or designee on the Board of Directors.
4.5.Rollover Shortfall Shares. In the event that holders of the Cash-Settled Equity Awards elect to exchange less than 100% of Cash-Settled Equity Awards for New Share-Settled Equity Awards in the exchange offer by the Company that is described in the Registration Statement (the “Exchange Offer”), (i) the Company will increase the number of shares of Class A Common Stock to be sold pursuant to the IPO by such Rollover Shortfall Shares and (ii) the proceeds to the Company from the sale of such Rollover Shortfall Shares will remain on the Company’s balance sheet and there shall not be a corresponding increase in the principal amount of the intercompany notes to be issued as a dividend by the Company to SAP America, Inc. between the pricing and closing of the IPO. “Cash-Settled Equity Awards” shall mean equity-based awards issued to employees of the Company by the Company and/or SAP SE that are to be settled in cash. “New Share-Settled Equity Awards” shall mean equity-based awards issued by the Company in exchange for Cash-Settled Equity Awards that are to be settled by the issuance of shares of Class A Common Stock. “Rollover Shortfall Shares” shall mean such additional number of shares of Class A Common Stock that would have been required to be issued in respect of any Cash-Settled Equity Awards that were not exchanged, or not elected to be exchanged, for New Share-Settled Equity Awards in the Exchange Offer and that remain outstanding as of the time of sale of the Firm Shares, if such Cash-Settled Equity Awards had so been exchanged or elected to be exchanged.
4.6.Private Placement. Neither the Company nor any agent acting on its behalf will take any action hereafter that would require registration under the Securities Act for the offer and sale of the Shares by the Company to the Investor pursuant to this Agreement.
4.7.Removal of Restrictive Legends. Following the expiration of the Lock-Up Period, in the event that the Shares become registered under the Securities Act or are eligible (in whole or in part) to be transferred without restriction in accordance with Rule 144 under the Securities Act, the Company shall (x) instruct the Company’s transfer agent to issue new uncertificated (book-entry) instruments representing the Shares, which shall not contain such portion of the above legend that is no longer applicable, (y) take all actions with the Company’s transfer agent reasonably requested by the Investor to permit such un-legended Shares to be deposited into the account specified by the Investor to the Company in writing, and (z) instruct the Company’s transfer agent to cause such Shares to be assigned the same CUSIP as the shares of Class A Common Stock that are then traded on the principal stock exchange on which the shares of Class A Common Stock are then listed; provided that, (1) the Investor surrenders to the Company the previously issued uncertificated (book-entry) instruments representing the Shares and (2) the Investor delivers a customary representation letter and opinion of counsel to the extent requested by the Company’s transfer agent.
4.8.Agreements with SAP. The Company will provide the Investor with prior notice in the event that any changes are made to the Master Transaction Agreement, Administrative Services Agreement, Tax Sharing Agreement, Employee Matters Agreement, Intellectual Property License Agreement, Distribution Agreement, Insurance Matters Agreement and Real Estate Matters Agreement, each in the forms attached as Exhibits A-1 through A-8, between the date hereof and the Closing, that are materially adverse to the Company.
4.9.Section 16b-3. The Company agrees that it will cause the Board of Directors or a committee composed solely of two or more “non-employee directors” as defined in Rule 16b-3 of the Exchange Act to take all reasonable action as is requested by the Investor to cause the exemption of the purchase of shares of Class A Common Stock by the Investor (or any of its affiliates to which the rights and obligations of the Investor under this Agreement are assigned in accordance with Section 8.3) pursuant to this Agreement from the liability provisions of Section 16(b) of the Exchange Act pursuant to Rule 16b-3, to the fullest extent applicable.
5Conditions of the Investor’s Obligations at Closing. The obligations of the Investor under Section 1.1 of this Agreement are subject to the performance by the Company of its covenants and other obligations under this Agreement in all material respects and to the fulfillment on or before the Closing of each of the following conditions:
5.1Representations and Warranties. The representations and warranties of the Company contained in Sections 2.1(b) and 2.4(b) and (c) shall be true on and as of the Closing, without giving effect to any qualifications as to “materiality” set forth therein, except as would not reasonably be expected to have a Material Adverse Effect (as defined below). The representations and warranties of the Company contained in Sections 2.1(a), 2.2, 2.3, 2.4(a), 2.5, 2.6, 2.7, 2.8 and 2.9 shall be true on and as of the Closing (or in the case of Sections 2.5(a) and 2.6, as of the date of this Agreement). The Company shall have delivered to the Investor a certificate, dated as of immediately prior to the Closing, signed by the chief executive officer of the Company, certifying to the foregoing matters in this Section 5.1.
5.2Absence of Injunctions, Decrees, Etc. During the period from the date of this Agreement to immediately prior to the Closing, no governmental authority of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any decision, injunction, decree, ruling, law or order enjoining or otherwise prohibiting or making illegal the consummation of the transactions contemplated at the Closing.
5.3Governmental Approvals. The applicable waiting period under the HSR Act (including any extensions thereof) with respect to the transactions contemplated by this Agreement shall have expired or early termination of such waiting period shall have been granted.
5.4Stockholder Consent to Board Appointment. The Investor shall have received a copy of a duly executed written consent of SAP America, Inc. and any other necessary corporate action appointing Egon Durban as an independent member of the Board of Directors for a one-year term, to be effective immediately following the closing of the IPO.
5.5IPO. The underwriters of the IPO shall have purchased, immediately prior to the purchase of the Shares by the Investor hereunder, the Firm Shares (as defined in the
underwriting agreement to be entered into by the Company and the underwriters of the IPO (the “Underwriting Agreement”)) pursuant to the Registration Statement and the Underwriting Agreement. Such Firm Shares shall represent no less than the sum of (i) 44,347,826 shares of Class A Common Stock plus (ii) the Rollover Shortfall Shares (less the number of Overseas Shares (as defined below)), and upon pricing of such shares, the Pro Forma Net Cash shall be no less than zero. “Pro Forma Net Cash” means (1) cash and cash equivalents of the Company less (2) all debt for borrowed money of the Company and intercompany notes issued by the Company, but excluding contingent liabilities in respect of Cash-Settled Equity Awards that were not exchanged, or did not elect to be exchanged, for New Share-Settled Equity Awards, all calculated on a pro forma basis as of the pricing of the IPO but giving effect to the closing of the IPO and the proceeds thereof (but excluding proceeds received in respect of (A) Rollover Shortfall Shares and (B) shares issued pursuant to the 2021 Qualtrics Employee Stock Purchase Plan), the private placements closing prior to or substantially concurrently therewith and, in each case, the use of proceeds therefrom. “Overseas Shares” means the shares of Class A Common Stock that would have been issued in respect of Cash-Settled Equity Awards held by eligible employees in Australia who do not qualify as “wholesale clients” for purposes of Section 761G of the Corporations Act 2001 and to whom the Exchange Offer is being made on a delayed basis, assuming such eligible employees will elect to exchange all of their Cash-Settled Equity Awards for New Share-Settled Equity Awards in the Exchange Offer.
5.6Stockholders’ Agreement. SAP America, Inc. and the Company shall have duly executed and delivered to the Investor a stockholders’ agreement substantially in the form attached hereto as Exhibit B (the “Stockholders’ Agreement”).
5.7Intercompany Notes. The intercompany notes to be issued as a dividend to SAP America, Inc. between the pricing and closing of the IPO shall be in the forms attached hereto as Exhibit C-1 (“Note 1”) and Exhibit C-2 (“Note 2”), except for such changes as may be required to respond to and resolve any comments provided by the SEC on the terms of such notes.
5.8Certificate of Incorporation and Bylaws. The Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws shall be in full force and effect in substantially the form set forth in Exhibit D and Exhibit E, respectively, and shall not have been amended, except in respect of such changes as may be required to respond to and resolve any comments provided by the SEC on the terms of such certificate of incorporation or bylaws.
5.9Absence of Material Adverse Effect. Since the date of this Agreement to the pricing of the IPO, there shall not have been the occurrence of a Material Adverse Effect. The Company shall have delivered to the Investor a certificate, dated as of immediately prior to the pricing of the IPO, signed by the chief executive officer of the Company, certifying to such effect. The Investor shall not be entitled to assert a failure to satisfy the condition set forth in this Section 5.9 as a basis not to perform its obligations under Section 1.1 of this Agreement after the pricing of the IPO; provided that the certifications contained in such certificate shall be deemed to be a representation and warranty made by the Company as of pricing of the IPO which shall survive the Closing, the consummation of the transactions contemplated hereby and any termination of this Agreement, and the Investor shall be entitled to any and all remedies (whether pursuant to this Agreement, at law or otherwise) available to the Investor for any breach of representation or warranty. As used herein, a “Material Adverse Effect” means any event, circumstance, change,
development, effect or occurrence (collectively “Effect”) that, individually or in the aggregate with all other Effects, (a) has or would reasonably be expected to have a material adverse effect on the business, condition (financial or otherwise), assets, liabilities or operations of the Company or (b) would prevent, materially delay or materially impede the performance by the Company of its obligations under this Agreement or the consummation of the IPO; provided, however, that none of the following shall be deemed to constitute, alone or in combination, or be taken into account in the determination of whether there has been or will be, a Material Adverse Effect: (i) any change or proposed change in or change in the interpretation of any law (including any quarantine, “shelter in place,” “stay at home,” workforce reduction, social distancing, shut down, closure, sequester, workplace safety or similar law promulgated by any Governmental Entity in connection with or in response to COVID-19) or accounting principles; (ii) events or conditions generally affecting the industries or geographies in which the Company operates; (iii) any downturn in general economic conditions, including changes in the credit, debt, securities, financial or capital markets (including changes in interest or exchange rates, prices of any security or market index or commodity or any disruption of such markets); (iv) acts of war, sabotage, civil unrest, terrorism, epidemics, pandemics or disease outbreaks (including COVID-19), or any escalation or worsening of any such acts of war, sabotage, civil unrest, terrorism epidemics, pandemics or disease outbreaks, or changes in global, national, regional, state or local political or social conditions; (v) any hurricane, tornado, flood, earthquake, natural disaster, or other acts of God; or (vi) any failure in and of itself to meet any projections, forecasts, guidance, estimates, milestones, budgets or financial or operating predictions of revenue, earnings, cash flow or cash position, provided that this clause (vi) shall not prevent a determination that any Effect underlying such failure has resulted in a Material Adverse Effect, except in the cases of clauses (i) through (v), to the extent that the Company is disproportionately affected thereby as compared with other participants in the industries or geographies in which the Company operates.
5.10Pricing Prospectus. The Company shall have delivered to the Investor a certificate, signed by the chief executive officer of the Company, certifying that, at and as of the time of sale of the Firm Shares and the Closing Date (as defined in the Underwriting Agreement) (the “IPO Closing”), the Rule 10b-5 representation and warranty regarding the Time of Sale Prospectus (as defined in the Underwriting Agreement) set forth in the Underwriting Agreement is true and correct and the Investor can rely on such representation and warranty as if it were addressed to the Investor; provided that certifications in such certificate shall be deemed to be a representation and warranty made by the Company at and as of the time of sale of the Firm Shares and the IPO Closing which shall survive the Closing, the consummation of the transactions contemplated hereby and any termination of this Agreement, and the Investor shall be entitled to any and all remedies (whether pursuant to this Agreement, at law or otherwise) available to the Investor for any breach of representation or warranty.
5.11IPO Price. The price at which each share of Class A Common Stock is sold to the public at the IPO Closing shall not be different from the price to public per share of Class A Common Stock as determined at the time of sale of the Firm Shares and as set forth in the Time of Sale Prospectus.
6.Conditions of the Company’s Obligations at Closing. The obligations of the Company under Section 1.1 of this Agreement are subject to the performance by the Investor of
its covenants and other obligations under this Agreement in all material respects and to the fulfillment on or before the Closing of each of the following conditions:
6.1Representations and Warranties. The representations and warranties of the Investor contained in Section 3 shall be true and correct in all material respects on and as of the Closing. The Investor shall have delivered to the Company a certificate, dated as of immediately prior to the Closing, signed by the chief executive or similar officer of the Investor, certifying to the foregoing matters in this Section 6.1.
6.2Absence of Injunctions, Decrees, Etc. During the period from the date of this Agreement to immediately prior to the Closing, no governmental authority of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any decision, injunction, decree, ruling, law or order enjoining or otherwise prohibiting or making illegal the consummation of the transactions contemplated at the Closing.
6.3Governmental Approvals. The applicable waiting period under the HSR Act (including any extensions thereof) with respect to the transactions contemplated by this Agreement shall have expired or early termination of such waiting period shall have been granted.
6.4Lock-Up Agreement. The Investor shall have delivered to the underwriters of the IPO a duly executed Lock-Up Agreement pursuant to Section 4.1(a).
6.5Closing of the IPO. The IPO shall have closed.
7.Termination. This Agreement may be terminated and the purchase and sale of the Shares contemplated hereby may be abandoned as follows:
(a)at any time upon the written consent of the Company and the Investor;
(b)by either the Company or the Investor upon the withdrawal by the Company of the Registration Statement;
(c)by the Investor prior to the pricing of the IPO in the event the Company shall have failed to provide the Investor with the certification required pursuant to Section 5.9 prior to the pricing of the IPO; or
(d)by either the Company or the Investor if the Closing shall not have occurred prior to June 30, 2021.
8.Miscellaneous.
8.1.Publicity. No party shall issue any press release or make any other public announcement, including any website posting or social media post, that includes the name or any logo or brand name of any party, or discloses the terms of this Agreement or the Stockholders’ Agreement or the fact that the Investor has made or proposes to make an investment in the Company, except that this Agreement and the Stockholders’ Agreement may be filed in connection with, and described in, the Registration Statement and otherwise as may be required by law or with
the prior written consent of the other party. Each party will provide reasonable advance notice to the other parties prior to making any disclosure of this Agreement or the Stockholders’ Agreement or the terms hereof or thereof in any filings made with the SEC and will provide the other party with reasonable opportunity to review and comment on such proposed disclosures. Notwithstanding the foregoing, the Investor may use the Company’s current logo or logos in connection with describing its portfolio or this investment on its webpages and in its promotional materials.
8.2.Survival of Warranties, Representations and Covenants. The warranties, representations and covenants of the Company and the Investor contained in or made pursuant to this Agreement or contained in any certificate delivered pursuant to this Agreement shall survive the execution and delivery of this Agreement and the Closing and shall in no way be affected by any investigation of the subject matter thereof made by or on behalf of the Investor or the Company.
8.3.Successors and Assigns. This Agreement, and any and all rights, duties and obligations hereunder, shall not be assigned, transferred, delegated or sublicensed by the Investor without the prior written consent of the Company; provided, however, that, the Shares and the rights, duties and obligations of the Investor hereunder may be assigned to an affiliate of the Investor without the prior written consent of the Company; provided, further, that no such assignment occurring prior to the Closing shall relieve the Investor of its duties and obligations pursuant to this Agreement. Any attempt by the Investor without such permission to assign, transfer, delegate or sublicense any rights, duties or obligations that arise under this Agreement in a manner that is not permitted by the foregoing sentence to be made without such permission shall be void. Subject to the foregoing and except as otherwise provided herein, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. No provision of this Agreement is intended, or shall be interpreted, to provide or create any third-party beneficiary rights or any other rights of any kind or nature whatsoever in any person other than the parties hereto and their respective successors and permitted assigns and the Non-Recourse Parties (as defined herein).
8.4.Governing Law. This Agreement shall be governed in all respects by the internal laws of the State of Delaware as applied to agreements entered into among Delaware residents to be performed entirely within Delaware, without regard to principles of conflicts of law.
8.5.Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument. The words “execution,” “signed,” “signature,” “delivery,” and words of like import in or relating to this Agreement or any document to be signed in connection with this Agreement shall be deemed to include electronic signatures, deliveries or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature, physical delivery thereof or the use of a paper-based recordkeeping system, as the case may be, and the parties hereto consent to conduct the transactions contemplated hereunder by electronic means.
8.6.Notices. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, sent by facsimile or electronic mail (if to the Investor) or otherwise delivered by hand, messenger or courier service addressed:
(a)if to the Investor, to the Investor’s address or electronic mail address as shown on the Investor’s signature page to this Agreement, with a copy (which shall not constitute notice) to Simpson Thacher & Bartlett LLP, 425 Lexington Avenue, New York, NY 10017, Attention: Kenneth B. Wallach (kwallach@stblaw.com) and Hui Lin (Hui.Lin@stblaw.com); and
(b)if to the Company, to the attention of the General Counsel of the Company at 333 West River Park Drive, Provo, Utah 84604, or at such other current address or electronic mail address as the Company shall have furnished to the Investor, with a copy (which shall not constitute notice) to Shearman & Sterling LLP, 1460 El Camino Real, 2nd Floor, Menlo Park, CA 94025, Attention: Daniel Mitz, daniel.mitz@shearman.com.
Each such notice or other communication shall for all purposes of this Agreement be treated as effective or having been given (i) if delivered by hand, messenger or courier service, when delivered (or if sent via a nationally-recognized overnight courier service, freight prepaid, specifying next-business-day delivery, one business day after deposit with the courier), or (ii) if sent via mail, at the earlier of its receipt or five days after the same has been deposited in a regularly-maintained receptacle for the deposit of the United States mail, addressed and mailed as aforesaid, or (iii) if sent via electronic mail, when directed to the relevant electronic mail address, if sent during normal business hours of the recipient, or if not sent during normal business hours of the recipient, then on the recipient’s next business day. In the event of any conflict between the Company’s books and records and this Agreement or any notice delivered hereunder, the Company’s books and records will control absent fraud or error.
8.7.Brokers or Finders. The Company shall indemnify and hold harmless the Investor from any liability for any commission or compensation in the nature of a brokerage or finder’s fee or agent’s commission (and the costs and expenses of defending against such liability or asserted liability) for which the Investor or any of its constituent partners, members, officers, directors, employees or representatives is responsible to the extent such liability is attributable to any inaccuracy or breach of the representations and warranties contained in Section 2.7, and the Investor shall indemnify and hold harmless the Company from any liability for any commission or compensation in the nature of a brokerage or finder’s fee or agent’s commission (and the costs and expenses of defending against such liability or asserted liability) for which the Company or any of its constituent partners, members, officers, directors, employees or representatives is responsible to the extent such liability is attributable to any inaccuracy or breach of the representations and warranties contained in Section 3.7.
8.8.Amendments and Waivers. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Investor; provided, however, that any provision hereof may be waived by any waiving party on such party’s own behalf, without the consent of any other party.
8.9.Severability. If any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, portions of such provision, or such provision in its entirety, to the extent necessary, shall be severed from this Agreement, and such court will replace such illegal, void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the same economic, business and other purposes of the illegal, void or unenforceable provision. The balance of this Agreement shall be enforceable in accordance with its terms.
8.10.Entire Agreement. This Agreement and the documents referred to herein constitute the entire agreement among the parties. No party shall be liable or bound to any other party in any manner with regard to the subjects hereof or thereof by any warranties, representations or covenants except as specifically set forth herein or therein.
8.11.Specific Performance. The parties to this Agreement hereby acknowledge and agree that the Company would be irreparably injured by a breach of this Agreement by the Investor, and the Investor would be irreparably injured by a breach of this Agreement by the Company, and that money damages are an inadequate remedy for an actual or threatened breach of this Agreement because of the difficulty of ascertaining the amount of damage that will be suffered by the aggrieved party in the event that this agreement is breached. Therefore, each of the parties to this Agreement agree to the granting of specific performance of this Agreement and injunctive or other equitable relief in favor of the aggrieved party as a remedy for any such breach, without proof of actual damages, and the parties to this Agreement further waive any requirement for the securing or posting of any bond in connection with any such remedy. Such remedy shall not be deemed to be the exclusive remedy for breach of this Agreement but shall be in addition to all other remedies available at law or in equity to the aggrieved party. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated.
8.12.No Recourse.
(a)Notwithstanding anything to the contrary in this Agreement, the Investor’s liability for any liability, loss, damage or recovery of any kind (including special, exemplary, consequential, indirect or punitive damages or damages arising from loss of profits, business opportunities or goodwill, diminution in value or any other losses or damages, whether at law, in equity, in contract, in tort or otherwise) arising under or in connection with any breach of this Agreement (whether willfully, intentionally, unintentionally or otherwise) or in respect of any oral representations made or alleged to have been made in connection herewith shall be no greater than an amount equal to the total purchase price payable by the Investor in respect of the Shares plus any reasonable and documented out-of-pocket expenses the Company may recover in connection with any claim therefor following the determination in a final, non-appealable judgment by a court of competent jurisdiction that the Investor has so breached this Agreement, and the Investor shall have no further liability or obligation relating to or arising out of this Agreement or the transactions contemplated hereby in excess of such amount.
(b)This Agreement may only be enforced against, and any claims or causes of action that may be based upon, arise out of or relate to this Agreement, or the negotiation, execution or performance of this Agreement, may only be made against, the entities that are expressly identified as parties hereto, including entities that become parties hereto after the date hereof or that agree in writing for the benefit of the Company to be bound by the terms of this Agreement applicable to the Investor, and no former, current or future equityholders, controlling persons, directors, officers, employees, agents or affiliates of any party hereto or any former, current or future equityholder, controlling person, director, officer, employee, general or limited partner, member, manager, advisor, agent or affiliates of any of the foregoing (each, a “Non-Recourse Party”) shall have any liability for any obligations or liabilities of the parties to this Agreement or for any claim (whether in tort, contract or otherwise) based on, in respect of, or by reason of, the transactions contemplated hereby or in respect of any representations made or alleged to be made in connection herewith. Without limiting the rights of any party against the other parties hereto, in no event shall any party or any of its affiliates seek to enforce this Agreement against, make any claims for breach of this Agreement against, or seek to recover monetary damages from any Non-Recourse Party.
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IN WITNESS WHEREOF, the parties have executed this Class A Common Stock Purchase Agreement as of the date first above written.
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QUALTRICS INTERNATIONAL INC.
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By:
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/s/ Chris Beckstead
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Name:
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Chris Beckstead
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Title:
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President
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INVESTOR:
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SILVER LAKE PARTNERS VI DE (AIV), L.P.
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By: Silver Lake Technology Associates VI, L.P., its general partner
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By: SLTA VI (GP), L.L.C., its general partner
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By: Silver Lake Group, L.L.C., its managing member
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By:
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/s/ Egon Durban
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Name:
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Egon Durban
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Title:
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Co-CEO
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Address:
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Email:
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[Signature Page to Class A Common Stock Purchase Agreement]
EXHIBIT A-1
FORM OF MASTER TRANSACTION AGREEMENT [Omitted pursuant to Item 601(a)(5) of Regulation S-K]
EXHIBIT A-2
FORM OF ADMINISTRATIVE SERVICES AGREEMENT [Omitted pursuant to Item 601(a)(5) of Regulation S-K]
EXHIBIT A-3
FORM OF TAX SHARING AGREEMENT [Omitted pursuant to Item 601(a)(5) of Regulation S-K]
EXHIBIT A-4
FORM OF EMPLOYEE MATTERS AGREEMENT [Omitted pursuant to Item 601(a)(5) of Regulation S-K]
EXHIBIT A-5
FORM OF INTELLECTUAL PROPERTY LICENSE AGREEMENT [Omitted pursuant to Item 601(a)(5) of Regulation S-K]
EXHIBIT A-6
FORM OF DISTRIBUTION AGREEMENT [Omitted pursuant to Item 601(a)(5) of Regulation S-K]
EXHIBIT A-7
FORM OF INSURANCE MATTERS AGREEMENT [Omitted pursuant to Item 601(a)(5) of Regulation S-K]
EXHIBIT A-8
FORM OF REAL ESTATE MATTERS AGREEMENT [Omitted pursuant to Item 601(a)(5) of Regulation S-K]
EXHIBIT B
FORM OF STOCKHOLDERS’ AGREEMENT [Omitted pursuant to Item 601(a)(5) of Regulation S-K]
EXHIBIT C-1
FORM OF NOTE 1 [Omitted pursuant to Item 601(a)(5) of Regulation S-K]
EXHIBIT C-2
FORM OF NOTE 2 [Omitted pursuant to Item 601(a)(5) of Regulation S-K]
EXHIBIT D
FORM OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION [Omitted pursuant to Item 601(a)(5) of Regulation S-K]
EXHIBIT E
FORM OF AMENDED AND RESTATED BYLAWS [Omitted pursuant to Item 601(a)(5) of Regulation S-K]
Subsidiaries of Qualtrics International Inc.
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Name of Subsidiary
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Jurisdiction of Incorporation or Organization
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Qualtrics, LLC
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Delaware
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Q (AGF2) Inc.
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Delaware
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New Debden Merger Sub II LLC
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Delaware
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Delighted, LLC
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Delaware
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Statwing, LLC
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Delaware
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IP Asset Holdings, LLC
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Delaware
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TM Property Holdings, LLC
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Delaware
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Temkin Group, LLC
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Delaware
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QCL Technologies Ltd.
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Canada
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QAL Technologies Pty Ltd
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Australia
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Qualtrics Japan LLC
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Japan
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Qualtrics Sweden AB
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Sweden
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QSL Technologies Pte. Ltd.
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Singapore
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Qualtrics Technologies Spain, S.L.U.
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Spain
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QDL Technologies GmbH
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Germany
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QFL Technologies Sarl
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France
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QIL Technologies Limited
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Ireland
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QPL Technologies sp. z o.o.
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Poland
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QUL Technologies Limited
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United Kingdom
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Consent of Independent Registered Public Accounting Firm
The Board of Directors of Qualtrics International Inc.
The Board of Directors of SAP SE:
We consent to the use of our report included herein and to the reference to our firm under the heading “Experts” in the prospectus. Our report refers to a change in the method of accounting for leases as of January 1, 2019 due to the adoption of Accounting Standards Codification Topic 842, Leases.
/s/ KPMG LLP
Salt Lake City, Utah
December 28, 2020
Consent of Director Nominee
Qualtrics International Inc. (the “Company”) has filed a Registration Statement on Form S-1 (Registration No. 333- ) with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the “Securities Act”), in connection with the Company’s initial public offering of Class A common stock. In connection therewith, I hereby consent, pursuant to Rule 438 of the Securities Act, to being named as a nominee to the board of directors of the Company in the Registration Statement, as may be amended from time to time. I also consent to the filing of this consent as an exhibit to such Registration Statement and any amendments thereto.
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/s/ Egon Durban
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Name: Egon Durban
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Consent of Director Nominee
Qualtrics International Inc. (the “Company”) has filed a Registration Statement on Form S-1 (Registration No. 333- ) with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the “Securities Act”), in connection with the Company’s initial public offering of Class A common stock. In connection therewith, I hereby consent, pursuant to Rule 438 of the Securities Act, to being named as a nominee to the board of directors of the Company in the Registration Statement, as may be amended from time to time. I also consent to the filing of this consent as an exhibit to such Registration Statement and any amendments thereto.
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/s/ Kelly Steckelberg
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Name: Kelly Steckelberg
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