As filed with the Securities and Exchange Commission on April 30, 2021
Registration No. 333-255488
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1 to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ZIPRECRUITER, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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7370
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27-2976158
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(State or other jurisdiction of
incorporation or organization)
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(Primary Standard Industrial
Classification Code Number)
604 Arizona Avenue
Santa Monica, CA 90401
(877) 252-1062
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(I.R.S. Employer
Identification Number)
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(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Ian Siegel
Chief Executive Officer
ZipRecruiter, Inc.
604 Arizona Avenue
Santa Monica, CA 90401
(877) 252-1062
(Name, address, including zip code, and telephone number, including area code, of agent for service)
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James D. Evans
Katherine K. Duncan
Janiece A. Jenkins
Fenwick & West LLP
228 Santa Monica Blvd., Suite 300
Santa Monica, CA 90401
(310) 434-5400
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Ryan Sakamoto
General Counsel
ZipRecruiter, Inc.
604 Arizona Avenue
Santa Monica, CA 90401
(877) 252-1062
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Marc D. Jaffe
Ian D. Schuman
Sarah B. Axtell
Latham & Watkins LLP
140 Scott Drive
Menlo Park, CA 94025
(650) 328-4600
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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, as amended, or Securities Act, check the following box: ☒
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Securities Exchange Act of 1934, as amended.
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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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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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Amount to be registered
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Proposed maximum
offering price per share
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Proposed maximum
aggregate offering
price(1)
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Amount of registration (2)
fee
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Class A common stock, $0.00001 par value per share
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86,598,896
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Not applicable
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$102,970,054
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$11,234
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(1)Estimated solely for purposes of calculating the registration fee pursuant to Rule 457(a) of the Securities Act of 1933, as amended. Given that there is no proposed maximum offering price per share of Class A common stock, the registrant calculates the proposed maximum aggregate offering price, by analogy to Rule 457(f)(2), based on the book value of the Class A common stock the registrant registers, which was calculated from its unaudited pro forma balance sheet as of March 31, 2021. Given that the registrant’s shares of Class A common stock are not traded on an exchange or over-the-counter, the registrant did not use the market prices of its Class A common stock in accordance with Rule 457(c).
(2)The registrant previously paid $10,910 in registration fees in connection with the initial filing of this registration statement.
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. The securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
PROSPECTUS (Subject to Completion)
Issued April 30, 2021.
86,598,896 Shares of Class A Common Stock
This prospectus relates to the registration of the resale of up to 86,598,896 shares of our Class A common stock by the stockholders identified in this prospectus, or the registered stockholders. Unlike an initial public offering, the resale by the registered stockholders is not being underwritten by any investment bank. The registered stockholders may, or may not, elect to sell their shares of Class A common stock covered by this prospectus, as and to the extent they may determine. Sales of our Class A common stock, if any, will be made through brokerage transactions on the New York Stock Exchange at prevailing market prices. See the section titled “Plan of Distribution” for additional information. If the registered stockholders choose to sell their shares of Class A common stock, we will not receive any proceeds from the sale of such shares of Class A common stock.
We have two classes of authorized common stock, Class A common stock and Class B common stock. The rights of the holders of Class A common stock and Class B common stock are identical, except with respect to voting and conversion rights. Each share of Class A common stock is entitled to one vote. Each share of Class B common stock is entitled to twenty votes and is convertible at any time into one share of Class A common stock. As of March 31, 2021, the holders of our outstanding Class B common stock hold 100% of the voting power of our outstanding capital stock, with our directors, executive officers, and 5% stockholders, and their respective affiliates, holding approximately 85.4% of the voting power of our outstanding capital stock. Prior to any sales of shares of Class A common stock, the registered stockholders who hold Class B common stock must convert their shares of Class B common stock into shares of Class A common stock.
No public market for our Class A common stock currently exists. However, our shares of Class B common stock have a history of trading in private transactions. Based on information available to us, the sales price per share of Class B common stock for such private transactions during the year ended December 31, 2020 was $6.36 and during the period from January 1, 2021 through March 31, 2021 was $9.00. For more information, see the section titled “Sale Price History of our Capital Stock.” Our recent trading prices of Class B common stock in private transactions may have little or no relation to the opening public price or the subsequent trading price of our shares of Class A common stock on the New York Stock Exchange. Further, the listing of our Class A common stock on the New York Stock Exchange without underwriters is a novel method for commencing public trading in shares of our Class A common stock, and consequently, the trading volume and price of shares of our Class A common stock may be more volatile than if shares of our Class A common stock were initially listed in connection with an underwritten initial public offering.
We have applied to list our Class A common stock on the New York Stock Exchange under the symbol “ZIP.” We expect our Class A common stock to begin trading on or about May 26, 2021.
We are an “emerging growth company” as that term is used in the Jumpstart Our Business Startups Act of 2012 and, as such, we have elected to comply with certain reduced reporting requirements for this prospectus and may elect to do so in future filings.
See the section titled “Risk Factors” beginning on page 23 to read about factors you should consider before buying shares of our Class A common stock.
Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
, 2021
TABLE OF CONTENTS
You should rely only on the information contained in this prospectus or contained in any free writing prospectus filed with the Securities and Exchange Commission, or SEC. Neither we nor the registered stockholders have authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. Neither we nor the registered stockholders take responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. The registered stockholders will offer to sell, and seek offers to buy, shares of their Class A common stock only in jurisdictions where it is lawful to do so. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our Class A common stock. Our business, financial condition, results of operations, and prospects may have changed since that date.
Through and including , 2021 (the 25th day after the listing date of our Class A common stock), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus.
For investors outside of the United States: Neither we nor any of the registered stockholders have done anything that would permit possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of Class A common stock by the registered stockholders and the distribution of this prospectus outside of the United States.
ABOUT THIS PROSPECTUS
This prospectus is a part of a registration statement on Form S-1 that we filed with the SEC using a “shelf” registration or continuous offering process. Under this shelf process, the registered stockholders may, from time to time, sell the Class A common stock covered by this prospectus in the manner described in the section titled “Plan of Distribution.” Additionally, we may provide a prospectus supplement to add information to, or update or change information contained in, this prospectus, including the section titled “Plan of Distribution.” You may obtain this information without charge by following the instructions under the section titled “Where You Can Find Additional Information” appearing elsewhere in this prospectus. You should read this prospectus and any prospectus supplement before deciding to invest in our Class A common stock.
Except as otherwise indicated, all information in this prospectus assumes:
•the amendment of our amended and restated certificate of incorporation on April 22, 2021 to redesignate our outstanding common stock as Class B common stock and create a new class of Class A common stock;
•the conversion of 2,271,437 shares of our Series A convertible preferred stock and 6,030,706 shares of our Series B convertible preferred stock outstanding as of March 31, 2021 into 24,202,202 shares of our Class B common stock, the conversion of which will occur upon the effectiveness of the registration statement of which this prospectus forms a part;
•the conversion of our outstanding convertible promissory notes and interest due June 2023 into 3,073,594 shares of Class B common stock, the conversion of which will occur immediately following the first trading day of our Class A common stock on the New York Stock Exchange, assuming a conversion price of $8.2909 per share (which is the maximum price per share at which the convertible promissory notes are convertible by their terms, as further described within the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Convertible Notes with Related Parties”) and conversion as of March 31, 2021;
•the filing and effectiveness of our amended and restated certificate of incorporation and adoption of our amended and restated bylaws, each of which will occur in connection with the effectiveness of the registration statement of which this prospectus forms a part;
•the vesting and settlement of 1,860,101 restricted stock units, or RSUs, into the same number of shares of Class B common stock, for which RSUs the service-based vesting condition was satisfied as of March 31, 2021 and for which our board of directors has waived the liquidity event-based vesting condition effective as of the earlier of the first day of trading of our Class A common stock on the New York Stock Exchange and March 15, 2022, as if our board of directors had waived the liquidity event-based condition and such RSUs settled as of March 31, 2021; and
•no exercise of outstanding options or settlement of additional outstanding RSUs after March 31, 2021.
GLOSSARY OF TERMS USED IN THIS PROSPECTUS
Throughout this prospectus, we use a number of key terms and provide a number of key operating metrics used by management. These key operating metrics are discussed in more detail in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Our Business Model—Key Operating Metrics and Non-GAAP Financial Measures.” We define these terms as follows:
“Active Job Seeker” means a job seeker who, within a specified period, takes one or more of the following actions: (1) makes at least one visit to a ZipRecruiter-hosted site, (2) launches a ZipRecruiter job seeker mobile application, or (3) opens a ZipRecruiter-hosted engagement email. For purposes of counting Active Job Seekers, we count only unique users who are registered with ZipRecruiter as job seekers and who have previously visited a ZipRecruiter-hosted site at least once. Activity by users not registered with ZipRecruiter, registered users who are logged out of their job seeker account, or users who have opened an email alert generated by sign-ups with a ZipRecruiter partner will not contribute toward the Active Job Seeker metric.
“ATS” means applicant tracking system, which refers to the software platform in which hiring teams can review, rate and ultimately decide which candidate to hire.
“Average Number of Days Job Stays Posted” means the aggregate number of days jobs have been posted by employers in our marketplace divided by the number of jobs posted during a particular period, excluding jobs having a duration of greater than 90 days to eliminate “ever-green” jobs that remain open to source multiple job candidates.
“Cohort” means Paid Employers acquired during a particular year.
“Employer Acquisition Expense” means our marketing media expenses incurred for advertising directed toward employers, plus salary, bonus and commission expenses for our customer acquisition sales and marketing teams.
“Great Match” means a designation assigned by ZipRecruiter’s technology to either a job seeker or a job to indicate a high potential fit between a job seeker and a job.
“Job Acquisition Partners” means third-party sites and ATSs who have a relationship with us and from whom we receive jobs for our marketplace.
“Job Distribution Partners” means third-party sites who have a relationship with us and advertise jobs from our marketplace, and includes job boards, newspaper classifieds, search engines, social networks, talent communities and resume services.
“Paid Employer(s)” means any employer(s) (or entities acting on behalf of an employer) on a paying subscription plan or performance marketing campaign for at least one day. Paid Employer(s) excludes employers from our Job Distribution Partners or other indirect channels, employers who are not actively searching for candidates, but otherwise have access to previously posted jobs, and employers on free trial.
“Payback Period” means the number of months, beginning in January of the Cohort’s initial calendar year, required to generate enough cumulative revenue to recover the Employer Acquisition Expense incurred in the Cohort’s initial calendar year.
“Quarterly Paid Employers” means, with respect to any fiscal quarter, the count of Paid Employers during such fiscal quarter.
“Revenue per Paid Employer” means the total Company revenue in a particular period divided by the count of Paid Employers in the same period.
“Thumbs Up Rate” means the percentage of all Great Match applicants receiving a rating who received “thumbs up,” or a positive rating, by a Paid Employer.
PROSPECTUS SUMMARY
This summary highlights selected information that is presented in greater detail elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our Class A common stock. You should carefully read this prospectus in its entirety before investing in our Class A common stock, including the sections titled “Risk Factors,” “Special Note Regarding Forward-Looking Statements,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements and the accompanying notes, provided elsewhere in this prospectus. Some of the statements in this prospectus constitute forward-looking statements. See the section titled “Special Note Regarding Forward-Looking Statements.” Unless the context otherwise requires, the terms “ZipRecruiter,” “the company,” “we,” “us,” and “our” in this prospectus refer to ZipRecruiter, Inc. and our consolidated subsidiaries. Our fiscal year ends December 31.
ZIPRECRUITER, INC.
Before we begin, we first want to recognize the impact of the COVID-19 pandemic. The toll on the health, safety, economic security and emotional well-being of the global community is ongoing and will take years to fully appreciate. Amidst all the stories of the true heroes who have helped manage through the pandemic and those who will bring the pandemic to its end, we feel incredibly grateful and fortunate to tell our story, about a growing business doing our part to help power the economic recovery to come.
Businesses and people need to get back to work after the pandemic. We are committed to helping in that great and noble effort.
Overview
Our Mission. To actively connect people to their next great opportunity.
The Problem. Twenty years after moving online, the job market remains painfully inefficient. Job seekers are required to navigate on their own in order to find the right jobs to apply to, usually across multiple sites, and without effective tools for monitoring new opportunities. Employers in turn are overwhelmed by the complexity of modern recruiting given the abundance of job boards, search engines, and social networks to source talent from. Neither side is an expert at their role. Neither side enjoys the process.
Our Business. We founded ZipRecruiter to simplify the job market for both job seekers and employers. Unlike traditional online job sites, ZipRecruiter works like a matchmaker curating job opportunities for job seekers, and candidates for employers. Since the founding of our company in 2010, over 2.8 million businesses and 110 million job seekers have come to ZipRecruiter for their hiring and job search needs.
Creating Value for Job Seekers. For job seekers across all industries and levels of seniority, we operate like a dedicated recruiter. That means presenting strong fit job opportunities, proactively pitching potential candidates to employers, and providing job seekers with updates on the status of their applications. This makes job seekers feel supported while searching for work. That’s why ZipRecruiter has been the #1 rated job seeker app on iOS and Android for the past four years.1
Creating Value for Employers. For employers, we focus on building technology to rapidly deliver quality candidates to companies of all sizes and across all industries. Our algorithms alert the best job seekers in our marketplace when a job goes live. Employers posting jobs often get their first quality candidate before they can get up from their chair. 80% of employers posting in our marketplace receive a
1 Based on ratings information for the Google Play Store and Apple App Store from the AppFollow platform during the period of March 2017 to March 2021 for the job seeker apps of ZipRecruiter, CareerBuilder, Craigslist, Glassdoor, Indeed, LinkedIn, and Monster.
quality candidate within the first 24 hours. That’s why ZipRecruiter is the #1 rated employment marketplace by G22.
Unique Data and Artificial Intelligence Provide Better Outcomes for Employers and Job Seekers. With a relevant data pipeline created from billions of interactions between job seekers and employers, we are uniquely positioned to harness that data to fuel the advanced artificial intelligence behind our matching, recommendation and marketplace optimization capabilities. Through our deep learning-based natural language processing, we understand job seekers’ and employers’ nuanced needs. We model and analyze clicks, applications, hiring signals, and numerous other interactions to improve outcomes for all participants in our marketplace. Our advanced technology stack processes the data generated by our highly engaged user base to continuously improve our matchmaking. Our climbing satisfaction metrics on both sides of our marketplace over the past few years give us confidence that these technology investments are yielding results for employers and job seekers alike.
Accelerating Network Effects. Increasing the number of jobs in our marketplace attracts more job seekers. A greater number of job seekers attracts more employers who in turn post more job opportunities in our marketplace. These natural, self-perpetuating network effects increase our data and thereby accelerate the rate at which our matching technology gets smarter over time.
Compelling Financial Results. The combination of the scale on both sides of our marketplace, our efficient go-to-market strategy, and intelligent use of technology has resulted in compelling financial results. For the year ended December 31, 2019, our revenue was $429.6 million and we generated a net loss of $6.3 million and Adjusted EBITDA of $9.4 million. For the year ended December 31, 2020, our revenue was $418.1 million and we generated a net income of $86.0 million and Adjusted EBITDA of $80.1 million. For the three months ended March 31, 2020, our revenue was $113.3 million and we generated a net loss of $11.1 million and Adjusted EBITDA of $(6.4) million. For the three months ended March 31, 2021, our revenue was $125.4 million and we generated a net income of $13.4 million and Adjusted EBITDA of $20.0 million. Adjusted EBITDA is a financial measure not presented in accordance with generally accepted accounting principles, or GAAP. For a definition of Adjusted EBITDA, an explanation of our management’s use of this measure and a reconciliation of net income (loss) to Adjusted EBITDA, see the section titled “Summary Consolidated Financial and Operating Data.”
2 Based on G2 satisfaction ratings as set forth in G2, Best Job Boards Software, https://www.g2.com/categories/job-boards?utf8=%E2%9C%93&order=top_shelf (last visited January 25, 2021).
What We Do
We enable work by connecting job seekers and employers in our marketplace. Since the founding of our company in 2010, over 2.8 million businesses and 110 million job seekers have come to ZipRecruiter for their hiring and job search needs.
How We Work for Employers
ZipRecruiter is focused on meaningfully reducing the time associated with making a new hire. Our technology delivers high-quality matches immediately after a job goes live and provides tools to streamline the vetting process.
Quality Candidates Fast
•Job distribution. Jobs posted with ZipRecruiter are distributed to well over 1,000 sites managed by our Job Distribution Partners. The diversity and depth of our partner network enables employers to reach an especially broad job seeker audience.
•Instant alerts to qualified potential candidates. When employers post a job, ZipRecruiter’s matching technology identifies and sends an alert to the best job seekers in our marketplace.
•Direct recruitment messages from the employer. Immediately after a job is posted, ZipRecruiter’s matching technology presents the employer with a list of potential Great Match candidates in the market. The employer can then, with a single click, personally invite the most qualified potential candidates to apply.
•Matching that learns. When an employer gives an applicant a “thumbs up” rating, our technology searches for other job seekers with similar profiles to that candidate and proactively encourages them to apply.
•Access to an expansive database of job seekers. We provide employers with access to 14 million monthly Active Job Seekers with broad skill sets and a range of experiences.
Efficient Candidate Vetting
•All the applicants in one place. For employers who do not already have an established process to manage hiring, job applicants from all these different sites are captured inside the ZipRecruiter ATS.
•Great Match filtering. Our technology filters for applicants identified as a Great Match to help hiring managers avoid missing high-quality candidates.
•In-demand candidate alerts. We apply an “Act Fast!” label to notify employers when their candidates have received interest from other employers, encouraging them to reach out quickly. In a tight, competitive market for top-quality talent, these notifications prompt hiring managers to move quickly to avoid losing out on a potentially great hire.
Flexible Pricing
•Flexible pricing based on customer needs. We provide a variety of pricing plans to best suit an employer’s specific needs, including flat rate pricing on terms ranging from a day to a year, as well as performance-based pricing for employers that run sophisticated recruitment marketing campaigns.
How We Work for Job Seekers
We make finding work easier.
Process Efficiency
•Search millions of jobs in one place. ZipRecruiter provides job seekers with access to millions of jobs from all over the internet.
•Simple, one-click applications. On ZipRecruiter, job seekers create a profile and can then apply for opportunities with a single click. Our one-click application works across both our marketplace and our Job Distribution Partners to remove barriers between a job seeker and their next opportunity.
•Job application tracking. Job seekers apply to numerous opportunities throughout the course of their search. Our simple, user-friendly dashboard aggregates their application history so job seekers can track opportunities.
Personalized Recruiter Assistance
•Pitched to employers as a potential candidate. After a new job is posted, ZipRecruiter’s matching technology immediately presents potential Great Match job seekers to the employer for consideration. Employers can then directly invite the job seekers they like best to apply.
•“Phil,” your personal (automated) recruiter. Our automated recruiter “Phil” curates and presents individual opportunities to job seekers for which they are a Great Match. Phil engages in a human-feeling, positive, personalized dialogue with candidates, inviting them to apply for new open positions.
•Job alerts. ZipRecruiter delivers a digest of relevant new opportunities from across the web on a daily basis to job seekers, enabling them to monitor the full breadth of our marketplace offerings.
•Match scoring. Match scores highlight best-fit opportunities for job seekers. This allows job seekers to see how well their skills match with available jobs so they can focus their energy on the right opportunities.
•Application updates. Our technology notifies job seekers when an employer either views their application or gives them a “thumbs up” rating. This addresses the #1 complaint we hear from job seekers: applying to a job and then hearing nothing back.
The Future of Work is at an Inflection Point
Today, more than 20% of working Americans, or over 40 million individuals, change jobs every year.3 Additionally, more than half of those currently working employees are either actively searching for new jobs or passively exploring new career opportunities.4
Employees are changing jobs faster. Median tenure of Millennials at a single organization is now only 2.8 years, down from a median of 10 years for the Baby Boomer generation of employees.5 Recruiting is becoming an “always on” reality for an increasing percentage of businesses. Over 75% of employers report using an online job board in 2020.6
We anticipate these trends will continue for the foreseeable future, with tens of millions of job seekers continuing to seek out tens of millions of new jobs each year. As has been the case since our founding in 2010, we believe we will continue to grow the share of that job seeking activity that we enable. But more recent developments, especially those driven by the global pandemic, are also introducing new disruptive forces into the traditional work paradigm.
COVID-19 dramatically suppressed the job market and put an end to a 10-year run of job growth.7 Multiple high volume hiring categories like hospitality, tourism, and live events have gone dormant. Further, in spite of there having been over 20 million people unemployed or under-employed due to the pandemic, according to our internal data, job seekers are currently searching for work in our marketplace at 20% below pre-pandemic levels.
We believe distribution of vaccines for COVID-19 will drive a broad-based and extended recovery in the hiring market on both sides of our marketplace. We further believe that the future of work, and by extension recruiting, has been irreversibly changed.
The percentage of workers around the world that permanently work from home is expected to double in 2021 as employers and workers alike have realized productivity increases during the COVID-19 pandemic.8 Removing a geographic constraint from the definition of a qualified applicant will be a significant change for those executing talent searches. For most new work from home jobs, the qualified candidate pool will increase by orders of magnitude. Trying to select from the hundreds, or even thousands, of candidates resulting from a nationwide job posting would be painfully inefficient for employers.
We believe this dramatic increase in available quality applicants per job opening will tilt employers towards tools with the ability to identify and selectively recruit talent from across the nation. Our advanced matching and existing process tools for employers are well suited to meet the challenges of this dynamic new opportunity.
We believe that the confluence of all the trends above will provide a significant tailwind for our faster, smarter marketplace.
Opportunities to Meet the Challenges Employers Face
Companies have been searching for candidates on the internet for decades, but unlike the vast majority of other internet-enabled services, such as shopping, entertainment, or booking travel, the task of
3 U.S. Bureau of Labor Statistics, Employee Tenure Summary - Employee Tenure in 2020, September 22, 2020 (20% - 24% of Americans change jobs every year). Referred to hereinafter as the U.S. BOL Employee Tenure Summary.
4 Gallup Inc., State of the American Workplace, 2017.
5 U.S. BOL Employee Tenure Summary.
6 ZipRecruiter Brand Awareness Survey, 2020. Referred to hereinafter as the Brand Awareness Survey. For more information about the Brand Awareness Survey, see the section titled “Market and Industry Data.”
7 U.S. Bureau of Labor Statistics, Total Nonfarm Employment, Seasonally Adjusted.
8 Thomson Reuters Corporation, Permanently remote workers seen doubling in 2021 due to pandemic productivity: survey, October 2020.
finding the right candidate remains complicated. Employers face a series of challenges that make the process of selecting the best candidate frustrating and inefficient.
•Access to all job seekers. Employers want to feel confident they have reached a critical mass of potential candidates.
•Surfacing highly qualified applicants. Choosing the right candidate to hire starts with evaluating all applicants to assess if they are a potential Great Match for the role.
•Quickly engaging potential Great Match candidates. The best candidates are in high demand and engaging those candidates before the window of opportunity closes is critical.
Opportunities to Meet the Challenges Job Seekers Face
If there is a job seeker out there who loves the traditional job search process, we have not found them yet. Searching for a job is hard and time consuming. We believe technology designed for job seekers can uncover more great opportunities with less effort and rejection.
•Access to all jobs. Job seekers often need to search broadly to find the right position, replicating the same search across multiple sites to find the opportunities for which they are a good fit.
•Surfacing those jobs that could be a Great Match. Amidst the millions of jobs that are searchable, finding those that fit best is cumbersome.
•Providing feedback on where a job application stands. Most job seekers who apply to a job never hear anything back from the employer.
Our Strengths
Transforming how people find work requires a combination of world-class skills. Our core competitive advantages that have been critical to our success include:
•Large and unique set of jobs. With over 90 million job postings available for matching in 2020 alone,9 technology brings both jobs listed directly in our marketplace as well as those from our Job Acquisition Partners together. ZipRecruiter was the canonical source for millions of these jobs, which means a job seeker’s search is incomplete unless they access our marketplace.
•Engaged job seeker community. Over 36 million Active Job Seekers engaged in the ZipRecruiter marketplace in 2020. Those job seekers come to us directly and through our network of well over 1,000 sites managed by our Job Distribution Partners.
•Powerful artificial intelligence powered technology. Our technology captures insights from billions of user interactions facilitated by our marketplace, driving meaningful increases in the quality of matches we can enable over time.
•Designed for simplicity and speed. We thrive on taking unnecessarily complex processes and simplifying them. This product design philosophy permeates our entire company. We focus on continually making ZipRecruiter faster and simpler for employers and job seekers to use.
•Metrics-driven culture. We are a metrics and data-driven company. We are disciplined about setting quantitative operating goals and then finding innovative ways to achieve those goals.
•Powerful network effects. The scale of matching activity in our marketplace provides us with a unique and growing data set consisting of billions of signals which help drive superior matching.
9 According to internal data tracking the number of unique job postings, based on hiring company, job title, and location, available on our marketplace during 2020.
More jobs, more job seekers and better matching technology over time create more high-velocity hiring activity in our marketplace, fueling a self-perpetuating cycle of network effects.
•Our brand. Since our founding, we have invested over $600 million in building the ZipRecruiter brand. We are proud that our investment in our brand has led to 82% aided brand awareness among U.S. employers.10
Our Growth Strategy
Our strategy is to use technology to consistently grow our marketplace in three key areas: more jobs, more job seekers and better matching. These three growth vectors will both directly grow our business and also strengthen the network effects that serve as a competitive advantage. Several specific growth initiatives fit well into our overall strategy:
•Increasing the number of employers in our marketplace. We believe the marketplace we have built serves employers of all sizes, regions and industries. We see an opportunity to continue to meaningfully grow our employer footprint, from small businesses to large global enterprises.
•Increasing the number of job seekers in our marketplace. We believe we can continue to drive a greater volume of Active Job Seekers to our marketplace as well as innovate ways to engage job seekers that are more passively open to evaluating new opportunities.
•Strengthening our artificial intelligence powered technology. Our artificial intelligence and matching algorithms continually improve as we ingest incremental data. The signals across our marketplace train our recommendations, increasing utility for both job seekers and employers. Despite our progress, we believe there remains a significant opportunity to continue to further improve our matching with ongoing investment in technology and an increase in the number and quality of data signals we collect over time.
•Continuing to optimize performance-based pricing. Employers’ willingness to pay for recruitment varies by company and by each job opening. We believe we have multiple pricing optimization opportunities that will provide more flexibility to employers of different sizes.
•Expanding our global footprint. We believe our strengths as a company, especially our purpose-built technology for bringing job seekers and employers together, can be leveraged in additional markets as we continue to expand our geographic footprint. Many of our over 1,000 Job Distribution Partners already operate in other markets which will accelerate our ability to expand internationally.
•Building an enduring brand. We plan to increase our brand investment to ensure ZipRecruiter further develops as a category-defining, enduring brand for employers and job seekers alike.
CEO Letter Agreement
In April 2021, we entered into a letter agreement with Ian Siegel, our chief executive officer, which provides that, upon the earliest to occur of (1) (a) the first trading day following our initial public offering or direct listing pursuant to an effective registration statement under the Securities Act of 1933, as amended, or the Securities Act, or (b) the consummation of a merger, acquisition or other business combination involving us and a publicly traded special purpose acquisition company, that results in us or our business becoming a publicly traded company or (2) a Change of Control, as defined in the 2014 Plan, Mr. Siegel will be entitled to a special cash bonus in an amount equal to $10.0 million, provided that Mr. Siegel is employed by us at the time of either event.
10 Brand Awareness Survey. For more information about the Brand Awareness Survey, see the section titled “Market and Industry Data.”
Summary of 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 include:
•We face intense competition and could lose market share to our competitors, which could adversely affect our business, operating results, and financial condition.
•COVID-19 has caused significant uncertainty and disruption in our business operations. The ongoing effects of the COVID-19 pandemic continue to be unpredictable, and may have an adverse effect on our business, results of operations, and financial condition.
•Our business is significantly affected by fluctuations in general economic conditions, which have been adversely affected by the COVID-19 pandemic. There is risk that any economic recovery may be short-lived and uneven, and may not result in increased demand for our services.
•Our marketplace functions on software that is highly technical and complex, and if it fails to perform properly, our reputation could be adversely affected, our market share could decline and we could be subject to liability claims.
•Our future success depends in part on employers purchasing and renewing subscriptions and performance-based services from us. Any decline in our user renewals or performance-based services could harm our future operating results.
•We have experienced growth in recent periods and expect to continue to invest in our growth for the foreseeable future. If we cannot manage our growth effectively, our business, operating results, and financial condition could be adversely affected.
•Significant segments of the market for job advertisements services may have hiring needs and service preferences that are subject to greater volatility than the overall economy.
•Our efforts and ability to sell to a broad mix of businesses could adversely affect our operating results in a given period.
•Our business depends largely on our ability to attract and retain talented employees, including senior management and key personnel. If we lose the services of Ian Siegel, our Chief Executive Officer, or other members of our senior management team, we may not be able to execute on our business strategy.
•If internet search engines’ methodologies or other channels that we use to direct traffic to our website are modified to our disadvantage, or our search result page rankings decline for other reasons, our user growth could decline.
•Our quarterly results may fluctuate significantly and may not fully reflect the underlying performance of our business, which makes our future results difficult to predict.
•Our success depends on our ability to maintain the value and reputation of the ZipRecruiter brand.
•An active, liquid, and orderly market for our Class A common stock may not develop or be sustained. You may be unable to sell your shares of Class A common stock at or above the price at which you purchased them.
•The trading price of our Class A common stock, upon listing on the New York Stock Exchange, may have little or no relationship to the historical sales prices of our capital stock in private transactions, and such private transactions have been limited.
•None of our stockholders are party to any contractual lock-up agreement or other contractual restrictions on transfer. Following our listing, the sales or distribution of substantial amounts of our Class A common stock, or the perception that such sales or distributions might occur, could cause the market price of our Class A common stock to decline.
•Market volatility may affect the value of an investment in our Class A common stock and could subject us to litigation.
•The dual class structure of our common stock will have the effect of concentrating voting control with those stockholders who held our capital stock prior to our listing, including our directors, executive officers, and 5% stockholders who will hold in the aggregate 85.4% of the voting power of our capital stock following the registration and listing of our Class A common stock on the New York Stock Exchange, which will limit or preclude your ability to influence corporate matters, including the election of directors and the approval of any change of control transaction.
•The registration and listing of our Class A common stock differs significantly from an underwritten initial public offering.
Corporate Information
We were incorporated in 2010 as ZipRecruiter, Inc., a Delaware corporation. In March 2020, in response to the global COVID-19 pandemic, a vast majority of our employees began to work remotely rather than on-site. Our principal executive offices are located at 604 Arizona Avenue, Santa Monica, California 90401, and our telephone number is (877) 252-1062. Our website address is www.ziprecruiter.com. The information contained on, or that can be accessed through, our website is not incorporated by reference into, and is not a part of, this prospectus. Investors should not rely on any such information in deciding whether to purchase our Class A common stock.
ZipRecruiter, the ZipRecruiter logo, and other registered or common law trade names, trademarks, or service marks of ZipRecruiter appearing in this prospectus are the property of ZipRecruiter. This prospectus contains additional trade names, trademarks, and service marks of other companies that are the property of their respective owners. We do not intend our use or display of other companies’ trade names, trademarks, or service marks to imply a relationship with, or endorsement or sponsorship of us by, these other companies. Solely for convenience, our trademarks and tradenames referred to in this prospectus appear without the ® and ™ symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights, or the right of the applicable licensor, to these trademarks and tradenames.
Channels for Disclosure of Information
Following the effectiveness of the registration statement of which this prospectus forms a part, we intend to announce material information to the public through filings with the SEC, the investor relations page on our website (www.ziprecruiter.com), press releases, public conference calls, public webcasts, our Twitter feed (@ZipRecruiter), our Facebook page, and our LinkedIn page.
The information disclosed by the foregoing channels could be deemed to be material information. As such, we encourage investors, the media, and others to follow the channels listed above and to review the information disclosed through such channels.
Any updates to the list of disclosure channels through which we will announce information will be posted on the investor relations page on our website.
Implications of Being an Emerging Growth Company
As a company with less than $1.07 billion in revenue during our most recently completed fiscal year, we qualify as an “emerging growth company” as defined in Section 2(a) of the Securities Act as modified by the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As an emerging growth company,
we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable, in general, to public companies that are not emerging growth companies. These provisions include, 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;
•an exemption from compliance with the auditor attestation requirement on the effectiveness of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002;
•an exemption from the requirement that critical audit matters be discussed in our independent auditor’s reports on our audited financial statements or any other requirements that may be adopted by the Public Company Accounting Oversight Board unless the SEC determines that the application of such requirements to emerging growth companies is in the public interest;
•reduced disclosure obligations about our executive compensation arrangements;
•exemptions from the requirements to obtain a non-binding advisory vote on executive compensation or a stockholder approval of any golden parachute arrangements; and
•extended transition periods for complying with new or revised accounting standards.
We will remain an emerging growth company until the earliest to occur of: (1) the last day of the fiscal year in which we have more than $1.07 billion in annual revenue; (2) the date we qualify as a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates; (3) the date on which we have issued, in any three-year period, more than $1.0 billion in non-convertible debt securities; and (4) the last day of the fiscal year ending after the fifth anniversary of the date of effectiveness of the registration statement of which this prospectus forms a part.
We may take advantage of these exemptions until such time that we are no longer an emerging growth company. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock. Further, pursuant to Section 107 of the JOBS Act, as an emerging growth company, we have elected to take advantage of the extended transition period for complying with new or revised accounting standards until those standards would otherwise apply to private companies. As a result, our operating results and financial statements may not be comparable to the operating results and financial statements of other companies that have adopted the new or revised accounting standards. It is possible that some investors will find our Class A common stock less attractive as a result, which may result in a less active trading market for our Class A common stock and higher volatility in the stock price of our Class A common stock.
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The following tables summarize our consolidated financial and operating data. The summary consolidated statements of operations data for the years ended December 31, 2019 and 2020 and the summary consolidated balance sheet data as of December 31, 2019 and 2020 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The summary consolidated statements of operations data for the three months ended March 31, 2020 and 2021 and summary consolidated balance sheet data as of March 31, 2021 have been derived from our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus. We have prepared the unaudited interim condensed consolidated financial statements on the same basis as the audited financial statements, which include, in our opinion, all adjustments, consisting only of normal recurring adjustments that we consider necessary for the fair statement of the interim condensed 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 three months ended March 31, 2021 are not necessarily indicative of the results to be expected for the full year or any other period.
You should read the following summary consolidated financial and operating data together with the sections titled “Selected Consolidated Financial and Operating 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. The summary consolidated financial and operating data in this section are not intended to replace our consolidated financial statements and the related notes and are qualified in their entirety by our consolidated financial statements and the related notes included elsewhere in this prospectus.
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Three Months Ended March 31,
|
|
|
2019
|
|
2020
|
|
2020
|
|
2021
|
|
|
(in thousands, except per share data)
|
|
Revenue
|
$
|
429,559
|
|
|
$
|
418,142
|
|
|
$
|
113,292
|
|
|
$
|
125,372
|
|
|
Cost of revenue(1)
|
54,778
|
|
|
54,163
|
|
|
14,472
|
|
|
15,961
|
|
|
Gross profit
|
374,781
|
|
|
363,979
|
|
|
98,820
|
|
|
109,411
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Sales and marketing(1)
|
276,197
|
|
|
191,141
|
|
|
78,880
|
|
|
63,476
|
|
|
Research and development(1)
|
65,410
|
|
|
69,408
|
|
|
19,226
|
|
|
17,015
|
|
|
General and administrative(1)
|
39,492
|
|
|
38,998
|
|
|
11,488
|
|
|
12,454
|
|
|
Total operating expenses
|
381,099
|
|
|
299,547
|
|
|
109,594
|
|
|
92,945
|
|
|
Income (loss) from operations
|
(6,318)
|
|
|
64,432
|
|
|
(10,774)
|
|
|
16,466
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Interest expense
|
(575)
|
|
|
(1,037)
|
|
|
(279)
|
|
|
(209)
|
|
|
Sublease income
|
1,170
|
|
|
1,051
|
|
|
282
|
|
|
292
|
|
|
Other income (expense), net
|
(38)
|
|
|
(109)
|
|
|
(144)
|
|
|
94
|
|
|
Total other income (expense), net
|
557
|
|
|
(95)
|
|
|
(141)
|
|
|
177
|
|
|
Income (loss) before income taxes
|
(5,761)
|
|
|
64,337
|
|
|
(10,915)
|
|
|
16,643
|
|
|
Income tax expense (benefit)
|
588
|
|
|
(21,711)
|
|
|
167
|
|
|
3,245
|
|
|
Net income (loss)
|
(6,349)
|
|
|
86,048
|
|
|
(11,082)
|
|
|
13,398
|
|
|
Less: Accretion of redeemable convertible preferred stock
|
(3,722)
|
|
|
(3,883)
|
|
|
(955)
|
|
|
(997)
|
|
|
Less: Undistributed earnings attributable to participating securities
|
—
|
|
|
(19,148)
|
|
|
—
|
|
|
(2,913)
|
|
|
Net income (loss) attributable to common stockholders
|
$
|
(10,071)
|
|
|
$
|
63,017
|
|
|
$
|
(12,037)
|
|
|
$
|
9,488
|
|
|
Net income (loss) per share(2)
|
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.13)
|
|
|
$
|
0.79
|
|
|
$
|
(0.15)
|
|
|
$
|
0.12
|
|
|
Diluted
|
$
|
(0.13)
|
|
|
$
|
0.70
|
|
|
$
|
(0.15)
|
|
|
$
|
0.10
|
|
|
Weighted-average shares used in computing net income (loss) per share(2)
|
|
|
|
|
|
|
|
|
Basic
|
79,337
|
|
|
79,651
|
|
|
79,423
|
|
|
78,834
|
|
|
Diluted
|
79,337
|
|
|
94,156
|
|
|
79,423
|
|
|
98,435
|
|
|
Pro forma net income per share (unaudited)(2)
|
|
|
|
|
|
|
|
|
Basic
|
|
|
$
|
0.23
|
|
|
|
|
$
|
0.03
|
|
|
Diluted
|
|
|
$
|
0.21
|
|
|
|
|
$
|
0.03
|
|
|
Weighted-average shares used in computing pro forma net income per share (unaudited)(2)
|
|
|
|
|
|
|
|
|
Basic
|
|
|
106,085
|
|
|
|
|
107,590
|
|
|
Diluted
|
|
|
118,591
|
|
|
|
|
123,364
|
|
|
Other Financial Information:
|
|
|
|
|
|
|
|
|
Adjusted EBITDA (3)
|
$
|
9,366
|
|
|
$
|
80,133
|
|
|
$
|
(6,382)
|
|
|
$
|
19,994
|
|
________________
(1)Includes stock-based compensation expense as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Three Months Ended March 31,
|
|
|
2019
|
|
2020
|
|
2020
|
|
2021
|
|
|
(in thousands)
|
|
Cost of revenue
|
$
|
119
|
|
|
$
|
73
|
|
|
$
|
24
|
|
|
$
|
16
|
|
|
Sales and marketing
|
1,031
|
|
|
704
|
|
|
306
|
|
|
99
|
|
|
Research and development
|
3,159
|
|
|
3,050
|
|
|
861
|
|
|
825
|
|
|
General and administrative
|
2,431
|
|
|
1,925
|
|
|
767
|
|
|
286
|
|
|
Total stock-based compensation
|
$
|
6,740
|
|
|
$
|
5,752
|
|
|
$
|
1,958
|
|
|
$
|
1,226
|
|
(2)See Note 3 in our audited consolidated financial statements and Note 2 in our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus for an explanation of the method used to calculate basic and diluted net income (loss) per share, pro forma net income per share, and the weighted-average number of shares used in the computation of the per share amounts.
(3)Adjusted EBITDA is not a measure of our financial performance under GAAP and should not be considered as an alternative to net income (loss), income (loss) from operations, or any other measures derived in accordance with GAAP. For a definition of Adjusted EBITDA and a reconciliation of net income (loss) to Adjusted EBITDA, see "Non-GAAP Financial Measures."
Selected Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
As of March 31,
|
|
|
2019
|
|
2020
|
|
2021
|
|
2021
|
|
|
Actual
|
|
Actual
|
|
Actual
|
|
Pro Forma(1)
|
|
|
(in thousands)
|
|
Cash
|
$
|
35,529
|
|
|
$
|
114,539
|
|
|
135,065
|
|
|
$
|
103,432
|
|
|
Working capital (deficit)(2)
|
(5,518)
|
|
|
73,309
|
|
|
92,255
|
|
|
60,622
|
|
|
Total assets
|
117,724
|
|
|
212,129
|
|
|
237,808
|
|
|
206,175
|
|
|
Long-term borrowing
|
10,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Convertible notes and accrued interest with related parties
|
—
|
|
|
25,371
|
|
|
25,545
|
|
|
—
|
|
|
Total liabilities
|
107,062
|
|
|
125,569
|
|
|
133,350
|
|
|
107,805
|
|
|
Redeemable convertible preferred stock
|
132,973
|
|
|
136,856
|
|
|
137,853
|
|
|
—
|
|
|
Total stockholders' equity (deficit)
|
$
|
(122,311)
|
|
|
$
|
(50,296)
|
|
|
(33,395)
|
|
|
$
|
98,370
|
|
______________
(1)The pro forma column reflects (a) the redesignation of 80,002,658 shares of our outstanding common stock into 80,002,658 shares of Class B common stock outstanding as of March 31, 2021 as if such redesignation occurred on March 31, 2021, (b) the conversion of 2,271,437 shares of our Series A convertible preferred stock and 6,030,706 shares of our Series B convertible preferred stock outstanding as of March 31, 2021 into 24,202,202 shares of our Class B common stock as if such conversion occurred on March 31, 2021, (c) the conversion of the principal amount of the convertible notes and accrued interest thereon with related parties outstanding as of March 31, 2021 into 3,073,594 shares of Class B common stock at a conversion price of $8.2909 per share (which is the maximum price per share at which the convertible notes are convertible by their terms, as further described within the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Convertible Notes with Related Parties”) as if such conversion occurred on March 31, 2021; provided that to the extent that the volume-weighted average price on the first day of trading following our Direct Listing is less than $11.05 per share, then the convertible notes and contractual accrued interest will convert at 75% of the volume weighted average price, which would result in the issuance of additional shares of Class B common stock upon conversion, (d) vesting and settlement of 1,860,101 RSUs, into the same number of shares of Class B common stock, for which the service-based vesting condition was satisfied as of March 31, 2021 and for which RSUs our board of directors has waived the liquidity event-based vesting condition effective as of the earlier of first day of trading of our Class A common stock on the New York Stock Exchange and March 15, 2022 as if our board of directors had waived the liquidity event-based condition and such RSUs settled as of March 31, 2021, (e) stock-based compensation expense of $46.6 million associated with RSUs for which the service-based vesting condition was satisfied as of March 31, 2021 and for which our board of directors has waived the liquidity event-based vesting condition effective as of the earlier of the first day of trading of our Class A common stock on the New York Stock Exchange and March 15, 2022, as if our board of directors had waived the liquidity event-based condition and such RSUs settled as of March 31, 2021, based on the estimated fair value of the RSUs on the date that the liquidity event-based event condition was waived and which stock-based compensation expense is reflected as an increase to additional paid-in capital and accumulated deficit, (f) a cash payment of $10.0 million to Ian Siegel, our chief executive officer, as further described in the section titled “Executive Compensation—CEO Letter Agreement” which is reflected as a reduction in cash, working capital and total assets and a corresponding increase to stockholders’ deficit and (g)
approximately $21.6 million in transaction expenses related to the listing of our Class A Common Stock on the New York Stock Exchange.
(2)Working capital (deficit) is defined as current assets less current liabilities. See our consolidated financial statements and the accompanying notes included elsewhere in this prospectus for further details regarding our current assets and current liabilities.
Key Operating Metrics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
|
Three Months Ended
March 31,
|
|
|
2019
|
|
2020
|
|
2020
|
|
2021
|
|
Quarterly Paid Employers(1)
|
102,541
|
|
|
89,636
|
|
|
98,456
|
|
|
114,705
|
|
|
Revenue per Paid Employer(1)
|
$
|
1,098
|
|
|
$
|
1,276
|
|
|
$
|
1,151
|
|
|
$
|
1,093
|
|
____________
(1)See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Operating Metrics and Non-GAAP Financial Measures” included elsewhere in this prospectus for definitions of these metrics.
Non-GAAP Financial Measures
We collect and analyze operating and financial data to evaluate the health of our business and assess our performance. In addition to revenue, net income (loss), income (loss) from operations, and other results under GAAP, we use Adjusted EBITDA and Adjusted EBITDA margin to evaluate our business. We have included these non-GAAP financial measures in this prospectus because they are key measures used by our management to evaluate our operating performance. Accordingly, we believe that these non-GAAP financial measures provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management team and board of directors. Our calculation of these non-GAAP financial measures may differ from similarly-titled non-GAAP measures, if any, reported by our peer companies. These non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.
We define Adjusted EBITDA as our net income (loss) before total other income (expense), net, income tax expense (benefit) and depreciation and amortization, adjusted to eliminate stock-based compensation expense. Adjusted EBITDA margin represents Adjusted EBITDA as a percentage of revenue for the same period.
We believe Adjusted EBITDA and Adjusted EBITDA margin are helpful to investors, analysts and other interested parties because they can assist in providing a more consistent and comparable overview of our operations across our historical financial periods. In addition, these measures are frequently used by analysts, investors and other interested parties to evaluate and assess performance.
The following table presents a reconciliation of net income (loss) to Adjusted EBITDA for each of the periods indicated:
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Year Ended December 31,
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Three Months Ended March 31,
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2019
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2020
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2020
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2021
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|
|
(in thousands, except percentages)
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|
GAAP net income (loss)
|
$
|
(6,349)
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|
|
$
|
86,048
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|
|
$
|
(11,082)
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|
|
$
|
13,398
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|
|
Stock-based compensation
|
6,740
|
|
|
5,752
|
|
|
1,958
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|
|
1,226
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|
|
Depreciation and amortization
|
8,944
|
|
|
9,949
|
|
|
2,434
|
|
|
2,302
|
|
|
Total other (income) expense, net
|
(557)
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|
|
95
|
|
|
141
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|
|
(177)
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|
|
Income tax expense (benefit)
|
588
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|
|
(21,711)
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|
|
167
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|
|
3,245
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|
|
Adjusted EBITDA
|
$
|
9,366
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|
|
$
|
80,133
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|
|
$
|
(6,382)
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|
|
$
|
19,994
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|
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Adjusted EBITDA margin
|
2
|
%
|
|
19
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%
|
|
(6)
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%
|
|
16
|
%
|
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, before making a decision to invest in our Class A common stock. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of or that we deem immaterial may also become important factors that adversely affect our business. If any of the following risks occur, our business, financial condition, operating results, and future prospects could be materially and adversely affected. In that event, the price of our Class A common stock could decline, and you could lose part or all of your investment.
Risk Related to Our Business
Operational Risks
We face intense competition and could lose market share to our competitors, which could adversely affect our business, operating results, and financial condition.
We face intense competition from many well-established online job sites such as CareerBuilder, Craigslist, Glassdoor, Indeed, LinkedIn and Monster and may face additional competition from newer entrants such as Google or Facebook. Many of our existing and potential competitors are considerably larger or more established than we are and have larger work forces and more substantial marketing and financial resources. Price competition for job marketplaces such as ours is likely to remain high, which could limit our ability to maintain or increase our market share, revenue and/or profitability.
Many of our larger competitors have long-standing relationships or access to employers, including our Paid Employers, as well as those whom we may wish to pursue. Some employers may be hesitant to use a new platform and prefer to upgrade products offered by these incumbent platforms for reasons that include price, quality, sophistication, familiarity, and global presence. These platforms could offer competing products on a standalone basis at a low price or bundled as part of a larger product sale.
Many of our competitors are able to devote greater resources to the development, promotion, sale, and support of their products and services. Furthermore, our current or potential competitors may be acquired by third parties with greater available resources and the ability to initiate or withstand substantial price competition. Our competitors may also establish cooperative relationships among themselves or with third parties to enhance their product offerings or resources. If our competitors’ products, platforms, services or technologies maintain or achieve greater market acceptance than ours, if they are successful in bringing their products or services to market earlier than ours, or if their products, platforms or services are more technologically capable than ours, then our revenue could be adversely affected. Also, some of our competitors may offer their products and services at a lower price. If we cannot optimize pricing, our operating results may be negatively affected. Pricing pressures and increased competition could result in reduced sales, reduced margins, losses or a failure to maintain or improve our competitive market position, any of which could adversely affect our business.
The number of employers distributing their job posting service purchases among a broader group of competitors may increase which may make it more difficult to retain or maintain our current share of business with existing Paid Employers. We also face the risk that employers may decide to provide similar services internally or reduce or redirect their efforts to recruit job seekers through online job advertisements. As a result, there can be no assurance that we will not encounter increased competition in the future.
COVID-19 has caused significant uncertainty and disruption in our business operations. The ongoing effects of the COVID-19 pandemic continue to be unpredictable, and may have an adverse effect on our business, results of operations, and financial condition.
COVID-19 has caused significant uncertainty. Public health problems resulting from COVID-19 and precautionary measures instituted by governments and businesses to mitigate its spread, including travel restrictions and quarantines, could continue to contribute to a general economic slowdown, adversely impact our employers and job seekers and other business partners, and disrupt our operations.
As a result of the COVID-19 pandemic, in March 2020, we transitioned our entire staff to a remote working environment, which impacts productivity and our business operations. We have had to expend, and expect to continue to expend, resources to respond to the COVID-19 pandemic, including to develop and implement internal policies and procedures and track changes in laws. The remote working environment may also create increased vulnerability to cybersecurity incidents, including breaches of information systems security, which could damage our reputation and commercial relationships. Changes in our operations in response to COVID-19 or employee illnesses resulting from COVID-19 may also result in inefficiencies or delays, and additional costs related to business continuity initiatives, that cannot be fully mitigated through succession and business continuity planning, employees working remotely or using teleconferencing technologies. Any prolonged diversion of resources may have an adverse effect on our operations. Over time, such remote operations may decrease the cohesiveness of our teams and our ability to maintain our culture, both of which are critical to our success. Additionally, a remote working environment may impede our ability to undertake new business projects, foster a creative environment, and hire and retain team members. Such effects may adversely affect the productivity of our team members and overall operations, which could have a material adverse effect on our business, results of operations, financial condition, and future prospects.
The impact of the ongoing COVID-19 pandemic is severe, widespread, and continues to evolve. The extent to which the COVID-19 pandemic will continue to impact our business will depend on future developments, which are highly uncertain and cannot be predicted at this time, including:
•the duration and spread of the pandemic, including any additional resurgences;
•the timing, distribution and efficacy of COVID-19 vaccines;
•governmental, business, and individuals’ actions taken in response to the pandemic, including business closures and any shelter in-place guidelines;
•the impact of the pandemic on national and global economic activity, unemployment levels, and capital and financial markets, including the possibility of a national or global recession;
•the impact of the pandemic on the financial circumstances and employment needs of our employers and job seekers;
•other business disruptions that affect our workforce; and
•actions taken to contain the pandemic or treat its impact.
To the extent the COVID-19 pandemic or a similar public health threat has an impact on our business, results of operations, and financial condition, it is likely also to have the effect of heightening many of the other risks described in this “Risk Factors” section.
Our business is significantly affected by fluctuations in general economic conditions, which have been adversely affected by the COVID-19 pandemic. There is risk that any economic recovery may be short-lived and uneven, and may not result in increased demand for our services.
Our business depends on the overall demand for labor and on the economic health of current and prospective employers and job seekers that use our marketplace. Demand for recruiting and hiring
services is significantly affected by the general level of economic activity and employment in the United States and the other countries in which we operate. Any significant weakening of the economy in the United States or the global economy, increased unemployment, reduced credit availability, reduced business confidence and activity, decreased government spending, economic uncertainty, financial turmoil affecting the banking system or financial markets, trade wars and higher tariffs, and other adverse economic or market conditions may adversely impact our business and operating results. Significant swings in economic activity historically have had a disproportionately negative impact on hiring activity and related efforts to find candidates. In addition, as a result of the adverse impact of the COVID-19 pandemic on economic activity, many employers have significantly decreased the number of candidates they are hiring, implemented hiring freezes or were forced to cease operations altogether, each of which has resulted in a decrease in the number of job seekers and Paid Employers in our marketplace. We may also experience more pricing pressure during periods of economic downturn.
The COVID-19 pandemic has caused significant volatility in financial markets and has caused what may be an extended global recession. There is a risk that as overall global conditions improve, we could continue to experience declines in all, or in portions, of our business. Recoveries are difficult to predict, and may be short-lived, slow, or uneven, with some regions, or countries within a region, continuing to experience declines or weakness in economic activity while others improve. Differing economic conditions and patterns of economic growth or contraction in the geographical regions in which we operate may affect demand for our marketplace. As global economic conditions improve, we may not experience uniform, or any, increases in demand for our marketplace within the markets where our business is concentrated.
Economic uncertainty may cause some of our current or potential employers to curtail spending in our marketplace and may ultimately result in cost challenges to our operations. These adverse conditions could result in reductions in revenue, increased operating expenses, longer sales cycles, slower adoption of new technologies, and increased competition. We cannot predict the timing, strength, or duration of any economic slowdown or any subsequent recovery generally. There is also risk that when overall global economic conditions are positive, our business could be negatively impacted by a decreased demand for job postings and our services. If general economic conditions significantly deviate from present levels, our business, financial condition, and operating results could be adversely affected.
Substantially all of our revenue is generated by our business operations in the United States. Prior to the recent COVID-19 pandemic, the United States had largely experienced positive economic and employment trends since our founding in 2010 and therefore we do not have a significant operating history in periods of weak economic environments and cannot predict how our business will perform in such periods. Any significant economic downturn in the United States or other countries in which we operate could have a material adverse effect on our business, financial condition and results of operations.
Our marketplace functions on software that is highly technical and complex and if it fails to perform properly, our reputation could be adversely affected, our market share could decline and we could be subject to liability claims.
Our marketplace functions on software that is highly technical and complex and may now or in the future contain undetected errors, bugs, or vulnerabilities. Some errors in our software code may be discovered only after the code has been deployed. Any errors, bugs, or vulnerabilities discovered in our code after deployment, inability to identify the cause or causes of performance problems within an acceptable period of time, or difficulty maintaining and improving the performance of our marketplace could result in damage to our reputation or brand, loss of employers and job seekers, loss of revenue, or liability for damages, any of which could adversely affect our business and results of operations.
As the usage of our marketplace grows, we will need an increasing amount of technical infrastructure, including network capacity and computing power, to continue to operate our marketplace. If we cannot continue to effectively scale and grow our technical infrastructure to accommodate these increased
demands, it may adversely affect our user experience. We also rely on third-party software and infrastructure, including the infrastructure of the internet, to provide our marketplace. Any failure of or disruption to this software and infrastructure could also make our marketplace unavailable to our users.
Our marketplace is constantly changing with new updates, which may contain undetected errors when first introduced or released. Any errors, defects, disruptions in service, or other performance or stability problems with our marketplace, or the insufficiency of our efforts to adequately prevent or timely remedy errors or defects, could result in negative publicity, loss of or delay in market acceptance of our marketplace, loss of competitive position, our inability to timely and accurately maintain our financial records, inaccurate or delayed invoicing of Paid Employers, delay of payment to us, claims by users for losses sustained by them, corrective action taken by gatekeepers of components integral to our marketplace, or investigation and corrective action taken by a regulatory agency. In such an event, we may be required, or may choose, for user relations or other reasons, to expend additional resources to help resolve the issue. Accordingly, any errors, defects, or disruptions in our marketplace could adversely impact our brand and reputation, revenue, and operating results.
Because of the large amount of data that our Paid Employers collect and manage by means of our services, it is possible that failures or errors in our systems could result in data loss or corruption, or cause the information that we or our Paid Employers collect to be incomplete or contain inaccuracies that our Paid Employers regard as significant. Furthermore, the availability or performance of our marketplace could be adversely affected by a number of factors, including users’ inability to access the internet or to send or receive email messages, the failure of our network or software systems, security breaches or variability in user traffic for our services. We may be required to issue credits or refunds for prepaid amounts related to unused services or otherwise be liable to our users for damages they may incur resulting from certain of these events. In addition to potential liability, if we experience interruptions in the availability of our marketplace, our reputation could be adversely affected and we could lose employers and job seekers.
Our errors and omissions insurance may be inadequate or may not be available in the future on acceptable terms, or at all. In addition, our policy may not cover all claims made against us and defending a suit, regardless of its merit, could be costly and divert management’s attention.
Our future success depends in part on employers purchasing and renewing subscriptions and performance-based services from us. Any decline in our user renewals or performance-based services could harm our future operating results.
Many of our Paid Employers pay for access to our marketplace on a per-job-per-day basis, rather than entering into new longer term paid time-based job posting plans, renewing their paid time-based job posting plans when such contract terms expire, or purchasing performance-based services from us. Employers who enter into paid plans have no obligation to renew their plans after the expiration of their contract period, which typically range from one day to twelve months. In addition, employers may renew for lower subscription amounts or for shorter contract lengths. Historically, some of our Paid Employers have elected not to renew their agreements with us and as we expand into new products and markets, we have a limited ability to reliably predict future renewal rates. Our future renewal rates for both existing and potential new products may be lower, possibly significantly lower, than historical trends.
Our future success also depends in part on our ability to sell upsell services to employers who use our marketplace. If employers do not purchase upsell services from us, our revenue may decline and our operating results may be harmed.
Our Paid Employer subscription renewals, performance-based services, and upsells may decline or fluctuate as a result of a number of factors, including user usage, user satisfaction with our services and user support, our prices, the prices of competing services, mergers and acquisitions affecting our user base, the effects of global economic conditions, or reductions in our Paid Employers’ spending levels generally.
We have experienced growth in recent periods and expect to continue to invest in our growth for the foreseeable future. If we cannot manage our growth effectively, our business, operating results, and financial condition could be adversely affected.
We have experienced growth in a relatively short period of time. For example, although our total revenue for the year ended December 31, 2020 was $418.1 million, reflecting a 3% decrease from the year ended December 31, 2019 primarily due to the impacts of the COVID-19 pandemic, our total revenue for the year ended December 31, 2019 was $429.6 million, representing a year-over-year growth rate of 18% over the year ended December 31, 2018. Additionally, our total revenue for the three months ended March 31, 2021 was $125.4 million, representing an increase of 11% over the $113.3 million in total revenue we recorded for three months ended March 31, 2020. Over time, we expect to expand our operations and personnel significantly. Sustaining our growth will place significant demands on our management as well as on our administrative, operational, and financial resources. To manage our growth, we must continue to improve our operational, financial, and management information systems; expand, motivate, and effectively manage and train our work force; and effectively collaborate with our third-party partners. If we cannot manage our growth successfully, our business, operating results, financial condition, and ability to successfully advertise our marketplace and serve our employers and job seekers could be adversely affected.
Our historical growth should not be considered indicative of our future performance. We have encountered in the past, and will encounter in the future, risks, challenges, and uncertainties frequently experienced by growing companies in rapidly changing industries. If our assumptions regarding these risks, challenges, 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 financial condition and operating results could differ materially from our expectations, our growth rates may slow, and our business would be adversely impacted.
Significant segments of the market for job advertisements services may have hiring needs and service preferences that are subject to greater volatility than the overall economy.
The employers in the United States’ private sector are heterogeneous across a number of business characteristics, including company size, geography, and industry, among other factors. Hiring activity may vary significantly among businesses with different characteristics and accordingly, any concentration we may have among businesses with certain characteristics may subject us to high volatility in our financial results. Smaller businesses, for example, typically have less persistent hiring needs and may experience greater volatility in their need for job advertisement services and preferences among providers of such services. Along with a relatively shorter sales cycle, smaller businesses may be more likely to change platforms based on short-term differences in perceived price, value, service level, or other factors. Difficulty in acquiring and/or retaining these employers may adversely affect our operating results.
Our efforts and ability to sell to a broad mix of businesses could adversely affect our operating results in a given period.
Our ability to increase revenue and maintain profitability depends, in part, on widespread acceptance and utilization of our marketplace by businesses of all sizes and types. Because our customers reflect a wide variety of businesses, we face a variety of challenges, including but not limited to, pricing pressure, cost variances and marketing strategies that vary based on the business type and size, varying lengths of sales cycles, and less predictability in completing some of our sales. For example, some of our larger prospective customers may need us to provide greater levels of education regarding the use and benefits of our marketplace and services, because the prospective customer’s decision to use our marketplace and services may be a company-wide decision. We are in the nascent stages of developing the analytical tools that will allow us to definitively determine how prospective customers can be most effectively directed within, and addressed by, our sales organizations. As a result, we may not always approach new opportunities in the most cost-effective manner or with the most appropriate resources. Developing and successfully implementing these tools will be important as we seek to efficiently capitalize on new and
expanding market opportunities. In addition, because we are a relatively new company with a limited operating history when compared to some of our existing competitors, our target employers and job seekers may prefer to use offerings from more established competitors that are more tailored to their specific requirements.
Our business depends largely on our ability to attract and retain talented employees, including senior management and key personnel. If we lose the services of Ian Siegel, our Chief Executive Officer, or other members of our senior management team, we may not be able to execute on our business strategy.
Our future success depends in large part on the continued services of our senior management and other key personnel and our ability to retain and motivate them. In particular, we are dependent on the services of Ian Siegel, our Chief Executive Officer, and our technology, marketplace, future vision, and strategic direction could be compromised if he were to take another position, become ill or incapacitated, or otherwise become unable to serve as our Chief Executive Officer. We rely on our leadership team in the areas of marketing, sales, finance, support, product development, human resources, and technology. Our senior management and other key personnel are all employed on an at-will basis, which means that they could terminate their employment with us at any time, for any reason, and without notice. If we lose the services of senior management or other key personnel, or if we cannot attract, train, and retain the highly-skilled personnel we need, our business, operating results, and financial condition could be adversely affected.
Our future success also depends on our continuing ability to attract, train, and retain highly skilled personnel, including software engineers and sales personnel. We face intense competition for qualified personnel from numerous software and other technology companies. This competition for highly skilled personnel is especially intense in the regions where we have significant operations, and we may incur significant costs to attract and retain them. We have, from time to time, experienced, and we expect to continue to experience, difficulty in hiring and retaining highly skilled employees with appropriate qualifications. We may incur significant costs to attract and retain highly skilled personnel, and we may lose new employees to our competitors or other technology companies before we realize the benefit of our investment in recruiting and training them. To the extent we move into new geographies, we would need to attract and recruit skilled personnel in those areas. In addition, job candidates and existing employees often consider the value of the equity awards they receive in connection with their employment. If the perceived value of our equity or equity awards declines, it may adversely affect our ability to retain highly skilled employees. If we cannot attract and retain suitably qualified individuals who are capable of meeting our growing technical, operational, and managerial requirements, on a timely basis or at all, our business may be adversely affected.
If internet search engines’ methodologies or other channels that we use to direct traffic to our website are modified to our disadvantage, or our search result page rankings decline for other reasons, our user growth could decline.
We depend in part on various internet search engines, such as Google, as well as other channels to direct a significant amount of traffic to our website. Our ability to maintain the number of visitors directed to our website is not entirely within our control. For example, our competitors’ search engine optimization and other efforts such as paid search may result in their websites receiving a higher search result page ranking than ours; internet search engines or other channels that we utilize to direct traffic to our website could revise their methodologies in a manner that adversely impacts traffic to our website, or we may make changes to our website that adversely impact our search engine optimization rankings and traffic. As a result, links to our website may not be prominent enough to drive sufficient traffic to our website, and we may not be able to influence the results.
Search engines and other channels that we use to drive employers and job seekers to our website periodically change their algorithms, policies, and technologies, sometimes in ways that cause traffic to our website to decline. These changes can also result in an interruption in their ability to access our
website or a drop in our search ranking, or have other adverse impacts that negatively affect our ability to maintain and grow the number of employers and job seekers that visit our website. We may also be forced to significantly increase marketing expenditures in the event that market prices for online advertising and paid listings escalate or our organic ranking decreases. Any of these changes could have an adverse impact on our business, user acquisition, and operating results.
Our quarterly results may fluctuate significantly and may not fully reflect the underlying performance of our business, which makes our future results difficult to predict.
Our quarterly results of operations, including the levels of our revenue, gross margin, and profitability, may vary significantly in the future and period to period comparisons of our operating results may not be meaningful. Accordingly, the results of any one quarter should not be relied upon as an indication of future performance. We also have a limited operating history and make pricing and other changes from time to time, all of which make it difficult to forecast our future results. As a result, you should not rely upon our past quarterly operating results as indicators of future performance.
Factors that may cause fluctuations in our quarterly financial results include, without limitation, those listed below:
•our ability to attract new employers and job seekers;
•Paid Employer renewal rates;
•Paid Employers purchasing upsell services;
•the addition or loss of large Paid Employers, including through acquisitions or consolidations;
•the timing of recognition of revenue;
•the amount and timing of operating expenses related to the maintenance and expansion of our business, operations and infrastructure;
•network outages or security breaches;
•general economic, industry and market conditions;
•changes in our pricing policies or those of our competitors;
•seasonal variations in sales of our products, which has historically been most pronounced in the fourth quarter of our fiscal year;
•the timing and success of new product or service introductions by us or our competitors or any other change in the competitive dynamics of our industry, including consolidation among competitors or strategic partners; and
•the timing of expenses related to the development or acquisition of technologies or businesses and potential future charges for impairment of goodwill from acquired companies.
Our success depends on our ability to maintain the value and reputation of the ZipRecruiter brand.
We believe that our brand is important to attracting and retaining both employers and job seekers. Maintaining, protecting, and enhancing our brand depends largely on the success of our marketing efforts, ability to provide a compelling job marketplace, including services, features, content, and support related to our marketplace, and our ability to successfully secure, maintain, and defend our rights to use the “ZipRecruiter” mark, our logo, and other trademarks important to our brand. We believe that the importance of our brand will increase as competition further intensifies and brand promotion activities may require substantial expenditures. Our brand could be harmed if we cannot achieve these objectives or if our public image were to be tarnished by negative publicity. Unfavorable publicity about us could diminish
confidence in our marketplace and services. Such negative publicity also could have an adverse effect on the volume, engagement and loyalty of our employers and job seekers and could have an adverse effect on our business.
If we are not able to provide successful enhancements, new products, services, and features, our business could be adversely affected.
The market for job-posting marketplaces is characterized by frequent product and service introductions and enhancements, changing user demands, and rapid technological change. The introduction of products and services embodying new technologies can quickly make existing products and services obsolete and unmarketable. The success of our business will depend, in part, on our ability to adapt and respond effectively and timely to these changes. We invest substantial resources in researching and developing new products and services and enhancing our marketplace by incorporating additional features, improving functionality, and adding other improvements to meet our employers’ and job seekers’ evolving demands in our highly competitive industry. If we cannot provide enhancements and new features or services that achieve market acceptance or that keep pace with rapid technological developments and the competitive landscape, our business could be adversely affected. The success of any enhancements or improvements to, or new features of, our marketplace or any new products and services depends on several factors, including timely completion, competitive pricing, adequate quality testing, integration with new and existing technologies in our marketplace and third-party partners’ technologies, overall market acceptance, and resulting user activity that is consistent with the intent of such products or services. We cannot be sure that we will succeed, either timely or cost effectively, in developing, marketing, and delivering enhancements or new features, products and services to our marketplace that respond to continued changes in the market for job placement services, nor can we be sure that any enhancements or new features to our existing or any new products and services will achieve market acceptance or produce the intended effect. In addition, if new technologies emerge that allow our competitors to deliver similar services at lower prices, more efficiently, more conveniently, or more securely, such technologies could adversely impact our ability to compete.
Additionally, because our marketplace operates on a variety of third-party systems and platforms, we will need to continuously modify and enhance our offerings to keep pace with changes in internet-related hardware, operating systems, cloud computing infrastructure, and other software, communication, browser and open source technologies. We may not be successful in either developing these modifications and enhancements or in bringing them to market timely. Furthermore, uncertainties about the timing and nature of new network platforms or technologies, or modifications to existing platforms or technologies, could increase our research and development expenses. Parts of the technology stack supporting our marketplace may also become difficult to maintain and service as there become fewer software engineers who are skilled with respect to the programming languages used to build such pieces of software. Any failure of our marketplace to operate effectively with future network systems and technologies could reduce the demand for our marketplace, result in user dissatisfaction and adversely affect our business.
Our efforts to sell to a broad mix of businesses could adversely affect our operating results in a given period.
Our ability to increase revenue and maintain profitability depends, in part, on widespread acceptance of our marketplace by businesses of all sizes and types. Because our customers reflect a wide variety of businesses, we face a variety of challenges, including but not limited to, pricing pressure, cost variance depending on the business type and size, varying lengths of sales cycles and less predictability in completing some of our sales. For some of our larger prospective customers, the prospective customer’s decision to use our marketplace and services may be a company-wide decision and, therefore, these types of sales require us to provide greater levels of education regarding the use and benefits of our marketplace and services. In addition, because we are a relatively new company with a limited operating history when compared to some of our existing competitors, our target employers and job seekers may
prefer to use offerings from more established competitors that are more tailored to their specific requirements.
Issues with the use of artificial intelligence (including machine learning) in our marketplace may result in reputational harm or liability.
Artificial intelligence, or AI, is enabled by or integrated into some of our marketplace and is a significant element of our business. As with many developing technologies, AI presents risks and challenges that could affect its further development, adoption, and use, and therefore our business. AI algorithms may be flawed. Datasets may be insufficient, of poor quality, or contain biased information. Inappropriate or controversial data practices by data scientists, engineers, and end-users of our systems or elsewhere could impair the acceptance of AI solutions and could result in burdensome new regulations that may limit our ability to use existing or new AI technologies. If the recommendations, forecasts, or analyses that AI applications assist in producing are deficient or inaccurate, we could be subjected to competitive harm, potential legal liability, and brand or reputational harm. Some AI scenarios present ethical issues. If we enable or offer AI solutions that are controversial because of their purported or real impact on human rights, privacy, employment, or other social issues, we may experience brand or reputational harm.
The forecasts of growth of online recruitment may prove to be inaccurate, and even if the market in which we compete achieves the forecasted growth, we cannot assure you that our business will grow at a similar rate, if at all.
Growth forecasts are subject to significant uncertainty and are based on assumptions and estimates that may not ultimately be accurate and are not under our control. The forecasts relating to the expected growth of the online recruitment market may prove to be inaccurate. Even if the market experiences the growth we forecast, we may not grow our business at a similar rate, or at all. Our growth is subject to many factors, including our success in implementing our business strategy, which is subject to many risks and uncertainties. Accordingly, the forecasts of market growth included in this prospectus should not be taken as indicative of our future growth.
The growth of our marketplace depends in part on the success of our strategic relationships with our Job Distribution Partners and Job Acquisition Partners.
To grow our business and the number of job seekers and employers in our marketplace, we anticipate that we will continue to depend, in part, on relationships with Job Distribution Partners and Job Acquisition Partners. Our competitors may be effective in providing incentives to these job boards and other similar third parties to favor their products or services or to prevent or reduce engagement with our marketplace. In addition, acquisitions of the Job Distribution Partners and Job Acquisition Partners that we partner with by our competitors could reduce the number of our current and potential employers and job seekers as well as the number of job postings accessible by our marketplace. We cannot guarantee that the Job Distribution Partners and Job Acquisition Partners with which we have strategic relationships will continue to offer the services for which we rely on them, devote the resources necessary to expand our reach, or support an increased number of employers and job seekers and associated use cases. Further, some of our Job Distribution Partners and Job Acquisition Partners offer, or could offer, competing products and services or also work with our competitors. They may also choose to develop alternative products and services in addition to, or in lieu of, our marketplace, either on their own or in collaboration with others, including our competitors.
While these relationships have not generated substantial revenue in recent periods and are not expected to generate substantial revenue in the future, they are strategically important in ensuring an appropriate balance of and interaction between jobs and job seekers in our marketplace. If we are unsuccessful in establishing or maintaining our relationships with our Job Distribution Partners and Job Acquisition Partners, or if such Job Distribution Partners or Job Acquisition Partners choose to end their
relationships with us, our ability to compete with our competitors and grow our marketplace could be impaired and our operating results may be negatively impacted.
Our corporate culture has contributed to our success, and if we cannot maintain this culture as we grow, we could lose the innovation, creativity, and teamwork fostered by our culture, and our business may be harmed.
We believe that our corporate culture has been a key contributor to our success. If we do not continue to develop our corporate culture as we grow and evolve, it could harm our ability to foster the innovation, creativity, and teamwork we believe that we need to support our growth. As our organization grows and we are required to implement more complex organizational structures, we may find it increasingly difficult to maintain the beneficial aspects of our corporate culture, which could negatively impact our future success.
Technological advances may significantly disrupt the labor market and weaken demand for human capital at a rapid rate.
Our success is directly dependent on our employers’ demands for talent. As technology continues to evolve, more tasks currently performed by people may be replaced by automation, robotics, machine learning, artificial intelligence and other technological advances outside of our control. This trend poses a risk to the job posting and distribution industry as a whole, particularly in lower-skill job categories that may be more susceptible to such replacement.
Our business is seasonal.
Our business is seasonal, reflecting typical behavior in hiring markets, where hiring activity tends to decelerate in the fourth quarter. Such seasonality also causes our revenue to vary from quarter to quarter depending on the variability in the overall job market. This seasonality can make forecasting more difficult and may adversely affect our ability to predict financial results accurately.
We track certain performance metrics with internal tools and do not independently verify such metrics. Certain of our performance metrics are subject to inherent challenges in measurement, and real or perceived inaccuracies in such metrics may harm our reputation and negatively affect our business.
We track certain performance metrics, including quarterly Paid Employers and revenue per quarterly Paid Employer, which are not independently verified by any third party. Our internal tools have a number of limitations and our methodologies for tracking these metrics may change over time, which could result in unexpected changes to our metrics, including the metrics we report. If the internal tools we use to track these metrics undercount or overcount performance or contain algorithmic or other technical errors, the data we report may not be accurate. In addition, limitations or errors with respect to how we measure data (or the data that we measure) may affect our understanding of certain details of our business, which could affect our longer-term strategies. If our performance metrics are not accurate representations of our business, user base, or traffic levels; if we discover material inaccuracies in our metrics; or if the metrics we rely on to track our performance do not provide an accurate measurement of our business, our reputation may be harmed, we may be subject to legal or regulatory actions, and our operating and financial results could be adversely affected.
We derive substantially all of our revenue from job advertisements.
We derive substantially all of our revenue from sales of products and services related to the distribution of job advertisements to job seekers across the internet. As such, any factor adversely affecting the sale of these products and services, including market acceptance, product competition, performance and reliability, reputation, price competition, intellectual property claims and economic and market conditions, could harm our business and operating results.
Failure to effectively expand our sales and marketing capabilities could harm our ability to increase our user base and achieve broader market acceptance of our services.
Our ability to increase our Paid Employer base and achieve broader market acceptance of our marketplace will depend significantly on our ability to continue to expand our sales and marketing operations. We plan to expand our sales force and to dedicate significant and increasing resources to sales and marketing programs. We are expanding our sales and marketing capabilities to target additional potential Paid Employer, including some larger organizations, but there is no guarantee that we will be successful attracting and maintaining these businesses as users, and even if we are successful, these efforts may divert our resources away from and negatively impact our ability to attract and maintain our current Paid Employer base. All of these efforts will require us to invest significant financial and other resources. If we cannot find efficient ways to deploy our marketing spend or to hire, develop, and retain talented sales personnel in numbers required to maintain and support our growth, if our new sales personnel cannot achieve desired productivity levels in a reasonable period of time, or if our sales and marketing programs are not effective, our ability to increase our Paid Employer base and achieve broader market acceptance of our services could be harmed.
Paid Employers may demand more configuration and integration services, or customized features and functions that we do not offer, which could adversely affect our business and operating results.
Our current and future Paid Employers may demand more configuration and integration services, which would increase our upfront investment in sales and deployment efforts, with no guarantee that these Paid Employers will increase their use of our services. As a result of these factors, we may need to devote a significant amount of sales support and professional services resources to individual Paid Employers, which may increase the cost and time required to complete sales. If prospective Paid Employers require customized features or functions that we do not offer, and that would be difficult for them to deploy themselves, then the market for our marketplace will be more limited and our business could suffer. As a result, we may need to devote resources to continue to develop features and technology which may impact our operating results.
Any failure to offer high-quality technical support services may adversely affect our relationships with our Paid Employers and our financial results.
Once our products and services are deployed, our Paid Employers depend on our technical support organization to assist Paid Employers with service support and optimization, and resolve technical issues. We may be unable to respond quickly enough to accommodate short-term increases in demand for support services. We also may be unable to modify the format of our support services to compete with changes in support services provided by our competitors. Increased demand for these services, without corresponding revenue, could increase costs and adversely affect our operating results. In addition, our sales process is highly dependent on our services and business reputation and on positive recommendations from our existing Paid Employers. Any failure to maintain high-quality technical support, or a market perception that we do not maintain high-quality support, could adversely affect our reputation, our ability to sell our services to existing and prospective Paid Employers, and our business, operating results and financial position.
We have a history of net losses, anticipate increasing our operating expenses in the future, and may not sustain profitability.
We have a history of incurring net losses. While we earned net income of $86.0 million for the year ended December 31, 2020, for the years ended December 31, 2019 and 2018, we incurred net losses of $6.3 million and $25.4 million, respectively. As of December 31, 2020, we had an accumulated deficit of $71.4 million. We expect to make significant future expenditures related to the development and expansion of our business, including investing in our technology to improve our marketplace; investing in sales and marketing channels to enhance our brand promotion efforts; and in connection with legal,
accounting, and other administrative expenses related to operating as a public company. These efforts may prove more expensive than we currently anticipate, and we may not succeed in increasing our revenue sufficiently to offset these higher expenses. If our revenue declines or fails to grow at a rate faster than increases in our operating expenses, we will not be able to maintain profitability in future periods. As a result, we may generate losses. We cannot ensure that we will continue to achieve profitability in the future or that we can sustain profitability.
We rely on Amazon Web Services, or AWS, to host our marketplace, and any disruption of service from AWS or material change to our arrangement with AWS could adversely affect our business.
We currently host our marketplace and support most of our operations using AWS, a provider of cloud infrastructure services. We do not control the operations of AWS’s facilities. AWS’s facilities are vulnerable to damage or interruption from earthquakes, hurricanes, floods, fires, cyber security attacks, terrorist attacks, power losses, telecommunications failures, and similar events or could be subject to break-ins, computer viruses, sabotage, intentional acts of vandalism, and other misconduct. The occurrence of any of these events, a decision to close the facilities or cease or limit providing services to us without adequate notice, or other unanticipated problems could result in interruptions to our marketplace, which may be lengthy. Our marketplace’s continuing and uninterrupted performance is critical to our success and employers and job seekers may become dissatisfied by service interruption. Sustained or repeated system failures could reduce the attractiveness of our marketplace to employers and job seekers, cause employers and job seekers to decrease their use of or stop using our marketplace, and adversely affect our business. Moreover, negative publicity from disruptions could damage our reputation.
AWS does not have an obligation to renew its agreements with us on commercially reasonable terms, or at all. If we cannot renew our agreement or are unable to renew on commercially reasonable terms, we may experience costs or downtime in connection with the transfer to, or the addition of, new cloud infrastructure or other data center. If these providers charge high costs for or increase the cost of their services, we will experience higher costs to operate our business and may have to increase the fees to use our marketplace and our operating results may be adversely impacted.
Upon expiration or termination of our agreement with AWS, we may not be able to replace the services provided to us in a timely manner or on terms and conditions, including service levels and cost, that are favorable to us, and a transition from one vendor to another vendor could subject us to operational delays and inefficiencies until the transition is complete. Switching our operations from AWS to another cloud or other data center provider would also be technically difficult, expensive, and time consuming.
Many people are using mobile devices to access the internet. If we cannot optimize our websites for mobile access or offer a compelling mobile app, we may not remain competitive and could lose employers and job seekers.
Many employers and job seekers access our marketplace through our mobile website and mobile app. We must ensure that the experience for our mobile offerings is optimized to ensure a positive experience. It requires us to develop and enhance our offerings to be specifically designed for mobile devices, such as social media job postings. If we cannot optimize our websites and apps cost effectively and improve the monetization capabilities of our mobile services, we may not remain competitive, which may negatively affect our business and results of operations.
Additionally, there is no guarantee that employers and job seekers will use our apps rather than competing marketplaces. We are dependent on the interoperability of our mobile apps with popular third-party mobile operating systems such as Google's Android and Apple's iOS, and their placement in popular app stores like the Google Play Store and the Apple App Store, and any changes in such systems that degrade our apps’ functionality or give preferential treatment or app store placement to competitive apps could adversely affect the access and usage of our apps on mobile devices. If it is more
difficult for employers and job seekers to access and use our apps on their mobile devices, our growth and engagement levels could be harmed.
Legal and Regulatory Risks
If we or our third-party partners experience a security breach, such as a hacking or phishing attack, or other data privacy or security incident, our marketplace may be perceived as not being secure, our reputation may be harmed, demand for our marketplace may be reduced, our operations may be disrupted, we may incur significant legal costs or liabilities, and our business could be adversely affected.
Our business involves the storage, processing, and transmission of proprietary, confidential, and personal information as well as the use of third-party partners and vendors who also store, process, and transmit such user information. We also maintain certain other proprietary and confidential information relating to our business and personal information of our personnel. We have previously experienced multiple data security incidents involving the unauthorized access to personal information of job seekers utilizing our services as well as affecting our business clients’ accounts, some of which have required us to notify affected individuals and/or regulators. In addition, any future data security breach, such as a hacking or phishing attack, or other data privacy or security incident, whether intentionally or unintentionally caused by us or by third parties, that we experience could result in unauthorized access to, misuse of, or unauthorized acquisition of our, our personnel’s, or our users’ data; the loss, corruption, or alteration of this data; interruptions in our operations; or damage to our computers or systems or those of our users. Any of these could expose us to claims, litigation, fines, other potential liability, and reputational harm.
An increasing number of online services have also disclosed security breaches, some of which involved sophisticated and highly targeted attacks. Additionally, malware, viruses, social engineering (including business email compromise), and general hacking in our industry have become more prevalent and more complex. Further, due to the current COVID-19 pandemic, there is an increased risk that we may experience cybersecurity related incidents as a result of our employees, service providers, and third parties working remotely on less secure systems during government mandated shelter-in-place orders. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and often are not foreseeable or recognized until launched against a target, we and our third-party partners and vendors may be unable to anticipate these techniques or to implement adequate preventative measures. If an actual or perceived breach of our or our third party partners’ or vendors’ security or privacy or other data privacy or security incident occurs, public perception of the effectiveness of our security measures and brand could be harmed, and we could lose users and business.
Data security breaches and other data privacy and security incidents may also result from non-technical means, for example, through human error. Any such security compromise could result in a violation of applicable data privacy, security, breach notification and other laws, regulatory or other governmental investigations, enforcement actions, litigation, and legal and financial exposure, including potential contractual liability. We may need to expend significant resources to protect against, and to address issues created by, security breaches and other privacy and security incidents. These liabilities may exceed the amounts covered by our insurance or our insurance coverage may not extend to or be adequate for liabilities actually incurred, or our insurance may not continue to be available to us on economically reasonable terms, or at all. Any such compromise could also result in damage to our reputation and a loss of confidence in our security measures. Our systems, and the systems of our vendors and third-party partners, may also be vulnerable to computer viruses and other malicious software, physical or electronic break-ins, or weakness resulting from intentional or unintentional service provider actions, and similar disruptions that could make all or portions of our website or applications unavailable for periods of time. Any of these effects could adversely impact our business.
We face payment and fraud risks that could adversely impact our business.
Requirements in our marketplace relating to user authentication and fraud detection are complex. If our user authentication and fraud detection measures are not effective, our marketplace may be perceived as not being secure, our reputation may be harmed, and our business may be adversely impacted. In addition, bad actors use increasingly sophisticated methods to engage in illegal activities involving personal information, such as unauthorized or fraudulent use of another’s identity, payment information, or other information; misrepresentation of the user’s identity or skills, including using accounts that they have purchased, sold, or leased; and acquisition or use of credit or debit card details and bank account information. This conduct in our marketplace could result in any of the following, each of which could adversely impact our business:
•bad actors may use our marketplace, including our payment processing and disbursement methods, to engage in unlawful or fraudulent conduct, such as identity theft, money laundering, terrorist financing, fraudulent sale of services, bribery, breaches of security, leakage of data, piracy or misuse of software and other copyrighted or trademarked content, and other misconduct;
•we may be held liable for the unauthorized use of an account holder’s credit card or bank account number and required by card issuers or banks to return the funds at issue and pay a chargeback or return fee, and if our chargeback or return rate becomes excessive, credit card networks may also require us to pay fines or other fees and the California Department of Business Oversight may require us to hold cash reserves;
•we may be subject to additional risk and liability exposure, including for negligence, fraud, or other claims, if employees or third-party service providers fraudulently misappropriate our banking or other information or user information;
•employers and job seekers that are subjected or exposed to the unlawful or improper conduct of other employers and job seekers or other third parties, or law enforcement or administrative agencies, may seek to hold us responsible for the conduct of employers and job seekers, may lose confidence in our marketplace, decrease or cease use of our marketplace, seek to obtain damages and costs, or impose fines and penalties;
•we may be subject to additional risk if employers in our marketplace cannot pay hired job seekers for services rendered, as such job seekers may seek to hold us responsible for the employers’ conduct and may lose confidence in our marketplace, may decrease or cease use of our marketplace, or seek to obtain damages and costs; and
•we may suffer reputational damage as a result of the occurrence of any of the above.
Despite measures we have taken to detect, prevent, and mitigate these risks, we do not have control over the employers and job seekers in our marketplace and cannot ensure that any of our measures will stop or minimize the use of our marketplace for, or to further, illegal or improper purposes. We may receive complaints from employers, job seekers and other third parties concerning misuse of our marketplace and wrongful conduct of other employers and job seekers. We may also bring claims against employers and job seekers and other third parties for their misuse of our marketplace in the future. Even if these claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the attention and resources of our management and adversely affect our business and operating results.
Changes in laws or regulations relating to data privacy or the protection, collection, storage, processing, transfer, or use of personal data, or any actual or perceived failure by us to comply with such laws and regulations or our privacy policies, could adversely affect our business.
We receive, collect, store, process, transfer, and use personal information and other user data. There are numerous federal, state, local, and international laws and regulations regarding data privacy, data protection, information security, and the collection, storing, sharing, use, processing, transfer, disclosure, and protection of personal information and other content. The scope of these laws and regulations is changing, subject to differing interpretations, and may be inconsistent among countries, or conflict with other laws and regulations.
We are also subject to the terms of our privacy policies and obligations to third parties related to privacy, data protection, and information security. The regulatory framework for privacy and data protection worldwide is uncertain and complex, and that these or other actual or alleged obligations may be interpreted and applied in ways we do not anticipate or that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. Further, any significant change to applicable laws, regulations, or industry practices regarding the collection, use, retention, security, or disclosure of the data of our employers and job seekers, employees, contractors, or others, or their interpretation, or any changes regarding the manner in which the express or implied consent of employers and job seekers for the collection, use, retention, or disclosure of such data must be obtained, could increase our costs and require us to modify our services and features, which may be material or not cost-effective, and may limit our storage and processing of user data or develop new services and features.
We also expect that there will continue to be new laws, regulations, and industry standards concerning privacy, data protection, and information security proposed and enacted in various jurisdictions. For example, in 2018, European legislators adopted the General Data Protection Regulation, or the GDPR, which imposes more stringent European Union, or EU, data protection requirements, and provides for significant penalties for noncompliance. The GDPR also confers a private right of action on data subjects and consumer associations to lodge complaints with supervisory authorities, seek judicial remedies, and obtain compensation for damages resulting from violations of the GDPR. Compliance with the GDPR has been and will be a rigorous and time-intensive process that may increase our cost of doing business or require us to change our business practices, and may subject us to governmental investigations or enforcement actions, fines and penalties, claims, litigation, and reputational harm in connection with any European activities. Further, the United Kingdom, or the UK, has enacted the UK GDPR, which, together with the amended UK Data Protection Act 2018, or DPA, retains the GDPR in UK national law. Fines for certain breaches of the GDPR and the UK data protection regime are significant e.g., fines for certain breaches of the GDPR or the UK GDPR are up to the greater of 20 million Euros (17.5 million GBP) or 4% of total global annual turnover. Additionally, the California Consumer Privacy Act, or the CCPA, which provides new data privacy rights for consumers and new operational requirements for companies, came into force in 2020, and also provides for fines for noncompliance. The costs of compliance with, and other burdens imposed by, the GDPR, the UK GDPR, the DPA and CCPA may limit the use and adoption of our products and services and could have an adverse impact on our business. As a result, we may need to modify the way we treat such information.
Any failure or perceived failure by us to comply with our privacy policies, our privacy-related obligations to employers and job seekers, employees, contractors, or other third parties, or any other legal obligations or regulatory requirements relating to privacy, data protection, or information security may result in governmental and regulatory investigations or enforcement and/or assessment notices (for a compulsory audit), orders to cease or change our processing of our data, litigation, claims (including representative actions and other class action type litigation, where individuals have suffered harm), or public statements against us by consumer advocacy groups or others and could result in significant liability, cause our employers and job seekers to lose trust in us, and otherwise have an adverse effect on our reputation and business. Furthermore, the costs of compliance with such laws, regulations and policies may limit the adoption and use of, and reduce the overall demand for, our marketplace.
Failure to comply with anti-corruption and anti-money laundering laws, including the Foreign Corrupt Practices Act, or FCPA, and similar laws associated with our activities outside of the United States, could subject us to penalties and other adverse consequences.
We have voluntarily implemented policies and procedures designed to allow us to comply with U.S. economic sanctions laws and prevent our marketplace from being used to facilitate business in countries or with persons or entities included on designated lists promulgated by the U.S. Department of the Treasury’s Office of Foreign Assets Control, or OFAC, and equivalent foreign authorities. We may be subject to fines or other penalties in one or more jurisdictions levied by federal, state or local regulators, in the event that we engage in any conduct, intentionally or not, that facilitates money laundering, terrorist financing, or other illicit activity, or that violates sanctions or otherwise constitutes sanctionable activity.
Regulators continue to increase their scrutiny of compliance with these obligations, which may require us to further revise or expand our compliance program, including the procedures that we use to verify the identity of our users and to monitor our marketplace for potential illegal activity. In addition, any policies and procedures that we implement to comply with OFAC regulations may not be effective, including in preventing users from using our services within the OFAC-sanctioned countries of North Korea, Syria, and Iran, and the Crimea region of Ukraine. Given the technical limitations in developing controls to prevent, among other things, the ability of users to publish in our marketplace false or deliberately misleading information or to develop sanctions-evasion methods, it is possible that we may inadvertently and without our knowledge provide services to individuals or entities that have been designated by OFAC or are located in a country subject to an embargo by the United States that may not be in compliance with the economic sanctions regulations administered by OFAC.
Consequences for failing to comply with applicable rules and regulations could include fines, criminal and civil lawsuits, forfeiture of significant assets, or other enforcement actions. We could also be required to make changes to our business practices or compliance programs as a result of regulatory scrutiny. In addition, any perceived or actual breach of compliance by us, our employers and job seekers, or payment partners with respect to applicable laws, rules, and regulations could have a significant impact on our reputation and could cause us to lose existing employers and job seekers, prevent us from obtaining new employers and job seekers, cause other payment partners to terminate or not renew their agreements with us, require us to expend significant funds to remedy problems caused by violations and to avert further violations, and expose us to legal risk and potential liability, all of which may adversely affect our business, operating results, and financial condition and may cause the price of our common stock to decline.
We are also subject to the FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, and the UK Bribery Act 2010, and may be subject to other anti-bribery, anti-money laundering, and sanctions laws in countries in which we conduct activities or have employers and job seekers. The FCPA prohibits providing, offering, promising, or authorizing, directly or indirectly, anything of value to government officials, political parties, or political candidates for the purposes of obtaining or retaining business or securing any improper business advantage. The provisions of the Bribery Act extend beyond bribery of government officials and create offenses in relation to commercial bribery including private sector recipients. The provisions of the Bribery Act also create offenses for accepting bribes in addition to bribing another person. We face significant risks if we cannot comply with the FCPA, the Bribery Act and other applicable anti-corruption laws. We have implemented an anti-corruption compliance policy, but we cannot ensure that all of our employees, employers and job seekers, and agents, as well as those contractors to which we outsource certain of our business operations, will not take actions in violation of our policies or agreements and applicable law, for which we may be ultimately held responsible.
Any violation of the FCPA, the Bribery Act, other applicable anti-corruption laws, and other laws could result in investigations and actions by federal or state attorneys general or foreign regulators, loss of export privileges, severe criminal or civil fines and penalties or other sanctions, forfeiture of significant assets, debarment from government contracts, whistleblower complaints, and adverse media coverage,
which could have an adverse effect on our reputation, business, operating results, and prospects. In addition, responding to any enforcement action or internal investigation related to alleged misconduct may result in a significant diversion of management’s attention and resources and significant defense costs and other professional fees.
We are subject to a wide variety of foreign and domestic laws. As we look to expand our international footprint over time and as new domestic laws are implemented, we may become obligated to comply with additional laws and regulations of the countries or markets in which we operate or have employers and job seekers.
We and our employers and job seekers are subject to a wide variety of foreign and domestic laws. Laws, regulations, and standards governing issues that may affect us, such as employment, payments, whistleblowing and worker confidentiality obligations, intellectual property, consumer protection, taxation, privacy, data security, benefits, unionizing and collective action, arbitration agreements and class action waiver provisions, unfair competition, terms of service, website accessibility, background checks, and escheatment are often complex and subject to varying interpretations, and, as a result, their application in practice may change or develop over time through judicial decisions or as new guidance or interpretations are provided by regulatory and governing bodies. Many of these laws do not contemplate or address the unique issues of the internet, mobile, and related technologies. Other laws and regulations in response to internet, mobile, and related technologies may also be adopted, implemented, or interpreted to apply to us and other online services marketplaces or our users. Likewise, these laws affect our users, and their application, or uncertainty around their application, may affect demand for our marketplace.
New approaches to policymaking and legislation may also produce unintended harms for our business, which may impact our ability to operate our business in the manner in which we are accustomed. Any of these regulations could negatively impact our users, including perceptions regarding their use of our marketplace, or have a material adverse effect on the demand for job postings in our marketplace or on how we operate our marketplace.
As we look to expand our international footprint over time, we may become obligated to comply with additional laws and regulations of the countries or markets in which we operate or have customers or job seekers. We may be harmed if we are found to be subject to new or existing laws and regulations or if those laws are interpreted and applied to us in a manner that harms our business or is inconsistent with the application of U.S. laws, including with respect to those subjects mentioned above. In addition, contractual provisions that are designed to protect and mitigate against risks, including terms of service, arbitration and class action waiver provisions, disclaimers of warranties, limitations of liabilities, releases of claims, and indemnification provisions, could be deemed unenforceable as to the application of these laws and regulations by a court, arbitrator, or other decision-making body. If we cannot comply with these laws and regulations or manage the complexity of global operations and support an international user base successfully or cost effectively, or if these laws and regulations are deemed to apply to our users or cause a decline in demand for our marketplace, our business, operating results, and financial condition could be adversely affected.
We plan to expand our international operations which could subject us to additional costs and risks, and our continued expansion internationally may not be successful.
We plan to expand our operations internationally in the future. Outside of the United States, we currently have operations in the United Kingdom, Israel, and Canada. There are significant costs and risks inherent in conducting business in international markets, including:
•establishing and maintaining effective controls at foreign locations and the associated costs;
•adapting our marketplace to non-U.S. employers’ and job seekers’ preferences and customs;
•increased competition from local providers;
•longer sales or collection cycles in some countries;
•compliance with foreign laws and regulations, including data privacy frameworks like the GDPR;
•adapting to doing business in other languages or cultures;
•compliance with local tax regimes, including potential double taxation of our international earnings, and potentially adverse tax consequences due to U.S. and foreign tax laws as they relate to our international operations;
•compliance with anti-bribery laws, such as the FCPA and the Bribery Act;
•currency exchange rate fluctuations and related effects on our operating results;
•economic and political instability in some countries;
•the uncertainty of obtaining and protecting intellectual property rights in some countries and practical difficulties of enforcing rights abroad; and
•other costs of doing business internationally.
These factors and other factors could harm our international operations and, consequently, materially impact our business, operating results, and financial condition.
Further, we may incur significant operating expenses as a result of our international expansion, and it may not be successful. We have limited experience with regulatory environments and market practices internationally, and we may not be able to penetrate or successfully operate in new markets. We also have more limited brand recognition in certain parts of the world, leading to delayed acceptance of our marketplace by international employers and job seekers. If we cannot continue to expand internationally and manage the complexity of our global operations successfully, our financial condition and operating results could be adversely affected.
Privacy concerns and laws or other domestic or foreign regulations may reduce the effectiveness of our marketplace, disrupt our communication processes, and adversely affect our business.
In order to use our marketplace, employers, job seekers, and, to a lesser extent, other third parties including advertisers, partners, and our own employees, entrust us to collect, use, and store their personal information. Our ability to leverage this information and to effectively and efficiently provide our services, including by communicating electronically and otherwise with employers and job seekers of our marketplace is critical to our business. By way of example, our services may include the sending and receiving of emails, SMS/text messages and push notifications on mobile devices. Certain federal, state and foreign government bodies and agencies have adopted, and others are considering adopting, or may adopt in the future, laws and regulations regarding the collection, use, transfer, storage and disclosure of personal information obtained from consumers and individuals, and the conditions under which businesses may communicate with consumers and other third parties. The costs of compliance with, and other burdens imposed by, such laws and regulations that are applicable to the businesses of our employers and job seekers may limit the use of our marketplace and reduce overall demand, or lead to significant fines, penalties or liabilities for any noncompliance with such privacy laws. Moreover, third party gatekeepers and service providers and their interpretation and application of privacy and data protection laws, rules, regulations, and best practices, may limit, disrupt, or require alteration of our operations, service offerings, and ability to communicate with and among employers and job seekers, and may adversely affect our business.
From time to time, we may be subject to legal proceedings, regulatory disputes, and governmental investigations that could cause us to incur significant expenses, divert our management’s attention, and materially harm our business, financial condition, and operating results.
From time to time, we may be subject to claims, lawsuits (including class actions), government investigations, arbitrations and other proceedings involving competition and antitrust, intellectual property, privacy, consumer protection, securities, tax, labor and employment, commercial disputes, and other matters that could adversely affect our business operations and financial condition. The outcome of any legal proceeding, regardless of its merits, is inherently uncertain. Regardless of the merits, pending or future legal proceedings could result in a diversion of management’s attention and resources and reputational harm, and we may be required to incur significant expenses defending against these claims or pursuing claims against third parties to protect our rights. If we do not prevail in litigation, we could incur substantial liabilities. We may also determine in certain instances that a settlement may be a more cost-effective and efficient resolution for a dispute.
Where we can make a reasonable estimate of the liability relating to pending litigation and determine that it is probable, we record a related liability. As additional information becomes available, we assess the potential liability and revise estimates as appropriate. However, because of uncertainties relating to litigation, the amount of our estimates could be wrong as determining reserves for pending legal proceedings is a complex, fact-intensive process that is subject to judgment calls. The results of legal and regulatory proceedings cannot be predicted with certainty, and determining reserves for pending litigation and other legal and regulatory matters requires significant judgment. There can be no assurance that our expectations will prove correct, and even if these matters are resolved in our favor or without significant cash settlements, these matters, and the time and resources necessary to litigate or resolve them, could harm our business. Any adverse determination related to legal proceedings or a settlement agreement could require us to change our technology or our business practices in costly ways, prevent us from offering certain products or services, require us to pay monetary damages, fines, or penalties, or require us to enter into royalty or licensing arrangements, and could adversely affect our operating results and cash flows, harm our reputation, or otherwise negatively impact our business.
Our failure or inability to protect our intellectual property rights, or claims by others that we are infringing upon or unlawfully using their intellectual property could diminish the value of our brand and weaken our competitive position, and adversely affect our business, financial condition, operating results, and prospects.
Our success depends in large part on our proprietary technology and other intellectual property rights, or IPR. We currently rely on a combination of copyright, trademark, trade secret, and unfair competition laws, as well as confidentiality agreements and procedures and licensing arrangements, to establish and protect our IPR. We currently do not own any patents. We have devoted substantial resources to the development of our proprietary technologies and related processes. To protect our proprietary technologies and processes, we rely in part on trade secret laws and confidentiality agreements with our employees, licensees, independent contractors, commercial partners, and other advisors. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. We cannot be certain that the steps taken by us to protect our IPR will be adequate to prevent infringement of such rights by others. Additionally, the process of obtaining protection for trademarks and other IPR is expensive and time-consuming, and we may not be able to apply for all necessary or desirable trademark and other IPR applications at a reasonable cost or in a timely manner. Additionally, the process of obtaining patent or trademark protection is expensive and time-consuming, and we may not be able to prosecute all necessary or desirable patent applications or apply for all necessary or desirable trademark applications at a reasonable cost or in a timely manner. Moreover, intellectual property protection may be unavailable or limited in some foreign countries where laws or law enforcement practices may not protect our IPR as fully as in the United States, and it may be more difficult for us to successfully challenge the unauthorized use of our IPR by other parties in these countries. Costly and time-consuming litigation
could be necessary to enforce and determine the scope of our IPR, and our failure or inability to obtain or maintain IPR protection or otherwise protect our IPR could adversely affect our business.
We may in the future be subject to patent infringement and trademark claims and lawsuits in various jurisdictions, and we cannot be certain that our products or activities do not violate the patents, trademarks, or other IPR of third-party claimants. Companies in the technology industry and other patent, copyright, and trademark holders seeking to profit from royalties in connection with grants of licenses own large numbers of patents, copyrights, trademarks, domain names, and trade secrets and frequently commence litigation based on allegations of infringement, misappropriation, or other violations of intellectual property or other rights. As we face increasing competition and gain an increasingly high profile, the likelihood of IPR claims against us has grown and will likely continue to grow.
Further, from time to time, we may receive letters from third parties alleging that we are infringing upon their IPR or inviting us to license their IPR. Successful infringement claims against us could result in significant monetary liability, prevent us from selling some of our products and services, or require us to change our branding. In addition, resolution of claims may require us to redesign our products, license rights from third parties at a significant expense, or cease using those rights altogether. We may in the future bring claims against third parties for infringing our IPR. Costs of supporting such litigation and disputes may be considerable, and there can be no assurances that a favorable outcome will be obtained. Patent infringement, trademark infringement, trade secret misappropriation, and other intellectual property claims and proceedings brought against us or brought by us, whether successful or not, could require significant attention of our management and resources and have in the past and could further result in substantial costs, harm to our brand, and have an adverse effect on our business.
Adverse tax laws or regulations could be enacted or existing laws could be applied to us or our employers and job seekers, which could increase the costs of our services and adversely impact our business.
The application of federal, state, local and international tax laws to services provided electronically is evolving. New income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time (possibly with retroactive effect), and could be applied solely or disproportionately to services provided over the internet. These enactments could adversely affect our sales activity due to the inherent cost increase the taxes would represent and ultimately result in a negative impact on our operating results and cash flows.
In addition, existing tax laws, statutes, rules, regulations or ordinances could be interpreted, changed, modified or applied adversely to us (possibly with retroactive effect), which could require us or our employers and job seekers to pay additional tax amounts, as well as require us or our employers and job seekers to pay fines or penalties and interest for past amounts. If we are unsuccessful in collecting such taxes from our employers and job seekers, we could be held liable for such costs, thereby adversely impacting our operating results and cash flows.
Other Risks Related to Our Business
Our business is subject to the risk of earthquakes, fire, power outages, floods, public health crises, including the current COVID-19 pandemic, and other catastrophic events, and to interruption by man-made problems such as terrorism.
Our business is vulnerable to damage or interruption from earthquakes, fires, floods, power losses, telecommunications failures, terrorist attacks, acts of war, human errors, break-ins, public health crises, including the COVID-19 pandemic, and similar events. Additionally, the third-party systems and operations, such as the data centers and online services we use in our company operations, are subject to similar risks. Our insurance policies may not cover losses from these events or may provide insufficient compensation that does not cover our total losses. For example, the COVID-19 pandemic has resulted in a widespread global health crisis and adversely affected global economies and financial markets, and similar public health threats could do so in the future. Such events have impacted, and could in the future
impact, demand for products sold in our marketplace, which in turn could adversely affect our revenue and results of operations. In addition, acts of terrorism, which may be targeted at metropolitan areas that have higher population density than rural areas, could also cause disruptions in our business or the economy as a whole. A significant portion of our technology team is located in Israel, which is located in a region of the world that historically has experienced elevated levels of geopolitical instability. Our corporate offices and our primary data center facilities are located in California, a state that frequently experiences earthquakes and wildfires. We may not have sufficient protection or recovery plans. As we rely heavily on our data center facilities, computer and communications systems, and the internet to conduct our business and provide high-quality user service, these disruptions could negatively impact our ability to run our business.
Covenants in our Credit Agreement may restrict our operations, and if we do not effectively manage our business to comply with these covenants, our financial condition could be adversely impacted.
We entered into a Credit Agreement with the lenders named therein, and JPMorgan Chase Bank, N.A., as administrative agent, in April 2021, which provides for a $250.0 million secured revolving line of credit. The revolving credit facility contains various restrictive covenants, including, among other things, net leverage ratio requirements, restrictions on our ability to dispose of assets, make acquisitions or investments, incur debt or liens, make distributions to our stockholders, or enter into certain types of related party transactions. These restrictions may restrict our current and future operations, particularly our ability to respond to certain changes in our business or industry, or take future actions. Pursuant to the agreement, we granted the lenders thereto a security interest in substantially all of our assets. See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” for additional information.
Our ability to meet these restrictive covenants can be impacted by events beyond our control and we may be unable to do so. Our credit agreement provides that our breach or failure to satisfy certain covenants constitutes an event of default. Upon the occurrence of an event of default, the lender could elect to declare all amounts outstanding under its debt agreements to be immediately due and payable. In addition, the lender would have the right to proceed against the assets we provided as collateral pursuant to the credit agreement. If the debt under our credit agreement was to be accelerated, we may not have sufficient cash on hand or be able to sell sufficient collateral to repay it, which would have an immediate adverse effect on our business and financial condition.
We may engage in merger and acquisition activities, which could require significant management attention, disrupt our business, dilute stockholder value, consume resources that are necessary to sustain our business, and adversely affect our operating results.
As part of our business strategy, we may make investments in other companies, products, or technologies. At any given time, we may be engaged in discussions or negotiations with respect to one or more of these types of transactions. Any acquisition, investment, or business relationship may result in unforeseen or additional operating difficulties, risks, and expenditures. We may not be able to find suitable acquisition candidates and we may not be able to complete acquisitions on favorable terms, if at all. If we do complete acquisitions in the future, we may not ultimately strengthen our competitive position or achieve our goals, and any acquisitions we complete could be viewed negatively by employers and job seekers. In addition, if we cannot successfully integrate such acquisitions, or the assets, technologies or personnel associated with such acquisitions, into our company, the anticipated benefits of any acquisition, investment, or business relationship may not be realized. Additionally, we may be exposed to unknown or additional risks and liabilities.
We may in the future seek to acquire or invest in additional businesses, products, technologies, or other assets. We also may enter into relationships with other businesses to expand our marketplace or our ability to provide our marketplace in foreign jurisdictions, which could involve preferred or exclusive licenses, additional channels of distribution, discount pricing, or investments in other companies.
Negotiating these transactions can be time consuming, difficult, and expensive, and our ability to close these transactions may often be subject to approvals that are beyond our control. Consequently, these transactions, even if undertaken and announced, may not close. Acquisitions may disrupt our ongoing operations, divert management from their primary responsibilities, dilute our corporate culture, subject us to additional liabilities, increase our expenses, and adversely impact our business, financial condition, operating results, and cash flows. We may not successfully evaluate or use the acquired technology and accurately forecast the financial impact of an acquisition transaction, including accounting charges. We may have to pay cash, incur debt, or issue equity securities to pay for any such acquisition, each of which could affect our financial condition, could result in dilution to our stockholders or increase our fixed obligations.
We may require additional capital to support business growth and objectives, and this capital might not be available to us on reasonable terms, if at all, and may result in stockholder dilution.
We expect that our existing cash and cash equivalents will be sufficient to meet our anticipated cash needs for the foreseeable future. However, we intend to continue to make investments to support our business growth and may require additional capital to fund our business and to respond to competitive challenges, including the need to promote and enhance our marketplace, develop new products and services, enhance our operating infrastructure, and potentially to acquire complementary businesses and technologies. Accordingly, we may need to engage in equity or debt financings to secure additional funds. There can be no assurance that such additional funding will be available on terms attractive to us, or at all. Our inability to obtain additional funding when needed could have an adverse effect on our business, financial condition, and operating results. If additional funds are raised through the issuance of equity or convertible debt securities, holders of our Class A common stock could suffer significant dilution, and any new shares we issue could have rights, preferences, and privileges superior to those of our Class A common stock. Any debt financing secured by us in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions.
The requirements of being a public company, including maintaining adequate internal control over our financial and management systems, may strain our resources, divert management’s attention, and affect our ability to attract and retain executive management and qualified board members.
We are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, the rules subsequently implemented by the SEC, the rules and regulations of the listing standards of the New York Stock Exchange and other applicable securities rules and regulations. Compliance with these rules and regulations has increased our legal and financial compliance costs and strains our financial and management systems, internal controls, and employees.
The Exchange Act requires, among other things, that we file annual, quarterly, and current reports with respect to our business and operating results. Moreover, the Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures, and internal control over financial reporting. We will be required to make a formal assessment and provide an annual management report on the effectiveness of our internal control over financial reporting beginning with our annual report for the fiscal year ending December 31, 2022. We have not identified any material weaknesses in our internal control over financial reporting during 2019 and 2020. However, to maintain and, if required, improve our disclosure controls and procedures, and internal control over financial reporting to meet the standards of the Sarbanes-Oxley Act, additional and potentially significant resources and management oversight may be required.
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 business 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 may 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 would likely have a negative effect on our stock price.
The new rules and regulations applicable to public companies, and stockholder litigation brought against recently public companies, have made it more expensive for us to obtain and maintain director and officer liability insurance, and we may be required to incur substantially higher costs to obtain and maintain the same or similar coverage.
Our management team has limited experience managing a public company.
Most members of our management team have limited experience managing a publicly traded company, interacting with public company investors, and complying with the increasingly complex laws pertaining to public companies. We are subject to significant regulatory oversight and reporting obligations under the federal securities laws and the continuous scrutiny of securities analysts and investors. These obligations and constituents require significant attention from our senior management and could divert their attention away from the day-to-day management of our business, which could adversely affect our business, financial condition, and operating results.
Our reported financial results may be adversely affected by changes in accounting principles generally accepted in the United States.
Generally accepted accounting principles in the United States are subject to interpretation by the Financial Accounting Standards Board (FASB), the SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results and could affect the reporting of transactions completed before the announcement of a change.
If our estimates or judgments relating to our critical accounting policies prove to be incorrect, our operating results could be adversely affected.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities, and stockholders’ equity/deficit, and the amount of revenue and expenses that are not readily apparent from other sources. Our operating results may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our operating results to fall below the expectations of securities analysts and investors, resulting in a decline in the price of our Class A common stock.
Fluctuations in currency exchange rates could harm our operating results and financial condition.
Transactions generated in countries other than the United States as well as those incurred by our international subsidiaries are often denominated in the currencies of the local countries. As a result, our consolidated U.S. dollar financial statements are subject to fluctuations due to changes in exchange rates as the financial results of our international subsidiaries are translated from local currencies into U.S. dollars. Our financial results are also subject to changes in exchange rates that impact the settlement of transactions in non-local currencies. To date, we have not engaged in currency hedging activities to limit the risk of exchange fluctuations and, as a result, our financial condition and operating results could be adversely affected by such fluctuations.
Risks Related to the Ownership of Our Class A Common Stock
The registration and listing of our Class A common stock differs significantly from an underwritten initial public offering.
This listing is not an underwritten initial public offering of our Class A common stock. In addition, the registration and listing of our Class A common stock on the New York Stock Exchange differs from an underwritten initial public offering in several significant ways, which include the following:
•There are no underwriters. Consequently, prior to the opening of trading of our Class A common stock on the New York Stock Exchange, there will be no book building process and no price at which underwriters initially sold shares to the public to help inform efficient and sufficient price discovery with respect to the opening trades on the New York Stock Exchange. Therefore, buy and sell orders submitted prior to and at the opening of trading of our Class A common stock on the New York Stock Exchange will not have the benefit of being informed by a published price range or a price at which the underwriters initially sold shares to the public, as would be the case in an underwritten initial public offering. Moreover, there will be no underwriters assuming risk in connection with resales of shares of our Class A common stock. Additionally, because there are no underwriters, there is no underwriters’ option to purchase additional shares to help stabilize, maintain, or affect the public price of our Class A common stock on the New York Stock Exchange immediately after the listing. In an underwritten initial public offering, the underwriters may engage in “covered” short sales in an amount of shares representing the underwriters’ option to purchase additional shares. To close a covered short position, the underwriters purchase shares in the open market or exercise the underwriters’ option to purchase additional shares. In determining the source of shares to close the covered short position, the underwriters typically consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the underwriters’ option to purchase additional shares. Purchases in the open market to cover short positions, as well as other purchases underwriters may undertake for their own accounts, may have the effect of preventing a decline in the market price of shares. Given that there will be no underwriters’ option to purchase additional shares and no underwriters engaging in stabilizing transactions, there could be greater volatility in the public price of our Class A common stock during the period immediately following the listing. See also “—Market volatility may affect the value of an investment in our Class A common stock and could subject us to litigation.”
•There is no fixed or determined number of shares of Class A common stock available for sale in connection with the registration and listing of the Class A common stock on the New York Stock Exchange, except we expect approximately 745,272 shares of our Class A common stock to be sold on our first trading day in order to fund the tax withholding and remittance obligations arising in connection with the RSUs that may settle on that day in the event that the board of directors waives the liquidity-based vesting condition of our outstanding RSUs. Therefore, there can be no assurance that any existing stockholders will sell any of their shares of Class A common stock and there may initially be a lack of supply of, or demand for, shares of Class A common stock on the New York Stock Exchange. Alternatively, we may have a large number of existing stockholders who choose to sell their shares of Class A common stock in the near term, including holders of RSUs that may settle on the first day of trading, resulting in potential oversupply of our Class A common stock, which could adversely impact the price of our Class A common stock. See the section titled “RSU Sales” for additional information.
•None of our existing stockholders have entered into contractual lock-up agreements or other contractual restrictions on transfer. In an underwritten initial public offering, it is customary for an issuer’s officers, directors, and most or all of its other stockholders to enter into a 180-day contractual lock-up arrangement with the underwriters to help promote orderly trading immediately after such initial public offering. Consequently, any of our stockholders, including our directors, officers and other significant stockholders, may sell any or all of their shares of Class A
common stock, including shares of Class B common stock convertible into Class A common stock at the time of sale (subject to any restrictions under applicable law), including immediately upon listing. If such sales were to occur in a significant volume in a short period of time, it may result in an oversupply of our Class A common stock in the market, which could adversely impact the price of our Class A common stock. See also “None of our stockholders are party to any contractual lock-up agreement or other contractual restrictions on transfer. Following our listing, the sales or distribution of substantial amounts of our Class A common stock, or the perception that such sales or distributions might occur, could cause the market price of our Class A common stock to decline.”
•We will not conduct a traditional “roadshow” with underwriters prior to the opening of trading of our Class A common stock on the New York Stock Exchange. Instead, we intend to host an investor day and engage in certain other investor education meetings. In advance of the investor day, we will announce the date for such day over financial news outlets in a manner consistent with typical corporate outreach to investors. We intend to prepare an electronic presentation for this investor day, which will have content similar to a traditional roadshow presentation, and to make a version of the presentation publicly available, without restrictions, on our website. There can be no guarantee that the investor day and other investor education meetings will have the same impact on investor education as a traditional “roadshow” conducted in connection with an underwritten initial public offering. As a result, there may not be efficient or sufficient price discovery with respect to our Class A common stock or sufficient demand among potential investors immediately after our listing, which could result in a more volatile price of our Class A common stock.
•Since we are not conducting an underwritten initial public offering for our Class A common stock, the market price for our Class A common stock may be volatile and trading volume may be uncertain, which may adversely affect your ability to sell any Class A common stock that you may purchase. Because of the relatively novel listing process and the broad consumer awareness and brand recognition of our company, individual investors, retail, or otherwise, may have greater influence in setting the opening public price and subsequent public prices of our Class A common stock on the New York Stock Exchange and may participate more in our initial trading than is typical for an underwritten initial public offering. These factors could result in a public price of our Class A common stock that is higher than other investors (such as institutional investors) are willing to pay, which could cause volatility in the trading price of our Class A common stock and an unsustainable trading price if the price of our Class A common stock significantly rises upon listing and institutional investors believe our Class A common stock is worth less than retail investors, in which case the price of our Class A common stock may decline over time. Further, if the public price of our Class A common stock is above the level that investors determine is reasonable for our Class A common stock, some investors may attempt to short our Class A common stock after trading begins, which would create additional downward pressure on the public price of our Class A common stock.
An active, liquid, and orderly market for our Class A common stock may not develop or be sustained. You may be unable to sell your shares of Class A common stock at or above the price at which you purchased them.
We currently expect our Class A common stock to be listed and traded on the New York Stock Exchange. Prior to the listing of our Class A common stock on the New York Stock Exchange, there has been no public market for our Class A common stock. Moreover, consistent with Regulation M and other federal securities laws applicable to our listing, we have not consulted with our existing stockholders regarding their desire or plans to sell shares in the public market following the listing or discussed with potential investors their intentions to buy our Class A common stock in the open market. While our Class A common stock may be sold after our listing of the Class A common stock on the New York Stock Exchange by our existing stockholders in accordance with Rule 144 of the Securities Act, unlike an underwritten initial public offering, there can be no assurance that any of our existing stockholders will sell
any of their shares of Class A common stock. As a result, there may initially be a lack of supply of, or demand for, Class A common stock on the New York Stock Exchange. Conversely, there can be no assurance that our existing stockholders will not sell all of their shares of Class A common stock, resulting in an oversupply of our Class A common stock on the New York Stock Exchange. In the case of a lack of supply of our Class A common stock, the trading price of our Class A common stock may rise to an unsustainable level. Further, institutional investors may be discouraged from purchasing our Class A common stock if they are unable to purchase a block of our Class A common stock in the open market due to a potential unwillingness of our existing stockholders to sell a sufficient amount of Class A common stock at the price offered by such institutional investors and the greater influence individual investors have in setting the trading price. If institutional investors are unable to purchase our Class A common stock, the market for our Class A common stock may be more volatile without the influence of long-term institutional investors holding significant amounts of our Class A common stock. In the case of a lack of demand for our Class A common stock, the trading price of our Class A common stock could decline significantly and rapidly after the listing of our Class A common stock on the New York Stock Exchange. Therefore, an active, liquid, and orderly trading market for our Class A common stock may not initially develop or be sustained, which could significantly depress and result in significant volatility in the price of our Class A common stock. This could affect your ability to sell your shares of Class A common stock.
The trading price of our Class A common stock, upon listing on the New York Stock Exchange, may have little or no relationship to the historical sales prices of our capital stock in private transactions, and such private transactions have been limited.
Prior to the registration and listing of our Class A common stock on the New York Stock Exchange, there has been no public market for our capital stock. The historical sales prices of our capital stock are primarily from sales of shares of our capital stock in private transactions. In the section titled “Sale Price History of our Capital Stock,” we have provided the historical sales prices of our capital stock in private transactions. However, given the limited history of sales, among other factors, this information may have little or no relation to broader market demand for our Class A common stock and thus the price of our Class A common stock. As a result, you should not place undue reliance on these historical sales prices as they may differ materially from the opening price of the Class A common stock and subsequent prices of our Class A common stock. For more information about how the initial listing price of the Class A common stock on the New York Stock Exchange will be determined, see the section titled “Plan of Distribution.”
None of our stockholders are party to any contractual lock-up agreement or other contractual restrictions on transfer. Following our listing, the sales or distribution of substantial amounts of our Class A common stock, or the perception that such sales or distributions might occur, could cause the market price of our Class A common stock to decline.
In addition to the supply and demand and volatility factors discussed above, the sale or distribution of a substantial number of shares of our Class A common stock, particularly sales by us or our directors, executive officers, and principal stockholders, could cause the market price of our Class A common stock to decline.
As of March 31, 2021, giving effect to the conversion and reclassification of 2,271,437 shares of our Series A convertible preferred stock and 6,030,706 shares of our Series B convertible preferred stock outstanding as of March 31, 2021 into 24,202,202 shares of our Class B common stock, which will occur in connection with the effectiveness of the registration statement of which this prospectus forms a part, and giving effect to the conversion of our outstanding convertible promissory notes and interest due June 2023 into 3,073,594 shares of Class B common stock, the conversion of which will occur immediately following the first trading day of this listing, assuming a conversion price of $8.2909 per share (which is the maximum price per share at which the convertible promissory notes are convertible by their terms, as further described within the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Convertible Notes with Related Parties”), we have 107,278,454 shares of Class B common stock outstanding, all of which are “restricted
securities” (as defined in Rule 144 under the Securities Act). This excludes 1,860,101 shares of Class B common stock related to the RSUs for which the service-based vesting condition was satisfied as of March 31, 2021 and for which our board of directors has waived the liquidity event-based vesting condition effective as of the earlier of the first day of trading of our Class A common stock on the New York Stock Exchange and March 15, 2022. Approximately 108,727,093 shares of Class B common stock may be converted to Class A common stock and then immediately sold either by (1) the registered stockholders pursuant to this prospectus, since such shares held by the registered stockholders are being registered pursuant to this prospectus, or (2) our other existing stockholders under Rule 144, since such shares held by such other existing stockholders will have been beneficially owned by non-affiliates for at least one year. Moreover, once we have been a reporting company subject to the reporting requirements of Section 13 or Section 15(d) of the Exchange Act for 90 days and assuming the availability of certain public information about us, (1) non-affiliates who have beneficially owned our common stock for at least six months may rely on Rule 144 to sell their shares of Class A common stock, and (2) our directors, executive officers, and other affiliates who have beneficially owned our common stock for at least six months, including certain of the shares of Class A common stock covered by this prospectus to the extent not sold hereunder, will be entitled to sell their shares of our Class A common stock subject to volume limitations under Rule 144 under the Securities Act and various vesting agreements.
Further, as of March 31, 2021, we had outstanding options to purchase 17,620,556 shares of Class B common stock. Additionally, as of March 31, 2021, 6,870,569 shares of Class B common stock were issuable upon vesting of outstanding RSUs. All of the shares of Class A common stock and Class B common stock issuable upon the exercise of stock options, settlement of RSUs, and reserved for future issuance under our equity incentive plans, will be registered for public resale under the Securities Act. Accordingly, these shares will be able to be freely sold in the public market upon issuance, subject to applicable vesting requirements and compliance by affiliates with Rule 144.
Our board of directors has waived the liquidity event-based vesting condition on our RSUs effective as of the earlier of the first day of trading of our Class A common stock on the New York Stock Exchange and March 15, 2022. If our board of directors had waived the liquidity event-based condition as of March 31, 2021, it would have resulted in the vesting and settlement of approximately 1,860,101 RSUs held by our current and former employees and other service providers as of March 31, 2021. We expect approximately 1,865,726 shares of our Class A common stock from the vesting and settlement of RSUs (which assumes the sale of 745,272 shares of Class A common stock on our first trading day in order to fund the tax withholding and remittance obligations arising in connection with the vesting and settlement of RSUs) to be available for sale as early as the first day of trading. See the section titled “RSU Sales” for additional information. A potential oversupply of shares due to sales by holders of RSUs could also adversely impact the trading price of our Class A common stock.
None of our stockholders are subject to any contractual lock-up or other contractual restriction on the transfer or sale of their shares.
Following the effectiveness of the registration statement of which this prospectus forms a part, the holders of up to 27,275,796 shares of our Class B common stock will have rights, subject to some conditions, to require us to file registration statements for the public resale of the Class A common stock issuable upon conversion of such shares or to include such shares in registration statements that we may file for us or other stockholders. Any registration statement we file to register additional shares, whether as a result of registration rights or otherwise, could cause the market price of our Class A common stock to decline or be volatile.
Market volatility may affect the value of an investment in our Class A common stock and could subject us to litigation.
Technology stocks have historically experienced high levels of volatility. The price of our Class A common stock also could be subject to wide fluctuations in response to the risk factors described in this prospectus and others beyond our control, including:
•the number of shares of our Class A common stock and Class B common stock publicly owned and available for trading;
•actual or anticipated fluctuations in our financial condition, operating results and other operating and non-GAAP metrics;
•our actual or anticipated operating performance and the operating performance of our competitors;
•changes in the projected operational and financial results we provide to the public or our failure to meet those projections;
•any major change in our board of directors, management, or key personnel;
•the economy as a whole and market conditions in our industry;
•rumors and market speculation involving us or other companies in our industry;
•announcements by us or our competitors of significant innovations, new products, services, features, integrations or capabilities, acquisitions, strategic investments, partnerships, joint ventures, or capital commitments;
•lawsuits threatened or filed against us;
•other events or factors, including those resulting from the COVID-19 pandemic, war, incidents of terrorism, or responses to these events; and
•sales or expected sales of our Class A common stock by us, and our officers, directors, and principal stockholders.
Moreover, to the extent the trading value of our Class A common stock diverge, holders of our Class A common stock may engage in hedging and other activities which could result in additional volatility in the price of our Class A common stock and could result in significant declines in the price of our Class A common stock.
Furthermore, the stock market has recently experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies and financial services and technology companies in particular. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political, and market conditions such as recessions, interest rate changes, or international currency fluctuations, may negatively impact the market price of our Class A common stock. These fluctuations may be even more pronounced in the trading market for our Class A common stock shortly following the listing of our Class A common stock on the New York Stock Exchange as a result of the supply and demand forces described above. If the market price of our Class A common stock after our listing does not exceed the opening public price, you may not realize any return on your investment in us and may lose some or all of your investment. In the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could harm our business.
The dual class structure of our common stock will have the effect of concentrating voting control with those stockholders who held our capital stock prior to our listing, including our directors, executive officers, and 5% stockholders who will hold in the aggregate 85.4% of the voting power of our capital stock following the registration and listing of our Class A common stock on the New York Stock Exchange, which will limit or preclude your ability to influence corporate matters, including the election of directors and the approval of any change of control transaction.
Our Class B common stock has twenty votes per share and our Class A common stock has one vote per share. As of March 31, 2021, our directors, executive officers, and holders of more than 5% of our common stock, and their respective affiliates, held 85.4% of the voting power of our capital stock. Because of the twenty-to-one voting ratio between our Class B and Class A common stock, the holders of our Class B common stock collectively control a substantial majority of the combined voting power of our common stock and therefore are able to control all matters submitted to our stockholders for approval until the earlier of (1) the first business day falling on or after 180 days after the date on which Ian Siegel beneficially owns less than 4,000,000 shares of Class B common stock, (2) the date which is (a) 90 days after the date of death or disability of Mr. Siegel or (b) such later date, not to exceed a total period of 180 days after the date of death or disability of Mr. Siegel, as may be approved prior to the date that is 90 days after the date of death or disability of Mr. Siegel by a majority of our independent directors then in office, and (3) the first business day falling on or after the date on which Mr. Siegel elects to convert all then-outstanding shares of Class B common stock into shares of Class A common stock. This concentrated control limits or precludes your ability to influence corporate matters for the foreseeable future, including the election of directors, amendments of our organizational documents, and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring stockholder approval. In addition, this may prevent or discourage unsolicited acquisition proposals or offers for our capital stock that you may feel are in your best interest as one of our stockholders.
Future transfers by holders of Class B common stock will generally result in those shares converting to Class A common stock, subject to limited exceptions, such as certain permitted transfers, including certain transfers to family members, trusts solely for the benefit of the stockholder or their family members, affiliates under common control with the stockholder, and partnerships, corporations, and other entities exclusively owned by the stockholder or their family members, in each case as fully described in our restated certificate of incorporation to be in effect following the completion of this offering. The conversion of Class B common stock to Class A common stock will have the effect, over time, of increasing the relative voting power of those holders of Class B common stock who retain their shares in the long term.
The dual class structure of our common stock may adversely affect the trading market for our Class A common stock.
Certain stock index providers, such as S&P Dow Jones, exclude companies with multiple classes of shares of common stock from being added to certain stock indices, including the S&P 500. In addition, several stockholder advisory firms and large institutional investors oppose the use of multiple class structures. As a result, the dual class structure of our common stock may prevent the inclusion of our Class A common stock in such indices, may cause stockholder advisory firms to publish negative commentary about our corporate governance practices or otherwise seek to cause us to change our capital structure, and may result in large institutional investors not purchasing shares of our Class A common stock. Any exclusion from stock indices could result in a less active trading market for our Class A common stock. Any actions or publications by stockholder advisory firms or institutional investors critical of our corporate governance practices or capital structure could also adversely affect the value of our Class A common stock.
If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, the price of our Class A common stock and trading volume could decline.
The trading market for our Class A common stock depends in part on the research and reports that securities or industry analysts publish about us or our business, our market, and our competitors. We do not have control over these securities analysts. If industry analysts cease coverage of us, the trading price for our Class A common stock would be negatively affected. If one or more of the analysts who cover us downgrade our Class A common stock or publish inaccurate or unfavorable research about our business, our Class A common stock price would likely decline. If one or more of these analysts cease coverage of us or cannot publish reports on us regularly, demand for our Class A common stock could decrease, which might cause our Class A common stock price and trading volume to decline.
We are an “emerging growth company” and intend to take advantage of the reduced disclosure requirements applicable to emerging growth companies which may make our Class A common stock less attractive to investors.
We are an “emerging growth company” as defined in the JOBS Act. We will remain an emerging growth company until the earliest of (1) the last day of the fiscal year in which we have total annual gross revenue of $1.07 billion or more; (2) the last day of the fiscal year following the fifth anniversary of the date of the effectiveness of the registration statement of which this prospectus forms a part; (3) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; and (4) the date on which we are deemed to be a “large accelerated filer” under the rules of the SEC. For so long as we remain an emerging growth company, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not “emerging growth companies,” including:
•not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act;
•reduced disclosure obligations regarding executive compensation; 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 currently intend to take advantage of the available exemptions described above. We have taken advantage of reduced reporting burdens in this prospectus. We cannot predict if investors will find our Class A common stock less attractive if we rely on these exemptions. If some investors find our Class A common stock less attractive as a result of these decisions, there may be a less active trading market for our Class A common stock and the price of our Class A common stock may be more volatile.
We do not intend to pay dividends for the foreseeable future.
We have never declared or paid any cash dividends on our common stock and do not intend to pay any cash dividends in the foreseeable future. Additionally, our ability to pay dividends on our common stock is limited by the restrictions under the terms of our credit agreement. We anticipate that for the foreseeable future we will retain all of our future earnings for use in the development of our business and for general corporate purposes. Any determination to pay dividends in the future will be at the discretion of our board of directors. Accordingly, investors must rely on sales of their Class A common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.
Provisions in our charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may limit attempts by our stockholders to replace or remove our current management.
Provisions in our restated certificate of incorporation and restated bylaws that will be in effect upon the registration and listing of our Class A common stock on the New York Stock Exchange may have the effect of delaying or preventing a merger, acquisition, or other change of control of our company that the stockholders may consider favorable. In addition, because our board of directors is responsible for appointing the members of our management team, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors. Among other things, our restated certificate of incorporation and restated bylaws include provisions that:
•provide that our board of directors will be classified into three classes of directors with staggered three-year terms;
•permit the board of directors to establish the number of directors and fill any vacancies and newly created directorships;
•require super-majority voting to amend some provisions in our restated certificate of incorporation and restated bylaws, including provisions relating to the classified board, the size of the board, removal of directors, special meetings, actions by written consent, and designation of our preferred stock;
•authorize the issuance of “blank check” preferred stock that our board of directors could use to implement a stockholder rights plan;
•provide that only the chairman of our board of directors, our chief executive officer, or a majority of our board of directors will be authorized to call a special meeting of stockholders;
•eliminate the ability of our stockholders to call special meetings of stockholders;
•prohibit cumulative voting;
•provide that directors may only be removed “for cause” and only with the approval of two-thirds of our stockholders;
•provide for a dual class common stock structure in which holders of our Class B common stock may have the ability to control the outcome of matters requiring stockholder approval, even if they own significantly less than a majority of the 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;
•prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders;
•provide that the board of directors is expressly authorized to make, alter, or repeal our bylaws; and
•establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings.
Moreover, Section 203 of the Delaware General Corporate Law, or DGCL, may discourage, delay, or prevent a change in control of our company. Section 203 imposes certain restrictions on mergers, business combinations, and other transactions between us and holders of 15% or more of our common stock. See the section titled “Description of Capital Stock” for additional information.
Our restated certificate of incorporation and our restated bylaws will contain exclusive forum provisions for certain claims, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees.
Our restated certificate of incorporation, to the fullest extent permitted by law, will provide that the Court of Chancery of the State of Delaware will be the exclusive forum for any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the DGCL, our restated certificate of incorporation, or our restated bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine.
Moreover, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all claims brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder and our restated bylaws will provide that the U.S. federal district courts will, to the fullest extent permitted by law, be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act, or a Federal Forum Provision. Our decision to adopt a Federal Forum Provision followed a decision by the Supreme Court of the State of Delaware holding that such provisions are facially valid under Delaware law. While there can be no assurance that federal or state courts will follow the holding of the Delaware Supreme Court or determine that the Federal Forum Provision should be enforced in a particular case, application of the Federal Forum Provision means that suits brought by our stockholders to enforce any duty or liability created by the Securities Act must be brought in federal court and cannot be brought in state court. Section 27 of the Exchange Act creates exclusive federal jurisdiction over all claims brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder and neither the exclusive forum provision nor the Federal Forum Provision applies to suits brought to enforce any duty or liability created by the Exchange Act. Accordingly, actions by our stockholders to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder must be brought in federal court. Our stockholders will not be deemed to have waived our compliance with the federal securities laws and the regulations promulgated thereunder.
Any person or entity purchasing or otherwise acquiring or holding any interest in any of our securities will be deemed to have notice of and consented to our exclusive forum provisions, including the Federal Forum Provision. These provisions may limit our stockholders’ ability to bring a claim in a judicial forum they find favorable for disputes with us or our directors, officers, or other employees, which may discourage lawsuits against us and our directors, officers, and other employees. Alternatively, if a court were to find the choice of forum provision contained in our restated certificate of incorporation or 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, operating results, and financial condition.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. All statements contained in this prospectus other than statements of historical fact, including statements regarding our future operating results and financial position, our business strategy and plans, market growth, and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “potential,” “continue,” “anticipate,” “intend,” “expect,” “could,” “would,” “project,” “plan,” “target,” and similar expressions are intended to identify forward-looking statements.
Forward-looking statements contained in this prospectus include, but are not limited to, statements about:
•our future financial performance, including our expectations regarding our revenue, cost of revenue, gross profit, operating expenses including changes in research and development, sales and marketing, and general and administrative expenses (including any components of the foregoing), and our ability to maintain future profitability;
•effects of the COVID-19 pandemic on our business, the employment market, and the economy generally;
•our business plan and our ability to effectively manage our growth;
•our ability to compete with well-established competitors and new entrants;
•our ability to enhance our marketplace and introduce new and improved offerings;
•our ability to increase the number of employers and job seekers in our marketplace;
•our ability to strengthen our technology that underpins our marketplace;
•our ability to attract and retain qualified employees and key personnel;
•our ability to execute our strategy;
•beliefs and objectives for future operations;
•the effects of seasonal trends on our results of operations;
•our ability to expand to new markets;
•our ability to maintain, protect, and enhance our brand and intellectual property;
•our ability to stay in compliance with laws and regulations that currently apply or become applicable to our business;
•economic and industry trends, projected growth, or trend analysis; and
•increased expenses associated with being a public company.
We caution you that the foregoing list may not contain all of the forward-looking statements made in this prospectus.
We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including those described in the section titled “Risk Factors.” Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any
factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the future events and trends discussed in this prospectus may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
You should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, performance, or achievements. We undertake no obligation to update any of these forward-looking statements for any reason after the date of this prospectus or to conform these statements to actual results or revised expectations, except as required by law.
You should read this prospectus and the documents that we reference in this prospectus and have filed with the SEC as exhibits to the registration statement of which this prospectus is a part with the understanding that our actual future results, performance, and events and circumstances may be materially different from what we expect.
MARKET AND INDUSTRY DATA
This prospectus contains statistical data, estimates, and forecasts that are based on industry publications or reports generated by third-party providers, or other publicly available information, as well as other information based on internal estimates. Unless otherwise indicated, information contained in this prospectus concerning the employment market, our general expectations, and our opportunity, is based on information from publicly available sources as well as assumptions that we have made that are based on those data and other similar sources, and on our knowledge of our marketplace. This information involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. While we believe the market position, market opportunity, and market size information included in this prospectus is generally reliable, information of this sort is inherently imprecise.
Certain information included in this prospectus concerning aided brand awareness is based on our ZipRecruiter Brand Awareness Survey, 2020, an internal company-designed survey of 602 participants, which included (1) certain persons who had been involved in hiring processes and had used, or intended to use, online job posting websites within the preceding two years in connection with such hiring processes, (2) decision makers at hiring sites or systems, or influencers in the process of hiring candidates and (3) business owners, human resource managers, and non-human resource managers for various small, medium and large U.S.-based companies. The survey responses were used to measure brand health dimensions for us within the U.S. employer market and to explore how we benchmark against our competition. We designed the Brand Awareness Survey in accordance with what we believe are best practices for conducting a survey. Nevertheless, while we believe this survey is reliable, it involves a number of assumptions and limitations, and no independent sources have verified such survey.
In addition, projections, assumptions, and estimates of our future performance and the future performance of the industry in which we operate is necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section titled “Risk Factors” and elsewhere in this prospectus. These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.
USE OF PROCEEDS
Registered stockholders may, or may not, elect to sell shares of our Class A common stock covered by this prospectus. To the extent any registered stockholder chooses to sell shares of our Class A common stock covered by this prospectus, we will not receive any proceeds from any such sales of our Class A common stock. See the section titled “Principal and Registered Stockholders” for additional information.
RSU SALES
We have granted restricted stock units, or RSUs, that vest upon the satisfaction of both a service condition and a liquidity event condition. We determine the grant-date fair value of the RSUs based on the fair value of our common stock at the grant date.
The service-based vesting condition for the majority of the RSUs is satisfied over four years and the liquidity event-based vesting condition for the RSUs is satisfied upon the occurrence of a qualifying event, which is generally defined as a change in control event or a public offering. The liquidity event must occur before the expiration of the RSU award, which generally is no more than seven years from the grant date.
The listing and public trading of our Class A common stock on the New York Stock Exchange will not satisfy the liquidity event-based vesting condition. However, our board of directors has waived the liquidity event-based vesting condition effective as of the earlier of the first day of trading of our Class A common stock on the New York Stock Exchange and March 15, 2022. If such waiver had occurred as of March 31, 2021, it would have resulted in the vesting and settlement of approximately 1,860,101 RSUs held by our current and former employees and other service providers as of March 31, 2021, assuming the first day of trading of our Class A common stock occurred on or prior to March 31, 2021. To fund the personal tax withholding and remittance obligations arising in connection with the RSUs that will vest and settle on such day, we expect that current and former employees will use a broker or brokers to sell a portion of such shares into the market on the first trading day. The proceeds of such sales will be remitted either to us or directly to the relevant taxing authorities, in either case, to be applied towards such tax obligations. We expect that approximately 745,272 shares of our Class A common stock will be sold throughout the first trading day in order to fund such tax obligations, based on each RSU holder’s applicable tax rate. The actual number of shares to be sold to fund the personal tax withholding and remittance obligations will be determined based on the estimated weighted-average price for the shares of Class A common stock on the first day of trading on the New York Stock Exchange. Because that price will not be known until trading closes, the price per share for purposes of this estimate has been based on management’s estimate of fair value as of April 19, 2021 of $25.04 per share of our Class A common stock.
In order to meet our obligation to remit withholding taxes on behalf of certain of our employees and former employees on a timely basis, we may use our own cash reserves to satisfy such tax remittance obligations prior to receiving the proceeds from such market sales. We do not currently know the amount of cash that would be used to satisfy these tax withholding obligations because it would be dependent on a number of factors, including the share price at the time of settlement. After the first trading day, additional RSUs typically would vest and settle on the 15th day of the third month of each quarter and RSU holders will sell a portion of such shares into the market to fund the personal tax withholding and remittance obligations arising in connection with the RSUs that will vest and settle on such date. Based on the number of RSUs then outstanding and the vesting schedules then in effect, as of March 31, 2021, we expect that approximately 278,524, 691,206, and 470,814 RSUs will vest by June 15, 2021, September 15, 2021, and December 15, 2021, respectively. Shares of common stock received upon the vesting and settlement of RSUs will not be subject to lock-up agreements and may be sold at any time, subject to compliance with applicable securities laws and, if applicable, our insider trading policies.
If the market price of our Class A common stock on the New York Stock Exchange is volatile or if there is an oversupply of shares of Class A common stock and holders of RSUs are unable to sell their shares, holders of RSUs would still be responsible for funding the tax withholding and remittance obligations arising in connection with the vesting and settlement of their RSUs and could have to fund such amounts with their own cash.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. Our obligation to pay a dividend on our Class A common stock or Class B common stock is subject to our board of directors declaring such a payment. We are not obligated to pay any dividends on our Class A common stock or Class B common stock and we currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any dividends on our capital stock in the foreseeable future. Any future determination to declare dividends will be made at the discretion of our board of directors and will depend on our financial condition, operating results, capital requirements, general business conditions, and other factors that our board of directors may deem relevant. In addition, our credit agreement contains restrictions on our ability to pay cash dividends on our capital stock. See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” for additional information.
CAPITALIZATION
The following table sets forth our cash and cash equivalents, and our capitalization as of March 31, 2021 on:
•an actual basis; and
•a pro forma basis to give effect to (1) the redesignation of 80,002,658 shares of our outstanding common stock into 80,002,658 shares of Class B common stock outstanding as of March 31, 2021 as if such redesignation occurred on March 31, 2021, (2) the conversion of 2,271,437 shares of our Series A convertible preferred stock and 6,030,706 shares of our Series B convertible preferred stock outstanding as of March 31, 2021 into 24,202,202 shares of our Class B common stock as if such conversion occurred on March 31, 2021, (3) the conversion of the principal amount of the convertible notes and accrued interest outstanding as of March 31, 2021 into 3,073,594 shares of Class B common stock, assuming a conversion price of $8.2909 per share (which is the maximum price per share at which the convertible notes are convertible by their terms, as further described within the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Convertible Notes with Related Parties”), as if such conversion occurred on March 31, 2021, (4) the vesting and settlement of 1,860,101 RSUs into the same number of shares of Class B common stock, for which RSUs the service-based vesting condition was satisfied as of March 31, 2021 and for which our board of directors has waived the liquidity event-based vesting condition effective as of the earlier of the first day of trading of our Class A common stock on the New York Stock Exchange and March 15, 2022 as if our board of directors had waived the liquidity event-based condition and such RSUs settled as of March 31, 2021, (5) stock-based compensation expense of $46.6 million associated with RSUs for which the service-based vesting condition was satisfied as of March 31, 2021 and for which our board of directors has waived the liquidity event-based vesting condition effective as of the earlier of the first day of trading of our Class A common stock on the New York Stock Exchange and March 15, 2022, as if our board of directors had waived the liquidity-based condition and such RSUs settled as of March 31, 2021, based on the estimated fair value of the RSUs on the date that the liquidity event-based vesting condition was waived and which is reflected as an increase to additional paid-in capital and accumulated deficit, (6) a cash payment of $10.0 million to Ian Siegel, our chief executive officer, as further described in the section titled “Executive Compensation—CEO Letter Agreement” which is reflected as a reduction in cash and a corresponding increase to accumulated deficit, and (7) approximately $21.6 million in transaction expenses related to the listing of our Class A Common Stock on the New York Stock Exchange.
You should read this table together with our consolidated financial statements and the accompanying notes, and the sections titled “Selected Consolidated Financial and Operating Data” and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” that are included elsewhere in this prospectus.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2021
|
|
|
Actual
|
|
Pro Forma
|
|
|
(dollars in thousands)
|
|
Cash and cash equivalents
|
$
|
135,065
|
|
|
$
|
103,432
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|
|
Convertible notes, due June 2023
|
25,545
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|
|
—
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|
|
Redeemable Convertible Preferred Stock, $0.00001 par value per share; 8,422,757 shares authorized, 8,302,143 shares issued, and outstanding, actual; 50,000,000 authorized, no shares issued and outstanding, pro forma
|
137,853
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|
|
—
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|
|
Stockholders’ (deficit) equity:
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|
|
|
|
Common stock, $0.00001 par value per share: 137,800,000 shares authorized, 78,283,408 shares issued and 78,088,075 outstanding, actual; no shares authorized, issued and outstanding, pro forma
|
—
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|
|
—
|
|
|
Class A common stock, $0.00001 par value per share: no shares authorized, issued, and outstanding, actual; 700,000,000 shares authorized, and no shares issued and outstanding, pro forma
|
—
|
|
|
—
|
|
|
Class B common stock, $0.00001 par value per share: no shares authorized, issued, and outstanding, actual; 700,000,000 shares authorized and 109,333,888 shares issued and 109,138,555 outstanding, pro forma
|
—
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|
|
1
|
|
|
Additional paid-in capital
|
25,235
|
|
|
235,209
|
|
|
Accumulated deficit
|
(57,986)
|
|
|
(136,196)
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|
|
Treasury stock, 195,333 shares outstanding, actual; 195,333 shares outstanding, pro forma
|
(644)
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|
|
(644)
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|
|
Total stockholders’ (deficit) equity:
|
(33,395)
|
|
|
98,370
|
|
|
Total capitalization
|
$
|
130,003
|
|
|
$
|
98,370
|
|
The number of shares of our Class A common stock and Class B common stock outstanding as of March 31, 2021 excludes the following:
•17,470,556 shares of our Class B common stock issuable upon the exercise of options outstanding as of March 31, 2021, with a weighted-average exercise price of $2.09 per share, including options to purchase shares issued pursuant to our 2012 Stock Plan, or the 2012 Plan, and 2014 Stock Incentive Plan, or the 2014 Plan;
•150,000 shares of our Class B common stock issuable upon the exercise of options outstanding as of March 31, 2021, with a weighted-average exercise price of $3.70 per share, issued outside of the 2012 Plan and the 2014 Plan;
•5,010,468 shares of our Class B common stock issuable upon the vesting and settlement of RSUs, for which the service condition was not satisfied, outstanding as of March 31, 2021, pursuant to the 2014 Plan;
•1,430,500 shares of our Class B common stock issuable upon the vesting and settlement of RSUs, granted after March 31, 2021 through April 30, 2021, of which 1,398,000 were granted pursuant to the 2014 Plan and 32,500 were granted outside of our 2014 Plan; and
•13,521,317 shares of our Class A common stock reserved for future issuance under our equity compensation plans, consisting of: (1) 1,523,782 shares of our Class A common stock reserved for future issuance under our 2014 Plan, as of March 31, 2021 (which reserve does not reflect the options to purchase shares of our Class B common stock and RSUs settleable for shares of our Class B common stock granted after March 31, 2021), (2) 10,664,476 shares of our Class A
common stock reserved for future issuance under our 2021 Equity Incentive Plan, and (3) 1,333,059 shares of our Class A common stock reserved for future issuance under our 2021 Employee Stock Purchase Plan, each of which will become effective on the date immediately prior to the date of this prospectus.
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following tables represent selected consolidated financial and operating data for our business. The selected consolidated statements of operations data for the years ended December 31, 2019 and 2020 and the selected consolidated balance sheet data as of December 31, 2019 and 2020 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The selected consolidated statements of operations data for the three months ended March 31, 2020 and 2021 and selected consolidated balance sheet data as of March 31, 2021 have been derived from our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus. We have prepared the unaudited interim consolidated financial statements on the same basis as the audited financial statements which include, in our opinion, all adjustments, consisting only of normal recurring adjustments that we consider necessary for the fair statement of the interim condensed 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 three months ended March 31, 2021 are not necessarily indicative of the results to be expected for the full year or any other period.
You should read the following selected consolidated financial and operating data together 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. The selected consolidated financial and operating data in this section are not intended to replace our consolidated financial statements and the related notes and are qualified in their entirety by our consolidated financial statements and the related notes included elsewhere in this prospectus.
Consolidated Statements of Operations Data
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|
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|
|
|
|
|
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Year Ended December 31,
|
|
Three Months Ended March 31,
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|
|
2019
|
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2020
|
|
2020
|
|
2021
|
|
|
(in thousands, except per share data)
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|
Revenue
|
$
|
429,559
|
|
|
$
|
418,142
|
|
|
$
|
113,292
|
|
|
$
|
125,372
|
|
|
Cost of revenue(1)
|
54,778
|
|
|
54,163
|
|
|
14,472
|
|
|
15,961
|
|
|
Gross profit
|
374,781
|
|
|
363,979
|
|
|
98,820
|
|
|
109,411
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Sales and marketing(1)
|
276,197
|
|
|
191,141
|
|
|
78,880
|
|
|
63,476
|
|
|
Research and development(1)
|
65,410
|
|
|
69,408
|
|
|
19,226
|
|
|
17,015
|
|
|
General and administrative(1)
|
39,492
|
|
|
38,998
|
|
|
11,488
|
|
|
12,454
|
|
|
Total operating expenses
|
381,099
|
|
|
299,547
|
|
|
109,594
|
|
|
92,945
|
|
|
Income (loss) from operations
|
(6,318)
|
|
|
64,432
|
|
|
(10,774)
|
|
|
16,466
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Interest expense
|
(575)
|
|
|
(1,037)
|
|
|
(279)
|
|
|
(209)
|
|
|
Sublease income
|
1,170
|
|
|
1,051
|
|
|
282
|
|
|
292
|
|
|
Other income (expense), net
|
(38)
|
|
|
(109)
|
|
|
(144)
|
|
|
94
|
|
|
Total other income (expense), net
|
557
|
|
|
(95)
|
|
|
(141)
|
|
|
177
|
|
|
Income (loss) before income taxes
|
(5,761)
|
|
|
64,337
|
|
|
(10,915)
|
|
|
16,643
|
|
|
Income tax expense (benefit)
|
588
|
|
|
(21,711)
|
|
|
167
|
|
|
3,245
|
|
|
Net income (loss)
|
(6,349)
|
|
|
86,048
|
|
|
(11,082)
|
|
|
13,398
|
|
|
Less: Accretion of redeemable convertible preferred stock
|
(3,722)
|
|
|
(3,883)
|
|
|
(955)
|
|
|
(997)
|
|
|
Less: Undistributed earnings attributable to participating securities
|
—
|
|
|
(19,148)
|
|
|
—
|
|
|
(2,913)
|
|
|
Net income (loss) attributable to common stockholders
|
$
|
(10,071)
|
|
|
$
|
63,017
|
|
|
$
|
(12,037)
|
|
|
$
|
9,488
|
|
|
Net income (loss) per share(2)
|
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.13)
|
|
|
$
|
0.79
|
|
|
$
|
(0.15)
|
|
|
$
|
0.12
|
|
|
Diluted
|
$
|
(0.13)
|
|
|
$
|
0.70
|
|
|
$
|
(0.15)
|
|
|
$
|
0.10
|
|
|
Weighted-average shares used in computing net income (loss) per share(3)
|
|
|
|
|
|
|
|
|
Basic
|
79,337
|
|
|
79,651
|
|
|
79,423
|
|
|
78,834
|
|
|
Diluted
|
79,337
|
|
|
94,156
|
|
|
79,423
|
|
|
98,435
|
|
|
Pro forma net income per share (unaudited)(2)
|
|
|
|
|
|
|
|
|
Basic
|
|
|
$
|
0.23
|
|
|
|
|
$
|
0.03
|
|
|
Diluted
|
|
|
$
|
0.21
|
|
|
|
|
$
|
0.03
|
|
|
Weighted-average shares used in computing pro forma net income per share (unaudited)(2)
|
|
|
|
|
|
|
|
|
Basic
|
|
|
106,085
|
|
|
|
|
107,590
|
|
|
Diluted
|
|
|
118,591
|
|
|
|
|
123,364
|
|
|
Other Financial Information:
|
|
|
|
|
|
|
|
|
Adjusted EBITDA (3)
|
$
|
9,366
|
|
|
$
|
80,133
|
|
|
$
|
(6,382)
|
|
|
$
|
19,994
|
|
________________
(1)Includes stock-based compensation expense as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Three Months Ended March 31,
|
|
|
2019
|
|
2020
|
|
2020
|
|
2021
|
|
|
(in thousands)
|
|
Cost of revenue
|
$
|
119
|
|
|
$
|
73
|
|
|
$
|
24
|
|
|
$
|
16
|
|
|
Sales and marketing
|
1,031
|
|
|
704
|
|
|
306
|
|
|
99
|
|
|
Research and development
|
3,159
|
|
|
3,050
|
|
|
861
|
|
|
825
|
|
|
General and administrative
|
2,431
|
|
|
1,925
|
|
|
767
|
|
|
286
|
|
|
Total stock-based compensation
|
$
|
6,740
|
|
|
$
|
5,752
|
|
|
$
|
1,958
|
|
|
$
|
1,226
|
|
________________
(2)See Note 3 in our audited consolidated financial statements and Note 2 in our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus for an explanation of the method used to calculate basic and diluted net income (loss) per share, pro forma net income per share, and the weighted-average number of shares used in the computation of the per share amounts.
(3)Adjusted EBITDA is not a measure of our financial performance under GAAP and should not be considered as an alternative to net income (loss), income (loss) from operations, or any other measures derived in accordance with GAAP. For a definition of Adjusted EBITDA and a reconciliation of net income (loss) to Adjusted EBITDA, see "Non-GAAP Financial Measures."
Selected Consolidated Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
As of March 31,
|
|
|
2019
|
|
2020
|
|
2021
|
|
2021
|
|
|
Actual
|
|
Actual
|
|
Actual
|
|
Pro Forma (1)
|
|
|
(in thousands)
|
|
Cash
|
$
|
35,529
|
|
|
$
|
114,539
|
|
|
$
|
135,065
|
|
|
$
|
103,432
|
|
|
Working capital (deficit)(2)
|
(5,518)
|
|
|
73,309
|
|
|
92,255
|
|
|
60,622
|
|
|
Total assets
|
117,724
|
|
|
212,129
|
|
|
237,808
|
|
|
206,175
|
|
|
Long-term borrowing
|
10,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Convertible notes and accrued interest with related parties
|
—
|
|
|
25,371
|
|
|
25,545
|
|
|
—
|
|
|
Total liabilities
|
107,062
|
|
|
125,569
|
|
|
133,350
|
|
|
107,805
|
|
|
Redeemable convertible preferred stock
|
132,973
|
|
|
136,856
|
|
|
137,853
|
|
|
—
|
|
|
Total stockholders' equity (deficit)
|
$
|
(122,311)
|
|
|
$
|
(50,296)
|
|
|
$
|
(33,395)
|
|
|
$
|
98,370
|
|
________________
(1)The pro forma column reflects (a) the redesignation of 80,002,658 shares of our outstanding common stock into 80,002,658 shares of Class B common stock outstanding as of March 31, 2021 as if such redesignation occurred on March 31, 2021, (b) the conversion of 2,271,437 shares of our Series A convertible preferred stock and 6,030,706 shares of our Series B convertible preferred stock outstanding as of March 31, 2021 into 24,202,202 shares of our Class B common stock as if such conversion occurred on March 31, 2021, (c) the conversion of the principal amount of the convertible notes and accrued interest thereon with related parties outstanding as of March 31, 2021 into 3,073,594 shares of Class B common stock at a conversion price of $8.2909 per share (which is the maximum price per share at which the convertible notes are convertible by their terms, as further described within the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Convertible Notes with Related Parties”) as if such conversion occurred on March 31, 2021; provided that to the extent that the volume-weighted average price on the first day of trading following our Direct Listing is less than $11.05 per share, then the convertible notes and contractual accrued interest will convert at 75% of the volume weighted average price, which would result in the issuance of additional shares of Class B common stock upon conversion, (d) vesting and settlement of 1,860,101 RSUs, into the same number of shares of Class B common stock, for which the service-based vesting condition was satisfied as of March 31, 2021 and for which RSUs our board of directors has waived the liquidity event-based vesting condition effective as of the earlier of first day of trading of our Class A common stock on the New York Stock Exchange and March 15, 2022 as if our board of directors had waived the liquidity event-based condition and such RSUs settled as of March 31, 2021, (e) stock-based compensation expense of $46.6 million associated with RSUs for which the service-based vesting condition was satisfied as of March 31, 2021 and for which our board of directors has waived the liquidity event-based vesting condition effective as of the earlier of the first day of trading of our Class A common stock on the New York Stock Exchange and March 15, 2022, as if our board of directors had waived the liquidity event-based condition and such RSUs settled as of March 31, 2021, based on the estimated fair value of the RSUs on the date that the liquidity event-based event condition was waived and which stock-based compensation expense is reflected as an increase to additional paid-in capital and accumulated deficit, (f) a cash payment of $10.0 million to Ian Siegel, our chief
executive officer, as further described in the section titled “Executive Compensation—CEO Letter Agreement” which is reflected as a reduction in cash, working capital and total assets and a corresponding increase to stockholders’ deficit and (g) approximately $21.6 million in transaction expenses related to the listing of our Class A Common Stock on the New York Stock Exchange.
(2)Working capital (deficit) is defined as current assets less current liabilities. See our consolidated financial statements and the accompanying notes included elsewhere in this prospectus for further details regarding our current assets and current liabilities.
Key Operating Metrics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
|
Three Months Ended
March 31,
|
|
|
2019
|
|
2020
|
|
2020
|
|
2021
|
|
Quarterly Paid Employers(1)
|
102,541
|
|
|
89,636
|
|
|
98,456
|
|
|
114,705
|
|
|
Revenue per Paid Employer(1)
|
$
|
1,098
|
|
|
$
|
1,276
|
|
|
$
|
1,151
|
|
|
$
|
1,093
|
|
____________
(1)See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Operating Metrics and Non-GAAP Financial Measures“ included elsewhere in this prospectus for definitions of these metrics.
Non-GAAP Financial Measures
We collect and analyze operating and financial data to evaluate the health of our business and assess our performance. In addition to revenue, net income (loss), income (loss) from operations, and other results under GAAP, we use Adjusted EBITDA and Adjusted EBITDA margin to evaluate our business. We have included these non-GAAP financial measures in this prospectus because they are key measures used by our management to evaluate our operating performance. Accordingly, we believe that these non-GAAP financial measures provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management team and board of directors. Our calculation of these non-GAAP financial measures may differ from similarly-titled non-GAAP measures, if any, reported by our peer companies. These non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.
We define Adjusted EBITDA as our net income (loss) before total other income (expense), net, income tax expense (benefit) and depreciation and amortization, adjusted to eliminate stock-based compensation expense. Adjusted EBITDA margin represents Adjusted EBITDA as a percentage of revenue for the same period.
We believe Adjusted EBITDA and Adjusted EBITDA margin are helpful to investors, analysts and other interested parties because they can assist in providing a more consistent and comparable overview of our operations across our historical financial periods. In addition, these measures are frequently used by analysts, investors and other interested parties to evaluate and assess performance.
The following table presents a reconciliation of net income (loss) to Adjusted EBITDA for each of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Three Months Ended March 31,
|
|
|
2019
|
|
2020
|
|
2020
|
|
2021
|
|
|
(in thousands, except percentages)
|
|
GAAP net income (loss)
|
$
|
(6,349)
|
|
|
$
|
86,048
|
|
|
$
|
(11,082)
|
|
|
$
|
13,398
|
|
|
Stock-based compensation
|
6,740
|
|
|
5,752
|
|
|
1,958
|
|
|
1,226
|
|
|
Depreciation and amortization
|
8,944
|
|
|
9,949
|
|
|
2,434
|
|
|
2,302
|
|
|
Total other (income) expense, net
|
(557)
|
|
|
95
|
|
|
141
|
|
|
(177)
|
|
|
Income tax expense (benefit)
|
588
|
|
|
(21,711)
|
|
|
167
|
|
|
3,245
|
|
|
Adjusted EBITDA
|
$
|
9,366
|
|
|
$
|
80,133
|
|
|
$
|
(6,382)
|
|
|
$
|
19,994
|
|
|
Adjusted EBITDA margin
|
2
|
%
|
|
19
|
%
|
|
(6)
|
%
|
|
16
|
%
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with the section titled “Selected Consolidated Financial and Operating Data” and our consolidated financial statements and the related notes appearing elsewhere in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should read the sections titled “Risk Factors” and “Special Note Regarding Forward-Looking Statements” for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
OVERVIEW
ZipRecruiter is a two-sided marketplace for work. Since the founding of our company in 2010, over 2.8 million businesses and 110 million job seekers have come to ZipRecruiter for their hiring and job search needs. Employers spend more than $205 billion per year in the United States alone to recruit talent.11 Online recruitment alone represents over $13 billion of this opportunity.12 The online segment of the U.S. recruiting market is expected to grow at a compound annual growth rate, or CAGR, of 14.1% from 2016 to 2025 compared to a CAGR of 0.2% for the rest of the recruiting market during that same period. The online segment of the recruiting market in the U.S. is expected to continue expanding its share of the recruiting market, with online share increasing from 3% in 2016 to 6% in 2020 and to 8% in 2025.13
Our Mission. To actively connect people to their next great opportunity.
The Problem. Twenty years after moving online, the job market remains painfully inefficient. Job seekers are required to navigate on their own in order to find the right jobs to apply to, usually across multiple sites, and without effective tools for monitoring new opportunities. Employers in turn are overwhelmed by the complexity of modern recruiting given the abundance of job boards, search engines, and social networks to source talent from. Neither side is an expert at their role. Neither side enjoys the process.
Our Business. We founded ZipRecruiter to simplify the job market for both job seekers and employers. Unlike traditional online job sites, ZipRecruiter works like a matchmaker curating job opportunities for job seekers, and candidates for employers.
Creating Value for Job Seekers. For job seekers across all industries and levels of seniority, we operate like a dedicated recruiter. That means presenting strong fit job opportunities, proactively pitching potential candidates to employers, and providing job seekers with updates on the status of their
11 According to the following reports published by IBISWorld: Office Staffing & Temp Agencies in the US - Market Size 2001–2026, Updated December 28, 2020, https://www.ibisworld.com/industry-statistics/market-size/office-staffing-temp-agencies-united-states/ and Employment & Recruiting Agencies in the US - Market Size 2005–2026, Updated March 23, 2021, https://www.ibisworld.com/industry-statistics/market-size/employment-recruiting-agencies-united-states/ (each last visited April 21, 2021).
12 According to the following report published by IBISWorld: Online Recruitment Sites in the US - Market Size 2005–2027, Updated March 23, 2021, https://www.ibisworld.com/industry-statistics/market-size/online-recruitment-sites-united-states/ (last visited April 21, 2021).
13 Based on the following published reports: (1) IBISWorld Inc., Office Staffing & Temp Agencies in the US, December 2020, (2) IBISWorld Inc., Employment & Recruiting Agencies in the US, March 2021, and (3) IBISWorld Inc., Online Recruitment Sites, March 2021.
applications. This makes job seekers feel supported while searching for work. That’s why ZipRecruiter has been the #1 rated job seeker app on iOS and Android for the past four years.14
Creating Value for Employers. For employers, we focus on building technology to rapidly deliver quality candidates to companies of all sizes and across all industries. Our algorithms alert the best job seekers in our marketplace when a job goes live. Employers posting jobs often get their first quality candidate before they can get up from their chair. 80% of employers posting in our marketplace receive a quality candidate within the first 24 hours. That’s why ZipRecruiter is the #1 rated employment marketplace by G2.15
Unique Data and Artificial Intelligence Provide Better Outcomes for Employers and Job Seekers. With a relevant data pipeline created from billions of interactions between job seekers and employers, we are uniquely positioned to harness that data to fuel the advanced artificial intelligence behind our matching, recommendation, and marketplace optimization capabilities. Through our deep learning based natural language processing, we understand job seekers’ and employers’ nuanced needs. We model and analyze clicks, applications, hiring signals, and numerous other interactions to improve outcomes for all participants in our marketplace. Our advanced technology stack processes the data generated by our highly engaged user base to continuously improve our matchmaking. Our climbing satisfaction metrics on both sides of our marketplace over the past few years give us confidence that these technology investments are yielding results for employers and job seekers alike. The Thumbs Up Rate on candidates has increased from 39% in December 2017 to 56% as of December 2020, highlighting the improved quality of our matching algorithms over time.
Accelerating Network Effects. Increasing the number of jobs in our marketplace attracts more job seekers. A greater number of job seekers attracts more employers who in turn post more job opportunities in our marketplace. These natural, self-perpetuating network effects increase our data and thereby accelerate the rate at which our matching technology gets smarter over time.
Compelling Financial Results. The combination of the scale on both sides of our marketplace, our efficient go-to-market strategy, and intelligent use of technology has resulted in compelling financial results. For the year ended December 31, 2019, our revenue was $429.6 million, and we generated a net loss of $6.3 million and Adjusted EBITDA of $9.4 million. For the year ended December 31, 2020, our revenue was $418.1 million and we generated a net income of $86.0 million and Adjusted EBITDA of $80.1 million. For the three months ended March 31, 2020, our revenue was $113.3 million and we generated a net loss of $11.1 million and Adjusted EBITDA of $(6.4) million. For the three months ended March 31, 2021, our revenue was $125.4 million, and we generated a net income of $13.4 million and Adjusted EBITDA of $20.0 million. Adjusted EBITDA is a financial measure not presented in accordance with GAAP. For a definition of Adjusted EBITDA, an explanation of our management’s use of this measure and a reconciliation of net income (loss) to Adjusted EBITDA, see the section titled “Summary Consolidated Financial and Operating Data.”
14 Based on ratings information for the Google Play Store and Apple Store from the AppFollow platform during the period of March 2017 to March 2021 for the job seeker apps of ZipRecruiter, CareerBuilder, Craigslist, Glassdoor, Indeed, LinkedIn, and Monster.
15 Based on G2 satisfaction ratings as set forth in G2, Best Job Boards Software, https://www.g2.com/categories/job-boards?utf8=%E2%9C%93&order=top_shelf (last visited January 25, 2021).
OUR BUSINESS MODEL
We generate substantially all of our revenue from fees paid by employers to post jobs and access other features in our marketplace. We offer our employers flat rate pricing on terms ranging from a day to a year, or performance-based pricing, such as cost-per-click, to align with the employer’s hiring needs.
ZipRecruiter is free to use for job seekers. Job seekers come to ZipRecruiter in search of their next opportunity. After establishing a profile, job seekers are able to apply to jobs with a single click. Our automated recruiter curates jobs and proactively sends alerts for new opportunities where they are a Great Match. As our matching technology learns more about job seekers’ preferences and attributes, our technology offers increasingly higher quality matches.
We plan to continue to invest aggressively in our marketplace to drive growth for the foreseeable future. We have made significant investments in our business to expand our employer and job seeker footprints, increase their engagement, and enhance our datasets and machine learning.
KEY OPERATING METRICS AND NON-GAAP FINANCIAL MEASURES
In addition to the measures presented in our consolidated financial statements, we use the following key operating metrics and non-GAAP financial measures to identify trends affecting our business, formulate business plans, and make strategic decisions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March
31,
2019
|
|
June
30,
2019
|
|
September
30,
2019
|
|
December
31,
2019
|
|
March
31,
2020
|
|
June
30,
2020
|
|
September
30,
2020
|
|
December
31,
2020
|
|
March
31,
2021
|
|
Quarterly Paid Employers
|
101,671
|
|
|
110,445
|
|
|
112,655
|
|
|
102,541
|
|
|
98,456
|
|
|
76,867
|
|
|
89,810
|
|
|
89,636
|
|
|
114,705
|
|
|
Revenue per Paid Employer
|
$
|
942
|
|
|
$
|
983
|
|
|
$
|
1,000
|
|
|
$
|
1,098
|
|
|
$
|
1,151
|
|
|
$
|
1,140
|
|
|
$
|
1,145
|
|
|
$
|
1,276
|
|
|
$
|
1,093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March
31,
2019
|
|
June
30,
2019
|
|
September
30,
2019
|
|
December 31,
2019
|
|
March
31,
2020
|
|
June
30,
2020
|
|
September
30,
2020
|
|
December 31,
2020
|
|
March
31,
2021
|
|
Adjusted EBITDA
|
$
|
(4,138)
|
|
|
$
|
6,837
|
|
|
$
|
1,976
|
|
|
$
|
4,691
|
|
|
$
|
(6,382)
|
|
|
$
|
25,601
|
|
|
$
|
26,653
|
|
|
$
|
34,261
|
|
|
$
|
19,994
|
|
|
Adjusted EBITDA margin
|
(4%)
|
|
6%
|
|
2%
|
|
4%
|
|
(6%)
|
|
29%
|
|
26%
|
|
30%
|
|
16%
|
Quarterly Paid Employers
We quantify the revenue-generating customer base as the number of Paid Employers in our marketplace. The Paid Employer metric includes all actively recruiting employers (or entities acting on behalf of employers), on a paying subscription plan or performance marketing campaign for at least one day in a given calendar quarter. In the quarters ended December 31, 2020 and March 31, 2021, we had 89,636 and 114,705 Paid Employers, respectively, in our marketplace. Paid Employers excludes employers from our Job Distribution Partners or other indirect channels, employers who are not actively recruiting, employers on free-trials, and employers with jobs not in our marketplace. This group of employers excluded from our Paid Employer count does not contribute a significant amount of revenue and consisted of 27,975 and 30,019 employers in the quarters ended December 31, 2020 and March 31, 2021, respectively. The following table shows the number of Quarterly Paid Employers in our marketplace for the first quarter of 2018 through the first quarter of 2021:
We typically experience a decline in the Paid Employers in our marketplace during the fourth quarter as a result of seasonal hiring dynamics. For example, the number of Quarterly Paid Employers in the quarter ended December 31, 2019 declined by 9% as compared to the quarter ended September 30, 2019. Notably, we did not experience this seasonal decline in 2020. We believe the continued improvement in macroeconomic factors in the fourth quarter of 2020 helped offset the typical seasonal decline and was a factor in driving the 28% increase in Paid Employers in the first quarter of 2021.
Revenue per Paid Employer
We evaluate Revenue per Paid Employer as a key indicator of our efforts to increase value provided to employers in our marketplace. We define Revenue per Paid Employer as total company revenue in a given period divided by Quarterly Paid Employers in the same period. For the quarters ended December 31, 2020 and March 31, 2021, our Revenue per Paid Employer was approximately $1,276 and $1,093, respectively. The following table shows the Revenue per Paid Employer in our marketplace for the first quarter of 2018 through the first quarter of 2021:
Except for the second quarter of 2020, which was significantly impacted by the COVID-19 pandemic, Revenue per Paid Employer increased every quarter from the quarter ended March 31, 2018 to the quarter ended December 31, 2020. As employers use our marketplace and see positive results first-hand, many will choose to list an increasing number of job postings in our marketplace. Employers also often sign up for enhancement products and services to increase their job posting’s visibility and reach, generating additional revenue for ZipRecruiter. Revenue per Paid Employer declined in the first quarter of 2021 due to the significant increase in the number of Quarterly Paid Employers. These new and returning Paid Employers joined our marketplace over the course of the quarter and, therefore, contributed less revenue during their initial quarter than we expect they will in future quarters.
Adjusted EBITDA and Adjusted EBITDA Margin
We define Adjusted EBITDA as our net income (loss) before total other income, net, income tax expense and depreciation and amortization, adjusted to eliminate stock-based compensation expense. Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA for a period by revenue for the same period.
We believe Adjusted EBITDA and Adjusted EBITDA margin are helpful to investors, analysts and other interested parties because they can assist in providing a more consistent and comparable overview of our operations across our historical financial periods. In addition, these measures are frequently used by analysts, investors and other interested parties to evaluate and assess performance.
See the section titled “Selected Consolidated Financial and Operating Data—Non-GAAP Financial Measures” for information regarding the limitations of using Adjusted EBITDA and Adjusted EBITDA margin as financial measures and for a reconciliation of net income (loss), the most directly comparable financial measure calculated in accordance with GAAP, to Adjusted EBITDA.
Our Adjusted EBITDA and Adjusted EBITDA margin fluctuate from quarter to quarter depending on a variety of factors including, but not limited to, our investments in research and development, sales and marketing, headcount and our ability to generate revenue. For the year ended December 31, 2019, we had Adjusted EBITDA of approximately $9.4 million with an Adjusted EBITDA margin of 2%. For the year ended December 31, 2020, Adjusted EBITDA improved to $80.1 million with an Adjusted EBITDA margin of 19%. For the three months ended March 31, 2020, we had Adjusted EBITDA of $(6.4) million with an Adjusted EBITDA margin of (6)%, compared to the three months ended March 31, 2021, where Adjusted EBITDA improved to $20.0 million with an Adjusted EBITDA margin of 16%.
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, improve our results of operations, and maintain or increase profitability.
Attract More Employers
Our ability to maintain and grow an expansive universe of employers and job opportunities in our marketplace is critical to our business’s future. We acquire new employers primarily through marketing programs and our sales teams.
Our ability to cost effectively attract both employers and job seekers is critical to our success. Given that our marketplace remains free for job seekers, employers’ spending funds our continued investment in matching technology. The majority of our marketing efforts to date have been toward reaching employers. Our investment over the last several years of over $600 million in employer-specific marketing has driven a significant increase in brand awareness. Our aided brand awareness among employers has grown to 82% as of December 31, 2020. We believe scaling our brand has a positive impact on our ability to attract both employers and job seekers to our marketplace. We plan to continue to invest in the sales and marketing channels that we believe will drive further brand awareness and preference amongst both employers and job seekers. We are focused on the effectiveness of our sales and marketing spend and will continue to be disciplined in how we measure and re-invest in growing both sides of our marketplace.
Most of the employers in our marketplace use our self-serve tools to gain access to our marketplace and do not require a salesperson to help them. Other employers have more sophisticated needs or require greater assistance from our sales team. As a result, despite our expectation that our sales team will continue to use technology to become more efficient over time, we expect to grow our sales team significantly over several years in order to be able to cover every business that requires individualized assistance with their hiring needs. Additionally, we expect our sales and marketing expense will continue to grow but is likely to decline as a percentage of total revenue over time.
While our Payback Period will vary among Cohorts, our 2016 to 2020 Cohorts’ Payback Period averaged less than 16 months, meaning that the Cohort’s Employer Acquisition Expense was, on average, recovered by the end of April in the following calendar year. Additionally, even with COVID-19’s negative impact on revenue in 2020, our Payback Period for the 2019 Cohort was 19 months, meaning
the 2019 Cohort’s cumulative revenue had equaled the Cohort’s Employer Acquisition Expense by July 31, 2020. In response to COVID-19, we reduced our Employer Acquisition Expense in 2020 by 29% compared to 2019. By focusing our spend on high-performing marketing channels our Cohort Payback Period dropped to just over 14 months, meaning the 2020 Cohort's cumulative revenue had exceeded the Cohort's Employer Acquisition Expense by March 31, 2021. Our Employer Acquisition Expense represented 61% and 63% of total sales and marketing expenses in 2019 and 2020, respectively. The attractive and consistent Payback Periods of our Cohorts give us confidence to continue investing in employer acquisition and scale our marketplace.
To the extent that we successfully speed up the hiring process for employers, this may naturally decrease both the average duration a job stays posted in our marketplace as well as the average time an employer may stay in our marketplace. This, in turn, could have an adverse effect on our revenue, all other things being equal. However, we believe that by delivering faster results, higher-quality candidates, increased reach, and greater confidence in the hiring process, we will increase our Revenue per Paid Employer over time through greater customer loyalty, which we believe over the long-term will offset the financial impact of any decrease in Quarterly Paid Employers.
Create More Value for Employers
While our marketplace serves a wide variety of employers, all employers benefit from finding the right candidate quickly. Our employers rate the value of candidates we deliver to them, and positive ratings have increased over time. Our Employer Thumbs Up Rate and our Average Monthly Revenue per Paid Employer have both increased over time while the average duration that jobs remain posted has decreased over time.
Employer Thumbs Up Rate
We actively measure the frequency with which an employer gives a “thumbs up” to a potential job seeker. This allows us to highlight our ability to serve the employer with high quality job seekers. The Thumbs Up Rate on candidates has increased from 39% in December 2017 to 56% as of December 2020, demonstrating the improved quality of our matching algorithms over time.
Quarterly Average Number of Days Job Stays Posted
In the quarter ended December 31, 2020, the Average Number of Days a Job Stays Posted in our marketplace was 16 days, a 59% decrease since the quarter ended December 31, 2016. This trend, coupled with the increasing Thumbs Up Rate by employers, shows that our marketplace is driving faster and better results. We believe we will continue to see the quarterly Average Number of Days a Job Stays Posted go down as our matching technology gets smarter.
Average Monthly Revenue per Paid Employer by Employer Cohort Start Year
Employers reward us for the value we create. Those with recurring hiring needs remain active in our marketplace over time and tend to increase their spend each year, posting additional jobs and purchasing job enhancement products. For example, the Average Monthly Revenue per Paid Employer in Year 1 among our 2014 Cohort has increased by over 7.0 times at Year 7, with increases in each consecutive year. Additionally, we have seen an increase in Year 1 Average Monthly Revenue per Paid Employer in each calendar year shown above, which we believe is attributable to improvements in our marketplace over the years. Year 1 Average Monthly Revenue per Paid Employer among our 2020 Cohort is nearly 3.0 times that of the 2014 Cohort.
Revenue per Annual Paid Employer Cohort by Calendar Year
($ in millions with Percent of Total for 2020)
We have grown revenue by both engaging our existing employers as well as bringing on new employers to our marketplace. Our employers’ needs vary greatly by their industry, size and geographic footprint. While some of these companies hire consistently and may be more isolated from macroeconomic changes, others tend to hire intermittently. Moreover, various businesses have dramatically different spend profiles over time. Despite this fact, when we evaluate the performance of our annual Cohorts, we see consistent revenue contributions for years after they initially use our marketplace. In 2019 and 2020, 74% and 76% of revenue, respectively, was generated by employers that had started using our marketplace in prior years. This trend provides us with a high degree of predictability over time.
Cohorts joining prior to 2016 have contributed consistent revenue for years 2 and beyond. In 2016, we increased the subscription prices of our service to better align with the increasing value we were providing to our customers. The effective price increase more than offset the decline in new employer signups. These improved unit economics allowed us to increase our marketing spend through the second half of 2016, driving disproportionately more new employers toward the end of the year and, thus, strong growth in 2017 when compared to revenue generated by that same Cohort of employers in 2016. Since 2017, product improvements have continued to accelerate positive results for our employers. Our monetization strategies have evolved to better align with the value we create, resulting in more of a given Cohort’s lifetime revenue being earned during the earlier years of its long lifetime.
Attract More Job Seekers
For job seekers, we operate like a personal recruiter going as far as presenting potential candidates to employers before they have applied. Our ability to cost effectively grow the number of job seekers and increase their engagement in our marketplace is critical to strengthen our marketplace. We compete for job seekers on many fronts, including our ability to surface unique and attractive jobs, our ability to simplify the hiring process, the transparent feedback job seekers receive on the status of their applications, and our trusted brand. We believe our offering to job seekers compares favorably versus alternatives due to the combination of our large and unique set of jobs to choose from, plus our proven matching technology that continues to get smarter over time. In 2020 alone we engaged with over 36 million Active Job Seekers. Historically, we have largely focused our marketing spend on employers, and despite being the highest rated mobile app for job seekers, we are not yet the most well-known.
We will continue to invest in growing the number of job seekers in our marketplace that are either actively or passively open to evaluating new opportunities.
Investments in Technology
The technology that drives high quality matches between our job seekers and employers remains a significant investment priority. We are continuously improving our data science models, leveraging the billions of interactions taking place in our marketplace to drive meaningful improvements in the quality of matches we share with our users. Our continued improvement of the technology underpinning our marketplace and product experience is paramount to our user experience, driving our ability to attract and retain employers and job seekers, improve the rate at which we make Great Matches, and generate revenue. As such, we will continue to invest in our technology to continue to evolve our marketplace to provide improved experiences and impact for both employers and job seekers.
We have invested in research and development to improve our matching technology and deliver a high-quality experience to employers and job seekers. In 2019 and 2020, we spent $65.4 million and $69.4 million, or 15% and 17% of total revenue, respectively, on research and development. We believe the return on these investments will create operating leverage over time while continuing to drive top-line growth.
Seasonality
Our business is seasonal, reflecting typical behavior in hiring markets. Hiring activity tends to decelerate in the fourth quarter. In 2019, for example, sequential revenue growth was 13% and 4% for the quarters ended June 30 and September 30, respectively. Sequential growth decelerated to 0% in the quarter ended December 31, 2019. In 2020, we experienced a decrease in sequential revenue of 23% in the quarter ended June 30, 2020 as a result of the COVID-19 pandemic, but saw consecutive quarters of revenue growth of 17% and 11% in the third and fourth quarters of 2020 as employers started to return to and join our marketplace. Revenue in the second half of the year represented 52% of total annual revenue in 2018, 2019 and 2020.
Impact of COVID-19
The COVID-19 pandemic has had, and continues to have, a significant impact on the U.S. economy and hiring. The onset of the COVID-19 pandemic began to impact our business starting in March 2020. The adverse economic impact on businesses, and the resulting rise of unemployment in the United States, led to a decrease in Quarterly Paid Employers, a decrease in open job opportunities in our marketplace, and a decrease in Active Job Seekers. We anticipated and experienced a decrease in sequential revenue of 23% in the quarter ended June 30, 2020 and, in response, we reduced our operating expenses, such as personnel, marketing and general and administrative expenses, by 51% in the quarter ended June 30, 2020 compared to the quarter ended March 31, 2020. This included downsizing our workforce by approximately 40% to 791 employees as of March 31, 2020.
In the quarter ended September 30, 2020, we delivered $102.9 million in revenue, a 17% increase compared to the quarter ended June 30, 2020 reflecting strong execution across product, marketing and operations, and the beginning of an economic recovery. Revenue in the quarter ended September 30, 2020 reflects a 9% decrease from the quarter ended September 30, 2019, indicating the lingering macroeconomic effect of COVID-19. We saw employers in our marketplace increase by 17% in the quarter ended September 30, 2020 versus the quarter ended June 30, 2020 as macroeconomic conditions improved and we increased our marketing investments.
While the nature of the COVID-19 pandemic has reduced the number of people searching for work in the short term, we believe there will be an increase in job seeking activity once the economy fully reopens. We believe we will be a significant beneficiary of this anticipated increase in job seeking activity.
Components of Our Results of Operations
Revenue
We generate revenue primarily from fees paid by employers to post and distribute jobs in our marketplace, as well as multiple sites managed by Job Distribution Partners, including job boards, classifieds, search engines and social networks.
Our subscription revenue consists of time-based job posting plans, upsells which complement or expand visibility and prominence to job posting plans, and resume database plans.
We offer job posting plans with terms ranging from a day to a year on a flat rate subscription basis to access our marketplace, where customers may create and manage job postings and review incoming candidate applications. We recognize revenue ratably over the subscription period beginning on the date the subscription service is made available to the customer. Our nonrefundable subscriptions are typically subject to renewal at the end of the subscription term.
Our upsell services complement or expand visibility to job posting plans and are typically sold on a subscription basis. Upsell services revenue is recognized ratably over the term of the agreement beginning on the date the upsell services are made available to the customer. Additionally, upsell services include job posting enhancements which are applied to individual job postings to provide customers with a temporary boost in the prominence of their job postings. Revenue from job posting enhancements is recognized as the customer uses the enhancements on their job postings.
Resume database plans allow our customers to search and view resumes and revenue is recognized ratably over the subscription period.
Performance-based revenue is recognized when a candidate clicks on or applies to a job distributed by ZipRecruiter on behalf of a customer. For performance-based revenue, our customers pay an amount per click or per job application usually capped at a contractual maximum per job recruitment campaign.
We may distribute jobs to candidates from sources who have job seeker or candidate databases. When a job seeker from a candidate source clicks on or applies to a job posting, we pay the candidate source a percentage of the revenue we earn from our customer for the click or application according to the terms of the revenue share agreement. In these arrangements, we have the responsibility for advertising the customer’s job postings, discretion in how and where we choose to advertise the customer’s job postings, and discretion in establishing the price paid by the customer. We recognize the fees we receive from our customers as revenue and the revenue share due is recorded in cost of revenue in the Consolidated Statements of Operations.
For a description of our revenue accounting policies, see the section titled “Critical Accounting Policies and Estimates” below.
Cost of Revenue and Gross Profit
Cost of Revenue
Cost of revenue consists of third-party hosting, credit card processing fees, personnel related costs (including salaries, bonuses, benefits, and stock-based compensation) for customer support employees, partner revenue share amounts, job distribution costs from performance-based revenue, and amortization of capitalized software costs associated with our marketplace technology to provide services for our customers. In addition, we allocate a portion of overhead costs, such as rent, IT costs, supplies and depreciation and amortization to cost of revenue based on headcount.
We expect cost of revenue to increase in absolute dollars in future periods due to payment processing fees, third-party hosting fees, personnel related costs to support additional transaction volume, and amortization expense associated with our capitalized internal-use software and development
cost. Our cost of revenue may fluctuate in absolute dollars from period to period based on the amount and timing of all of these items.
Gross Profit and Gross Margin
Our gross profit and gross margin may fluctuate from period to period. Such fluctuations may be influenced by our revenue, timing and amount of investments to expand hosting capacity, our continued investments in our support teams, and the amortization expense associated with our capitalized internal-use software and development cost.
Costs and Operating Expenses
Sales and Marketing
Sales and marketing expense consists of personnel related costs (including salaries, sales commissions, bonuses, benefits, and stock-based compensation) for our sales and marketing employees, marketing activities, and related allocated overhead costs. Marketing activities include advertising, online lead generation, customer and industry events, and candidate acquisition. We allocate a portion of overhead costs, such as rent, IT costs, supplies and depreciation and amortization to sales and marketing expense based on headcount.
We expect that sales and marketing expenses will increase on an absolute dollar basis and may vary from period to period as a percentage of revenue for the foreseeable future as we plan to continue to invest in sales and marketing to attract both employers and job seekers to our marketplace and to increase our brand awareness. We expect that these expenses will continue to be our largest operating expense category for the foreseeable future as we continue to expand on our sales and marketing efforts. Our marketing expense will continue to grow, but is likely to decline as a percentage of total revenue over time.
Research and Development
Research and development expense consists of personnel related costs (including salaries, bonuses, benefits, and stock-based compensation) for our research and development employees, amortization of capitalized software costs associated with the development of the databases supporting our marketplace, and the cost of certain third-party service providers. We allocate a portion of overhead costs, such as rent, IT costs, supplies and depreciation and amortization to research and development expenses based on headcount. Research and development costs, other than software development costs qualifying for capitalization, are expensed as incurred.
We believe continued investments in research and development are important to attain our strategic objectives, and expect research and development expense to increase in absolute dollars. This expense may vary as a percentage of total revenue for the foreseeable future as we continue to invest in research and development activities related to ongoing improvements to, and maintenance of, our marketplace, expansion of our services, as well as other research and development programs, including the hiring of engineering, product development, and design employees to support these efforts. Our research and development expense will continue to grow, but is likely to decline as a percentage of total revenue over time.
General and Administrative
General and administrative expense consists of personnel related costs (including salaries, bonuses, benefits, and stock-based compensation) for employees in our executive, finance, human resource and administrative departments, and fees for third party professional services, including consulting, legal and accounting services. In addition, we allocate a portion of overhead costs, such as rent, IT costs, supplies and depreciation and amortization to general and administrative expense based on headcount.
We expect to invest in corporate infrastructure and incur additional expenses associated with transitioning to and operating as a public company, including expenses related to compliance and reporting obligations pursuant to the rules and regulations of the SEC, and higher expenses for investor relations costs, professional services, and director and officer insurance. As a result, we expect general and administrative expense to increase in absolute dollars in future periods, but this expense may vary as a percentage of total revenue.
Direct Listing Related Expenses
In connection with this listing, we expect to incur certain non-recurring costs as part of our transition to a publicly-traded company, consisting of professional fees and other expenses. These fees are being expensed in the period incurred in general and administrative expenses. We expect to incur $21.6 million in legal, accounting and other costs relating to this offering in the quarter of the listing of our Class A common stock on the New York Stock Exchange, which includes approximately $19.4 million in fees payable to our financial advisors.
Additionally, commencing in the second quarter of 2021, we will recognize stock-based compensation expense in cost of revenue, research and development, sales and marketing and general and administrative expenses related to our RSUs which vest as a result of our board of directors’ waiver of the liquidity event-based vesting condition. In addition, we will recognize additional on-going stock-based compensation expense related to our RSU awards over the remaining service period. For further information, see the section titled “Critical Accounting Policies and Estimates.” Immediately following the completion of this offering, we expect to record a bonus due to Ian Siegel, our chief executive officer of $10.0 million in general and administrative expense.
Interest Expense
Interest expense consists of interest costs associated with our outstanding borrowings, undrawn fees associated with our credit facility, and payment-in-kind interest on our convertible notes with related parties.
Sublease Income
Sublease income consists of income earned from a noncancelable sublease agreement for one of our office facilities. The agreement terminated in March 2021.
Other Expense, net
Other income (expense) consists primarily of gains and losses from foreign currency exchange transactions. We have foreign currency exposure primarily related to personnel related expenses that are denominated in currencies other than the U.S. Dollar, principally the Canadian Dollar, British Pound, and the Israeli New Shekel.
Income Tax Expense (Benefit)
For 2019, we had a full valuation allowance for net U.S. deferred tax assets, including net operating loss carryforwards and tax credits related primarily to research and development. Accordingly, our income tax expense primarily related to income taxes in certain foreign jurisdictions in which we conduct business. As a result of our current earnings in 2020 and forecasted taxable income, we released our valuation allowance against our net deferred tax assets, which resulted in an income tax benefit for 2020. For the three months ended March 31, 2021, our effective tax rate of 19% differed from the U.S. federal statutory rate of 21% primarily due to excess tax benefits relating to the exercise of non-qualified stock options, partially offset by other permanent items.
Results of Operations
The following table sets forth our consolidated results of operations for each of the periods presented and as a percentage of revenue for those periods:
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|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Three Months Ended March 31,
|
|
|
2019
|
|
2020
|
|
2020
|
|
2021
|
|
|
(in thousands)
|
|
Revenue (1)
|
$
|
429,559
|
|
|
$
|
418,142
|
|
|
$
|
113,292
|
|
|
$
|
125,372
|
|
|
Cost of revenue(2)
|
54,778
|
|
|
54,163
|
|
|
14,472
|
|
|
15,961
|
|
|
Gross profit
|
374,781
|
|
|
363,979
|
|
|
98,820
|
|
|
109,411
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|
|
Operating expenses:
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|
|
|
|
|
|
|
|
Sales and marketing(2)
|
276,197
|
|
|
191,141
|
|
|
78,880
|
|
|
63,476
|
|
|
Research and development(2)
|
65,410
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|
|
69,408
|
|
|
19,226
|
|
|
17,015
|
|
|
General and administrative(2)
|
39,492
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|
|
38,998
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|
|
11,488
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|
|
12,454
|
|
|
Total operating expenses
|
381,099
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|
|
299,547
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|
|
109,594
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|
|
92,945
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|
|
Income (loss) from operations
|
(6,318)
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|
|
64,432
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|
|
(10,774)
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|
|
16,466
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|
|
Other income (expense):
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|
|
|
|
|
|
|
|
Interest expense
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(575)
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|
|
(1,037)
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|
|
(279)
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|
|
(209)
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|
|
Sublease income
|
1,170
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|
|
1,051
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|
|
282
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|
|
292
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|
|
Other expense, net
|
(38)
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|
|
(109)
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|
|
(144)
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|
|
94
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|
|
Total other income (expense), net
|
557
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|
|
(95)
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|
|
(141)
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|
|
177
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|
|
Income (loss) before income taxes
|
(5,761)
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|
|
64,337
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|
|
(10,915)
|
|
|
16,643
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|
|
Income tax expense (benefit)
|
588
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|
|
(21,711)
|
|
|
167
|
|
|
3,245
|
|
|
Net income (loss)
|
$
|
(6,349)
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|
|
$
|
86,048
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|
|
$
|
(11,082)
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|
|
$
|
13,398
|
|
____________
(1)Revenue comprised as follows:
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Year Ended December 31,
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Three Months Ended March 31,
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2019
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2020
|
|
2020
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2021
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|
|
(in thousands)
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|
Subscription revenue
|
$
|
373,863
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|
|
$
|
346,781
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|
|
$
|
95,365
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|
|
$
|
100,504
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|
|
Performance-based revenue
|
55,696
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|
|
71,361
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|
|
17,927
|
|
|
24,868
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|
|
Total revenue
|
$
|
429,559
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|
|
$
|
418,142
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|
|
$
|
113,292
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|
|
$
|
125,372
|
|
(2)Includes stock-based compensation expense as follows:
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|
|
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|
|
Year Ended December 31,
|
|
Three Months Ended March 31,
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|
|
2019
|
|
2020
|
|
2020
|
|
2021
|
|
|
(in thousands)
|
|
Cost of revenue
|
$
|
119
|
|
|
$
|
73
|
|
|
$
|
24
|
|
|
$
|
16
|
|
|
Sales and marketing
|
1,031
|
|
|
704
|
|
|
306
|
|
|
99
|
|
|
Research and development
|
3,159
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|
|
3,050
|
|
|
861
|
|
|
825
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|
|
General and administrative
|
2,431
|
|
|
1,925
|
|
|
767
|
|
|
286
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|
|
Total stock-based compensation
|
$
|
6,740
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|
|
$
|
5,752
|
|
|
$
|
1,958
|
|
|
$
|
1,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Three Months Ended March 31,
|
|
|
2019
|
|
2020
|
|
2020
|
|
2021
|
|
Revenue
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
Cost of revenue
|
13
|
|
|
13
|
|
|
13
|
|
|
13
|
|
|
Gross profit
|
87
|
|
|
87
|
|
|
87
|
|
|
87
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Sales and marketing
|
64
|
|
|
46
|
|
|
70
|
|
|
51
|
|
|
Research and development
|
15
|
|
|
17
|
|
|
17
|
|
|
14
|
|
|
General and administrative
|
9
|
|
|
9
|
|
|
10
|
|
|
10
|
|
|
Total operating expenses
|
89
|
|
|
72
|
|
|
97
|
|
|
74
|
|
|
Income (loss) from operations
|
(1)
|
|
|
15
|
|
|
(10)
|
|
|
13
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Interest expense
|
*
|
|
*
|
|
*
|
|
*
|
|
Sublease income
|
*
|
|
*
|
|
*
|
|
*
|
|
Other income (expense)
|
*
|
|
*
|
|
*
|
|
*
|
|
Total other income, net
|
*
|
|
*
|
|
*
|
|
*
|
|
Income (loss) before income taxes
|
(1)
|
|
|
15
|
|
|
(10)
|
|
|
13
|
|
|
Income tax expense (benefit)
|
*
|
|
(5)
|
|
|
*
|
|
3
|
|
|
Net income (loss)**
|
(1)
|
%
|
|
21
|
%
|
|
(10)
|
%
|
|
11
|
%
|
_____________
*Percentage is less than 0.5% of revenue.
** Percentages may not sum due to rounding.
Comparison of the Three Months Ended March 31, 2020 and 2021
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
2020
|
|
2021
|
|
$ Change
|
|
% Change
|
|
|
(dollars in thousands)
|
|
|
|
|
|
Total revenue
|
$
|
113,292
|
|
|
$
|
125,372
|
|
|
$
|
12,080
|
|
|
11
|
%
|
Revenue increased $12.1 million, or 11%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. Subscription revenue increased by $5.1 million, or 5%, for the same periods and was driven by the reopening of the economy as employers started to post more open job opportunities within our marketplace. Performance-based revenue increased $6.9 million, or 39%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 due to increases in both the number of paid engagements and revenue per paid engagement. These increases were driven by the onboarding of new customers and increased spend from existing customers who run sophisticated recruitment marketing campaigns.
Cost of Revenue and Gross Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
2020
|
|
2021
|
|
$ Change
|
|
% Change
|
|
|
(dollars in thousands)
|
|
|
|
|
|
Cost of revenue
|
$
|
14,472
|
|
|
$
|
15,961
|
|
|
$
|
1,489
|
|
|
10
|
%
|
|
Total gross margin
|
87
|
%
|
|
87
|
%
|
|
|
|
|
Cost of revenue increased $1.5 million, or 10%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020, primarily due to an increase of $2.5 million in job distribution costs from performance-based revenue, partially offset by $1.0 million of lower personnel related costs for customer support employees. Total gross margin remained flat at 87% in the three months ended March 31, 2021 and March 31, 2020 and reflects our continued commitment to operational efficiencies and maintaining costs proportionate to revenue growth.
Sales and Marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
2020
|
|
2021
|
|
$ Change
|
|
% Change
|
|
|
(dollars in thousands)
|
|
|
|
|
|
Sales and marketing
|
$
|
78,880
|
|
|
$
|
63,476
|
|
|
$
|
(15,404)
|
|
|
(20)
|
%
|
|
Percentage of revenue
|
70
|
%
|
|
51
|
%
|
|
|
|
|
Sales and marketing expenses decreased $15.4 million, or 20%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. The decrease was primarily attributable to a decrease of $10.4 million in advertising and online lead generation related to employer-specific marketing efforts, partially offset by increases in marketing spend targeted at jobseekers of $4.5 million. Personnel related costs for our sales and marketing employees decreased by $7.8 million, largely due to one-time restructuring costs related to our reduction in force of $3.7 million recorded in the first quarter of 2020 and decreased headcount. Additionally, non-essential travel and entertainment expenses decreased $1.0 million as we implemented virtual meetings and continue to work remotely as a result of the COVID-19 pandemic.
Research and Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
2020
|
|
2021
|
|
$ Change
|
|
% Change
|
|
|
(dollars in thousands)
|
|
|
|
|
|
Research and development
|
$
|
19,226
|
|
|
$
|
17,015
|
|
|
$
|
(2,211)
|
|
|
(12)
|
%
|
|
Percentage of revenue
|
17
|
%
|
|
14
|
%
|
|
|
|
|
Research and development expenses decreased $2.2 million, or 12%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. The decrease was primarily due to a decrease of $1.3 million in personnel costs for our research and development employees, largely due to $1.0 million of one-time severance costs in connection with our reduction in force recorded in the first quarter of 2020, and a decrease of $0.4 million related to non-essential travel and entertainment.
General and Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
2020
|
|
2021
|
|
$ Change
|
|
% Change
|
|
|
(dollars in thousands)
|
|
|
|
|
|
General and administrative
|
$
|
11,488
|
|
|
$
|
12,454
|
|
|
$
|
966
|
|
|
8
|
%
|
|
Percentage of revenue
|
10
|
%
|
|
10
|
%
|
|
|
|
|
General and administrative expenses increased $1.0 million, or 8%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. The increase was primarily due to an increase of $2.0 million of non-recurring legal and accounting fees related to the direct listing. This was partially offset by a decrease of $1.5 million in personnel related costs as the first quarter of 2020 including a one-time restructuring charge of $1.0 million related to our reduction in force.
Other Income (Expense), Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
2020
|
|
2021
|
|
$ Change
|
|
% Change
|
|
|
(dollars in thousands)
|
|
|
|
|
|
Other income (expense), net
|
$
|
(141)
|
|
|
$
|
177
|
|
|
$
|
318
|
|
|
(226)
|
%
|
There were immaterial fluctuations in other income (expense) for the three months ended March 31, 2021 compared to the three months ended March 31, 2020.
Income Tax Expense (Benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
2020
|
|
2021
|
|
$ Change
|
|
% Change
|
|
|
(dollars in thousands)
|
|
|
|
|
|
Income tax expense (benefit)
|
$
|
167
|
|
|
$
|
3,245
|
|
$
|
3,078
|
|
|
1843
|
%
|
|
Effective tax rate
|
(2)
|
%
|
|
19
|
%
|
|
|
|
|
______________
Income tax expense increased $3.1 million for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. For the three months ended March 31, 2020, our tax expense primarily related to taxes for our foreign operations as we maintained a full valuation allowance against our federal and state deferred tax assets. We released the valuation allowance during the fourth quarter of 2020. For the three months ended March 31, 2021, our effective tax rate of 19% differed from the U.S federal statutory rate of 21% primarily due to excess tax benefits relating to the exercise of non-qualified stock options, partially offset by other permanent items.
Comparison of the Years Ended December 31, 2019 and 2020
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2019
|
|
2020
|
|
$ Change
|
|
% Change
|
|
|
(dollars in thousands)
|
|
|
|
|
|
Total revenue
|
$
|
429,559
|
|
|
$
|
418,142
|
|
|
$
|
(11,417)
|
|
|
(3)
|
%
|
Revenue decreased by $11.4 million, or 3%, in 2020 compared to 2019. The decrease was primarily driven by the impacts of the COVID-19 pandemic as both total Paid Employers and the number of open job opportunities in our marketplace declined. Throughout each of the quarters in 2020, Quarterly Paid Employers was between 3% and 30% lower than the Quarterly Paid Employers for the same quarters in 2019. However, the decline in the volume of employers in our marketplace was offset by higher Revenue per Paid Employer in each of the quarters in 2020 as compared to the same quarters in 2019.
Our subscription revenue decreased by $27.1 million in 2020 compared to 2019 primarily due to the adverse economic impact of COVID-19 on our business. This was partially offset by our performance-based revenue, which increased $15.7 million, or 28%, in 2020 compared to 2019. The increase in performance-based revenue was primarily due to a 24% increase in the number of paid engagements (paid clicks and paid applications) attributable to the onboarding of new customers who run sophisticated recruitment marketing campaigns with consistent budgets throughout the full year. The number of paid engagements for which we recognized performance-based revenue was approximately 132 million and 164 million in 2019 and 2020, respectively. The corresponding revenue per paid engagement was $0.42 and $0.44 in 2019 and 2020, respectively.
Cost of Revenue and Gross Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2019
|
|
2020
|
|
$ Change
|
|
% Change
|
|
|
(dollars in thousands)
|
|
|
|
|
|
Cost of revenue
|
$
|
54,778
|
|
|
$
|
54,163
|
|
|
$
|
(615)
|
|
|
(1)
|
%
|
|
Total gross margin
|
87
|
%
|
|
87
|
%
|
|
|
|
|
Cost of revenue decreased by $0.6 million, or 1%, in 2020 compared to 2019. The decrease was primarily due to lower third-party hosting services costs, driven by the decline in marketplace engagement starting in March 2020, and decreases in personnel related costs for customer support employees.
Total gross margin remained flat at 87% in 2019 and 2020 and reflects our continued commitment to operational efficiencies and maintaining costs proportionate to revenue growth.
Sales and Marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2019
|
|
2020
|
|
$ Change
|
|
% Change
|
|
|
(dollars in thousands)
|
|
|
|
|
|
Sales and marketing
|
$
|
276,197
|
|
|
$
|
191,141
|
|
|
$
|
(85,056)
|
|
|
(31)
|
%
|
|
Percentage of revenue
|
64
|
%
|
|
46
|
%
|
|
|
|
|
Sales and marketing expenses decreased by $85.1 million, or 31%, in 2020 compared to 2019. The decrease was primarily attributable to a decrease of $71.4 million in advertising, online lead generation, customer and industry events and candidate acquisition expenses, a decrease of $10.0 million in personnel related costs for our sales and marketing employees and a decrease of $4.5 million in non-essential travel and entertainment expenses as we implemented virtual meetings and other cost-saving measures directly as a result of the COVID-19 pandemic. These decreases were partially offset by one-time restructuring costs related to our reduction in force of $3.7 million.
Research and Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2019
|
|
2020
|
|
$ Change
|
|
% Change
|
|
|
(dollars in thousands)
|
|
|
|
|
|
Research and development
|
$
|
65,410
|
|
|
$
|
69,408
|
|
|
$
|
3,998
|
|
|
6
|
%
|
|
Percentage of revenue
|
15
|
%
|
|
17
|
%
|
|
|
|
|
Research and development expenses increased by $4.0 million, or 6%, in 2020 compared to 2019. The increase was primarily due to an increase of $2.4 million in amortization of capitalized software costs associated with the development of the databases supporting our marketplace and $1.0 million of severance costs in connection with our reduction in force.
General and Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2019
|
|
2020
|
|
$ Change
|
|
% Change
|
|
|
(dollars in thousands)
|
|
|
|
|
|
General and administrative
|
$
|
39,492
|
|
|
$
|
38,998
|
|
|
$
|
(494)
|
|
|
(1)
|
%
|
|
Percentage of revenue
|
9
|
%
|
|
9
|
%
|
|
|
|
|
General and administrative expenses decreased by $0.5 million, or 1%, in 2020 compared to 2019. The decrease was primarily due to decreases of $1.8 million of personnel related costs, partially offset by
one-time restructuring costs of $1.0 million related to our reduction in force and an increase of $0.2 million in legal and accounting related costs.
Other Income (Expense), Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2019
|
|
2020
|
|
$ Change
|
|
% Change
|
|
|
(dollars in thousands)
|
|
|
|
|
|
Other income (expense), net
|
$
|
557
|
|
|
$
|
(95)
|
|
|
$
|
(652)
|
|
|
(117)
|
%
|
|
Percentage of revenue
|
—
|
%
|
|
*
|
|
|
|
|
______________
*Percentage not meaningful.
Other income decreased by $0.7 million, or 117% in 2020 as compared to 2019. The decrease is primarily attributable to an increase in interest expense of $0.5 million due to a higher amount of outstanding borrowings from our lines of credit and convertible notes in 2020 as compared to 2019.
Income Tax Expense (Benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2019
|
|
2020
|
|
$ Change
|
|
% Change
|
|
|
(dollars in thousands)
|
|
|
|
|
|
Income tax expense (benefit)
|
$
|
588
|
|
|
$
|
(21,711)
|
|
$
|
(22,299)
|
|
|
*
|
|
Effective tax rate
|
(10)
|
%
|
|
(34)
|
%
|
|
|
|
|
______________
*Percentage not meaningful.
Income tax expense decreased by $22.3 million in 2020, as compared to 2019 primarily due to the release during the fourth quarter of 2020 of our valuation allowance against our net U.S. deferred tax assets. Based on our current earnings in 2020 and forecasted taxable income, we determined that it was more likely than not that those assets will be realized.
For the year ended December 31, 2020, our annual effective tax rate of (34)% differed from the U.S. federal statutory rate of 21% primarily because of the release of our valuation allowance and research and development tax credits, offset partially by an increase in estimated state taxes. For the year ended December 31, 2019, our annual effective tax rate of (10)% differed from the U.S. federal statutory rate of 21% primarily because of our deferred tax valuation allowance and research and development tax credits.
Quarterly Results of Operations
The following table sets forth our unaudited quarterly consolidated statements of operations data for each of the quarterly periods for the years ended December 31, 2019 and 2020 and the quarter ended March 31, 2021. The unaudited quarterly statements of operations data have been prepared on the same basis as our audited consolidated financial statements included elsewhere in this prospectus and includes all adjustments, consisting only of normal recurring adjustments that, in our opinion, are necessary to state fairly the results of operations for these periods. Our historical results are not necessarily indicative of the results that may be expected in the future and the results of a particular quarter or other interim period are not necessarily indicative of the results for a full year. The following unaudited quarterly consolidated results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March
31,
2019
|
|
June
30,
2019
|
|
September
30,
2019
|
|
December
31,
2019
|
|
March
31,
2020
|
|
June
30,
2020
|
|
September
30,
2020
|
|
December
31,
2020
|
|
March
31,
2021
|
|
|
(in thousands)
|
|
|
|
Revenue (1)
|
$
|
95,769
|
|
|
$
|
108,528
|
|
|
$
|
112,693
|
|
|
$
|
112,569
|
|
|
$
|
113,292
|
|
|
$
|
87,655
|
|
|
$
|
102,851
|
|
|
$
|
114,344
|
|
|
$
|
125,372
|
|
|
Cost of revenue(2)
|
12,327
|
|
|
13,322
|
|
|
14,251
|
|
|
14,878
|
|
|
14,472
|
|
|
11,840
|
|
|
12,949
|
|
|
14,902
|
|
|
15,961
|
|
|
Gross profit
|
83,442
|
|
|
95,206
|
|
|
98,442
|
|
|
97,691
|
|
|
98,820
|
|
|
75,815
|
|
|
89,902
|
|
|
99,442
|
|
|
109,411
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing(2)
|
67,187
|
|
|
67,101
|
|
|
73,044
|
|
|
68,865
|
|
|
78,880
|
|
|
28,069
|
|
|
41,713
|
|
|
42,479
|
|
|
63,476
|
|
|
Research and development(2)
|
14,784
|
|
|
15,311
|
|
|
17,340
|
|
|
17,975
|
|
|
19,226
|
|
|
16,306
|
|
|
16,863
|
|
|
17,013
|
|
|
17,015
|
|
|
General and administrative(2)
|
9,315
|
|
|
9,857
|
|
|
10,065
|
|
|
10,255
|
|
|
11,488
|
|
|
9,792
|
|
|
8,232
|
|
|
9,486
|
|
|
12,454
|
|
|
Total operating expenses
|
91,286
|
|
|
92,269
|
|
|
100,449
|
|
|
97,095
|
|
|
109,594
|
|
|
54,167
|
|
|
66,808
|
|
|
68,978
|
|
|
92,945
|
|
|
Income (loss) from operations
|
(7,844)
|
|
|
2,937
|
|
|
(2,007)
|
|
|
596
|
|
|
(10,774)
|
|
|
21,648
|
|
|
23,094
|
|
|
30,464
|
|
|
16,466
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
(143)
|
|
|
(144)
|
|
|
(144)
|
|
|
(144)
|
|
|
(279)
|
|
|
(367)
|
|
|
(179)
|
|
|
(212)
|
|
|
(209)
|
|
|
Sublease income
|
318
|
|
|
281
|
|
|
287
|
|
|
284
|
|
|
282
|
|
|
275
|
|
|
226
|
|
|
268
|
|
|
292
|
|
|
Other income (expense), net
|
34
|
|
|
(159)
|
|
|
(169)
|
|
|
256
|
|
|
(144)
|
|
|
(68)
|
|
|
152
|
|
|
(49)
|
|
|
94
|
|
|
Total other income (expense), net
|
209
|
|
|
(22)
|
|
|
(26)
|
|
|
396
|
|
|
(141)
|
|
|
(160)
|
|
|
199
|
|
|
7
|
|
|
177
|
|
|
Income (loss) before income taxes
|
(7,635)
|
|
|
2,915
|
|
|
(2,033)
|
|
|
992
|
|
|
(10,915)
|
|
|
21,488
|
|
|
23,293
|
|
|
30,471
|
|
|
16,643
|
|
|
Income tax expense (benefit)
|
155
|
|
|
135
|
|
|
139
|
|
|
159
|
|
|
167
|
|
|
165
|
|
|
187
|
|
|
(22,230)
|
|
|
3,245
|
|
|
Net income (loss)
|
$
|
(7,790)
|
|
|
$
|
2,780
|
|
|
$
|
(2,172)
|
|
|
$
|
833
|
|
|
$
|
(11,082)
|
|
|
$
|
21,323
|
|
|
$
|
23,106
|
|
|
$
|
52,701
|
|
|
$
|
13,398
|
|
____________
(1)Revenue comprised as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March
31,
2019
|
|
June
30,
2019
|
|
September
30,
2019
|
|
December
31,
2019
|
|
March
31,
2020
|
|
June
30,
2020
|
|
September
30,
2020
|
|
December
31,
2020
|
|
March
31,
2021
|
|
Subscription revenue
|
$
|
84,429
|
|
|
$
|
94,828
|
|
|
$
|
98,231
|
|
|
$
|
96,375
|
|
|
$
|
95,365
|
|
|
$
|
74,002
|
|
|
$
|
84,839
|
|
|
$
|
92,575
|
|
|
$
|
100,504
|
|
|
Performance based revenue
|
11,340
|
|
|
13,700
|
|
|
14,462
|
|
|
16,194
|
|
|
17,927
|
|
|
13,653
|
|
|
18,012
|
|
|
21,769
|
|
|
24,868
|
|
|
Total revenue
|
$
|
95,769
|
|
|
$
|
108,528
|
|
|
$
|
112,693
|
|
|
$
|
112,569
|
|
|
$
|
113,292
|
|
|
$
|
87,655
|
|
|
$
|
102,851
|
|
|
$
|
114,344
|
|
|
$
|
125,372
|
|
(2)Includes stock-based compensation expense as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March
31,
2019
|
|
June
30,
2019
|
|
September
30,
2019
|
|
December
31,
2019
|
|
March
31,
2020
|
|
June
30,
2020
|
|
September
30,
2020
|
|
December
31,
2020
|
|
March
31,
2021
|
|
|
(in thousands)
|
|
|
|
Cost of revenue
|
$
|
32
|
|
|
$
|
31
|
|
|
$
|
30
|
|
|
$
|
26
|
|
|
$
|
24
|
|
|
$
|
18
|
|
|
$
|
16
|
|
|
$
|
15
|
|
|
$
|
16
|
|
|
Sales and marketing
|
290
|
|
|
337
|
|
|
226
|
|
|
178
|
|
|
306
|
|
|
119
|
|
|
134
|
|
|
145
|
|
|
99
|
|
|
Research and development
|
$
|
900
|
|
|
$
|
741
|
|
|
$
|
763
|
|
|
$
|
755
|
|
|
$
|
861
|
|
|
$
|
712
|
|
|
$
|
737
|
|
|
$
|
740
|
|
|
$
|
825
|
|
|
General and administrative
|
633
|
|
|
637
|
|
|
589
|
|
|
572
|
|
|
767
|
|
|
497
|
|
|
369
|
|
|
292
|
|
|
286
|
|
|
Total stock-based compensation
|
$
|
1,855
|
|
|
$
|
1,746
|
|
|
$
|
1,608
|
|
|
$
|
1,531
|
|
|
$
|
1,958
|
|
|
$
|
1,346
|
|
|
$
|
1,256
|
|
|
$
|
1,192
|
|
|
$
|
1,226
|
|
The following table sets forth our unaudited quarterly consolidated statements of operations data as a percentage of revenue for each of the quarterly periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March
31,
2019
|
|
June
30,
2019
|
|
September
30,
2019
|
|
December
31,
2019
|
|
March
31,
2020
|
|
June
30,
2020
|
|
September
30,
2020
|
|
December
31,
2020
|
|
March
31,
2021
|
|
Revenue
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
Cost of revenue
|
13
|
|
|
12
|
|
|
13
|
|
|
13
|
|
|
13
|
|
|
14
|
|
|
13
|
|
|
13
|
|
|
13
|
|
|
Gross profit
|
87
|
|
|
88
|
|
|
87
|
|
|
87
|
|
|
87
|
|
|
86
|
|
|
87
|
|
|
87
|
|
|
87
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
70
|
|
|
62
|
|
|
65
|
|
|
61
|
|
|
70
|
|
|
32
|
|
|
41
|
|
|
37
|
|
|
51
|
|
|
Research and development
|
15
|
|
|
14
|
|
|
15
|
|
|
16
|
|
|
17
|
|
|
19
|
|
|
16
|
|
|
15
|
|
|
14
|
|
|
General and administrative
|
10
|
|
|
9
|
|
|
9
|
|
|
9
|
|
|
10
|
|
|
11
|
|
|
8
|
|
|
8
|
|
|
10
|
|
|
Total operating expenses
|
95
|
|
|
85
|
|
|
89
|
|
|
86
|
|
|
97
|
|
|
62
|
|
|
65
|
|
|
60
|
|
|
74
|
|
|
Income (loss) from operations
|
(8)
|
|
|
3
|
|
|
(2)
|
|
|
1
|
|
|
(10)
|
|
|
25
|
|
|
22
|
|
|
27
|
|
|
13
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
*
|
|
*
|
|
*
|
|
*
|
|
*
|
|
*
|
|
*
|
|
*
|
|
*
|
|
Sublease income
|
*
|
|
*
|
|
*
|
|
*
|
|
*
|
|
*
|
|
*
|
|
*
|
|
*
|
|
Other income (expense), net
|
*
|
|
*
|
|
*
|
|
*
|
|
*
|
|
*
|
|
*
|
|
*
|
|
*
|
|
Total other income (expense), net
|
*
|
|
*
|
|
*
|
|
*
|
|
*
|
|
*
|
|
*
|
|
*
|
|
*
|
|
Income (loss) before income taxes
|
(8)
|
|
|
3
|
|
|
(2)
|
|
|
1
|
|
|
(10)
|
|
|
25
|
|
|
23
|
|
|
27
|
|
|
13
|
|
|
Income tax expense (benefit)
|
*
|
|
*
|
|
*
|
|
*
|
|
*
|
|
*
|
|
*
|
|
(19)
|
|
|
3
|
|
|
Net income (loss)**
|
(8)
|
%
|
|
3
|
%
|
|
(2)
|
%
|
|
1
|
%
|
|
(10)
|
%
|
|
24
|
%
|
|
22
|
%
|
|
46
|
%
|
|
11
|
%
|
_____________
* Percentage is less than 0.5% of revenue.
** Percentages may not sum due to rounding.
The following table presents a reconciliation of net income (loss) to Adjusted EBITDA for each of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March
31,
2019
|
|
June
30,
2019
|
|
September
30,
2019
|
|
December
31,
2019
|
|
March
31,
2020
|
|
June
30,
2020
|
|
September
30,
2020
|
|
December
31,
2020
|
|
March
31,
2021
|
|
GAAP net income (loss)
|
$
|
(7,790)
|
|
|
$
|
2,780
|
|
|
$
|
(2,172)
|
|
|
$
|
833
|
|
|
$
|
(11,082)
|
|
|
$
|
21,323
|
|
|
$
|
23,106
|
|
|
$
|
52,701
|
|
|
$
|
13,398
|
|
|
Stock-based compensation
|
1,855
|
|
|
1,746
|
|
|
1,608
|
|
|
1,531
|
|
|
1,958
|
|
|
1,346
|
|
|
1,256
|
|
|
1,192
|
|
|
1,226
|
|
|
Depreciation and amortization
|
1,851
|
|
|
2,154
|
|
|
2,375
|
|
|
2,564
|
|
|
2,434
|
|
|
2,607
|
|
|
2,303
|
|
|
2,605
|
|
|
2,302
|
|
|
Total other (income) expense, net
|
(209)
|
|
|
22
|
|
|
26
|
|
|
(396)
|
|
|
141
|
|
|
160
|
|
|
(199)
|
|
|
(7)
|
|
|
(177)
|
|
|
Income tax expense (benefit)
|
155
|
|
|
135
|
|
|
139
|
|
|
159
|
|
|
167
|
|
|
165
|
|
|
187
|
|
|
(22,230)
|
|
|
3,245
|
|
|
Adjusted EBITDA
|
$
|
(4,138)
|
|
|
$
|
6,837
|
|
|
$
|
1,976
|
|
|
$
|
4,691
|
|
|
$
|
(6,382)
|
|
|
$
|
25,601
|
|
|
$
|
26,653
|
|
|
$
|
34,261
|
|
|
$
|
19,994
|
|
|
Adjusted EBITDA margin
|
(4)
|
%
|
|
6
|
%
|
|
2
|
%
|
|
4
|
%
|
|
(6)
|
%
|
|
29
|
%
|
|
26
|
%
|
|
30
|
%
|
|
16
|
%
|
Quarterly Trends
Revenue
Our revenue increased on a quarterly basis during the first three quarters of 2019. The increase in revenue was due to an increase in new customers acquired, increased engagement from existing customers and expanding our product offerings. The slight decrease in revenue during the fourth quarter of 2019 was due to seasonality as hiring activity tends to decelerate towards the end of the year.
Our revenue increased during the first quarter of 2020 primarily due to an increase in sales and marketing expenses driving an increase in Quarterly Paid Employers. The remaining three quarters of 2020 were significantly affected by the COVID-19 pandemic which resulted in a rise in unemployment and a decrease of hiring activity. Quarterly Paid Employers decreased from 98,456 in the first quarter of 2020 to 76,867 in the second quarter of 2020 due to the immediate macroeconomic impact of COVID-19 and, in response thereto, we decreased our sales and marketing by 64% in the second quarter of 2020 compared to the first quarter of 2020. After the initial effects of the economic downturn in the second quarter of 2020, which negatively impacted both subscription-based and performance-based revenue, employers started to return to and join our marketplace. The accelerating economic recovery and our increased sales and marketing efforts resulted in sequential increases in the number of our Quarterly Paid Employers. This resulted in consecutive quarters of revenue growth of 17%, 11% and 10% in the third and fourth quarters of 2020 and first quarter of 2021, respectively. This total revenue growth was driven by both subscription-based and performance-based revenue. Revenue per Paid Employer also showed sequential growth in the third and fourth quarter of 2020 due to a mix shift toward more tenured Paid Employers. We experienced a substantial increase in the Quarterly Paid Employers in the first quarter of 2021. With a large number of these Paid Employers being active over just a portion of the quarter, this resulted in lower Revenue per Paid Employer.
Cost of Revenue and Gross Margin
On a quarterly basis, cost of revenue increased for all quarters presented in 2019 primarily due to the growth from new customers and an increase in open job opportunities in our marketplace. Cost of revenue decreased in the first half of 2020 as a result of less revenue activity stemming from the COVID-19 pandemic which led to less web hosting services utilized. Throughout all quarters in 2019,
2020 and 2021, total gross margin remained relatively flat and reflects our continued commitment to operational efficiencies and maintaining costs proportionate to revenue growth.
Sales and Marketing
On a quarterly basis throughout 2019 and the first quarter of 2020, sales and marketing expenses remained consistent at over 60% as a percentage of revenue as we continued to invest in marketing targeted to bring on new Paid Employers, and to further increase brand awareness. In the second quarter of 2020, we reduced our sales and marketing costs by implementing a strategy to decrease marketing spend across all advertising platforms, including television, direct mail, radio and podcast due to the economic downturn resulting from the COVID-19 pandemic. Additionally, we implemented a reduction in workforce which reduced our personnel-related costs through the remainder of 2020. As a result of the improved outlook in the latter half of the year, we increased marketing spend and started new marketing campaigns targeted at employers and job seekers. Sales and marketing expense as a percentage of revenue has decreased since the second quarter of 2020 as a result of our strategy to reduce marketing campaigns and our reduction in personnel costs. As the economy started to reopen in the first quarter of 2021, sales and marketing expense as a percentage of revenue increased to 51% as we began reinvesting in marketing strategies targeted to both employers and jobseekers to grow both sides of our marketplace.
Research and Development
On a quarterly basis, our research and development expenses increased for all quarters during 2019 and the first quarter of 2020, primarily driven by personnel related expenses from increased headcount. Our research and development expenses decreased in the second quarter of 2020 due to decreased personnel related costs resulting from the reduction in force. Research and development expenses as a percentage of revenue remained generally consistent in both 2019 and 2020, with the exception of the second quarter of 2020, when we experienced a 23% decrease in sequential revenue in the quarter ended June 30, 2020.
General and Administrative
On a quarterly basis, our general and administrative expenses increased for all quarters in 2019 and the first quarter of 2020 primarily due to personnel related expenses driven by increased headcount and an increase in professional services fees to support the growth in our business. In response to the impact of the COVID-19 pandemic, we reduced non-essential expenditures and implemented a reduction in workforce which significantly decreased our general and administrative expense in the second and third quarters of 2020. General and administrative expense as a percentage of revenue remained generally consistent in both 2019 and 2020, with the exception of the second quarter of 2020, where we experienced a 23% decrease in sequential revenue in the quarter ended June 30, 2020. The increase in the first quarter of 2021 is primarily due to $2.0 million of non-recurring legal and accounting fees related to our direct listing, which are expensed in the period incurred.
Income Tax Expense (Benefit)
For 2019, we had a full valuation allowance for net U.S. deferred tax assets, including net operating loss carryforwards and tax credits related primarily to research and development. Accordingly, our income tax expense remained relatively consistent during 2019 and the first three quarters of 2020 primarily related to income taxes in certain foreign jurisdictions in which we conduct business. As a result of our earnings in 2020 and forecasted taxable income, we released our valuation allowance against our net deferred tax assets, which resulted in an income tax benefit in the fourth quarter of 2020. In the first quarter of 2021, our effective tax rate of 19% differed from the U.S federal statutory rate of 21% primarily due to excess tax benefits relating to the exercise of non-qualified stock options, partially offset by other permanent items.
Liquidity and Capital Resources
As of March 31, 2021 we had cash totaling $135.1 million, and $28.0 million available in unused borrowing capacity under our prior revolving credit facility. We have financed our operations and capital expenditures primarily through cash generated from operations, sales of shares of common and preferred stock and from bank loans and convertible notes. As of March 31, 2021, we had no amounts outstanding under our prior revolving credit facility and $25.5 million outstanding under our convertible notes with related parties, including accrued interest.
We believe our existing cash, cash flow from operations, and amounts available for borrowing under our bank loan agreement will be sufficient to meet our working capital requirements for at least the next twelve months. To the extent existing cash, cash from operations, and amounts available for borrowing are insufficient to fund future activities, we may need to raise additional funds. In the future, we may attempt to raise additional capital through the sale of equity securities or through equity-linked or debt financing arrangements. If we raise additional funds by issuing equity or equity-linked securities, the ownership of our existing stockholders will be diluted. If we raise additional financing by the incurrence of additional indebtedness, we may be subject to increased fixed payment obligations and could also be subject to additional restrictive covenants, such as limitations on our ability to incur additional debt, and other operating restrictions that could adversely impact our ability to conduct our business. Any future indebtedness we incur may result in terms that could be unfavorable to equity investors. There can be no assurances that we will be able to raise additional capital. The inability to raise capital would adversely affect our ability to achieve our business objectives.
Prior Revolving Credit Facility
We previously entered into a loan and security agreement with a financial institution that provided for a revolving credit facility, or the Prior Revolving Line. Our Prior Revolving Line terminated on April 30, 2021 when we entered into a new credit facility as described below.
In September 2020, we amended and restated this loan and security agreement, or the Second Amended and Restated Loan and Security Agreement. The maturity date of the Prior Revolving Line was September 2, 2022 and the modified interest rate is the floating per annum rate equal to the greater of (1) 0.25% above the bank’s Prime Rate and (2) 4.5%.
The Second Amended and Restated Loan and Security Agreement provided for an unused revolving line facility fee in an amount equal to 0.5% per annum of the average unused portion of the Prior Revolving Line. The amount available under the Prior Revolving Line was reduced by letters of credit outstanding, which relates to various leased office spaces, which was $6.9 million as of March 31, 2021. The amount available under the Prior Revolving Line was reduced by outstanding business credit card balances, which was $0.2 million as of March 31, 2021. Pursuant to the Second Amended and Restated Loan and Security Agreement, if there were any letters of credit outstanding on the maturity date of the Prior Revolving Line, we were required to provide cash collateral in the amount equal to at least 105% of the letters of credit. The Second Amended and Restated Loan and Security Agreement was collateralized by security interests in substantially all of our assets.
The Prior Revolving Line contained financial covenants and other customary affirmative and negative covenants, including, among other terms and conditions, delivering financial statements and other information by certain due dates, achieving certain EBITDA targets, minimum remaining months liquidity requirement, restrictions on changes in business, management, control of business locations, indebtedness, dispositions of certain business or property, mergers or acquisitions, subordinated debt, maintenance of collateral accounts and payment of dividends or distributions.
We had no amounts outstanding under the Prior Revolving Line and were in compliance with our debt covenants as of March 31, 2021.
Current Revolving Credit Facility
In April 2021, we entered into a Credit Agreement with the lenders named therein, and JPMorgan Chase Bank, N.A., as administrative agent, or the Current Revolving Line. The Current Revolving Line provides for a $250.0 million revolving credit facility and has a maturity date of April 30, 2026.
As described in the Current Revolving Line, the credit facility bears interest at a rate based upon our net leverage ratio. We are also obligated to pay other customary fees for a credit facility of this size and type, including a commitment fee on a quarterly basis based on amounts committed but unused under the Current Revolving Line at a rate based upon our net leverage ratio, as described in the Current Revolving Line.
The Current Revolving Line is collateralized by security interests in substantially all of our assets. The Revolving Credit Facility includes customary events of default that include, among other things, non-payment of principal, interest or fees, inaccuracy of representations and warranties, violation of certain covenants, cross default to certain other indebtedness, bankruptcy and insolvency events, material judgments against us, and a change of control. The occurrence of an event of default could result in the acceleration of the obligations under the Current Revolving Line.
The Current Revolving Line contains customary representations, warranties, affirmative covenants, such as financial statement reporting requirements, negative covenants, and financial covenants, such as maintenance of certain net leverage ratio requirements, applicable to us. The negative covenants include restrictions that, among other things, restrict our and our subsidiaries’ ability to incur liens and indebtedness, make certain investments, declare dividends, dispose of, transfer or sell assets, make stock repurchases and consummate certain other matters, all subject to certain exceptions.
We have no amounts outstanding under the Current Revolving Line.
Convertible Notes with Related Parties
In June 2020, we issued subordinated secured convertible promissory notes, or the Convertible Notes, to related parties who are holders of our Redeemable Convertible Preferred Stock. The Convertible Notes totaled $25.0 million and have a maturity date of June 22, 2023. Principal and interest under the Convertible Notes are due and payable in full on or after the maturity date, unless earlier converted to shares of our capital stock. The interest on the Convertible Notes is equal to the lower of (1) 2.5% per annum until June 2022, 3.0% per annum until December 2022, and 3.5% per annum until maturity; and (2) the maximum non-usurious rate of interest in effect from time to time under applicable laws.
The Convertible Notes will automatically convert into shares of a new series of preferred stock upon a Qualified Financing Event (defined as raising gross proceeds of at least $40.0 million), or upon a Liquidity Event (defined as a change in control, a qualified initial public offering yielding gross proceeds of at least $50.0 million, or a Direct Listing to register existing shares of capital stock of the Company for resale on a major U.S. based stock exchange not pursuant to an underwritten public offering). The Convertible Notes may convert into shares of a new series of preferred stock upon a Nonqualified Financing Event (defined as a sale of shares of preferred stock that does not constitute a Qualified Financing Event) or after the maturity date at the option of the note holders.
The conversion price triggered upon these events, with the exception of the Direct Listing event and conversion at Maturity Date, is the lower of (1) 75% of the price per share paid by the purchasers for the event and (2) $8.2909 per share (subject to appropriate adjustments). In connection with a Direct Listing, the conversion price is equal to the lower of (1) 75% of the volume-weighted average price of our common stock on the first trading day following such listing and (2) $8.2909 per share (subject to appropriate adjustments). After the Maturity Date (if not earlier converted), at the option of the holders, the Convertible Notes are convertible into a new series of preferred stock at a conversion price of $6.6327 per share which shares of preferred stock shall have the same rights and preferences as the Series B
convertible preferred stock, except per share liquidation preference and dividend rights will be based on the conversion price of $6.6327 per share.
The Convertible Notes provide for certain events of default such as nonpayment of principal and interest when due, insolvency, or if there is a liquidation, dissolution or winding up of the Company. Upon an event of default, all unpaid principal and accrued interest becomes immediately due and payable.
Cash Flows
The following table summarizes our cash flows for the periods presented:
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Year Ended December 31,
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Three Months Ended March 31,
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2019
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2020
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2020
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2021
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(in thousands)
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Net cash provided by (used in) operating activities
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$
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(2,135)
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$
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88,013
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$
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(4,183)
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$
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22,154
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Net cash used in investing activities
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(10,364)
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(7,373)
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(2,870)
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(3,255)
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Net cash provided by (used in) financing activities
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945
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(1,630)
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26,788
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1,627
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Net increase (decrease) in cash
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$
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(11,554)
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$
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79,010
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$
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19,735
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$
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20,526
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Operating Activities
The primary source of operating cash inflows is cash collected from our customers for our services. Our primary uses of cash from operating activities are for personnel related expenditures, marketing costs and third-party costs incurred to support our marketplace.
For the three months ended March 31, 2021, cash provided by operating activities was $22.2 million resulting from our net income of $13.4 million, adjusted by non-cash charges of $8.4 million and a net increase of $0.4 million in our operating assets and liabilities. The non-cash charges primarily resulted from $3.2 million related to the change of our deferred tax assets, $2.3 million pertaining to depreciation and amortization of intangible assets, capitalized software development costs and property and equipment, $1.5 million pertaining to noncash lease expense and $1.2 million for stock-based compensation expense.
For the three months ended March 31, 2020, cash used in operating activities was $4.2 million resulting from our net loss of $11.1 million, adjusted by non-cash charges of $6.4 million and a net increase of $0.5 million in our operating assets and liabilities. The non-cash charges primarily resulted from $2.4 million pertaining to depreciation and amortization of intangible assets, capitalized software development costs and property and equipment, $2.0 million for stock-based compensation expense, and $1.2 million pertaining to noncash lease expense.
For the year ended December 31, 2020, cash provided by operating activities was $88.0 million resulting from our net income of $86.0 million, adjusted by net non-cash charges of $1.9 million and a net decrease of $0.1 million in our operating assets and liabilities. The non-cash charges primarily resulted from $22.9 million related to the change of our deferred tax assets driven by the release of our valuation allowance, $9.9 million pertaining to depreciation and amortization of intangible assets, capitalized software development costs and property and equipment, $5.8 million for stock-based compensation expense, and $5.6 million pertaining to noncash lease expense.
For the year ended December 31, 2019, cash used in operating activities was $2.1 million resulting from our net loss of $6.3 million, adjusted by non-cash charges of $22.7 million and a net decrease of $18.5 million in our operating assets and liabilities. The non-cash charges primarily resulted from $8.9 million pertaining to depreciation and amortization of intangible assets, capitalized software development costs and property and equipment, $6.7 million for stock-based compensation expense, and $5.7 million
pertaining to noncash lease expense. The net decrease in our operating assets and liabilities was primarily the result of a $9.9 million increase in accounts receivable and $3.9 million increase in deferred commissions due to our growth, and $6.2 million resulting from a change in operating lease liabilities due to cash payments.
Investing Activities
For the three months ended March 31, 2021, investing activities used $3.3 million primarily as a result of an increase in capitalized software development costs of $2.1 million and an increase in capital expenditures of $1.1 million primarily related to leasehold improvements for one of our operating leases.
For the three months ended March 31, 2020, investing activities used $2.9 million primarily as a result of an increase in capitalized software development costs of $2.6 million and an increase in capital expenditures of $0.2 million to purchase property and equipment.
For the year ended December 31, 2020, investing activities used $7.4 million in cash primarily as a result of an increase in capitalized software development costs of $6.0 million and an increase in capital expenditures of $1.4 million to purchase property and equipment.
For the year ended December 31, 2019, investing activities used $10.4 million in cash primarily as a result of an increase in capitalized software development costs of $7.8 million and an increase in capital expenditures of $2.5 million to purchase property and equipment.
Financing Activities
For the three months ended March 31, 2021, cash provided by financing activities was $1.6 million primarily related to $2.1 million of proceeds from the exercise of stock options partially offset by $0.5 million for the repurchase of common stock.
For the three months ended March 31, 2020, cash provided by financing activities was $26.8 million, which consisted of $10.0 million in proceeds from our term loan, a $16.5 million drawdown on our revolving line of credit, and $0.3 million of proceeds from the exercise of stock options.
For the year ended December 31, 2020, cash used in financing activities was $1.6 million, which consisted of $19.0 million for the repurchase of common stock from some of the founders and $10.0 million of net repayment on our term loan, partially offset by net proceeds of $25.0 million from the issuance of convertible notes with related parties and $2.4 million of proceeds from the exercise of stock options.
For the year ended December 31, 2019, financing activities provided $0.9 million in cash primarily as a result of proceeds from the exercise of stock options.
Obligations and Other Commitments
See Note 11 of the notes to our consolidated financial statements included elsewhere in this prospectus for our future minimum commitments related to certain software service agreements. Through March 31, 2021, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
(1)
Quantitative and Qualitative Disclosures about Market Risk
We have operations both within the United States and internationally, and we are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate and foreign currency exchange rates.
Interest Rate Risk
We are subject to interest rate risk in connection with our revolving line of credit which bears a floating interest rate. We have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in interest rates. A hypothetical 10% change in interest rates during any of the periods presented would not have had a material impact on our consolidated financial statements.
In June 2020, we issued $25.0 million in convertible notes with related parties whereby interest is equal to the lower of fixed amounts as described above within the section titled “Liquidity and Capital Resources—Convertible Notes with Related Parties” and the maximum non-usurious rate of interest in effect from time to time under applicable laws. As the interest rate is subject to the fixed percentages described above, we do not have significant financial statement risk associated with changes in interest rates pertaining to our convertible notes with related parties.
Foreign Currency Risk
We are exposed to fluctuations in foreign exchange risk related primarily to expenses denominated in currencies other than the U.S. Dollar, principally the Canadian Dollar, British Pound, and Israeli New Shekel. The volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy. We have experienced, and will continue to experience, fluctuations in our net income (loss) as a result of transaction gains and losses related to the remeasurement of our asset and liability balances that are denominated in currencies other than the U.S. Dollar. The effect of a hypothetical 10% change in foreign currency exchange rates applicable to our business would not have had a material impact on our consolidated financial statements.
Critical Accounting Policies and Estimates
Critical accounting policies and estimates are both the most important to the portrayal of our net assets and results of operations and require difficult, subjective, or complex judgments. We often need to make estimates about the effect of matters that are inherently uncertain and these estimates are developed based on historical experience and various other assumptions that we believe to be reasonable under the circumstances.
Critical accounting estimates are accounting estimates where the nature of the estimates are material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and the impact of the estimates on financial condition or operating performance is material.
The critical accounting policies and estimates, assumptions, and judgments that we believe have the most significant impact on our consolidated financial statements are described below.
Revenue Recognition
We derive our revenue primarily from fees for subscription services and performance-based job posting activities. Revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
We determine revenue recognition through the following steps:
•Identification of the contract, or contracts, with a customer
•Identification of all performance obligations in the contract
•Determination of the transaction price
•Allocation of the transaction price to the performance obligations in the contract
•Recognition of revenue when, or as, the performance obligation or obligations are satisfied
We identify enforceable contracts when the terms are agreed to by the customer. Some of our contracts with customers contain multiple performance obligations. For these contracts, we account for performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. We determine the standalone selling prices based on our overall pricing objectives, taking into consideration market conditions and other factors, including the value of our contracts, the products sold, and the number and types of users within our contracts.
Revenue is recognized as performance obligations are satisfied and is presented net of sales allowances.
We derive our revenues from the following sources:
Subscription Revenue
Subscription revenue consists of time-based job posting plans, upsells which complement or expand visibility and prominence to job posting plans, and resume database plans. Plans are priced at a flat rate based on plan size and depending on the length of the term. Customer contracts are typically subject to renewal at the end of the subscription term and are nonrefundable.
Time-based job posting plans: Job posting plans provide customers access to cloud-based software services, where they may create job postings that are posted to our marketplace in addition to numerous other job sites or partner networks with job seeker communities. Customers may also access our software to review job applications and manage job postings. We recognize revenue from job posting plans ratably over the term of the agreement beginning on the date the subscription service is made available to the customer. Once a customer requests a cancellation of their subscription, the open job postings are closed at the end of the term; however, the customer may still access the software to review past job postings or prior applications received under a separate upsell subscription. Job posting plans are billed in advance of the subscription period, which typically ranges from one to twelve months, except for daily subscription plans, which are billed in arrears based on how many days the customer uses the services.
Upsell services: Additional features to complement or expand visibility to job posting plans may be purchased as an upsell service. For these services, we bill the customers in advance and recognize revenue ratably over the term of the agreement beginning on the date the upsell services are made available to the customer, which typically ranges from one to twelve months.
Upsell services also include job posting enhancements which are applied to individual job postings, and provide customers with a temporary boost in the prominence of their open jobs. Individual job posting enhancements may be purchased by a customer when needed, or in recurring monthly prepaid bundles to complement their job posting subscription plan, and are billed in advance of use. Typically these prepaid bundles can be used over a period ranging from one to twelve months. Revenue from job posting enhancements is recognized as the customer uses the enhancement on their job postings. Unused prepaid job enhancements are not refundable, and we recognize revenue for the estimated portion of prepaid job enhancements that are expected to expire unused, or breakage, based on estimates considering historical breakage levels for similarly sized customers and upsell plans. Breakage is recognized as revenue in proportion to the pattern of actual usage by customers.
Resume database plans: Access to our resume database is purchased on a subscription basis and allows a customer to search for and view resumes. Resume database plans are priced based on how many resumes the customer would like to view in a month and may be purchased independent of, or in addition to, a job posting plan. Resume database plans are billed in advance of the subscription period, which typically ranges from one to twelve months. Revenue is recognized ratably over the subscription period.
Performance-based Revenue
Performance-based revenue consists of customers who pay on a per click by job applicant or per job application basis for the job postings customers wish to distribute through our software. Customers pay an amount per click or per application that is usually capped at a contractual maximum per recruitment campaign, with campaigns typically lasting from one to three months. Customers on this pricing model do not have access to our applicant tracking software for subscription customers though they may purchase resume database subscription plans separately. Customers that use a performance-based revenue plan are typically companies with consistent hiring needs and sophisticated recruitment campaigns where they manage incoming applications and job postings on their own applicant tracking systems.
We may distribute jobs to candidates from sources who have job seeker or candidate databases. When a job seeker from a candidate source clicks on or applies to a job posting, we pay the candidate source a percentage of the revenue we earn from our customer for the click or application according to the terms of the revenue share agreement. In these arrangements, we have the responsibility for advertising the customer’s job postings, discretion in how and where we choose to advertise the customer’s job postings, and discretion in establishing the price paid by the customer. We recognize the fees we receive from our customers as revenue and the revenue share due is recorded in cost of revenue in the Consolidated Statements of Operations.
Performance-based revenue is typically billed monthly, in arrears, and revenue is recognized as job applicants click on or apply to the distributed job postings, up to the contractual maximum per recruitment campaign.
Sales Allowance
We establish a sales allowance to estimate refunds and credits that we may grant to customers in the future for cancellations of subscriptions and concessions to customers who are not satisfied with services received. While subscriptions are noncancelable once the contract term has commenced, we may at times allow customers who miss their cancellation window prior to an autorenewal to cancel their contract, and we may issue refunds or credits to maintain overall customer satisfaction. The sales allowance is estimated by considering historical results and trends and is accounted for as a reduction to revenue or deferred revenue for contracts where payments are received upfront and revenue is recognized over time.
Stock-Based Compensation
Compensation expense related to stock-based awards is measured and recognized in the financial statements based on the fair value of the awards granted. The fair value of each option award is estimated on the grant date using the Black-Scholes option-pricing model. We have elected to treat stock-based awards with graded vesting schedules and time-based service conditions as a single award and recognize stock-based compensation expense on a straight-line basis over the requisite service period.
For awards that contain both performance and service vesting conditions, the grant date fair value is recognized as compensation expense using a graded vesting attribution model. No expense is recognized for awards with performance conditions until the performance condition is probable of being met.
The Black-Scholes option pricing model requires us to make certain assumptions including:
Fair Value of our Common Stock. See the section titled “—Determination of the Fair Value of Common Stock on Grant Dates” below.
Expected Term. Given that we do not have sufficient exercise history to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior, we determine the expected term for our “plain vanilla” stock options using the simplified method, which is calculated as the midpoint of the stock option vesting term and the expiration date of the stock option. For
stock options that contain a performance condition, we are using the contractual term as the expected term as those awards were only granted to nonemployees.
Expected Volatility. Because our common stock has no publicly traded history, we estimate the expected volatility of the awards from the historical volatility of selected public companies that represent similar but alternative investment opportunities to an investment in us. Characteristics considered in identifying guideline public companies include similarity in size, lines of business, market capitalization, revenue and financial leverage. We determined the expected volatility assumption using the frequency of daily historical prices of comparable public company common stock for a period equal to the expected term of the option. We periodically assess the comparable companies and other relevant factors used to measure expected volatility for stock option grants.
Risk-free Rate. The risk-free interest rate assumption is based upon observed interest rates on the U.S. government securities appropriate for the expected term of our employee stock options.
Dividend Yield. The dividend yield assumption is based on our history and expectation of dividend payouts. We have never declared nor paid any cash dividends on our common stock, and we do not anticipate paying any cash dividends in the foreseeable future.
The determination of stock-based compensation is inherently uncertain and subjective and involves the application of valuation models and assumptions requiring the use of judgment. If we have made different assumptions, our stock-based compensation expense, and our results of operations for the years ended December 31, 2019 and 2020 and the three months ended March 31, 2020 and 2021 may have been significantly different.
Determination of the Fair Value of Common Stock on Grant Dates
Because our common stock is not publicly traded, our board of directors exercises significant judgment in determining the fair value of our common stock on the date of each stock-based grant, with input from management and the assistance from an independent third-party valuation firm based on several objective and subjective factors. The valuations of our common stock were determined in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. In determining the fair market value of our common stock, the board of directors considered the following:
•the prices of our redeemable convertible preferred stock sold to outside investors in arms-length transactions;
•the rights, preferences and privileges of our redeemable convertible preferred stock relative to our common stock;
•our operating and financial performance;
•the present value of our anticipated future cash flows;
•our stage of development and current business conditions and projections affecting our business, including the introduction of new products and services;
•the likelihood of achieving a liquidity event for the shares of common stock underlying these stock options, such as an initial public offering or sale of our company, in light of prevailing market conditions;
•any adjustment necessary to recognize a lack of a liquid trading market for our common stock;
•the market performance of comparable publicly traded companies; and
•the overall U.S. economic, regulatory and capital market conditions.
In valuing our common stock, our board of directors determined the equity value of our business using various valuation methods including market and income approaches with input from management.
The market approaches we use are the Guideline Public Company Method and the Guideline Transaction Method. The Guideline Public Company Method estimates our equity value by applying a representative market value multiple from comparable companies to our financial forecasts. The Guideline Transaction Method estimates our equity value by using pricing multiples derived from sales of companies with similar characteristics to us. Under the income approach, a Discounted Cash Flow, or DCF, model is used, where net cash flows attributable to our business and an assumed terminal value are discounted to present value using a discount rate, based on our estimated weighted average cost of capital that reflects the risks inherent in the cash flows.
After determining our equity value, we then allocate the equity value to our classes of stock using either an Option Pricing Method, or OPM, or a hybrid of OPM and Probability Weighted Expected Return Method, or PWERM.
The OPM allocates values to each equity class by creating a series of call options on our equity value, with exercise prices based on the liquidation preferences, participation rights, and strike prices of the equity instruments. In determining the estimated fair value of our common stock, we consider the fact that our stockholders could not freely trade our common stock in the public markets. Accordingly, we also applied a discount for lack of marketability to the equity value.
Under the hybrid OPM and PWERM, the allocation is based on the likelihood of a near-term liquidity exit or an alternative exit scenario. For a near-term liquidity scenario, the allocation is based on the expected pricing and timing of the liquidity event. For the alternative exit scenario, an OPM with an appropriate time to liquidity is used to estimate the fair value of the share classes assuming the near-term liquidity scenario does not occur, with the resulting share values under each scenario weighted by management’s estimate of their respective probabilities. We also applied a discount for lack of marketability.
In valuing our common stock at various dates in 2019 through September 30, 2020, our board of directors determined the equity value of our business using the Guideline Public Company Method and the Guideline Transaction Method when comparable recent market transactions existed, and the equity value was then allocated to our classes of stock using an OPM given the uncertainty with regards to the timing and type of future exit scenario. The Guideline Transaction Method was not used in our March 31, 2020 and June 30, 2020 valuation of our equity due to the absence of recent market transactions as a result of the uncertainty and market disruption caused by the COVID-19 pandemic.
In valuing our common stock as of December 31, 2020 and March 31, 2021, our board of directors determined the equity value of our business using the Guideline Public Company Method, the Guideline Transaction Method, and a DCF. The equity value was then allocated to our classes of stock using the hybrid OPM and PWERM based on management’s estimate of the likelihood of a near-term liquidity event or an alternative exit scenario.
Application of these approaches involves the use of estimates, judgment, and assumptions that are highly complex and subjective, such as those regarding our expected future revenue and costs, future cash flows, discount rates, market multiples, the selection of comparable companies, and the probability of possible future exit events. Changes in any or all of these estimates and assumptions or the relationships between those assumptions impact our valuations as of each valuation date and may have a material impact on the valuation of our common stock.
For stock awards granted after the effectiveness of the registration statement of which this prospectus forms a part, our board of directors intends to determine the fair value of each share of underlying common stock based on the closing price of our common stock as reported on the date of grant.
As of March 31, 2021, we had $7.2 million, of unrecognized stock-based compensation cost related to stock options, which is expected to be recognized over a weighted-average period of 1.3 years.
We have granted RSUs, which vest upon the satisfaction of both a service condition and a liquidity event performance condition. The performance condition will be satisfied upon the occurrence of a qualifying event, which is generally defined as a change of control transaction or after the Company’s effective registration statement under the Securities Act for the offer and sale of shares by the Company. Because no qualifying events have occurred, we have not recognized any stock-based compensation expense for the RSUs. Upon a qualifying event occurring, we will incur a significant one-time charge and additional on-going stock-based compensation expense related to the future amortization of RSUs. The recognition of such stock-based compensation will affect our cost of revenue and our research and development, sales and marketing and general and administrative operating expenses.
A direct listing in which the Company does not sell its equity securities does not satisfy the liquidity event performance condition. As of March 31, 2021, there were 6,870,569 RSUs outstanding. On April 19, 2021, our board of directors waived the liquidity event-based vesting condition such that the RSUs that had satisfied the service condition would vest upon the earlier of the first day of trading of our Class A common stock on the New York Stock Exchange and March 15, 2022. As the satisfaction of the performance condition was not probable for accounting purposes prior to the waiver, the waiver of the liquidity event-based performance condition resulted in the incremental fair value on the date of the waiver being equal to the fair value of the modified RSUs. To estimate the grant date fair value for the modified RSUs, management considered all data points available at the time of modification which included the results of the March 31, 2021 independent third party valuation, expectations regarding the initial public offering price and the reference price used in the executive compensation RSU grant on April 19, 2021. Management concluded that the estimated fair value of the common stock on the date of modification was $25.04 per share. As of April 19, 2021, the fair value of the then outstanding modified RSUs is approximately $172.6 million. We expect to record stock-based compensation cost of approximately $41.7 million on the date of the waiver related to vested RSUs and $130.9 million over a weighted average remaining service period of the RSUs of 1.5 years.
Income Taxes
We account for income taxes in accordance with Accounting Standards Codification, or ASC, 740, Income Taxes. Current tax liabilities and assets are recognized for the estimated taxes payable or refundable, respectively, on the tax returns for the current year. Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.
We record valuation allowances against our deferred tax assets, when necessary. Realization of deferred tax assets (such as net operating loss carry-forwards) is dependent on future taxable earnings and is therefore uncertain. At least quarterly, we assess the likelihood that our deferred tax asset balance will be recovered from future taxable income. To the extent we believe that recovery is not likely, we establish a valuation allowance against our net deferred tax asset, which increases our income tax expense in the period when such determination is made. During the fourth quarter of 2020, based on the current earnings and forecasted taxable income, we determined that it was more likely than not that those assets will be realized. Accordingly, we released the valuation allowance of $37.7 million against our deferred tax assets.
On a quarterly basis, we evaluate the probability a tax position will be effectively sustained, and the appropriateness of the amount recognized for uncertain tax positions based on factors including changes in facts or circumstances, changes in tax law, settled audit issues and new audit activity. Changes in our assessment may result in the recognition of a tax benefit or an additional charge to the tax provision in the period our assessment changes. We recognize interest and penalties related to income tax matters in income tax expense.
JOBS Act Accounting Election
We meet the definition of an emerging growth company under the JOBS Act, which permits us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have elected to use this extended transition period until we are no longer an emerging growth company or until we affirmatively and irrevocably opt out of the extended transition period. As a result, our consolidated financial statements may not be comparable to companies that comply with new or revised accounting pronouncements applicable to public companies.
Recent Accounting Pronouncements
See Note 2 of the notes to our unaudited condensed consolidated financial statements included elsewhere in this prospectus for recently issued accounting pronouncements not yet adopted as of the date of this prospectus.
BUSINESS
Before we begin, we first want to recognize the impact of the COVID-19 pandemic. The toll on the health, safety, economic security and emotional well-being of the global community is ongoing and will take years to fully appreciate. Amidst all the stories of the true heroes who have helped manage through the pandemic and those who will bring the pandemic to its end, we feel incredibly grateful and fortunate to tell our story, about a growing business doing our part to help power the economic recovery to come.
Businesses and people need to get back to work after the pandemic. We are committed to helping in that great and noble effort.
Overview
ZipRecruiter is a two-sided marketplace for work. Since the founding of our company in 2010, over 2.8 million businesses and 110 million job seekers have come to ZipRecruiter for their hiring and job search needs. Employers spend more than $205 billion per year in the United States alone to recruit talent.16 Online recruitment alone represents over $13 billion of this opportunity.17 The online segment of the U.S. recruiting market is expected to grow at a CAGR of 14.1% from 2016 to 2025 compared to a CAGR of 0.2% for the rest of the recruiting market during that same period. The online segment of the recruiting market in the U.S. is expected to continue expanding its share of the recruiting market, with online share increasing from 3% in 2016 to 6% in 2020 and to 8% in 2025.18
Our Mission. To actively connect people to their next great opportunity.
The Problem. Twenty years after moving online, the job market remains painfully inefficient. Job seekers are required to navigate on their own in order to find the right jobs to apply to, usually across multiple sites, and without effective tools for monitoring new opportunities. Employers in turn are overwhelmed by the complexity of modern recruiting given the abundance of job boards, search engines, and social networks to source talent from. Neither side is an expert at their role. Neither side enjoys the process.
Our Business. We founded ZipRecruiter to simplify the job market for both job seekers and employers. Unlike traditional online job sites, ZipRecruiter works like a matchmaker curating job opportunities for job seekers, and candidates for employers.
Creating Value for Job Seekers. For job seekers across all industries and levels of seniority, we operate like a dedicated recruiter. That means presenting strong fit job opportunities, proactively pitching potential candidates to employers, and providing job seekers with updates on the status of their applications. This makes job seekers feel supported while searching for work. That’s why ZipRecruiter has been the #1 rated job seeker app on iOS and Android for the past four years.19
Creating Value for Employers. For employers, we focus on building technology to rapidly deliver quality candidates to companies of all sizes and across all industries. Our algorithms alert the best job seekers in our marketplace when a job goes live. Employers posting jobs often get their first quality
16 According to the following reports published by IBISWorld: Office Staffing & Temp Agencies in the US - Market Size 2001–2026, Updated December 28, 2020, https://www.ibisworld.com/industry-statistics/market-size/office-staffing-temp-agencies-united-states/ and Employment & Recruiting Agencies in the US - Market Size 2005–2026, Updated March 23, 2021, https://www.ibisworld.com/industry-statistics/market-size/employment-recruiting-agencies-united-states/ (each last visited April 21, 2021).
17 According to the following report published by IBISWorld: Online Recruitment Sites in the US - Market Size 2005–2027, Updated March 23, 2021, https://www.ibisworld.com/industry-statistics/market-size/online-recruitment-sites-united-states/ (last visited April 21, 2021).
18 Based on the following published reports: (1) IBISWorld Inc., Office Staffing & Temp Agencies in the US, December 2020, (2) IBISWorld Inc., Employment & Recruiting Agencies in the US, March 2021, and (3) IBISWorld Inc., Online Recruitment Sites, March 2021.
19 Based on ratings information for the Google Play Store and Apple Store from the AppFollow platform during the period of March 2017 to March 2021 for the job seeker apps of ZipRecruiter, CareerBuilder, Craigslist, Glassdoor, Indeed, LinkedIn, and Monster.
candidate before they can get up from their chair. 80% of employers posting in our marketplace receive a quality candidate within the first 24 hours. That’s why ZipRecruiter is the #1 rated employment marketplace by G2.20
Unique Data and Artificial Intelligence Provide Better Outcomes for Employers and Job Seekers. With a relevant data pipeline created from billions of interactions between job seekers and employers, we are uniquely positioned to harness that data to fuel the advanced artificial intelligence behind our matching, recommendation, and marketplace optimization capabilities. Through our deep learning-based natural language processing, we understand job seekers’ and employers’ nuanced needs. We model and analyze clicks, applications, hiring signals, and numerous other interactions to improve outcomes for all participants in our marketplace. Our advanced technology stack processes the data generated by our highly engaged user base to continuously improve our matchmaking. Our climbing satisfaction metrics over the past few years give us confidence that these technology investments are yielding results for employers and job seekers alike. The Thumbs Up Rate on candidates has increased from 39% in December 2017 to 56% as of December 2020, highlighting the improved quality of our matching algorithms over time.
Accelerating Network Effects. Increasing the number of jobs in our marketplace attracts more job seekers. A greater number of job seekers attracts more employers who in turn post more job opportunities in our marketplace. These natural, self-perpetuating network effects increase our data and thereby accelerate the rate at which our matching technology gets smarter over time.
Compelling Financial Results. The combination of the scale on both sides of our marketplace, our efficient go-to-market strategy, and intelligent use of technology has resulted in compelling financial results. For the year ended December 31, 2019, our revenue was $429.6 million, and we generated a net loss of $6.3 million and Adjusted EBITDA of $9.4 million. For the year ended December 31, 2020, our revenue was $418.1 million and we generated a net income of $86.0 million and Adjusted EBITDA of $80.1 million. For the three months ended March 31, 2020, our revenue was $113.3 million and we generated a net loss of $11.1 million and Adjusted EBITDA of $(6.4) million. For the three months ended March 31, 2021, our revenue was $125.4 million and we generated a net income of $13.4 million and Adjusted EBITDA of $20.0 million. Adjusted EBITDA is a financial measure not presented in accordance with GAAP. For a definition of Adjusted EBITDA, an explanation of our management’s use of this measure, and a reconciliation of net income (loss) to Adjusted EBITDA, see the section titled “Summary Consolidated Financial and Operating Data.”
The Future of Work is at an Inflection Point
Today, more than 20% of working Americans, or over 40 million individuals, change jobs every year.21 Additionally, more than half of those currently working employees are either actively searching for new jobs or passively exploring new career opportunities.22
Employees are changing jobs faster. Median tenure of Millennials at a single organization is now only 2.8 years, down from a median of 10 years for the Baby Boomer generation of employees.23 Recruiting is becoming an “always on” reality for an increasing percentage of businesses. Over 75% of employers report using an online job board in 2020.24
We anticipate these trends will continue for the foreseeable future, with tens of millions of job seekers continuing to seek out tens of millions of new jobs each year. As has been the case since our founding in
20 Based on G2 satisfaction ratings as set forth in G2, Best Job Boards Software, https://www.g2.com/categories/job-boards?utf8=%E2%9C%93&order=top_shelf (last visited January 25, 2021).
21 U.S. Bureau of Labor Statistics, Employee Tenure Summary - Employee Tenure in 2020, September 22, 2020 (20% - 24% of Americans change jobs every year). Referred to hereinafter as the U.S. BOL Employee Tenure Summary.
22 Gallup Inc., State of the American Workplace, 2017.
23 U.S. BOL Employee Tenure Summary.
24 ZipRecruiter Brand Awareness Survey, 2020. Referred to hereinafter as the Brand Awareness Survey. For more information about the Brand Awareness Survey, see the section titled “Market and Industry Data.”
2010, we believe we will continue to grow the share of that job seeking activity that we enable. But more recent developments, especially those driven by the global pandemic, are also introducing new disruptive forces into the traditional work paradigm.
COVID-19 dramatically suppressed the job market and put an end to a 10 year run of job growth.25 Multiple high volume hiring categories like hospitality, tourism, and live events have gone dormant. Further, in spite of there having been over 20 million people unemployed or under-employed due to the pandemic, according to our internal data, job seekers are currently searching for work in our marketplace at 20% below pre-pandemic levels.
We believe distribution of vaccines for COVID-19 will drive a broad-based and extended recovery in the hiring market on both sides of our marketplace. We further believe that the future of work, and by extension recruiting, has been irreversibly changed.
The percentage of workers around the world that are permanently working from home is expected to double in 2021 as employers and workers alike have realized productivity increases during the COVID-19 pandemic.26 Removing a geographic constraint from the definition of a qualified applicant will be a significant change for those executing talent searches. For most new work from home jobs, the qualified candidate pool will increase by orders of magnitude. Trying to select from the hundreds, or even thousands, of candidates resulting from a nationwide job posting would be painfully inefficient for employers.
We believe this dramatic increase in available quality applicants per job opening will tilt employers towards tools with the ability to identify and selectively recruit talent from across the nation. Our advanced matching and existing process tools for employers are well suited to meet the challenges of this dynamic new opportunity.
We believe that the confluence of all the trends above will provide a significant tailwind for our faster, smarter marketplace.
Opportunities to Meet the Challenges Employers Face
Companies have been searching for candidates on the internet for decades, but unlike the vast majority of other internet-enabled services, such as shopping, entertainment, or booking travel, the task of finding the right candidate remains complicated. Employers face a series of challenges that make the process of selecting the best candidate frustrating and inefficient.
•Access to all job seekers. Employers want to feel confident they have reached a critical mass of potential candidates.
•Surfacing highly qualified applicants. Choosing the right candidate to hire starts with evaluating all applicants to assess if they are a potential Great Match for the role. According to a recent study, the average corporate job receives 250 applications27 with some of the world’s largest employers, such as large technology companies, receiving more than 35 applications per minute.28 With so many applicants to review, identifying the quality candidates is tedious and employers often miss potential Great Matches.
•Quickly engaging potential Great Match candidates. According to the U.S. Bureau of Labor Statistics (BLS), the average job seeker submits applications to approximately 14 different jobs.29 The best candidates are in high demand and engaging those candidates before the window of
25 U.S. Bureau of Labor Statistics, Total Nonfarm Employment, Seasonally Adjusted.
26 Thomson Reuters Corporation, Permanently remote workers seen doubling in 2021 due to pandemic productivity: survey, October 2020.
27 Graham, Dawn, Forbes.com, Here’s Why Career Switchers Have a Huge Advantage in This Job Market, April 23, 2020.
28 Shendrunk, Amanda, World Economic Forum, Amazon has become the world’s fifth largest employer, December 4, 2020.
29 U.S. Bureau of Labor Statistics, Dalton, Michael R. and Groen, Jeffrey A., How do jobseekers search for jobs? New data on applications, interviews, and job offers, Beyond the Numbers, Vol. 9, No. 14, November 2020.
opportunity closes is critical. 27% of hires had applied to a job within the first two days of the job’s posting.30
Opportunities to Meet the Challenges Job Seekers Face
If there is a job seeker out there who loves the traditional job search process, we have not found them yet. Searching for a job is hard and time consuming. We believe technology designed for job seekers can uncover more great opportunities with less effort and rejection.
•Access to all jobs. There is no single place to find all jobs. Job seekers often need to search broadly to find the right position, replicating the same search across multiple sites to find the opportunities for which they are a good fit. Approximately 66% of job seekers looking for work online use multiple job sites to find opportunities.31
•Surfacing those jobs that could be a Great Match. Amidst the millions of jobs that are searchable, finding those that fit best is cumbersome. Spending hours reading job descriptions and lists of required qualifications can make the job search process long and frustrating.
•Providing feedback on where a job application stands. Most job seekers who apply to a job never hear anything back from the employer. Job seekers describe this experience as “the black hole.” This addresses the #1 complaint we hear from job seekers: applying to a job and then hearing nothing back.32
What We Do
We enable work by connecting job seekers and employers in our marketplace. The volume of activity in our marketplace has enabled us to build a proprietary data asset that allows us to optimize matching and dynamically adapt recommendations to actual behavior. Since the founding of our company in 2010, over 2.8 million businesses and 110 million job seekers have come to ZipRecruiter for their hiring and job search needs.
How We Work for Employers
ZipRecruiter is focused on meaningfully reducing the time associated with making a new hire. Our technology delivers high-quality matches immediately after a job goes live and provides tools to streamline the vetting process.
We offer employers the ability to post jobs in our marketplace through both flat rate or performance-based pricing, such as cost-per-click, to align with the employer’s hiring needs and budget constraints.
Quality Candidates Fast
•Job distribution. Jobs posted on ZipRecruiter are distributed to well over 1,000 sites managed by our Job Distribution Partners. This includes job boards, newspaper classifieds, search engines, social networks, talent communities, and resume services. The diversity and depth of our partner network enables employers to reach an especially broad job seeker audience.
•Instant alerts to qualified potential candidates. When employers post a job, ZipRecruiter’s matching technology immediately identifies and sends an alert to the best job seekers in our marketplace.
•Direct recruitment messages from the employer. Immediately after a job is posted, ZipRecruiter’s matching technology presents the employer with a list of the best potential candidates in the market. The employer can then, with a single click, personally invite the most
30 Bryan, Chandlee, Startwire, The Early Bird Gets the Job, June 2, 2011.
31 Brand Awareness Survey. For more information about the Brand Awareness Survey, see the section titled “Market and Industry Data.”
32 Id.
qualified potential candidates to apply. These recruitment messages directly from the employer drive the highest quality candidates ever delivered through ZipRecruiter. Nearly 70% of these applicants receive a "thumbs up” rating by the employer once they have applied.
•Matching that learns. When an employer gives an applicant a “thumbs up” rating, our technology searches for other job seekers with similar profiles to that candidate and proactively encourages them to apply. Overall Thumbs Up Rate of applicants has improved from 39% to 56% over the last three years. Our matching will continue to improve over time as we collect more data and our technology applies the learnings embedded in the data.
•Access to an expansive database of job seekers. We provide employers with access to 14 million monthly Active Job Seekers with broad skill sets and a range of experiences.
Efficient Candidate Vetting
•All the applicants in one place. For employers who do not already have an established process to manage hiring, job applicants from all these different sites are captured inside the ZipRecruiter ATS. Our ATS centralizes and simplifies the decision-making process. Inside this system, hiring teams can review, rate, and ultimately decide which candidate to hire. For employers already using a third-party ATS, we seamlessly populate candidates into their existing workflow.
•Great Match filtering. Our technology filters for applicants identified as a Great Match to help hiring managers avoid missing high quality candidates.
•In-demand candidate alerts. We apply an “Act Fast!” label to notify employers when their candidates have received interest from other employers, encouraging them to reach out quickly. In a tight, competitive market for top-quality talent, these notifications prompt hiring managers to move quickly to avoid losing out on a potentially great hire.
Flexible Pricing
•Flexible pricing based on customer needs. We provide a variety of pricing plans to best suit an employer’s specific needs, including flat rate pricing on terms ranging from a day to a year, as well as performance-based pricing for employers that run sophisticated recruitment marketing campaigns.
How We Work for Job Seekers
For job seekers, we make finding work easier.
Process Efficiency
•Search millions of jobs in one place. ZipRecruiter provides job seekers with access to millions of jobs from all over the internet. Job seekers can filter this vast array of opportunities by using numerous criteria to find the handful of best potential matches.
•Simple, one-click applications. On ZipRecruiter, job seekers create a profile and can then apply for opportunities with a single click. Our one-click application works across both our marketplace and our Job Distribution Partners to remove barriers between a job seeker and their next opportunity. This is particularly useful for job seekers on mobile devices where a resume can’t be easily created or uploaded. In our marketplace, nearly two-thirds of job applications now happen on a mobile device.33
33 Brand Awareness Survey. For more information about the Brand Awareness Survey, see the section titled “Market and Industry Data.”
•Job application tracking. Job seekers apply to numerous opportunities throughout the course of their search. Our simple, user-friendly dashboard aggregates their application history so job seekers can track opportunities.
Personalized Recruiter Assistance
•Pitched to employers as a potential candidate. After a new job is posted, ZipRecruiter matching technology immediately presents strong-fit in-market job seekers to the employer for consideration. Employers can then directly invite the job seekers they like best to apply. This allows candidates to passively gain interest from employers without needing to directly apply, and results in increased attention from prospective employers. While job seekers typically do not like the process of applying to jobs, the feeling of affirmation from being recruited to a particular job drives greater engagement. We offer this for free for all job seekers. Over 35% of new job seekers on ZipRecruiter are recruited by an employer within 30 days of signing up.
•“Phil,” your personal (automated) recruiter. Our automated recruiter “Phil” curates and presents opportunities to job seekers for which they are a Great Match. Phil engages in positive, personalized dialogue with candidates, inviting them to apply for new open positions. Phil sends on average more than 65 million messages per month.
•Job alerts. ZipRecruiter delivers a digest of relevant new opportunities from across the web on a daily basis, enabling job seekers to monitor the full breadth of our marketplace offerings.
•Match scoring. Match scores highlight best-fit opportunities for job seekers. This allows job seekers to see how well they match with available jobs so they can focus their energy on the right opportunities. The scores are delivered in an easy-to-understand format including “Great Match,” “Good Match,” “Fair Match,” and “Not a Match.”
•Application updates. Our technology notifies job seekers when an employer either views their application or gives them a “thumbs up” rating. This addresses the #1 complaint we hear from job seekers: applying to a job and then hearing nothing back.
Our Strengths
Transforming how people find work requires a combination of world-class skills. Our core competitive advantages that have been critical to our success include:
•Large and unique set of jobs. With over 90 million job postings available for matching in 2020 alone34, technology brings both jobs listed directly in our marketplace as well as those from our Job Acquisition Partners together. ZipRecruiter was the canonical source for millions of these jobs, which means a job seeker’s search is incomplete unless they access our marketplace.
•Engaged job seeker community. Over 36 million Active Job Seekers engaged in the ZipRecruiter marketplace in 2020. Those job seekers come to us directly and through our network of well over 1,000 sites managed by our Job Distribution Partners.
•Powerful artificial intelligence powered technology. Our technology captures insights from billions of user interactions facilitated by our marketplace, driving meaningful increases in the quality of matches we can enable over time. We do this by leveraging cutting edge software tools to ingest and analyze candidate behavior, including resume data, searches, and certifications, to find the most relevant jobs for each candidate on the ZipRecruiter network.
•Designed for simplicity and speed. We thrive on taking unnecessarily complex processes and simplifying them. This product design philosophy permeates our entire company. We focus on continually making ZipRecruiter faster and simpler for employers and job seekers to use.
•Metrics-driven culture. We are a metrics and data-driven company. We are disciplined about setting quantitative operating goals and then finding innovative ways to achieve those goals.
•Powerful network effects. The scale of matching activity in our marketplace provides us with a unique and growing data set consisting of billions of signals which help drive superior matching. More jobs, more job seekers, and better matching technology over time create more high-velocity hiring activity in our marketplace, fueling a self-perpetuating cycle of network effects.
•Our brand. Since our founding, we have invested over $600 million in building the ZipRecruiter brand. We are proud that our investment in our brand has led to 82% aided brand awareness among U.S. employers.35
Our Growth Strategy
Our strategy is to use technology to consistently grow our marketplace in three key areas: more jobs, more job seekers, and better matching. These three growth vectors will both directly grow our business and also strengthen the network effects that serve as a competitive advantage. Several specific growth initiatives fit well into our overall strategy:
•Increasing the number of employers in our marketplace. We believe the marketplace we have built serves employers of all sizes, regions and industries. We see an opportunity to continue to meaningfully grow our employer footprint, from small businesses to large global enterprises. There are over 7.5 million employers in the United States alone, of which only approximately 90,000 were active Paid Employers in our marketplace in the fourth quarter of 2020.36 Expanding our base of Paid Employers is a significant growth opportunity.
•Increasing the number of job seekers in our marketplace. We historically focused our marketing efforts on employers. Thus, despite being one of the highest rated sites for job
34 According to internal data tracking the number of unique job postings, based on hiring company, job title, and location, available on our marketplace during 2020.
35 Brand Awareness Survey. For more information about the Brand Awareness Survey, see the section titled “Market and Industry Data.”
36 U.S. Census Bureau.
seekers, we believe there is a significant opportunity to grow our mindshare among job seekers. By being top-of-mind, we believe we can continue to drive a greater volume of Active Job Seekers to our marketplace as well as innovate ways to engage job seekers that are more passively open to evaluating new opportunities.
•Strengthening our artificial intelligence powered technology. Our artificial intelligence and matching algorithms continually improve as we ingest incremental data. The signals across our marketplace train our recommendations, increasing utility for both job seekers and employers. Despite our progress, we believe there remains a significant opportunity to continue to further improve our matching with ongoing investment in technology and an increase in the number and quality of data signals we collect over time.
•Continuing to optimize performance-based pricing. Employers’ willingness to pay for recruitment varies by company and by each job opening. We believe we have multiple pricing optimization opportunities that will provide more flexibility to employers of different sizes. We will also strive to deliver higher levels of service to employers in the marketplace by adding new, innovative features that will create value for the marketplace and will monetize over time. This will enable us to meet employers’ needs while improving Revenue per Paid Employer over time.
•Expanding our global footprint. Beyond the United States, we have already established a presence in Canada and the United Kingdom. Our experience in all three of our existing markets has strengthened our belief that employers and job seekers everywhere can benefit from a simpler and faster hiring process. We believe our strengths as a company, especially our purpose-built technology for bringing job seekers and employers together, can be leveraged in additional markets as we continue to expand our geographic footprint. Many of our over 1,000 Job Distribution Partners already operate in other markets which will accelerate our ability to expand internationally.
•Building an enduring brand. Since our founding, we have invested over $600 million in establishing ZipRecruiter as a go-to brand for anyone that wants to work. We are proud that our investment in our brand has led to an 82% aided brand awareness among U.S. employers. We plan to increase our brand investment to ensure ZipRecruiter further develops as a category-defining, enduring brand for employers and job seekers alike.
Our Competition
Hiring is a vast, competitive, and highly fragmented market. We compete in varying degrees with other online job sites including CareerBuilder, Craigslist, Glassdoor, Indeed, LinkedIn, Monster, and hundreds of others.
Competition for Employers
Employers have a range of options when posting job opportunities. We compete to attract and retain employers to advertise their jobs in our marketplace. We compete for employers based on several factors including the pricing and features of our offerings, the speed of receiving great candidates, the size of our job seeker community, the simplicity of our user experience, and our trusted brand. We believe that our employers are able to cost-effectively attract the right job seekers in our marketplace compared to other online recruiting sites due to the combination of the strength of our marketplace and our diverse pricing models.
Competition for Job Seekers
Job seekers have a variety of choices when searching for their next great job opportunity. We compete for job seekers on many fronts, including our ability to surface unique and attractive jobs, our ability to simplify the hiring process, the transparent feedback job seekers receive on the status of their applications, and our trusted brand. Our marketplace is free to job seekers. We believe our offering to job seekers compares favorably versus alternatives due to the combination of our large and unique pool of
job opportunities to choose from, and our proven matching technology that continues to get smarter over time.
Our Employees and Human Capital Resources
As of December 31, 2020, we had 772 individuals across the United States, primarily in California and Arizona. Internationally, we had 68 employees in the United Kingdom, Canada and Israel. We also engage independent contractors and consultants. Collectively, we view the team at ZipRecruiter as our greatest asset, and we take great pride in having been recognized by Comparably as one of the highest-rated companies for Best Company Culture, Best Companies for Diversity and Best CEO in 2020. In 2019 Fast Company recognized us as one of the World’s Most Innovative Companies.
Several aspects of how we operate our business have been critical to building our team:
•We use ZipRecruiter. We utilize the power of the marketplace we have built to connect to our next great employees.
•We foster an entrepreneurial culture of safety and innovation. We believe a safe professional environment empowers people to take risks and be their best selves. Our employees are encouraged to champion great ideas, embrace innovative approaches, and use data to advocate for their point of view.
•We embrace diversity & inclusion, or D&I: We believe our company is strengthened by a culture that embraces diversity and inclusion. Our employee-led and executive-sponsored Diversity & Inclusion Council drives initiatives around training, recruiting, people analytics, and employee resource groups. Our commitment to D&I is aligned with our mission to actively connect people from all backgrounds to their next opportunity.
•We reward high performance. We focus on attracting and retaining results-oriented employees who are passionate about our mission. We use a variety of compensation tools to reward employees whose achievements exceed our high expectations.
•We are committed to our employee’s career development. We invest in our people so that ZipRecruiter is not just a great place to work, but also a great place to advance and grow a rewarding career.
Go-to-market Strategy
Being top-of-mind when any employer needs to find a new employee or job seekers begin a search for their next great opportunity is critical to our success. Our level of investment in marketing over time reflects the level of importance we place on being synonymous with hiring or getting hired. We have invested over $600 million over the past decade, resulting in 82% aided brand awareness among U.S. employers as of the fourth quarter of 2020.
Many employers self-serve through both purchasing our service and utilizing the tools we provide to post jobs. Additionally, our team of over 400 sales professionals help onboard employers requiring additional assistance to launch and optimize their recruiting campaigns. For larger enterprises with unique needs, our dedicated sales and account management teams utilize their deep industry knowledge to help optimize toward sophisticated performance goals.
Our Technology
Our research and development efforts are focused on delivering great products through data driven systems, machine learning technology, and robust infrastructure to ensure that our marketplace is sophisticated, low latency, resilient, and available to our users at all times.
Our research and development organization is built around small, cross functional development teams, arranged in larger divisions. These development teams foster greater agility, which enables us to
develop new, innovative product features as well as iterate quickly on new capabilities and optimizations. Our development teams design, build and continue to expand our ATS, mobile apps, data processing and analysis pipelines, marketplace functionality, search and matching, email and messaging, and third-party product integrations as well as the software infrastructure that supports best practices such as high frequency deployment, orchestrating containers, and leveraging open-source technologies. Our systems are currently operated entirely on cloud services.
As of December 31, 2020, our technology departments had 223 engineers, product managers and data scientists, primarily located in Santa Monica, California and Tel Aviv, Israel. We intend to continue to invest in our research and development capabilities to extend our marketplace and connect job seekers and employers to a broader range of applications, geographies and customers.
Regulatory Matters
We are subject to many varying laws and regulations in the United States, Canada, the European Union, the United Kingdom and throughout the world, including those related to privacy, data protection, content regulation, intellectual property, consumer protection, e-commerce, marketing, advertising, messaging, rights of publicity, health and safety, employment and labor, product liability, accessibility, competition, and taxation. These laws and regulations are constantly evolving and may be interpreted, applied, created, or amended in a manner that could harm or require us to change our current or future business and operations. In addition, it is possible that certain governments may seek to block or limit our products and services or otherwise impose other restrictions that may affect the accessibility or usability of any or all of our products and services for an extended period of time or indefinitely.
Data Privacy and Security Laws
We are subject to various federal, state and international laws and regulations relating to the privacy and security of consumer, customer and employee personal information. These laws often require companies to implement specific information security controls to protect certain types of data (such as personal data, “special categories of personal data” or health data), and/or impose specific requirements relating to the collection or processing of such data.
In the United States, the Federal Trade Commission, or the FTC, the Department of Commerce, and various states continue to call for greater regulation of the collection of personal data, as well as restrictions for certain targeted advertising practices. Section 5(a) of the FTC Act empowers the agency to enforce against “unfair or deceptive acts or practices in or affecting commerce,” and the FTC has used this authority extensively to hold businesses to fair and transparent privacy and security standards. Numerous states have also enacted or are proposing legislation to enact state-level data privacy laws and regulations governing the collection, use, and processing of state residents’ personal information. For example, the California Consumer Privacy Act, or CCPA, came into force in California in 2020. The CCPA establishes a new privacy framework for covered businesses such as ours, creates new privacy rights for consumers residing in the state, and requires us to modify our data processing practices and policies and incur compliance related costs and expenses. In November 2020, California voters passed the California Privacy Rights and Enforcement Act of 2020, or CPRA, which further expands the CCPA with additional data privacy compliance requirements and rights of California consumers effective January 1, 2023, and establishes a regulatory agency dedicated to enforcing those requirements.
In Canada, the federal Personal Information Protection and Electronic Documents Act, or PIPEDA, sets forth ten principles that are designed to protect the personal information of individuals in Canada, and places obligations on companies that process personal information. PIPEDA applies to organizations that collect, use or disclose personal information in the course of commercial activities, where such activities take place within a Canadian province that does not otherwise have “substantially similar” legislation. Alberta, British Columbia and Québec are the only provinces that have enacted comprehensive private sector privacy statutes that have each been deemed “substantially similar” to PIPEDA. As such, PIPEDA will not apply to commercial organizations operating within Alberta, British
Columbia and Québec, although the data protection obligations throughout Canada are substantially the same.
In the European Union, the General Data Protection Regulation, or the GDPR, became effective on May 25, 2018. The GDPR is intended to create a single legal framework in relation to the collection, control, processing, sharing, disclosure and other use of data relating to an identifiable living individual that applies across all EU member states. However, the GDPR allows for derogations where EU member states can deviate from the requirements in their own legislation, including for example, introducing measures that apply in specific situations and implementing rules regarding legal basis of processing. It is therefore likely that we will need to comply with these local regulations in addition to the GDPR, where we operate or provide services in those EU member state jurisdictions. Local supervisory authorities are able to impose fines for non-compliance and have the power to carry out audits, require companies to cease or change processing, request information, and obtain access to premises. The GDPR created more stringent operational requirements for processors and controllers of personal data, including, for example, granting new rights for data subjects as well as enhancing existing rights, requiring enhanced disclosures to data subjects about how personal data is processed (including information about the profiling of individuals and automated individual decision-making), records of processing activities, limiting retention periods of personal data, requiring mandatory data breach notification to data protection regulators or supervisory authorities (and in certain cases, to the affected individuals), and requiring additional policies and procedures to comply with the accountability principle under the GDPR.
In the United Kingdom, the UK Data Protection Act 2018, is the UK’s implementation of the GDPR, which also became effective on May 25, 2018. However, the UK left the EU on January 31, 2020 and entered a transition period, which ended on December 31, 2020. The UK Government is seeking an adequacy decision from the European Commission. In the absence of adequacy decisions, transfers from the European Economic Area, or EEA, to the UK will need to comply with EU GDPR transfer restrictions, since the UK is currently viewed by the EU as a “third country.” As a result, we now have compliance obligations under the EU’s GDPR and the UK’s GDPR. In addition, the relationship between the UK and the EU in relation to certain aspects of data protection law remains unclear, and there is uncertainty around how UK data protection laws and regulations will develop, for example in relation to data transfers.
In any event, we are subject to laws, rules, and regulations regarding cross-border transfers of personal data, including laws relating to the transfer of personal data outside the EEA and the UK. Recent legal developments in the EEA and the UK have created complexity and uncertainty regarding transfers of personal information from the EEA and the UK to “third countries”, especially the United States. For example, last year the Court of Justice of the European Union, or CJEU, invalidated the EU-U.S. Privacy Shield Framework (a mechanism for the transfer of personal information from the EEA to the United States). The CJEU also made clear that reliance on standard contractual clauses (another mechanism for the transfer of personal data outside the EEA) alone may not be sufficient in all circumstances. We currently rely on standard contractual clauses and these changes are therefore causing us to review our current compliance approach and may result in additional compliance costs or the inability to transfer personal data outside of the EEA and/or the United Kingdom.
We are also subject to evolving EU and UK privacy laws on cookies and e-marketing. In the EU and the UK, regulators are increasingly focusing on compliance with requirements in the online behavioral advertising ecosystem and current national laws that implement the e-Privacy Directive are highly likely to be replaced by an EU regulation known as the e-Privacy Regulation which will significantly increase fines for non-compliance. Informed consent is required for the placement of a cookie or similar technologies on a user’s device and for direct electronic marketing. The GDPR also imposes conditions on obtaining valid consent, such as a prohibition on pre-checked consents and a requirement to ensure separate consents are sought for each type of cookie or similar technology. In addition, the current national laws that implement the e-Privacy Directive are highly likely to be replaced by an EU regulation known as the e-Privacy Regulation which will significantly increase fines for non-compliance. The text of the e-Privacy Regulation is still under development, and recent EU regulatory guidance and court decisions have
created uncertainty about the level to which such laws and regulations will be enforced, which may require us to review our compliance approach and increase compliance costs.
Similarly, other jurisdictions are instituting privacy and data security laws, rules, and regulations, or may do so in the future, which could increase our risk and compliance costs.
Intellectual Property
We rely on a combination of trademarks and trade secrets, as well as contractual provisions and restrictions, to protect our intellectual property.
As of December 31, 2020, we owned two U.S. and 18 international trademark registrations for the mark ZIPRECRUITER. We also own one pending trademark application, and numerous domain names, including www.ziprecruiter.com.
We rely primarily on trade secrets and confidential information to develop and maintain our competitive position. We seek to protect our trade secrets and confidential information through a variety of methods, including confidentiality agreements with employees, third parties, and others who may have access to our proprietary information. We also require employees to sign invention assignment agreements with respect to inventions arising from their employment, and strictly control access to our proprietary technology.
Legal Proceedings
We are and, from time to time, we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are not presently a party to any legal proceedings that in the opinion of our management, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, financial condition, or cash flows.
Facilities
Our corporate headquarters are located in Santa Monica, California, where we currently lease approximately 60,000 square feet under agreements that expire in 2023 and 2025. We also lease facilities in Arizona and Israel. We intend to procure additional space as we add employees and expand geographically. We believe that our facilities are adequate to meet our needs for the immediate future and that suitable additional space will be available to accommodate any expansion of our operations as needed.
MANAGEMENT
Executive Officers, Key Employees, and Directors
The following table provides information regarding our executive officers, key employees, and directors as of March 31, 2021:
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Name
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Age
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Position(s)
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Executive Officers
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Ian Siegel
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47
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Chief Executive Officer and Chairperson of the Board
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Renata Dionello
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46
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Chief People Officer
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Ryan Eberhard
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44
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Chief Product Officer
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Qasim Saifee
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41
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Chief Marketing Officer
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Ryan Sakamoto
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47
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General Counsel and Secretary
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Boris Shimanovsky
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47
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Chief Technology Officer
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David Travers
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44
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Chief Financial Officer
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Timothy Yarbrough
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37
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Chief Business Officer
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Jeff Zwelling
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54
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Chief Operating Officer
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Key Employees
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Marguerite Bui
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54
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Associate General Counsel
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Amy Garefis
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39
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Senior Vice President, Accounting
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Erich Gazaui
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46
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Senior Vice President, Technology Operations
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Jennifer Ringel
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39
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Senior Vice President, Product
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Yaniv Shalev
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43
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Senior Vice President, Engineering
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Elliot Wilson
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39
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Senior Vice President, Sales and Support
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Non-Employee Directors
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Emilie Choi
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42
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Director
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Cipora Herman(1)(2)
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47
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Lead Independent Director
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Blake Irving(2)(3)
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61
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Director
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Brian Lee(1)(3)
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50
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Director
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Eric Liaw(1)(2)
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43
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Director
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(1)Member of the audit committee.
(2)Member of the compensation committee.
(3)Member of the nominating and corporate governance committee.
Executive Officers
Ian Siegel, 47, has served as our President, Chief Executive Officer and member of our board of directors since June 2010. From 1998 to 2001, Mr. Siegel served as the Vice President of Web Development of Stamps.com Inc., an internet-based mailing and shipping services company. From 2001 to 2006, Mr. Siegel served as the Vice President of Web Development at Rent.com, an online apartment marketplace. From 2006 to 2009 Mr. Siegel served as Vice President of Product and Technology of Pictage, Inc., an online platform for photographers. From July 2009 until January 2011 Mr. Siegel served as Chief Product Officer for MyLife.com, an information brokerage firm. Mr. Siegel holds a B.A. in Sociology with a minor in English from Oberlin College. We believe that Mr. Siegel’s experience in the software industry and his perspective and experience as our Chief Executive Officer qualify him to serve on our board of directors.
Renata Dionello, 46, has served as our Chief People Officer since September 2020. From April 2015 to April 2018, Ms. Dionello served as the Head of Strategic Initiatives, and from April 2018 to August 2020 Ms. Dionello served as the Head of Corporate Development, each at Sony Interactive Entertainment, Inc.,
an entertainment company. From 2013 to 2015, Ms. Dionello served as Senior Director and Head of Planning and Strategic Initiatives of eBay Marketplaces at eBay, Inc., an e-commerce company. From 2011 to 2013, Ms. Dionello served as Head of Market Development at PayPal Holdings, Inc., an online payment systems company. From 2009 to 2011, Ms. Dionello served as Chief of Staff to the CEO at eBay, Inc. From 2008 to 2009, Ms. Dionello served as Director of Consumer Business Development at PayPal Holdings, Inc. From 2006 to 2008, Ms. Dionello served as VP of Marketing and Senior Director of Product Management at Pictage, Inc. From 2005 to 2006, Ms. Dionello served as Head of Strategy at Rent.com. From 2002 to 2005, Ms. Dionello served as a Manager of Corporate Strategic Planning at the Walt Disney Company, an entertainment conglomerate. From 1999 to 2000, Ms. Dionello served as a Project Manager at Universal Music Group, a music entertainment company. From 1997 to 1999, Ms. Dionello served as an Associate at Boston Consulting Group, a management consulting firm. Ms. Dionello holds an M.Eng. from the University of Oxford and an M.B.A. from Harvard Business School.
Ryan Eberhard, 44, has served as our Chief Product Officer since July 2019. Prior to assuming his current role, Mr. Eberhard held other management positions with us, including Senior Vice President of Product from July 2017 to July 2019 and Vice President of Product from September 2014 to July 2017. From 2012 to 2014, Mr. Eberhard served as the Chief Executive Officer of Cult Cosmetics, Inc., a social media community for the cosmetics category. From 2010 to 2012, Mr. Eberhard served as Head of eCommerce & Online Marketing at Murad, Inc., a skincare company. From 2007 to 2010, Mr. Eberhard served as Director of Acquisition Products at MyLife.com, Inc. Mr. Eberhard holds a B.S. in Logic and Computation and an M.B.A. from Carnegie Mellon University.
Qasim Saifee, 41, first joined us as Vice President of Marketplace Strategy in June 2018 and has served as our Chief Marketing Officer since January 2020. From February 2017 to June 2018, Mr. Saifee served as Senior Vice President of Publishing at Scopely, Inc., an entertainment and mobile gaming company. From 2008 to February 2017, Mr. Saifee served as Senior Vice President and General Manager of Monetization at OpenX Software Ltd., a programmatic advertising company. From 2005 to 2008, Mr. Saifee served as Senior Director at Yahoo! Inc., a web services provider. From June to August 2004, Mr. Saifee was a consultant at Bain & Company, Inc., a management consulting firm. From 2000 to 2003, Mr. Saifee served as a Senior Analyst of Corporate Strategic Planning at the Walt Disney Company. Mr. Saifee holds a B.S. in Industrial Engineering from Stanford University and an M.B.A. from Harvard Business School.
Ryan Sakamoto, 47, has served as our General Counsel since September 2016 and Secretary since January 2021. From June 2015 to September 2016, Mr. Sakamoto served as General Counsel at Realty Mogul, Co., a real estate investment company. From 2011 to 2015, Mr. Sakamoto served as General Counsel and Chief Administrative Officer at Wedbush, Inc., a financial services and investment firm. From 2006 to 2011, Mr. Sakamoto served as Senior Vice President and General Counsel at Madison Tyler Holdings, LLC, a financial services company. From 2003 to 2004, Mr. Sakamoto served as Vice President and General Counsel at Coast Asset Management, LLC, an investment bank. From 2001 to 2003, Mr. Sakamoto worked as an attorney at McDermott, Will & Emery LLP, a law firm. From 1998 to 2001, Mr. Sakamoto worked as an attorney at Riordan & McKinzie LLP, a law firm. Mr. Sakamoto holds an A.B. in Social Studies from Harvard University, an M.B.A. from the University of California, Los Angeles, Anderson School of Management, and a J.D. from University of California, Berkeley School of Law.
Boris Shimanovsky, 47, has served as our Chief Technology Officer since June 2020. From April to June 2020, Mr. Shimanovsky served as Senior Vice President of Engineering at Foursquare Labs, Inc., a location data platform. From August 2008 to April 2020, Mr. Shimanovsky served as the Chief Technology Officer at Factual, Inc., a location data company. From 1998 to 2008, Mr. Shimanovsky served as Chief Technology Officer at Xap Corporation, an education company. From 1995 to 1998, Mr. Shimanovsky co-founded and worked at Chronos Software Group, a company that operated a suite of websites focused on software. Mr. Shimanovsky holds a B.S. in Physiological Science and an M.S. in Computer Science from the University of California, Los Angeles.
David Travers, 44, has served as our Chief Financial Officer since December 2015. Mr. Travers is the Managing Partner of Basepoint Ventures, where he has served since August 2014, and is a Partner at Rustic Canyon Partners, where he has served since 2005, both of which are venture capital firms. From 2002 to 2003, Mr. Travers served as an Executive Assistant to the National Security Advisor in the White House. From 1999 to 2002, Mr. Travers served as a Strategic Planning Senior Analyst at the Walt Disney Company. Mr. Travers holds a B.A. in International Relations from Stanford University and an M.B.A. from Harvard Business School.
Timothy Yarbrough, 37, has served as our Chief Business Officer since September 2020. Prior to assuming his current role, Mr. Yarbrough held other management positions with us, including Senior Vice President of Finance from February 2017 to September 2020 and Vice President of Finance from November 2014 to January 2017. From 2013 to 2014, Mr. Yarbrough served as the Director of Finance at Convertro, Inc., a business intelligence platform. Mr. Yarbrough previously has also held multiple financial, strategic and operational positions across several business segments at Qualcomm Inc., a semiconductor and telecommunications company, including as a Manager of Financial Planning and Analysis from 2011 to 2013, Finance Manager in Wireless Connectivity from 2009 to 2011, and as a Strategy & Finance Professional in the Strategic Finance group of FLO TV (a subsidiary of Qualcomm) from 2006 to 2009. Mr. Yarbrough holds a B.S. in Accounting from Oral Roberts University and an M.B.A. from the University of Wisconsin-Madison School of Business.
Jeff Zwelling, 54, has served as our Chief Operating Officer since January 2015. From 2009 to 2014, Mr. Zwelling served as the Chief Executive Officer of Convertro, Inc. From 2001 to 2008, Mr. Zwelling served as the Chief Executive Officer of YDesign Group, LLC, a retailer of modern lighting. From 2005 to 2006, Mr. Zwelling served as the President of EchoSign, Inc., an on-demand sales tool for contract management. From 2000 to 2005, Mr. Zwelling served as President of Pathway Ventures LLC, a strategic consulting firm. From 1999 to 2000, Mr. Zwelling served as Director of Business Strategy at GeoCities, a web hosting service. From 1995 to 1999, Mr. Zwelling served as Head of Product Development, Producer, and Executive Producer at Crystal Dynamics, Inc., a video game company. From 1994 to 1995, Mr. Zwelling was an intellectual property attorney at Loeb & Loeb LLP, a law firm. Mr. Zwelling holds a B.A. from the University of California, Los Angeles and a J.D. from the University of San Francisco Law School.
Key Employees
Marguerite Bui, 54, and has served as our Associate General Counsel since October 2018. Ms. Bui previously served as our Vice President and Senior Counsel from May 2017 to September 2018. From 2003 to May 2017, Ms. Bui served as Corporate Counsel for the Automobile Club of Southern California, an American Automobile Association affiliate. From 2000 to 2003, Ms. Bui served as a Partner at Perkins Coie LLP, a law firm. From 1994 to 2000, Ms. Bui served as an Associate and Partner at Loeb & Loeb LLP, a law firm. From 1991 to 1994, Ms. Bui served as an Associate at Latham & Watkins LLP, a law firm. Ms. Bui holds a B.A. in Economics and East Asian Studies from Stanford University and a J.D. from the University of California, Berkeley, School of Law.
Amy Garefis, 39, has served as Senior Vice President and our Controller since November 2013. From 2011 to 2013, Ms. Garefis served as Vice President and Controller at Wedbush Securities, Inc., a financial services and investment firm. From 2008 to 2011, Ms. Garefis worked as an Accounting Manager at Sony Pictures Entertainment, Inc., an entertainment company. From 2002 to 2008, Ms. Garefis served as an Accounting Manager at Montgomery & Co., LLC, an investment bank. Ms. Garefis is a Certified Public Accountant and holds a B.A. in Economics from the University of California, Santa Barbara.
Erich Gazaui, 46, has served as our Senior Vice President of Technology Operations since January 2020 and as our Vice President, Technology Operations from April 2019 to December 2019. From June 2018 to February 2019, Mr. Gazaui served as the Chief Information Officer at Fashion Nova, Inc., a retail company. From September 2017 to June 2018, Mr. Gazaui served as the Chief Information Officer and
from September 2016 to September 2017 served as Vice President, Business Systems at Loot Crate, Inc., a pop culture subscription service. From 2015 to September 2016, Mr. Gazaui served as the Executive Director of Technology Services at Beachbody LLC, a health and fitness company. From 2011 to 2015, Mr. Gazaui served as Senior Director of the Enterprise Platform at TrueCar, Inc., an online automotive marketplace. From 2005 to 2011, Mr. Gazaui served as President at Chartscape, LLC, an electronic medical records firm. Mr. Gazaui also founded and worked at NDP Managed Security, a security firm, from 1998 to 2005. Mr. Gazaui holds a B.A. in Economics from the University of California, San Diego.
Jennifer Ringel, 38, has served as our Senior Vice President of Product Management since January 2021. Ms. Ringel previously served as our Vice President of Product Management from July 2018 to January 2021, our Senior Director of Product Management from July 2017 to June 2018, our Director of Product Management from July 2016 to July 2017, and our Senior Product Manager from March 2015 to June 2016. From 2012 to 2015, Ms. Ringel was the Co-Founder and Chief Executive Officer of MomAssembly, an education platform for mothers. From 2011 to 2012, Ms. Ringel served as a Principal at Brave New Ventures LLC, a venture capital firm. From 2004 to 2011, Ms. Ringel served as a Senior Project Manager at MTV New Media and a Film Development Coordinator at MTV Films, both of which are entertainment companies and subdivisions of ViacomCBS Inc. Ms. Ringel holds an A.B. in Sociology from Harvard University.
Yaniv Shalev, 43, has served as our Senior Vice President of Engineering since March 2017. From 2015 to March 2017, Mr. Shalev served as Vice President of AOL Inc., a web services provider. From 2011 to 2015, Mr. Shalev held multiple positions at Convertro, Inc., including as Director of Engineering and Chief Technology Officer. From 2008 to 2011, Mr. Shalev served as a Manager and Architect at LivePerson Inc., an artificial intelligence company. From 2004 to 2008, Mr. Shalev served as a Manager and Architect at Orange S.A., a telecommunications company. From 2001 to 2004, Mr. Shalev served as a Senior Developer at Amdocs Limited, a software services provider. From 2000 to 2001, Mr. Shalev served as an Engineer for Aliroo Ltd., a software company. Mr. Shalev holds a B.S.C. in Mathematics and Computer Science from Bar-Ilan University.
Elliot Wilson, 39, has served as our Senior Vice President of Sales and Support since September 2020. Mr. Wilson previously served as our Senior Vice President of Operations from March 2019 to September 2020, our Vice President of Operations from November 2017 to March 2019, and our Director of Strategic Operations from February 2017 to November 2017. From July 2016 to February 2017, Mr. Wilson served as the Area Director of Distribution for the Reno, Nevada area at Sherwin-Williams Company, a paint and coating manufacturing company. From 2009 to 2015, Mr. Wilson held several positions at Lovejoy, Inc., a power transmission equipment manufacturer, including as President, General Manager, and Director of Operations. From 2007 to 2009, Mr. Wilson served as Senior Product Manager at Pictage, Inc. From 2004 to 2007, Mr. Wilson served as a Project Manager for the U.S. Air Force. Mr. Wilson holds a B.S. in Computer Engineering from the U.S. Air Force Academy, a M.S. in Systems Engineering from Loyola Marymount University, and an M.B.A. from Loyola Marymount University, College of Business Administration.
Non-Employee Directors
Emilie Choi, 42, has served as a member of our board of directors since April 2018. Ms. Choi currently serves as President and Chief Operating Officer at Coinbase Global, Inc., where she has worked since March 2018, previously as Vice President of Corporate and Business Development from March 2018 until May 2019. Ms. Choi also serves as a member of the board of directors of Naspers Limited and Prosus N.V., a subsidiary of Naspers Limited. Previously, Ms. Choi served as the Vice President and Head of Corporate Development at LinkedIn Corp. from December 2009 to March 2018. Ms. Choi served as a Manager of Corporate Business Development and Strategy from 2007 to 2008 and as Director of Digital Business Strategy and Operations from 2008 to 2009 at Warner Bros. Entertainment, Inc. from 2007 to 2009. Ms. Choi also served as a Senior Analyst of Corporate Development and Strategy at Yahoo!, Inc. from 2003 to 2005, and as a Senior Analyst in Investment
Banking at Legg Mason Wood Walker, Inc. from 2000 to 2003. Ms. Choi holds a B.A. in Economics from Johns Hopkins University and an M.B.A from the Wharton School. Ms. Choi was selected to serve on our board of directors because of her operational expertise and management experience.
Cipora Herman, 47, has served as a member of our board of directors since October 2018. Since January 2021, Ms. Herman has served as the Chief Financial Officer for LA28, The Los Angeles Organizing Committee for the Olympic and Paralympic Games 2028. She has served as a philanthropic and executive adviser to the Global Sports Initiative, Athlete’s Voices at Harvard University since June 2020. Ms. Herman has served as a member of the board of directors of Opendoor Technologies, Inc., an online real estate company, since December 2020, and previously served on the board of directors for Social Capital Hedosophia Holdings Corp II, a special purpose acquisition corporation that merged with Opendoor Technologies in December 2020. Ms. Herman also previously served on the board of directors of MINDBODY, Inc., a software-as-a-service company from October 2016 to February 2019, and Memery, Inc., a technology startup, from April 2015 to January 2021. From February 2017 until June 2018, Ms. Herman served as Chief Financial Officer of Mori, Inc., a social e-reader platform. From October 2012 to April 2016, Ms. Herman served as the Chief Financial Officer of the National Football League’s San Francisco 49ers, a professional sports team. From 2007 to 2012, Ms. Herman served as the Vice President & Treasurer of Facebook, Inc., a social media company. From 2003 to 2007, Ms. Herman held several positions at Yahoo!, Inc., a web services provider, including Director of Corporate Treasury, Assistant Treasurer, and Vice President of Finance and Treasurer. From 1996 to 2003, Ms. Herman held finance positions at Franklin Templeton Investments, an investment firm, Hewlett-Packard Company, a public hardware technology and services company, Agilent Technologies, an analytical instrumentation development and manufacturing company, and Siebel Systems, Inc., a software company. Ms. Herman holds a A.B. in International Relations, a M.A. in International Development Policy and an M.B.A, each received from Stanford University. Ms. Herman was selected to serve on our board of directors because of her financial expertise and experience as a director of publicly and privately held companies.
Blake Irving, 61, has served as a member of our board of directors since October 2018. Mr. Irving currently serves as a member of the board of directors of Autodesk and DocuSign, Inc. and is an advisor to the McLaren Formula One team. From 2012 to January 2018, Mr. Irving served as the CEO of GoDaddy, Inc., a domain registrar and web hosting company. From 2010 to 2012, Mr. Irving served as Executive Vice President and Chief Product Officer at Yahoo!, Inc., a web services company. From 2009 to 2010, Mr. Irving served as a professor at Pepperdine’s Graziadio Business School. From 1992 to 1998, Mr. Irving served as General Manager, and from 1999 to 2007 Mr. Irving served as Corporate Vice President of Global Cloud Platforms, each at Microsoft Corporation, a technology company. Mr. Irving holds a B.A. in Art from San Diego State University and an M.B.A. from Pepperdine Graziadio Business School. Mr. Irving was selected to serve on our board of directors because of his experience in management and as a director of publicly held technology companies.
Brian Lee, 50, has served as a member of our board of directors since April 2015. Mr. Lee is the co-founder and Managing Director of BAM Ventures and has served in this capacity since 2015, and currently serves as a board member at the Lowell Milken Institute of Business Law and Policy at the University of California, Los Angeles. Mr. Lee has founded and served as CEO or President of several companies. Mr. Lee co-founded The Honest Co., a consumer goods company, where he served as Chief Executive Officer from 2013 to May 2017. In 2009, Mr. Lee co-founded ShoeDazzle.com Inc., an ecommerce website for women’s shoes, where he served as Chief Executive Officer. In 2000, Mr. Lee co-founded LegalZoom.com, Inc., an online legal services platform, where he served as the company’s President. Mr. Lee holds a B.A. in Economics and Business and a J.D., each from the University of California, Los Angeles. Mr. Lee was selected to serve on our board of directors because of his expertise in building and operating companies as a serial entrepreneur.
Eric Liaw, 43, has served as a member of our board of directors since August 2014. Mr. Liaw is a General Partner at Institutional Venture Partners, or IVP, a venture capital and private equity firm, where he has worked since 2011. Mr. Liaw serves on the boards of directors of a number of privately held
companies. Mr. Liaw previously served as a member of the board of directors of MINDBODY, Inc., a software-as-a-service company, from 2014 to 2019. MINDBODY was publicly traded from 2015 to 2019. From 2003 to 2011, Mr. Liaw served as Vice President at Technology Crossover Ventures, a venture capital firm. From 2001 to 2003, Mr. Liaw served as a Technology Investment Banker at Morgan Stanley, an investment bank. Mr. Liaw holds a B.A. in Economics with a minor in Computer Science and an M.S. in Management Science and Engineering from Stanford University. Mr. Liaw was selected to serve on our board of directors because of his experience in the venture capital industry and as a director of both publicly and privately held technology companies.
Appointment of Officers
Our executive officers are appointed by, and serve at the discretion of, our board of directors. There are no family relationships among any of our executive officers or directors.
Board of Directors Composition
Our board of directors currently consists of six members. Pursuant to our restated certificate of incorporation, as in effect prior to the effectiveness of the registration statement of which this prospectus forms a part, and amended and restated voting agreement, Mr. Siegel, Mr. Liaw, Ms. Choi, Mr. Irving, Mr. Lee, and Ms. Herman have been designated to serve as members of our board of directors. Pursuant to our amended and restated voting agreement (1) the seat occupied by Mr. Siegel is elected by the holders of a majority of our Class A common stock, voting exclusively and as a separate series, as the designees of the holders of our Class A common stock, (2) the seat occupied by Mr. Lee is elected by the holders of a majority of our preferred stock, voting exclusively and as a separate class, as the designee of the holders of preferred stock, (3) the seat occupied by Mr. Liaw is elected by the holders of a majority of our preferred stock, voting exclusively and as a separate class, as the designee of Institutional Venture Partners XIV, L.P. and (4) the seats occupied by Ms. Choi, Mr. Irving, and Ms. Herman are elected by the holders of a majority of our Class A common stock and preferred stock, as the designees of the holders of our Class A common stock and preferred stock.
The provisions of our restated certificate of incorporation and the amended and restated voting agreement by which the directors are currently elected will terminate shortly following the effectiveness of the registration statement of which this prospectus forms a part and there will be no contractual obligations regarding the election of our directors. Each of our current directors will continue to serve until the election and qualification of his or her successor, or his or her earlier death, resignation, or removal.
Classified Board of Directors
In accordance with our restated certificate of incorporation that will be effective shortly following the effectiveness of the registration statement of which this prospectus forms a part, our board of directors will be divided into three classes with staggered three-year terms. Upon expiration of the term of a class of directors, directors for that class will be elected for three-year terms at the annual meeting of stockholders in the year in which that term expires. As a result, only one class of directors will be elected at each annual meeting of our stockholders, with the other classes continuing for the remainder of their respective three-year terms. Each director’s term will continue until the election and qualification of his or her successor, or his or her earlier death, resignation, or removal. Our directors will be divided among the three classes as follows:
•Class I directors, whose initial term will expire at the annual meeting of stockholders to be held in 2022, will consist of Ian Siegel and Cipora Herman;
•Class II directors, whose initial term will expire at the annual meeting of stockholders to be held in 2023, will consist of Brian Lee and Eric Liaw; and
•Class III directors, whose initial term will expire at the annual meeting of stockholders to be held in 2024, will consist of Blake Irving and Emilie Choi.
Our restated certificate of incorporation and restated bylaws that will be effective shortly following the effectiveness of the registration statement of which this prospectus forms a part, provide that only our board of directors may fill vacancies on our board. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the total number of directors.
The classification of our board of directors may have the effect of delaying or preventing changes in our control or management. See the section titled “Description of Capital Stock—Anti-Takeover Provisions—Restated Certificate of Incorporation and Restated Bylaws Provisions” for additional information.
Director Independence
Our Class A common stock will be listed on the New York Stock Exchange. Under the rules of the New York Stock Exchange, independent directors must comprise a majority of a listed company’s board of directors within a specified period of such company’s listing of its shares. In addition, rules require that, subject to specified exceptions, each member of a listed company’s audit, compensation, and nominating and corporate governance committees be independent. Under the rules of the New York Stock Exchange, a director will only qualify as an “independent director” if, in the opinion of that company’s board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
Audit committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Exchange Act. In order to be considered independent for purposes of Rule 10A-3, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the board of directors, or any other board committee: (1) accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the listed company or any of its subsidiaries; or (2) be an affiliated person of the listed company or any of its subsidiaries. We intend to satisfy the audit committee independence requirements of Rule 10A-3 as of the effectiveness of the registration statement of which this prospectus forms a part.
Our board of directors has undertaken a review of the independence of each director and considered whether each director has a material relationship with us that could compromise his or her ability to exercise independent judgment in carrying out his or her responsibilities. As a result of this review, our board of directors determined that each of Emilie Choi, Cipora Herman, Blake Irving, Brian Lee, and Eric Liaw are “independent directors” as defined under the applicable rules and regulations of the SEC and the listing requirements and rules of the New York Stock Exchange. In making these determinations, our board of directors reviewed and discussed information provided by the directors and us with regard to each director’s business and personal activities and current and prior relationships as they may relate to us and our management, including the beneficial ownership of our capital stock by each non-employee director and the transactions involving them described in the section titled “Certain Relationships and Related Party Transactions.”
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, each of which will have the composition and responsibilities described below. Members serve on these committees until their resignation or until otherwise determined by our board of directors. Each committee will operate under a written charter approved by our board of directors that satisfies the applicable rules of the SEC and the listing standards of the New York Stock Exchange. Copies of each committee’s charter will be posted on the Investor Relations section of our website.
Audit Committee
Our audit committee is comprised of Brian Lee, Cipora Herman, and Eric Liaw. Ms. Herman is the chairperson of our audit committee. Ms. Herman, Mr. Lee and Mr. Liaw each meet the requirements for independence under the current New York Stock Exchange listing standards and SEC rules and regulations. In addition, our board of directors has determined that Ms. Herman is an “audit committee financial expert” as defined in Item 407(d) of Regulation S-K promulgated under the Securities Act. This designation does not impose on her any duties, obligations, or liabilities that are greater than are generally imposed on members of our audit committee and our board of directors. Each member of our audit committee is financially literate. Our audit committee is directly responsible for, among other things:
•selecting a firm to serve as the independent registered public accounting firm to audit our consolidated financial statements;
•ensuring the independence of the independent registered public accounting firm;
•discussing the scope and results of the audit with the independent registered public accounting firm and reviewing, with management and that firm, our interim and year-end operating results;
•establishing procedures for employees to anonymously submit concerns about questionable accounting or audit matters;
•considering the adequacy of our internal controls and internal audit function;
•inquiring about significant risks, reviewing our policies for risk assessment and risk management, and assessing the steps management has taken to control these risks;
•reviewing and overseeing our policies related to compliance risks;
•reviewing related party transactions that are material or otherwise implicate disclosure requirements; and
•approving or, as permitted, pre-approving all audit and non-audit services to be performed by the independent registered public accounting firm.
Compensation Committee
Our compensation committee is comprised of Eric Liaw, Cipora Herman, and Blake Irving. Mr. Liaw is the chairperson of our compensation committee. The composition of our compensation committee meets the requirements for independence under the current New York Stock Exchange listing standards and SEC rules and regulations. Each member of this committee is a non-employee director, as defined in Rule 16b-3 promulgated under the Exchange Act. Our compensation committee is responsible for, among other things:
•reviewing and approving, or recommending that our board of directors approve, the compensation and the terms of any compensatory agreements of our executive officers;
•reviewing and recommending to our board of directors the compensation of our directors;
•administering our stock and equity incentive plans;
•reviewing and approving, or making recommendations to our board of directors with respect to, incentive compensation and equity plans; and
•establishing our overall compensation philosophy.
Nominating and Corporate Governance Committee
Our nominating and corporate governance committee is comprised of Blake Irving and Brian Lee. Mr. Irving is the chairperson of our nominating and corporate governance committee. The composition of our nominating and corporate governance committee meets the requirements for independence under the current New York Stock Exchange listing standards and SEC rules and regulations. Our nominating and corporate governance committee is responsible for, among other things:
•identifying and recommending candidates for membership on our board of directors;
•recommending directors to serve on board committees;
•reviewing and recommending our corporate governance guidelines and policies;
•reviewing succession plans for senior management positions, including the chief executive officer;
•reviewing proposed waivers of the code of business conduct and ethics for directors, executive officers, and employees (with waivers for directors or executive officers to be approved by the board of directors);
•evaluating, and overseeing the process of evaluating, the performance of our board of directors and individual directors; and
•advising our board of directors on corporate governance matters.
Board Diversity
Each year, our nominating and corporate governance committee will review, with the board of directors, the appropriate characteristics, skills, and experience required for the board of directors as a whole and its individual members. In evaluating the suitability of individual candidates, our nominating and corporate governance committee will consider factors including, without limitation, an individual’s character, integrity, judgment, potential conflicts of interest, other commitments, and diversity. While we have no formal policy regarding board diversity for our board of directors as a whole nor for each individual member, the nominating and corporate governance committee does consider such factors as gender, race, ethnicity and experience, area of expertise, as well as other individual attributes that contribute to the total diversity of viewpoints and experience represented on the board of directors.
Code of Business Conduct and Ethics
Our board of directors has adopted a code of business conduct and ethics that applies to all of our employees, officers, and directors upon the effectiveness of the registration statement of which this prospectus forms a part. The full text of our code of business conduct and ethics will be posted on the Investor Relations section of our website. The reference to our website address in this prospectus does not include or incorporate by reference the information on our website into this prospectus. We intend to disclose future amendments to certain provisions of our code of business conduct and ethics, or waivers of these provisions, on our website or in public filings.
Compensation Committee Interlocks and Insider Participation
None of the members of our compensation committee is or has been an officer or employee of our company. None of our executive officers currently serves, or during the year ended December 31, 2020 served, as a member of the board of directors, or as a member of the compensation or similar committee, of any entity that has one or more of its executive officers serving on our board of directors or compensation committee.
Non-Employee Director Compensation
The table below provides information regarding the total compensation of the non-employee members of our board of directors who served on our board of directors during the year ended December 31, 2020. All compensation that we paid to Mr. Siegel, our only employee director, is set forth in the table below in “Executive Compensation—Summary Compensation Table.” During the year ended December 31, 2020, we did not pay any fees to, make any equity awards or non-equity awards to, or pay any other compensation to the non-employee members of our board of directors.
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Name
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Fees Earned or Paid in Cash
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Option Awards(1)(2)
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Stock Awards
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Total
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Emilie Choi
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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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$
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—
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Cipora Herman
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—
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—
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—
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—
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|
Blake Irving
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—
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—
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—
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|
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—
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Brian Lee
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—
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|
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—
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|
|
—
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|
|
—
|
|
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Eric Liaw
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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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—
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|
____________
(1)The following table sets forth information the aggregate number of shares of our common stock underlying outstanding stock options held by our non-employee directors as of December 31, 2020 and the aggregate number of unvested shares of our common stock underlying outstanding stock options held by our non-employee directors as of December 31, 2020:
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Name
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Number of Shares Underlying Stock Options Granted in the Year Ended December 31, 2020
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Number of Shares Underlying Stock Options Held as of December 31, 2020
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Number of Shares Underlying Unvested Stock Options Held as of December 31, 2020
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Number of Shares Underlying RSUs Held as of December 31, 2020
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Emilie Choi
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—
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|
220,000
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73,334
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—
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Cipora Herman
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—
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|
220,000
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|
|
100,834
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|
|
3,350
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Blake Irving
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—
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|
220,000
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|
|
100,834
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1,420
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Brian Lee
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—
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|
220,000
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|
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—
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|
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4,540
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Eric Liaw
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—
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|
—
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|
—
|
|
—
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(2)The amounts reported in the “Option Awards” column in the table above represent the grant date fair value of the stock options granted to our non-employee directors during the year ended December 31, 2020 as computed in accordance with FASB Accounting Standards Codification Topic 718. The assumptions used in calculating the grant date fair value of the stock options reported in the Option Awards column are set forth in Note 13 of the notes to our consolidated financial statements included elsewhere in this prospectus. Note that the amounts reported in this column reflect the accounting cost for these stock options and do not correspond to the actual economic value that may be received by our non-employee directors from the stock options.
Non-Employee Director Compensation Policy
Before the effectiveness of the registration statement of which this prospectus forms a part, we did not have a formal policy to provide any cash or equity compensation to our non-employee directors for their service on our board of directors or committees of our board of directors. Our board of directors has approved a non-employee director compensation policy, pursuant to which our non-employee directors will be eligible to receive certain cash retainers and equity awards. This policy is designed to attract, retain and reward non-employee directors.
Under this non-employee director compensation policy, each non-employee director will receive the cash and equity compensation for board services described below. We also will continue to reimburse our non-employee directors for reasonable, customary and documented travel expenses to board of directors meetings. The policy provides that in any fiscal year, no non-employee director may be issued cash
payments and equity awards with a combined value greater than $750,000. The maximum limits do not reflect the intended size of any potential compensation or equity awards to our non-employee directors.
Cash Compensation
Effective as of the effective date of the policy, each of our non-employee directors shall receive the following annual fees, which shall be paid quarterly in arrears and shall be pro-rated for partial quarters served, including for the initial quarter in which the policy was adopted:
•General Board Service Fee: $50,000
•Non-Executive Chairperson Fee (in addition to General Board Service Fee; in lieu of Lead Independent Director Service Fee set forth below): $30,000
•Lead Independent Director Service Fee (in addition to General Board Service Fee; not in addition to Non-Executive Chairperson Fee): $10,000
•Committee Chair Service Fee (in addition to General Board Service Fee):
◦Audit Committee chair: $20,000
◦Compensation Committee chair: $16,000
◦Nominating and Governance Committee chair: $10,000
Equity Compensation
Initial Award. Each new non-employee director appointed to our board of directors following this listing will be granted on the date of the non-employee director’s appointment to our board of directors a grant of RSUs, or the Initial Award, with an aggregate value of $155,000. The number of shares subject to the Initial Award will be determined by dividing the value of the Initial Award by the average fair market value of a share of our Class A common stock for the 10 business days ending on the day preceding the grant date of the Initial Award, rounded down to the nearest whole share. The Initial Award will vest as to one-third of the shares subject to the Initial Award on the earlier of (1) each annual anniversary of the grant date of the Initial Award or (2) each annual meeting of our stockholders following the grant date of the Initial Award, in each case, so long as the non-employee director continues to provide services to the us through such date. In the event of a Corporate Transaction, as defined in our 2021 Plan, each outstanding Initial Award will vest in full.
Annual Award. On the date of each annual meeting of our stockholders (commencing with the first annual meeting of our stockholders following this listing), each non-employee director who is serving on our board of directors prior to, and will continue to serve on our board of directors following, such annual meeting will receive a grant of RSUs, or an Annual Award, covering a number of shares of our Class A common stock with an aggregate value of $155,000. The number of shares subject to the Annual Award will be determined by dividing the value of the Annual Award by the average fair market value of a share of our Class A common stock for the 10 business days ending on the day preceding the grant date of the Annual Award, rounded down to the nearest whole share. Each Annual Award shall fully vest on the earlier of (1) the date of the next annual meeting of our stockholders and (2) the date that is one year following the grant date of the Annual Award, in each case, so long as the non-employee director continues to provide services to us through the applicable vesting date. In the event of a Corporate Transaction, as defined in our 2021 Plan, each outstanding Annual Award will vest in full.
Employee directors will receive no additional compensation for their service as a director.
EXECUTIVE COMPENSATION
As an “emerging growth company,” we have opted to comply with the executive compensation disclosure rules applicable to “smaller reporting companies,” as such term is defined in the rules promulgated under the Securities Act. This section provides an overview of the compensation awarded to, earned by, or paid to each individual who served as our principal executive officer during the year ended December 31, 2020, and our next two most highly compensated executive officers in respect of their service to our company during the year ended December 31, 2020. We refer to these individuals as our named executive officers. Our named executive officers for the year ended December 31, 2020 who appear in the 2020 Summary Compensation Table are:
•Ian Siegel, our Chief Executive Officer;
•Boris Shimanovsky, our Chief Technology Officer; and
•Renata Dionello, our Chief People Officer
2020 Summary Compensation Table
The following table presents summary information regarding the total compensation for services rendered in all capacities that was awarded to and earned by our named executive officers during the year ended December 31, 2020.
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Name and Principal
Position(1)
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Fiscal
Year
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Salary
($)
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Bonus
($)
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Stock Awards ($)(2)
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Option Awards ($)
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Non-
Equity
Incentive
Plan
Compensation
($)(3)
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All
Other compensation ($)(4)
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Total
($)
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Ian Siegel
Chief Executive Officer
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2020
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458,333
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|
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—
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|
|
|
—
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|
|
—
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|
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160,417
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|
|
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7,885
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|
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626,635
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Boris Shimanovsky
Chief Technology Officer
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|
2020
|
|
179,105
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100,000
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(5)
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|
2,546,495
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|
|
—
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|
|
62,655
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(6)
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|
3,148
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|
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2,891,403
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Renata Dionello
Chief People Officer
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2020
|
|
107,240
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|
|
—
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|
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|
2,289,596
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|
|
—
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|
|
37,413
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|
(7)
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|
2,177
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|
|
2,436,426
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________________
(1)Mr. Shimanovsky and Ms. Dionello joined us in June 2020 and September 2020, respectively.
(2)The amounts reported in the “Stock Awards” column represent the grant date fair value of restricted stock units, or RSUs, granted to our named executive officers during Fiscal Year 2020 as computed in accordance with FASB ASC Topic 718 and excluding the effect of estimated forfeitures. Note that the amounts reported in this column reflect the accounting cost for these RSUs and do not correspond to the actual economic value that may be received by our named executive officers from such RSUs. The grants made in this column reflect equity awards granted pursuant to the terms of the offer letter for each named executive officer.
(3)The amounts reported represent performance-based cash bonuses under our Annual Incentive Plan. For additional information regarding non-equity incentive plan compensation, see the section titled “—Non-Equity Incentive Plan Compensation.”
(4)The amounts reported represent internet allowances, medical waiver, commuter allowances, cellphone allowances, and contributions to our 401(k) plan.
(5)The amount reported represents a sign-on bonus paid upon the commencement of Mr. Shimanovsky’s employment with us pursuant to the terms of Mr. Shimanovsky’s offer letter.
(6)The amount reported for Mr. Shimanovsky’s cash bonus amount equaled 140% of his target level of annual bonus, prorated based on his partial year of service as our Chief Technology Officer.
(7)The amount reported for Ms. Dionello’s cash bonus amount equaled 140% of her target level of annual bonus, prorated based on her partial year of service as our Chief People Officer.
Non-Equity Incentive Plan Compensation
For the year ended December 31, 2020, each of our named executive officers was eligible to receive a cash bonus based on our achievement of certain performance metrics established by the compensation committee of our board of directors, including certain corporate and individual performance goals. The compensation committee established target and maximum levels of performance for each metric and following the year ended December 31, 2020, reviewed the level of achievement of each performance
goal against the pre-established targets, and approved the payment of the bonuses set forth in the 2020 Summary Compensation Table above.
Executive Employment Arrangements
We have entered into amended and restated offer letters with our named executive officers in connection with this listing. These offer letters provide for at-will employment and provide that each named executive officer shall receive an annual base salary subject to periodic review, standard employee benefit plan participation, and change in control and severance payment benefits pursuant to a change in control and severance agreement.
CEO Letter Agreement
In April 2021, we entered into a letter agreement with Ian Siegel, our chief executive officer, which provides that, upon the earliest to occur of (1) (a) the first trading day following our initial public offering or direct listing pursuant to an effective registration statement under the Securities Act or (b) the consummation of a merger, acquisition or other business combination involving us and a publicly traded special purpose acquisition company, that results in us or our business becoming a publicly traded company or (2) a Change of Control, as defined in the 2014 Plan, Mr. Siegel will be entitled to a special cash bonus in an amount equal to $10.0 million, provided that Mr. Siegel is employed by us at the time of either event.
Equity Compensation
From time to time, we have granted equity awards in the form of stock options or RSUs, to our named executive officers, which are generally subject to vesting based on each of our named executive officer’s continued service with us. Two of our named executive officers, Boris Shimanovsky and Renata Dionello, currently hold outstanding RSUs for our Class B common stock that were granted under our 2014 Plan, as set forth in the “—Outstanding Equity Awards at Year-End Table” below.
CEO Restricted Stock Award
In April 2021, we issued an RSU award, or the CEO Grant, to Ian Siegel, our chief executive officer, which provides for a grant of 1,398,000 RSUs. The CEO Grant will be eligible to vest based on the achievement of certain performance milestones, as further described below, subject to a minimum period of service as described therein, while Mr. Siegel remains our chief executive officer and before the expiration date, as described therein, or earlier termination thereof pursuant to the terms of the 2014 Plan or the CEO Grant.
The performance milestones, which are further described in the CEO Grant, are as follows:
•If the liquid price per share, as defined in the CEO Grant, is at least 2.7 times the reference price, as defined in the CEO Grant, 20% of the RSUs subject to the CEO Grant will vest; provided that the minimum service period, as defined in the CEO Grant, is satisfied through the first anniversary of the grant date, as defined in the CEO Grant.
•If the liquid price per share is at least 3.3 times the reference price, 20% of the RSUs subject to the CEO Grant will vest; provided that the minimum service period is satisfied through the second anniversary of the grant date.
•If the liquid price per share is at least 4.1 times the reference price, 20% of the RSUs subject to the CEO Grant will vest; provided that the minimum service period is satisfied through the third anniversary of the grant date.
•If the liquid price per share is at least 5.1 times the reference price, 20% of the RSUs subject to the CEO Grant will vest; provided that the minimum service period is satisfied through the fourth anniversary of the grant date.
•If the liquid price per share is at least 6.3 times the reference price, 20% of the RSUs subject to the CEO Grant will vest; provided that the minimum service period is satisfied through the fifth anniversary of the grant date.
Potential Payments upon Change of Control
We have entered into change in control and severance agreements with each of our executive officers, including our named executive officers, which provide for the following benefits if the executive is terminated by us without cause (as such term is defined in the change in control and severance agreement) outside of a change in control (as such term is defined in the change in control and severance agreement) in exchange for a customary release of claims: (1) a lump sum severance payment of six months’ base salary for our executive officers, (2) a lump sum payment equal to the executive officer’s then-current target bonus opportunity on a pro-rated basis, and (3) payment of premiums for continued medical benefits (or equivalent cash payment if applicable law so requires) for a period of twelve months.
If the executive officer’s employment is terminated by us without cause or by the executive for good reason within the three months preceding a change in control or within the 12 months following a change in control, the change in control and severance agreements provide the following benefits in exchange for a customary release of claims: (1) a lump sum severance payment of twelve months base salary, (2) a lump sum payment equal to 100% of the executive officer’s then-current target bonus opportunity on a pro-rated basis, (3) 100% acceleration of any then-unvested equity awards, other than awards that vest on the satisfaction of performance criteria; provided however, with respect to any outstanding equity awards that would vest only upon satisfaction of performance criteria, such awards shall accelerate and become vested and exercisable as if such awards had been achieved at the greater of (x) actual achievement (if measurable on the date of termination) or (y) target levels, and (4) payment of premiums for continued medical benefits (or equivalent cash payment if applicable law so requires) for a period of twelve months.
Each change in control and severance agreement is in effect for three years, with automatic renewal unless we notify such executive officer of non-renewal at least three months prior to expiration. The benefits under the change in control and severance agreements are payable only to the extent greater than and not in duplication of any other cash severance and vesting acceleration arrangements.
Outstanding Equity Awards at Year-End Table
The following table sets forth information regarding outstanding equity awards held by our named executive officers as of December 31, 2020. For additional information regarding incentive plan awards, please refer to “—Current and Prior Equity Plans” below.
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Option Awards
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Stock Awards (1)(2)
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Name
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Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#)
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Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)
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Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
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Option
Exercise
Price
($)
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Option
Expiration
Date
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Number
of Shares
or Units
of Stock
That
Have Not
Vested
(#)
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Market
Value of
Shares
or Units
of Stock
That
Have
Not
Vested
($)
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Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights
That Have
Not Vested
(#)
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|
Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That Have
Not Vested
($)
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Ian Siegel
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—
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|
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—
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|
|
—
|
|
|
—
|
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N/A
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—
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—
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—
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|
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—
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Boris Shimanovsky
|
|
—
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|
|
—
|
|
|
—
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|
|
—
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|
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N/A
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|
—
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|
|
—
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|
550,000(3)
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|
2,546,495
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Renata Dionello
|
|
—
|
|
|
—
|
|
|
—
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|
|
—
|
|
|
N/A
|
|
—
|
|
|
—
|
|
|
360,000(4)
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2,289,596
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________________
(1)All outstanding RSU awards were granted under the 2014 Plan and are for shares of Class B common stock.
(2)The amounts reported in the “Stock Awards” column represent the grant date fair value of restricted stock units granted to our named executive officers during the year ended December 31, 2020 as computed in accordance with FASB ASC Topic 718 and excluding the effect of estimated forfeitures. Note that the amounts reported in this column reflect the accounting cost for
these restricted stock unit awards and do not correspond to the actual economic value that may be received by our named executive officers from such restricted stock unit awards. The grants made in this column reflect equity awards granted pursuant to the terms of the offer letter for each named executive officer.
(3)The RSU awards will vest subject to the satisfaction of time- and service-based requirements, as well as achievement of certain liquidity event requirements. With respect to the time and service based requirements, the RSU awards will vest with respect to 1/4th of the shares of our Class B common stock subject to the restricted stock unit award on June 22, 2021 and the remaining 3/4th of the shares will vest as to 1/16th of the shares subject to RSU award quarterly thereafter, subject to Mr. Shimanovsky’s continued service to us as of each vesting date. The liquidity event requirement, or the Liquidity Event Requirement, will be satisfied upon the earlier to occur of: (a) the first trading day following the expiration of the lock-up period applicable to an initial public offering, or the Initial Public Offering, pursuant to an effective registration statement under the Securities Act covering the offer and sale of our equity securities by us; (b) March 15th of the calendar year following the year in which the Initial Public Offering was declared effective; or (c) a change in control, as such term is defined in the 2014 plan.
(4)The RSU awards will vest subject to the satisfaction of time- and service-based requirements, as well as the Liquidity Event Requirement. With respect to the time- and service-based requirements, the RSU awards will vest with respect to 1/4th of the shares of our Class B common stock subject to the restricted stock unit award on September 8, 2021, and the remaining 3/4th of the shares will vest as to 1/16th of the shares subject to the RSU award quarterly thereafter, subject to Ms. Dionello’s continued service to us as of each vesting date.
Employee Benefit Plans
We believe that our ability to grant equity-based awards is a valuable compensation tool that enables us to attract, retain, and motivate our employees, consultants, and directors by aligning their financial interests with those of our stockholders. The principal features of our equity incentive plans are summarized below. Our compensation committee, or our board of directors in place of the compensation committee, has authority to administer these plans. These summaries are qualified in their entirety by reference to the actual text of the plans, which are filed as exhibits to the registration statement of which this prospectus forms a part.
Current and Prior Equity Plans
2012 Stock Plan
Our 2012 Plan was initially adopted by our board of directors and approved by our stockholders in June 2012. The 2012 Plan was succeeded by our 2014 Plan (described below) in March 2014. No awards were granted under the 2012 Plan following the adoption of the 2014 Plan and awards outstanding under the 2012 Plan shall continue to be subject to the terms and conditions of the 2012 Plan and their applicable award agreements until such awards are exercised or until they terminate or expire by their terms.
Outstanding Awards under the 2012 Plan. As of March 31, 2021, (1) no options to purchase shares of our Class A common stock remained outstanding and (2) options to purchase 2,270,786 shares of our Class B common stock remained outstanding, with a weighted-average exercise price of $0.062 per share.
2014 Equity Incentive Plan
Our 2014 Plan was initially adopted by our board of directors and approved by our stockholders in March 2014, as a successor to our 2012 Plan. We expect to terminate the 2014 Plan and will cease granting awards thereunder upon the effective date of our 2021 Equity Incentive Plan (described below), which is the date immediately prior to the effective date of the registration statement of which this prospectus forms a part. Any outstanding awards will continue to be subject to the terms of the 2014 Plan and their applicable award agreements until such awards are exercised or until they terminate or expire by their terms.
Outstanding Awards under the 2014 Plan. As of March 31, 2021, we had 36,774,779 shares of our Class B common stock authorized for issuance pursuant to grants under our 2014 Plan, of which 1,523,782 shares remained available for grant. As of March 31, 2021, options to purchase 15,199,770 shares of our Class B common stock remained outstanding, with a weighted-average
exercise price of $2.39 per share. As of March 31, 2021, 6,870,569 shares of our Class B common stock were subject to outstanding RSUs granted under our 2014 Plan.
Option Terms. The 2014 Plan provided for the grant of both (1) incentive stock options, intended to qualify for tax treatment under Section 422 of the Internal Revenue Code of 1986, as amended, or the Code, which may be granted only to employees and (2) non-qualified stock options, which may be granted to our employees, directors and consultants. Pursuant to the 2014 Plan, options must be granted with a per share exercise price at least equal to the fair market value of each underlying share as of the date of grant and the per share exercise price of incentive stock options granted to any individual who holds, directly or by attribution, more than 10% of the total combined voting power of all classes of our capital stock as of the date of grant must be at least 110% the fair market value of each underlying share as of the date of grant.
Options granted under the 2014 Plan generally vest subject to continued service. The administrator may provide for options to be exercised only as they vest or to be immediately exercisable, with any shares issued on exercise being subject to our right of repurchase that lapses as the shares vest. In the event of a participant’s termination of service, an option is generally exercisable, to the extent vested, for a period of 12 months in the case of termination due to the participant’s death or disability, or such longer or shorter period as the administrator may provide, but in any event no later than the expiration date of the stock option. Stock options generally terminate upon a participant’s termination of employment for cause. The maximum permitted term of options granted under our 2014 Plan is 10 years from the date of grant, except that the maximum permitted term of incentive stock options granted to an individual who owns more than 10% of the total combined voting power of all classes of our capital stock as of the date of grant is five years.
Restricted Stock Units. The 2014 Plan provided for the grant of RSUs, which represented the right to receive shares of our Class B common stock at a specified date in the future and may be subject to vesting based on service or achievement of performance conditions. Such RSUs may be settled in cash, shares of our common stock or a combination of both as soon as practicable following vesting or on a later date subject to the terms of the 2014 Plan.
RSUs granted under the 2014 Plan generally vest subject to a continued service requirement along with a liquidity event requirement. For the majority of our RSUs, in the event of a participant’s termination of service, an RSU that has met all or a portion of the continued service requirement remains outstanding until the earlier to occur of the expiration date of such RSU or the date of settlement following satisfaction of the liquidity event requirement.
Change in Control. In the event that we are subject to a merger, or other combination constituting a change in control (as defined in the 2014 Plan), or another unusual or nonrecurring transaction or event, as determined by the administrator, outstanding awards may be (1) canceled in exchange for a payment to the participants equal to (x) the amount that could have been obtained upon the exercise or settlement of such award, or (y) the amount that could have been obtained had such award been fully vested as of the date of such transaction, provided, in each case, if the amount that could have been obtained was equal to or less than zero, then no payment would be issued in consideration of such award; (2) subjected to full vesting acceleration; (3) assumed by the surviving corporation or its parent; (4) substituted by the surviving corporation or its parent; (5) continued by the company subject to any necessary adjustments in the number, type of shares (or other property), and other terms, of such awards; (6) replaced with other rights or property as determined by the administrator; or (7) canceled without payment of any consideration. Awards need not be treated in an identical manner and may be accelerated in full or in part at the discretion of the administrator.
Adjustments. In the event that a dividend or other distribution, reorganization, merger, consolidation, combination, repurchase, recapitalization, liquidation, dissolution, or sale, transfer, exchange or other disposition of all or substantially all of our assets, or an exchange of our Class A common stock, issuance of warrants or other rights to purchase our Class A common stock, or other similar corporate transaction
or event, affects our Class A common stock such that the administrator of our 2014 Plan determines that an adjustment is appropriate then, in such case, proportional adjustments will, to the extent determined appropriate by the administrator, be made to (1) the number and class of shares reserved for issuance under our 2014 Plan, and (2) the exercise prices, number and class of shares subject to outstanding awards under the Prior Plans, and any other applicable terms and conditions of any awards (including, without limitation, any applicable performance conditions), subject to any required action by our board or our stockholders and compliance with applicable laws.
Equity Restructurings. In connection with any equity restructuring (as defined in the 2014 Plan), the administrator will equitably adjust each outstanding award under the 2014 Plan, which adjustments may include adjustments to the number and type of securities subject to each outstanding award and/or the exercise price or grant price thereof, if applicable. Such adjustments may also take the form of grants of new awards and/or cash payments.
Limited Transferability. Unless otherwise determined by the administrator, awards under our 2014 Plan generally may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will, the laws of descent and distribution.
Sub-Plans. Our Board has also adopted a UK Sub-Plan of the 2014 Plan, or the UK Sub-Plan, to permit grants in the United Kingdom and a Canada Sub-Plan of the 2014 Plan, or the Canada Sub-Plan, permit grants in Canada. The UK Sub-Plan allows us to grant non-tax advantaged options to our UK employees under generally similar terms to those in the 2014 Plan provided, however, that such grants may be made subject to the applicable employee agreeing to enter into certain tax-related elections with the relevant UK tax authorities. The Canada Sub-Plan allows us to grant options to Canadian service providers under similar terms to those in the 2014 Plan. Additionally, our Board has adopted an Israeli Sub-Plan of the 2014 Plan, or the Israeli Sub-Plan, to permit grants in Israel. The Israeli Sub-Plan allows us to grant options under a capital gains track to our Israeli employees under generally similar terms to those in the 2014 Plan, provided that such grants are held by a tax trustee for a certain period and are subject to additional terms in order to qualify for capital gains tax. In addition, options granted under our Israeli Sub-Plan may be granted with per share exercise prices that are less than the fair market value of each underlying share as of the date of grant.
2021 Equity Incentive Plan
In April 2021, our board of directors and our stockholders approved our 2021 Equity Incentive Plan, or the 2021 Plan, as a successor to our 2014 Plan that will become effective on the date immediately prior to the effectiveness of the registration statement of which this prospectus forms a part. The 2021 Plan authorizes the award of both incentive stock options, which are intended to qualify for tax treatment under Section 422 of the Code, and non-qualified stock options, as well for the award of restricted stock awards, or RSAs, stock appreciation rights, or SARs, RSUs, and performance and stock bonus awards. Pursuant to the 2021 Plan, incentive stock options may be granted only to our employees. We may grant all other types of awards to our employees, directors, and consultants.
Shares Reserved. We have initially reserved 10,664,476 shares of our Class A common stock, plus any reserved shares not issued or subject to outstanding grants under the 2014 Plan on the effective date of the 2021 Plan, for issuance pursuant to awards granted under our 2021 Plan. The number of shares reserved for issuance under our 2021 Plan will increase automatically on January 1 of each of 2022 through 2031 by the number of shares equal to 5% of the aggregate number of outstanding shares of all classes of our common stock as of the immediately preceding December 31, or a lesser number as may be determined by our compensation committee, or by our board of directors acting in place of our compensation committee.
In addition, the shares set forth below will again be available for issuance pursuant to awards granted under our 2021 Plan:
•shares subject to options or SARs granted under our 2021 Plan that cease to be subject to the option or SAR for any reason other than exercise of the option or SAR;
•shares subject to awards granted under our 2021 Plan that are subsequently forfeited or repurchased by us at the original issue price;
•shares subject to awards granted under our 2021 Plan that otherwise terminate without such shares being issued;
•shares subject to awards granted under our 2021 Plan that are surrendered, canceled, or exchanged for cash or a different award (or combination thereof);
•shares issuable upon the exercise of options or subject to other awards granted under our 2012 Plan or our 2014 Plan, also referred to as the Prior Plans, that cease to be subject to such options or other awards, by forfeiture or otherwise, after the effective date of the 2021 Plan;
•shares subject to awards granted under our Prior Plans that are forfeited or repurchased by us at the original price after the effective date of the 2021 Plan; and
•shares subject to awards under our Prior Plans or our 2021 Plan that are used to pay the exercise price of an option or withheld to satisfy the tax withholding obligations related to any award.
The shares of Class B common stock underlying awards granted under the 2014 Plan that are forfeited, canceled, or otherwise returned to the 2021 Plan pursuant to the foregoing will be converted to shares of our Class A common stock before becoming available for grant and issuance under the 2021 Plan.
Administration. Our 2021 Plan will be administered by our compensation committee, or by our board of directors acting in place of our compensation committee. Subject to the terms and conditions of the 2021 Plan, the administrator will have the authority, among other things, to select the persons to whom awards may be granted, construe and interpret our 2021 Plan as well as to determine the terms of such awards and prescribe, amend and rescind the rules and regulations relating to the plan or any award granted thereunder. The 2021 Plan provides that the administrator may delegate its authority, including the authority to grant awards, to one or more executive officers to the extent permitted by applicable law, provided that awards granted to non-employee directors may only be determined by our board of directors.
Options. The 2021 Plan provides for the grant of both incentive stock options intended to qualify under Section 422 of the Code, and non-qualified stock options to purchase shares of our Class A common stock at a stated exercise price. Incentive stock options may only be granted to employees, including officers and directors who are also employees. The exercise price of stock options granted under the 2021 Plan must be at least equal to the fair market value of our Class A common stock on the date of grant. Incentive stock options granted to an individual who holds, directly or by attribution, more than 10% of the total combined voting power of all classes of our capital stock must have an exercise price of at least 110% the fair market value of our Class A common stock on the date of grant.
Options may vest based on service or achievement of performance conditions, as determined by the administrator. The administrator may provide for options to be exercised only as they vest or to be immediately exercisable, with any shares issued on exercise being subject to our right of repurchase that lapses as the shares vest. In the event of a participant’s termination of service, an option is generally exercisable, to the extent vested, for a period of 12 months in the case of termination due to the participant’s death or disability, or such longer or shorter period as the administrator may provide, but in
any event no later than the expiration date of the stock option. Stock options generally terminate upon a participant’s termination of employment for cause. The maximum term of options granted under our 2021 Plan is 10 years from the date of grant, except that the maximum permitted term of incentive stock options granted to an individual who holds, directly or by attribution, more than 10% of the total combined voting power of all classes of our capital stock is five years from the date of grant.
Restricted Stock Awards. An RSA is an offer by us to grant or sell shares of our Class A common stock subject to restrictions, which may lapse based on the satisfaction of service or achievement of performance conditions. The price, if any, of an RSA will be determined by the administrator. Holders of RSAs, unlike holders of options, will have the right to vote and any dividends or distributions paid with respect to such shares be subject to the same vesting terms and other restrictions as the RSA and will be accrued and paid when the vesting terms on such shares lapse. Unless otherwise determined by the administrator, vesting will cease on the date the participant no longer provides services to us and unvested shares may be forfeited to or repurchased by us.
Stock Appreciation Rights. A SAR provides for a payment, in cash or shares of our Class A common stock (up to a specified maximum of shares, if determined by the administrator), to the participant based upon the difference between the fair market value of our Class A common stock on the date of exercise and a predetermined exercise price, multiplied by the number of shares. The exercise price of a SAR must be at least the fair market value of a share of our Class A common stock on the date of grant. SARs may vest based on service or achievement of performance conditions. No SAR may have a term that is longer than 10 years from the date of grant.
Restricted Stock Units. RSUs represent the right to receive shares of our Class A common stock at a specified date in the future and may be subject to vesting based on service or achievement of performance conditions. RSUs may be settled in cash, shares of our common stock or a combination of both as soon as practicable following vesting or on a later date subject to the terms of the 2021 Plan. No RSU may have a term that is longer than 10 years from the date of grant.
Performance Awards. Performance awards granted pursuant to the 2021 Plan may be in the form of a cash bonus, or an award of performance shares or performance units denominated in shares of our Class A common stock that may be settled in cash, property or by issuance of those shares, subject to the satisfaction or achievement of specified performance conditions.
Stock Bonus Awards. A stock bonus award provides for payment in the form of cash, shares of our Class A common stock or a combination thereof, based on the fair market value of shares subject to such award as determined by the administrator. The awards may be granted as consideration for services already rendered, or at the discretion of the administrator, may be subject to vesting restrictions based on continued service or performance conditions.
Dividend Equivalents Rights. Dividend equivalent rights may be granted at the discretion of the administrator and represent the right to receive the value of dividends, if any, paid by us in respect of the number of shares of our Class A common stock underlying an award. Dividend equivalent rights will be subject to the same vesting or performance conditions as the underlying award and will be paid only when the underlying award becomes vested or may be deemed to have been reinvested by the company. Dividend equivalent rights, if any, will be credited to participants in the form of additional whole shares.
Change of Control. Our 2021 Plan provides that, in the event of a corporate transaction that constitutes a change of control of our company under the terms of the plan, outstanding awards will be subject to the agreement evidencing the change of control, which need not treat all outstanding awards in an identical manner, and may include one or more of the following: (1) the continuation of the outstanding awards; (2) the assumption of the outstanding awards by the surviving corporation or its parent; (3) the substitution by the surviving corporation or its parent of new options or equity awards for the outstanding awards; (4) the full or partial acceleration of exercisability or vesting or lapse of the company’s right to repurchase or other terms of forfeiture and accelerated expiration of the award; (5) outstanding awards
may be terminated for no consideration; or (6) the settlement of the full value of the outstanding awards (whether or not then vested or exercisable) in cash, cash equivalents, or securities of the successor entity with a fair market value equal to the required amount, as determined in accordance with the 2021 Plan, which payments may be deferred until the date or dates the award would have become exercisable or vested. Notwithstanding the foregoing, upon a change in control the vesting of all awards granted to our non-employee directors will accelerate and such awards will become exercisable, to the extent applicable, and vested in full immediately prior to the consummation of the change of control.
Adjustment. In the event of a change in the number of outstanding shares of our Class A common stock without consideration by reason of a stock dividend, extraordinary dividend or distribution, recapitalization, stock split, reverse stock split, subdivision, combination, consolidation reclassification, spin-off or similar change in our capital structure, proportional adjustments will be made to (1) the number and class of shares reserved for issuance under our 2021 Plan; (2) the exercise prices, number and class of shares subject to outstanding options or SARs; and (3) the number and class of shares subject to other outstanding awards, subject to any required action by the board or our stockholders and compliance with applicable laws.
Exchange, Repricing and Buyout of Awards. The administrator may, without prior stockholder approval, (1) reduce the exercise price of outstanding options or SARs without the consent of any participant and (2) pay cash or issue new awards in exchange for the surrender and cancellation of any, or all, outstanding awards, subject to the consent of any affected participant to the extent required by the terms of the 2021 Plan.
Director Compensation Limits. No non-employee director may receive awards under our 2021 Plan with a grant date value that when combined with cash compensation received for his or her service as a director, exceeds $750,000 in a calendar year.
Clawback; Transferability. All awards will be subject to clawback or recoupment pursuant to any compensation clawback or recoupment policy adopted by our board of directors or required by law during the term of service of the participant, to the extent set forth in such policy or applicable agreement. Except in limited circumstances, awards granted under our 2021 Plan may generally not be transferred in any manner other than by will or by the laws of descent and distribution.
Sub-Plans. Subject to the terms of the 2021 Plan, the plan administrator may establish a sub-plan under the 2021 Plan and/or modify the terms of awards granted to participants outside of the United States to comply with any of the laws or regulations applicable to any such jurisdiction.
Amendment and Termination. Our board of directors or compensation committee may amend our 2021 Plan at any time, subject to stockholder approval as may be required. Our 2021 Plan will terminate 10 years from the date our board of directors adopts the plan, unless it is terminated earlier by our board of directors. No termination or amendment of the 2021 Plan may adversely affect any then-outstanding award without the consent of the affected participant, except as is necessary to comply with applicable laws or as otherwise provided by the terms of the 2021 Plan.
2021 Employee Stock Purchase Plan
In April 2021, our board of directors and our stockholders approved our 2021 Employee Stock Purchase Plan, or ESPP, that will become effective upon the date the registration statement of which this prospectus forms a part becomes effective to enable eligible employees to purchase shares of our common stock with accumulated payroll deductions. Our ESPP is intended to qualify under Section 423 of the Code, provided that the administrator may adopt sub-plans under the ESPP designed to be outside of the scope of Section 423 for participants who are non-U.S. residents.
We have initially reserved 1,333,059 shares of our Class A common stock for issuance and sale under the ESPP. The number of shares reserved for issuance and sale under our ESPP will increase automatically on January 1 of each of 2022 through 2031 by the number of shares equal to 1% of the
aggregate number of outstanding shares of all classes of our common stock as of the immediately preceding December 31, or a lesser number as may be determined by our compensation committee, or by our board of directors acting in place of our compensation committee. Subject to stock splits, recapitalizations, or similar events, no more than 13,330,590 shares of our Class A common stock may be issued over the term of the ESPP.
Administration. Our ESPP will be administered by our compensation committee, or by our board of directors acting in place of our compensation committee, subject to the terms and conditions of the ESPP. Among other things, the administrator will have the authority to determine eligibility for participation in the ESPP, designate separate offerings under the plan, and construe, interpret and apply the terms of the plan.
Eligibility. Employees eligible to participate in any offering pursuant to the ESPP generally include any employee that is employed by us or certain of our designated subsidiaries at the beginning of the offering period. However, the administrator may exclude employees who have been employed for less than two years, are customarily employed for 20 hours or less per week, are customarily employed for five months or less in a calendar year or certain highly-compensated employees as determined in accordance with applicable tax laws. In addition, any employee who owns (or is deemed to own because of attribution rules) 5% or more of the total combined voting power or value of all classes of our capital stock, or the capital stock of one of our qualifying subsidiaries, or who will own such amount because of participation in the ESPP, will not be eligible to participate in the ESPP. The administrator may impose additional restrictions on eligibility from time to time.
Offerings. Under our ESPP, eligible employees will be offered the option to purchase shares of our Class A common stock at a discount over a series of offering periods through accumulated payroll deductions over the period. Each offering period may itself consist of one or more purchase periods. No offering period may be longer than 27 months. The purchase price for shares purchased under the ESPP during any given purchase period will be 85% of the lesser of the fair market value of our common stock on (1) the first trading day of the applicable offering period or (2) the last trading day of the purchase period.
No participant may purchase more than 5,000 shares of our Class A common stock during any one purchase period, and may not subscribe for more than $25,000 in fair market value of shares of our common stock (determined as of the date the offering period commences) in any calendar year in which the offering is in effect. The administrator in its discretion, may set a lower maximum number of shares which may be purchased.
Adjustments Upon Recapitalization. If the number of outstanding shares of our common stock is changed by stock dividend, recapitalization, stock split, reverse stock split, subdivision, combination, reclassification or similar change in our capital structure without consideration, then the administrator will proportionately adjust the number and class of common stock that is available under the ESPP, the purchase price and number of shares any participant has elected to purchase as well as the maximum number of shares which may be purchased by participants.
Change of Control. If we experience a change of control transaction as determined under the terms of the ESPP, any offering period then in effect will be shortened and terminated on a final purchase date established by the administrator. The final purchase date will occur on or prior to the effective date of change of control transaction, and our ESPP will terminate on the closing of the change of control.
Transferability. Participants may generally not assign, transfer, pledge or otherwise dispose of payroll deductions credited to his or her account, or any rights with regard to an election to purchase shares pursuant to the ESPP other than by will or the laws of descent or distribution.
Amendment; Termination. The board of directors or compensation committee may amend, suspend or terminate the ESPP at any time without stockholder consent, except as to the extent such amendment would increase the number of shares available for issuance under the ESPP, change the class or
designation of employees eligible for participation in the plan or otherwise as required by law. If the ESPP is terminated, the administrator may elect to terminate all outstanding offering periods immediately, upon the next purchase date (which may be sooner than originally scheduled) or upon the last day of such offering period. If any offering period is terminated prior to its scheduled completion, all amounts credited to participants which have not been used to purchase shares will be returned to participants as soon as administratively practicable. Unless earlier terminated, the ESPP will terminate upon the earlier to occur of the issuance of all shares of common stock reserved for issuance under the ESPP, or the 10th anniversary of the effective date.
401(k) Plan
We sponsor a broad-based 401(k) plan intended to provide eligible U.S. employees with an opportunity to defer eligible compensation up to certain annual limits. As a tax-qualified retirement plan, contributions (if any) made by us are deductible by us when made, and contributions and earnings on those amounts are generally not taxable to the employees until withdrawn or distributed from the 401(k) plan. Our named executive officers are eligible to participate in our employee benefit plans, including our 401(k) plan, on the same basis as our other employees.
Limitations on Liability and Indemnification Matters
Our restated certificate of incorporation that will become effective shortly following the effectiveness of the registration statement of which this prospectus forms a part contains provisions that limit the liability of our directors for monetary damages to the fullest extent permitted by the DGCL.
Consequently, our directors will not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duties as directors, except liability for:
•any breach of the director’s duty of loyalty to us or our stockholders;
•any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;
•unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the DGCL; or
•any transaction from which the director derived an improper personal benefit.
Our restated certificate of incorporation that will become effective shortly following the effectiveness of the registration statement of which this prospectus forms a part will require us to indemnify our directors and officers to the maximum extent not prohibited by the DGCL and allow us to indemnify other employees and agents as set forth in the DGCL. Subject to certain limitations, our restated bylaws also require us to advance expenses incurred by our directors and officers for the defense of any action for which indemnification is required or permitted.
We have entered, and intend to continue to enter, into separate indemnification agreements with our directors, officers, and certain of our other employees, in addition to the indemnification provided for in our restated certificate of incorporation and restated bylaws. These agreements, among other things, require us to indemnify our directors, officers, and key employees for certain expenses, including attorneys’ fees, judgments, penalties, fines, and settlement amounts actually incurred by these individuals in any action or proceeding arising out of their service to us or any of our subsidiaries or any other company or enterprise to which these individuals provide services at our request. Subject to certain limitations, our indemnification agreements also require us to advance expenses incurred by our directors, officers, and key employees for the defense of any action for which indemnification is required or permitted. From time to time we have indemnified and may in the future indemnify our directors and officers pursuant to these indemnification agreements in connection legal or regulatory proceedings.
We believe that provisions of our restated certificate of incorporation, restated bylaws, and indemnification agreements are necessary to attract and retain qualified directors, officers, and key employees. We also maintain directors’ and officers’ liability insurance.
The limitation of liability and indemnification provisions in our restated certificate of incorporation and restated bylaws may discourage stockholders from bringing a lawsuit against our directors and officers for breach of their fiduciary duty. They may also reduce the likelihood of derivative litigation against our directors and officers, even though an action, if successful, might benefit us and other stockholders. Further, a stockholder’s investment may be adversely affected to the extent that we pay the costs of settlement and damage awards against directors and officers as required by these indemnification provisions.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, executive officers, or persons controlling us, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In addition to the compensation arrangements discussed in the sections titled “Management” and “Executive Compensation,” the following is a description of each transaction since January 1, 2018 and each currently proposed transaction in which:
•we have been or are to be a participant;
•the amount involved exceeded or will exceed $120,000; and
•any of our directors, executive officers, or holders of more than 5% of our capital stock, or any immediate family member of, or person sharing the household with, any of these individuals, had or will have a direct or indirect material interest.
2018 Secondary Sale
In May 2018, we entered into an agreement with certain holders of our capital stock pursuant to which we agreed to waive certain transfer restrictions in connection with, and assist in the administration of a secondary offering of our capital stock, or the secondary offering. The secondary offering involved the following transactions:
•The Siegel Family Trust, an entity affiliated with Ian Siegel, our Chief Executive Officer and a member of our board of directors, and a beneficial holder of more than 5% of our outstanding capital stock, sold (1) 638,298 shares of our capital stock to entities affiliated with Institutional Venture Partners, or IVP, (2) 638,298 shares of our capital stock to Hadley Harbor Master Investors (Cayman) II L.P., or Wellington, (3) 79,169 shares of our capital stock to Basepoint Ventures Opportunity II, LLC, or Basepoint, (4) 32,987 shares of our capital stock to Industry Ventures Secondary VII, L.P., or Industry Ventures, and (5) 29,688 shares of our capital stock to Harvest Growth Capital II LLC, or Harvest Growth, in each case, at a purchase price of $7.05 per share, for an aggregate purchase price of approximately $10.0 million.
•Joseph Edmonds, a beneficial holder of more than 5% of our outstanding capital stock, sold (1) 1,276,596 shares of our capital stock to entities affiliated with IVP, (2) 1,276,596 shares of our capital stock to Wellington, (3) 158,338 shares of our capital stock to Basepoint, (4) 65,974 shares of our capital stock to Industry Ventures, and (5) 59,377 shares of our capital stock to Harvest Growth, in each case, at a purchase price of $7.05 per share, for an aggregate purchase price of approximately $20.0 million.
•The Redd Family Trust, a beneficial holder of more than 5% of our outstanding capital stock, sold (1) 1,276,596 shares of our capital stock to entities affiliated with IVP, (2) 1,276,596 shares of our capital stock to Wellington, (3) 158,338 shares of our capital stock to Basepoint, (4) 65,974 shares of our capital stock to Industry Ventures, and (5) 59,377 shares of our capital stock to Harvest Growth, in each case, at a purchase price of $7.05 per share, for an aggregate purchase price of approximately $20.0 million.
•Certain entities affiliated with Ward Poulos, a beneficial holder of more than 5% of our outstanding capital stock, sold (1) 1,276,596 shares of our capital stock to entities affiliated with IVP, (2) 1,276,596 shares of our capital stock to Wellington, (3) 158,338 shares of our capital stock to Basepoint, (4) 65,974 shares of our capital stock to Industry Ventures, and (5) 59,376 shares of our capital stock to Harvest Growth, in each case, at a purchase price of $7.05 per share, for an aggregate purchase price of approximately $20.0 million.
Each of IVP, together with its affiliates, and Wellington is a beneficial holder of more than 5% of our outstanding capital stock. In addition, Eric Liaw, a member of our board of directors, serves as General Partner of IVP. David Travers, our Chief Financial Officer, serves as the Managing Partner of Basepoint.
2018 Tender Offer
In August 2018, we entered into an agreement with certain holders of our capital stock pursuant to which we agreed to waive certain transfer restrictions in connection with, and assist in the administration of, a tender offer that such holders proposed to commence. In September 2018, these holders commenced a tender offer to purchase shares of our outstanding capital stock at an as-converted to Class B common stock price per share of $7.05, less transaction costs, pursuant to an offer to purchase to which we were not a party.
An aggregate of 5,150,520 shares of our capital stock were tendered pursuant to the tender offer, of which (1) entities affiliated with IVP purchased 2,317,734 shares for a total price of approximately $16.3 million, (2) Wellington purchased a total of 2,317,734 shares for a total price of approximately $16.3 million, and (3) Basepoint purchased 288,249 shares for a total price of approximately $2.0 million.
David Travers participated in the tender offer and tendered 170,000 shares for approximately $1.2 million in gross proceeds. Jeff Zwelling participated in the tender offer and tendered 1,005,429 shares for approximately $7.1 million in gross proceeds. Ryan Eberhard participated in the tender offer and tendered 87,000 shares for approximately $0.6 million in gross proceeds. Ryan Sakamoto participated in the tender offer and tendered 68,000 shares for approximately $0.5 million in gross proceeds. Timothy Yarbrough participated in the tender offer and tendered 100,000 shares for approximately $0.7 million in gross proceeds.
IVP, together with its affiliates, is a beneficial holder of more than 5% of our outstanding capital stock. In addition, Eric Liaw, a member of our board of directors, serves as General Partner of IVP. Wellington is a beneficial holder of more than 5% of our outstanding capital stock. David Travers serves as the Managing Partner of Basepoint. Each of David Travers, Jeff Zwelling, Ryan Eberhard, Ryan Sakamoto, and Timothy Yarbrough currently serve as executive officers.
Unsecured Convertible Promissory Note Financing
In June 2020, we issued unsecured convertible promissory notes, or the Convertible Notes, to certain of our existing stockholders in an aggregate principal amount of $25.0 million, at an interest rate of 2.5% per year, compounded annually; which interest rate increases by 0.5% to 3.0% per annum on the two-year anniversary of the initial closing of the note financing and further increases by an additional 0.5% on each six-month anniversary thereafter. Entities affiliated with IVP purchased $10.0 million of such convertible notes. IVP, together with its affiliates, is a beneficial holder of more than 5% of our outstanding capital stock. In addition, Eric Liaw, a member of our board of directors, serves as General Partner of IVP. Wellington purchased $15.0 million of such convertible notes. Wellington, together with its affiliates, is a beneficial holder of more than 5% of our outstanding capital stock.
The maturity date of the Convertible Notes is the earliest to occur of: (1) June 22, 2023 or (2) an event of default under the Convertible Notes. The Convertible Notes are subordinate to our existing credit facility and were subordinate to our prior credit facility with Silicon Valley Bank.
The Convertible Notes will convert into shares of our Class B common stock on the first day of trading of our Class A common stock on the New York Stock Exchange.
2020 Share Repurchases
In November 2020, we repurchased an aggregate of 2,987,420 shares of our Class B common stock from certain holders of more than 5% of our outstanding capital stock, at a price of $6.36 per share and a total purchase price of approximately $19.0 million, consisting of: (1) 786,163 shares of our Class B common stock from Joseph Edmonds, a beneficial holder of more than 5% of our outstanding capital stock, at a price of $6.36 per share for a total purchase price of approximately $5.0 million; (2) 628,930 shares of our Class B common stock from entities affiliated with Willis Redd, a beneficial holder of more than 5% of our outstanding capital stock, at a price of $6.36 per share for a total purchase price of
approximately $4.0 million; and (3) 1,572,327 shares of our Class B common stock from entities affiliated with Ward Poulos, a beneficial holder of more than 5% of our outstanding capital stock, at a price of $6.36 per share for a total purchase price of approximately $10.0 million. The purchase price per share for each repurchase transaction was the fair market value as determined by our board of directors at the time of the repurchase.
Omnibus Amendment to the Financing Documents
In April 2021, we entered into an omnibus amendment to certain financing documents, referred to herein as the Omnibus Amendment, with certain holders of our convertible preferred stock, including IVP, Wellington and Basepoint, each of which is a holder of more than 5% of our capital stock. The Omnibus Amendment amended (1) that certain Right of First Refusal and Co-Sale Agreement, dated as of November 7, 2017, by and among us and the other parties thereto, or the ROFR and Co-Sale Agreement, (2) that certain Voting Agreement, dated as of November 7, 2017, as amended by the First Amendment to Amended and Restated Voting Agreement dated as of April 11, 2018, by and among us and other parties thereto, collectively, or the Voting Agreement, (3) that certain Management Rights Agreement, dated as of August 12, 2014, by and between us and Institutional Venture Partners XIV, L.P., or the First IVP Letter, and (4) that certain Management Rights Agreement, dated as of November 7, 2017, by and between us and Institutional Venture Partners XV, L.P., collectively or the Second IVP Letter, and along with the ROFR and Co-Sale Agreement, the Voting Agreement and the First IVP Letter, the Financing Documents. The Omnibus Amendment amended the Financing Documents such that each Financing Document shall terminate upon the effectiveness of a registration statement filed with the SEC in connection with a direct listing to register existing shares of our capital stock for resale.
Amended and Restated Investors’ Rights Agreement
In April 2021, we entered into an amended and restated investors’ rights agreement, or the Rights Agreement, with certain holders of our convertible preferred stock, including IVP, Wellington and Basepoint, each of which is a holder of more than 5% of our capital stock. These stockholders are entitled to rights with respect to the registration of their shares following the effectiveness of the registration statement of which this prospectus forms a part. For a description of these registration rights, see the section titled “Description of Capital Stock—Registration Rights.”
CEO Letter Agreement
In April 2021, we entered into a letter agreement with Ian Siegel, our chief executive officer, which provides that, upon the earliest to occur of (1) (a) the first trading day following our initial public offering or direct listing pursuant to an effective registration statement under the Securities Act or (b) the consummation of a merger, acquisition or other business combination involving us and a publicly traded special purpose acquisition company, that results in us or our business becoming a publicly traded company or (2) a Change of Control, as defined in the 2014 Plan, Mr. Siegel will be entitled to a special cash bonus in an amount equal to $10.0 million, provided that Mr. Siegel is employed by us at the time of either event.
CEO Restricted Stock Unit Award
In April 2021, we issued an RSU award, or the CEO Grant, to Ian Siegel, our chief executive officer, which provides for a grant of 1,398,000 RSUs. The CEO Grant will be eligible to vest based on the achievement of certain performance milestones, as further described below, subject to a minimum period of service as described therein, while Mr. Siegel remains our chief executive officer and before the expiration date, as described therein, or earlier termination thereof pursuant to the terms of the 2014 Plan or the CEO Grant.
The performance milestones, which are further described in the CEO Grant, are as follows:
•If the liquid price per share, as defined in the CEO Grant, is at least 2.7 times the reference price, as defined in the CEO Grant, 20% of the RSUs subject to the CEO Grant will vest; provided that the minimum service period, as defined in the CEO Grant, is satisfied through the first anniversary of the grant date, as defined in the CEO Grant.
•If the liquid price per share is at least 3.3 times the reference price, 20% of the RSUs subject to the CEO Grant will vest; provided that the minimum service period is satisfied through the second anniversary of the grant date.
•If the liquid price per share is at least 4.1 times the reference price, 20% of the RSUs subject to the CEO Grant will vest; provided that the minimum service period is satisfied through the third anniversary of the grant date.
•If the liquid price per share is at least 5.1 times the reference price, 20% of the RSUs subject to the CEO Grant will vest; provided that the minimum service period is satisfied through the fourth anniversary of the grant date.
•If the liquid price per share is at least 6.3 times the reference price, 20% of the RSUs subject to the CEO Grant will vest; provided that the minimum service period is satisfied through the fifth anniversary of the grant date.
Indemnification Agreements
We have entered into, and plan on entering into, indemnification agreements with each of our current and future directors and executive officers. The indemnification agreements, our restated certificate of incorporation, and our restated bylaws, which will become effective shortly following the effectiveness of the registration statement of which this prospectus forms a part, will require us to indemnify our directors to the fullest extent not prohibited by Delaware law. Subject to certain limitations, our restated bylaws also require us to advance expenses incurred by our directors and officers. For more information regarding these arrangements, see the section titled “Executive Compensation—Limitations on Liability and Indemnification Matters.”
Review, Approval or Ratification of Transactions with Related Parties
In April 2021, we adopted written policies for the review and approval of transactions with related persons, consisting of a director conflicts and investment policy, administered by our audit and compliance committee, and our employee conflicts and investment policy, administered by our internal legal department. In addition, our practice has been to have all related party transactions reviewed and approved by a majority of the disinterested members of our board of directors, including the transactions described above. In connection with the effectiveness of the registration statement of which this prospectus forms a part, we have amended our existing policies in order to comply with applicable rules and regulations of the SEC and the listing requirements and rules of the New York Stock Exchange.
Our written related party transactions policy, to be in effect upon the effectiveness of the registration statement of which this prospectus forms a part, requires that any transaction with a related person that must be reported under applicable rules of the SEC must be reviewed and approved or ratified by our audit committee, unless the related party is, or is associated with, a member of that committee, in which event the transaction must be reviewed and approved by our nominating and corporate governance committee.
Prior to the effectiveness of the registration statement of which this prospectus forms a part, we had no formal, written policy or procedure for the review and approval of related party transactions. However, our practice has been to have all related party transactions reviewed and approved by a majority of the disinterested members of our board of directors, including the transactions described above.
PRINCIPAL AND REGISTERED STOCKHOLDERS
The following table sets forth certain information with respect to the beneficial ownership of our Class A common stock and Class B common stock as of March 31, 2021, by:
•each of our named executive officers;
•each of our directors;
•all of our directors and executive officers as a group;
•each stockholder known by us to be the beneficial owner of more than 5% of our outstanding shares of Class A common stock or Class B common stock; and
•the number of shares of Class A common stock and Class B common stock held by the registered stockholders and registered as Class A common stock for resale by means of this prospectus.
The registered stockholders include (1) our affiliates and certain other stockholders with “restricted securities” (as defined in Rule 144 under the Securities Act) who, because of their status as affiliates pursuant to Rule 144 or because they acquired their shares of Class A common stock or Class B common stock from an affiliate or from us within the prior 12 months, would be unable to sell their securities pursuant to Rule 144 until we have been subject to the reporting requirements of Section 13 or Section 15(d) of the Exchange Act for a period of at least 90 days, and (2) our non-executive officer service providers who acquired shares of Class A common stock or Class B common stock from us within the prior 12 months under Rule 701 and hold “restricted securities” (as defined in Rule 144 under the Securities Act). The registered stockholders may, or may not, elect to sell their shares of Class A common stock covered by this prospectus, as and to the extent they may determine. Sales of our Class A common stock, if any, will be made through brokerage transactions on the New York Stock Exchange at prevailing market prices. As such, we will have no input if and when any registered stockholder may, or may not, elect to sell their shares of common stock or the prices at which any such sales may occur. Prior to any sales of shares of Class A common stock, registered stockholders who hold Class B common stock must convert their shares of Class B common stock into shares of Class A common stock. See the section titled “Plan of Distribution” for additional information.
Our board of directors waived the liquidity event-based vesting condition effective as of the earlier of the first day of trading of our Class A common stock on the New York Stock Exchange and March 15, 2022 which will result in the vesting and settlement of approximately 1,860,101 RSUs that will be held by our current and former employees and other service providers, calculated as of March 31, 2021. To fund the tax withholding and remittance obligations arising in connection with the RSUs that will vest and settle on that day, we expect that current and former employees would use a broker or brokers to sell a portion of such shares into the market on the first trading day. The proceeds of such sales will be remitted either to us or directly to the relevant taxing authorities, in either case, to be applied towards such tax obligations. Approximately 745,272 shares of our Class A common stock are expected to be sold throughout the first trading day in order to fund such tax obligations, based on each RSU holder’s applicable tax rate. See the section titled “RSU Sales” for additional information.
Information concerning the registered stockholders may change from time to time and any changed information will be set forth in supplements to this prospectus, if and when necessary. Because the registered stockholders who hold Class B common stock may convert their shares of Class B common stock into Class A common stock at any time and the registered stockholders may sell all, some, or none of the shares of Class A common stock covered by this prospectus, we cannot determine the number of such shares of Class A common stock that will be sold by the registered stockholders, or the amount or percentage of shares of common stock that will be held by the registered stockholders, either as Class A common stock or Class B common stock, upon consummation of any particular sale. In addition, the registered stockholders listed in the table below may have sold, transferred, or otherwise disposed of, or
may sell, transfer, or otherwise dispose of, at any time and from time to time, shares of Class A common stock or Class B common stock in transactions exempt from the registration requirements of the Securities Act, after the date on which they provided the information set forth in the table below. The registered stockholders have not, nor have they within the past three years had, any position, office, or other material relationship with us, other than as disclosed in this prospectus. See the sections titled “Management” and “Certain Relationships and Related Party Transactions” for further information regarding the registered stockholders.
After the listing of our Class A common stock on the New York Stock Exchange, certain of the registered stockholders are entitled to registration rights with respect to their shares of Class A common stock or Class B common stock as described in the section titled “Description of Capital Stock—Registration Rights.”
We intend to use our reasonable efforts to keep the registration statement of which this prospectus forms a part effective for a period of 90 days after the effectiveness of the registration statement. As a result, we have registered shares of Class A common stock underlying shares of Class B common stock currently held by registered stockholders, as well as by our affiliates, that can vest and settle while the registration statement of which this prospectus forms a part is effective.
We are not party to any arrangement with any registered stockholder or any broker-dealer with respect to sales of the shares of Class A common stock by the registered stockholders. However, we have engaged financial advisors with respect to certain other matters relating to the listing of our Class A common stock on the New York Stock Exchange. See the section titled “Plan of Distribution” for additional information.
We have determined beneficial ownership in accordance with the rules of the SEC. Unless otherwise indicated below, to our knowledge, based on information furnished to us, the persons and entities named in the table have sole voting and investment power with respect to all shares that they beneficially own, subject to applicable community property laws. Shares of our Class A common stock and Class B common stock subject to stock options that are currently exercisable or exercisable within 60 days of March 31, 2021 or issuable pursuant to RSUs which are subject to vesting and settlement conditions expected to occur within 60 days of March 31, 2021 (assuming the waiver of the liquidity event-based vesting condition had occurred effective as of March 31, 2021) are deemed to be outstanding and to be beneficially owned by the person holding the options for the purpose of computing the percentage ownership of that person but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.
We have based our calculation of the percentage ownership of our common stock prior to the effectiveness of the registration statement on no shares of our Class A common stock outstanding and 107,278,454 shares of our Class B common stock outstanding as of March 31, 2021, which includes 24,202,202 shares of our Class B common stock resulting from the conversion of 2,271,437 shares of our Series A convertible preferred stock and 6,030,706 shares of our Series B convertible preferred stock outstanding as of March 31, 2021 occurring upon the effectiveness of the registration statement of which this prospectus forms a part; and 3,073,594 shares of our Class B common stock resulting from the conversion of our Convertible Notes occurring immediately following the first day of trading of our Class A common stock on the New York Stock Exchange and assuming a conversion price of $8.2909 per share (which is the maximum price per share at which the convertible promissory notes are convertible by their terms, as further described within the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Convertible Notes with Related Parties”), as if such conversions had occurred as of March 31, 2021. This excludes 1,860,101 shares of Class B common stock related to the RSUs for which the service-based vesting condition was satisfied as of March 31, 2021 for which our board of directors has waived the liquidity event-based vesting condition effective as of the earlier of the first day of trading of our Class A common stock on the New York Stock Exchange and March 15, 2022. Unless otherwise
indicated, the address of each beneficial owner in the table below is c/o ZipRecruiter, Inc., 604 Arizona Avenue, Santa Monica, California 90401.
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Shares Beneficially Owned Prior to the Effectiveness of the Registration Statement
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Percent of Total Voting Power %
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Shares of Class A Common Stock Registered
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Class A
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Class B
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Number
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%
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Number
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%
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Named Executive Officers and Directors:
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Ian Siegel(1)
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—
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—
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%
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14,457,283
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13.5
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%
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13.5
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%
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10,457,283
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Boris Shimanovsky(2)
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—
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—
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%
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5,000
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*
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—
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%
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142,500
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Renata Dionello(3)
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—
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—
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%
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3,000
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*
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—
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%
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3,000
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Emilie Choi(4)
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—
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—
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%
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169,583
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*
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*
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183,333
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Cipora Herman(5)
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—
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—
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%
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145,633
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*
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*
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159,383
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Blake Irving(6)
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—
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—
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%
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143,503
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*
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*
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157,253
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Brian Lee(7)
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—
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—
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%
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224,540
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*
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*
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224,540
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Eric Liaw(8)
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—
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—
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%
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22,693,173
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21.2
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%
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21.1
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%
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—
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All executive officers and directors as a group (14 persons)(9)
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—
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—
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%
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49,792,253
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44.7
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%
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44.7
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%
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23,429,826
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Other 5% Stockholders:
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Entities affiliated with Institutional Venture Partners(10)
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—
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—
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%
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22,693,173
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21.2
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%
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21.1
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%
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22,697,800
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Entities affiliated with Wellington(11)
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—
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—
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%
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11,337,765
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10.6
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%
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10.5
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%
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1,851,097
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Entities affiliated with Ward Poulos(12)
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—
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—
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%
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11,430,681
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10.7
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%
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10.6
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%
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11,430,681
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Entities affiliated with Willis Redd(13)
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—
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—
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%
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12,385,777
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11.5
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%
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11.5
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%
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12,385,777
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Joseph Edmonds(14)
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—
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—
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%
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12,239,044
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11.4
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%
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11.4
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%
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12,239,044
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Other Registered Stockholders:
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Non-Executive Officer and Non-Director Service Providers(15)
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9,277,236
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8.00
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%
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8.00
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%
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1,948,441
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All Other Registered Stockholders(16)
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6,606,176
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5.80
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%
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5.80
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%
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616,230
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______________
* Represents beneficial ownership of less than 1% of the outstanding shares of our common stock.
(1)Represents (a) 14,129,486 shares of Class B common stock held by The Siegel Family Trust; (b) 105,532 shares of Class B common stock held by Michael M. Siegel and Sheila J. Siegel, Trustees of The Siegel Community Property Trust dated April 27, 1995, As Amended; (c) 55,626 shares of Class B common stock held by Robert Eugene Tortorete; (d) 42,213 shares of Class B common stock held by Matthew Siegel; (e) 84,426 shares of Class B common stock held by Ruth Tortorete; and (f) 40,000 shares of Class B common stock subject to RSUs for which the vesting condition will be satisfied upon the effectiveness of the registration statement of which this prospectus forms a part. Ian Siegel has sole voting and investment power with respect to the shares held by Ian Siegel, Robert Eugene Tortorete, Matthew Siegel, and Ruth Tortorete. Michael Siegel and Sheila Siegel serve as trustees of The Siegel Community Property Trust. Ruth Tortorete has sole voting and investment power over The Siegel Community Property Trust, subject to the terms of the trust. Ian Siegel and Rochelle Siegel are co-trustees of, and each have full authority to act on behalf of The Siegel Family Trust.
(2)Represents 5,000 shares of Class B common stock subject to RSUs for which the vesting condition will be satisfied upon the effectiveness of the registration statement of which this prospectus forms a part
(3)Represents 3,000 shares of Class B common stock subject to RSUs for which the vesting condition will be satisfied upon the effectiveness of the registration statement of which this prospectus forms a part
(4)Represents 169,583 shares underlying options to purchase Class B common stock that are exercisable within 60 days of March 31, 2021.
(5)Represents 142,083 shares underlying options to purchase Class B common stock that are exercisable within 60 days of March 31, 2021 and 3,550 shares of Class B common stock subject to RSUs for which the service-based vesting condition will be satisfied within 60 days of March 31, 2021.
(6)Represents 142,083 shares underlying options to purchase Class B common stock that are exercisable within 60 days of March 31, 2021 and 1,420 shares of Class B common stock subject to RSUs for which the service-based vesting condition will be satisfied within 60 days of March 31, 2021.
(7)Represents 220,000 shares underlying options to purchase Class B common stock that are fully vested as of March 31, 2021 and 4,540 shares of Class B common stock subject to RSUs for which the service-based vesting condition will be satisfied within 60 days of March 31, 2021.
(8)Represents 22,693,173 shares of Class B common stock held by entities affiliated with Institutional Venture Partners, as reflected in footnote 10 below. Mr. Liaw, a member of our board of directors, is a general partner of Institutional Venture Partners, and therefore, may be deemed to share voting and investment power with regard to the shares held directly by
Institutional Venture Partners. The address for Mr. Liaw is c/o Institutional Venture Partners, 3000 Sand Hill Road, Bldg. 2, Suite 250 Menlo Park, California 94025.
(9)Represents (a) 44,890,210 shares of Class B common stock; (b) 4,034,579 shares underlying options to purchase shares of Class B common stock that are exercisable within 60 days of March 31, 2021; (c) 729,464 shares of Class B common stock subject to RSUs for which the service-based vesting condition will be satisfied within 60 days of March 31, 2021; and 138,000 shares of Class B common stock subject to RSUs for which the vesting condition will be satisfied upon the effectiveness of the registration statement of which this prospectus forms a part.
(10)Represents (a) 14,287,862 shares of Class B common stock outstanding, and 818,406 shares of our Class B common stock resulting from the conversion of a convertible note held by Institutional Venture Partners XIV, L.P., occurring immediately following the first day of trading of our Class A common stock on the New York Stock Exchange and assuming a conversion price of $8.2909 per share; (b) 37,974 shares of Class B common stock outstanding, and 2,175 shares of our Class B common stock resulting from the conversion of a convertible note held by Institutional Venture Partners XV Executive Fund, L.P., occurring immediately following the first day of trading of our Class A common stock on the New York Stock Exchange and assuming a conversion price of $8.2909 per share; and (c) 7,137,900 shares of Class B common stock outstanding, and 408,856 shares of our Class B common stock resulting from the conversion of a convertible note held by Institutional Venture Partners XV, L.P., occurring immediately following the first day of trading of our Class A common stock on the New York Stock Exchange and assuming a conversion price of $8.2909 per share. Mr. Liaw, a member of our board of directors, is a general partner of Institutional Venture Partners, and therefore, may be deemed to share voting and investment power with regard to the shares held directly by Institutional Venture Partners. Institutional Venture Management XIV, LLC is the general partner of Institutional Venture Partners XIV, L.P. Todd C. Chaffee, Norman A. Fogelsong, Stephen J. Harrick, Jules A. Maltz, J. Sanford Miller and Dennis B. Phelps are the managing directors of Institutional Venture Management XIV, LLC and share voting and dispositive power over the shares held by Institutional Venture Partners XIV, L.P. Institutional Venture Management XV, LLC is the general partner of Institutional Venture Partners XV, L.P. Todd C. Chaffee, Somesh Dash, Norman A. Fogelsong, Stephen J. Harrick, Eric Liaw, Jules A. Maltz, J. Sanford Miller and Dennis B. Phelps are the managing directors of Institutional Venture Management XV, LLC and share voting and dispositive power over the shares held by Institutional Venture Partners XV, L.P. Institutional Venture Management XV, LLC is the general partner of Institutional Venture Partners XV Executive Fund, L.P. Todd C. Chaffee, Somesh Dash, Norman A. Fogelsong, Stephen J. Harrick, Eric Liaw, Jules A. Maltz, J. Sanford Miller and Dennis B. Phelps are the managing directors of Institutional Venture Management XV, LLC and share voting and dispositive power over the shares held by Institutional Venture Partners XV Executive Fund, L.P. The address for each of these entities is 3000 Sand Hill Road, Bldg. 2, Suite 250 Menlo Park, California 94025.
(11)Represents 9,493,608 shares of Class B common stock outstanding, and 1,844,157 shares of our Class B common stock resulting from the conversion of a convertible note held by Hadley Harbor Master Investors (Cayman) II L.P., or Wellington, occurring immediately following the first day of trading of our Class A common stock on the New York Stock Exchange and assuming a conversion price of $8.2909 per share. Wellington Management Company LLP, a registered investment company under the Investment Advisors Act of 1940, as amended, is the investment adviser to Hadley Harbor Master Investors (Cayman) II L.P. Wellington Management Company LLP is an indirect subsidiary of Wellington Management Group LLP. Wellington Management Group LLP and Wellington Management Company LLP may be deemed beneficial owners (within the meaning of Rule 13d-3 promulgated under the Exchange Act) with shared investment and voting power over the shares held by Hadley Harbor Master Investors (Cayman) II L.P. The address for Wellington is 280 Congress Street Boston, Massachusetts 02210.
(12)Represents (a) 20,800 shares of Class B common stock held by Stephen Bassett; (b) 20,800 shares of Class B common stock held by Sue E. Poulos; (c) 20,800 shares of Class B common stock held by Ward E. Poulos; (d) 460,474 shares of Class B common stock held by W & S Poulos Family Trust; (e) 20,800 shares of Class B common stock held by Diane R Poulos; (f) 20,800 shares of Class B common stock held by Christina Louise Poulos Roach; (g) 20,800 shares of Class B common stock held by Marilyn Basset-Lance; (h) 20,800 shares of Class B common stock held by Jamie Bassett; (e) 4,133,751 shares of Class B common stock held by The Whittier Trust Company of Nevada, Inc., Trustee of the SSP Trust No. 1 dated July 11, 2017; (f) 1,278,553 shares of Class B common stock held by The Whittier Trust Company of Nevada, Inc., Trustee of the SSP Trust No. 2 dated July 11, 2017; (g) 4,133,750 shares of Class B common stock held by The Whittier Trust Company of Nevada, Inc., Trustee of the WAP Trust No. 1 dated July 11, 2017; and (h) 1,278,553 shares of Class B common stock held by The Whittier Trust Company of Nevada, Inc., Trustee of the WAP Trust No. 2 dated July 11, 2017. Ward Poulos has sole voting power with respect to the shares held by Stephen Basset, Sue E. Poulos, Diane R. Poulos, Christina Louise Poulos Roach, Jamie Bassett and Marilyn Bassett-Lance, and with respect to the W & S Poulos Family Trust, sole voting and investment power. The Whittier Trust Company holds sole voting power and John O’Connor holds sole investment power with respect to the shares of Class B common stock held by the Whittier Trusts, subject to the terms of each trust.
(13)Represents (a) 10,248,351 shares of Class B common stock held by The Redd Family Trust; (b) 805,126 shares of Class B common stock held by Willis Redd 2019 Grantor Retained Annuity Trust; (c) 15,750 shares of Class B common stock held by Richard Redd; (d) 15,750 shares of Class B common stock held by Marilyn Redd; (e) 14,400 shares of Class B common stock held by Jeff Carstetter; (f) 14,400 shares of Class B common stock held by Kathy Carstetter; (g) 14,400 shares of Class B common stock held by Abigail Carstetter; (h) 14,400 shares of Class B common stock held by Scott Carstetter; (i) 14,400 shares of Class B common stock held by Janise Rodgers; (j) 14,400 shares of Class B common stock held by Dane Rodgers; (k) 14,400 shares of Class B common stock held by Ben Redd; and (l) 1,200,000 shares of Class B common stock held by the Redd Irrevocable Trust. Willis Redd has sole voting power with respect to the shares held by Richard Redd, Marilyn Redd, Jeff Carstetter, Abigail Carstetter, Scott Carstetter, Janise Rodgers, Dane Rodgers, and Ben Redd. Willis Redd and Kelly Redd serve as Trustees of The Redd Family Trust and have shared voting and investment power with respect to the trust, subject to the terms of the trust. Will Redd serves as Trustee of Willis Redd 2019 Grantor Retained Annuity Trust and has sole voting and investment power with respect to the trust, subject to the terms of the trust. Jeff Carsetter and Kathy Carstetter serve as
Trustees of Redd Irrevocable Trust, dated March 4, 2019 and have shared voting and investment power with respect to the trust, subject to the terms of the trust.
(14)Represents (a) 12,082,244 shares of Class B common stock held by Joseph Edmonds; (b) 16,000 shares of Class B common stock held by David Smith; (c) 12,800 shares of Class B common stock held by Sun Nam Smith; (d) 16,000 shares of Class B common stock held by Baird Edmonds; (e) 12,800 shares of Class B common stock held by Betheda Edmonds; (f) 12,800 shares of Class B common stock held by Lynn Edmonds; (g) 12,800 shares of Class B common stock held by Kate Owen, as custodian for Alejandra Owen; (h) 16,000 shares of Class B common stock held by Nancy Edmonds; (i) 16,000 shares of Class B common stock held by Stacey Martin, as custodian for Wyatt Martin; (j) 12,800 shares of Class B common stock held by Julie Smith; (k) 16,000 shares of Class B common stock held by Linda Smith; and (l) 12,800 shares of Class B common stock held by Mon Agranat. Joseph Edmonds has sole voting power with respect to the shares held by David Smith, Sun Nam Smith, Baird Edmonds, Betheda Edmonds, Lynn Edmonds, Kate Owen, as custodian for Alejandra Owen, Nancy Edmonds, Stacey Martin, as custodian for Wyatt Martin, Julie Smith, Linda Smith and Mon Agranat.
(15)Represents (a) 6,458,414 shares underlying options to purchase Class B common stock that are fully vested as of March 31, 2021; (b) 6,048,405 shares underlying options to purchase Class B common stock that are exercisable within 60 days of March 31, 2021; and (c) 1,474,906 shares of Class B common stock subject to RSUs for which the service-based vesting condition will be satisfied within 60 days of March 31, 2021.
(16)Represents (a) 5,761,932 shares underlying options to purchase Class B common stock that are fully vested as of March 31, 2021; (b) 5,766,398 shares underlying options to purchase Class B common stock that are exercisable within 60 days of March 31, 2021; and (c) 237,685 shares of Class B common stock subject to RSUs for which the service-based vesting condition will be satisfied within 60 days of March 31, 2021.
DESCRIPTION OF CAPITAL STOCK
The following description summarizes the most important terms of our capital stock, as they will be in effect shortly following the effectiveness of the registration statement of which this prospectus forms a part. We have adopted a restated certificate of incorporation and restated bylaws that will become effective upon the effectiveness of the registration statement of which this prospectus forms a part, and this description summarizes provisions included in these documents. Because it is only a summary, it does not contain all the information that may be important to you. For a complete description, you should refer to our restated certificate of incorporation and restated bylaws, which are included as exhibits to the registration statement of which this prospectus forms a part, and to the applicable provisions of Delaware law.
Upon the effectiveness of the registration statement of which this prospectus forms a part, our authorized capital stock will consist of 700,000,000 shares of Class A common stock, $0.00001 par value per share, 700,000,000 shares of Class B common stock, $0.00001 par value per share, and 50,000,000 shares of undesignated preferred stock, $0.00001 par value per share.
Assuming the conversion of 2,271,437 shares of our Series A convertible preferred stock and 6,030,706 shares of our Series B convertible preferred stock outstanding as of March 31, 2021 into 24,202,202 shares of our Class B common stock, which will occur upon the effectiveness of the registration statement of which this prospectus forms a part, as well as the conversion of the Convertible Notes into 3,073,594 shares of our Class B common stock, assuming a conversion price of $8.2909 per share (which is the maximum price per share at which the convertible promissory notes are convertible by their terms, as further described within the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Convertible Notes with Related Parties”), which will occur immediately following the first day of trading of our Class A common stock on the New York Stock Exchange, each as of March 31, 2021, there will be outstanding:
•no shares of our Class A common stock;
•107,278,454 shares of our Class B common stock outstanding, held by approximately 240 stockholders of record;
•17,620,556 shares of our Class B common stock issuable upon the exercise of outstanding stock options, with a weighted-average exercise price of $2.10 per share; and
•6,870,569 shares of our Class B common stock issuable upon settlement of outstanding RSUs, including 1,860,101 shares of Class B common stock related to the RSUs for which the service-based vesting condition was satisfied as of March 31, 2021 and for which our board of directors waived the liquidity event-based vesting condition effective as of the earlier of the first day of trading of our Class A common stock on the New York Stock Exchange and March 15, 2022.
Class A Common Stock and Class B Common Stock
Dividend Rights
Subject to preferences that may apply to any shares of our convertible preferred stock outstanding at the time, the holders of our Class A common stock and Class B common stock are entitled to receive dividends out of funds legally available if our board of directors, in its discretion, determines to issue dividends and then only at the times and in the amounts that our board of directors may determine. Shares of Class A common stock and Class B common stock will be treated equally, identically and ratably, on a per share basis, with respect to dividends that may be declared by our board of directors.
Voting Rights
Holders of our Class A common stock are entitled to one vote per share, and holders of our Class B common stock are entitled to twenty votes per share, on all matters submitted to a vote of stockholders.
Following the effectiveness of the registration statement of which this prospectus forms a part, the holders of our outstanding Class B common stock will hold 100% of the voting power of our outstanding capital stock, with our directors, executive officers, and 5% stockholders and their respective affiliates holding 85.4% of the voting power in the aggregate. The holders of our Class A common stock, Class B common stock will generally vote together as a single class on all matters (including the election of directors) submitted to a vote of our stockholders, unless otherwise required by Delaware law or our restated certificate of incorporation. Delaware law could require either holders of our Class A common stock or Class B common stock to vote separately as a single class in the following circumstances:
•if we were to seek to amend our restated certificate of incorporation to increase or decrease the par value of a class of our capital stock, then that class would be required to vote separately to approve the proposed amendment; and
•if we were to seek to amend our restated certificate of incorporation in a manner that alters or changes the powers, preferences, or special rights of a class of our capital stock in a manner that affected its holders adversely, then that class would be required to vote separately to approve the proposed amendment.
Our restated certificate of incorporation will not provide for cumulative voting for the election of directors. As a result, the holders of a majority of our voting shares can elect all of the directors then standing for election. Our restated certificate of incorporation establishes a classified board of directors, to be divided in three classes with staggered three-year terms. Only one class of directors will be elected at each annual meeting of our stockholders, with the other classes continuing for the remainder for their respective three-year terms.
Conversion
Each outstanding share of Class B common stock is convertible at any time at the option of the holder into one share of Class A common stock. In addition, each share of Class B common stock will convert automatically into one share of Class A common stock upon any transfer, whether or not for value, which occurs after the effectiveness of the registration statement of which this prospectus forms a part, except for certain permitted transfers, including certain transfers to family members, trusts solely for the benefit of the stockholder or their family members, affiliates under common control with the stockholder, and partnerships, corporations, and other entities exclusively owned by the stockholder or their family members, in each case as fully described in our restated certificate of incorporation. Once converted into Class A common stock, the Class B common stock will not be reissued.
All the outstanding shares of our Class B common stock will convert automatically into shares of our Class A common stock upon the date that is the earlier of (1) the first business day falling on or after 180 days after the date on which Ian Siegel beneficially owns less than 4,000,000 shares of Class B common stock, (2) the date which is (a) 90 days after the date of death or disability of Mr. Siegel or (b) such later date, not to exceed a total period of 180 days after the date of death or disability of Mr. Siegel, as may be approved prior to the date that is 90 days after the date of death or disability of Mr. Siegel by a majority of our independent directors then in office, and (3) the first business day falling on or after the date on which Mr. Siegel elects to convert all then-outstanding shares of Class B common stock into shares of Class A common stock. Following such conversion, each share of Class A common stock will have one vote per share and the rights of the holders of all outstanding common stock will be identical. Once converted into Class A common stock, the Class B common stock may not be reissued.
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 (except as noted above), redemption, or sinking fund provisions.
Right to Receive Liquidation Distributions
If we become subject to a liquidation, dissolution, or winding-up, the assets legally available for distribution to our stockholders would be distributable ratably among the holders of our Class A common stock and Class B common stock and any participating preferred stock outstanding at that time, subject to prior satisfaction of all outstanding debt and liabilities and the preferential rights of and the payment of liquidation preferences, if any, on any outstanding shares of preferred stock.
Fully Paid and Non-Assessable
All of the outstanding shares of our Class A common stock and Class B common stock are fully paid and non-assessable.
Form
Shares of Class A common stock and Class B common stock will be uncertificated.
Preferred Stock
Each currently outstanding share of our Series A convertible preferred stock will automatically be converted into eight shares of Class B common stock and each share of our currently outstanding Series B convertible preferred stock will automatically be converted into one share of Class B common stock, in each case, upon the effectiveness of the registration statement of which this prospectus forms a part. Following such date, no shares of convertible preferred stock will be outstanding.
Shortly following the effectiveness of the registration statement of which this prospectus forms a part, our board of directors will be authorized, subject to limitations prescribed by Delaware law, to issue preferred stock in one or more series, to establish from time to time the number of shares to be included in each series and to fix the designation, powers, preferences, and rights of the shares of each series and any of its qualifications, limitations, or restrictions, in each case without further vote or action by our stockholders. Our board of directors can also increase or decrease the number of shares of any series of preferred stock, but not below the number of shares of that series then outstanding, without any further vote or action by our stockholders. Our board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of our common stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring, or preventing a change in control of our company and might adversely affect the price of our Class A common stock and the voting and other rights of the holders of our Class A common stock and Class B common stock. We have no current plan to issue any shares of preferred stock.
Stock Options
As of March 31, 2021, we had outstanding options to purchase an aggregate of 17,620,556 shares of our Class B common stock, with a weighted-average exercise price of $2.10 per share, of which 15,199,770 were granted pursuant to our 2014 Plan, 2,270,786 were granted pursuant to our 2012 Plan, and 150,000 were not granted under a plan, but were granted pursuant to a performance award under the consultant’s option agreement. Since March 31, 2021, we have not granted any options to purchase shares of our Class B common stock.
Restricted Stock Units
As of March 31, 2021, we had outstanding RSUs settleable for an aggregate of 6,870,569 shares of our Class B common stock, all of which were granted pursuant to our 2014 Plan. Since March 31, 2021 through April 30, 2021, we have granted RSUs settleable for an aggregate of 1,430,500 shares of our Class B common stock, of which 1,398,000 were granted pursuant to our 2014 Plan and 32,500 were granted outside of our 2014 Plan.
Registration Rights
Our Investors’ Rights Agreement, or IRA, provides that certain holders of our Class A common stock and Class B common stock will be entitled to rights with respect to the registration of their shares under the Securities Act, as set forth below. The registration of shares of our Class A common stock or Class B common stock by the exercise of registration rights described below would enable the holders to sell these shares without restriction under the Securities Act when the applicable registration statement was declared effective. We will pay the registration expenses (other than underwriting discounts and selling commissions) of the holders of the shares registered pursuant to the demand, piggyback, and Form S-3, registrations described below, including the reasonable fees of one counsel for the selling holders, not to exceed $25,000. In an underwritten offering, the underwriters have the right, subject to specified conditions, to limit the number of shares such holders may include.
The registration rights set forth in the IRA will expire five years following the effectiveness of the registration statement of which this prospectus forms a part, or, with respect to any particular stockholder, when such stockholder is able to sell all of its shares without registration pursuant to Rule 144 of the Securities Act during any three-month period.
Demand Registration Rights
After the effectiveness of the registration statement of which this prospectus forms a part, the holders of approximately 27,275,796 shares of our Class A common stock and Class B common stock will be entitled to certain demand registration rights. At any time beginning 180 days after the effectiveness of the registration statement of which this prospectus forms a part, the holders of at least 30% of these shares then outstanding can request that we register the offer and sale of their shares. We are obligated to effect only two such registrations. If we determine that it would be materially detrimental to us and our stockholders to effect such a demand registration, we have the right to defer such registration, not more than once in any 12-month period, for a period of up to 30 days. Additionally, we will not be required to effect a demand registration during the period beginning 60 days prior to our good faith estimate of the date of the filing of and ending on a date 180 days following the effectiveness of a registration statement relating to our common stock.
Piggyback Registration Rights
After the effectiveness of the registration statement of which this prospectus forms a part, if we propose to register the offer and sale of our common stock under the Securities Act, in connection with the public offering of such common stock, the holders of up to approximately 27,275,796 shares of our Class A common stock and Class B common stock will be entitled to certain “piggyback” registration rights allowing the holders to include their shares in such registration, subject to certain marketing and other limitations. As a result, whenever we propose to file a registration statement under the Securities Act, other than with respect to (1) a registration related solely to a company equity plan, (2) a registration relating to a corporate reorganization or transaction under Rule 145 of the Securities Act, (3) a registration on any form that does not include substantially the same information as would be required to be included in a registration statement covering the public offering of our common stock, or (4) a registration in which the only common stock being registered is common stock issuable upon the conversion of debt securities that are also being registered, the holders of these shares are entitled to notice of the registration and have the right, subject to certain limitations, to include their shares in the registration.
S-3 Registration Rights
After the effectiveness of the registration statement of which this prospectus forms a part, the holders of up to approximately 27,275,796 shares of our Class A common stock and Class B common stock will be entitled to certain Form S-3 registration rights. The holders of at least 15% of these shares then outstanding may make a written request that we register the offer and sale of their shares on a registration statement on Form S-3 if we are eligible to file a registration statement on Form S-3 so long as the request covers at least that number of shares with an anticipated offering price, net of underwriting
discounts and commissions, of at least $2.0 million. These stockholders may make an unlimited number of requests for registration on Form S-3; however, we will not be required to effect a registration on Form S-3 if we have effected two such registrations within the 12-month period preceding the date of the request. If we determine that it would be seriously detrimental to us and our stockholders to effect such a registration, we have the right to defer such registration, not more than twice in any 12-month period, for a period of up to 90 days. Additionally, we will not be required to effect a registration on Form S-3 during the period beginning 30 days prior to our good faith estimate of the date of the filing of and ending on a date 90 days following the effectiveness of a registration statement relating to our common stock.
Anti-Takeover Provisions
The provisions of Delaware law, our restated certificate of incorporation, and our restated bylaws, as we expect they will be in effect shortly following the effectiveness of the registration statement of which this prospectus forms a part, 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 are subject to the provisions of Section 203 of the DGCL, regulating corporate takeovers. In general, DGCL Section 203 prohibits a publicly held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years following the date on which the person became an interested stockholder unless:
•prior to the date of the transaction, the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder;
•the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding, but not the outstanding voting stock owned by the interested stockholder, (1) shares owned by persons who are directors and also officers and (2) shares owned by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or
•at or subsequent to the date of the transaction, the business combination is approved by the board of directors of the corporation and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock that is not owned by the interested stockholder.
Generally, a “business combination” includes a merger, asset or stock sale, or other transaction or series of transactions together resulting in a financial benefit to the interested stockholder. An “interested stockholder” is a person who, together with affiliates and associates, owns or, within three years prior to the determination of interested stockholder status, did own 15% or more of a corporation’s outstanding voting stock. We expect the existence of this provision to have an anti-takeover effect with respect to transactions our board of directors does not approve in advance. We also anticipate that DGCL Section 203 may also discourage attempts that might result in a premium over the market price for the shares of common stock held by stockholders.
Restated Certificate of Incorporation and Restated Bylaw Provisions
Our restated certificate of incorporation and our restated bylaws will include a number of provisions that could deter hostile takeovers or delay or prevent changes in control of our board of directors or management team, including the following:
•Multi-Class Stock Structure. As described above in the subsection titled “—Class A Common Stock and Class B Common Stock—Voting Rights,” our restated certificate of incorporation will provide for a multi-class common stock structure pursuant to which holders of our Class B common stock, including our current investors, executives, and employees, will 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 and Class B common stock, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or its assets.
•Board of Directors Vacancies. Our restated certificate of incorporation and restated bylaws will authorize only our board of directors to fill vacant directorships, including newly created seats. In addition, the number of directors constituting our board of directors will be permitted to be set only by a resolution adopted by a majority vote of our entire board of directors. These provisions would prevent a stockholder from increasing the size of our board of directors and then gaining control of our board of directors by filling the resulting vacancies with its own nominees. This will make it more difficult to change the composition of our board of directors and promote continuity of management.
•Classified Board. Our restated certificate of incorporation and restated bylaws will provide that our board of directors is classified into three classes of directors. A third party may be discouraged from making a tender offer or otherwise attempting to obtain control of us as it is more difficult and time consuming for stockholders to replace a majority of the directors on a classified board of directors. See the section titled “Management—Board of Directors” for additional information.
•Supermajority Requirements for Amendments of Our Restated Certificate of Incorporation and Restated Bylaws. Our restated certificate of incorporation will further provide that the affirmative vote of holders of at least two-thirds (2/3) of the voting power of all of the then outstanding shares of voting stock will be required to amend certain provisions of our restated certificate of incorporation, including provisions relating to the classified board, the size of the board, removal of directors, special meetings, actions by written consent, and designation of our preferred stock. In addition, the affirmative vote of holders of 75% of the voting power of each of our Class A common stock and Class B common stock, voting separately by class, will be required to amend the provisions of our restated certificate of incorporation relating to the terms of our Class B common stock. The affirmative vote of holders of at least two-thirds (2/3) of the voting power of all of the then outstanding shares of voting stock will be required to amend or repeal our restated bylaws, although our restated bylaws may be amended by a simple majority vote of our board of directors.
•Stockholder Action; Special Meeting of Stockholders. Our restated certificate of incorporation will provide that our stockholders may not take action by written consent, but may only take action at annual or special meetings of our stockholders. As a result, holders of our capital stock would not be able to amend our restated bylaws or remove directors without holding a meeting of our stockholders called in accordance with our restated bylaws. Our restated bylaws will further provide that special meetings of our stockholders may be called only by a majority of our board of directors or our Chief Executive Officer, thus prohibiting a stockholder from calling a special meeting. These provisions might delay the ability of our stockholders to force consideration of a proposal or for stockholders controlling a majority of our capital stock to take any action, including the removal of directors.
•Advance Notice Requirements for Stockholder Proposals and Director Nominations. Our restated bylaws will provide advance notice procedures for stockholders seeking to bring business before our annual meeting of stockholders or to nominate candidates for election as directors at our annual meeting of stockholders. Our restated bylaws will also specify certain requirements regarding the form and content of a stockholder’s notice. These provisions might preclude our stockholders from bringing matters before our annual meeting of stockholders or from making nominations for directors at our annual meeting of stockholders if the proper procedures are not followed. We expect that these provisions may also discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of our company.
•No Cumulative Voting. The DGCL provides that stockholders are not entitled to cumulate votes in the election of directors unless a corporation’s certificate of incorporation provides otherwise. Our restated certificate of incorporation will not provide for cumulative voting.
•Directors Removed Only for Cause. Our restated certificate of incorporation will provide that stockholders may remove directors only for cause.
•Issuance of Undesignated Preferred Stock. Our restated certificate of incorporation will provide that our board of directors has the authority, without further action by the stockholders, to issue up to 50,000,000 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.
•Exclusive Forum. Our restated certificate of incorporation will provide that, to the fullest extent permitted by law, the Court of Chancery of the State of Delaware will be the exclusive forum for any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the DGCL, our restated certificate of incorporation or our restated bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine. Our restated bylaws will also provide that the federal district courts of the United States will, to the fullest extent permitted by law, be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act, or the Federal Forum Provision. While there can be no assurance that federal or state courts will follow the holding of the Delaware Supreme Court, which recently found that such provisions are facially valid under Delaware law, or determine that the Federal Forum Provision should be enforced in a particular case, application of the Federal Forum Provision means that suits brought by our stockholders to enforce any duty or liability created by the Securities Act must be brought in federal court and cannot be brought in state court. Neither the exclusive forum provision nor the Federal Forum Provision applies to suits brought to enforce any duty or liability created by the Exchange Act. Section 27 of the Exchange Act creates exclusive federal jurisdiction over all claims brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. Accordingly, actions by our stockholders to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder also must be brought in federal court. Our stockholders will not be deemed to have waived our compliance with the federal securities laws and the regulations promulgated thereunder. Any person or entity purchasing or otherwise acquiring or holding any interest in any of our securities shall be deemed to have notice of and consented to our exclusive forum provisions, including the Federal Forum Provision. These provisions may limit a stockholder’s ability to bring a claim in a judicial forum of their choosing for disputes with us or our directors, officers, or other employees, which may discourage lawsuits against us and our directors, officers, and other employees.
Listing
We have applied to list our Class A common stock on the New York Stock Exchange under the symbol “ZIP.”
Transfer Agent and Registrar
Upon the effectiveness of the registration statement of which this prospectus forms a part, the transfer agent and registrar for our Class A common stock and Class B common stock will be American Stock Transfer & Trust Company, LLC. The address of the transfer agent and registrar is 6201 15th Avenue, Brooklyn, NY 11219, and its telephone number is (718) 921-8257.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the listing of our Class A common stock on the New York Stock Exchange, there has been no public market for our shares of Class A common stock, and we cannot predict the effect, if any, that 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 price of our Class A common stock prevailing from time to time. Sales or distributions of substantial amounts of our Class A common stock, or the perception that such sales could occur, could adversely affect the public price of our Class A common stock and may make it more difficult for you to sell your Class A common stock at a time and price that you deem appropriate. We will have no input if and when any registered stockholder may, or may not, elect to sell its shares of Class A common stock or the prices at which any such sales may occur. Future sales of our Class A common stock, including shares issued upon the exercise of outstanding stock options, or the availability of such shares for sale, could adversely affect market prices prevailing from time to time.
Upon the effectiveness of the registration statement of which this prospectus forms a part, based on the number of shares of our capital stock outstanding as of March 31, 2021, we had no shares of our Class A common stock and 107,278,454 shares of our Class B common stock, assuming (1) the conversion of 2,271,437 shares of our Series A convertible preferred stock and 6,030,706 shares of our Series B convertible preferred stock outstanding as of March 31, 2021 into 24,202,202 shares of our Class B common stock and (2) the conversion of the Convertible Notes as of March 31, 2021 into 3,073,594 shares of our Class B common stock at a conversion price of $8.2909 per share (which is the maximum price per share at which the convertible promissory notes are convertible by their terms, as further described within the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Convertible Notes with Related Parties”), which conversion shall occur immediately following the first day of trading of our Class A common stock on the New York Stock Exchange. This excludes 1,860,101 shares of Class B common stock related to the RSUs for which the service-based vesting condition was satisfied as of March 31, 2021 for which our board of directors has waived the liquidity event-based vesting condition effective as of the earlier of the first day of trading of our Class A common stock on the New York Stock Exchange and March 15, 2022.
Shares of our Class A common stock and Class B common stock will be deemed “restricted securities” (as defined in Rule 144 under the Securities Act). Restricted securities may be sold in the public market only if they are registered or if they qualify for an exemption from registration under Rule 144 or Rule 701 under the Securities Act, which rules are summarized below. Following the effectiveness of the registration statement of which this prospectus forms a part, shares of our Class A common stock may be sold either by the registered stockholders pursuant to this prospectus or by our other existing stockholders in accordance with Rule 144 of the Securities Act.
As further described below, until we have been a reporting company for at least 90 days, only non-affiliates who have beneficially owned their shares of Class A common stock for a period of at least one year will be able to sell their shares of Class A common stock under Rule 144, which is expected to include approximately 22,128,197shares of Class A common stock issuable upon conversion of outstanding shares of Class B common stock, immediately after our registration.
Rule 144
In general, under Rule 144, as currently in effect, once we have been subject to the public company reporting requirements of Section 13 or Section 15(d) of the Exchange Act for at least 90 days, a person who is not deemed to have been one of our affiliates for purposes of the Securities Act at any time during the 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least six months, including the holding period of any prior owner other than our affiliates, is entitled to sell those shares without complying with the manner of sale, volume limitation, or notice provisions of Rule 144, subject to compliance with the public information requirements of Rule 144. If such a person has beneficially owned the shares proposed to be sold for at least one year, including the holding period of
any prior owner other than our affiliates, then that person would be entitled to sell those shares without complying with any of the requirements of Rule 144.
In general, under Rule 144, as currently in effect, our affiliates or persons selling shares on behalf of our affiliates are entitled to sell, within any three-month period a number of shares of Class A common stock that does not exceed the greater of:
•1% of the number of shares of our Class A common stock then outstanding; or
•the average weekly trading volume of our Class A common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to that sale.
Sales under Rule 144 by our affiliates or persons selling shares on behalf of our affiliates are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us.
Rule 701
Rule 701 generally allows a stockholder who purchased shares of our capital stock pursuant to a written compensatory plan or contract and who is not deemed to have been an affiliate of our company during the immediately preceding 90 days to sell these shares in reliance upon Rule 144, but without being required to comply with the public information, holding period, volume limitation, or notice provisions of Rule 144. Rule 701 also permits affiliates of our company to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. All holders of Rule 701 shares, however, are required by that rule to wait until 90 days after the date of this prospectus before selling those shares pursuant to Rule 701.
Registration Rights
Pursuant to the IRA, we have granted demand, Form S-3, and piggyback registration rights to certain of our stockholders to sell our Class A common stock or Class B common stock. Registration of the sale of these shares under the Securities Act would result in these shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of the registration, except for shares purchased by affiliates. See the section titled “Description of Capital Stock—Registration Rights” for additional information.
Registration Statements on Form S-8
In connection with the effectiveness of the registration statement of which this prospectus forms a part, we intend to file one or more registration statements on Form S-8 under the Securities Act covering all of the shares of our Class A common stock and Class B common stock subject to outstanding stock options and RSU awards, and the shares of our Class A common stock reserved for issuance under our equity incentive plans. We expect to file these registration statements as soon as permitted under the Securities Act. However, the shares registered on Form S-8 may be subject to the volume limitations and the manner of sale, notice, and public information requirements of Rule 144.
SALE PRICE HISTORY OF OUR CAPITAL STOCK
We intend to apply to list our Class A common stock on the New York Stock Exchange. Prior to the initial listing, no public market existed for our Class A common stock. However, our Class B common stock has a history of trading in private transactions. The table below shows the high and low sales prices for our Class B common stock in private transactions by our stockholders, for the indicated periods, as well as the volume weighted average price per share, based on information available to us. We have calculated the number of shares outstanding at each period end assuming (1) the conversion of 2,271,437 shares of our Series A convertible preferred stock and 6,030,706 shares of our Series B convertible preferred stock into 24,202,202 shares of our Class B common stock with respect to the calculation of the number of shares outstanding at each period end and (2) the conversion of the Convertible Notes into 3,073,594 shares of our Class B common stock at a conversion price of $8.2909 per share (which is the maximum price per share at which the convertible promissory notes are convertible by their terms, as further described within the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Convertible Notes with Related Parties”), which conversion shall occur immediately following the first day of trading of our Class A common stock on the New York Stock Exchange, as if such conversion had occurred as of March 31, 2021. This information may have little or no relation to broader market demand for our Class A common stock and thus the opening public price and subsequent public price of our Class A common stock on the New York Stock Exchange. As a result, you should not place undue reliance on these historical private sales prices as they may differ materially from the opening public price and subsequent public price of our Class A common stock on the New York Stock Exchange. See the section titled “Risk Factors—Risks Related to Ownership of Our Class A Common Stock—The trading price of our Class A common stock, upon listing on the New York Stock Exchange, may have little or no relationship to the
historical sales prices of our capital stock in private transactions, and such private transactions have been limited.”
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Per Share Sale Price
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Number of
Shares Sold in the
Period
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Volume
Weighted
Average Price
(VWAP)
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Number of
Shares Outstanding
(Period End)
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High
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Low
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Annual
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Year Ended December 31, 2020
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$
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6.36
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$
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6.36
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2,987,420
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$
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6.36
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102,290,277
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Year Ended December 31, 2021 (through April 30, 2021)
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9.00
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9.00
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50,000
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9.00
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107,278,454
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Quarterly
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Year Ended December 31, 2020
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First Quarter
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—
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—
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—
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Second Quarter
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—
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—
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—
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Third Quarter
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—
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—
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—
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Fourth Quarter
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6.36
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6.36
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2,987,420
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6.36
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102,290,277
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Year Ended December 31, 2021
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First Quarter
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9.00
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9.00
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50,000
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9.00
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107,278,454
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Second Quarter (through April 30, 2021)
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—
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—
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—
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107,278,454
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Monthly
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Year Ended December 31, 2020
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June
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—
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—
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—
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July
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—
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—
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—
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August
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—
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—
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—
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September
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—
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—
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—
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October
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—
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—
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—
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November
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6.36
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6.36
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2,987,420
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6.36
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101,642,806
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December
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—
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—
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—
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Year Ended December 31, 2021
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January
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9.00
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9.00
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50,000
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9.00
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102,870,321
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February
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—
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—
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—
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—
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March
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—
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—
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—
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—
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April
|
—
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|
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—
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|
|
—
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|
|
|
—
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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS OF OUR CLASS A COMMON STOCK
The following summary describes the material U.S. federal income tax consequences of the acquisition, ownership and disposition by Non-U.S. Holders (as defined below) of our Class A common stock. This discussion does not describe all of the tax considerations that may be relevant to a particular holder's acquisition, ownership or disposition of our Class A common stock. In addition, this discussion does not discuss the potential application of the alternative minimum tax or the Medicare Contribution tax and does not deal with state or local taxes, U.S. federal gift, and estate tax laws, except to the limited extent provided below, or any non-U.S. tax consequences that may be relevant to holders of our Class A common stock in light of their particular circumstances.
Special rules different from those described below may apply to certain holders that are subject to special treatment under the Code, such as:
•insurance companies, banks, and other financial institutions;
•tax-exempt organizations (including private foundations) and tax-qualified retirement plans;
•foreign governments and international organizations;
•broker-dealers and traders in securities;
•U.S. expatriates and certain former citizens or long-term residents of the United States;
•persons required for U.S. federal income tax purposes to conform the timing of income accruals to their financial statements under Section 451(b) of the Code;
•persons that own, or are deemed to own, more than five percent of our capital stock;
•“controlled foreign corporations,” “passive foreign investment companies,” and corporations that accumulate earnings to avoid U.S. federal income tax;
•persons that hold our Class A common stock as part of a “straddle,” “hedge,” “conversion transaction,” “synthetic security,” or integrated investment or other risk reduction strategy;
•persons who do not hold our Class A common stock as a capital asset within the meaning of Section 1221 of the Code (generally, for investment purposes);
•persons who hold or receive our Class A common stock pursuant to the exercise of any employee stock option or otherwise as compensation;
•“qualified foreign pension funds” as defined in Section 897(l)(2) of the Code and entities all of the interests of which are held by qualified foreign pension funds; and
•partnerships and other pass-through entities, and investors in such pass-through entities (regardless of their places of organization or formation).
Such Non-U.S. Holders are urged to consult their own tax advisors to determine the U.S. federal, state, local, and other tax consequences that may be relevant to them.
If an entity treated as partnership for U.S. federal income tax purposes holds our common stock, the tax treatment of a partner in the partnership will depend on the status of the partner, the activities of the partnership, and certain determinations made at the partner level. Accordingly, partnerships holding our common stock and the partners in such partnerships should consult their tax advisors regarding the U.S. federal income tax consequences to them.
Furthermore, the discussion below is based upon the provisions of the Code, and Treasury regulations, rulings, and judicial decisions thereunder as of the date hereof, and such authorities may be repealed, revoked, or modified, possibly with retroactive effect, and are subject to differing interpretations which could result in U.S. federal income tax consequences different from those discussed below. We have not requested a ruling from the Internal Revenue Service, or IRS, with respect to the statements made and the conclusions reached in the following summary, and there can be no assurance that the IRS will agree with such statements and conclusions or will not take a contrary position regarding the tax consequences described herein, or that any such contrary position would not be sustained by a court.
PERSONS CONSIDERING THE PURCHASE OF OUR CLASS A COMMON STOCK SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF ACQUIRING, OWNING, AND DISPOSING OF OUR CLASS A COMMON STOCK IN LIGHT OF THEIR PARTICULAR SITUATIONS AS WELL AS ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER TAXING JURISDICTION, INCLUDING ANY STATE, LOCAL, OR NON-U.S. TAX CONSEQUENCES OR ANY U.S. FEDERAL NON-INCOME TAX CONSEQUENCES, AND THE POSSIBLE APPLICATION OF TAX TREATIES.
For purposes of this discussion, a “Non-U.S. Holder” is a beneficial owner of our Class A common stock that is not a U.S. Holder or a partnership for U.S. federal income tax purposes. A “U.S. Holder” means a beneficial owner of our Class A common stock that is, for U.S. federal income tax purposes:
•an individual who is a citizen or resident of the United States;
•a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States or any political subdivision thereof; or
•an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source.
An individual non-U.S. citizen may, in some cases, be deemed to be a resident alien (as opposed to a nonresident alien) by virtue of being present in the United States for at least 31 days in the calendar year and for an aggregate of at least 183 days during a three-year period ending in the current calendar year. Generally, for this purpose, all the days present in the current year, one-third of the days present in the immediately preceding year, and one-sixth of the days present in the second preceding year, are counted.
Resident aliens are generally subject to U.S. federal income tax as if they were U.S. citizens. Individuals who are uncertain of their status as resident or nonresident aliens for U.S. federal income tax purposes are urged to consult their own tax advisors regarding the U.S. federal income tax consequences of the ownership or disposition of our Class A common stock.
Distributions on Our Class A Common Stock
As described in the section entitled “Dividend Policy,” we have never declared or paid cash dividends on our capital stock, and we do not anticipate paying any dividends on our capital stock in the foreseeable future. If we do make distributions on our Class A common stock, however, such distributions made to a Non-U.S. Holder of our Class A common stock will constitute dividends for U.S. federal income tax purposes to the extent paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). Distributions in excess of our current and accumulated earnings and profits will constitute a return of capital that is applied against and reduces, but not below zero, a Non-U.S. Holder’s adjusted tax basis in our Class A common stock. Any remaining excess will be treated as gain realized on the sale or exchange of our Class A common stock as described below under “—Gain on Disposition of Our Class A Common Stock.”
Any distribution on our Class A common stock that is treated as a dividend paid to a Non-U.S. Holder that is not effectively connected with the holder’s conduct of a trade or business in the United States will
generally be subject to withholding tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty between the United States and the Non-U.S. Holder’s country of residence. To obtain a reduced rate of withholding under a treaty, a Non-U.S. Holder will be required to provide the applicable withholding agent with a properly executed IRS Form W-8BEN or IRS Form W-8BEN-E, certifying the Non-U.S. Holder’s entitlement to the lower rate under that treaty. Such form must be provided prior to the payment of the applicable dividend and must be updated periodically. If a Non-U.S. Holder holds stock through a financial institution or other agent acting on the holder’s behalf, the holder will be required to provide appropriate documentation to such agent. The holder’s agent will then be required to provide certification to the applicable withholding agent, either directly or through other intermediaries. If you are eligible for a reduced rate of U.S. withholding tax under an income tax treaty, you should consult with your own tax advisor to determine if you are able to obtain a refund or credit of any excess amounts withheld by timely filing an appropriate claim for a refund with the IRS.
We (or an applicable withholding agent) are not required to withhold tax on dividends paid to a Non-U.S. Holder that are effectively connected with the holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, are attributable to a permanent establishment that the holder maintains in the United States) if a properly executed IRS Form W-8ECI, stating that the dividends are so connected, is furnished to us (or to the applicable withholding agent). In general, such effectively connected dividends will be subject to U.S. federal income tax on a net income basis at the regular rates applicable to United States persons. A corporate Non-U.S. Holder receiving effectively connected dividends may also be subject to an additional “branch profits tax,” which is imposed, under certain circumstances, at a rate of 30% (or such lower rate as may be specified by an applicable treaty) on the corporate Non-U.S. Holder’s effectively connected earnings and profits, subject to certain adjustments.
See also the section below titled “—Foreign Accounts” for additional withholding rules that may apply to dividends paid to certain foreign financial institutions or non-financial foreign entities.
Gain on Disposition of Our Class A Common Stock
Subject to the discussions below under the sections titled “—Backup Withholding and Information Reporting,” a Non-U.S. Holder generally will not be subject to U.S. federal income or withholding tax with respect to gain realized on a sale or other disposition of our Class A common stock unless (1) the gain is effectively connected with a trade or business of the holder in the United States (and, if required by an applicable income tax treaty, is attributable to a permanent establishment that the holder maintains in the United States), (2) the Non-U.S. Holder is a nonresident alien individual and is present in the United States for 183 or more days in the taxable year of the disposition and certain other conditions are met, or (3) we are or have been a “United States real property holding corporation” within the meaning of Code Section 897(c)(2) at any time within the shorter of the five-year period preceding such disposition or the holder’s holding period in our Class A common stock.
Non-U.S. Holders recognizing gain described in (1) above will be required to pay tax on the net gain derived from the sale at the regular U.S. federal income tax rates applicable to U.S. persons. Corporate Non-U.S. Holders described in (1) above may also be subject to the additional branch profits tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. An individual Non-U.S. Holder described in (2) above will be required to pay a flat 30% tax on the gain derived from the sale, which gain may be offset by certain U.S. source capital losses (even though such holder is not considered a resident of the United States), provided the Non-U.S. Holder has timely filed U.S. federal income tax returns with respect to such losses. With respect to (3) above, in general, we would be a United States real property holding corporation if United States real property interests (as defined in the Code and the Treasury Regulations) comprised (by fair market value) at least half of our real property interests and assets used in a trade or business. We believe that we are not, and do not anticipate becoming, a United States real property holding corporation. However, there can be no assurance that we will not become a United States real property holding corporation in the future. Even if we are treated as a United States real property holding corporation, gain realized by a Non-U.S. Holder
on a disposition of our Class A common stock will not be subject to U.S. federal income tax so long as (1) the Non-U.S. Holder owned, directly, indirectly, and constructively, no more than five percent of our Class A common stock at all times within the shorter of (a) the five-year period preceding the disposition or (b) the holder’s holding period and (2) our Class A common stock is regularly traded on an established securities market for purposes of the relevant tax rules. There can be no assurance that our Class A common stock will qualify as regularly traded on an established securities market.
U.S. Federal Estate Tax
The estates of nonresident alien individuals generally are subject to U.S. federal estate tax on property with a U.S. situs. Because we are a U.S. corporation, our Class A common stock will be U.S. situs property and, therefore, will be included in the taxable estate of a nonresident alien decedent, unless an applicable estate tax treaty between the United States and the decedent’s country of residence provides otherwise. The terms “resident” and “nonresident” are defined differently for U.S. federal estate tax purposes than for U.S. federal income tax purposes. Investors are urged to consult their own tax advisors regarding the U.S. federal estate tax consequences of the acquisition, ownership or disposition of our Class A common stock.
Backup Withholding and Information Reporting
Generally, we or certain financial middlemen must report information to the IRS with respect to any distributions we pay on our Class A common stock, including the amount of any such distributions, the name and address of the recipient, and the amount, if any, of tax withheld, regardless of whether such distributions constitute dividends or whether any tax was actually withheld. A similar report is sent to the holder to whom any such distributions are paid. Pursuant to tax treaties or certain other agreements, the IRS may make its reports available to tax authorities in the recipient’s country of residence.
Dividends paid by us (or our paying agents) to a Non-U.S. Holder may also be subject to U.S. backup withholding. U.S. backup withholding generally will not apply to a Non-U.S. Holder who provides a properly executed IRS Form W-8BEN or IRS Form W-8BEN-E, as applicable, or otherwise establishes an exemption, provided that the applicable withholding agent does not have actual knowledge or reason to know the holder is a United States person.
Under current U.S. federal income tax law, U.S. information reporting and backup withholding requirements generally will apply to the proceeds of a sale or other taxable disposition of our Class A common stock effected by or through a U.S. office of any broker, U.S. or non-U.S., unless the Non-U.S. Holder provides a properly executed IRS Form W-8BEN or IRS Form W-8BEN-E, as applicable, or otherwise meets documentary evidence requirements for establishing non-United States person status or otherwise establishes an exemption. Generally, U.S. information reporting and backup withholding requirements will not apply to a payment of disposition proceeds to a Non-U.S. Holder where the transaction is effected outside the United States through a non-U.S. office of a non-U.S. broker. Information reporting and backup withholding requirements may, however, apply to a payment of disposition proceeds if the broker has actual knowledge, or reason to know, that the holder is, in fact, a United States person. For information reporting purposes only, certain U.S. related brokers may be treated in a manner similar to U.S. brokers.
Backup withholding is not an additional tax. If backup withholding is applied to you, you should consult with your own tax advisor to determine whether you have overpaid your U.S. federal income tax, and whether you are able to obtain a tax refund or credit of the overpaid amount.
Foreign Accounts
In addition, U.S. federal withholding taxes may apply under the Foreign Account Tax Compliance Act, or FATCA, on certain types of payments, including dividends on our Class A common stock, made to non-U.S. financial institutions and certain other non-U.S. entities. Specifically, a 30% withholding tax may be imposed on dividends with respect to our Class A common stock paid to a “foreign financial institution” or
a “non-financial foreign entity” (each as defined in the Code), unless (1) the foreign financial institution agrees to undertake certain diligence and reporting obligations, (2) the non-financial foreign entity either certifies it does not have any “substantial United States owners” (as defined in the Code) or furnishes identifying information regarding each substantial United States owner, or (3) the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from these rules. If the payee is a foreign financial institution and is subject to the diligence and reporting requirements in (1) above, it must enter into an agreement with the U.S. Department of the Treasury requiring, among other things, that it undertake to identify accounts held by certain “specified United States persons” or “United States-owned foreign entities” (each as defined in the Code), annually report certain information about such accounts, and withhold 30% on certain payments to non-compliant foreign financial institutions and certain other account holders. Under proposed U.S. Treasury Regulations, this withholding tax will not apply to the gross proceeds from any sale or disposition of our common stock. Withholding agents may, but are not required to, rely on the proposed Treasury Regulations until final Treasury Regulations are issued. Foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the United States concerning FATCA may be subject to different rules.
Prospective investors should consult their tax advisors regarding the potential application of withholding under FATCA to their investment in our Class A common stock.
EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF ACQUIRING, HOLDING, AND DISPOSING OF OUR CLASS A COMMON STOCK, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLE LAW, AS WELL AS TAX CONSEQUENCES ARISING UNDER ANY STATE, LOCAL, NON-U.S. OR U.S. FEDERAL NON-INCOME TAX LAWS SUCH AS ESTATE AND GIFT TAX.
PLAN OF DISTRIBUTION
The registered stockholders may sell their shares of Class A common stock covered hereby pursuant to brokerage transactions on the New York Stock Exchange, or other public exchanges or registered alternative trading venues, at prevailing market prices at any time after the shares of Class A common stock are listed for trading.
We are not party to any arrangement with any registered stockholder or any broker-dealer with respect to sales of shares of Class A common stock by the registered stockholders, except we have engaged financial advisors with respect to certain other matters relating to the registration and listing of our Class A common stock, as further described below. As such, we will have no input if and when any registered stockholder may, or may not, elect to sell their shares of Class A common stock or the prices at which any such sales may occur, and there can be no assurance that any registered stockholders will sell any or all of the shares of Class A common stock covered by this prospectus.
We will not receive any proceeds from the sale of shares of Class A common stock by the registered stockholders. We expect to recognize certain non-recurring costs as part of our transition to a publicly traded company, consisting of professional fees and other expenses. As part of our direct listing, these fees will be expensed in the period incurred and not deducted from net proceeds to the issuer as they would be in an initial public offering.
We have engaged Goldman Sachs & Co. LLC, or Goldman Sachs, and J.P. Morgan Securities LLC, or J.P. Morgan, as our financial advisors to advise and assist us with respect to certain matters relating to the registration and listing of our Class A common stock, including defining our objectives with respect to the filing of the registration statement of which this prospectus forms a part and the listing of our Class A common stock on the New York Stock Exchange, the preparation of the registration statement of which this prospectus forms a part, and the preparation of investor communications and presentations in connection with investor education, and to be available to consult with the designated market maker, or DMM, who will be setting the opening public price of our Class A common stock on the New York Stock Exchange. We also engaged Barclays Capital Inc., Evercore Group L.L.C., William Blair & Company, L.L.C., and Raymond James & Associates, Inc. as additional financial advisors to advise and assist us with respect to certain matters relating to our listing, including the preparation of the registration statement of which this prospectus forms a part and the preparation of investor communications and presentations in connection with investor education. However, our financial advisors have not been engaged to participate in investor meetings or to otherwise facilitate or coordinate price discovery activities or sales of our Class A common stock in consultation with us or on the behalf of others, except as described herein on our behalf with respect to consultation with the DMM on the opening public price in accordance with the New York Stock Exchange rules. We will endeavor, and it is our understanding that the financial advisors and any affiliated persons each will endeavor, to conduct our and their activities in compliance with Regulation M (to the extent that Regulation M applies to such activities) and the other anti-manipulation and antifraud provisions of the U.S. securities laws, including, for example, Sections 9(a) and 10(b) of the Exchange Act and Rule 10b-5 thereunder.
The DMM, acting pursuant to its obligations under the rules of the New York Stock Exchange, is responsible for facilitating an orderly opening for our Class A common stock. Based on information provided to the New York Stock Exchange, the opening public price of our Class A common stock on the New York Stock Exchange will be determined by buy and sell orders collected by the DMM from various broker-dealers and will be set based on the DMM’s determination of where buy orders can be matched with sell orders at a single price. On the New York Stock Exchange, buy orders priced equal to or higher than the opening public price and sell orders priced lower than or equal to the opening public price will participate in that opening trade. In accordance with the New York Stock Exchange direct listing rules, including Rule 104(a), because there has not been a recent sustained history of trading in our Class A common stock in a private placement market prior to listing, the New York Stock Exchange will consult with Goldman Sachs and J.P. Morgan, in order for the DMM to effect a fair and orderly opening of our Class A common stock on the New York Stock Exchange, without coordination with us, consistent with
the federal securities laws in connection with our direct listing. Instead, the input that the financial advisors provide to the DMM will be based on information they become aware of from potential investors and holders of our Class A common stock (which may include certain of the registered holders) in connection with investor education regarding the process and mechanics of the direct listing, the receipt of buy and sell orders, and other customary brokerage activities undertaken without coordination with us. Goldman Sachs and J.P. Morgan in their capacity as financial advisors to the Company, and who are available to consult with the DMM in accordance with New York Stock Exchange rules, are expected, but not obligated, to provide the DMM with our fair value per share, as determined by our most recently completed independent common stock valuation report, dated as of March 31, 2021, which was $22.85 per share of Class A common stock and Class B common stock. The common stock valuation report was prepared by an independent third party on behalf of the Company, and no financial advisor participated in the preparation of such report. Goldman Sachs and J.P. Morgan have provided this report to the DMM. The DMM, in consultation with Goldman Sachs and J.P. Morgan, is also expected to consider the information in the section titled “Sale Price History of our Capital Stock.”
Similar to how a security being offered in an underwritten initial public offering would open on the first day of trading, before the opening public price of our Class A common stock is determined, the DMM may publish one or more pre-opening indications, which provides the market with a price range of where the DMM anticipates the opening public price will be, based on the buy and sell orders entered on the New York Stock Exchange. The pre-opening indications will be available on the consolidated tape and New York Stock Exchange market data feeds. As part of this opening process, the DMM will continue to update the pre-opening indication until the buy and sell orders reach equilibrium and can be priced by offsetting one another to determine the opening public price of our Class A common stock.
In connection with the process described above, a DMM in a direct listing may have less information available to it to determine the opening public price of our Class A common stock than a DMM would in an underwritten initial public offering. For example, because we are pursuing an initial public offering via a Direct Listing, which does not involve an underwritten initial public offering, our financial advisors will not have engaged in a book building process, and as a result, they will not be able to provide input to the DMM that is based on or informed by that process. Moreover, prior to the opening trade, there will not be a price at which underwriters initially sold shares of our Class A common stock to the public as there would be in an underwritten initial public offering. This lack of an initial public offering price could impact the range of buy and sell orders collected by the New York Stock Exchange from various broker-dealers. Consequently, the public price of our Class A common stock may be more volatile than in an underwritten initial public offering and could, upon listing on the New York Stock Exchange, decline significantly and rapidly. See the section titled “Risk Factors—Risks Related to the Ownership of Our Class A Common Stock—The registration and listing of our Class A common stock differs significantly from an underwritten initial public offering” and “Risk Factors—Risks Related to Ownership of Our Class A Common Stock—The trading price of our Class A common stock, upon listing on the New York Stock Exchange, may have little or no relationship to the historical sales prices of our capital stock in private transactions, and such private transactions have been limited.”
In addition to sales made pursuant to this prospectus, the shares of Class A common stock covered by this prospectus may be sold by the registered stockholders in individually negotiated transactions exempt from the registration requirements of the Securities Act.
If any of the registered stockholders utilize a broker-dealer in the sale of the shares of Class A common stock being offered by this prospectus, such broker-dealer may receive commissions in the form of discounts, concessions, or commissions from such registered stockholder or commissions from purchasers of the shares of Class A common stock for whom they may act as agent or to whom they may sell as principal.
LEGAL MATTERS
Fenwick & West LLP, Santa Monica, California, which has acted as our counsel in connection with this listing, will pass upon the validity of the shares of our Class A common stock registered by this prospectus. Latham & Watkins LLP, Menlo Park, California, is legal advisor to the financial advisors.
EXPERTS
The financial statements as of December 31, 2019 and 2020 and for the years then ended included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have 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 covered 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 or the exhibits filed therewith. For further information about us and our Class A common stock, we refer you to the registration statement and the exhibits filed therewith. Statements contained in this prospectus regarding the contents of any contract or any other document that is filed as an exhibit to the registration statement are not necessarily complete, and in each instance, we refer you to the copy of such contract or other document filed as an exhibit to the registration statement. The SEC maintains a website that contains reports, proxy statements, and other information regarding registrants that file electronically with the SEC. The address of the website is www.sec.gov.
Immediately upon the effectiveness of the registration statement of which this prospectus forms a part, 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 website of the SEC referred to above. We also maintain a website at www.ziprecruiter.com. Upon the effectiveness of the registration statement of which this prospectus forms a part, you may access these materials free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. The inclusion of our website address in this prospectus is an inactive textual reference only. The information contained in or accessible through our website is not part of this prospectus or the registration statement of which this prospectus forms a part, and investors should not rely on such information in making a decision to purchase shares of our Class A common stock.
ZIPRECRUITER, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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Audited Consolidated Financial Statements of ZipRecruiter, Inc. as of December 31, 2019 and 2020 and for the two years then ended
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Index to Unaudited Interim Condensed Consolidated Financial Statements of ZipRecruiter, Inc. as of March 31, 2021 and for the three months ended March 31, 2020 and 2021
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of ZipRecruiter, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of ZipRecruiter, Inc. and its subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of operations, of changes in redeemable convertible preferred stock and stockholders’ deficit, and of cash flows for the years then ended, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Los Angeles, California
March 9, 2021
We have served as the Company's auditor since 2015.
ZipRecruiter, Inc.
Consolidated Balance Sheets
(in thousands, except par value)
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December 31,
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2019
|
|
2020
|
|
Assets
|
|
|
|
|
Current assets
|
|
|
|
|
Cash
|
$
|
35,529
|
|
|
$
|
114,539
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|
|
Accounts receivable, net of allowances of $5,128 and $3,933 at December 31, 2019 and 2020, respectively
|
25,575
|
|
|
21,036
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|
|
Prepaid expenses and other assets
|
7,107
|
|
|
5,462
|
|
|
Deferred commissions, current portion
|
2,431
|
|
|
3,727
|
|
|
Total current assets
|
70,642
|
|
|
144,764
|
|
|
Property and equipment, net
|
6,090
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|
|
5,043
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|
|
Operating lease right-of-use assets
|
22,275
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|
|
22,500
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|
|
Internal use software, net
|
12,874
|
|
|
11,191
|
|
|
Deferred commissions, net of current portion
|
3,328
|
|
|
3,712
|
|
|
Intangible assets, net
|
328
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|
|
—
|
|
|
Goodwill
|
1,724
|
|
|
1,724
|
|
|
Deferred tax assets, net
|
172
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|
|
23,083
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|
|
Other assets
|
291
|
|
|
112
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|
|
Total assets
|
$
|
117,724
|
|
|
$
|
212,129
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|
|
Liabilities, Redeemable Convertible Preferred Stock and Stockholders' Deficit
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|
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|
|
Current liabilities
|
|
|
|
|
Accounts payable
|
$
|
8,477
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|
|
$
|
13,509
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|
|
Accrued expenses
|
42,876
|
|
|
38,842
|
|
|
Deferred revenue
|
18,458
|
|
|
15,112
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|
|
Deferred payroll tax liability, current portion
|
—
|
|
|
1,677
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|
|
Operating lease liabilities, current portion
|
5,823
|
|
|
1,669
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|
|
Other liabilities
|
248
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|
|
646
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|
|
Long-term borrowing, current portion
|
278
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|
|
—
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|
|
Total current liabilities
|
76,160
|
|
|
71,455
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|
|
Long-term borrowing, net of current portion
|
9,722
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|
|
—
|
|
|
Operating lease liabilities, net of current portion
|
21,119
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|
|
25,130
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|
|
Convertible notes and accrued interest with related parties
|
—
|
|
|
25,371
|
|
|
Deferred payroll tax liability, net of current portion
|
—
|
|
|
1,818
|
|
|
Other liabilities
|
61
|
|
|
1,795
|
|
|
Total liabilities
|
107,062
|
|
|
125,569
|
|
|
Commitments and contingencies (Note 11)
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|
|
|
|
Redeemable convertible preferred stock
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|
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|
|
Series A, $0.00001 par value; 2,271 shares authorized, issued, and outstanding; liquidation preference of $94,500 as of December 31, 2019 and 2020
|
83,375
|
|
|
87,118
|
|
|
Series B, $0.00001 par value; 6,151 shares authorized, 6,031 shares issued and outstanding; liquidation preference of $50,000 as of December 31, 2019 and 2020
|
49,598
|
|
|
49,738
|
|
|
Total redeemable convertible preferred stock
|
132,973
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|
|
136,856
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|
|
Stockholders' deficit
|
|
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Common stock, $0.00001 par value; 137,800 shares authorized, 79,583 and 78,283 shares issued, and 79,388 and 78,088 shares outstanding as of December 31, 2019 and 2020, respectively
|
—
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|
|
—
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|
|
Treasury stock, 195 shares outstanding as of December 31, 2019 and 2020
|
(644)
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|
|
(644)
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|
|
Additional paid-in capital
|
35,339
|
|
|
21,732
|
|
|
Accumulated deficit
|
(157,006)
|
|
|
(71,384)
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|
|
Total stockholders' deficit
|
(122,311)
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|
|
(50,296)
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|
|
Total liabilities, redeemable convertible preferred stock, and stockholders' deficit
|
$
|
117,724
|
|
|
$
|
212,129
|
The accompanying notes are an integral part of these consolidated financial statements.
F-3
ZipRecruiter, Inc.
Consolidated Statements of Operations
(in thousands, except per share data)
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Year Ended
December 31,
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2019
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2020
|
|
Revenue
|
$
|
429,559
|
|
|
$
|
418,142
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|
|
Cost of revenue
|
54,778
|
|
|
54,163
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|
|
Gross profit
|
374,781
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|
|
363,979
|
|
|
Operating expenses:
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|
|
|
|
Sales and marketing
|
276,197
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|
|
191,141
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|
|
Research and development
|
65,410
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|
|
69,408
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General and administrative
|
39,492
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|
|
38,998
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Total operating expenses
|
381,099
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|
299,547
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|
Income (loss) from operations
|
(6,318)
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|
64,432
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Other income (expense)
|
|
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Interest expense
|
(575)
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|
|
(1,037)
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|
Sublease income
|
1,170
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|
|
1,051
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|
Other expense, net
|
(38)
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|
|
(109)
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|
Total other income (expense), net
|
557
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|
|
(95)
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|
|
Income (loss) before income taxes
|
(5,761)
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|
|
64,337
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|
|
Income tax expense (benefit)
|
588
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|
|
(21,711)
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|
|
Net income (loss)
|
(6,349)
|
|
|
86,048
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|
|
Less: Accretion of redeemable convertible preferred stock
|
(3,722)
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|
|
(3,883)
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|
|
Less: Undistributed earnings attributable to participating securities
|
—
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|
|
(19,148)
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|
|
Net income (loss) attributable to common stockholders
|
$
|
(10,071)
|
|
|
$
|
63,017
|
|
|
Net income (loss) per share:
|
|
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|
|
Basic
|
$
|
(0.13)
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|
|
$
|
0.79
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|
Diluted
|
$
|
(0.13)
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|
|
$
|
0.70
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|
|
Weighted-average shares used in computing net income (loss) per share:
|
|
|
|
|
Basic
|
79,337
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|
|
79,651
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|
Diluted
|
79,337
|
|
|
94,156
|
|
|
Pro forma net income per share (unaudited):
|
|
|
|
|
Basic
|
|
|
$
|
0.23
|
|
|
Diluted
|
|
|
$
|
0.21
|
|
|
Weighted-average shares used in computing pro forma net income per share (unaudited):
|
|
|
|
|
Basic
|
|
|
106,085
|
|
|
Diluted
|
|
|
118,591
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-4
ZipRecruiter, Inc.
Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders’ Deficit
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable Convertible Preferred Stock
|
|
|
|
|
|
|
|
|
|
|
Additional
Paid-in
Capital
|
|
Accumulated
Deficit
|
|
Total
Stockholders'
Deficit
|
|
|
Series A
|
|
Series B
|
|
|
Common Stock
|
|
Treasury Stock
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
|
Balance as of
January 1, 2019
|
2,271
|
|
|
$
|
79,793
|
|
|
6,031
|
|
|
$
|
49,458
|
|
|
|
79,650
|
|
|
$
|
—
|
|
|
(195)
|
|
|
$
|
(644)
|
|
|
$
|
31,060
|
|
|
$
|
(150,657)
|
|
|
$
|
(120,241)
|
|
|
Issuance of common stock upon exercise of options
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
784
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
945
|
|
|
—
|
|
|
945
|
|
|
Vesting of early exercised restricted stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
66
|
|
|
—
|
|
|
66
|
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,990
|
|
|
—
|
|
|
6,990
|
|
|
Capital contribution
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
(851)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Accretion of redeemable convertible preferred stock
|
—
|
|
|
3,582
|
|
|
—
|
|
|
140
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,722)
|
|
|
—
|
|
|
(3,722)
|
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,349)
|
|
|
(6,349)
|
|
|
Balance as of December 31, 2019
|
2,271
|
|
|
$
|
83,375
|
|
|
6,031
|
|
|
$
|
49,598
|
|
|
|
79,583
|
|
|
$
|
—
|
|
|
(195)
|
|
|
$
|
(644)
|
|
|
$
|
35,339
|
|
|
$
|
(157,006)
|
|
|
$
|
(122,311)
|
|
|
Cumulative-effect of accounting change adopted as of January 1, 2020
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
426
|
|
(426)
|
|
—
|
|
Issuance of common stock upon exercise of options
|
—
|
|
—
|
|
—
|
|
—
|
|
|
2,184
|
|
—
|
|
—
|
|
—
|
|
2,943
|
|
—
|
|
2,943
|
|
Repurchase and retirement of common stock
|
—
|
|
—
|
|
—
|
|
—
|
|
|
(2,987)
|
|
—
|
|
—
|
|
—
|
|
(19,000)
|
|
—
|
|
(19,000)
|
|
Stock-based compensation
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
5,907
|
|
—
|
|
5,907
|
|
Capital contribution
|
—
|
|
—
|
|
—
|
|
—
|
|
|
(497)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Accretion of redeemable convertible preferred stock
|
—
|
|
3,743
|
|
—
|
|
140
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(3,883)
|
|
—
|
|
(3,883)
|
|
Net income
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
86,048
|
|
86,048
|
|
Balance as of December 31, 2020
|
2,271
|
|
$
|
87,118
|
|
6,031
|
|
$
|
49,738
|
|
|
78,283
|
|
$
|
—
|
|
(195)
|
|
$
|
(644)
|
|
$
|
21,732
|
|
$
|
(71,384)
|
|
$
|
(50,296)
|
The accompanying notes are an integral part of these consolidated financial statements.
F-5
ZipRecruiter, Inc.
Consolidated Statements of Cash Flows
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
2019
|
|
2020
|
|
Cash flows from operating activities
|
|
|
|
|
Net income (loss)
|
$
|
(6,349)
|
|
|
$
|
86,048
|
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
|
|
|
|
|
Stock-based compensation expense
|
6,740
|
|
|
5,752
|
|
|
Depreciation and amortization
|
8,944
|
|
|
9,949
|
|
|
Provision for bad debts
|
1,264
|
|
|
3,218
|
|
|
|
|
|
|
|
Deferred income taxes
|
(55)
|
|
|
(22,911)
|
|
|
Noncash lease expense
|
5,656
|
|
|
5,562
|
|
|
Loss on disposal of property and equipment
|
15
|
|
|
341
|
|
|
Change in operating assets and liabilities:
|
|
|
|
|
Accounts receivable
|
(9,851)
|
|
|
1,321
|
|
Prepaid expenses and other current assets
|
(783)
|
|
|
2,218
|
|
Deferred commissions, net
|
(3,908)
|
|
|
(1,680)
|
|
Other assets
|
74
|
|
|
179
|
|
Accounts payable
|
747
|
|
|
5,115
|
|
Accrued expenses and other liabilities
|
3,136
|
|
|
(1,318)
|
|
Deferred revenue
|
(1,608)
|
|
|
(3,346)
|
|
Deferred payroll taxes
|
—
|
|
|
3,495
|
|
Operating lease liabilities
|
(6,157)
|
|
|
(5,930)
|
|
Net cash provided by (used in) operating activities
|
(2,135)
|
|
|
88,013
|
|
|
Cash flows from investing activities
|
|
|
|
|
Purchases of property and equipment
|
(2,519)
|
|
|
(1,355)
|
|
Capitalized internal use software costs
|
(7,845)
|
|
|
(6,018)
|
|
Net cash used in investing activities
|
(10,364)
|
|
|
(7,373)
|
|
Cash flows from financing activities
|
|
|
|
|
Proceeds from term loan
|
—
|
|
|
10,000
|
|
|
Repayment of term loan
|
—
|
|
|
(20,000)
|
|
|
Proceeds from revolving line
|
—
|
|
|
16,500
|
|
|
Repayment of revolving line
|
—
|
|
|
(16,500)
|
|
|
Proceeds from convertible notes with related parties
|
—
|
|
|
25,000
|
|
|
Repurchase of common stock
|
—
|
|
|
(19,000)
|
|
|
Proceeds from exercise of stock options
|
945
|
|
|
2,370
|
|
|
Net cash provided by (used in) financing activities
|
945
|
|
|
(1,630)
|
|
|
Net increase (decrease) in cash
|
(11,554)
|
|
|
79,010
|
|
|
Cash
|
|
|
|
|
Beginning of year
|
47,083
|
|
|
35,529
|
|
End of year
|
$
|
35,529
|
|
|
$
|
114,539
|
|
Supplemental disclosure
|
|
|
|
|
Cash paid for taxes
|
$
|
877
|
|
|
$
|
1,003
|
|
|
Cash paid for interest
|
577
|
|
|
703
|
|
|
Supplemental disclosure of non-cash activities
|
|
|
|
|
Capitalized assets included in accounts payable and accrued expenses
|
$
|
1,405
|
|
|
$
|
1,109
|
|
|
Stock-based compensation capitalized for software development
|
250
|
|
|
155
|
|
|
In-transit proceeds from stock option exercise
|
—
|
|
|
573
|
|
|
|
|
|
|
|
Operating lease right-of-use assets obtained in exchange for new operating lease
|
—
|
|
|
5,787
|
|
|
Decrease in operating lease right-of-use asset and operating lease liability from lease modification
|
2,825
|
|
|
—
|
|
|
|
|
|
|
|
Accretion of redeemable convertible preferred stock
|
3,722
|
|
|
3,883
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-6
ZipRecruiter, Inc.
Notes to Consolidated Financial Statements
1.Description of Business
ZipRecruiter, Inc. was incorporated in the state of Delaware on June 29, 2010. Hereinafter, ZipRecruiter, Inc. and its wholly owned subsidiaries ZipRecruiter Israel Ltd., ZipRecruiter UK Ltd., and ZipRecruiter Canada Ltd. are collectively referred to as “ZipRecruiter” or the “Company.” The Company is a two-sided marketplace that enables employers and job seekers to connect with one another online to fill job opportunities.
2.Basis of Presentation, Principles of Consolidation and Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
Foreign Currency Remeasurement
The Company’s foreign subsidiaries operate in their local currency and their functional currency is the U.S. dollar. Monetary assets and liabilities of each subsidiary, denominated in local or other foreign currency, are remeasured at the end of each reporting period using the exchange rates at that date. Non-monetary assets and liabilities and equity are remeasured at the historical exchange rates, while results of operations in the local currency or other foreign currencies are translated into U.S. dollars at the exchange rates in effect at the date of the transaction. Net foreign transaction losses for the years ended December 31, 2019 and 2020 were not material.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Significant estimates include revenue recognition, estimates relating to the measurement of operating lease right-of-use (“ROU”) assets and operating lease liabilities, determination of the fair value of stock-based awards, valuation of common stock, collectability of accounts receivable, impairment of long-lived assets including goodwill, the carrying value and useful lives of property and equipment and internal-use software, the amortization period for deferred commission costs, and income taxes. By their nature, estimates are subject to an inherent degree of uncertainty and actual results could differ from those estimates.
The Company is subject to additional risks and uncertainties caused by the global outbreak of a novel strain of coronavirus (“COVID-19”). In March 2020, the World Health Organization declared COVID-19 a pandemic. In response to the pandemic, governments and organizations have taken preventative or protective actions, such as temporary closures of non-essential businesses and “shelter-at-home” guidelines for individuals to stop the spread of the virus, which has led to a decline in global economic activity. Consequently, there has been a reduction in hiring levels, which resulted in a decline in the Company’s revenue beginning in the second half of March 2020 from fewer contract renewals and a lower daily volume of transactions.
The extent of the impact of the COVID-19 pandemic on the Company’s business will depend on a number of factors, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. The estimated impact of the COVID-19 pandemic on the Company’s business and related events have been considered in determining the Company's estimates and
ZipRecruiter, Inc.
Notes to Consolidated Financial Statements
judgments, and the related carrying value of the Company's assets and liabilities. As of the date these consolidated financial statements are available for issuance, the Company is not aware of any specific event or circumstances that would require an update to the Company’s estimates or judgments, or a change to the carrying value of the Company’s assets or liabilities. However, these estimates and judgments may change and could result in a meaningful impact on the financial statements in future periods. Actual results could differ from those estimates and any such differences may have a material impact on the financial statements.
Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Accounting standards describe a fair value hierarchy based on the following three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:
- Level 1 — Quoted prices in active markets for identical assets, liabilities, or funds.
- Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
- Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The carrying amounts of the Company’s financial instruments, including accounts receivable, accounts payable, and accrued expenses approximate fair value because of their short-term maturities. Using Level 2 inputs, the carrying amount of long-term debt outstanding at December 31, 2019 was determined to approximate fair value due to the relationship between the interest rate on long-term debt and the borrowing rates available to the Company. The fair value of the Company’s convertible notes with related parties as of December 31, 2020 was estimated to be approximately $36.9 million and was based on the value of shares into which the notes convert. The value of the shares represents a Level 3 input in the fair value hierarchy.
Certain assets, including goodwill and intangible assets are also subject to measurement at fair value on a non-recurring basis using Level 3 inputs, but only when they are deemed to be impaired. For the years ended December 31, 2019 and 2020, no impairments were identified on those assets required to be measured at fair value on a non-recurring basis.
Segments and Geographic Information
The Company operates as a single operating segment. The Company’s Chief Operating Decision Maker (“CODM”), the Chief Executive Officer (“CEO”), regularly reviews financial information presented on a consolidated basis for purposes of assessing financial performance and allocating resources. During the years ended December 31, 2019 and 2020, revenue from countries outside of the United States was not material. In addition, as of December 31, 2019 and 2020, property and equipment and operating lease ROU assets outside of the United States were not material.
Unaudited pro forma net income per share
The unaudited pro forma net income per share is computed to give effect to the conversion of all outstanding shares of the redeemable convertible preferred stock and the convertible notes and accrued interest into shares of common stock, using the if-converted method, as of January 1, 2020 or the date of
ZipRecruiter, Inc.
Notes to Consolidated Financial Statements
issuance, if later. The unaudited pro forma net income per share also gives effect to stock-based compensation expense of $30.2 million, net of the blended federal and statutory tax rate of 26.0%, for RSUs that contain both service and liquidity event-based performance vesting conditions assuming the liquidity event-based performance condition was satisfied as of January 1, 2020 or the date of grant of the RSUs, if later. Stock-based compensation expense is based on the estimated fair value of the RSUs as of April 19, 2021, which management has estimated to be $25.04 per share. The unaudited pro forma net income per share also gives effect to 632,874 weighted-average shares related to RSUs which contain both service and performance vesting conditions for which the service-based condition was satisfied as of December 31, 2020 as if such issuance had occurred as of January 1, 2020, or the date of issuance, if later. Additionally, the unaudited pro forma net income per share gives effect to the $10.0 million special bonus that will be earned by the Company’s chief executive officer upon the first trading day following a direct listing and approximately $21.6 million in transaction expenses related to the listing of the Company’s common stock on the New York Stock Exchange.
Business Combinations
The results of businesses acquired in a business combination are included in the Company’s consolidated financial statements from the date of acquisition. Assets and liabilities acquired in a business combination are recorded at their estimated fair values on acquisition date. The excess of the purchase price over the fair values of identifiable assets and liabilities is recorded as goodwill.
Determining the fair value of assets acquired and liabilities assumed requires management to use significant judgment and estimates including the selection of valuation methodologies, estimates of future revenue and cash flows, discount rates and selection of comparable companies. The Company’s estimates of fair value are based on assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.
Transaction costs associated with business combinations are expensed as incurred.
Revenue Recognition
The Company recognizes revenue when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration it expects to be entitled to in exchange for those goods or services. The Company determines revenue recognition through the following five steps:
(1)Identification of the contract, or contracts, with a customer
(2)Identification of all performance obligations in the contract
(3)Determination of the transaction price
(4)Allocation of the transaction price to the performance obligations in the contract
(5)Recognition of revenue when, or as, the performance obligation or obligations are satisfied
The Company identifies enforceable revenue contracts when the terms are agreed to by the customer. Some of the Company’s contracts with customers contain multiple performance obligations. For these contracts, the Company accounts for performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. The Company determines the standalone selling prices based on its overall pricing objectives, taking into consideration market conditions and other factors, including the value of its contracts, the products sold, and the number and types of users within the Company’s contracts.
Revenue is recognized as performance obligations are satisfied and is presented net of the sales allowance.
ZipRecruiter, Inc.
Notes to Consolidated Financial Statements
The Company derives its revenues from the following sources:
Subscription Revenue
Subscription revenue consists of time-based job posting plans, upsells which complement or expand visibility and prominence to job posting plans, and resume database plans. Plans are priced at a flat rate based on plan size and whether the plan is for a daily, monthly, or annual term. Customer contracts are typically subject to renewal at the end of the subscription term. Contracts are only cancelable at the end of the term and are nonrefundable.
Time-based job posting plans: Job posting plans provide customers access to cloud-based software services, where they may create job postings that are posted to the Company’s marketplace in addition to numerous other job sites or partner networks with job seeker communities. Customers may also access the Company’s software to review job applications and manage job postings. The Company recognizes revenue from job posting plans ratably over the term of the agreement beginning on the date the subscription service is made available to the customer. Once a customer requests a cancellation of their subscription, the open job postings are closed at the end of the term; however, the customer may still access the software to review past job postings or prior applications received under a separate upsell subscription. Job posting plans are billed in advance of the subscription period, which typically ranges from one to twelve months, except for daily subscription plans, which are billed in arrears based on how many days the customer uses the services.
Upsell services: Additional features to complement or expand visibility to job posting plans may be purchased as an upsell service. For these services, the Company bills the customers in advance and recognizes revenue ratably over the term of the agreement beginning on the date the upsell services are made available to the customer, which typically ranges from one to twelve months.
Upsell services also include job posting enhancements which are applied to individual job postings, and provide customers with a temporary boost in the prominence of the job postings. Individual job posting enhancements may be purchased by a customer when needed, or in recurring monthly prepaid bundles to complement their job posting subscription plan, and are billed in advance of use. Typically these prepaid bundles can be used over a period ranging from one to twelve months. Revenue from job posting enhancements is recognized as the customer uses the enhancement on their job postings. Unused prepaid job enhancements are not refundable, and the Company recognizes revenue for the estimated portion of prepaid job enhancements that are expected to expire unused (“breakage”) based on estimates considering historical breakage levels for similarly sized customers and upsell plans. Breakage is recognized as revenue in proportion to the pattern of actual usage by customers.
Resume database plans: Access to the Company’s resume database is purchased on a subscription basis and allows a customer to search for and view resumes. Resume database plans are priced based on how many resumes the customer would like to view in a month and may be purchased independent of, or in addition to, a job posting plan. Resume database plans are billed in advance of the subscription period, which typically ranges from one to twelve months. Revenue is recognized ratably over the subscription period.
Performance-based Revenue
Performance-based revenue consists of customers who pay on a per click by job applicant or per job application basis for the job postings they wish to distribute through the Company’s software. Customers pay an amount per click or per application that is usually capped at a contractual maximum per recruitment campaign, with campaigns typically lasting from one to three months. Customers on this pricing model do not have access to the Company’s software for subscription customers though they may purchase resume database subscription plans separately. Customers that use performance-based plans are typically companies with consistent hiring needs and sophisticated recruitment campaigns where they manage incoming applications and job postings on their own applicant tracking systems.
ZipRecruiter, Inc.
Notes to Consolidated Financial Statements
The Company may distribute jobs to candidates from sources who have job seeker or candidate databases. When a job seeker from a candidate source clicks on or applies to a job posting, the Company pays the candidate source a percentage of the revenue the Company earns from its customer for the click or application according to the terms of the revenue share agreement. In these arrangements, the Company has responsibility for advertising the customer’s job postings, discretion in how and where it chooses to advertise the customer’s job postings and discretion in establishing the price paid by the customer. The Company recognizes the fees it receives from its customers as revenue and the revenue share due is recorded in cost of revenue in the Consolidated Statements of Operations.
Performance-based revenue is typically billed monthly, in arrears, and revenue is recognized as job applicants click or apply to the distributed job postings, up to the contractual maximum per recruitment campaign.
Sales Allowance
The Company establishes a sales allowance to estimate refunds and credits that it may grant to customers in the future for cancellations of subscriptions and concessions to customers who are not satisfied with services received. While subscriptions are noncancelable once the contract term has commenced, the Company may at times allow customers who miss their cancellation window prior to an autorenewal to cancel their contract, and the Company may issue refunds or credits to maintain overall customer satisfaction. The sales allowance is estimated by considering historical results and trends, and is accounted for as a reduction to revenue or deferred revenue for contracts where payments are received upfront and revenue is recognized over time.
The following table summarizes the changes in the sales allowance (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
2019
|
|
2020
|
|
Sales allowance, at beginning of year
|
$
|
3,597
|
|
|
$
|
8,781
|
|
|
Recorded as a reduction to revenue
|
31,179
|
|
|
15,548
|
|
|
Recorded as a reduction to deferred revenue
|
10,594
|
|
|
6,086
|
|
|
Utilization of allowance for refunds and credits
|
(36,589)
|
|
|
(26,053)
|
|
|
Sales allowance, at end of year
|
$
|
8,781
|
|
|
$
|
4,362
|
|
Of the total sales allowance balance of $8.8 million and $4.4 million at December 31, 2019 and 2020, respectively, $4.4 million and $1.9 million, respectively, was presented net of accounts receivable and $4.4 million and $2.4 million, respectively, was presented within accrued expenses on the Consolidated Balance Sheets. The amount netted against accounts receivable represents estimated future credits expected to be granted to customers who had not yet paid for services as of December 31, 2019 and 2020, and the amount included in accrued expenses represents estimated refunds expected to be granted to customers who had already paid.
Cost of Revenue
Cost of revenue consists of web hosting, credit card processing fees, personnel related costs (including salaries, bonuses, benefits and stock-based compensation) for customer support employees, partner revenue share amounts, job distribution costs from performance-based revenue, and amortization of capitalized software costs associated with the Company’s marketplace technology to provide services to its customers. In addition, the Company allocates a portion of overhead costs, such as rent, IT costs, supplies and depreciation and amortization to cost of revenue based on headcount.
Sales and Marketing
Sales and marketing expense consists of personnel related costs (including salaries, sales commissions, bonuses, benefits, and stock-based compensation) for the Company’s sales and marketing
ZipRecruiter, Inc.
Notes to Consolidated Financial Statements
employees and marketing activities. Marketing activities include advertising, online lead generation, customer and industry events and candidate acquisition. The Company allocates a portion of overhead costs, such as rent, IT costs, supplies and depreciation and amortization to sales and marketing expense based on headcount. Sales and marketing costs are expensed as incurred.
Advertising costs principally represent online advertising costs, direct mailing, television, podcast and radio advertisements. Advertising expense was $150.9 million and $98.3 million for the years ended December 31, 2019 and 2020, respectively.
At times, the Company may prepay certain advertising expenses, which are deferred and subsequently recognized as expense when the advertisement is released. The Company had $2.2 million and $0.5 million of prepaid advertising costs included in prepaid expenses in the Consolidated Balance Sheets as of December 31, 2019 and 2020, respectively.
Research and Development
Research and development expense consists of personnel related costs (including salaries, bonuses, benefits and stock-based compensation) for the Company’s research and development employees, amortization of capitalized software costs associated with the development of databases that support the Company’s marketplace technology and the cost of certain third-party service providers. The Company allocates a portion of overhead costs, such as rent, IT costs, supplies and depreciation and amortization to research and development expense based on headcount. Research and development costs, other than software development costs qualifying for capitalization, are expensed as incurred.
General and Administrative
General and administrative expense consists of personnel related costs (including salaries, bonuses, benefits and stock-based compensation) for employees in the Company’s executive, finance, human resource and administrative departments and fees for third party professional services, including consulting, legal and accounting services. In addition, the Company allocates a portion of overhead costs, such as rent, IT costs, supplies and depreciation and amortization to general and administrative expense based on headcount.
Stock-Based Compensation
The Company estimates the fair value of employee stock-based compensation awards on the grant-date and recognizes the resulting fair value over the requisite service period as stock-based compensation expense. The Company recognizes forfeitures as they occur. The Company estimates the fair value of restricted stock units based on the fair value of its common stock. The Company estimates the fair value of stock options using the Black-Scholes option pricing model. The Company has elected to treat stock-based compensation awards with graded vesting schedules and time-based service conditions as a single award and recognizes stock-based compensation on a straight-line basis over the requisite service period.
For awards that contain both performance and service vesting conditions, the grant date fair value is recognized as stock-based compensation expense using a graded vesting attribution model. No expense is recognized for awards with performance conditions until the performance condition is probable of being met.
The Black-Scholes option pricing model requires the Company to make certain assumptions including the fair value of the underlying common stock, the expected term, the expected volatility, the risk-free interest rate and the dividend yield.
ZipRecruiter, Inc.
Notes to Consolidated Financial Statements
Because there has been no public market for the Company’s common stock, the board of directors has determined the fair value of the common stock at the time of the grant of options by considering a number of objective and subjective factors including valuation of comparable companies, operating and financial performance and general and industry-specific economic outlook, amongst other factors. The fair value of the underlying common stock will be determined by the board of directors until such time as, and if, the Company’s common stock is listed on an established stock exchange or national market system. The fair value was determined in accordance with applicable elements of the practice aid issued by the American Institute of Certified Public Accountants titled, Valuation of Privately Held Company Equity Securities Issued as Compensation.
Given that the Company does not have sufficient exercise history to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior, the Company determines the expected term for its plain vanilla stock options using the simplified method, which is calculated as the midpoint of the stock option vesting term and the expiration date of the stock option.
Because the Company’s common stock has no publicly traded history, the Company estimates the expected volatility of the awards from the historical volatility of selected public companies that represent similar but alternative investment opportunities to an investment in the Company. Characteristics considered in identifying guideline public companies include similarity in size, lines of business, market capitalization, revenue and financial leverage. The Company determines the expected volatility assumption using the frequency of daily historical prices of comparable public company common stock for a period equal to the expected term of the option. The Company periodically assesses the comparable companies and other relevant factors used to measure expected volatility for stock option grants.
The risk-free interest rate assumption is based upon observed interest rates on the United States government securities appropriate for the expected term of the Company’s employee stock options.
The dividend yield assumption is based on the Company’s history and expectation of dividend payouts. The Company has never declared nor paid any cash dividends on its common stock, and the Company does not anticipate paying any cash dividends in the foreseeable future.
The determination of stock-based compensation is inherently uncertain and subjective and involves the application of valuation models and assumptions requiring the use of judgment. If the Company had made different assumptions, its stock-based compensation expense, and its results of operations for the years ended December 31, 2019 and 2020 may have been significantly different.
Income Taxes
The Company accounts for income taxes in accordance with Accounting Standards Codification (“ASC”) 740, Income Taxes. Current tax liabilities and assets are recognized for the estimated taxes payable or refundable, respectively, on the tax returns for the current year. Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.
The Company must also make judgments in evaluating whether deferred tax assets will be recovered from future taxable income. To the extent that it believes that recovery is not likely, the Company establishes a valuation allowance. A valuation allowance is established for deferred tax assets which the Company does not believe meet the “more likely than not” criteria. The Company’s judgments regarding future taxable income may change over time due to market conditions, tax laws, tax planning strategies or other factors. If the Company’s assumptions and estimates change in the future, the valuation allowance may materially increase or decrease, resulting in an increase or decrease in income tax expense and the related impact on the Company’s reported net loss.
The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical
ZipRecruiter, Inc.
Notes to Consolidated Financial Statements
merits of the position. The tax benefits recognized in the consolidated financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized. The Company recognizes interest and penalties accrued with respect to uncertain tax positions, if any, in the provision for income taxes in the Consolidated Statements of Operations.
Comprehensive Income (Loss)
For the years ended December 31, 2019 and 2020, the Company had no other comprehensive income (loss) items; therefore, comprehensive income (loss) equaled net income (loss). Accordingly, the Company has not included separate consolidated statements of comprehensive income (loss) as part of these consolidated financial statements.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and accounts receivable. The Company maintains its cash accounts with large financial institutions and at times, the cash accounts may exceed Federal Deposit Insurance Corporation (“FDIC”) limits. The Company has not experienced any losses in such accounts.
There were no customers that individually accounted for 10% or more of the Company’s outstanding accounts receivable as of December 31, 2019 and 2020. No customers represented 10% or more of revenue for the years ended December 31, 2019 and 2020.
The Company uses third parties to collect its credit card receivables and believes risk related to its credit card processors is minimal.
Accounts Receivable and Allowance for Doubtful Accounts
The Company receives payments via credit card, electronic payment or check. The Company’s accounts receivable consists of receivables from the Company’s credit card processing merchants and customers. Credit card payment is required unless the plan qualifies for credit terms which the Company may grant in the normal course of business. The Company does not normally require collateral or other security to support credit sales. Accounts receivable from customers do not bear interest, are typically due within 30 days and are recorded at the invoiced amount. The Company reduces accounts receivable by its allowance for doubtful accounts.
The Company regularly monitors collections and payments from customers and maintains an allowance for doubtful accounts for estimated losses resulting from the inability of customers to make required payments. Management estimates its allowance for doubtful accounts by considering a number of factors, including historical experience, the length of time accounts receivables are past due, customer payment histories and any specific customer collection issues identified. The Company writes off accounts receivables that have become uncollectible.
The Company’s allowance for doubtful accounts was $0.7 million and $2.0 million as of December 31, 2019 and 2020, respectively, which was recorded net within accounts receivable on the Consolidated Balance Sheets.
Property and Equipment
Property and equipment is initially recorded at cost, and depreciated using the straight-line method over the estimated useful lives of the assets, which is generally three years for computer hardware and software and five years for furniture and equipment. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or estimated useful life. Costs of maintenance and repairs that do not improve or extend the lives of the respective assets are expensed as incurred. Upon retirement or sale, the cost and related accumulated depreciation are removed from the Consolidated Balance Sheets and the resulting gain or loss is reflected in loss from operations in the Consolidated Statements of Operations.
ZipRecruiter, Inc.
Notes to Consolidated Financial Statements
Leases
Effective January 1, 2019, the Company adopted ASC 842, Leases, utilizing the modified retrospective transition method applied at the effective date of the standard. On the effective date, the Company recorded a cumulative adjustment to recognize operating lease liabilities of $35.9 million and corresponding operating lease ROU assets of $30.8 million on the Consolidated Balance Sheet. The operating lease ROU assets were recorded net of a $5.2 million reclassification of previously deferred or prepaid rent and lease incentives.
The Company determines at contract inception whether the arrangement is a lease based on its ability to control a physically distinct asset and determines the classification of the lease as either operating or finance. For all leases, the Company combines all components of the lease including related non-lease components as a single component. Operating leases are reflected as operating lease ROU assets and operating lease liabilities in the Consolidated Balance Sheets. The Company has also elected to utilize the short-term lease recognition exemption and, for those leases that qualify, the Company has not recognized operating lease ROU assets or operating lease liabilities. The Company does not have any finance leases.
Operating lease ROU assets represent the Company’s right to use an underlying asset for the lease term, and operating lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and operating lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate in determining the present value of lease payments. The Company estimates the incremental borrowing rate to reflect the profile of collateralized borrowing over the expected term of the leases based on the information available at the later of the initial date of adoption, or the lease commencement date.
The operating lease ROU asset also includes any lease payments made prior to lease commencement date and excludes lease incentives. Lease terms may include options to extend or terminate the lease when the Company is reasonably certain that it will exercise the option. Lease expense is recognized on a straight-line basis over the lease term in the Consolidated Statements of Operations. Lease incentives are recognized as a reduction to the lease expense on a straight-line basis over the underlying lease term. Certain lease agreements may contain variable costs such as utilities and common area maintenance. Variable lease costs are expensed when the cost is incurred.
Internal-Use Software
The Company capitalizes eligible costs associated with the development of its internal-use software in accordance with ASC 350-40, Internal-Use Software. Accordingly, the Company capitalizes costs incurred during the development phase including: (1) external direct costs of materials and services consumed in developing or obtaining the software, and (2) payroll and payroll-related costs for employees who are directly associated with the project. The Company expenses all costs as incurred that relate to the planning and post implementation phases of its software development cycle and costs associated with minor enhancements and maintenance. Capitalized costs are amortized using the straight-line method over three years. Amortization of internal-use software costs associated with the Company’s marketplace technology to provide services to its customers is recorded in cost of revenue. Amortization of internal-use software costs associated with internal databases, candidate insights, and reporting are recorded in research and development and general and administrative expenses in the Consolidated Statements of Operations. Amortization of these costs are allocated in the Consolidated Statements of Operations based on the nature of the underlying project.
Intangible Assets
Intangible assets are amortized over their estimated useful life using the straight-line method which approximates the pattern in which the economic benefits are consumed.
ZipRecruiter, Inc.
Notes to Consolidated Financial Statements
Impairment of Long-Lived Assets
The Company periodically evaluates whether events and circumstances have occurred that indicate the remaining estimated useful life of long-lived assets may warrant revision or that the remaining balance of long-lived assets may not be recoverable in accordance with ASC 360, Property, Plant and Equipment, Accounting for the Impairment or Disposal of Long-Lived Assets. In determining whether an asset is impaired, assets are grouped at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets. When factors indicate that long-lived assets should be evaluated for possible impairment, the Company uses an estimate of the related undiscounted future cash flows over the remaining life of the long-lived assets in measuring whether they are recoverable. If the estimated undiscounted future cash flows are less than the carrying value of the asset, a loss is recorded as the excess of the asset’s carrying value over its fair value. There were no impairment charges related to long-lived assets during the years ended December 31, 2019 and 2020, respectively.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of net assets acquired and liabilities assumed in a business combination. The Company tests for impairment at least annually, in the fourth quarter, or whenever events or changes in circumstances indicate that goodwill might be impaired. The Company has one reporting unit for impairment purposes.
In testing for goodwill impairment, the Company has an option to first make an assessment of qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, it is determined that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then additional impairment testing is not required. However, if concluded otherwise, the quantitative impairment test is performed.
The quantitative test compares the estimated fair value of a reporting unit to its carrying amount, including goodwill. If the estimated fair value exceeds its carrying amount, goodwill is considered not to be impaired. However, if the carrying amount exceeds the fair value of the reporting unit, then an impairment charge is recorded in an amount equal to the excess but limited to the total amount of goodwill. There were no impairment charges in the periods presented.
Recent Accounting Pronouncements
Accounting Pronouncements Not Yet Adopted
As an “emerging growth company”, the Jumpstart Our Business Startups Act, allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. The Company has elected to use the adoption dates applicable to private companies. As a result, the Company’s financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective date for new or revised accounting standards that are applicable to public companies.
In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the existing model for measuring the allowance for credit losses for financial assets measured at amortized cost (including accounts receivable) to a model that is based on the expected losses rather than incurred losses. Under the new credit loss model, lifetime expected credit losses on such financial assets are measured and recognized at each reporting date based on historical, current, and forecast information. In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, and in April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. These ASUs provide supplemental guidance and
ZipRecruiter, Inc.
Notes to Consolidated Financial Statements
clarification to ASU 2016-13 and must be adopted concurrently with the adoption of ASU 2016-13, cumulatively referred to as “Topic 326.” For public business entities that are Securities and Exchange Commission (“SEC”) filers excluding smaller reporting companies, this guidance is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. For all other entities, this guidance is effective for fiscal years beginning after December 15, 2022 and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the effects of the adoption of this update on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the accounting for implementation costs incurred in a hosting arrangement that is a service contract with the accounting for implementation costs incurred to develop or obtain internal-use software under ASC 350-40, in order to determine which costs to capitalize and recognize as an asset and which costs to expense. For public business entities, this guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. For all other entities, this guidance is effective for annual reporting periods beginning after December 15, 2020, and interim periods within annual periods beginning after December 15, 2021. Early adoption of the guidance is permitted, including adoption in any interim period for all entities, and can be applied either prospectively to implementation costs incurred after the date of adoption or retrospectively to all arrangements. The Company is currently evaluating the impact of the adoption of this update on its consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which enhances and simplifies various aspects of income tax accounting guidance. For public business entities, this guidance is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. For all other entities, this guidance is effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early adoption is permitted, including adoption in an interim period. An entity that elects to early adopt ASU 2019-12 in an interim period should reflect any adjustments as of the beginning of the annual period that includes that interim period. The Company is currently evaluating the effects of the adoption of this update on its consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for certain convertible instruments, amends the guidance on derivative scope exceptions for contracts in an entity’s own equity, and modifies the guidance on diluted earnings per share calculations as a result of these changes. For public business entities that are SEC filers excluding smaller reporting companies, this guidance is effective for fiscal years beginning after December 15, 2021 and interim periods within those fiscal years. For all other entities, this guidance is effective for fiscal years beginning after December 15, 2023 and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the effects of the adoption of this update on its consolidated financial statements.
Recently Adopted Accounting Pronouncements
In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350), which allows companies an alternative accounting treatment for subsequently measuring goodwill. Under ASU 2017-04, the goodwill impairment test is simplified such that the impairment loss to goodwill is measured as the difference between the carrying amount of the reporting unit over its fair value, thereby eliminating Step 2 from the current impairment test, which required comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of the goodwill. The Company early adopted ASU 2017-04 on January 1, 2020 and applied the changes prospectively. The adoption did not have a material impact on the Company’s financial statements.
In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the accounting for
ZipRecruiter, Inc.
Notes to Consolidated Financial Statements
share-based payments granted to nonemployees for goods and services. Under ASU 2018-07, most of the guidance on such payments to nonemployees is aligned with requirements for share-based payments granted to employees. The Company adopted ASU 2018-07 on January 1, 2020. The adoption did not have a material impact on the Company’s consolidated financial statements.
3.Net Income (Loss) Per Share
Basic and diluted net income (loss) per share is presented in conformity with the two-class method required for participating securities. The two-class method requires net income after deducting the accretion of redeemable convertible preferred stock be allocated between common stock and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed. In periods of net income, net income after deducting the accretion of redeemable convertible preferred stock is attributed to common stockholders and participating securities based on their participation rights. Net losses after deducting the accretion of redeemable convertible preferred stock are not allocated to the participating securities as the participating securities do not have a contractual obligation to share in any losses. The Company’s redeemable convertible preferred stock are participating securities as the holders of the redeemable convertible preferred stock are entitled to participate in dividends with the common stockholders. Basic net income (loss) per share is calculated by dividing the net income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding for the period.
The following table presents the Company’s basic net income (loss) per share (in thousands, except for per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
2019
|
|
2020
|
|
Net income (loss) per share, basic:
|
|
|
|
|
Net income (loss)
|
$
|
(6,349)
|
|
|
$
|
86,048
|
|
|
Less: Accretion of redeemable convertible preferred stock
|
(3,722)
|
|
|
(3,883)
|
|
|
Less: Undistributed earnings attributable to participating securities
|
—
|
|
|
(19,148)
|
|
|
Net income (loss) attributable to common stockholders
|
(10,071)
|
|
|
63,017
|
|
|
Weighted-average shares
|
79,337
|
|
|
79,651
|
|
|
Net income (loss) per share - basic
|
$
|
(0.13)
|
|
|
$
|
0.79
|
|
The Company computes diluted net income per share under the two-class method where income is reallocated between common stock, potential common stock and participating securities. Potential common stock includes stock options and restricted stock units computed using the treasury stock method and the conversion of the convertible notes and accrued interest using the if converted method.
ZipRecruiter, Inc.
Notes to Consolidated Financial Statements
The following table presents the Company’s diluted net income (loss) per share (in thousands, except for per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31
|
|
|
2019
|
|
2020
|
|
Net income (loss) per share, diluted:
|
|
|
|
|
Numerator:
|
|
|
|
|
Net income (loss) attributable to common stockholders
|
$
|
(10,071)
|
|
|
$
|
63,017
|
|
|
Add:
|
|
|
|
|
Reallocation of net income attributable to participating securities
|
—
|
|
|
2,346
|
|
|
Interest on convertible notes with related parties, net of tax
|
—
|
|
|
275
|
|
|
Net income (loss) attributable to common stockholders, diluted
|
$
|
(10,071)
|
|
|
$
|
65,638
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
Weighted-average shares, basic
|
79,337
|
|
|
79,651
|
|
|
Effect of dilutive securities:
|
|
|
|
|
Options to purchase common stock
|
—
|
|
|
12,506
|
|
|
Convertible notes with related parties
|
—
|
|
|
1,999
|
|
|
Weighted-average shares, diluted
|
79,337
|
|
|
94,156
|
|
|
Net income (loss) per share - diluted
|
$
|
(0.13)
|
|
|
$
|
0.70
|
|
The following table presents the weighted-average number of potentially dilutive common stock equivalents excluded from the computation of diluted net income (loss) per share for the years ended December 31, 2019 and 2020 because their inclusion would have been antidilutive (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
2019
|
|
2020
|
|
Options to purchase common stock
|
22,667
|
|
3,747
|
|
Unvested restricted stock units
|
1,453
|
|
4,148
|
|
Redeemable convertible preferred stock, if converted basis
|
24,202
|
|
—
|
|
Total shares excluded from diluted net income (loss) per share
|
48,322
|
|
7,895
|
ZipRecruiter, Inc.
Notes to Consolidated Financial Statements
Unaudited pro forma net income per share
The following table sets forth the computation of unaudited pro forma basic and diluted net income per share for the year ended December 31, 2020 (in thousands, except for per share data):
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Pro forma net income per share:
|
2020
|
|
Numerator:
|
|
|
Net income
|
$
|
86,048
|
|
|
Add: Interest on convertible notes with related parties, net of tax
|
275
|
|
|
Deduct: Stock-based compensation related to assumed vesting of RSUs, net of tax
|
(30,187)
|
|
|
Deduct: Special bonus
|
(10,000)
|
|
|
Deduct: Transaction costs related to the listing of the Company’s common stock
|
(21,633)
|
|
|
Pro forma net income, basic and diluted
|
$
|
24,503
|
|
|
|
|
|
Denominator:
|
|
|
Weighted-average shares, basic
|
79,651
|
|
Adjustment for assumed conversion of redeemable convertible preferred stock to common stock
|
24,202
|
|
Adjustment for assumed vesting of the RSUs
|
633
|
|
Adjustment for assumed conversion of convertible notes to common stock
|
1,599
|
|
Weighted-average shares used in computing pro forma net income per share, basic
|
106,085
|
|
Effects of dilutive securities:
|
|
|
Options to purchase common stock
|
12,506
|
|
Weighted-average shares used in computing pro forma net income per share, diluted
|
118,591
|
|
|
Pro forma net income per share, basic
|
$
|
0.23
|
|
|
Pro forma net income per share, diluted
|
$
|
0.21
|
|
4.Revenue Information
Contract Balances
Contract liabilities are recorded as deferred revenue when customer payments are received in advance of the Company meeting all the revenue recognition criteria under ASC 606. Deferred revenue includes prepaid subscription and performance-based revenue. Generally, the remaining performance obligations will be satisfied within one to twelve months after prepayment. The Company recognized $20.0 million and $18.5 million of revenue during the years ended December 31, 2019 and 2020, respectively, that were included in the deferred revenue balance as of December 31, 2018 and 2019, respectively.
As of December 31, 2019 and 2020, the Company had no contract assets.
Remaining Performance Obligations
The Company has omitted the disclosure of information about the transaction price allocated to remaining performance obligations and when revenue will be recognized as the vast majority of the Company’s contracts have a duration of one year or less. As of December 31, 2019 and 2020, the Company’s contracts with customers that have terms of more than one year are not material.
The Company did not recognize revenue for the years ended December 31, 2019 and 2020 from performance obligations satisfied in previous periods.
ZipRecruiter, Inc.
Notes to Consolidated Financial Statements
Deferred Commissions
ASC 606 requires the deferral of the recognition of incremental costs to obtain a contract, which the Company has identified as certain of its sales commissions paid to internal sales representatives for the sale of the Company’s services. The Company amortizes deferred commissions over the expected period of benefit unless the amortization period is less than one year, in which case, the Company has elected to apply the practical expedient to expense those costs as incurred. The estimated period of benefit includes anticipated customer renewals. If the Company pays commissions on contract renewals that are commensurate with the initial commission, the amortization period is the initial contract term. If the renewal commission is not commensurate with the initial commission, commissions are deferred and subsequently amortized on a straight-line basis over the expected customer life, which has been estimated to be three years based on an analysis of historical data and other qualitative factors, such as new product offerings, the seasonality of certain customer relationships and estimated useful life of the Company’s marketplace technology. Amortization expense is included within sales and marketing expense in the Consolidated Statements of Operations.
For the years ended December 31, 2019 and 2020, amortization expense for deferred sales commissions was $1.3 million and $3.1 million, respectively. There was no impairment to capitalized deferred commissions in the periods presented.
Disaggregation of Revenue
The Company disaggregates revenue into two streams: subscription revenue and performance-based revenue. The following table presents the Company’s revenue streams for 2019 and 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
2019
|
|
2020
|
|
Subscription
|
$
|
373,863
|
|
|
$
|
346,781
|
|
|
Performance-based
|
55,696
|
|
|
71,361
|
|
|
Total revenue
|
$
|
429,559
|
|
|
$
|
418,142
|
|
5.Property and Equipment, net
Property and equipment consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2019
|
|
2020
|
|
Computer, equipment and software
|
$
|
5,461
|
|
|
$
|
5,533
|
|
|
Furniture and fixtures
|
1,894
|
|
|
1,901
|
|
|
Leasehold improvements
|
4,765
|
|
|
4,495
|
|
|
Construction in progress
|
—
|
|
|
743
|
|
|
|
12,120
|
|
|
12,672
|
|
|
Less: Accumulated depreciation
|
(6,030)
|
|
|
(7,629)
|
|
|
Total property and equipment, net
|
$
|
6,090
|
|
|
$
|
5,043
|
|
Depreciation expense for the years ended December 31, 2019 and 2020 was $2.4 million and $2.2 million, respectively.
ZipRecruiter, Inc.
Notes to Consolidated Financial Statements
6.Internal-Use Software, net
Internal-use software consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2019
|
|
2020
|
|
Internal-use software
|
$
|
22,914
|
|
|
$
|
25,437
|
|
|
Less: Accumulated amortization
|
(10,040)
|
|
|
(14,246)
|
|
|
Total internal-use software, net
|
$
|
12,874
|
|
|
$
|
11,191
|
|
Amortization expense for internal-use software for the years ended December 31, 2019 and 2020 was $5.9 million and $7.4 million, respectively.
Future amortization expense of the Company’s internal-use software as of December 31, 2020 is as follows for the years ending December 31 (in thousands):
|
|
|
|
|
|
|
|
2021
|
$
|
5,917
|
|
|
2022
|
3,736
|
|
|
2023
|
1,358
|
|
|
2024
|
180
|
|
|
Total future amortization expense
|
$
|
11,191
|
|
7.Intangible Assets
The Company has finite-lived intangible assets, which are amortized over their estimated useful lives on a straight-line basis. The following table presents the gross carrying amount and the accumulated amortization of finite-lived intangible assets (in thousands, except for useful life):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful Life
(in years)
|
|
December 31,
|
|
|
|
2019
|
|
2020
|
|
Acquired developed technology
|
3
|
|
$
|
1,876
|
|
|
$
|
1,876
|
|
|
Brand assets
|
3
|
|
70
|
|
|
70
|
|
|
|
|
|
1,946
|
|
|
1,946
|
|
|
Less: Accumulated amortization
|
|
|
(1,618)
|
|
|
(1,946)
|
|
|
Total intangibles, net
|
|
|
$
|
328
|
|
|
$
|
—
|
|
Amortization expense for finite-lived intangible assets was $0.6 million and $0.3 million for the years ended December 31, 2019 and 2020, respectively.
ZipRecruiter, Inc.
Notes to Consolidated Financial Statements
8.Accrued Expenses
Accrued expenses consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2019
|
|
2020
|
|
Accrued marketing
|
$
|
8,222
|
|
|
$
|
6,006
|
|
|
Accrued bonuses
|
9,325
|
|
|
11,202
|
|
|
Other accrued expenses
|
7,389
|
|
|
7,311
|
|
|
Accrued partner expenses
|
5,675
|
|
|
5,554
|
|
|
Accrued 401(k) contributions
|
3,370
|
|
|
2,414
|
|
|
Accrued commissions
|
3,884
|
|
|
3,332
|
|
|
Accrued indirect taxes
|
653
|
|
|
600
|
|
|
Accrued refunds and customer liabilities
|
4,358
|
|
|
2,423
|
|
|
Total accrued expenses
|
$
|
42,876
|
|
|
$
|
38,842
|
|
9.Term Loan and Revolving Credit Facility
On March 21, 2017, the Company entered into a loan and security agreement (“Agreement”). The Agreement provided the Company with a credit facility (“Revolving Line”) providing for borrowings up to $12.5 million and allowed the Company term loan advances (“Term Loan”) up to $10.0 million. On November 30, 2018, the Company entered an amendment (the “Third Amendment to the Loan and Security Agreement”) to the Agreement whereby the Revolving Line limit was increased from $12.5 million to $20.0 million and the maturity date was extended to November 28, 2021. The Third Amendment to the Loan and Security Agreement also extended the Term Loan maturity date to November 1, 2022 and required the Company to draw down the full Term Loan limit of $10.0 million on November 30, 2018. Under the Third Amendment to the Loan and Security Agreement, the Revolving Line bore interest at a floating per annum rate of 0.4% above the bank’s Prime Rate and interest on the Term Loan was adjusted to a per annum rate equal to 0.4% above the bank’s Prime Rate as of the funding date.
On November 21, 2019, the Company entered a subsequent amendment (the “Amended and Restated Loan and Security Agreement”) to the Agreement whereby the Revolving Line limit was increased from $20.0 million to $25.0 million and the maturity date was extended to November 21, 2022. The Amended and Restated Loan and Security Agreement also increased the amount available under the Term Loan to $20.0 million and extended the maturity date to November 1, 2023. Additionally, the Company was subject to interest equal to 0.5% per annum of the average unused portion of the Term Loan. Both the Revolving Line and the Term Loan are collateralized by the security interests in substantially all of the Company’s assets.
In June 2020, the Company paid off and extinguished its Term Loan of $20.0 million.
On September 2, 2020 the Company executed an amendment to the Amended and Restated Loan and Security Agreement (the “Second Amended and Restated Loan and Security Agreement”), which increased the amount available under the Revolving Line from $25.0 million to $35.0 million, changed the maturity date of the Revolving Line to September 2, 2022 and modified the interest rate on the Revolving Line to be the floating per annum rate equal to the greater of (i) 0.25% above the bank’s Prime Rate, and (ii) 4.5%.
The amount available under the Revolving Line as of December 31, 2019 and 2020 was $20.1 million and $27.9 million, respectively. The amount available under the Revolving Line is reduced by letters of credit outstanding, which relates to various leased office spaces, which was $4.5 million and $6.9 million as of December 31, 2019 and 2020, respectively. The amount available under the Revolving Line is also reduced by business credit card balances outstanding, which was $0.4 million and $0.2 million as of
ZipRecruiter, Inc.
Notes to Consolidated Financial Statements
December 31, 2019 and 2020, respectively. Pursuant to the Second Amended and Restated Loan and Security Agreement, if there are any letters of credit outstanding on the maturity date of the Revolving Line, the Company is required to provide cash collateral in the amount equal to at least 105.0% of the letters of credit.
The Second Amended and Restated Loan and Security Agreement provides for certain events of default such as nonpayment of principal and interest when due, breaches of representations and warranties, noncompliance with covenants, insolvency, and default on certain agreements related to indebtedness. Upon the occurrence of an event of default and at the option of the lender, all the amounts outstanding under the Second Amended and Restated Loan and Security Agreement may be declared to be immediately due and payable.
The Second Amended and Restated Loan and Security Agreement contains financial covenants and other customary affirmative and negative covenants, including, among other terms and conditions, delivering financial statements and other financial information by certain due dates, achieving certain EBITDA targets, maintaining a minimum remaining months of liquidity requirement, restrictions on changes in business, management, control of business locations, indebtedness, dispositions of certain business or property, mergers or acquisitions, subordinated debt, maintenance of collateral accounts and payment of dividends or distributions. The Company was in compliance with the financial covenants as of December 31, 2019 and 2020.
As of December 31, 2019 and 2020, the Company had no outstanding borrowings under the Revolving Line. As of December 31, 2019 and 2020, the Company had $10.0 million and no amounts outstanding under the Term Loan, respectively. The average interest rate for the years ended December 31, 2019 and 2020 was 5.7% and 5.1%, respectively. Total interest expense was $0.6 million for the years ended December 31, 2019 and 2020 and was recorded in interest expense in the Consolidated Statements of Operations.
10.Convertible Notes with Related Parties
On June 22, 2020, the Company issued subordinated secured convertible promissory notes ("Convertible Notes") to related parties who are holders of the Company’s Redeemable Convertible Preferred Stock. The Convertible Notes totaled $25.0 million and have a maturity date of June 22, 2023. Principal and interest under the Convertible Notes are due and payable in full on or after the maturity date, unless earlier converted to shares of the Company’s capital stock as described below. The interest on the Convertible Notes is equal to the lower of (i) 2.5% per annum until June 2022, 3.0% per annum until December 2022, and 3.5% per annum until maturity; and (ii) the maximum non-usurious rate of interest in effect from time to time under applicable laws. The Convertible Notes are classified as non-current liabilities in the Consolidated Balance Sheets as of December 31, 2020.
Principal and accrued interest under the Convertible Notes is automatically convertible into shares of a new series of preferred stock upon a Qualified Financing event (as defined as raising gross proceeds of at least $40.0 million). The new series of preferred stock will have the same rights and preferences as the new shares issued in the Qualified Financing event, except per share liquidation preference and dividend rights will be based on the conversion price. The Convertible Notes are automatically convertible into common stock upon a Liquidity Event (as defined as a change in control, qualified initial public offering (“IPO”) (yielding gross proceeds of at least $50.0 million), or Direct Listing to register existing shares of capital stock of the Company for resale on a major U.S. based stock exchange not pursuant to an underwritten public offering).
The conversion price triggered upon these events, with the exception of the Direct Listing event, is the lower of (i) 75.0% of the price per share paid by the purchasers for the event and (ii) $8.2909 (subject to appropriate adjustments). If a Direct Listing occurs, the conversion price is equal to the lower of (i) 75.0% of the volume-weighted average price of the common stock on the first trading day following such listing and (ii) $8.2909 (subject to appropriate adjustments).
ZipRecruiter, Inc.
Notes to Consolidated Financial Statements
Principal and accrued interest under the Convertible Notes may be converted into shares of a new series of preferred stock, at the option of the holder upon a Nonqualified Financing event. A Nonqualified Financing is defined as the Company’s sale of shares of preferred stock for the primary purposes of raising working capital that does not constitute a Qualified Financing. The new series of preferred stock will have the same rights and preferences as the new shares issued in the Nonqualified Financing event, except per share liquidation preference and dividend rights will be based on the conversion price. The conversion price arising from a Nonqualified Financing is the lower of (i) 75.0% of the price per share paid by purchasers in the Nonqualified Financing and (ii) $8.2909 (subject to appropriate adjustments).
The Company cannot repay the Convertible Notes prior to maturity without prior written consent from the majority noteholders, as defined as holding at least 61.0% of the aggregate principal balance. After the maturity date, at the option of the holders, principal and accrued interest under the Convertible Notes is convertible into a new series of preferred stock at a conversion price of $6.6327 per share (subject to standard anti-dilution adjustments). The new series of preferred stock will have the same rights and preferences as the Series B convertible preferred stock, except per share liquidation preference and dividend rights will be based on the conversion price. Upon maturity, if the holders do not convert the notes into the new series of preferred stock, the holders can call the outstanding principal and accrued interest balances.
The Convertible Notes provide for certain events of default such as nonpayment of principal and interest when due, insolvency, or if there is a liquidation, dissolution or winding up of the Company. Upon an event of default, all unpaid principal and accrued interest becomes immediately due and payable.
For the year ended December 31, 2020, the Company accrued interest expense of $0.4 million.
Certain embedded features are accounted for separately as a derivative liability and recorded at fair value each period. As of the date of issuance of the Convertible Notes and as of December 31, 2020, the fair value of the embedded features were immaterial.
11.Commitments and Contingencies
Purchase Commitments
As of December 31, 2020, the Company had various noncancelable purchase commitments relating to software service agreements. Future minimum commitments are $6.7 million for 2021, $10.8 million for 2022, $10.0 million for 2023, $10.0 million for 2024, and $8.3 million for 2025.
Legal Matters
The Company is subject to various legal proceedings and claims that arise in the ordinary course of business. If the Company determines that it is probable that a loss has been incurred and the amount is reasonably estimable, the Company will record a liability. However, if the Company determines that a contingent loss is reasonably possible and the loss or range of loss can be estimated, the Company will disclose the possible loss in the consolidated financial statements. Legal costs relating to loss contingencies are expensed as incurred.
In April 2019, the Company was named as a defendant in a putative class action lawsuit filed by a former employee in the Los Angeles Superior Court alleging that the Company violated the Fair Credit Reporting Act as well as owed certain compensation to employees. In January 2020, the former employee filed a related representative action in the Los Angeles Superior Court under the Private Attorney General Act alleging similar claims regarding compensation owed to employees. In January 2021, the Company filed a motion for summary judgment or, in the alternative, summary adjudication, which was granted in part and denied in part. At the date these consolidated financial statements were available for issuance, it is reasonably possible that a loss may be incurred; however, a loss or range of losses is not currently estimable.
ZipRecruiter, Inc.
Notes to Consolidated Financial Statements
Indemnification
In the ordinary course of business, the Company may provide indemnification of varying scopes and terms to customers, investors, directors and officers with respect to certain matters, including, but not limited to, losses arising out of the Company’s breach of such agreements, services to be provided by the Company, or from certain claims made by third parties. These indemnification provisions may survive termination of the underlying agreement and the maximum potential amount of future payments the Company could be required to make under these indemnification provisions may not be subject to maximum loss clauses. The maximum potential amount of future payments the Company could be required to make under these indemnification provisions is indeterminable. The Company has never paid a material claim, nor has the Company been sued in connection with these indemnification arrangements. As of December 31, 2019 and 2020, the Company had not accrued a liability for these indemnification arrangements because the likelihood of incurring a payment obligation, if any, in connection with these indemnification arrangements is neither probable nor reasonably estimable.
Restructuring
On March 31, 2020, the Company announced and committed to a restructuring plan to contain costs and further strengthen its liquidity profile in response to the impact of the COVID-19 pandemic. This plan resulted in a reduction in the Company’s workforce of approximately 40%. The Company recorded restructuring costs of $5.7 million in the first quarter of 2020 primarily related to employee severance and continuation of health benefits. Included in the $5.7 million restructuring costs is a non-cash charge of $0.8 million pertaining mainly to the modification of stock option awards for terminated employees. These awards were modified to extend the post-termination exercise period of vested options. Restructuring costs are presented as $3.7 million in sales and marketing, $1.0 million in research and development, and $1.0 million in general and administrative expenses within the Consolidated Statement of Operations. Of the restructuring costs liability outstanding as of December 31, 2020, the Company expects the remaining costs to be paid by early 2021.
The following table presents the roll forward of the restructuring costs liability for the year ended December 31, 2020 (in thousands), which is included in accrued expenses in the Company’s Consolidated Balance Sheet:
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
2020
|
|
Accrual, at beginning of year
|
$
|
—
|
|
|
Expense
|
4,947
|
|
|
Cash payments
|
(4,281)
|
|
|
Non-cash adjustments
|
(433)
|
|
|
Accrual, at end of year
|
$
|
233
|
|
12.Leases
The Company has various noncancelable operating leases for its offices. These existing leases have remaining lease terms ranging from one to eleven years. Certain lease agreements contain renewal options, termination rights, rent abatement and/or escalation clauses with renewal terms that can extend the lease term from one to ten years.
The Company signed an operating lease on March 2, 2020 with a term of 128 months commencing on August 29, 2020. The execution of the lease resulted in an operating lease ROU asset obtained in exchange for new operating lease liabilities of $5.8 million. The Company has the option to terminate a portion of the leased building (“Partial Premises”) on the last day of the 12th month of the lease term for a fee. The Company is reasonably certain it will exercise the Partial Premises termination option.
ZipRecruiter, Inc.
Notes to Consolidated Financial Statements
The Company cannot determine with reasonable certainty that any other options will be exercised and therefore only the Partial Premises termination option is considered when recording the Company’s operating lease ROU assets, operating lease liabilities or lease expense.
The components of lease cost related to the Company’s operating leases is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
2019
|
|
2020
|
|
Operating lease cost
|
$
|
7,434
|
|
|
$
|
7,572
|
|
|
Short-term lease cost
|
380
|
|
|
237
|
|
|
Variable lease cost
|
1,456
|
|
|
1,399
|
|
|
Sublease income
|
(1,170)
|
|
|
(1,051)
|
|
|
Net lease cost
|
$
|
8,100
|
|
|
$
|
8,157
|
|
The Company made cash payments for amounts included in the measurement of operating lease liabilities of $8.0 million and $7.3 million for the years ended December 31, 2019 and 2020, respectively.
During the year ended December 31, 2019, the Company modified the terms of one of its leases to terminate three years earlier than the original expiration date. The impact of this modification was a reduction to the operating lease ROU asset and operating lease liability of $2.8 million.
Supplemental information related to the Company’s operating leases is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2019
|
|
2020
|
|
Weighted-average remaining lease term
|
4.5 years
|
|
5.5 years
|
|
Weighted-average incremental borrowing rate
|
5.3
|
%
|
|
5.2
|
%
|
Future undiscounted lease payments for the Company’s operating lease liabilities and a reconciliation of these payments to its operating lease liabilities as of December 31, 2020 are as follows (in thousands):
|
|
|
|
|
|
|
|
2021
|
$
|
3,063
|
|
|
2022
|
7,419
|
|
|
2023
|
6,197
|
|
|
2024
|
4,910
|
|
|
2025
|
2,829
|
|
|
Thereafter
|
7,383
|
|
|
Total lease payments
|
31,801
|
|
|
Less: imputed interest
|
(5,002)
|
|
|
Present value of operating lease liabilities
|
$
|
26,799
|
|
In April 2016, the Company entered into a noncancelable sublease agreement for one of its office facilities through March 2021. The sublease rent is subject to increases over the term of the lease. The total minimum future contractual rental payments as of December 31, 2020 is $0.2 million in 2021. The Company computes rental income on a straight-line basis over the lease term. The difference between rental income and rental payments over the lease term is recorded as an unbilled rent receivable.
ZipRecruiter, Inc.
Notes to Consolidated Financial Statements
13.Common Stock and Redeemable Convertible Preferred Stock
Common Stock
In October 2016, each of the Company’s founders entered into capital contribution agreements where they agreed to contribute back to the Company up to an aggregate of 3.4 million shares of common stock on a ratable basis over a four year period through July 2020. The contributed shares were retired and canceled immediately. The contributed shares were accounted for within equity. As of December 31, 2019 and 2020, an aggregate of 2.9 million and 3.4 million shares of common stock were contributed back to the Company.
In November 2020, the Company repurchased a total of 3.0 million shares of common stock from three of the Company’s founders. The shares of common stock were repurchased at a price of $6.36 per share for an aggregate amount of $19.0 million. The repurchased shares of common stock were retired and recorded as a reduction of common stock and additional paid-in capital.
Redeemable Convertible Preferred Stock
On August 12, 2014, the Company raised gross proceeds of $25.0 million from the sale of 0.9 million shares of Series A Redeemable Convertible Preferred Stock (“Series A preferred stock”) at $27.7358 per share. In addition, the Company exchanged 11.0 million shares of common stock purchased by the Series A preferred stock investors for 1.4 million shares of Series A preferred stock. Issuance costs of $0.2 million were incurred and recorded as a reduction to the carrying value of the Series A preferred stock.
On November 7, 2017 the Company raised gross proceeds of $50.0 million from the sale of 6.0 million shares of Series B Redeemable Convertible Preferred Stock (“Series B preferred stock” and, together with the Series A preferred stock, the “preferred stock”) at $8.2909 per share. Issuance costs of $0.7 million were incurred and recorded as a reduction to the carrying value of the Series B preferred stock.
The rights and preferences of the Series A and Series B preferred stock are summarized below.
Conversion
Each share of preferred stock is convertible, at the option of the holder, at any time and from time to time, into a number of shares of common stock as determined by dividing such share’s original issue price by the conversion price. The conversion price was initially the original issuance price which is then subject to change for stock splits, dividends, recapitalizations, and dilutive issuances. The current applicable conversion price is $3.4670 for the Series A preferred stock and $8.2909 for the Series B preferred stock. As of December 31, 2020, each share of outstanding Series A and Series B preferred stock converts into 8 shares and 1 share of common stock, respectively.
The preferred stock automatically shall convert into common stock, at the then effective conversion rate, upon (1) the closing of the sale of shares of common stock to the public in a firm-commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended resulting in gross proceeds of at least $100.0 million or (2) the date and time, or occurrence of an event specified by vote or written consent of the holders of at least a majority of the then outstanding shares of Series A preferred stock and the holders of at least a majority of the then outstanding shares of Series B preferred stock, each voting separately as a class. The conversion rate shall be computed in the same manner as in an optional conversion, except that in the case of a mandatory conversion triggered by clause (1) above, the conversion shall be adjusted if the price per share in the offering is less than $6.9340 for the Series A preferred stock or $2.0727 for the Series B preferred stock, subject to adjustment for stock dividends, stock splits, combinations or other similar recapitalization events.
ZipRecruiter, Inc.
Notes to Consolidated Financial Statements
As of December 31, 2020, the Company had 24.2 million authorized, but unissued shares of common stock available for conversion of the preferred stock.
Liquidation
A Deemed Liquidation Event includes (1) a merger or consolidation or (2) the sale, lease transfer, exclusive license or disposition, in a single transaction or series of related transactions, by the Company of all or substantially all the assets of the Company. In the event of any voluntary or involuntary liquidation or dissolution, or winding up of the Company or a Deemed Liquidation Event, the holders of preferred stock then outstanding will be entitled to be paid out of the assets of the Company available for distribution to stockholders before any payment is made to the holders of common shares.
The amount paid per share for Series A preferred stock would be the greater of (1) one-and-a-half times the Series A preferred stock original issue price, plus any dividends declared but unpaid, or (2) such amount per share as would have been payable had all shares of Series A preferred stock been converted in common stock immediately prior to such liquidation, dissolution, or winding up or Deemed Liquidation Event.
The amount paid per share for Series B preferred stock would be the greater of (1) one times the Series B preferred stock original issue price, plus any dividends declared but unpaid, or (2) such amount per share as would have been payable had all shares of Series B preferred stock been converted in common stock immediately prior to such liquidation, dissolution, or winding up or Deemed Liquidation Event.
If amounts available to be distributed are insufficient to pay the liquidation preference in full, then the holders of preferred stock shall share ratably in any distribution of the assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by the preferred stock holders upon such distribution if all amounts payable on or with respect to such shares were paid in full.
Any remaining assets after payment of the liquidation preferences to the holders of the preferred stock would be distributed amongst the holders of common stock, pro rata based on the number of shares held by each holder.
Redemption
At any time on or after November 7, 2022, at the election of the holders of a majority of the then outstanding shares of preferred stock voting as a single class, and so long as the Company has sufficient funds without the need to obtain financing, shares of preferred stock will be redeemed by the Company at a price equal to (1) one-and-a-half times the Series A preferred stock original issue price of $27.7358 for shares of Series A preferred stock and (2) the Series B preferred stock original issue price of $8.2909 for shares of Series B preferred stock.
The liquidation preference and redemption provisions of the preferred stock are considered contingent redemption provisions as there are certain elements that are not solely within the control of the Company. These elements primarily relate to the redemption rights described above and the Deemed Liquidation Events such as a change in control or an involuntary winding-up or dissolution of the Company. Accordingly, the Company has presented the preferred stock within the mezzanine section of the Consolidated Balance Sheets.
The Company accretes the carrying value of the Series A and B preferred stock to the redemption values over the period to the earliest redemption date, November 7, 2022, using the effective interest rate method. Accretion is recorded as a charge against retained earnings, or in the absence of retained earnings, by charges against additional paid-in capital until fully depleted, then finally against accumulated deficit.
ZipRecruiter, Inc.
Notes to Consolidated Financial Statements
Voting
Each holder of preferred stock is entitled to one vote per whole share of common stock into which such holder’s shares of preferred stock are convertible as of the record date for such vote. The holders of preferred stock, voting as a separate class, are entitled to elect two directors of the Company. The holders of common stock, voting as a separate class, are entitled to elect four directors of the Company.
Dividends
The holders of preferred stock are entitled to receive non-cumulative dividends when and as declared by the board of directors with dividends declared or paid to common stock or any other series of stock on an as converted to common stock basis. No dividends were declared or paid by the Company during the years ended December 31, 2019 and 2020.
14.Stock-Based Compensation
2012 and 2014 Plans
The Company has granted awards under the 2012 Equity Incentive Plan (“2012 Plan”) or 2014 Equity Incentive Plan (“2014 Plan”), collectively the “Plans”. All awards currently are granted from the 2014 Plan. However, the 2012 Plan continues to govern the terms and conditions of the outstanding awards previously granted under the 2012 Plan. As of December 31, 2020, there were 36.8 million shares authorized and 2.9 million shares of common stock available for grant under the 2014 Plan.
The Plans permit the grant of incentive stock options to employees and the grant of nonqualified stock options, restricted stock, restricted stock units, stock appreciation rights, performance units and performance shares to the Company’s employees, directors and consultants at the sole discretion of the board of directors. The Plans also allow for the administrator of the plan to include terms in an award agreement that the option holder may exercise in whole or part of the option prior to the full vesting of those options.
Stock Options
Under the 2014 Plan, options must be granted with exercise prices not less than the fair value of the underlying common stock on the date of grant. Options granted generally vest over periods of up to four years and expire ten years from the grant date. In 2019, the Company amended the terms and conditions of the Israeli Sub-Plan of the 2014 Plan. The Israeli Sub-Plan amendment allows the Company to grant options to Israeli employees or Israeli non-employees with exercise prices less than the fair market value of the underlying common stock on the date of grant.
If a 2014 Plan option expires, such as upon termination of employment, becomes unexercisable without having been exercised in full, or is surrendered pursuant to an option exchange program, the unpurchased shares will become available for future grant or sale under the 2014 Plan. If the employee does not exercise vested 2014 Plan options within 90 days of termination, these options will expire and revert back to the 2014 Plan’s option pool. The Company’s policy is to issue new shares of common stock upon the exercise of stock options.
ZipRecruiter, Inc.
Notes to Consolidated Financial Statements
A summary of the Company’s stock option activity under the Plans for the year ended December 31, 2020 is as follows (in thousands, except weighted-average information):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Options Outstanding
|
|
Weighted Average Exercise Price Per Share
|
|
Weighted Average Remaining Contractual Term (in years)
|
|
Aggregate Intrinsic Value
|
|
Outstanding at December 31, 2019
|
22,299
|
|
|
$
|
2.09
|
|
|
6.4
|
|
$
|
90,924
|
|
|
Granted
|
516
|
|
|
2.33
|
|
|
|
|
|
|
Exercised
|
(2,098)
|
|
|
1.25
|
|
|
|
|
|
|
Forfeited/Canceled
|
(1,344)
|
|
|
3.54
|
|
|
|
|
|
|
Outstanding at December 31, 2020
|
19,373
|
|
|
$
|
2.09
|
|
|
5.1
|
|
$
|
193,551
|
|
|
Exercisable at December 31, 2020
|
17,059
|
|
|
$
|
1.77
|
|
|
4.7
|
|
$
|
175,812
|
|
The weighted-average grant-date fair value per share of options granted for the years ended December 31, 2019 and 2020 was $3.08 and $4.05, respectively. The total fair value of options vested for the years ended December 31, 2019 and 2020 was $7.2 million and $12.7 million, respectively. The total intrinsic value of options exercised in 2019 and 2020 was $3.7 million and $8.5 million, respectively. This intrinsic value represents the difference between the fair market value of the Company’s common stock on the date of exercise and the exercise price of each option.
The weighted average assumptions that were used to calculate the grant date fair value of the Company’s stock option grants for the years ended December 31, 2019 and 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2020
|
|
Expected dividend yield
|
—
|
%
|
|
—
|
%
|
|
Expected stock price volatility
|
54.5
|
%
|
|
59.4
|
%
|
|
Risk-free interest rate
|
2.0
|
%
|
|
0.6
|
%
|
|
Expected term (in years)
|
5.9
|
|
|
6.0
|
|
|
Fair value of common stock
|
$
|
5.82
|
|
|
$
|
5.52
|
|
During the years ended December 31, 2019 and 2020, the Company recorded stock-based compensation expense for stock option awards of $6.5 million and $5.7 million, respectively under the 2012 and 2014 Plans. As of December 31, 2020, total remaining stock-based compensation expense for unvested stock options is $6.2 million, which is expected to be recognized over a weighted average period of 1.0 year.
On April 12, 2018, the board of directors approved the issuance of performance and service-based options outside of the Plans to a consultant of the Company. The number of shares of the Company’s common stock issuable upon the vesting of this award is based upon (1) satisfaction of performance milestones and (2) continued service as a service provider over a four year period. The performance milestones are satisfied upon achievement of specified levels of job seeker activity each month through December 1, 2021. Achievement of the minimum performance level would result in the issuance of options to purchase 50,000 shares and achievement at the maximum performance level would result in the issuance of options to purchase 300,000 shares. As of December 31, 2020, a total of 150,000 options had vested of which 85,000 options were exercised, and 150,000 options were subject to future vesting pending achievement of additional performance milestones. For the years ended December 31, 2019 and 2020, stock-based compensation expense for this award was not material.
ZipRecruiter, Inc.
Notes to Consolidated Financial Statements
Stock-based Compensation
Total stock-based compensation expense for stock options is recorded in the Consolidated Statements of Operations as follows for the years ended December 31, 2019 and 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
2019
|
|
2020
|
|
Cost of revenue
|
$
|
119
|
|
|
$
|
73
|
|
|
Sales and marketing
|
1,031
|
|
|
704
|
|
|
Research and development
|
3,159
|
|
|
3,050
|
|
|
General and administrative
|
2,431
|
|
|
1,925
|
|
|
Total stock-based compensation
|
$
|
6,740
|
|
|
$
|
5,752
|
|
During the years ended December 31, 2019 and 2020, the Company capitalized $0.3 million and $0.2 million in stock-based compensation cost associated with the development of internal-use software, respectively.
Restricted Stock Units
The Company has granted restricted stock units (“RSUs”) to certain employees and directors of the Company. The granted RSUs vest upon the satisfaction of both a time-based service condition and a liquidity event performance condition. The time-based service condition for these awards is generally satisfied over four years. The liquidity event performance condition is satisfied upon the earliest to occur of a qualifying event, defined as a change of control transaction, or after a set period of time following the effective date of the Company’s IPO pursuant to an effective registration statement under the Securities Act for the offer and sale of shares by the Company. A direct listing in which the Company does not sell its equity securities does not satisfy the liquidity event performance condition.
A summary of the Company’s RSU activity for year ended December 31, 2020 is as follows (in thousands, except weighted-average information):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted Average Grant Date Fair Value Per Share
|
|
Unvested at December 31, 2019
|
2,503
|
|
|
$
|
5.89
|
|
|
Granted
|
3,836
|
|
|
5.72
|
|
|
Vested
|
—
|
|
|
—
|
|
|
Forfeited/Canceled
|
(888)
|
|
|
6.02
|
|
|
Unvested at December 31, 2020
|
5,451
|
|
|
$
|
5.75
|
|
As of December 31, 2020, the Company concluded that the liquidity event performance condition described above for the RSUs was not probable of being satisfied. As a result, the Company did not recognize any compensation cost during the years ended December 31, 2019 and 2020 for any RSUs granted. In the quarter in which the performance condition is achieved, the Company will begin recording stock-based compensation expense using the graded vesting method based on the grant date fair value of the RSUs. As of December 31, 2020, there was $31.2 million of unrecognized stock-based compensation expense related to unvested RSUs. Of this amount, $17.6 million relates to RSUs for which the service-based vesting condition had been satisfied as of December 31, 2020.
15.401(k) Plan
The Company participates in a retirement plan qualified as a defined contribution plan under Section 401(k) of the Internal Revenue Code by making contributions to employee retirement accounts. The Company’s management may elect to make contributions to the 401(k) plan based on a percentage of
ZipRecruiter, Inc.
Notes to Consolidated Financial Statements
the employee’s earnings and contributions. The Company incurred and accrued for $3.4 million and $2.4 million of contributions to employee retirement accounts as of December 31, 2019 and 2020, respectively.
16.Income Taxes
The following are domestic and foreign components of the Company’s income (loss) before income taxes (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
2019
|
|
2020
|
|
Domestic
|
$
|
(7,024)
|
|
|
$
|
63,075
|
|
|
Foreign
|
1,263
|
|
|
1,262
|
|
|
Income (loss) before income taxes
|
$
|
(5,761)
|
|
|
$
|
64,337
|
|
The components of the Company's income tax expense (benefit) are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
2019
|
|
2020
|
|
Current:
|
|
|
|
|
Federal
|
$
|
—
|
|
|
$
|
—
|
|
|
State and local
|
144
|
|
|
572
|
|
|
Foreign
|
499
|
|
|
633
|
|
|
Total current income tax expense
|
643
|
|
|
1,205
|
|
|
Deferred:
|
|
|
|
|
Federal
|
7
|
|
|
(14,189)
|
|
|
State and local
|
3
|
|
|
(8,582)
|
|
|
Foreign
|
(65)
|
|
|
(145)
|
|
|
Total deferred income tax benefit
|
(55)
|
|
|
(22,916)
|
|
|
Total income tax expense (benefit)
|
$
|
588
|
|
|
$
|
(21,711)
|
|
A reconciliation of the income taxes computed at the U.S. federal statutory tax rate of 21% to the income tax expense (benefit) for the years ended December 31, 2019 and 2020 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
2019
|
|
2020
|
|
U.S. federal statutory income tax rate
|
$
|
(1,210)
|
|
|
$
|
13,511
|
|
|
State and local income taxes, net of federal benefit
|
223
|
|
|
3,596
|
|
|
Foreign income inclusion
|
348
|
|
|
24
|
|
|
Stock-based compensation expense
|
776
|
|
|
349
|
|
|
Other permanent items
|
898
|
|
|
359
|
|
|
Tax credits
|
(6,286)
|
|
|
(1,444)
|
|
|
Other
|
(14)
|
|
|
(18)
|
|
|
Change in valuation allowance
|
6,392
|
|
|
(37,706)
|
|
|
Return to provision
|
(539)
|
|
|
(382)
|
|
|
Income tax expense (benefit)
|
$
|
588
|
|
|
$
|
(21,711)
|
|
ZipRecruiter, Inc.
Notes to Consolidated Financial Statements
The components of deferred tax assets and liabilities are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
2019
|
|
2020
|
|
Deferred income tax assets:
|
|
|
|
|
Net operating loss carryforwards
|
$
|
25,244
|
|
|
$
|
9,405
|
|
|
Stock-based compensation
|
1,213
|
|
|
2,138
|
|
|
Accrued expenses
|
1,550
|
|
|
1,491
|
|
|
Tax credit carryforwards
|
13,431
|
|
|
13,513
|
|
|
Non-deductible interest carryforwards
|
25
|
|
|
—
|
|
|
Operating lease liabilities
|
6,858
|
|
|
6,904
|
|
|
Gross deferred tax assets
|
48,321
|
|
|
33,451
|
|
|
Less valuation allowance
|
(37,706)
|
|
|
—
|
|
|
Net deferred tax assets
|
10,615
|
|
|
33,451
|
|
|
Deferred tax liabilities:
|
|
|
|
|
Property and equipment
|
(297)
|
|
|
(84)
|
|
|
Operating lease right-of-use assets
|
(5,670)
|
|
|
(5,797)
|
|
|
Intangible assets and goodwill
|
(3,010)
|
|
|
(2,570)
|
|
|
Deferred commissions
|
(1,466)
|
|
|
(1,917)
|
|
|
Total deferred tax liabilities
|
(10,443)
|
|
|
(10,368)
|
|
|
Total net deferred tax assets
|
$
|
172
|
|
|
$
|
23,083
|
|
The Company regularly assesses the need for a valuation allowance against its deferred tax assets as prescribed by ASC 740, Income Taxes. In making that assessment, the Company considers both positive and negative evidence related to the likelihood of realization of the deferred tax assets to determine, based on the weight of available evidence, which includes historical operating performance and ability to generate sufficient taxable income in the future, whether it is more likely than not that some or all the deferred tax assets will not be realized. As a result of the Company’s profitability in 2020 and estimates of future taxable income, the Company determined that it was more likely than not the deferred tax assets will be realized, and accordingly, released the valuation allowance of $37.7 million against the deferred tax assets during 2020.
The change in the valuation allowance was comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
2019
|
|
2020
|
|
Valuation allowance, at beginning of year
|
$
|
31,314
|
|
|
$
|
37,706
|
|
|
Increase in valuation allowance recorded through earnings
|
6,392
|
|
|
—
|
|
|
Release of valuation allowance recorded through earnings
|
—
|
|
|
(37,706)
|
|
|
Valuation allowance, at end of year
|
$
|
37,706
|
|
|
$
|
—
|
|
As of December 31, 2019 and 2020, the Company had gross U.S. federal operating loss carryforwards of $100.2 million and $33.7 million, respectively, and gross state operating loss carryforwards of $69.5 million and $34.6 million, respectively. Of the gross federal and state operating loss carryforwards as of December 31, 2020, $33.7 million and $1.8 million, respectively, carryforward indefinitely. The remaining gross state operating loss carryforwards as of December 31, 2020 will expire at various dates beginning in the year ending December 31, 2025, if not utilized. Additionally, as of December 31, 2019 and 2020, the Company had U.S. federal credit carryforwards of $11.7 million and $12.2 million, respectively, and state credit carryforwards of $7.7 million and $7.6 million, respectively.
ZipRecruiter, Inc.
Notes to Consolidated Financial Statements
The federal credit carryforwards will begin to expire at various dates beginning in 2033 while the majority of gross state credit carryforwards are not subject to expiration.
Utilization of net operating loss and credit carryforwards may be subject to a substantial annual limitation provided for in the Internal Revenue Code and similar state codes. Such annual limitation could result in the expiration of net operating loss and credit carryforwards before utilization. The Company does not believe that such limitation rules will have a material impact on the consolidated financial statements.
The U.S. Internal Revenue Code of 1986, as amended, imposes an annual limitation on a corporation’s ability to utilize net operating loss carryforwards if it experiences an ownership change as defined in Section 382. If certain substantial changes in the entity’s ownership occur, there would be an annual limitation on the amount of the carryforward(s) that can be utilized.
The following is a reconciliation of the total amounts of unrecognized tax benefits (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
2019
|
|
2020
|
|
Unrecognized tax benefit, beginning of year:
|
$
|
71
|
|
|
$
|
4,728
|
|
|
Gross increases - tax positions in prior year
|
3,281
|
|
|
—
|
|
|
Gross increases - tax positions in current year
|
1,402
|
|
|
752
|
|
|
Gross decreases - tax positions in prior year
|
(26)
|
|
|
(359)
|
|
|
Gross decreases - tax positions in current year
|
—
|
|
|
—
|
|
|
Unrecognized tax benefit, end of year
|
$
|
4,728
|
|
|
$
|
5,121
|
|
In the normal course of business, the Company is regularly audited by federal, state, and foreign tax authorities. The Company has not accrued interest nor penalties related to unrecognized tax benefits reflected in the consolidated financial statements during the years ended December 31, 2019 and 2020. The Company believes that any change to the unrecognized tax benefits in the next twelve months will not be material to the consolidated financial statements.
The Company is subject to taxation in the United States, as well as various state and foreign jurisdictions. As of December 31, 2020, the Company is not under audit by the IRS, any state authority, or foreign jurisdiction for income taxes for any open years. Due to the Company’s net operating loss carryforwards, the Company’s income tax returns are open to examination by the Internal Revenue Service beginning with tax year 2012 and by state taxing authorities beginning with tax year 2011.
The Company determined certain foreign earnings to be indefinitely reinvested outside the United States. The Company regularly evaluates its reinvestment policy on a quarterly basis and will adjust its estimate of its income tax provision accordingly to the extent there is a change and an adjustment is required. As of December 31, 2020, the amount of undistributed earnings was approximately $2.7 million. The Company did not provide for U.S. income taxes on the undistributed earnings and other outside temporary differences of foreign subsidiaries as they are considered indefinitely reinvested outside the United States. As of December 31, 2020, the amount of temporary differences related to undistributed earnings and other outside temporary differences upon which U.S. income taxes have not been provided is immaterial to the consolidated financial statements.
Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”)
On March 27, 2020, the CARES Act was enacted in the United States to provide economic relief to individuals and businesses facing economic hardship as a result of the COVID-19 public health emergency. The CARES Act includes, among other things, provisions relating to payroll tax credits and deferrals, net operating loss carryback periods, alternative minimum tax credits refunds, modifications to
ZipRecruiter, Inc.
Notes to Consolidated Financial Statements
the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property.
As allowed by the CARES Act, the Company deferred the payment of certain federal payroll taxes. This relief program is applicable for wages paid through December 31, 2020 and requires 50% of the amounts deferred to be paid by December 31, 2021 with the remaining amount paid by December 31, 2022. As of December 31, 2020, the deferred payroll tax liability was $3.5 million of which $1.7 million was presented in current liabilities and $1.8 million was presented in non-current liabilities in the Consolidated Balance Sheets. The Company completed its evaluation of the impact of the CARES Act, and with the exception of the impact of the deferred payroll tax liability, it did not have a significant impact on the effective tax rate, deferred tax assets and liabilities, or income tax payable of the Company.
17.Subsequent Events
The Company has evaluated subsequent events through March 9, 2021 which is the date these consolidated financial statements were available for issuance.
Common Stock Repurchase
On January 22, 2021, the Company repurchased 50,000 shares of common stock from a former employee for an aggregate price of $0.5 million. The repurchased shares of common stock were retired and recorded as a reduction of common stock and additional paid-in capital.
18.Events Subsequent to Issuance of the Consolidated Financial Statements (Unaudited)
Equity Award Grants
On March 24, 2021, the Company granted stock options to purchase 113,745 shares of common stock at an exercise price of $2.00 per share with an aggregate grant date fair value of $2.4 million that the Company expects to recognize as stock-based compensation expense over a four-year period. In addition, the Company granted 1,579,000 RSUs with an aggregate grant date fair value of $36.1 million. The RSUs vest upon the satisfaction of both a time-based service condition and a liquidity event performance condition as described in Note 14.
Restricted Stock Units Modification
On April 19, 2021, the Company’s board of directors waived the liquidity event-based performance condition such that the RSUs that had satisfied the service condition vest upon the earlier of the first day of trading of the Company’s common stock on the New York Stock Exchange or March 15, 2022. As the satisfaction of the performance condition was not probable for accounting purposes prior to the waiver, the waiver of the liquidity event-based performance condition resulted in the incremental fair value on the date of the waiver being equal to the fair value of the modified RSUs, which management estimated to be $25.04 per share. As of April 19, 2021, the fair value of the then outstanding modified RSUs is approximately $172.6 million, which the Company expects to record $41.7 million as stock-based compensation expense on the date of the modification and $130.9 million over a weighted average remaining service period of the RSUs of 1.5 years.
Nonemployee Option Award Amendment
In April 2021, the Company approved the amendment of its nonemployee performance and service-based option award. The amendment resulted in the vesting of an additional 50,000 options. The nonemployee’s remaining 100,000 unvested options were cancelled and a new grant for 32,500 RSUs was concurrently issued by the Company.
ZipRecruiter, Inc.
Notes to Consolidated Financial Statements
Executive Compensation Agreements
In April 2021, the Company entered into a new agreement with the CEO, which provides that, upon the earliest to occur of (a) (i) the first trading day following the Company’s initial public offering or direct listing pursuant to an effective registration statement under the Securities Act covering the offer and sale of the Company’s equity securities (whether by the Company or by any holders of the Company’s equity securities), as a result of or following which the shares are publicly held, or (ii) the consummation of a merger, acquisition or other business combination involving the Company and a publicly traded special purpose acquisition company, that results in the Company or its business becoming a publicly traded company (each a “Listing Condition”) or (b) a Change of Control, as defined in the 2014 Plan, the CEO will be entitled to a special cash bonus in an amount equal to $10.0 million, provided that the CEO is an active employee at the time of either event.
In April 2021, the Company also granted the CEO an RSU award, which provides for a grant of 1,398,000 RSUs (“CEO Grant”). The CEO Grant vests based on achieving stock price targets ranging from $67.61 per share to $157.75 per share following the first day the Company becomes a publicly traded company as well as satisfying certain minimum service requirements ranging from one to five years. The Company estimates the grant date fair value of this award to be approximately $19.0 million. The Company expects to recognize the grant date fair value as stock-based compensation expense over an estimated weighted-average derived service period of approximately 4.0 years commencing when the Company becomes a public company. To the extent that the stock price targets are satisfied prior to estimated derived service period, then expense will be recognized earlier, subject to meeting the minimum service requirements.
Dual Class Structure
In April 2021, the Company amended and restated its certificate of incorporation resulting in the creation of Class A common stock and Class B common stock. All existing shares of common stock issued and outstanding or held as treasury stock automatically converted into shares of Class B common stock.
The Class A common stock is entitled to one vote per share and the Class B common stock is entitled to twenty votes per share. The Class A and Class B common stock have the same dividend and liquidation rights. The Class B common stock converts to Class A at any time at the option of the holder. Additionally, each share of Class B common stock will convert automatically into one share of Class A common stock upon any transfer, except for certain transfers described in the restated certificate of incorporation.
All outstanding options to purchase common stock became options to purchase an equivalent number of shares of Class B common stock and all RSUs became RSUs for an equivalent number of Class B common stock.
Amendment to Redeemable Convertible Preferred Stock Conversion
In April 2021, the Company amended and restated its certificate of incorporation such that the redeemable convertible preferred stock automatically converts into shares of Class B common stock upon a direct listing.
New Credit Facility
In April 2021, the Company terminated its existing debt agreement, the Amended and Restated Loan and Security Agreement from September 2020, and entered into a new $250.0 million credit facility agreement with a syndicate of banks. The new credit facility has a maturity date of April 30, 2026 and bears interest at a rate based upon the Company’s net leverage ratio. The Company is also obligated to pay other customary fees including a commitment fee on a quarterly basis based on amounts committed but unused under the new credit facility at a rate based upon the net leverage ratio.
ZipRecruiter, Inc.
Notes to Consolidated Financial Statements
The new credit facility is collateralized by security interests in substantially all of the Company’s assets and includes customary events of default such as non-payment of principal, non-payment of interest or fees, inaccuracy of representations and warranties, violation of certain covenants, cross default to certain other indebtedness, bankruptcy and insolvency events, material judgments against us, and a change of control. The occurrence of an event of default could result in the acceleration of the obligations under the new credit facility.
The new credit facility contains customary representations, warranties, affirmative covenants, such as financial statement reporting requirements, negative covenants, and financial covenants, such as maintenance of certain net leverage ratio requirements. The negative covenants include restrictions that, among other things, restrict the Company’s ability to incur liens and indebtedness, make certain investments, declare dividends, dispose of, transfer or sell assets, make stock repurchases and consummate certain other matters, all subject to certain exceptions.
The Company had no amounts outstanding under the new credit facility.
ZipRecruiter, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except par value)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
March 31,
|
|
Pro Forma as of March 31,
2021
|
|
|
2020
|
|
2021
|
|
|
Assets
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
Cash
|
$
|
114,539
|
|
|
$
|
135,065
|
|
|
$
|
103,432
|
|
|
Accounts receivable, net of allowances of $3,933 and $4,515 at December 31, 2020 and March 31, 2021, respectively
|
21,036
|
|
|
25,941
|
|
|
25,941
|
|
|
Prepaid expenses and other assets
|
5,462
|
|
|
8,523
|
|
|
8,523
|
|
|
Deferred commissions, current portion
|
3,727
|
|
|
3,870
|
|
|
3,870
|
|
|
Total current assets
|
144,764
|
|
|
173,399
|
|
|
141,766
|
|
|
Property and equipment, net
|
5,043
|
|
|
7,112
|
|
|
7,112
|
|
|
Operating lease right-of-use assets
|
22,500
|
|
|
21,027
|
|
|
21,027
|
|
|
Internal use software, net
|
11,191
|
|
|
11,114
|
|
|
11,114
|
|
|
Deferred commissions, net of current portion
|
3,712
|
|
|
3,447
|
|
|
3,447
|
|
|
Goodwill
|
1,724
|
|
|
1,724
|
|
|
1,724
|
|
|
Deferred tax assets, net
|
23,083
|
|
|
19,932
|
|
|
19,932
|
|
|
Other assets
|
112
|
|
|
53
|
|
|
53
|
|
|
Total assets
|
$
|
212,129
|
|
|
$
|
237,808
|
|
|
$
|
206,175
|
|
|
|
|
|
|
|
|
|
Liabilities, Redeemable Convertible Preferred Stock and Stockholders' (Deficit) Equity
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
Accounts payable
|
$
|
13,509
|
|
|
$
|
11,485
|
|
|
$
|
11,485
|
|
|
Accrued expenses
|
38,842
|
|
|
44,711
|
|
|
44,711
|
|
|
Deferred revenue
|
15,112
|
|
|
19,355
|
|
|
19,355
|
|
|
Deferred payroll tax liability, current portion
|
1,677
|
|
|
1,677
|
|
|
1,677
|
|
|
Operating lease liabilities, current portion
|
1,669
|
|
|
3,302
|
|
|
3,302
|
|
|
Other liabilities
|
646
|
|
|
614
|
|
|
614
|
|
|
Total current liabilities
|
71,455
|
|
|
81,144
|
|
|
81,144
|
|
|
Operating lease liabilities, net of current portion
|
25,130
|
|
|
22,766
|
|
|
22,766
|
|
|
Convertible notes and accrued interest with related parties
|
25,371
|
|
|
25,545
|
|
|
—
|
|
|
Deferred payroll tax liability, net of current portion
|
1,818
|
|
|
1,829
|
|
|
1,829
|
|
|
Other liabilities
|
1,795
|
|
|
2,066
|
|
|
2,066
|
|
|
Total liabilities
|
125,569
|
|
|
133,350
|
|
|
107,805
|
|
|
Commitments and contingencies (Note 6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable convertible preferred stock
|
|
|
|
|
|
|
Series A, $0.00001 par value; 2,271 shares authorized, issued, and outstanding; liquidation preference of $94,500 as of December 31, 2020 and March 31, 2021; no shares issued and outstanding as of March 31, 2021, pro forma
|
87,118
|
|
|
88,079
|
|
|
—
|
|
|
Series B, $0.00001 par value; 6,151 shares authorized, 6,031 shares issued and outstanding; liquidation preference of $50,000 as of December 31, 2020 and March 31, 2021; no shares issued and outstanding as of March 31, 2021, pro forma
|
49,738
|
|
|
49,774
|
|
|
—
|
|
|
Total redeemable convertible preferred stock
|
136,856
|
|
|
137,853
|
|
|
—
|
|
|
Stockholders' (deficit) equity
|
|
|
|
|
|
|
Common stock, $0.00001 par value; 137,800 shares authorized, 78,283, 80,198 and 109,334 shares issued, and 78,088, 80,003, and 109,139 shares outstanding as of December 31, 2020, March 31, 2021, and March 31, 2021 pro forma respectively
|
—
|
|
|
—
|
|
|
1
|
|
|
Treasury stock, 195 shares outstanding as of December 31, 2020, March 31, 2021, and March 31, 2021 pro forma
|
(644)
|
|
|
(644)
|
|
|
(644)
|
|
|
Additional paid-in capital
|
21,732
|
|
|
25,235
|
|
|
235,209
|
|
|
Accumulated deficit
|
(71,384)
|
|
|
(57,986)
|
|
|
(136,196)
|
|
|
Total stockholders' (deficit) equity
|
(50,296)
|
|
|
(33,395)
|
|
|
98,370
|
|
|
Total liabilities, redeemable convertible preferred stock, and stockholders' (deficit) equity
|
$
|
212,129
|
|
|
$
|
237,808
|
|
|
$
|
206,175
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-39
ZipRecruiter, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except par value)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2020
|
|
2021
|
|
Revenue
|
$
|
113,292
|
|
|
$
|
125,372
|
|
|
Cost of revenue
|
14,472
|
|
|
15,961
|
|
|
Gross Profit
|
98,820
|
|
|
109,411
|
|
|
Operating expenses:
|
|
|
|
|
Sales and marketing
|
78,880
|
|
|
63,476
|
|
|
Research and development
|
19,226
|
|
|
17,015
|
|
|
General and administrative
|
11,488
|
|
|
12,454
|
|
|
Total operating expenses
|
109,594
|
|
|
92,945
|
|
|
Income (loss) from operations
|
(10,774)
|
|
|
16,466
|
|
|
Other income (expense)
|
|
|
|
|
Interest expense
|
(279)
|
|
|
(209)
|
|
|
Sublease income
|
282
|
|
|
292
|
|
|
Other income (expense), net
|
(144)
|
|
|
94
|
|
|
Total other income (expense), net
|
(141)
|
|
|
177
|
|
|
Income (loss) before income taxes
|
(10,915)
|
|
|
16,643
|
|
|
Income tax expense
|
167
|
|
|
3,245
|
|
|
Net income (loss)
|
(11,082)
|
|
|
13,398
|
|
|
Less: Accretion of redeemable convertible preferred stock
|
(955)
|
|
|
(997)
|
|
|
Less: Undistributed earnings attributable to participating securities
|
—
|
|
|
(2,913)
|
|
|
Net income (loss) attributable to common stockholders
|
$
|
(12,037)
|
|
|
$
|
9,488
|
|
|
Net income (loss) per share:
|
|
|
|
|
Basic
|
$
|
(0.15)
|
|
|
$
|
0.12
|
|
|
Diluted
|
$
|
(0.15)
|
|
|
$
|
0.10
|
|
|
Weighted average shares used in computing net income (loss) per share:
|
|
|
|
|
Basic
|
79,423
|
|
|
78,834
|
|
|
Diluted
|
79,423
|
|
|
98,435
|
|
|
Pro forma net income per share:
|
|
|
|
|
Basic
|
|
|
$
|
0.03
|
|
|
Diluted
|
|
|
$
|
0.03
|
|
|
Weighted-average shares used in computing pro forma net income per share:
|
|
|
|
|
Basic
|
|
|
107,590
|
|
|
Diluted
|
|
|
123,364
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-40
ZipRecruiter, Inc.
Condensed Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders’ Deficit
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2020
|
|
|
Redeemable Convertible Preferred Stock
|
|
|
|
|
|
|
|
|
|
|
Additional
Paid-in
Capital
|
|
Accumulated
Deficit
|
|
Total
Stockholders' Deficit
|
|
|
Series A
|
|
Series B
|
|
|
Common Stock
|
|
Treasury Stock
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
|
|
Balance as of December 31, 2019
|
2,271
|
|
|
$
|
83,375
|
|
|
6,031
|
|
|
$
|
49,598
|
|
|
|
79,583
|
|
|
$
|
—
|
|
|
(195)
|
|
|
$
|
(644)
|
|
|
$
|
35,339
|
|
|
$
|
(157,006)
|
|
|
$
|
(122,311)
|
|
|
Cumulative-effect of accounting change adopted as of January 1, 2020
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
426
|
|
|
(426)
|
|
|
—
|
|
|
Issuance of common stock upon exercise of options
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
|
572
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
305
|
|
|
—
|
|
|
305
|
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,994
|
|
|
—
|
|
|
1,994
|
|
|
Capital contribution
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
|
(213)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Accretion of redeemable convertible preferred stock
|
—
|
|
|
920
|
|
|
—
|
|
35
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(955)
|
|
|
—
|
|
|
(955)
|
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(11,082)
|
|
|
(11,082)
|
|
|
Balance as of March 31, 2020
|
2,271
|
|
|
$
|
84,295
|
|
|
6,031
|
|
$
|
49,633
|
|
|
|
79,942
|
|
|
$
|
—
|
|
|
(195)
|
|
|
$
|
(644)
|
|
|
$
|
37,109
|
|
|
$
|
(168,514)
|
|
|
$
|
(132,049)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2021
|
|
|
Redeemable Convertible Preferred Stock
|
|
|
|
|
|
|
|
|
|
|
Additional
Paid-in
Capital
|
|
Accumulated
Deficit
|
|
Total
Stockholders'
Deficit
|
|
|
Series A
|
|
Series B
|
|
|
Common Stock
|
|
Treasury Stock
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
|
|
Balance as of December 31, 2020
|
2,271
|
|
|
$
|
87,118
|
|
|
6,031
|
|
|
$
|
49,738
|
|
|
|
78,283
|
|
|
$
|
—
|
|
|
(195)
|
|
|
$
|
(644)
|
|
|
$
|
21,732
|
|
|
$
|
(71,384)
|
|
|
$
|
(50,296)
|
|
|
Issuance of common stock upon exercise of options
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
|
1,965
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,660
|
|
|
—
|
|
|
3,660
|
|
|
Repurchase and retirement of common stock
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
|
(50)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(450)
|
|
|
—
|
|
|
(450)
|
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,290
|
|
|
—
|
|
|
1,290
|
|
|
Capital contribution
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Accretion of redeemable convertible preferred stock
|
—
|
|
|
961
|
|
|
—
|
|
36
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(997)
|
|
|
—
|
|
|
(997)
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13,398
|
|
|
13,398
|
|
|
Balance as of March 31, 2021
|
2,271
|
|
|
$
|
88,079
|
|
|
6,031
|
|
$
|
49,774
|
|
|
|
80,198
|
|
|
$
|
—
|
|
|
(195)
|
|
|
$
|
(644)
|
|
|
$
|
25,235
|
|
|
$
|
(57,986)
|
|
|
$
|
(33,395)
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-41
ZipRecruiter, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2020
|
|
2021
|
|
Cash flows from operating activities
|
|
|
|
|
Net income (loss)
|
$
|
(11,082)
|
|
|
$
|
13,398
|
|
|
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
|
|
|
|
|
Stock-based compensation expense
|
1,958
|
|
|
1,226
|
|
|
Depreciation and amortization
|
2,434
|
|
|
2,302
|
|
|
Provision for bad debts
|
553
|
|
|
244
|
|
|
Deferred income taxes
|
—
|
|
|
3,151
|
|
|
Noncash lease expense
|
1,170
|
|
|
1,473
|
|
|
Loss on disposal of property and equipment
|
328
|
|
|
—
|
|
|
Change in operating assets and liabilities:
|
|
|
|
|
Accounts receivable
|
(382)
|
|
|
(5,149)
|
|
|
Prepaid expenses and other current assets
|
453
|
|
|
(1,087)
|
|
|
Deferred commissions, net
|
(736)
|
|
|
122
|
|
|
Other assets
|
(8)
|
|
|
59
|
|
|
Accounts payable
|
2,958
|
|
|
(2,191)
|
|
|
Accrued expenses and other liabilities
|
1,065
|
|
|
5,078
|
|
|
Deferred revenue
|
(709)
|
|
|
4,259
|
|
|
Operating lease liabilities
|
(2,185)
|
|
|
(731)
|
|
|
Net cash (used in) provided by operating activities
|
(4,183)
|
|
|
22,154
|
|
|
Cash flows from investing activities
|
|
|
|
|
Purchases of property and equipment
|
(230)
|
|
|
(1,131)
|
|
|
Capitalized internal use software costs
|
(2,640)
|
|
|
(2,124)
|
|
|
Net cash used in investing activities
|
(2,870)
|
|
|
(3,255)
|
|
|
Cash flows from financing activities
|
|
|
|
|
Proceeds from term loan
|
10,000
|
|
|
—
|
|
|
Proceeds from revolving line
|
16,500
|
|
|
—
|
|
|
Repurchase of common stock
|
—
|
|
|
(450)
|
|
|
Proceeds from exercise of stock options
|
288
|
|
|
2,077
|
|
|
Net cash provided by financing activities
|
26,788
|
|
|
1,627
|
|
|
Net increase in cash
|
19,735
|
|
|
20,526
|
|
|
Cash
|
|
|
|
|
Beginning of period
|
35,529
|
|
|
114,539
|
|
|
End of period
|
$
|
55,264
|
|
|
$
|
135,065
|
|
|
Supplemental disclosure of non-cash activities
|
|
|
|
|
Capitalized assets included in accounts payable and accrued expenses
|
$
|
464
|
|
|
$
|
2,084
|
|
|
Stock-based compensation capitalized for software
|
36
|
|
|
64
|
|
|
In-transit proceeds from exercise of stock options
|
17
|
|
|
2,547
|
|
|
Operating lease right-of-use assets obtained in exchange for new operating lease
|
5,787
|
|
|
—
|
|
|
Accretion of redeemable convertible preferred stock
|
955
|
|
|
997
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-42
ZipRecruiter, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
1.Description of Business
ZipRecruiter, Inc. was incorporated in the state of Delaware on June 29, 2010. Hereinafter, ZipRecruiter, Inc. and its wholly owned subsidiaries ZipRecruiter Israel Ltd., ZipRecruiter UK Ltd., and ZipRecruiter Canada Ltd. are collectively referred to as “ZipRecruiter” or the “Company.” The Company is a two-sided marketplace that enables employers and job seekers to connect with one another online to fill job opportunities.
2.Basis of Presentation, Principles of Consolidation, and Summary of Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Accordingly, certain information and disclosures normally included in consolidated financial statements presented in accordance with U.S. GAAP have been condensed or omitted.
The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included elsewhere in this prospectus. The consolidated balance sheet as of December 31, 2020 has been derived from our audited consolidated financial statements.
In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements include all adjustments (consisting of normal recurring adjustments) necessary for the fair statement of the condensed consolidated financial statements.
There have been no material changes in our accounting policies from those disclosed in our audited consolidated financial statements and the related notes.
The operating results for the three months ended March 31, 2021 are not necessarily indicative of the results expected for the full year ending December 31, 2021 or any future period.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Significant estimates include revenue recognition, estimates relating to the measurement of operating lease right-of-use (“ROU”) assets and operating lease liabilities, determination of the fair value of stock-based awards, valuation of common stock, collectability of accounts receivable, impairment of long-lived assets, including goodwill, carrying value and useful lives of property and equipment and internal-use software, the amortization period for deferred commission costs, and income taxes. By their nature, estimates are subject to an inherent degree of uncertainty and actual results could differ from those estimates.
The impact of the Coronavirus pandemic (“COVID-19”) continues to evolve. As a result, many of the Company’s estimates and assumptions required increased judgment and carry a higher degree of variability and volatility.
As of the date these condensed consolidated financial statements are available for issuance, the Company is not aware of any specific event or circumstance that would require an update to the Company’s estimates or judgments, or change to the carrying value of the Company’s assets or liabilities. However, these estimates and judgments may change as new events occur and additional information is
ZipRecruiter, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
obtained, which may result in changes being recognized in the consolidated financial statements in future periods. Actual results could differ from those estimates and any such differences may have a material impact on the financial statements.
Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Accounting standards describe a fair value hierarchy based on the following three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:
- Level 1 — Quoted prices in active markets for identical assets, liabilities, or funds.
- Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
- Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The carrying amounts of the Company’s financial instruments, including accounts receivable, accounts payable, and accrued expenses approximate fair value because of their short-term maturities. The fair value of the Company’s convertible notes with related parties as of December 31, 2020 and March 31, 2021 was estimated to be approximately $36.9 million and $70.2 million, respectively, and was based on the value of shares into which the notes convert. The value of the shares represents a Level 3 input in the fair value hierarchy.
Certain assets, including goodwill and intangible assets are also subject to measurement at fair value on a non-recurring basis using Level 3 inputs, but only when they are deemed to be impaired. For the year ended December 31, 2020 and three months ended March 31, 2021, no impairments were identified on those assets required to be measured at fair value on a non-recurring basis.
Segments and Geographic Information
The Company operates as a single operating segment. The Company’s Chief Operating Decision Maker (“CODM”), the Chief Executive Officer, regularly reviews financial information presented on a consolidated basis for purposes of assessing financial performance and allocating resources.
Pro forma condensed consolidated balance sheet and pro forma net income per share
Pro forma condensed consolidated balance sheet
The pro forma condensed consolidated balance sheet as of March 31, 2021 reflects the conversion of all shares of redeemable convertible preferred stock outstanding as of March 31, 2021 into 24,202,202 shares of common stock in connection with becoming a public company. Each share of outstanding Series A and Series B redeemable convertible preferred stock converts into 8 shares and 1 share of common stock, respectively. The pro forma condensed consolidated balance sheet also gives effect to the automatic conversion of the principal amount of the convertible notes with related parties and accrued interest outstanding into an aggregate of 3,073,594 shares of common stock at a conversion price of $8.2909 per share. To the extent that the volume-weighted average price on the first day of trading following a Direct Listing is less than $11.05 per share, then the convertible notes and contractual
ZipRecruiter, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
accrued interest will convert at 75.0% of the volume weighted-average price, which would result in the issuance of additional shares of common stock upon conversion.
As described in Note 8 of these condensed consolidated financial statements, the Company has granted restricted stock units (“RSUs”) which contain both service and liquidity event performance vesting conditions. The liquidity event performance condition is satisfied upon the earliest to occur of a qualifying event, defined as a change of control transaction, or after a set period of time following the effective date of the Company’s IPO pursuant to an effective registration statement under the Securities Act for the offer and sale of shares by the Company. A direct listing in which the Company does not sell its equity securities does not satisfy the liquidity event performance condition. On April 19, 2021, the Company’s board of directors waived the liquidity event performance condition such that the performance condition is satisfied on the earlier of the first day of trading of the Company’s stock on the New York Stock Exchange or March 15, 2022. Accordingly, in connection with the direct listing of the Company’s stock, RSUs that had satisfied the service condition will vest. The pro forma condensed consolidated balance sheet information gives effect to stock-based compensation expense of $46.6 million associated with RSUs, assuming the board of directors waived the liquidity event performance condition and such RSUs settled as of March 31, 2021. The pro forma adjustment is reflected as an increase to additional paid-in-capital and accumulated deficit. Stock-based compensation expense is based on the estimated fair value of the RSUs as of April 19, 2021, which management has estimated to be $25.04 per share. If the performance condition was waived on March 31, 2021, 1,860,101 RSUs would have vested based on satisfying the service vesting condition and these RSUs have been included in the pro forma number of common shares outstanding in the pro forma condensed consolidated balance sheet as of March 31, 2021. Payroll tax expenses and other withholding obligations have not been included in the pro forma adjustments. The RSU holders will generally incur taxable income based upon the value of the shares on the date they are settled. The Company is required to withhold taxes on such value at applicable minimum statutory rates. The Company is unable to quantify these obligations as the withholding obligations will be based on the value of the shares on the settlement date.
The pro forma condensed consolidated balance sheet also gives effect to the payment of a $10.0 million special bonus that will be earned by the Company’s CEO upon the first day of trading following a direct listing of the Company’s common stock. The special bonus is reflected as a decrease in cash and an increase in accumulated deficit.
The pro forma condensed consolidated balance sheet also gives effect to approximately $21.6 million in transaction expenses related to the listing of the Company’s common stock on the New York Stock Exchange, which is reflected as a reduction in cash and an increase in accumulated deficit.
Pro forma net income per share
The pro forma net income per share is computed to give effect to the conversion of all outstanding shares of the redeemable convertible preferred stock and the convertible notes and accrued interest into shares of common stock, using the if-converted method, as of January 1, 2020 or the date of issuance, if later. The pro forma net income per share gives effect to stock-based compensation expense of $10.1 million, net of the blended federal and statutory tax rate of 26.0%, for RSUs that contain a time-based service condition and a liquidity event performance vesting conditions assuming the liquidity event performance condition was satisfied as of January 1, 2020 or the date of grant of the RSUs, if later. Stock-based compensation expense is based on the estimated fair value of the RSUs as of April 19, 2021, which management has estimated to be $25.04 per share. The pro forma net income per share also gives effect to 1,493,054 weighted-average shares related to RSUs which contain both service and performance vesting conditions for which the service-based condition was satisfied as of March 31, 2021 as if such issuance had occurred as of January 1, 2020, or the date of issuance, if later.
Recent Accounting Pronouncements
Accounting Pronouncements Not Yet Adopted
ZipRecruiter, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
As an “emerging growth company”, the Jumpstart Our Business Startups Act, allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. The Company has elected to use the adoption dates applicable to private companies. As a result, the Company’s financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective date for new or revised accounting standards that are applicable to public companies.
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the existing model for measuring the allowance for credit losses for financial assets measured at amortized cost (including accounts receivable) to a model that is based on the expected losses rather than incurred losses. Under the new credit loss model, lifetime expected credit losses on such financial assets are measured and recognized at each reporting date based on historical, current, and forecast information. In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, and in April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. These ASUs provide supplemental guidance and clarification to ASU 2016-13 and must be adopted concurrently with the adoption of ASU 2016-13, cumulatively referred to as “Topic 326.” For public business entities that are Securities and Exchange Commission (“SEC”) filers excluding smaller reporting companies, this guidance is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. For all other entities, this guidance is effective for fiscal years beginning after December 15, 2022 and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the effects of the adoption of this update on its consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which enhances and simplifies various aspects of income tax accounting guidance. For public business entities, this guidance is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. For all other entities, this guidance is effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early adoption is permitted, including adoption in an interim period. An entity that elects to early adopt ASU 2019-12 in an interim period should reflect any adjustments as of the beginning of the annual period that includes that interim period. The Company is currently evaluating the effects of the adoption of this update on its consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for certain convertible instruments, amends the guidance on derivative scope exceptions for contracts in an entity’s own equity, and modifies the guidance on diluted earnings per share calculations as a result of these changes. For public business entities that are SEC filers excluding smaller reporting companies, this guidance is effective for fiscal years beginning after December 15, 2021 and interim periods within those fiscal years. For all other entities, this guidance is effective for fiscal years beginning after December 15, 2023 and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the effects of the adoption of this update on its consolidated financial statements.
Recently Adopted Accounting Pronouncements
In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the accounting for implementation costs incurred in a hosting arrangement that is a service contract with the accounting for implementation costs incurred to develop or obtain internal-use software under ASC 350-40, in order to determine which costs to capitalize and recognize as an asset and which costs to expense. The Company early adopted
ZipRecruiter, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
ASU 2018-15 for interim periods starting January 1, 2021 and applied the changes prospectively. The adoption did not have a material impact on the Company’s condensed consolidated financial statements.
3.Net Income (Loss) Per Share
Basic net income (loss) per share is calculated by dividing the net income (loss) attributable to common stockholders based on the weighted average common shares outstanding for the period. The following table presents the Company’s basic net income (loss) per share (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2020
|
|
2021
|
|
Net income (loss) per share, basic:
|
|
|
|
|
Net income (loss)
|
$
|
(11,082)
|
|
|
$
|
13,398
|
|
|
Less: Accretion of redeemable convertible preferred stock
|
(955)
|
|
|
(997)
|
|
|
Less: Undistributed earnings attributable to participating securities
|
—
|
|
|
(2,913)
|
|
|
Net income (loss) attributable to common stockholders
|
(12,037)
|
|
|
9,488
|
|
|
Weighted-average shares of common stock outstanding
|
79,423
|
|
|
78,834
|
|
|
Net income (loss) per share - basic
|
$
|
(0.15)
|
|
|
$
|
0.12
|
|
The Company computes diluted net income per share under the two-class method where income is reallocated between common stock, potential common stock and participating securities. Potential common stock includes stock options and restricted stock units computed using the treasury stock method and the conversion of the convertible notes and accrued interest using the if converted method.
The following table presents the Company’s diluted net income (loss) per share (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2020
|
|
2021
|
|
Net income (loss) per share, diluted:
|
|
|
|
|
Numerator:
|
|
|
|
|
Net income (loss) attributable to common stockholders
|
$
|
(12,037)
|
|
|
$
|
9,488
|
|
|
Add:
|
|
|
|
|
Reallocation of net income attributable to participating securities
|
—
|
|
|
466
|
|
|
Interest on convertible notes with related parties, net of tax
|
—
|
|
|
129
|
|
|
Net income (loss) attributable to common stockholders, diluted
|
(12,037)
|
|
|
10,083
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
Weighted average shares, basic
|
79,423
|
|
|
78,834
|
|
|
Effect of dilutive securities:
|
|
|
|
|
Options to purchase common stock
|
—
|
|
|
15,774
|
|
|
Convertible notes with related parties
|
—
|
|
|
3,827
|
|
|
Weighted average shares, diluted
|
79,423
|
|
|
98,435
|
|
|
Net income (loss) per share - diluted
|
$
|
(0.15)
|
|
|
$
|
0.10
|
|
ZipRecruiter, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
The following table presents the weighted-average number of potentially anti-dilutive common stock equivalents excluded from the computation of diluted net income (loss) per share because their inclusion would have been anti-dilutive (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2020
|
|
2021
|
|
Options to purchase common stock
|
22,008
|
|
|
10
|
|
|
Unvested restricted stock units
|
3,179
|
|
|
5,559
|
|
|
Redeemable convertible preferred stock, if converted basis
|
24,202
|
|
|
—
|
|
|
Unvested early exercise common stock
|
—
|
|
|
2
|
|
|
Total shares excluded from diluted net income (loss) per share
|
49,389
|
|
|
5,571
|
|
Pro forma net income per share
The following table sets forth the computation of unaudited pro forma basic and diluted net income per share (in thousands, except for per share data):
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
Pro forma net income per share:
|
2021
|
|
Numerator:
|
|
|
Net income
|
$
|
13,398
|
|
|
Add: Interest on convertible notes with related parties, net of tax
|
129
|
|
|
Deduct: Stock-based compensation related to assumed vesting of RSUs, net of tax
|
(10,101)
|
|
|
Pro forma net income, basic and diluted
|
$
|
3,426
|
|
|
|
|
|
Denominator:
|
|
|
Weighted-average shares, basic
|
78,834
|
|
Adjustment for assumed conversion of redeemable convertible preferred stock to common stock
|
24,202
|
|
Adjustment for assumed conversion of convertible notes to common stock
|
3,061
|
|
Adjustment for assumed vesting of the RSUs
|
1,493
|
|
Weighted-average shares used in computing pro forma net income per share, basic
|
107,590
|
|
Effects of dilutive securities:
|
|
|
Options to purchase common stock
|
15,774
|
|
|
Weighted-average shares used in computing pro forma net income per share, diluted
|
123,364
|
|
Pro forma net income per share, basic
|
$
|
0.03
|
|
|
Pro forma net income per share, diluted
|
$
|
0.03
|
|
ZipRecruiter, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
4.Revenue Information
The Company disaggregates revenue into two streams: subscription revenue and performance-based revenue. The following table presents the Company’s revenue streams (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2020
|
|
2021
|
|
Subscription
|
$
|
95,365
|
|
|
$
|
100,504
|
|
|
Performance-based
|
17,927
|
|
|
24,868
|
|
|
Total revenue
|
$
|
113,292
|
|
|
$
|
125,372
|
|
The Company recognized $13.2 million and $12.5 million of revenues during the three months ended March 31, 2020 and 2021, respectively, that was included in the deferred revenue balances as of December 31, 2019 and 2020, respectively. As of December 31, 2020 and March 31, 2021, the Company had no contract assets outstanding.
Performance Obligations
No revenue was recognized during the three months ended March 31, 2020 and 2021 from performance obligations satisfied in previous periods. As of December 31, 2020 and March 31, 2021, the Company did not have any material remaining performance obligations in excess of one year.
5.Accrued Expenses
Accrued expenses consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
March 31,
|
|
|
2020
|
|
2021
|
|
Accrued marketing
|
$
|
6,006
|
|
|
$
|
16,987
|
|
|
Accrued bonuses
|
11,202
|
|
|
3,214
|
|
|
Other accrued expenses
|
7,311
|
|
|
11,265
|
|
|
Accrued partner expenses
|
5,554
|
|
|
4,572
|
|
|
Accrued 401(k) contributions
|
2,414
|
|
|
774
|
|
|
Accrued commissions
|
3,332
|
|
|
4,401
|
|
|
Accrued indirect taxes
|
600
|
|
|
835
|
|
|
Accrued refunds and customer liabilities
|
2,423
|
|
|
2,663
|
|
|
Total accrued expenses
|
$
|
38,842
|
|
|
$
|
44,711
|
|
6.Commitments and Contingencies
Legal Matters
The Company is subject to various legal proceedings and claims that arise in the ordinary course of business. If the Company determines that it is probable that a loss has been incurred and the amount is reasonably estimable, the Company will record a liability. However, if the Company determines that a contingent loss is reasonably possible and the loss or range of loss can be estimated, the Company will disclose the possible loss in the condensed consolidated financial statements.
In April 2019, the Company was named as a defendant in a putative class action lawsuit filed by a former employee in the Los Angeles Superior Court alleging that the Company violated the Fair Credit Reporting Act as well as owed certain compensation to employees. In January 2020, the former employee filed a related representative action in the Los Angeles Superior Court under the Private Attorney General Act alleging similar claims regarding compensation owed to employees. In January
ZipRecruiter, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
2021, the Company filed a motion for summary judgment or, in the alternative, summary adjudication, which was granted in part and denied in part. At the date these condensed consolidated financial statements were available for issuance, it is reasonably possible that a loss may be incurred; however, a loss or range of losses is not currently estimable.
Indemnification
In the ordinary course of business, the Company may provide indemnification of varying scopes and terms to customers, investors, directors and officers with respect to certain matters, including, but not limited to, losses arising out of the Company’s breach of such agreements, services to be provided by the Company, or from certain claims made by third parties. These indemnification provisions may survive termination of the underlying agreement and the maximum potential amount of future payments the Company could be required to make under these indemnification provisions may not be subject to maximum loss clauses. The maximum potential amount of future payments the Company could be required to make under these indemnification provisions is indeterminable. The Company has never paid a material claim, nor has the Company been sued in connection with these indemnification arrangements. As of March 31, 2021, the Company has not accrued a liability for these indemnification arrangements because the likelihood of incurring a payment obligation, if any, in connection with these indemnification arrangements is neither probable nor reasonably estimable.
Restructuring
On March 31, 2020, the Company announced and committed to a restructuring plan to contain costs and further strengthen its liquidity profile in response to the impact of the COVID-19 pandemic. This plan resulted in a reduction in the Company’s workforce of approximately 40%. The Company recorded restructuring costs of $5.7 million in the first quarter of 2020 primarily related to employee severance and continuation of health benefits. Included in the $5.7 million restructuring costs is a non-cash charge of $0.8 million pertaining mainly to the modification of stock option awards for terminated employees. These awards were modified to extend the post-termination exercise period of vested options. Restructuring costs are presented as $3.7 million in sales and marketing, $1.0 million in research and development, and $1.0 million in general and administrative expenses within the Condensed Consolidated Statements of Operations for the three months ended March 31, 2020. As of December 31, 2020 and March 31, 2021, the restructuring liability included in accrued expenses was $0.2 million and $0, respectively.
7.Common Stock
In January 2021, the Company repurchased 50,000 shares of common stock from a former employee for an aggregate price of $0.5 million. The repurchased shares of common stock were retired and recorded as a reduction of common stock and additional paid-in capital.
8.Stock-Based Compensation
Total stock-based compensation expense is recorded in the Condensed Consolidated Statements of Operations as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2020
|
|
2021
|
|
Cost of revenue
|
$
|
24
|
|
|
$
|
16
|
|
|
Sales and marketing
|
306
|
|
|
99
|
|
|
Research and development
|
861
|
|
|
825
|
|
|
General and administrative
|
767
|
|
|
286
|
|
|
Total stock-based compensation
|
$
|
1,958
|
|
|
$
|
1,226
|
|
ZipRecruiter, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Stock Options
A summary of the Company’s stock option activity under the 2012 and 2014 equity incentive plans (the “Plans”) is as follows (in thousands except weighted-average information):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Options Outstanding
|
|
Weighted Average Exercise Price Per Share
|
|
Outstanding at December 31, 2020
|
19,373
|
|
|
$
|
2.09
|
|
|
Granted
|
114
|
|
|
2.00
|
|
|
Exercised
|
(1,900)
|
|
|
2.01
|
|
|
Forfeited/Canceled
|
(116)
|
|
|
3.84
|
|
|
Outstanding at March 31, 2021
|
17,471
|
|
|
$
|
2.09
|
|
|
Exercisable at March 31, 2021
|
15,777
|
|
|
$
|
1.83
|
|
As of March 31, 2021, total remaining stock-based compensation expense for unvested stock options is $7.2 million, which is expected to be recognized over a weighted average period of 1.3 years.
In the three months ended March 31, 2021, there were also 65,000 options exercised related to an equity grant outside of the Plans.
Restricted Stock Units
The Company has granted restricted stock units (“RSUs”) to certain employees and directors of the Company. The granted RSUs vest upon the satisfaction of both a time-based service condition and a liquidity event requirement. The time-based service condition for these awards is generally satisfied over four years. The liquidity event requirement is satisfied upon the earliest to occur of a qualifying event, defined as a change of control transaction or after a set period of time following the effective date of the Company’s IPO pursuant to an effective registration statement under the Securities Act for the offer and sale of shares by the Company. A direct listing in which the Company does not sell its equity securities does not satisfy the liquidity event performance condition (see Note 10, “Subsequent Events”).
A summary of the Company’s RSU activity for the three months ended March 31, 2021 is as follows (in thousands, except weighted-average information):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted Average Grant Date Fair Value Per Share
|
|
Unvested at December 31, 2020
|
5,451
|
|
|
$
|
5.75
|
|
|
Granted
|
1,579
|
|
|
22.85
|
|
|
Vested
|
—
|
|
|
—
|
|
|
Forfeited/Canceled
|
(159)
|
|
|
5.61
|
|
|
Unvested at March 31, 2021
|
6,871
|
|
|
$
|
9.68
|
|
As of March 31, 2021, the Company concluded that the liquidity event performance condition described above for the RSUs was not probable of being satisfied. As a result, the Company did not recognize any compensation cost during the three months ended March 31, 2020 and 2021 for any RSUs granted.
ZipRecruiter, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
9.Income Taxes
The Company computes its provision (benefit) for income taxes by applying the estimated annual effective tax rate to pretax income or loss and adjusts the provision for discrete tax items recorded in the period.
For the three months ended March 31, 2020 and 2021, the Company recorded income tax expense of $0.2 million and $3.2 million, respectively. The effective tax rates for the three months ended March 31, 2020 and 2021 were (1.5%) and 19.5%, respectively. The effective tax rate for the three months ended March 31, 2020 differed from the U.S. federal statutory tax rate of 21% primarily due to the valuation allowance maintained against net U.S. federal and state deferred tax assets. The effective tax rate for the three months ended March 31, 2021 differed from the U.S. federal statutory tax rate of 21% primarily due to excess tax benefits relating to the exercise of non-qualified stock options, partially offset by other permanent items.
During the fourth quarter of 2020, the Company released its full valuation allowance on its U.S. federal and state net deferred tax assets, as it was more likely than not that those deferred tax assets would be realized. The Company has maintained this position for the three months ended March 31, 2021.
10.Subsequent Events
The Company has evaluated subsequent events through April 30, 2021 which is the date these condensed consolidated financial statements were available for issuance.
Restricted Stock Units Modification
On April 19, 2021, the Company’s board of directors waived the liquidity event performance condition such that the RSUs that had satisfied the service condition vest upon the earlier of the first day of trading of the Company’s common stock on the New York Stock Exchange, or March 15, 2022. As the satisfaction of the performance condition was not probable for accounting purposes prior to the waiver, the waiver of the liquidity event performance condition resulted in the incremental fair value on the date of the waiver being equal to the fair value of the modified RSUs, which management estimated to be $25.04 per share. As of April 19, 2021, the fair value of the then outstanding modified RSUs is approximately $172.6 million, which the Company expects to record $41.7 million as stock-based compensation expense on the date of the modification and $130.9 million over a weighted average remaining service period of the RSUs of 1.5 years.
Nonemployee Option Award Amendment
In April 2021, the Company approved the amendment of its nonemployee performance and service-based option award. The amendment resulted in the vesting of an additional 50,000 options. The nonemployee’s remaining 100,000 unvested options were cancelled and a new grant for 32,500 RSUs was concurrently issued by the Company.
Executive Compensation Agreements
In April 2021, the Company entered into a new agreement with the CEO, which provides that, upon the earliest to occur of (a) (i) the first trading day following the Company’s initial public offering or direct listing pursuant to an effective registration statement under the Securities Act covering the offer and sale of the Company’s equity securities (whether by the Company or by any holders of the Company’s equity securities), as a result of or following which the shares are publicly held, or (ii) the consummation of a merger, acquisition or other business combination involving the Company and a publicly traded special purpose acquisition company, that results in the Company or its business becoming a publicly traded company (each a “Listing Condition”) or (b) a Change of Control, as defined in the 2014 Plan, the CEO
ZipRecruiter, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
will be entitled to a special cash bonus in an amount equal to $10.0 million, provided that the CEO is an active employee at the time of either event.
In April 2021, the Company also granted the CEO an RSU award, which provides for a grant of 1,398,000 RSUs (“CEO Grant”). The CEO Grant vests based on achieving stock price targets ranging from $67.61 per share to $157.75 per share following the first day the Company becomes a publicly traded company as well as satisfying certain minimum service requirements ranging from one to five years. The Company estimates the grant date fair value of this award to be approximately $19.0 million. The Company expects to recognize the grant date fair value as stock-based compensation expense over an estimated weighted-average derived service period of approximately 4.0 years commencing when the Company becomes a public company. To the extent that the stock price targets are satisfied prior to estimated derived service period, then expense will be recognized earlier, subject to meeting the minimum service requirements.
Dual Class Structure
In April 2021, the Company amended and restated its certificate of incorporation resulting in the creation of Class A common stock and Class B common stock. All existing shares of common stock issued and outstanding or held as treasury stock automatically converted into shares of Class B common stock.
The Class A common stock is entitled to one vote per share and the Class B common stock is entitled to twenty votes per share. The Class A and Class B common stock have the same dividend and liquidation rights. The Class B common stock converts to Class A at any time at the option of the holder. Additionally, each share of Class B common stock will convert automatically into one share of Class A common stock upon any transfer, except for certain transfers described in the restated certificate of incorporation.
All outstanding options to purchase common stock became options to purchase an equivalent number of shares of Class B common stock and all RSUs became RSUs for an equivalent number of Class B common stock.
Amendment to Redeemable Convertible Preferred Stock Conversion
In April 2021, the Company amended and restated its certificate of incorporation such that the redeemable convertible preferred stock automatically converts into shares of Class B common stock upon a direct listing.
New Credit Facility
In April 2021, the Company terminated its existing debt agreement, the Amended and Restated Loan and Security Agreement from September 2020, and entered into a new $250.0 million credit facility agreement with a syndicate of banks. The new credit facility has a maturity date of April 30, 2026 and bears interest at a rate based upon the Company’s net leverage ratio. The Company is also obligated to pay other customary fees including a commitment fee on a quarterly basis based on amounts committed but unused under the new credit facility at a rate based upon the net leverage ratio.
The new credit facility is collateralized by security interests in substantially all of the Company’s assets and includes customary events of default such as non-payment of principal, non-payment of interest or fees, inaccuracy of representations and warranties, violation of certain covenants, cross default to certain other indebtedness, bankruptcy and insolvency events, material judgments against us, and a change of control. The occurrence of an event of default could result in the acceleration of the obligations under the new credit facility.
The new credit facility contains customary representations, warranties, affirmative covenants, such as financial statement reporting requirements, negative covenants, and financial covenants, such as
ZipRecruiter, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
maintenance of certain net leverage ratio requirements. The negative covenants include restrictions that, among other things, restrict the Company’s ability to incur liens and indebtedness, make certain investments, declare dividends, dispose of, transfer or sell assets, make stock repurchases and consummate certain other matters, all subject to certain exceptions.
As of the date these condensed consolidated financial statements were available for issuance, the Company had no amounts outstanding under the new credit facility.
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 the registrant in connection with the registration and listing of its Class A common stock. All amounts shown are estimates except for the Securities and Exchange Commission, or SEC, registration fee and the New York Stock Exchange, or NYSE, listing fee.
|
|
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|
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|
|
|
Amount Paid or to be Paid
|
|
SEC registration fee
|
$
|
11,234
|
|
|
NYSE listing fee
|
367,885
|
|
|
Printing fees and expenses
|
225,000
|
|
|
Legal fees and expenses
|
1,900,000
|
|
|
Accounting fees and expenses
|
1,567,840
|
|
|
Transfer agent and registrar fees and expenses
|
12,800
|
|
|
Other advisors’ fees
|
19,537,500
|
|
|
Miscellaneous expenses
|
259,941
|
|
|
Total
|
$
|
23,882,200
|
|
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law, or DGCL, authorizes a court to award, or a corporation’s board of directors to grant, indemnity to directors and officers under certain circumstances and subject to certain limitations. The terms of Section 145 of the DGCL are sufficiently broad to permit indemnification under certain circumstances for liabilities, including reimbursement of expenses incurred, arising under the Securities Act of 1933, as amended, or the Securities Act.
As permitted by the DGCL, the registrant’s restated certificate of incorporation that will be in effect following the effectiveness of this registration statement contains provisions that eliminate the personal liability of its directors for monetary damages for any breach of fiduciary duties as a director, except liability for the following:
•any breach of the director’s duty of loyalty to the registrant or its stockholders;
•acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law;
•under Section 174 of the DGCL (regarding unlawful dividends and stock purchases); or
•any transaction from which the director derived an improper personal benefit.
As permitted by the DGCL, the registrant’s restated bylaws that will be in effect following the effectiveness of this registration statement provide that:
•the registrant is required to indemnify its directors and executive officers to the fullest extent permitted by the DGCL, subject to very limited exceptions;
•the registrant may indemnify its other employees and agents as set forth in the DGCL;
•the registrant is required to advance expenses, as incurred, to its directors and executive officers in connection with a legal proceeding to the fullest extent permitted by the DGCL, subject to very limited exceptions; and
•the rights conferred in the restated bylaws are not exclusive.
In addition, the registrant has entered into indemnification agreements with each of its current directors and executive officers to provide these directors and executive officers additional contractual assurances regarding the scope of the indemnification set forth in the registrant’s restated certificate of incorporation and restated bylaws and to provide additional procedural protections. From time to time the registrant has indemnified and may in the future indemnify its directors and officers pursuant to these indemnification agreements in connection legal or regulatory proceedings. The indemnification provisions in the registrant’s restated certificate of incorporation and restated bylaws and the indemnification agreements entered into or to be entered into between the registrant and each of its directors and executive officers may be sufficiently broad to permit indemnification of the registrant’s directors and executive officers for liabilities arising under the Securities Act.
The registrant has directors’ and officers’ liability insurance for its directors and officers.
Certain of the registrant’s directors are also indemnified by their employers with regard to their service on the registrant’s board of directors.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following sets forth information regarding all unregistered securities sold since January 1, 2018.
Option, RSU, and Common Stock Issuances
Since January 1, 2018 and through April 30, 2021, the registrant granted to its directors, officers, employees, consultants, and other service providers options to purchase an aggregate of 5,359,245 shares of Class B common stock under its 2014 Equity Incentive Plan, or 2014 Plan, at exercise prices ranging from $2.00 to $6.36 per share.
Since January 1, 2018 and through April 30, 2021, the registrant granted to its directors, officers, employees, consultants, and other service providers an aggregate of 9,452,160 RSUs to be settled in shares of our Class B common stock under our 2014 Stock Plan and an additional 32,500 RSUs to be settled in shares of our Class B common stock outside of its 2014 Plan.
Since January 1, 2018 and through April 30, 2021, the registrant granted options to purchase an aggregate of 300,000 shares of Class B common stock to a consultant, outside of its 2014 Plan, at an exercise price of $3.70 for obtaining certain performance milestones set forth in such consultant’s consulting and stock option agreements.
Note Issuance
In June 2020, the registrant issued unsecured, convertible promissory notes, or Convertible Notes, to four accredited investors in the aggregate principal amount of $25,000,000, at an interest rate of 2.5% per year, compounded annually; provided, however, the interest rate shall increase by 0.5% to 3.0% per annum on the two-year anniversary of the initial closing of the note financing and shall further increase by an additional 0.5% on each six month anniversary thereafter. The maturity date of the notes is the earliest to occur of: (1) June 22, 2023, or (2) an event of default under the Convertible Notes.
The Convertible Notes will automatically convert into shares of a new series of preferred stock upon a Qualified Financing Event, defined as raising gross proceeds of at least $40.0 million, or upon a Liquidity Event, defined as a change in control, a qualified initial public offering yielding gross proceeds of at least $50.0 million, or a direct listing to register existing shares of capital stock of the registrant for resale on a
major U.S. based stock exchange not pursuant to an underwritten public offering. The Convertible Notes may convert into shares of a new series of preferred stock upon a Nonqualified Financing Event, defined as a sale of shares of preferred stock that does not constitute a Qualified Financing Event, or after the maturity date at the option of the note holders. The Convertible Notes will convert into shares of our Class B common stock upon the effectiveness of the registration statement of which this prospectus forms a part.
Unless otherwise stated, the sales of the above securities were deemed to be exempt from registration under the Securities Act in reliance upon Section 4(a)(2) of the Securities Act (or Regulation D or Regulation S promulgated thereunder), or Rule 701 promulgated under Section 3(b) of the Securities Act as transactions by an issuer not involving any public offering or pursuant to benefit plans and contracts relating to compensation as provided under Rule 701. The recipients of the securities in each of these transactions represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were placed upon the stock certificates issued in these transactions.
None of the foregoing transactions involved any underwriters, underwriting discounts or commissions or any public offering, and the registrant believes each transaction was exempt from the registration requirements of the Securities Act as stated above. All recipients of the foregoing transactions either received adequate information about the registrant or had access, through their relationships with the registrant, to such information. Furthermore, the registrant affixed appropriate legends to the share certificates and instruments issued in each foregoing transaction setting forth that the securities had not been registered and the applicable restrictions on transfer.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
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Exhibit
Number
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Description of Document
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3.1*
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3.2*
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3.3*
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3.4*
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4.1*
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4.2*
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4.3*
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5.1
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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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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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10.23
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10.24†
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23.1
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23.2
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24.1*
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________________
* Previously filed.
† Registrant has omitted portions of the exhibit as permitted under Item 601(b)(10) of Regulation S-K.
(b) Financial Statement Schedules.
All financial statement schedules are omitted because they are not applicable or the information is included in the registrant’s consolidated financial statements or related notes.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1)To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
•To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933, as amended, or Securities Act.
•To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement.
•To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.
(2)That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment 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.
(3)To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, and controlling persons of the registrant pursuant to provisions described in Item 14 above, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1)For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
(2)For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Santa Monica, California, on April 30, 2021.
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ZIPRECRUITER, INC.
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By:
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/s/ Ian Siegel
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Ian Siegel
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Chief Executive Officer
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Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities and on the date indicated.
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Signature
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Title
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Date
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/s/ Ian Siegel
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Chief Executive Officer and Director
(Principal Executive Officer)
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April 30, 2021
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Ian Siegel
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/s/ David Travers
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Chief Financial Officer
(Principal Financial Officer)
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April 30, 2021
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David Travers
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/s/ Amy Garefis
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Senior Vice President, Accounting
(Principal Accounting Officer)
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April 30, 2021
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Amy Garefis
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*
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Director
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April 30, 2021
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Emilie Choi
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*
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Director
|
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April 30, 2021
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Cipora Herman
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*
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Director
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April 30, 2021
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Blake Irving
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*
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Director
|
|
April 30, 2021
|
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Brian Lee
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*
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Director
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April 30, 2021
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Eric Liaw
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/s/ David Travers
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Attorney in-Fact
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David Travers
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*By: /s/ David Travers
David Travers
Attorney in-Fact
Exhibit 5.1
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228 Santa Monica Boulevard
Suite 300
Santa Monica, CA 90401
|
310.434.5400
Fenwick.com
|
April 30, 2021
ZipRecruiter, Inc.
Ladies and Gentlemen:
At your request, we have examined the Registration Statement on Form S-1 (File Number 333- 255488) (the “Registration Statement”) initially filed by ZipRecruiter, Inc., a Delaware corporation (the “Company”), with the Securities and Exchange Commission on April 23, 2021, as subsequently amended on April 30, 2021, in connection with the registration under the Securities Act of 1933, as amended (“Securities Act”), of up to 86,598,896 shares of the Company’s Class A common stock, $0.00001 par value per share (the “Stock”), for resale from time to time, pursuant to Rule 415 promulgated under the Securities Act by the registered stockholders as defined and listed in the Registration Statement in the section titled “Principal and Registered Stockholders” (the “Registered Stockholders”). The Stock may be sold by the Registered Stockholders, as set forth in the Registration Statement.
In connection with our opinion expressed below we have examined originals or copies of the Registration Statement, the prospectus prepared in connection with the Registration Statement (the “Prospectus”), the Company’s certificate of incorporation, as amended (the “Certificate”) and the Company’s bylaws (the “Bylaws”), certain minutes and consents of the Company’s board of directors or a committee or committees thereof and the Company’s stockholders relating to the Registration Statement, the Certificate and the Bylaws, and such other agreements, documents, certificates and statements of the Company, its transfer agent and public or government officials, as we have deemed advisable, and have examined such questions of law as we have considered necessary. In giving our opinion, we have also relied upon a good standing certificate regarding the Company issued by the Secretary of State of the State of Delaware and a management certificate addressed to us and dated of even date herewith executed by the Company containing certain factual representations by the Company.
In our examination of documents for purposes of this opinion, we have assumed, and express no opinion as to, the genuineness of all signatures on original documents, the authenticity and completeness of all documents submitted to us as originals, the conformity to originals and completeness of all documents submitted to us as copies, the legal capacity of all persons or entities executing the same (other than the Company), the lack of any undisclosed termination, modification, waiver or amendment to any document reviewed by us.
We render this opinion only with respect to, and express no opinion herein concerning the application or effect of the laws of any jurisdiction other than, the existing Delaware General Corporation Law.
In connection with our opinion expressed in paragraph below, we have assumed that, at or prior to the time of the delivery of any shares of Stock, the Registration Statement will have been declared effective under the Securities Act that the registration will apply to the offer and sale of such shares of Stock and will not have been modified or rescinded and that there will not have occurred any change in law affecting the validity of the issuance of such shares of Stock.
Based upon the foregoing, we are of the opinion that the up to 86,598,896 shares of Stock that may be sold by the Registered Stockholders have been duly authorized and are, or in the case of any shares of Stock subject to stock options or restricted stock units, when issued and paid for in accordance with their terms, if any, will be, validly issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration Statement and further consent to all references to us, if any, in the Registration Statement, the Prospectus constituting a part thereof and any amendments thereto.
This opinion is intended solely for use in connection with the resale of shares of Stock subject to the Registration Statement and is not to be relied upon for any other purpose. This opinion is rendered as of the date first written above and is based solely on our understanding of facts in existence as of such date after the aforementioned examination. In rendering the opinions above, we are opining only as to the specific legal issues expressly set forth therein, and no opinion shall be inferred as to any other matter or matters. We assume no obligation to advise you of any fact, circumstance, event or change in the law or the facts that may hereafter be brought to our attention whether or not such occurrence would affect or modify any of the opinions expressed herein.
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Very truly yours,
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/s/ Fenwick & West LLP
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FENWICK & WEST LLP
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OFFICE LEASE
Between
DOUGLAS EMMETT 1995, LLC,
a Delaware limited liability company
as Landlord and
ZIPRECRUITER, INC.,
a Delaware corporation
as Tenant
Date
May 16, 2014
OFFICE LEASE
BASIC LEASE INFORMATION TABLE
|
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Date:
|
May 16, 2014
|
|
|
Landlord:
|
DOUGLAS EMMETT 1995, LLC, a Delaware limited liability company
|
|
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Tenant:
|
ZIPRECRUITER, INC.,
a Delaware corporation
|
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SECTION
|
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1.1
|
Premises:
|
401 Wilshire Boulevard, Suite 1100
Santa Monica, California 90401
|
|
1.4
|
Rentable Area of Premises:
|
Approximately 16,893 square feet
|
|
1.4
|
Usable Area of Premises:
|
Approximately 15,277 square feet
|
|
2.1
|
Term:
|
Two (2) years
|
|
|
Commencement Date:
|
August 1, 2014
|
|
|
Expiration Date:
|
July 31, 2016
|
|
3.1
|
Fixed Monthly Rent:
|
$71,795.25
|
|
3.3
|
Fixed Monthly Rent Increase:
|
Three percent (3%) per annum
|
|
|
Date of First Increase:
|
August 1, 2015
|
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Frequency of Increase:
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Annually
|
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3.7
|
Security Deposit:
|
$73,949.11
|
|
4.1
|
Tenant’s Share:
|
7.80%
|
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4.2
|
Base Year for Operating Expenses:
|
2014
|
|
6.1
|
Use of Premises:
|
General office use consistent with the operation of a first-class office building in the Santa Monica area
|
|
16.1
|
Tenant’s Address for Notices:
|
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|
|
Before the Commencement Date:
|
1453 Third Street, Suite 335
Santa Monica, California 90401
|
|
|
After the Commencement Date
and Billing Address:
|
401 Wilshire Boulevard, Suite 1100
Santa Monica, California 90401
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Contact:
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Mr. Ian Siegel
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Landlord’s Address for Notices:
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Douglas Emmett 1995, LLC
c/o Douglas Emmett Management, LLC
Director of Property Management
808 Wilshire Boulevard, Suite 200
Santa Monica, California 90401
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20.5
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Brokers:
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Douglas Emmett Management, Inc.
808 Wilshire Boulevard, Suite 200
Santa Monica, California 90401
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CBRE, Inc.
400 South Hope Street, Suite 4700
Los Angeles, California 90071
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21.1
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Parking Permits:
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Tenant shall have the obligation to purchase twenty (20) unreserved parking permits on a “must-take” basis, and the right, but not the obligation, to purchase up to an additional thirty-two (32) unreserved parking permits throughout the Term.
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Except as noted hereinbelow, the foregoing Basic Lease Information Table (the “BLI Table”) is hereby incorporated into and made a part of this Lease. The Section reference in the left margin of the Basic Lease Information exists solely to indicate where such reference initially appears in this Lease document. Except as specified hereinbelow, each such reference in this Lease document shall incorporate the applicable Basic Lease Information. However, in the event of any conflict between any reference contained in the Basic Lease Information and the specific wording of this Lease, the wording of this Lease shall control.
OFFICE LEASE
This Office Lease (this “Lease”), dated May 16, 2014, is by and between DOUGLAS EMMETT 1995, LLC, a Delaware limited liability company (“Landlord”), with an office at 808 Wilshire Boulevard, Suite 200, Santa Monica, California 90401, and ZIPRECRUITER, INC., a Delaware corporation (“Tenant”), with an office at 1453 Third Street, Suite 335, Santa Monica, California 90401.
ARTICLE 1
DEMISE OF PREMISES
Section 1.1. Demise. Subject to the covenants and agreements contained in this Lease, Landlord leases to Tenant and Tenant hires from Landlord, Suite Number 1100 (the “Premises”) on the eleventh (11) floor, in the building located at 401 Wilshire Boulevard, Santa Monica, California 90401 (the “Building”). The configuration of the Premises is shown on Exhibit A, attached hereto and made a part hereof by reference.
Tenant acknowledges that it has made its own inspection of and inquiries regarding the Premises, which are already improved. Therefore, except for the improvements to be completed by Landlord’s contractor pursuant to Section 1.1.1, attached hereto and made a part hereof by reference, Tenant accepts the Premises in their “as-is” condition. Tenant further acknowledges that Landlord has made no representation or warranty, express or implied, except as are contained in this Lease and its Exhibits, regarding the condition, suitability or usability of the Premises or the Building for the purposes intended by Tenant.
The Building, the Building’s parking facilities, any outside plaza areas, land and other improvements surrounding the Building which are designated from time to time by Landlord as Common Areas appurtenant to or servicing the Building, and the land upon which any of the foregoing are situated, are herein sometimes collectively referred to as the “Real Property”.
1.1.1 Improvements. Prior to the Commencement Date, Landlord shall, at Landlord’s sole expense, complete the following improvements to the Premises (the “Improvements”):
a)Paint the interior walls of the Premises that were previously painted, using Building standard materials and a maximum of two (2) coats of paint, in up to two (2) colors reasonably acceptable to Tenant; and
b)Replace the existing carpet throughout the Premises, using Building standard materials (selected from the Shaw “View” collection), in a single color reasonably acceptable to Tenant; and
c)Upon Tenant’s written request, remove all cubicles from the Premises which are not removed by the existing tenant of the Premises.
Tenant shall provide Landlord with Tenant’s selection of color finishes for paint and carpet within ten (10) days following the date of the full execution of this Lease.
Section 1.2. Tenant’s Non-Exclusive Use. Subject to the contingencies contained herein, Tenant is granted the nonexclusive use of the common corridors and hallways, stairwells, elevators, restrooms, parking facilities, lobbies and other public or Common Areas located on the Real Property (collectively, “Common Areas”). However, the manner in which such public and Common Areas are maintained and
operated shall be at the reasonable discretion of Landlord, and Tenant’s use thereof shall be subject to such reasonable and non-discriminatory rules, regulations and restrictions as Landlord may make from time to time.
Section 1.3. Landlord’s Reservation of Rights. Landlord specifically reserves to itself use, control and repair of the structural portions of all perimeter walls of the Premises, any balconies, terraces or roofs adjacent to the Premises (including any flagpoles or other installations on said walls, balconies, terraces or roofs) and any space in and/or adjacent to the Premises used for shafts, stairways, pipes, conduits, ducts, mail chutes, conveyors, pneumatic tubes, electric or other utilities, sinks, fan rooms or other Building facilities, and the use thereof, as well as access thereto through the Premises. Landlord also specifically reserves to itself the following rights:
a)To designate all sources furnishing sign painting or lettering;
b)To constantly have pass keys to the Premises;
c)To grant to anyone the exclusive right to conduct any particular business or undertaking in the Building, so long as Landlord’s granting of the same does not prohibit Tenant’s use of the Premises for Tenant’s Specified Use, as defined in Article 6;
d)To enter the Premises at any reasonable time with reasonable notice (except for emergencies) to inspect, repair, alter, improve, update or make additions to the Premises or the Building so long as Tenant’s access to and use of the Premises is not materially impaired thereby;
e)During the last six (6) months of the Term, to exhibit the Premises to prospective future tenants upon not less than 24 hours prior notice;
f)Subject to the provisions of Article 12, to, at any time, and from time to time, whether at Tenant’s request or pursuant to governmental requirement, repair, alter, make additions to, improve, or decorate all or any portion of the Real Property, Building or Premises at any reasonable time with reasonable notice (except for emergencies), so long as Tenant’s access to and use of the Premises is not materially impaired thereby. In connection therewith, and without limiting the generality of the foregoing rights, Landlord shall specifically have the right to remove, alter, improve or rebuild all or any part of the lobby of the Building as the same is presently or shall hereafter be constituted;
g)Subject to the provisions of Article 12, Landlord reserves the right to make alterations or additions to or change the location of elements of the Real Property and any Common Areas appurtenant thereto at any reasonable time with reasonable notice (except for emergencies), so long as Tenant’s access to and use of the Premises is not materially impaired thereby; and/or
h)To take such other actions as may reasonably be necessary when the same are required to preserve, protect or improve the Premises, the Building, or Landlord’s interest therein at any reasonable time with reasonable notice (except for emergencies), so long as Tenant’s access to and use of the Premises is not materially impaired thereby.
Tenant acknowledges and agrees that: (a) the Premises are part of an office building owned, operated, managed and leased by Landlord and occupied by numerous tenants; (b) Landlord and such tenants are engaged from time to time in a variety of construction projects inside individual premises as well as in Common Areas as part of the normal course of business in the Building; and (c) such construction activities may cause, among other things, noise, vibration, dust, odors, increased foot traffic in the Building and in elevators and corridors, and increased motor vehicle traffic in parking facilities. In recognition of the foregoing, Tenant hereby releases Landlord and all of its parents, subsidiaries, divisions, employees, affiliates, assigns, officers, directors, shareholders, members, agents, predecessors, successors, trustees, beneficiaries and representatives (collectively, the “Landlord Parties”), from any and all claims (including claims for abatement of Rent or constructive eviction), debts, liabilities, demands, obligations, costs, expenses, actions and causes of action of every nature, character and description, whether known or unknown, asserted or unasserted, fixed or contingent arising out of or in connection with the activities and conditions described in the foregoing clauses (b) and (c). Furthermore, Tenant agrees that none of the activities and conditions described in the foregoing clauses (b) and (c) shall be grounds for any claim by Tenant or any party claiming through Tenant that Landlord has breached the terms of Section 1.5 below or any other provision of this Lease, or violated any statute or other applicable law which purports to govern the rights or obligations of Landlord and Tenant concerning the matters set forth in Section 1.5.
Section 1.4. Area. Landlord and Tenant agree that the usable area (the “Usable Area”) of the Premises has been measured using the 2010 ANSI/BOMA Standard published collectively by the American National Standards Institute and the Building Owners’ and Managers’ Association (“ANSI/BOMA Standard”), as a guideline, and that Landlord is utilizing a deemed add-on factor of 10.58% to compute the rentable area (the “Rentable Area”) of the Premises. Rentable Area herein is calculated as 1.1058 times the estimated Usable Area, regardless of what the actual square footage of the Common Areas of the Building may be, and whether or not they are more or less than 10.58% of the total estimated Usable Area of the Building. The purpose of this calculation is solely to provide a general basis for comparison and pricing of this space in relation to other spaces in the market area.
Landlord and Tenant further agree that even if the Rentable or Usable Area of the Premises and/or the total Building Area are later determined to be more or less than the figures stated herein, for all purposes of this Lease, the figures stated herein shall be conclusively deemed to be the actual Rentable or Usable Area of the Premises, as the case may be.
Section 1.5. Quiet Enjoyment. Contingent upon Tenant keeping, observing and performing all of the covenants, agreements, terms, provisions and conditions of this Lease on its part to be kept, observed and performed, and subject to the limitations imposed under Article 14 of this Lease, Tenant shall lawfully and quietly hold, occupy and enjoy the Premises during the Term.
Section 1.6. No Light, Air or View Easement. Any diminution or shutting off of light, air or view by any structure which is now or may hereafter be erected on the Building, the Real Property or on lands adjacent to the Building shall in no way affect this Lease or impose any liability on Landlord. Noise, dust or vibration or other ordinary incidents to new construction of improvements on the Building, the Real Property or on lands adjacent to the Building, whether or not by Landlord, shall in no way affect this Lease or impose any liability on Landlord.
Section 1.7. Intentionally deleted.
ARTICLE 2
COMMENCEMENT DATE AND TERM
Section 2.1. Commencement Date and Term. The term of this Lease (“Term”) shall commence on August 1, 2014 (the “Commencement Date”), and shall end, unless sooner terminated as otherwise provided herein, at midnight on July 31, 2016 (the “Termination Date”).
Tenant’s taking possession of the Premises and/or commencing Tenant’s normal business operations in the Premises shall be deemed conclusive evidence that, as of the Commencement Date:
a)Landlord has substantially completed the Improvements, except for any minor punch-list items that do not materially impair Tenant’s normal business operations; and
b)the Premises are in good order and repair.
Landlord, subject to the terms of this paragraph, shall grant Tenant access to the Premises not less than seven (7) days prior to the Commencement Date, provided (a) this Lease has been mutually executed and delivered, (b) Tenant has delivered to Landlord the certificates of insurance required under Section 19.2 of this Lease, and (c) Tenant has paid to Landlord all funds due upon execution of this Lease by Tenant, solely for the purpose of installing Tenant’s furniture, fixtures and equipment, computer and telephone cabling (the “Access Period”). Provided Tenant’s access to the Premises is for the purposes herein stated and not for the conduct of its business in the Premises, then such access shall not serve to accelerate the Commencement Date nor shall Tenant’s failure to exercise its right of access for any reason whatsoever serve to delay the Commencement Date. During the Access Period, if any, Tenant shall be subject to Landlord’s reasonable administrative control and supervision and Tenant shall comply with all of the provisions and covenants contained in this Lease, except that Tenant shall not be obligated to pay Fixed Monthly Rent or Additional Rent until the Commencement Date, subject to the express provisions of the last paragraph of Section 3.2 of this Lease. Tenant shall not be granted access to the Premises unless the conditions specified in clauses (a), (b) and (c) above have been satisfied in full.
Notwithstanding any contrary provision of this Lease, if Landlord fails to deliver possession of the Premises to Tenant on the Commencement Date and such failure is not attributable to Tenant’s actions in the Premises during the Access Period, then promptly following the date that Landlord actually delivers possession of the Premises to Tenant (the “Delivery Date”), Landlord and Tenant shall execute an amendment to this Lease which provides that (i) the Commencement Date shall be the Delivery Date, (ii) the Termination Date shall be the last calendar day of the twenty-fourth (24 ) full calendar month following the Commencement Date, and (iii) the increase in Fixed Monthly Rent payable by Tenant shall occur on the first calendar day of the thirteenth (13th) full calendar month following the Commencement Date.
Section 2.2. Holding Over. If Tenant fails to deliver possession of the Premises on the Termination Date, but holds over after the expiration or earlier termination of this Lease without the express prior written consent of Landlord, such tenancy shall be construed as a tenancy at sufferance on the same terms and conditions as are contained herein, except that the Fixed Monthly Rent payable by Tenant during such period of holding over shall automatically increase as of the Termination Date to an amount equal to one hundred fifty percent (150%) of the Fixed Monthly Rent payable by Tenant for the calendar month immediately prior to the date when Tenant commences such holding over (the “Holdover Rent”). During any period of holding over Tenant shall be obligated to pay Holdover Rent for a full calendar month
whether or not Tenant remains in possession of the Premises for the entire calendar month and there shall be no pro-rata apportionment of Holdover Rent. Tenant’s payment of such Holdover Rent, and Landlord’s acceptance thereof, shall not constitute a waiver by Landlord of any of Landlord’s rights or remedies with respect to such holding over, nor shall it be deemed to be a consent by Landlord to Tenant’s continued occupancy or possession of the Premises past the time period covered by Tenant’s payment of the Holdover Rent.
Furthermore, if Tenant fails to deliver possession of the Premises to Landlord upon the expiration or earlier termination of this Lease, and Landlord has theretofore notified Tenant in writing that Landlord requires possession of the Premises for a succeeding tenant, then, in addition to any other liabilities to Landlord accruing therefrom, Tenant shall protect, defend, indemnify and hold Landlord harmless from all loss, costs (including reasonable attorneys’ fees and expenses) and liability resulting from such failure, including without limiting the foregoing, any claims made by any succeeding tenant arising out of Tenant’s failure to so surrender, and any lost profits to Landlord resulting therefrom.
Notwithstanding the provisions contained hereinabove regarding Tenant’s liability for a continuing holdover, Landlord agrees to use commercially reasonable efforts to insert into any future lease of another tenant proposing to occupy the Premises provisions similar to those contained in Section 2.1, permitting mitigation of Tenant’s damages arising out of Tenant’s temporary holdover.
ARTICLE 3
PAYMENT OF RENT, LATE CHARGE
Section 3.1. Payment of Fixed Monthly Rent and Additional Rent. “Rent” shall mean: all payments of monies in any form whatsoever required under the terms and provisions of this Lease, and shall consist of:
a)“Fixed Monthly Rent”, which shall be payable in equal monthly installments of $71,795.25; plus
b)Additional Rent as provided in Article 4 and elsewhere in this Lease.
Section 3.2. Manner of Payment. Tenant shall pay Fixed Monthly Rent and Additional Rent immediately upon the same becoming due and payable, without demand therefor, and without any abatement, set off or deduction whatsoever, except as may be expressly provided in this Lease. Landlord’s failure to submit statements to Tenant stating the amount of Fixed Monthly Rent or Additional Rent then due, including Landlord’s failure to provide to Tenant a calculation of the adjustment as required in Section 3.3 or the Escalation Statement referred to in Article 4, shall not constitute Landlord’s waiver of Tenant’s requirement to pay the Rent called for herein. Tenant’s failure to pay Additional Rent as provided herein shall constitute a material default equal to Tenant’s failure to pay Fixed Monthly Rent when due.
Rent shall be payable in advance on the first day of each and every calendar month throughout the Term, in immediately available funds, to Landlord at the Building in Suite 250, or at such other place(s) as Landlord designates in writing to Tenant. Tenant’s obligation to pay Rent shall begin on the Commencement Date and continue throughout the Term, without abatement, setoff or deduction, except as otherwise specified hereinbelow.
Concurrent with Tenant’s execution and delivery to Landlord of this Lease, Tenant shall pay to Landlord the Fixed Monthly Rent due for the first month of the Term.
Section 3.3. Fixed Monthly Rent Increase. Commencing on August l, 2015, and continuing throughout the remainder of the Term, the Fixed Monthly Rent payable by Tenant shall increase from $71,795.25 per month to $73,949.11 per month.
Section 3.4. Tenant’s Payment of Certain Taxes. Tenant shall, within thirty (30) days following Tenant’s receipt of Landlord’s invoices, reimburse Landlord, as Additional Rent, for any and all taxes, surcharges, levies, assessments, fees and charges payable by Landlord when:
a) assessed on, measured by, or reasonably attributable to:
i) the cost or value of Tenant’s equipment, furniture, fixtures and other personal property located in the Premises; or
ii) the cost or value of any leasehold improvements in or to the Premises in excess of $35.00 per square foot, provided the same have been made in connection with Tenant’s execution of this Lease, and without regard to whether title to or payment for such improvements vests with Tenant or Landlord;
b) on or measured by any rent payable hereunder, including, without limitation, any gross income tax, gross receipts tax, or excise tax levied by the City of Santa Monica or County of Los Angeles or any other governmental body with respect to the receipt of such rent (computed as if such rent were the only income of Landlord), but solely when levied by the appropriate City or County agency in lieu of, or as an adjunct to, such business license(s), fees or taxes as would otherwise have been payable by Tenant directly to such taxing authority;
c) upon or with respect to the possession, leasing, operating, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises or any portion thereof; or
d) solely because Landlord and Tenant entered into this transaction or executed any document transferring an interest in the Premises to Tenant. If it becomes unlawful for Tenant so to reimburse Landlord, the rent payable to Landlord under this Lease shall be revised to net Landlord the same rent after imposition of any such tax as would have been payable to Landlord prior to the imposition of any such tax.
Said taxes shall be due and payable whether or not now customary or within the contemplation of Landlord and Tenant. Notwithstanding the above, in no event shall the provisions of this Section 3.4 serve to entitle Landlord to reimbursement from Tenant for any federal, state, county or city income tax payable by Landlord or the managing agent of Landlord.
Section 3.5. Certain Adjustments. If:
a) the Commencement Date occurs on other than January 1st of a calendar year, or this Lease expires or terminates on other than December 31st of a calendar year;
b) the size of the Premises changes during a calendar year; or
c) any abatement of Fixed Monthly Rent or Additional Rent occurs during a calendar year,
then the amount payable by Tenant or reimbursable by Landlord during such year shall be adjusted proportionately on a daily basis, and the obligation to pay such amount shall survive the expiration or earlier termination of this Lease.
If the Commencement Date occurs on other than the first day of a calendar month, or this Lease expires on a day other than the last day of a calendar month, then the Fixed Monthly Rent and Additional Rent payable by Tenant shall be appropriately apportioned on a prorata basis for the number of days remaining in the month of the Term for which such proration is calculated.
If the amount of Fixed Monthly Rent or Additional Rent due is modified pursuant to the terms of this Lease, such modification shall take effect the first day of the calendar month immediately following the date such modification would have been scheduled.
Section 3.6. Late Charge and Interest. Tenant acknowledges that late payment by Tenant to Landlord of Fixed Monthly Rent or Additional Rent will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which are extremely difficult and impracticable 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 and note secured by any encumbrance covering the Premises. Therefore, if any installment of Fixed Monthly Rent or Additional Rent and other payment due from Tenant hereunder is not received by Landlord within five (5) days of the date it becomes due, Tenant shall pay to Landlord on demand an additional sum equal to five percent (5%) of the overdue amount as a late charge. The parties agree that this late charge represents a fair and reasonable settlement against the costs that Landlord will incur by reason of Tenant’s late payment. Acceptance of any late charge shall not constitute a waiver of Tenant’s default with respect to the overdue amount, or prevent Landlord from exercising any of the other rights and remedies available to Landlord.
Every installment of Fixed Monthly Rent and Additional Rent and any other payment due hereunder from Tenant to Landlord which is not paid within twelve (12) days after the same becomes due and payable shall, in addition to any Late Charge already paid by Tenant, bear interest at the rate of ten percent (10%) per annum from the date that the same originally became due and payable until the date it is paid. Landlord shall bill Tenant for said interest, and Tenant shall pay the same within five (5) days of receipt of Landlord’s billing.
Notwithstanding the foregoing, Tenant shall not be assessed any late charge for the first late payment in each twenty-four (24) month period of the Term so long as Tenant pays such amount within five (5) days of Tenant’s receipt of notice that such amount has not been paid.
Section 3.7. Security Deposit. Concurrent with Tenant’s execution and tendering of this Lease to Landlord, Tenant shall deposit the sum of $73,949.11 (the “Security Deposit”), which amount Tenant shall thereafter at all times maintain on deposit with Landlord as security for Tenant’s full and faithful observance and performance of its obligations under this Lease (expressly including, without limitation, the payment as and when due of the Fixed Monthly Rent, Additional Rent and any other sums or damages payable by Tenant hereunder and the payment of any and all other damages for which Tenant shall be liable by reason of any act or omission contrary to any of said covenants or agreements). Landlord shall have the right to commingle the Security Deposit with its general assets and shall not be obligated to pay Tenant interest thereon.
If at any time Tenant defaults in the performance of any of its obligations under this Lease, after the expiration of notice and the opportunity to cure (if a notice and cure period is provided for under this Lease for the particular default), then, Landlord may:
a) apply as much of the Security Deposit as may be necessary to cure Tenant’s non-payment of the Fixed Monthly Rent, Additional Rent and/or other sums or damages due from Tenant, including any sums due under Section 20.26 of this Lease; and/or;
b) if Tenant is in default of any of the covenants or agreements of this Lease; apply so much of the Security Deposit as may be necessary to reimburse all expenses incurred by Landlord in curing such default; or
c) if the Security Deposit is insufficient to pay the sums specified in Section 3.7 (a) or (b), elect to apply the entire Security Deposit in partial payment thereof, and proceed against Tenant pursuant to the provisions of Article 17 and Article 18 herein.
Tenant hereby waives the provisions of Section 1950.7 of the California Civil Code, and all other laws, statutes, ordinances or other governmental rules, regulations or requirements now in force or which may hereafter be enacted or promulgated, which (i) establish the time frame by which Landlord must refund a security deposit under a lease, and/or (ii) provide that Landlord may claim from the Security Deposit only those sums reasonably necessary to remedy defaults in the payment of rent, to repair damage caused by Tenant or to clean the Premises, it being agreed that Landlord may, in addition, claim those sums specified in Article 18 below, and/or those sums reasonably necessary to compensate Landlord for any loss or damage caused by Tenant’s breach of this Lease or the acts or omission of Tenant or any Tenant Party. As used in this Lease a “Tenant Party” shall mean Tenant, any employee of Tenant, or any agent, authorized representative, design consultant or construction manager engaged by or under the control of Tenant.
If, as a result of Landlord’s application of any portion or all of the Security Deposit, the amount held by Landlord declines to less than $73,949.11, Tenant shall, within ten (10) days after demand therefor, deposit with Landlord additional cash sufficient to bring the then-existing balance held as the Security Deposit to the amount specified hereinabove. Tenant’s failure to deposit said amount shall constitute a material breach of this Lease.
At the expiration or earlier termination of this Lease, Landlord shall deduct from the Security Deposit being held on behalf of Tenant any unpaid sums, costs, expenses or damages payable by Tenant pursuant to the provisions of this Lease; and/or any costs required to cure Tenant’s default or performance of any other covenant or agreement of this Lease, and shall, within thirty (30) days after the expiration or earlier termination of this Lease, return to Tenant, without interest, all or such part of the Security Deposit as then remains on deposit with Landlord.
ARTICLE 4
ADDITIONAL RENT
Section 4.1. Certain Definitions. As used in this Lease:
a) “Escalation Statement” means a statement by Landlord, setting forth the amount payable by Tenant or by Landlord, as the case may be, for a specified calendar year pursuant to this Article 4.
b) “Operating Expenses” means the following in a referenced calendar year, including the Base Year as hereinafter defined, calculated assuming the Building is at least ninety-five percent (95%) occupied: all costs of management, operation, maintenance, and repair of the Building.
By way of illustration only, Operating Expenses shall include, but not be limited to: management fees, which shall not exceed those reasonable and customary in the geographic area in which the Building is located; water and sewer charges; any and all insurance premiums not otherwise directly payable by Tenant; license, permit and inspection fees; air conditioning (including repair of same); heat; light; power and other utilities; steam; labor; cleaning and janitorial services; guard services; supplies; materials; equipment and tools.
Operating Expenses shall also include the cost or portion thereof of those capital improvements made to the Building by Landlord during the Term:
i) to the extent that such capital improvements reduce other direct expenses, when the same were made to the Building by Landlord after the Commencement Date, or
ii) that are required under any governmental law or regulation that was not applicable to the Building as of the Commencement Date.
Said capital improvement costs, or the allocable portion thereof (as referred to in clauses (i) and (ii) above), shall be amortized pursuant to generally-accepted accounting principles, together with interest on the unamortized balance at the rate often percent (10%) per annum.
Operating Expenses shall also include all general and special real estate taxes, increases in assessments or special assessments and any other ad valorem taxes, rates, levies and assessments paid during a calendar year (or portion thereof) upon or with respect to the Building and the personal property used by Landlord to operate the Building, whether paid to any governmental or quasi-governmental authority, and all taxes specifically imposed in lieu of any such taxes (but excluding taxes referred to in Section 3.4 for which Tenant or other tenants in the Building are liable) including fees of counsel and experts, reasonably incurred by, or reimbursable by Landlord in connection with any application for a reduction in the assessed valuation of the Building and/or the land thereunder or for a judicial review thereof, (collectively “Appeal Fees”), but solely to the extent that the Appeal Fees result directly in a reduction of taxes otherwise payable by Tenant. However, in no event shall the portion of Operating Expenses used to calculate any billing to Tenant attributable to real estate taxes and assessments for any expense year be less than the billing for real estate taxes and assessments during the Base Year.
Operating Expenses shall also include, but not be limited to, the premiums for the following insurance coverage: all-risk, structural, fire, boiler and machinery, liability, earthquake and for replacement of tenant improvements to a maximum of $35.00 per usable square foot, and for such other coverage(s), and at such policy limit(s) as Landlord deems reasonably prudent and/or are required by any lender or ground lessor, which coverage and limits Landlord may, in Landlord’s reasonable discretion, change from time to time.
If, in any calendar year following the Base Year, as defined hereinbelow (a “Subsequent Year”), a new expense item (e.g., earthquake insurance, concierge services; entry card systems), is included in Operating Expenses which was not included in the Base Year Operating Expenses, then the cost of such new item shall be added to the Base Year Operating Expenses for purposes of determining the Additional
Rent payable under this Article 4 for such Subsequent Year. During each Subsequent Year, the same amount shall continue to be included in the computation of Operating Expenses for the Base Year, resulting in each such Subsequent Year Operating Expenses only including the increase in the cost of such new item over the Base Year, as so adjusted. However, if in any Subsequent Year thereafter, such new item is not included in Operating Expenses, no such addition shall be made to Base Year Operating Expenses.
Conversely, as reasonably determined by Landlord, when an expense item that was originally included in the Base Year Operating Expenses is, in any Subsequent Year, no longer included in Operating Expenses, then the cost of such item shall be deleted from the Base Year Operating Expenses for purposes of determining the Additional Rent payable under this Article 4 for such Subsequent Year. The same amount shall continue to be deleted from the Base Year Operating Expenses for each Subsequent Year thereafter that the item is not included. However, if such expense item is again included in the Operating Expenses for any Subsequent Year, then the amount of said expense item originally included in the Base Year Operating Expenses shall again be added back to the Base Year Operating Expenses.
c) Exclusions from Operating Expenses. Notwithstanding anything contained in the definition of Operating Expenses as set forth in Subsection 4.1(b) of this Lease, Operating Expenses shall not include the following:
i) The costs of repairs to the Building, if and to the extent that any such costs is actually reimbursed by the insurance carried by Landlord or subject to award under any eminent domain proceeding;
ii) Depreciation, amortization and interest payments, except as specifically permitted herein or except on materials, tools supplies and vendor-type equipment purchased by Landlord to enable Landlord to supply services Landlord might otherwise contract for with a third party where such depreciation, amortization and interest payments would otherwise have been included in the charge for such third party’s services. In such a circumstance, the inclusion of all depreciation, amortization and interest payments shall be determined pursuant to generally accepted accounting principles, consistently applied, amortized over the reasonably anticipated useful life of the capital item for which such amortization, depreciation or interest allocation was calculated;
iii) Marketing costs, including leasing commissions, attorneys’ fees incurred in connection with the negotiation and preparation of letters, deal memos, letters of intent, leases subleases and/or assignments, space planning costs, and other costs and expenses incurred in connection with lease, sublease and/or assignment negotiations and transactions with present or prospective tenants or other occupants of the Building;
iv) Expenses for services not offered to Tenant or for which Tenant is charged directly, whether or not such services or other benefits are provided to another tenant or occupant of the Building;
v) Costs incurred due to Landlord’s or any tenant of the Building’s violation, other than Tenant, of the terms and conditions of any lease or rental agreement in the Building;
vi) Interest, principal, points and fees on debts or amortization on any mortgage or mortgages or any other debt instrument encumbering the Building or the land thereunder;
vii) Costs associated with operating the entity which constitutes Landlord, as the same are distinguished from the costs of operation of the Building, including partnership accounting and legal matters, costs of defending any lawsuits with any mortgagee (except as the actions of Tenant may be in issue), costs of selling, syndicating, financing, mortgaging or hypothecating any of Landlord’s interest in the Building, costs (including attorneys’ fees and costs of settlement judgments and payments in lieu thereof) arising from claims, disputes or potential disputes in connection with potential or actual claims, litigation or arbitration pertaining to Landlord’s ownership of the Building;
viii) Leasing advertising and promotional expenditures, and costs of leasing signs in or on the Building identifying the owner of the Building, or other tenants signs;
ix) Electric, gas or other power costs for which (and only to the extent) Landlord has been directly reimbursed by another tenant or occupant of the Building, or for which any tenant directly contracts with the local public service company;
x) Costs, including attorneys’ fees and settlement judgments and/or payments in lieu thereof, arising from actual or potential claims, disputes, litigation or arbitration pertaining to Landlord and/or the Building;
xi) Costs incurred with respect to the installation of Tenant’s or other occupant’s improvements or incurred in renovating or otherwise improving, decorating, painting or redecorating vacant space for Tenant or other occupants of the Building;
xii) Tax penalties and interest incurred as a result of Landlord’s negligent or willful failure to make payments and/or to file any income tax or informational return(s) when due, unless such non-payment is due to Tenant’s nonpayment of rent;
xiii) Any charitable or political contributions;
xiv) The purchase or rental price of any sculpture, paintings or other object of art (except for costs associated with any common area fountains), whether or not installed in, on or upon the Building;
xv) Costs of repairs which would have been covered by casualty insurance but for Landlord’s failure to maintain casualty insurance to cover the replacement value of the Building as required by this Lease;
xvi) Capital expenditures not otherwise permitted hereunder; and
xvii) The assessment or billing of operating expenses that results in Landlord being reimbursed more than one hundred percent (100%) of the total expenses for the calendar year in question.
d) “Tenant’s Share” means 7.80%.
Section 4.2. Calculation of Tenant’s Share of Increases in Operating Expenses. If, commencing with the calendar year 2015, the Operating Expenses for any calendar year during the Term, or portion thereof (including the last calendar year of the Term), have increased over the Operating Expenses for the calendar year 2014 (the “Base Year”), then within thirty (30) days after Tenant’s receipt of Landlord’s computation of such increase (an “Escalation Statement”), Tenant shall pay to Landlord, as Additional Rent, an amount equal to the product obtained by multiplying such increase by Tenant’s Share.
Landlord may, at or after the start of any calendar year subsequent to the Base Year, notify Tenant of the amount which Landlord estimates will be Tenant’s monthly share of any such increase in Operating Expenses for such calendar year over the Base Year and the amount thereof shall be added to the Fixed Monthly Rent payments required to be made by Tenant in such year. If Tenant’s Share of any such increase in rent payable hereunder as shown on the Escalation Statement is greater or less than the total amounts actually billed to and paid by Tenant during the year covered by such statement, then within thirty (30) days thereafter, Tenant shall pay in cash any sums owed Landlord or, if applicable, Tenant shall either receive a credit against any Fixed Monthly Rent and/or Additional Rent next accruing for any sum owed Tenant, or if Landlord’s Escalation Statement is rendered after the expiration or earlier termination of this Lease and indicates that Tenant’s estimated payments have exceeded the total amount to which Tenant was obligated, then provided that Landlord is not owed any other sum by Tenant, Landlord shall issue a cash refund to Tenant within thirty (30) days after Landlord’s completion of such Escalation Statement.
Section 4.2.1. In the event Tenant disputes the amount of Additional Rent set forth in the Escalation Statement, then Tenant may, within one hundred twenty (120) days after Tenant receives the subject Escalation Statement, engage an independent certified public accountant (which accountant shall be a member of a nationally recognized accounting firm and is not working on a contingency fee basis), designated and paid for by Tenant, to inspect Landlord’s records with respect to such Escalation Statement at the offices of Landlord where such records are customarily maintained or at such other location reasonably selected by Landlord provided that:
a) Tenant is not then in default under this Lease;
b) Tenant provides Landlord with written notice of the dispute, which notice shall state with reasonable particularity the basis for the dispute, the amount at issue and identifying the accountant engaged or to be engaged by Tenant;
c) Tenant has paid all amounts that are required to be paid under the applicable Escalation Statement;
d) Such inspection is conducted during Landlord’s customary business hours (with such inspection to be completed within one (1) business day) at time(s) reasonably designated by Landlord;
e) Tenant and Tenant’s agents shall, in a writing delivered to Landlord, agree in advance of such inspection to follow Landlord’s reasonable rules and procedures regarding inspections of Landlord’s records (including, without limitation, no photocopying);
f) Prior to any inspection of Landlord’s records, Tenant and Tenant’s agents execute a commercially reasonable confidentiality agreement regarding such inspection and deliver an original of the same to Landlord; and
g) Tenant’s failure to provide written notice to Landlord in accordance with clause b), above, within one hundred twenty (120) days after Tenant’s receipt of the applicable Escalation Statement shall be deemed to be Tenant’s approval of such statement and, in case of such failure, Tenant, after the expiration of such one hundred twenty (120)-day period, shall have waived its right to dispute the amounts set forth in such statement. In addition, Tenant’s right of inspection hereunder shall be waived in the event Tenant fails to comply with any of the provisions of this Section 4.2.1.
If, after such inspection, if any, Tenant still disputes such Additional Rent, a determination as to the proper amount shall be made, at Tenant’s expense, by an independent certified public accountant (the “Accountant”) selected by Landlord and subject to Tenant’s reasonable approval; provided that if such determination by the Accountant proves that the Operating Expenses (for the Building as a whole) were overstated in the applicable Escalation Statement by more than five percent (5%), then the fees and expenses of the Accountant and all other costs of such determination shall be paid for by Landlord. However, if the Operating Expenses (for the Building as a whole) were overstated in the applicable Escalation Statement by five percent (5%) or less, or was in fact understated, the Tenant shall promptly pay the fees and expenses of the Accountant and all other costs of such determination (including, without limitation, the amount of Operating Expenses owed to Landlord as evidenced by the inspection). Any reconciliation of charges set forth in the Escalation Statement, which is necessitated by the inspection, shall be paid or credited by Tenant or Landlord, as applicable, in accordance with this Section 4.2.1. Tenant hereby acknowledges that Tenant’s sole right to inspect Landlord’s books and records and to contest the amount of Operating Expenses payable by Tenant shall be as set forth in this Section 4.2.1 and Tenant hereby waives any and all other rights pursuant to applicable law to inspect such books and records and/or to contest the amount of Operating Expenses payable by Tenant.
Section 4.3. Tenant’s Payment of Direct Charges as Additional Rent. Tenant shall promptly and duly pay all costs and expenses incurred for or in connection with any Tenant Change (as such term is defined in Section 12.12 of this Lease) or Tenant Service (as such term is defined in Section 8.10 of this Lease), and discharge any mechanic’s or other lien created against the Premises, Building or the Real Property arising as a result of or in connection with any Tenant Change or Tenant Service as Additional Rent by paying the same, bonding or manner otherwise provided by law.
Any other cost, expense, charge, amount or sum (other than Fixed Monthly Rent) payable by Tenant as provided in this Lease shall also be considered Additional Rent.
Certain individual items of cost or expense may, in the reasonable determination of Landlord, be separately charged and billed to Tenant by Landlord, either alone or in conjunction with another party or parties, if they are deemed in good faith by Landlord to apply solely to Tenant and/or such other party or parties and are not otherwise normally recaptured by Landlord as part of normal operating expenses. Insofar as is reasonable, Landlord shall attempt to give Tenant prior notice and the opportunity to cure any circumstance that would give rise to such separate and direct billing.
Said separate billing shall be paid as Additional Rent, regardless of Tenant’s Share. Such allocations by Landlord shall be binding on Tenant unless patently unreasonable, and shall be payable within fifteen (15) days after receipt of Landlord’s billing therefor.
ARTICLE 5
ETHICS
Section 5.1. Ethics. Landlord and Tenant agree to conduct their business or practice in compliance with any appropriate and applicable codes of professional or business practice.
ARTICLE 6
USE OF PREMISES
Section 6.1. Use. The Premises shall only be used for general office use consistent with the operation of a first-class office building in the Santa Monica area (the “Specified Use”) and for no other purposes, without Landlord’s prior written consent, which consent shall be in Landlord’s sole discretion. Any proposed revision of the Specified Use by Tenant shall be for a use consistent with those customarily found in first-class office buildings. Reasonable grounds for Landlord withholding its consent shall include, but not be limited to:
a) the proposed use will place a disproportionate burden on the Building systems;
b) the proposed use is for governmental or medical purposes or for a company whose primary business is that of conducting boiler-room type transactions or sales;
c) the proposed use would generate excessive foot traffic to the Premises and/or Building.
So long as Tenant is in control of the Premises, Tenant covenants and agrees that it shall not use, suffer or permit any person(s) to use all or any portion of the Premises for any purpose in violation of the laws of the United States of America, the State of California, or the ordinances, regulations or requirements of the City of Santa Monica or County of Los Angeles, or other lawful authorities having jurisdiction over the Building.
Tenant shall not do or permit anything to be done in or about the Premises which will in any way obstruct or unreasonably interfere with the rights of other tenants or occupants of the Building, or injure or annoy them. Tenant shall not use or allow the Premises to be used for any pornographic or violent purposes, nor shall Tenant cause, commit, maintain or permit the continuance of any nuisance or waste in, on or about the Premises. Tenant shall not use the Premises in any manner that in Landlord’s reasonable judgment would adversely affect or interfere with any services Landlord is required to furnish to Tenant or to any other tenant or occupant of the Building, or that would interfere with or obstruct the proper and economical rendition of any such service.
Section 6.2. Exclusive Use. Landlord represents that Tenant’s Specified Use of the Premises does not conflict with exclusive use provisions granted by Landlord in other leases for the Building. Landlord further agrees that it shall, in the future, not grant an exclusive use privilege to any other tenant in the Building that will prevent Tenant from continuing to use the Premises for its Specified Use.
Tenant acknowledges and agrees that it shall not engage in any of the uses specified hereinbelow, for which Landlord has already granted exclusive rights: as a retail banking institution.
Provided that Tenant has received written notice of the same from Landlord, and further provided that Landlord does not grant a future exclusive use right that prohibits Tenant from engaging in the Specified Use, then Tenant agrees that it shall not violate any exclusive use provision(s) granted by Landlord to other tenants in the Building.
Section 6.3. Rules and Regulations. Tenant shall observe and comply with the rules and regulations set forth in Exhibit C, and such other and further reasonable and non-discriminatory rules and regulations as Landlord may make or adopt and communicate to Tenant in writing at any time or from time to time, when said rules, in the reasonable judgment of Landlord, may be necessary or desirable to ensure the first-class operation, maintenance, reputation or appearance of the Building. However, if any conflict arises between the provisions of this Lease and any such rule or regulation, the provisions of this Lease shall control.
Provided Landlord makes commercially reasonable efforts to seek compliance by all occupants of the Building with the rules and regulations adopted by Landlord, Landlord shall not be responsible to Tenant for the failure of any other tenants or occupants of the Building to comply with said rules and regulations.
ARTICLE 7
CONDITION UPON VACATING & REMOVAL OF PROPERTY
Section 7.1. Condition upon Vacating. At the expiration or earlier termination of this Lease, Tenant shall:
a) terminate its occupancy of, quit and surrender to Landlord, all or such portion of the Premises upon which this Lease has so terminated, broom-clean and in the same condition as received except for:
i) ordinary wear and tear, or
ii) loss or damage by fire or other casualty; and
b) surrender the Premises free of any and all debris and trash and any of Tenant’s personal property, furniture, fixtures and equipment that do not otherwise become a part of the Real Property, pursuant to the provisions contained in Section 7.2 hereinbelow; and
c) at Tenant’s sole expense, forthwith and with all due diligence remove any Tenant Change (as defined in Section 12.12 of this Lease) and, if requested by Landlord in Landlord’s sole and absolute discretion, restore the Premises to its original condition, reasonable wear and tear excepted. However, Tenant shall only be obligated to remove said Tenant Change if (i) the Tenant Change was made without Landlord’s approval; (ii) the Tenant Change is an over standard improvement; and/or (iii) Landlord notified Tenant of its obligation to do so at the time Landlord approved Tenant’s request for a Tenant Change. If Tenant fails to complete such removal and/or restoration and/or to repair any damage caused by the removal or restoration of any Tenant Change, Landlord may do so and may charge the cost thereof to Tenant pursuant to Section 20.26 of this Lease or deduct the cost from the Security Deposit under Section 3. 7 of this Lease. Tenant shall not be obligated to remove the initial Improvements, except as otherwise provided herein. In addition, at the expiration or earlier termination of this Lease, Tenant shall (1) remove all data, telecom and other cabling and wiring installed by or for Tenant in the Premises
(including any of the same installed above the ceiling plenum), and (2) remove any security system or devices installed by Tenant, in either case whether or not the installation was performed as part of the initial Improvements constructed in the Premises or after such time, and Tenant shall repair any damage caused by such removal.
Section 7.2. Tenant’s Property. All fixtures equipment improvements and installations attached or built into the Premises at any time during the Term shall, at the expiration or earlier termination of this Lease, be deemed the property of Landlord; become a permanent part of the Premises and remain therein. However, if said equipment, improvements and/or installations can be removed without causing any structural damage to the Premises, then, provided after such removal Tenant restores the Premises to the condition existing prior to installation of Tenant’s trade fixtures or equipment, Tenant shall be permitted, at Tenant’s sole expense, to remove said trade fixtures and equipment.
The provisions of this Article 7 shall survive the expiration or earlier termination of this Lease.
ARTICLE 8
UTILITIES AND SERVICES
Section 8.1. Normal Building Hours / Holidays. The ‘‘Normal Business Hours” of the Building, during which Landlord shall furnish the services specified in this Article 8 are defined as 8:00 A.M. to 6:00 P.M., Monday through Friday, and 9:00 A.M. to 1 :00 P.M. on Saturday, any one or more Holiday(s) excepted.
The “Holidays” which shall be observed by Landlord in the Building are defined as any federally recognized holiday and any other holiday specified herein, which are: New Years Day, Presidents’ Day, Memorial Day, the 4th of July, Labor Day, Thanksgiving Day, the day after Thanksgiving, and Christmas Day (each individually a “Holiday”). Tenant acknowledges that the Building shall be closed on each and every such Holiday, and Tenant shall not be guaranteed access to Landlord or Landlord’s managing agent(s) on each such Holiday.
Section 8.2. Access to the Building and General Services. Subject to Force Majeure and any power outage(s) which may occur in the Building when the same are out of Landlord’s reasonable control, Landlord shall furnish the following services to the Premises twenty-four (24) hours per day, seven days per week:
a) during Normal Business Hours, bulb replacement for building standard lights;
b) access to and use of the parking facilities for persons holding valid parking permits;
c) access to and use of the elevators and Premises;
d) use of electrical lighting on an as-needed basis within the Premises; and
e) use of a reasonable level of water for kitchen and toilet facilities in the Premises and Common Area bathrooms.
Section 8.3. Janitorial Services. Landlord shall furnish the Premises with reasonable and customary janitorial services five (5) days per business week, except when the Building is closed on any Holiday. Landlord shall retain the sole discretion to choose and/or revise the janitorial company providing said services to the Premises and/or Building.
Section 8.4. Security Services. Tenant acknowledges that Landlord currently provides uniformed guard service to the Building twenty-four (24) hours per day, seven (7) days per week, solely for the purposes of providing surveillance of, and information and directional assistance to persons entering the Building.
Tenant acknowledges that such guard service shall not provide any measure of security or safety to the Building or the Premises, and that Tenant shall take such actions as it may deem necessary and reasonable to ensure the safety and security of Tenant’s property or person or the property or persons of Tenant’s agents, clients, contractors, directors, employees, invitees, licensees, officers, partners or shareholders. Tenant agrees and acknowledges that, except in the case of the gross negligence or willful misconduct of Landlord or its directors, employees, officers, partners or shareholders, Landlord shall not be liable to Tenant in any manner whatsoever arising out of the failure of Landlord’s guard service to secure any person or property from harm.
Tenant agrees and acknowledges that Landlord, in Landlord’s sole discretion, shall have the option, but not the obligation to add, decrease, revise the hours of and/or change the level of services being provided by any guard company serving the Building. Tenant further agrees that Tenant shall not engage or hire any outside guard or security company without Landlord’s prior written consent, which shall be in Landlord’s sole discretion.
Section 8.5. Utilities. During Normal Business Hours Landlord shall furnish a reasonable level of water, heat, ventilation and air conditioning (“HVAC”), and a sufficient amount of electric current to provide customary business lighting and to operate ordinary office business machines, such as a single personal computer and ancillary printer per two hundred and fifty (250) usable square feet contained in the Premises, facsimile machines, small copiers customarily used for general office purposes, and such other equipment and office machines as do not result in above-standard use of the existing electrical system. So long as the same remain reasonably cost competitive, Landlord shall retain the sole discretion to choose the utility vendor(s) to supply such services to the Premises and the Building.
Except with the prior written consent of Landlord, which shall not be unreasonably withheld, conditioned and/or delayed, Tenant shall not install or use any equipment, apparatus or device in the Premises that requires the installation of a 208 voltage circuit; consumes more than five (5) kilowatts per hour per item; or the aggregate use of which will in any way increase the connected load to more than 5 Watts per usable square foot, or cause the amount of electricity to be furnished or supplied for use in the Premises to more than 1.2 kWh per usable square foot, per month.
Except with the prior written consent of Landlord, Tenant shall not connect any electrical equipment to the electrical system of the Building, except through electrical outlets already existing in the Premises, nor shall Tenant pierce, revise, delete or add to the electrical, plumbing, mechanical or HVAC systems in the Premises.
Section 8.6. After Hours HVAC and/or Excess Utility Usage. If Tenant requires HVAC service during other than Normal Business Hours (“Excess HVAC”), Tenant shall make its request in writing at least six (6) hours before the close of the normal business day. Otherwise, Landlord shall have no obligation to provide Excess HVAC. Tenant’s request shall be deemed conclusive evidence of its willingness to pay the costs specified herein. The current charge for Excess HVAC is $60.00 per hour, but thereafter shall be subject to increases during the Term, based on increases in Landlord’s cost to provide Excess HVAC.
If Tenant requires electric current in excess of the amounts specified hereinabove, water or gas in excess of that customarily furnished to the Premises as office space (“Excess Utility Use”), Tenant shall first procure Landlord’s prior written consent to such Excess Utility Use, which Landlord may reasonably refuse.
In lieu of Landlord’s refusal, Landlord may cause a meter or sub-meter to be installed to measure the amount of water, gas and/or electric current consumed by Tenant in the Premises. The cost of any such meter(s), and the installation, maintenance, and repair thereof, shall be paid by Tenant as Additional Rent.
After completing installation of said meter(s), and/or if Tenant requests Excess HVAC, then Tenant shall pay, as Additional Rent, within thirty (30) calendar days after Tenant’s receipt of Landlord’s billing, for the actual amounts of all water, steam, compressed air, electric current and/or Excess HVAC consumed beyond the normal levels Landlord is required herein to provide. Said billing shall be calculated on the usage indicated by such meter(s), sub-meter(s), or Tenant’s written request therefor, and shall be issued by Landlord at the rates charged for such services by the local public utility furnishing the same, plus any additional expense reasonably incurred by Landlord in providing said Excess Utility Use and/or in keeping account of the water, steam, compressed air and electric current so consumed, plus an administrative and billing fee equal to fifteen percent (15%) of the costs so billed.
Section 8.7. Changes Affecting HVAC. Tenant shall also pay as Additional Rent for any additional costs Landlord incurs to repair any failure of the HVAC equipment and systems to perform their function when said failure arises out of or in connection with any change in, or alterations to, the arrangement of partitioning in the Premises after the Commencement Date, or from occupancy by, on average, more than one person for every two hundred fifty (250) usable square feet of the Premises, or from Tenant’s failure to keep all HVAC vents within the Premises free of obstruction.
Section 8.8. Damaged or Defective Systems. Tenant shall give written notice to Landlord after Tenant becomes aware of any alleged damage to, or defective condition in any part or appurtenance of the Building’s sanitary, electrical, HVAC or other systems serving, located in, or passing through, the Premises. Provided that the repair or remedy of said damage or defective condition is within the reasonable control of Landlord, it shall be remedied by Landlord with reasonable diligence. Otherwise, Landlord shall make such commercially reasonable efforts as may be available to Landlord to effect such remedy or repair, but Landlord shall not be liable to Tenant for any failure thereof, nor shall Tenant be entitled to claim any damages arising from any such damage or defective condition nor shall Tenant be entitled to claim any eviction by reason of any such damage or defective condition.
If such damage or defective condition was caused by, or is attributed to, a Tenant Change or the unreasonable or improper use of such system(s) by Tenant or its employees, licensees or invitees:
a) the cost of the remedy thereof shall be paid by Tenant as Additional Rent pursuant to the provisions of Section 4.3;
b) in no event shall Tenant be entitled to any abatement of rent as specified above; and
c) Tenant shall be estopped from making any claim for damages arising out of Landlord’s repair thereof.
Section 8.9. Limitation on Landlord’s Liability for Failure to Provide Utilities and/or Services. Tenant hereby releases the Landlord Parties from any liability for damages, by abatement of rent or
otherwise, for any failure or delay in furnishing any of the services or utilities specified in this Article 8 (including, but not limited to telephone and telecommunication services), or for any diminution in the quality or quantity thereof.
Tenant’s release of the Landlord Parties’ liability shall be applicable when such failure, delay or diminution is occasioned, in whole or in part, by repairs, replacements, or improvements, by any strike, lockout or other labor trouble, by Landlord’s inability to secure electricity, gas, water or other fuel at the Building after Landlord’s reasonable effort to do so, by accident or casualty whatsoever, by act or default of Tenant or other parties, or by any other cause. Such failures, delays or diminution shall never be deemed to constitute a constructive eviction or disturbance of Tenant’s use and possession of the Premises, or serve to relieve Tenant from paying Rent or performing any of its obligations under this Lease.
Furthermore, the Landlord Parties shall not be liable under any circumstances for a loss of, injury to, or interference with, Tenant’s business, including, without limitation, any loss of profits occurring or arising through or in connection with or incidental to Landlord’s failure to furnish any of the services or utilities required by this Article 8.
Notwithstanding the above, Landlord shall use commercially reasonable efforts to remedy any delay, defect or insufficiency in providing the services and or utilities required hereunder.
Notwithstanding the foregoing, if Tenant is prevented from using and does not use, the Premises or any portion thereof, as a result of Landlord’s failure to provide services or utilities as required by this Lease and the restoration of such services or utilities is within Landlord’s reasonable control (an “Abatement Event”), then Tenant shall give Landlord notice of such Abatement Event and if such Abatement Event continues for five (5) consecutive business days after Landlord’s receipt of any such Notice (the “Eligibility Period”), and such failure is not attributable to, or caused by, the acts of Tenant, or a cause beyond Landlord’s reasonable control, then the Fixed Monthly Rent and Additional Rent shall be abated or reduced, as the case may be, after expiration of the Eligibility Period for such time that Tenant continues to be so prevented from using, and does not use, the Premises, or a portion thereof, in the proportion that the rentable area of the portion of the Premises that Tenant is prevented from using, and does not use (“Unusable Area”), bears to the total rentable area of the Premises; provided, however, in the event that Tenant is prevented from using, and does not use, the Unusable Area for a period of time in excess of the Eligibility Period and the remaining portion of the Premises is not sufficient to allow Tenant to effectively conduct its business therein and if Tenant does not conduct its business from such remaining portion, then for such time after expiration of the Eligibility Period during which Tenant is so prevented from effectively conducting its business therein, the Fixed Monthly Rent and Additional Rent for the entire Premises shall be abated for such time as Tenant continues to be so prevented from using, and does not use, the Premises. If, however, Tenant reoccupies any portion of the Premises during such period, the Rent allocable to such reoccupied portion, based on the proportion that the rentable area of such reoccupied portion of the Premises bears to the total rentable area of the Premises, shall be payable by Tenant from the date Tenant reoccupies such portion of the Premises. Such right to abate Fixed Monthly Rent and Additional Rent shall be Tenant’s sole and exclusive remedy at law or in equity for an Abatement Event.
Section 8.10. Tenant Provided Services. Tenant shall make no contract or employ any labor in connection with the maintenance, cleaning or other servicing of the physical structures of the Premises or for installation of any computer, telephone or other cabling, equipment or materials provided in or to the Premises (collectively and individually a “Tenant Service”) without the prior consent of Landlord, which
consent shall not be unreasonably withheld, conditioned or delayed. Tenant shall not permit the use of any labor, material or equipment in the performance of any Tenant Service if the use thereof, in Landlord’s reasonable judgment, would violate the provisions of any agreement between Landlord and any union providing work, labor or services in or about the Premises, Building and/or disturb labor harmony with the workforce or trades engaged in performing other work, labor or services in or about the Building or the Common Areas. If any violation, disturbance, interference or conflict occurs, Tenant, upon demand by Landlord, shall immediately cause all contractors or subcontractors or all materials causing the violation, disturbance, interference, difficulty or conflict, to leave or be removed from the Building or the Common Areas immediately. Tenant shall indemnify and hold Landlord harmless from and against all claims, suits, demands, damages, judgments, costs, interest and expenses (including attorneys fees and costs incurred in the defense thereof) to which Landlord may be subject or suffer when the same arise out of or in connection with the use of, work in, construction to, or actions in, on, upon or about the Premises by Tenant or Tenant’s agents, contractors, directors, employees, licensees, officers, partners or shareholders, including any actions relating to the installation, placement, removal or financing of any Tenant Service, improvements, fixtures and/or equipment in, on, upon or about the Premises.
ARTICLE 9
TENANT’S INDEMNIFICATION AND LIMITATION ON LANDLORD’S LIABILITY
Section 9.1. Tenant’s Indemnification and Hold Harmless. Tenant shall indemnify and hold the Landlord Parties harmless from and against all claims, suits, demands, damages, judgments, costs, interest and expenses (including attorneys fees and costs incurred in the defense thereof) to which any the Landlord Parties may be subject or suffer when the same arise out of the negligence or willful misconduct of Tenant or the negligence or willful misconduct of Tenant’s agents, contractors, directors, employees, licensees, officers, partners or shareholders in connection with the use of, work in, construction to, or actions in, on, upon or about the Premises, including any actions relating to the installation, placement, removal or financing of any Tenant Change, improvements, fixtures and/or equipment in, on, upon or about the Premises.
Tenant’s indemnification shall extend to any and all claims and occurrences, whether for injury to or death of any person or persons, or for damage to property (including any loss of use thereof), or otherwise, occurring during the Term or prior to the Commencement Date and to all claims arising from any condition of the Premises due to or resulting from any default by Tenant in the keeping, observance or performance of any covenant or provision of this Lease, or from the negligence or willful misconduct of Tenant or the negligence or willful misconduct of Tenant’s agents, contractors, directors, employees, licensees, officers, partners or shareholders.
Section 9.2. Nullity of Tenant’s Indemnification in Event of Negligence. Notwithstanding anything to the contrary contained in this Lease, Tenant’s indemnification shall not extend to the negligence or willful misconduct of Landlord or the negligence or willful misconduct of Landlord’s agents, contractors, directors, employees, officers, partners or shareholders, nor to such events and occurrences for which Landlord otherwise carries insurance coverage.
Section 9.3. Tenant’s Waiver of Liability. Provided and to the extent that any injury or damage suffered by Tenant or Tenant’s agents, clients, contractors, directors, employees, invitees, officers, partners, and/or shareholders did not arise out of the negligence or willful misconduct of any Landlord Parties, Tenant shall make no claim against Landlord and Landlord shall not be liable or responsible in any way for, and Tenant hereby waives all claims against Landlord with respect to or arising out of injury or damage to any person or property in or about the Premises by or from any cause whatsoever.
Section 9.4. Limitation of Landlord’s Liability. Tenant expressly agrees that, notwithstanding anything in this Lease and/or any applicable law to the contrary, the liability of the Landlord Parties, and any recourse by Tenant against Landlord or the Landlord Parties shall be limited solely and exclusively to Tenant’s actual direct, but not consequential, damages therefor and shall be recoverable only from the interest of Landlord in the Building.
Tenant specifically agrees that the Landlord Parties shall have no personal liability therefor. Further, Tenant hereby expressly waives and releases such personal liability on behalf of itself and all persons claiming by, through or under Tenant.
Section 9.5. Transfer of Landlord’s Liability. Tenant expressly agrees that, to the extent that any transferee assumes the obligations of Landlord hereunder in writing, then the covenants and agreements on the part of Landlord to be performed under this Lease which arise and/or accrue after the date of such transfer shall not be binding upon Landlord herein named from and after the date of transfer of its interest in the Building.
Section 9.6. Landlord’s Indemnification. Notwithstanding any contrary provision of this Lease, Landlord shall indemnify, and hold Tenant and Tenant’s agents, clients, directors, officers, partners, employees, shareholders and contractors harmless from and against, any and all claims, causes of action, liabilities, losses, reasonable costs and expenses, including reasonable attorney’s fees and court costs, arising from or in connection with:
a) Any activity occurring, or condition existing, at or in the Building and/or the Real Property (other than in the Premises) when such activity or condition is under the reasonable control of Landlord, except and to the extent the same is caused by the negligence or willful misconduct of Tenant or Tenant’s employees, agents, licensee, invitees, or contractors, or by Tenant’s breach or default in the performance of any obligation under this Lease;
b) Any activity occurring, or condition existing in the Premises when and to the extent caused by the negligence or willful misconduct of Landlord or Landlord’s employees, agents or contractors; or
c) Any material breach by Landlord of any of Landlord’s obligations under this Lease that extend after the expiration of any notice and cure period.
ARTICLE 10
COMPLIANCE WITH LAWS
Section 10.1. Tenant’s Compliance with Laws. Tenant shall not use, permit to be used, or permit anything to be done in or about all or any portion of the Premises which will in any way violate any laws, statutes, ordinances, rules, orders or regulations duly issued by any governmental authority having jurisdiction over the Premises, or by the Board of Fire Underwriters (or any successor thereto) (collectively “Codes”).
Section 10.2. Tenant to Comply at Sole Expense. Tenant shall, at its sole expense, promptly remedy any violation of such Codes. Notwithstanding the foregoing, nothing contained in this Section 10.2 shall require or permit Tenant to make any structural changes to the Premises, unless such changes are required due to either Tenant or Tenant’s agents, clients, contractors, directors, employees, invitees, licensees, officers, partners or shareholders use of the Premises for purposes other than general office purposes
consistent with a Class A office building, in which case any such change in use shall be subject to the restrictions specified in Section 6.1 of this Lease.
Section 10.3. Conclusive Evidence of Violation. The judgment of any court of competent jurisdiction; Tenant’s admission; or the admission of any one or more of Tenant’s agents, contractors, directors, employees, officers, partners or shareholders in any action against Tenant, whether or not Landlord is a party thereto, that Tenant has so violated any one or more Codes shall be conclusive evidence of such violation as between Landlord and Tenant.
Section 10.4. Landlord’s Compliance. Landlord hereby confirms that if at any time during the Term, Landlord receives written notice, from any governmental authority having jurisdiction (“Governmental Authority”), that any portion of the Common Areas of the Real Property, including, without limitation, the parking areas, elevator lobbies, path of travel through the Building elevator cabs, corridors and restrooms (collectively, the “Common Areas”) are not in compliance with ADA or any other legal requirement in existence as of the Commencement Date (the “Non-Compliance Notice”), and Landlord does not choose to contest the Non-Compliance Notice or is unsuccessful in contesting the Non-Compliance Notice (any contest, whether successful or not, shall be at Landlord’s sole cost and expense), and said non-compliance arose out of a condition existing before the Commencement Date, Landlord shall bear such costs as may be necessary to bring any such portion of the Common Areas into compliance with ADA or such other legal requirement at Landlord’s sole cost and expense, it being expressly understood and agreed that if said non-compliance occurred subsequent to the Commencement Date (i.e., the non-compliant item was not non-compliant on the Commencement Date), the costs of remedying such non-compliance shall be included in Operating Expenses to the extent permitted under this Lease.
ARTICLE 11
ASSIGNMENT AND SUBLETTING
Section 11.1. Permission Required for Assignment or Sublet. Unless Landlord’s prior written consent has been given, which consent shall not be unreasonably withheld, conditioned and/or delayed (subject to the express provisions of this Article 11), this Lease shall not, nor shall any interest herein, be assignable as to the interest of Tenant by operation of law; nor shall Tenant:
a) assign Tenant’s interest in this Lease; or
b) sublet the Premises or any part thereof or permit the Premises or any part thereof to be utilized by anyone other than Tenant, whether as by a concessionaire, franchisee, licensee, permittee or otherwise (collectively, a “sublease”).
In addition, except for Transfers under clauses (a) or (b), Tenant shall not mortgage, pledge, encumber or otherwise transfer this Lease, the Term and/or estate hereby granted or any interest herein without Landlord’s prior written consent, which consent may be granted or withheld in Landlord’s sole and absolute discretion.
Any assignment, mortgage, pledge, encumbrance, transfer or sublease (collectively, any “Transfer”) without Landlord’s prior written consent shall be voidable, and, in Landlord’s sole election, shall constitute a material default under this Lease.
Section 11.2. Voluntary Assignment due to Changes in Structure of Tenant. Any dissolution, merger, consolidation, or other reorganization of Tenant, or the single sale or other transfer of a
controlling percentage of the capital stock of Tenant (other than the sale of such stock pursuant to a public offering that results in a majority of the same members of the Board and executive officers remaining in control of said corporation) and or the single sale of fifty percent (50%) or more of the value of the assets of Tenant, shall be deemed a voluntary assignment. The phrase “controlling percentage” means the ownership of, and the right to vote stock possessing fifty percent (50%) or more of the total combined voting power of all classes of Tenant’s capital stock issued, outstanding, and entitled to vote for the election of directors. Notwithstanding anything to the contrary contained herein, the preceding paragraph shall not apply to corporations whose stock is traded through a recognized United States exchange or over the counter.
Any withdrawal or change (whether voluntary, involuntary, or by operation of law) in the partnership by one or more partners who own, in the aggregate fifty percent (50%) or more of the partnership, or the dissolution of the partnership, shall be deemed a voluntary assignment.
If Tenant is comprised of more than one individual, a purported assignment (whether voluntary, involuntary, or by operation of law), by any one of the persons executing this Lease shall be deemed a voluntary assignment.
Section 11.2.1 Affiliated Companies/Restructuring of Business Organization. Any contrary provision of this Article 11 notwithstanding, the assignment by Tenant of all of its rights under this Lease or the subletting by Tenant of all or any portion of the Premises to (i) a parent or subsidiary of Tenant, (ii) any person or entity which controls, is controlled by or under common control with Tenant, (iii) any entity which purchases all or substantially all of the assets or stock of Tenant, (iv) any entity into which Tenant is merged or consolidated, or (v) any entity which results from the merger or consolidation of entities which control, are controlled by or under common control with Tenant (all such persons or entities described in (i), (ii), (iii), (iv) and (v) being sometimes hereinafter referred to as “Affiliates”) shall not be deemed a Transfer under this Article 11 and thus shall not be subject to Landlord’s prior consent, and Landlord shall not be entitled to any Net Rental Profit resulting therefrom, provided that:
a) Any such Affiliate was not formed as a subterfuge to avoid the obligations of this Article 11;
b) Tenant gives Landlord prior notice of any such assignment or sublease to an Affiliate;
c) The successor of Tenant and Tenant have as of the effective date of any such assignment or sublease a tangible net worth, in the aggregate, computed in accordance with generally accepted accounting principles (but excluding good will as an asset), which is sufficient to meet the obligations of Tenant under this Lease;
d) Any such assignment or sublease shall be subject and subordinate to all of the terms and provisions of this Lease, and such assignee or sublessee shall be deemed to have assumed all of the obligations of Tenant under this Lease with respect to that portion of the Premises which is the subject of such Transfer (other than the amount of Fixed Monthly Rent payable by Tenant with respect to a sublease); and
e) Tenant and any guarantor shall remain fully liable for all obligations to be performed by Tenant under this Lease.
Section 11.3. Request to Assign or Sublease. If at any time during the Term, Tenant wishes to assign this Lease or any interest therein, or to sublet all or any portion of the Premises, then at least thirty (30)
days prior to the date when Tenant desires the assignment or sublease to be effective, Tenant shall give written notice to Landlord setting forth the name, address, and business of the proposed assignee or sublessee, business and personal credit applications completed on Landlord’s standard application forms, and information (including references and such financial documentation as Landlord shall reasonably prescribe) concerning the character and financial condition of the proposed assignee or sublessee, the effective date of the assignment or sublease, and all the material terms and conditions of the proposed assignment, and with reference solely to a sublease: a detailed description of the space proposed to be sublet, together with any rights of the proposed sublessee to use Tenant’s improvements and/or ancillary services with the Premises.
Section 11.4. Landlord’s Consent. Landlord shall have thirty (30) days after Tenant’s notice of assignment and/or sublease is received with the financial information reasonably requested by Landlord to advise Tenant of Landlord’s (i) consent to such proposed assignment or sublease, (ii) withholding of consent to such proposed assignment or sublease, or (iii) election to terminate this Lease, such termination to be effective as of the date of the commencement of the proposed assignment or subletting. If Landlord shall exercise its termination right hereunder, Landlord shall have the right to enter into a lease or other occupancy agreement directly with the proposed assignee or subtenant, and Tenant shall have no right to any of the rents or other consideration payable by such proposed assignee or subtenant under such other lease or occupancy agreement, even if such rents and other consideration exceed the rent payable under this Lease by Tenant. Landlord shall have the right to lease the Premises to any other tenant, or not lease the Premises, in its sole and absolute discretion. Landlord and Tenant specifically agree that Landlord’s right to terminate this Lease under clause (iii) above is a material consideration for Landlord’s agreement to enter into this Lease and such right may be exercised in Landlord’s sole and absolute discretion and no test of reasonableness shall be applicable thereto.
Tenant acknowledges that Landlord’s consent shall be based upon the criteria listed in Sections 11.4 (a) through (e) below, and subject to Landlord’s right to reasonably disapprove of any proposed assignment and/or sublease, based on the existence of any condition contained within Section 11.5 hereinbelow. If Landlord provides its consent within the time period specified, Tenant shall be free to complete the assignment and/or sublet such space to the party contained in Tenant’s notice, subject to the following conditions:
a) The assignment and/or sublease shall be on the same terms as were set forth in the notice given to Landlord;
b) The assignment and/or sublease shall be documented in a written format that is reasonably acceptable to Landlord, which form shall specifically include the assignee’s and/or sublessee’s acknowledgement and acceptance of the obligation contained in this Lease, in so far as applicable;
c) The assignment and/or sublease shall not be valid, nor shall the assignee or sublessee take possession of the Premises, or subleased portion thereof, until an executed duplicate original of such sublease and/or assignment has been delivered to Landlord;
d) The assignee and/or sublessee shall have no further right to assign this Lease and/or sublease the Premises;
e) In the event of any Transfer, Landlord shall receive as Additional Rent hereunder (and without affecting or reducing any other obligation of Tenant under this Lease) fifty
percent (50%) of Tenant’s “Net Rental Profit” derived from such Transfer. If Tenant shall elect to Transfer, Tenant shall use reasonable and good faith efforts to secure consideration from any such Transferee which would be generally equivalent to then-current market rent, but in no event shall Tenant’s monetary obligations to Landlord, as set forth in this Lease, be reduced. In the event of a Transfer which is a sublease, ‘‘Net Rental Profit” shall mean all rent, Additional Rent or other consideration actually payable (in lieu of or in addition to rent) by Transferee in connection with the Transfer in excess of the Rent and Additional Rent payable by Tenant under this Lease during the term of the Transfer on a per rentable square foot basis if less than all of the Premises is transferred, after deducting the reasonable expenses incurred by Tenant in connection with such Transfer for (i) advertising costs, (ii) any improvement allowance or other economic concessions (e.g., space planning allowance and moving expenses) paid by Tenant in connection with such Transfer, (iii) any brokerage commissions incurred by Tenant in connection with the Transfer, and (iv) reasonable attorneys’ fees incurred by Tenant in connection with the Transfer. In the event of a Transfer other than a sublease, ‘‘Net Rental Profit” shall mean key money, bonus money or other consideration paid by the Transferee to Tenant in connection with such Transfer, and any payment in excess of fair market value for services rendered by Tenant to the Transferee for assets, fixtures, inventory, equipment, or furniture transferred by Tenant to the Transferee in connection with such Transfer, after deducting the reasonable expenses incurred by Tenant in connection with such Transfer, as described in the preceding sentence. If part of the Net Rental Profit shall be payable by the Transferee other than in cash, then Landlord’s share of such noncash consideration shall be in such form as is reasonably satisfactory to Landlord.
Tenant shall deliver to Landlord a statement within thirty (30) days after the end of each calendar year and/or within thirty (30) days after the expiration or earlier termination of the Term of this Lease in which any Transfer has occurred, specifying for each such Transfer:
i) the date of its execution and delivery, the number of square feet of the Rentable Area demised thereby, and the Term thereof, and
ii) a computation in reasonable detail showing the amounts (if any) paid and payable by Tenant to Landlord pursuant to this Section 11.4 with respect to such Transfer for the period covered by such statement, and the amounts (if any) paid and payable by Tenant to Landlord pursuant to this Section 11.4 with respect to any payments received from a Transferee during such period but which relate to an earlier period.
Section 11.5. Reasonable Grounds for Denial of Assignment and/or Sublease. Landlord and Tenant agree that, in addition to such other reasonable grounds as Landlord may assert for withholding its consent, it shall be reasonable under this Lease and any applicable law for Landlord to withhold its consent to any proposed Transfer, where any one or more of the following conditions exists:
a) The proposed sublessee or assignee (a ‘‘Transferee”) is, in Landlord’s reasonable judgment, of a character or reputation which is not consistent with those businesses customarily found in a Class A office building;
b) The Transferee is engaged in a business or intends to use all or any portion of the Premises for purposes which are not consistent with those generally found in the Building or other Class A office buildings in the vicinity of the Building, provided, however, that in no event shall Landlord be permitted to decline Tenant’s request for a Transfer solely on the basis of said Transferee’s intent to change the Specified Use from that of Tenant, unless such proposed change shall violate any Exclusive Use provision already granted by Landlord;
c) The Transferee is either a governmental agency or instrumentality thereof;
d) The Transfer will result in more than a reasonable and safe number of occupants within the Premises;
e) The Transferee is not a party of reasonable financial worth and/or financial stability in light of the responsibilities involved under the sublease, if a sublessee, or this Lease, if an assignee, on the date consent is requested, or has demonstrated a prior history of credit instability or unworthiness;
f) The Transfer will cause Landlord to be in violation of another lease or agreement to which Landlord is a party, or would give another occupant of the Building a right to cancel its lease;
g) The Transferee will retain any right originally granted to Tenant to exercise a right of renewal, right of expansion, right of first offer or other similar right held by Tenant;
h) Either the proposed Transferee, or any person or entity which directly or indirectly, controls, is controlled by, or is under common control with the proposed Transferee, is a tenant in the Building at the time Tenant requests approval of the proposed Transfer, or is engaged in on-going negotiations with Landlord to lease space in the Building at the time Tenant requests approval of the proposed Transfer; or
i) The Transferee intends to use all or a portion of the Premises for medical procedures or for a primary business which is as a boiler-room type sales or marketing organization.
If Landlord withholds or conditions its consent and Tenant believes that Landlord did so contrary to the terms of this Lease, Tenant may, as its sole remedy, prosecute an action for declaratory relief to determine if Landlord properly withheld or conditioned its consent, and Tenant hereby waives all other remedies, including without limitation those set forth in California Civil Code Section 1995.310.
Section 11.6. Tenant’s Continued Obligation. Any consent by Landlord to an assignment of this Lease and/or sublease of the Premises shall not release Tenant from any of Tenant’s obligations hereunder or be deemed to be a consent by Landlord to any subsequent hypothecation, assignment, subletting, occupation or use by another person, and Tenant shall remain liable to pay the Rent and/or perform all other obligations to be performed by Tenant hereunder. Landlord’s acceptance of Rent or Additional Rent from any other person shall not be deemed to be a waiver by Landlord of any provision of this Lease. Landlord’s consent to one assignment or subletting shall not be deemed consent to any subsequent assignment or subletting.
If any assignee or sublessee of Tenant or any successor of Tenant defaults in the performance of any of the provisions of this Lease, whether or not Landlord has collected Rent directly from said
assignee or sublessee, Landlord may proceed directly against Tenant without the necessity of exhausting remedies against such assignee, sublessee or other successor-in-interest.
Provided that in no event shall any further assignment, sublease, amendment or modification to this Lease serve to either increase Tenant’s liability or expand Tenant’s duties or obligations hereunder, or relieve Tenant of its liability under this Lease, then Landlord may consent to subsequent assignments or subletting of this Lease or amendments or modifications to this Lease with any assignee, without notifying Tenant or any successor of Tenant, and without obtaining their consent thereto.
Section 11.7. Tenant To Pay Landlord’s Costs. If Tenant assigns or sublets the Premises or requests the consent of Landlord to any assignment, subletting or other modification of this Lease, or if Tenant requests the consent of Landlord for any act that Tenant proposes to do, whether or not Landlord shall grant consent thereto, then Tenant shall, concurrent with Tenant’s submission of any written request therefor, pay to Landlord (a) the non-refundable sum of $1,000.00 as reasonable consideration for Landlord’s considering and processing the applicable request, plus (b) the amount reasonably estimated by Landlord as its anticipated legal fees to be incurred by Landlord in connection therewith, not to exceed $500.00 except in the event Tenant requests material modifications to Landlord’s customary consent form documents (provided the same are commercially reasonable), in which case there shall be no limit on attorney fees incurred as long as such fees are reasonable.
Section 11.8. Successors and Assigns. Subject to the provisions contained herein, the covenants and agreements contained in this Lease shall bind and inure to the benefit of Landlord and Tenant, their respective successors and assigns and all persons claiming by, through or under them.
ARTICLE 12
MAINTENANCE, REPAIRS, DAMAGE, DESTRUCTION, RENOVATION AND/OR ALTERATION
Section 12.1. Tenant’s Obligation to Maintain. Tenant shall, at Tenant’s sole expense, maintain the Premises in good order and repair, and shall also keep clean any portion of the Premises which Landlord is not obligated to clean. Such maintenance and repair obligations shall include the maintenance, cleanout; repair and/or replacement of Tenant’s garbage disposal(s), Instant-Heat or other hot water producing equipment, if any, and any plumbing fixtures within the Premises (including any dishwashers, water dispensers or ice-makers and refrigeration devices), and the cleaning and removal of any dishes and/or food prior to the same becoming unsanitary. Tenant shall be responsible for repair of any leaks or other water migration from any plumbing fixtures located in the Premises, and shall be liable for any damage caused thereby to any Common Areas or other tenants’ premises. If Tenant becomes obligated to repair anything within the Premises, Tenant shall advise Landlord’s managing agent of such need, which request shall be presumed conclusive evidence of Tenant’s obligation and willingness to reimburse Landlord for such repair(s).
Further, Tenant shall pay the cost of any injury, damage or breakage in, upon or to the Premises created by Tenant’s gross negligence or willful misconduct or the gross negligence or willful misconduct of Tenant’s agents, clients, contractors, directors, employees, invitees, licensees, officers, partners or shareholders.
Subject to Tenant’s obligation for reimbursement to Landlord, as specified herein, Landlord shall make all repairs to the Premises and the exterior walls, foundation and roof of the Building, the structural portions of the floors of the Building, the systems and equipment of the Building and the Tenant
Improvements installed in the Premises. However, if such repairs, maintenance or cleaning are required due to Tenant’s gross negligence or willful misconduct or the gross negligence or willful misconduct of Tenant’s agents, clients, contractors, directors, employees, invitees, licensees, officers, partners or shareholders, then, Tenant shall, within fifteen (15) days after receipt of Landlord’s billing therefor, reimburse Landlord, as Additional Rent, for any expense of such repairs, cleaning and/or maintenance.
Tenant hereby waives all right to make repairs at Landlord’s expense under the provisions of Section 1932(1), 1941 and 1942 of the Civil Code of California.
Section 12.2. Repair Period Notice. Tenant shall give prompt notice to Landlord of Tenant’s actual knowledge of any damage or destruction to all or any part of the Premises or Building resulting from or arising out of any fire, earthquake, or other identifiable event of a sudden, unexpected or unusual nature (individually or collectively a “Casualty”). The time periods specified in this Section 12.2 shall commence after Landlord receives said written notice from Tenant of the occurrence of a Casualty. After receipt of Tenant’s written notice that a Casualty has occurred, Landlord shall, within the later of:
a) sixty (60) days after the date on which Landlord determines the full extent of the damage caused by the Casualty, or
b) thirty (30) days after Landlord has determined the extent of the insurance proceeds available to effectuate repairs, but
c) in no event more than one hundred and twenty (120) days after the Casualty,
provide written notice to Tenant indicating the anticipated time period for repairing the Casualty (the “Repair Period Notice”). The Repair Period Notice shall also state, if applicable, Landlord’s election either to repair the Premises, or to terminate this Lease, pursuant to the provisions of Section 12.3, and if Landlord elects to terminate this Lease, Landlord shall use commercially reasonable efforts to provide Tenant with a minimum period of ninety (90) days within which to fully vacate the Premises.
Section 12.3. Landlord’s Option to Terminate or Repair. Notwithstanding anything to the contrary contained herein, Landlord shall have the option, but not the obligation to elect not to rebuild or restore the Premises and/or the Building if one or more of the following conditions is present:
a) repairs to the Premises cannot reasonably be completed within one hundred and eighty (180) days after the date of the Casualty (when such repairs are made without the payment of overtime or other premiums);
b) repairs required cannot be made pursuant to the then-existing laws or regulations affecting the Premises or Building, or the Building cannot be restored except in a substantially different structural or architectural form than existed before the Casualty;
c) the holder of any mortgage on the Building or ground or underlying lessor with respect to the Real Property and/or the Building shall require that all or such large a portion of the insurance proceeds be used to retire the mortgage debt, so that the balance of insurance proceeds remaining available to Landlord for completion of repairs shall be insufficient to repair said damage or destruction;
d) the holder of any mortgage on the Building or ground or underlying lessor with respect to the Real Property and/or the Building shall terminate the mortgage, ground or underlying lease, as the case may be;
e) provided Landlord has carried the coverage Landlord is required to obtain under Section 19.1 of this Lease, the damage is not fully covered, except for deductible amounts, by Landlord’s insurance policies;
f) more than thirty-three and one-third percent (33 1/3%) of the Building is damaged or destroyed, whether or not the Premises is affected, provided that Landlord elects to terminate all other leases for offices of a similar size in the Building.
If Landlord elects not to complete repairs to the Building or Premises, pursuant to this Section 12.3, Landlord’s election to terminate this Lease shall be stated in the Repair Period Notice, in which event this Lease shall cease and terminate as of the date contained in Landlord’s Repair Period Notice.
If one hundred percent of the Building is damaged or destroyed, as certified by an independent building inspector, this Lease shall automatically terminate after Tenant’s receipt of written notice of such termination from Landlord, and without action beyond the giving of such notice being required by either Landlord or Tenant.
Upon any termination of this Lease pursuant to this Section 12.3, Tenant shall pay its prorata share of Fixed Monthly Rent and Additional Rent, properly apportioned up to the date of such termination, reduced by any abatement of Rent to which Tenant is entitled under Section 12.5; after which both Landlord and Tenant shall thereafter be freed and discharged of all further obligations under this Lease, except for those obligations which by their provisions specifically survive the expiration or earlier termination of the Term.
Section 12.4. Tenant’s Option to Terminate. If:
a) the Repair Period Notice provided by Landlord indicates that the anticipated period for repairing the Casualty exceeds one hundred and eighty (180) days after the commencement of the repairs (the ‘‘Repair Period”), or
b) the Casualty to the Premises occurs during the last twelve (12) months of the Term and the anticipated period for repairing the Casualty exceeds sixty (60) days after the commencement of repairs as such repair period is set forth in a notice from Landlord to Tenant given within thirty (30) days after the Casualty (the “End of Term Notice”);
then Tenant shall have the option, but not the obligation, to terminate this Lease by providing written notice (“Tenant’s Termination Notice”) to Landlord within thirty (30) days after receiving the Repair Period Notice in the case of 12.4(a); or within thirty (30) days after receiving the End of Term Notice, in the case of Section 12.4(b). Furthermore, if for reasons other than force majeure, Landlord has not completed the repairs on the date which is thirty (30) days after the expiration of the Repair Period, then Tenant shall also have the option, but not the obligation, to terminate this Lease by giving Landlord written notice of its intention to so terminate, which notice shall be given not more than forty-five (45) days after expiration of the Repair Period.
Tenant’s failure to provide Landlord with Tenant’s Termination Notice within the time periods specified hereinabove shall be deemed conclusive evidence that Tenant has waived its option to terminate this Lease.
Section 12.5. Temporary Space and/or Rent Abatement During Repairs or Renovation. During the Repair Period or during any such period that Landlord completes Work (as defined hereinbelow) or Renovations (as defined in Section 12.11 hereinbelow), if available, and if requested by Tenant, Landlord shall make available to Tenant other space in the Building which, in Tenant’s reasonable opinion, is suitable for the temporary conduct of Tenant’s business. However, if such temporary space is smaller than the Premises, Tenant shall pay Fixed Monthly Rent and Additional Rent for the temporary space based upon the calculated rate per rentable square foot payable hereunder for the Premises, times the number of rentable square feet available for Tenant’s use in the temporary space.
If no temporary space is available that is reasonably satisfactory to Tenant, and any part of the Premises is rendered untenantable by reason of such Casualty, Work or Renovation; and further provided that the Casualty was not the result of the gross negligence or willful misconduct of Tenant or the gross negligence and/or willful misconduct of Tenant’s agents, contractors, directors, employees, licensees, officers, partners or shareholders, then to the extent that all or said portion of the usable area of the Premises is so rendered untenantable by reason of such Casualty, Work or Renovation, Tenant shall be provided with a proportionate abatement of Fixed Monthly Rent and Additional Rent. Said proportional abatement shall be based on the usable square footage of the Premises that cannot and is not actually used by Tenant, divided by the total usable square feet contained in the Premises. That proportional abatement, if any, shall be provided during the period beginning on the later of:
a) the date of the Casualty; or
b) the actual date on which Tenant ceases to conduct Tenant’s normal business operations in all or any portion of the Premises,
and shall end on the date Landlord achieves substantial completion of restoration of the Premises. Said abatement of Rent shall be deemed Tenant’s waiver of any claim or right of claim for any loss or damage asserted by Tenant arising out of the Casualty Repair, Work or Renovation, as the case may be.
Section 12.6. Tenant’s Waiver of Consequential Damages. Subject to Section 12.4, the provisions contained in Section 12.5 are Tenant’s sole remedy arising out of any Casualty. Landlord shall not be liable to Tenant or any other person or entity for any direct, indirect, or consequential damages (including but not limited to lost profits of Tenant or loss of or interference with Tenant’s business), due to, arising out of, or as a result of the Casualty.
In no event shall any Landlord Party be liable for any inconvenience or annoyance to Tenant or Tenant’s agents, clients, contractors, directors, employees, invitees, licensees, officers, partners or shareholders, or for injury to the business of Tenant resulting in any way from such Casualty, or from Landlord’s undertaking of repairs as a result of such Casualty.
Section 12.7. Repair Of The Premises When Casualty Not Caused By Tenant. If the cost of repair of any Casualty is covered under one or more of the insurance policies Landlord is required herein to provide, then, provided such Casualty is not a result of Tenant’s negligence or misconduct or the negligence or misconduct of Tenant’s agents, contractors, directors, employees, licensees, officers, partners or shareholders, Landlord shall restore the base core and shell of the Premises to its condition prior to the Casualty and repair and/or replace the improvements previously installed in the Premises.
If Landlord has elected to complete repairs to the Premises, and has not elected to terminate this Lease, as specified in Section 12.3, then Landlord shall diligently complete such repairs in a manner so as to minimize unreasonable interference with Tenant’s use of that portion of the Premises remaining unaffected by the Casualty. Provided Landlord has elected to make the repairs required hereunder, this Lease shall not be void or voidable during the Repair Period, nor shall Landlord be deemed to have constructively evicted Tenant thereby.
Section 12.8. Repair of the Premises When Casualty Caused by Tenant. If the Casualty to all or any portion of the Premises resulted from the negligence and/or willful misconduct of Tenant or the negligence and/or willful misconduct of Tenant’s agents, contractors, directors, employees, licensees, officers, partners or shareholders, Landlord shall not be required to repair any such injury or damage. Landlord shall only repair, at its expense, damage or destruction to the Building, and Tenant shall pay the cost of repairing the Premises and any deductible payable by Landlord for repair of the Building. Furthermore, Tenant hereby waives the provisions of California Civil Code Sections 1932(2) and 1933(4) and the provisions of any successor or other law of like import.
Section 12.9. Repair of the Building. Except as specified hereinabove, unless Landlord terminates this Lease as permitted hereinabove, Landlord shall use commercially reasonable efforts to repair the Building, parking structure or other supporting structures and facilities within two hundred and seventy (270) days after the commencement of repairs to same.
Section 12.10. Government-Required Repairs. If, during the Term, additional inspections other than those standard annual or biannual inspections to which the Building may generally be subject; testing, repairs and/or reconstruction (collectively the “Work”) are required by any governmental authority, or if, upon the recommendation of its engineers, Landlord independently elects to undertake all or any portion of the Work prior to being required to do so by such governmental authority, Landlord shall give notice thereof to Tenant and shall use its commercially reasonable efforts not to unreasonably interfere with Tenant’s use of the Premises while completing the Work. Tenant shall cooperate fully with Landlord in connection with the Work and, upon the prior written request of Landlord, shall make the Premises available for completion of the Work. Tenant agrees that Landlord shall allocate all costs associated with completion of the Work to the Building’s Operating Expenses, when permitted to under the provisions of Section 4.1 of this Lease.
If Landlord elects to undertake the Work during the Term, then Tenant shall be entitled to an abatement of rent, pursuant to the provisions of Section 12.5 hereinabove, and Landlord shall be completely responsible for repair of any damage to the Premises and all costs associated with the removal, moving and/or storage of Tenant’s furniture, artwork, office equipment and files. Landlord will restore any and all areas damaged by completion of the Work to their previous quality and pay all clean up costs. Landlord further agrees that it shall use commercially reasonable efforts to see that all construction, such as core drilling shall, insofar as is reasonably possible, be performed between the hours of 7:00 p.m. to 7:00 a.m. Monday through Friday; after 1:00 p.m. on Saturdays and/or at any time on Sundays.
Tenant shall not have the right to terminate this Lease as a result of Landlord undertaking the Work, nor shall Tenant or any third party claiming under Tenant be entitled to make any claim against Landlord for any interruption, interference or disruption of Tenant’s business or loss of profits therefrom as a result of the Work, and Tenant hereby releases Landlord from any claim which Tenant may have against Landlord arising from or relating to, directly or indirectly, the performance of the Work by Landlord.
Section 12.11. Optional Landlord Renovation. It is specifically understood and agreed that Landlord has no obligation to alter, remodel, improve, renovate or decorate the Premises, Building, or Real Property, or any part thereof and that Landlord has made no representations and/or warranties to Tenant respecting the condition of the Premises, the Building, or the Real Property including, without limitation, any representation or warranty regarding any upgrades or other improvements to any Common Areas of the Building or Real Property.
However, at any time and from time to time during the Term, Landlord may elect, in Landlord’s sole discretion, to otherwise renovate, improve, alter or modify elements of the Real Property, the Building and/or the Premises (collectively, “Renovations”) including without limitation, the parking facilities, Common Areas, systems, equipment, roof, and structural portions of the same, which Renovations may include, without limitation:
a) modifying the Common Areas and tenant spaces to comply with applicable laws and regulations, including regulations relating to the physically disabled, seismic conditions and building safety and security, and
b) installing new carpeting, lighting and wall covering in the Building Common Areas.
In connection with such Renovations, Landlord may, among other things, erect scaffolding or other necessary structures in or about the Building, limit or eliminate access to portions of the Building, Common Areas or parking facilities serving the Building, or perform other work in or about the Building, or the Real Property, which work may create noise, dust or debris that remains in the Building or the Real Property.
Landlord shall have the right to access through the Premises as well as the right to take into and upon and through all or any part of the Premises, or any other part of the Building, all materials that may reasonably be required to make such repairs, alterations, decorating, additions or improvements pursuant to the provisions of this Section 12.11. So long as Tenant shall maintain reasonable access to the Premises, the Building and the parking facilities, Landlord shall also have the right, in the course of the Renovations, to close entrances, doors, corridors, elevators, or other building facilities, or temporarily to abate the operation of such facilities.
So long as Tenant is not required to vacate the Premises for any reason arising out of the Renovations, and maintains reasonable access to the Premises and the parking facilities, Tenant shall permit all of the Renovations to be done, without claiming Landlord is guilty of the constructive eviction or disturbance of Tenant’s use and possession.
Landlord shall not be liable to Tenant in any manner (except as expressly provided otherwise in this Lease), whether for abatement of any Rent or other charge, reimbursement of any expense, injury, loss or damage to Tenant’s property, business, or any person claiming by or under Tenant, by reason of interference with the business of Tenant or inconvenience or annoyance to Tenant or the customers of Tenant resulting from any Renovations done in or about the Premises or the Building or to any adjacent or nearby building, land, street or alley. However, Landlord agrees that the Renovations shall be scheduled insofar as is commercially reasonable to permit Tenant to continue its normal business operations, with advance notice thereof, and in such commercially reasonable manner so as to minimize Tenant’s inconvenience.
Section 12.12. Optional Tenant Changes During the Term. After completion of the initial Improvements contemplated hereunder, if any, Tenant shall make no alteration, change, addition,
removal, demolition, improvement, repair or replacement in, on, upon, to or about the Premises, or at any time to any portion of the Building (collectively or individually a “Tenant Change”), without the prior written consent of Landlord, which consent shall be granted or withheld in Landlord’s reasonable discretion. Notwithstanding the foregoing, Tenant shall have the right, without Landlord’s consent but upon ten (10) days prior notice to Landlord and in compliance with Exhibit B-1, to make strictly cosmetic, non-structural alterations (such as new paint and carpet and minor changes to millwork) (“Cosmetic Alterations”) to the Premises that (i) are equal to or better than the minimum Building standards and specifications to the Premises; (ii) do not affect the exterior appearance of the Building; (iii) do not affect the Building systems and/or the Building structure; (iv) do not interfere unreasonably with another occupant’s normal and customary business; and (v) do not require a building permit or any other form of approval whatsoever from any governmental authority. Except as otherwise specified in Article 7, any Tenant Change shall, at the termination of this Lease, become a part of the Building and belong to Landlord, pursuant to the provisions of Article 7. Any application for Landlord’s consent to a Tenant Change, and the completion thereof, shall be in conformance with the provisions of Exhibit B-1, attached hereto and made a part hereof by reference.
Tenant shall not knowingly permit Tenant’s agents, clients, contractors, directors, employees, invitees, licensees, officers, partners or shareholders to deface the walls, floors and/or ceilings of the Premises, nor mark, drive nails, screws or drill holes into, paint, or in any way mar any surface in the Building. Notwithstanding the above, Tenant is hereby permitted to install such pictures, certificates, licenses, artwork, bulletin boards and similar items as are normally used in Tenant’s business, so long as such installation is carefully attached to the walls by Tenant in a manner reasonably prescribed by Landlord.
If Tenant desires, as a part of any Tenant Change, to make any revisions whatsoever affecting the electrical, HVAC, mechanical, life-safety, plumbing, or structural systems of the Building or Premises, such revisions, if approved by Landlord, must be completed by subcontractors specified by Landlord and in the manner and location(s) reasonably prescribed by Landlord. If Tenant desires to install any telephone outlets, the same shall be installed in the manner and location(s) reasonably prescribed by Landlord.
If Landlord consents to any requested Tenant Change, Tenant shall give Landlord a minimum of fifteen (15) days written notice prior to commencement thereof Landlord reserves the option, but not the obligation, to enter upon the Premises for the purpose of posting and maintaining such notices on the Premises as may be reasonably necessary to protect Landlord against mechanic’s liens, material man’s liens or other liens, and/or for posting any other notices that may be proper and necessary in connection with Tenant’s completion of the Tenant Change.
If any alterations, additions or improvements made by Tenant result in Landlord being required to make any alterations to other portions of the Building in order to comply with any applicable statutes, ordinances or regulations (e.g., “handicap ordinances”) then Tenant shall reimburse Landlord upon demand for all costs and expenses incurred by Landlord in making such alterations. In addition, Tenant shall reimburse Landlord for any and all of Landlord’s out of pocket costs incurred in reviewing Tenant’s plans for any Tenant Change or for any other “peer review” work associated with Landlord’s review of Tenant’s plans for any Tenant Change, including, without limitation, Landlord’s out of pocket costs incurred in engaging any third party engineers, contractors, consultants or design specialists. Tenant shall pay such costs to Landlord within five (5) business days after Landlord’s delivery to Tenant of a copy of the invoice(s) for such work.
Section 12.13. Express Agreement. The provisions of this Lease, including those contained in this Article 12, constitute an express agreement between Landlord and Tenant that applies in the event of any Casualty to the Premises, Building or Real Property. Tenant, therefore, fully waives the provisions of any statute or regulations, including California Civil Code Sections 1932(2) and 1933(4), and any other law or statute which purports to govern the rights or obligations of Landlord and Tenant concerning a Casualty in the absence of express agreement. Tenant and Landlord expressly agree and accept that any successor or other law of like import shall have no application hereunder.
ARTICLE 13
CONDEMNATION
Section 13.1. Condemnation of the Premises. If more than twenty-five percent (25%) of the Premises is lawfully condemned or taken in any manner for any public or quasi-public use, or if any portion of the Building is condemned or taken in such a manner that Tenant is reasonably prevented from obtaining access to the Building or the Premises, this Lease may, within ten (10) business days of such taking, be terminated at the option of either Landlord or Tenant by one party giving the other thirty (30) days written notice of its intent to do so. If either Landlord or Tenant provide the other party written notice of termination, the Term and estate hereby granted shall forthwith cease and terminate as of the earlier of the date of vesting of title in such condemnation or taking or the date of taking of possession by the condemning authority.
If less than twenty-five percent (25%) of the Premises is so condemned or taken, then the term and estate hereby granted with respect to such part shall forthwith cease and terminate as of the earlier of the date of vesting of title in such condemnation or taking or the date of taking of possession by the condemning authority, and the Fixed Monthly Rent payable hereunder (and Additional Rent payable pursuant to Articles 3 or 4) shall be abated on a prorated basis, by dividing the total number of usable square feet so taken by the total number of usable square feet contained in the Premises, then multiplying said percentage on a monthly basis, continuing from the date of such vesting of title to the date specified in this Lease for the expiration of the Term hereof
Section 13.2. Condemnation of the Building. If less than twenty-five percent (25%) of the Building is so condemned or taken, then Landlord shall to the extent of the proceeds of the condemnation payable to Landlord and with reasonable diligence, restore the remaining portion of the Building as nearly as practicable to its condition prior to such condemnation or taking; except that, if such proceeds constitute less than ninety percent (90%) of Landlord’s estimate of the cost of rebuilding or restoration, then Landlord may terminate this Lease on thirty (30) days’ prior written notice to Tenant.
If more than twenty-five percent (25%) of the Building is so condemned or taken, but the Premises are unaffected thereby, then Landlord shall have the option but not the obligation, which election shall be in Landlord’s sole discretion, to terminate this Lease, effective the earlier of the date of vesting of title in such condemnation or the date Landlord delivers actual possession of the Building and Premises to the condemning authority, which election by Landlord shall be provided to Tenant in writing.
Section 13.3. Award. If any condemnation or taking of all or a part of the Building takes place, Tenant shall be entitled to join in any action claiming compensation therefore, and Landlord shall be entitled to receive that portion of the award made for the value of the Building, Premises, leasehold improvements made or reimbursed by Landlord, or bonus value of this Lease, and Tenant shall only be entitled to receive any award made for the value of the estate vested by this Lease in Tenant, including Tenant’s proximate damages to Tenant’s business and reasonable relocation expenses. Nothing shall preclude
Tenant from intervening in any such condemnation proceeding to claim or receive from the condemning authority any compensation to which Tenant may otherwise lawfully be entitled in such case in respect of Tenant’s property or for moving to a new location.
Section 13.4. Condemnation for a Limited Period. Notwithstanding the provisions of Section 13.1, 13.2 or 13.3, except during the final twelve (12) months of the Term, if all or any portion of the Premises are condemned or taken for governmental occupancy for a limited period (i.e., anticipated to be no longer than sixty (60) days), then this Lease shall not terminate; there shall be no abatement of Fixed Monthly Rent or Additional Rent payable hereunder; and Tenant shall be entitled to receive the entire award therefor (whether paid as damages, rent or otherwise).
If, during the final twelve (12) months of the Term, all or any portion of the Premises are condemned or taken for governmental occupancy for a limited period anticipated to be in excess of sixty (60) days, or for a period extended after the expiration of the initial Term, Tenant shall have the option, but not the obligation, to terminate this Lease, in which case, Landlord shall be entitled to such part of such award as shall be properly allocable to the cost of restoration of the Premises, and the balance of such award shall be apportioned between Landlord and Tenant as of the date of such termination.
If the termination of such governmental occupancy is prior to expiration of this Lease, and Tenant has not elected to terminate this Lease, Tenant shall, upon receipt thereof and to the extent an award has been made, restore the Premises as nearly as possible to the condition in which they were prior to the condemnation or taking.
ARTICLE 14
MORTGAGE SUBORDINATION; ATTORNMENT AND MODIFICATION OF LEASE
Section 14.1. Subordination. This Lease, the Term and estate hereby granted, are and shall be subject and subordinate to the lien of each mortgage which may now or at any time hereafter affect Landlord’s interest in the real property, Building, parking facilities, Common Areas or portions thereof and/or the land thereunder (an “underlying mortgage”), regardless of the interest rate, the terms of repayment, the use of the proceeds or any other provision of any such mortgage. Tenant shall from time to time execute and deliver such instruments as Landlord or the holder of any such mortgage may reasonably request to confirm the subordination provided in this Section 14.1. Landlord hereby confirms that Landlord’s delivery to Tenant of commercially reasonable non-disturbance agreement(s) in favor of Tenant from any ground lessors, mortgage holders or lien holders of Landlord who come into existence following the date hereof but prior to the expiration of the Term (as the same may be extended pursuant to the terms of Article 22 of this Lease) shall be in consideration of, and a condition precedent to, Tenant’s agreement to be bound by the terms and conditions of this Article 14.
Section 14.2. Attornment. Tenant confirms that if by reason of a default under an underlying mortgage the interest of Landlord in the Premises is terminated, provided Tenant is granted in writing continued quiet enjoyment of the Premises pursuant to the terms and provisions of this Lease, Tenant shall attorn to the holder of the reversionary interest in the Premises and shall recognize such holder as Tenant’s landlord under this Lease, but in no event shall such holder be bound by any payment of Rent paid more than one month in advance of the date due under this Lease. Tenant shall, within fifteen (15) days after request therefor, execute and deliver, at any time and from time to time, upon the request of Landlord or of the holder of an underlying mortgage any instrument which may be necessary or appropriate to evidence such attornment.
Section 14.3. Modification of Lease; Notice of Default. If any current or prospective mortgagee or ground lessor for the Building requires a modification or modifications of this Lease, which modification or modifications will not cause an increased cost or expense to Tenant or in any other way materially and adversely change the rights and obligations of Tenant hereunder, then in such event, Tenant agrees that this Lease may be so modified. Tenant agrees to execute and deliver to Landlord within fifteen (15) days following the request therefor whatever documents are required to effectuate said modification. Should Landlord or any such current or prospective mortgagee or ground lessor require execution of a short form of Lease for recording, containing, among other customary provisions, the names of the parties, a description of the Premises and the Term, Tenant agrees to execute and deliver to Landlord such short form of Lease within fifteen (15) days following the request therefor. Further, Tenant shall give written notice of any default by Landlord under this Lease to any mortgagee and ground lessor of the Building and shall afford such mortgagee and ground lessor a reasonable opportunity to cure such default prior to exercising any remedy under this Lease.
ARTICLE 15
ESTOPPEL CERTIFICATES
Section 15.1. Estoppel Certificates. Tenant shall, within fifteen (15) days after receipt of Landlord’s written request therefor, execute, acknowledge and deliver to Landlord an Estoppel Certificate, which may be conclusively relied upon by any prospective purchaser, mortgagee or beneficiary under any deed of trust covering the Building or any part thereof. Said Estoppel Certificate shall certify the following:
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 date and nature of each modification);
b) the date, if any, to which rental and other sums payable hereunder have been paid;
c) that no notice has been received by Tenant of any default which has not been cured, except as to defaults specified in the certificate;
d) that Landlord is not in default under this Lease or, if so, specifying such default; and
e) such other factual matters as may be reasonably requested by Landlord.
Tenant’s failure to deliver the Estoppel Certificate within five (5) days following receipt of the Landlord’s second (2nd) written request therefor shall entitle Landlord and any party relying on such certificate to conclusively presume that the facts contained in such certificate are true and correct.
ARTICLE 16
NOTICES
Section 16.1. Notices. Any notice, consent, approval, agreement, certification, request, bill, demand, statement, acceptance or other communication hereunder (a “notice”) shall be in writing and shall be considered duly given or furnished when:
a) delivered personally or by messenger or overnight delivery service, with signature evidencing such delivery;
b) upon the date of delivery, after being mailed in a postpaid envelope, sent certified mail, return receipt requested, when addressed to Landlord as set forth in the Basic Lease Information and to Tenant at the Premises and any other address for Tenant specified in the Basic Lease Information; or to such other address or addressee as either party may designate by a written notice given pursuant hereto; or
c) upon confirmation of good transmission if sent via facsimile machine to such phone number as shall have been provided in writing by Landlord or Tenant, one to the other.
If Tenant fails to provide another valid address, other than the Premises, upon which service to Tenant can be perfected, then Tenant hereby appoints as its agent to receive the service of all dispossessory or distraint proceedings and notices thereunder the person in charge of or occupying the Premises at the time, and if no person shall be in charge of or occupy the same, then such service may be made by attaching the same to the main entrance of the Premises. For the purpose of the service of any notice by Landlord under Article 17 of this Lease, the notice will be deemed served on the date of mailing by Landlord.
ARTICLE 17
DEFAULT AND LANDLORD’S OPTION TO CURE
Section 17.1. Tenant’s Default. For the purposes of this Section 17.1, if the term “Tenant”, as used in this Lease, refers to more than one person, then, such term shall be deemed to include all of such persons or any one of them; if any of the obligations of Tenant under this Lease are guaranteed, the term ‘‘Tenant”, as used in Section 17.1(e) and Section 17.1(f), shall be deemed to also include the guarantor or, if there is more than one guarantor, all or any one of them; and if this Lease has been assigned, the term “Tenant”, as used in Sections 17.1 (a) through (h), inclusive, shall be deemed to include the assignee and assignor, jointly and severally, unless Landlord shall have, in connection with such assignment, previously released the assignor from any further liability under this Lease, in which event the term “Tenant”, as used in said subparagraphs, shall not include the assignor that was previously released.
Tenant’s continued occupancy and quiet enjoyment of the Premises and this Lease and the covenants and estate hereby granted are subject to the limitation that:
a) if Tenant fails to make any payment of Fixed Monthly Rent or Additional Rent within three (3) business days following Tenant’s receipt of written notice from Landlord that any such amount is due and unpaid; or
b) if Tenant abandons or vacates the Premises; or
c) if Tenant defaults in the keeping, observance or performance of any covenant or agreement set forth in Sections 6.1, 6.2, or 19.3, and if such default continues and is not cured by Tenant before the expiration of Landlord’s written 3-Day Notice to Cure or Quit; or
d) if Tenant defaults in the keeping, observance or performance of any covenant or agreement including any provisions of the rules and regulations established by Landlord (other than a default of the character referred to in Sections 17.1 (a), (b) or (c)), and if such default continues and is not cured by Tenant within thirty (30) days after Landlord has given to Tenant a notice specifying the same, or, in the case of such a default which
for causes beyond Tenant’s reasonable control (including occupancy of a sublessee) cannot with due diligence be cured within such period of thirty (30) days, if Tenant:
i) does not, promptly upon Tenant’s receipt of such notice, advise Landlord of Tenant’s intention duly to institute all steps necessary to cure such default; or
ii) does not duly institute and thereafter diligently prosecute to completion all steps (including, if appropriate, legal proceedings against a defaulting sublessee) necessary to cure the same; or
e) intentionally omitted; or
f) if Tenant:
i) applies for or consents to the appointment of, or the taking of possession by a receiver, custodian, trustee or liquidator of itself or of all or a substantial part of its property;
ii) admits in writing its inability, or is generally unable, to pay its debts as such debts become due;
iii) makes a general assignment for the benefit of its creditors;
iv) commences a voluntary case under federal bankruptcy laws (as now or hereafter in effect);
v) files a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, winding up, or composition or adjustment of debts;
vi) fails to controvert in a timely or appropriate manner, or acquiesces in writing to, any petition filed against it in an involuntary case under such bankruptcy laws;
vii) takes any action for the purpose of effecting any of the foregoing; or
g) if a proceeding or case is commenced, without the application or consent of Tenant, in any court of competent jurisdiction, seeking:
i) the liquidation, reorganization, dissolution, winding up, or composition or readjustment of debts, of Tenant; or
ii) the appointment of a trustee, receiver, custodian, liquidator or the like of Tenant or of all or a substantial part of its assets; or
iii) similar relief with respect of Tenant under any law relating to bankruptcy, insolvency, reorganization, winding up, or composition or adjustment of debts, and such proceeding or case shall continue undismissed, or an order, judgment or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect, for a period of sixty (60) days, or an order for relief against Tenant shall be entered in an involuntary case under such bankruptcy laws; or
h) if Tenant fails to take possession of and move into the Premises within fifteen (15) calendar days after Landlord tenders the same in writing to Tenant, unless Tenant acknowledges and accepts the Commencement Date as occurring within such fifteen-day time period, and pays Rent thereon from such Commencement Date;
then, in any or each such event, Tenant shall be deemed to have committed a material default under this Lease.
Section 17.2. Landlord’s Option to Cure Tenant’s Default. If Tenant enters into a default under this Lease, in lieu of Landlord’s issuance of a written notice, as specified hereinbelow, Landlord may cure the same at the sole expense of Tenant:
a) immediately and without notice in the case of emergency; if said default is specified in Sections 17.1 (a), (b) or (c), or if such default unreasonably interferes with the use by any other tenant of the Building; with the efficient operation of the Building; or will result in a violation of law or in a cancellation of any insurance policy maintained by Landlord, and
b) after the expiration of Landlord’s 3-DayNotice of Intent to Cure, in the case of any default other than those specified in Section 17.2 (a) hereinabove.
Within fifteen (15) business days after receiving a statement from Landlord, Tenant shall pay to Landlord the amount of the expense reasonably incurred by Landlord in performing Tenant’s obligation. If Tenant fails to pay such amount to Landlord within the specified time period, Landlord may (in addition to any other remedies of Landlord under this Lease or applicable law) deduct the amount due from the Security Deposit under Section 3.7.
Section 17.3. Landlord’s Option to Terminate this Lease. In addition to any other remedies Landlord may have at law or in equity, Landlord shall be entitled to give to Tenant a written notice of intention to terminate this Lease at the expiration of three (3) days from the date of the giving of such notice, and if such notice is given by Landlord, and Tenant fails to cure the defaults specified therein, then this Lease and the Term and estate hereby granted (whether or not the Commencement Date has already occurred) shall terminate upon the expiration of such three (3) day period (a “Default Termination”), with the same effect as if the last of such three (3) days were the Termination Date, except that Tenant shall remain liable for damages as provided hereinbelow or pursuant to law.
Section 17.4. Certain Payments. Bills for all reasonable costs and expenses incurred by Landlord in connection with any performance by it under Section 17.2 shall be payable, as Additional Rent, pursuant to the provisions of Section 4.3.
Section 17.5. Certain Waivers. Unless Tenant has submitted documentation that it validly disputes Landlord’s billing for Fixed Monthly Rent hereunder, or is completing an audit of Landlord’s Operating Expense Statement, if Tenant is in default in payment of Fixed Monthly Rent or Additional Rent hereunder, Tenant waives the right to designate the items against which any payments made by Tenant are to be credited. In lieu thereof, Landlord may apply any payments received from Tenant to the thenoldest billing remaining unpaid on Tenant’s rental account or to any other payment due from Tenant, as Landlord sees fit.
Section 17.6. Landlord Default. Notwithstanding anything to the contrary set forth in this Lease, Landlord shall not be in default in the performance of any obligation required to be performed by Landlord pursuant to this Lease unless:
a) in the event such default is with respect to the payment of money, Landlord fails to pay such unpaid amounts within five (5) business days of written notice from Tenant that the same was not paid when due, or
b) in the event such default is other than the obligation to pay money, Landlord fails to perform such obligation within thirty (30) days after the receipt of notice from Tenant specifying in detail Landlord’s failure to perform; provided, however, if the nature of Landlord’s obligation is such that more than thirty (30) days are required for its performance, then Landlord shall not be in default under this Lease if it shall commence such performance within such thirty (30) days period and thereafter diligently pursue the same to completion within a reasonable time period.
Upon any such default by Landlord under this Lease, Tenant may, except as otherwise specifically provided in this Lease to the contrary, exercise any of its rights provided at law or in equity.
ARTICLE 18
DAMAGES; REMEDIES; RE-ENTRY BY LANDLORD; ETC.
Section 18.1. Damages. If Landlord terminates this Lease, pursuant to the provisions of Section 17.3 (a “Default Termination”), then Landlord may recover from Tenant the total of:
a) the worth at the time of award of the unpaid Fixed Monthly Rent and Additional Rent earned to the date of such Default Termination; and
b) the worth at the time of award of the amount by which the unpaid Fixed Monthly Rent and Additional Rent which would have been earned after the date of such Default Termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; and
c) the worth at the time of award of the amount by which the unpaid Fixed Monthly Rent and Additional Rent which would have been earned for the balance of the Term after the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; and
d) any other amount reasonably necessary to compensate Landlord for all of the detriment proximately caused by Tenant’s failure to observe or perform any of its covenants and agreements under this Lease or which in the ordinary course of events would be likely to result therefrom, including, without limitation, the payment of the reasonable expenses incurred or paid by Landlord in re-entering and securing possession of the Premises and in the reletting thereof (including, without limitation, altering and preparing the Premises for new tenants and brokers’ commission); and
e) at Landlord’s sole election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time under applicable California laws.
Section 18.2. Computations: The “worth at the time of award” is computed:
a) in paragraphs (a) and (b) above, by allowing interest at the rate of ten percent (10%) per annum (but in no event in excess of the maximum rate permitted by law); and
b) in paragraph (c) above, by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%).
c) For purposes of computing unpaid rental which would have accrued and become payable under this Lease, unpaid rental shall consist of the sum of:
i) the total Fixed Monthly Rent for the balance of the Term, plus
ii) a computation of Tenant’s Share of Additional Rent due under this Lease including, without limitation, Tenant’s Share of any increase in Operating Expenses (including real estate taxes) for the balance of the Term. For purposes of computing any increases due Landlord hereunder, Additional Rent for the calendar year of the default and for each future calendar year in the Term shall be assumed to be equal to the Additional Rent for the calendar year prior to the year in which default occurs, compounded at a rate equal to the mean average rate of inflation for the preceding five calendar years as determined by the United States Department of Labor, Bureau of Labor Statistics Consumer Price Index (All Urban Consumers, all items, 1982-84 equals 100) for the metropolitan area or region of which Los Angeles, California is a part. If such index is discontinued or revised, the average rate of inflation shall be determined by reference to the index designated as the successor or substitute index by the government of the United States.
Section 18.3. Re-Entry by Landlord.
a) If a Default Termination occurs or any default specified in Sections 17.1 (a) through (g) occurs and continues beyond the period of grace (if any) therefor, Landlord or Landlord’s authorized representatives may re-enter the Premises and remove all persons and all property therefrom, either by summary dispossession proceedings or by any suitable action or proceeding at law, without being liable to indictment, prosecution or damages therefor, and may repossess and enjoy the Premises. No re-entry or repossession of the Premises by Landlord or its representatives under this Section 18.3 shall be construed as an election to terminate this Lease unless a notice of such election is given to Tenant or unless the termination thereof is decreed by a court of competent jurisdiction. The words “re-enter”, “re-entry” and “re-entering” as used herein are not restricted to their technical legal meanings.
b) If any default specified in Sections 17.1 (a) through (g) occurs and continues beyond the period of grace (if any) therefor, then if Landlord does not elect to terminate this Lease Landlord may, from time to time and without terminating this Lease, enforce all its rights and remedies under this Lease, including the right to recover the Fixed Monthly Rent and Additional Rent as the same becomes payable by Tenant hereunder.
i) If Landlord consents thereto, Tenant may sublet the Premises or any part thereof (which consent Landlord agrees will not be unreasonably withheld), subject to
Tenant’s compliance with the requirements of Article 11 of this Lease. So long as Landlord is exercising this remedy it will not terminate Tenant’s right to possession of the Premises, but it may engage in the acts permitted by Section 1951.4(c) of the California Civil Code.
c) If Tenant abandons the Premises in breach of this Lease, Landlord shall have the right to relet the Premises or any part thereof on such terms and conditions and at such rentals as Landlord in its sole discretion may deem advisable, with the right to make alterations and repairs in and to the Premises necessary to reletting. If Landlord so elects to relet, then gross rentals received by Landlord from the reletting shall be applied:
i) first, to the payment of the reasonable expenses incurred or paid by Landlord in re-entering and securing possession of the Premises and in the reletting thereof (including, without limitation, altering and preparing the Premises for new tenants and brokers’ commissions);
ii) second, to the payment of the Fixed Monthly Rent and Additional Rent payable by Tenant hereunder; and
iii) third, the remainder, if any, to be retained by Landlord and applied to the payment of future Fixed Monthly Rent and Additional Rent as the same become due.
Should the gross rentals received by Landlord from the reletting be insufficient to pay in full the sums stated in Section 18.3 (a) and (b) hereinabove, Tenant shall, upon demand, pay the deficiency to Landlord.
Section 18.4. Certain Waivers. After Landlord has actually obtained possession of the Premises pursuant to any lawful order of possession granted in a valid court of law, Tenant thereafter waives and surrenders for Tenant, and for all claiming under Tenant, all rights and privileges now or hereafter existing to redeem the Premises (whether by order or judgment of any court or by any legal process or writ); to assert Tenant’s continued right to occupancy of the Premises; or to have a continuance of this Lease for the Term hereof. Tenant also waives the provisions of any law relating to notice and/or delay in levy of execution in case of an eviction or dispossession for nonpayment of rent, and of any successor or other law of like import.
Section 18.5. Cumulative Remedies. The remedies of Landlord provided for in this Lease are cumulative and are not intended to be exclusive of any other remedies to which Landlord may be lawfully entitled. The exercise by Landlord of any remedy to which it is entitled shall not preclude or hinder the exercise of any other such remedy.
ARTICLE 19
INSURANCE
Section 19.1. Landlord Obligations:
a) Landlord shall secure and maintain through individual or blanket policies during the Term of this Lease the following insurance:
i) Fire insurance and extended coverage for the full replacement cost of the Building, the parking facilities, the Common Area improvements and any and all improvements installed in, on or upon the Premises and affixed thereto (but excluding Tenant’s fixtures, furnishings, equipment, personal property or other elements of Tenant’s Property), and provided that the premium cost for coverage of the Improvements to the Premises in excess of a total value equal to Thirty-Five Dollars ($35.00) per square foot of Usable Area in the Premises shall be directly reimbursed from Tenant to Landlord, pursuant to the provisions of Section 4.3 of this Lease, with deductibles and the form and endorsements of such coverage as selected by Landlord;
ii) Such other insurance (including, without limitation, liability insurance, equipment breakdown, business interruption, earthquake and/or flood insurance) as Landlord reasonably elects to obtain or any Lender requires.
b) Insurance effected by Landlord under this Section 19.1 will be:
i) In amounts which Landlord from time to time determines sufficient or which any Lender requires; and
ii) Subject to such deductibles and exclusions as Landlord deems appropriate.
c) Notwithstanding any contribution by Tenant to the cost of insurance premiums as provided herein, Tenant acknowledges that Tenant has no right to receive any proceeds from any insurance policies carried by Landlord.
Section 19.2. Tenant Obligations.
a) At least ten (10) days prior to the earlier of the Commencement Date or Tenant’s anticipated early access date of the Premises and thereafter during the Term of this Lease, Tenant shall secure and maintain, at its own expense throughout the Term of this Lease the following minimum types and amounts of insurance, in form and in companies acceptable to Landlord, insuring Tenant, its employees, agents and designees:
i) Workers’ Compensation Insurance, which shall be not less than the amount and scope required by statute or other governing law;
ii) Employer’s Liability Insurance in amounts equal to the greater of (1) the insurance currently maintained by Tenant, or (2) the following: Bodily Injury by accident - $1,000,000 each accident; Bodily Injury by disease - $1,000,000 policy limit; and Bodily Injury by disease - $1,000,000 each employee;
iii) Commercial General Liability and Umbrella Liability Insurance on an occurrence basis, with bodily injury and property damage coverage in an amount equal to a combined single limit of not less than $2,000,000 per occurrence (and $2,000,000 aggregate per location if Tenant has multiple locations); and such insurance shall include the following coverages: (A) Premises and Operations coverage under all coverage parts, if applicable; (B) Products and Completed Operations coverage; (C) Water Damage and Fire Legal Liability; (D) Coverage for liability assumed under this Lease without any limitation endorsements; (E) Personal Injury coverage;
iv) Automobile Liability Coverage in the amount of $1,000,000 per accident, and insuring Tenant against liability for claims arising out of ownership, maintenance, or use of any owned, hired, borrowed or non-owned automobiles, as applicable;
v) Special form property insurance, including coverage for insuring fixtures, glass, equipment, merchandise, inventory and other elements of Tenant’s Property in and all other contents of the Premises. Such insurance shall be in an amount equal to 100% of the replacement value thereof (and Tenant shall re-determine the same as frequently as necessary in order to comply herewith). The proceeds of such insurance, so long as this Lease remains in effect, shall be used to repair and/or replace the items so insured;
vi) A commercially reasonable policy of business interruption insurance for a period of not less than 12 months with respect to the operation of Tenant’s business; and
vii) Any other forms of insurance Landlord may reasonably require from time to time, in form and amounts and for insurance risks against which a prudent tenant of comparable size in a comparable business would protect itself
b) All insurance policies maintained to provide the coverages required herein shall:
i) Be issued by insurance companies authorized to do business in the state in which the leased premises are located, and with companies rated, at a minimum “A- VII” by A.M. Best;
ii) Be subject to the prior approval of Landlord (which approval shall not be unreasonably withheld) as to form, substance and insurer;
iii) Provide for a deductible only so long as Tenant shall remain liable for payment of any such deductible in the event of any loss;
iv) Contain appropriate cross-liability endorsements denying Tenant’s insurers the right of subrogation against Landlord as to risks covered by such insurance, without prejudice to any waiver of indemnity provisions applicable to Tenant and any limitation of liability provisions applicable to Landlord hereunder, of which provisions Tenant shall notify all insurance carriers;
v) Contain provisions for at least ten (10) days advance written notice to Landlord of cancellation due to non-payment and thirty (30) days advance written notice to
Landlord of material modification or cancellation for any reason other than non-payment; and
vi) Stipulate that coverages afforded under such policies are primary insurance as respects Landlord and that any other insurance maintained by Landlord are excess and non-contributing with the insurance required hereunder.
c) Tenant shall deliver to Landlord upon execution of this Lease, written evidence of insurance coverages required herein. Tenant shall deliver to Landlord no less than fifteen (15) days prior to the expiration of any required coverage, written evidence of the renewal or replacement of such coverage. Landlord’s failure at any time to object to Tenant’s failure to provide the specified insurance or written evidence thereof (either as to the type or amount of such insurance) shall not be deemed as a waiver of Tenant’s obligations under this Section.
d) Landlord shall be named as an additional insured on the Tenant’s policies of General Liability and Umbrella Liability insurance and as a loss payee on the Tenant’s policies of All Risk insurance as their interest may appear. Tenant shall deliver to Landlord the appropriate endorsements evidencing additional insured and loss payee status. Any claim for loss under said insurance policies shall be payable notwithstanding any act, omission, negligence, representation, misrepresentation or other conduct or misconduct of Tenant which might otherwise cause cancellation, forfeiture or reduction of such insurance.
e) Tenant may, at its option, satisfy its insurance obligations hereunder by policies of so-called blanket insurance carried by Tenant provided that the same shall, in all respects, comply with the provisions hereof In such event, Tenant shall not be deemed to have complied with its obligations hereunder until Tenant shall have obtained and delivered to Landlord a copy of each such policy together with an appropriate endorsement or certificate applicable to and evidencing full compliance with the specific requirements of this Lease (irrespective of any claim which may be made with respect to any other property or liability covered under such policy), and until the same shall have been approved by Landlord in writing.
Section 19.3. Compliance with Building Insurance Requirements. After Tenant takes occupancy of the Premises, Tenant shall not violate or permit in, on or upon the Premises the violation of any condition imposed by such standard fire insurance policies as are normally issued for office buildings in the City or County in which the Building is located. Tenant shall not do, suffer or permit anything to be done, or keep, suffer or permit anything to be kept, in the Premises which would increase the risk ratings or premium calculation factors on the Building or property therein (collectively an “Increased Risk”), or which would result in insurance companies of good standing refusing to insure the Building or any property appurtenant thereto in such amounts and against such risks as Landlord may reasonably determine from time to time are appropriate.
Notwithstanding the above, if additional insurance is available to cover such Increased Risk, Tenant shall not be in default hereunder if:
a) Tenant authorizes Landlord in writing to obtain such additional insurance; and
b) prepays the annual cost thereof to Landlord for such additional coverage, as well as the additional costs, if any, of any increase in Landlord’s other insurance premiums resulting from the existence or continuance of such Increased Risk.
Section 19.4. Mutual Waiver of Subrogation. Landlord and Tenant agree to have their respective insurance companies issuing property damage insurance waive any rights of subrogation that such companies may have against Landlord or Tenant, as the case may be. Anything in this Lease to the contrary notwithstanding, Landlord and Tenant hereby waive and release each other of and from any and all rights of recovery, claims, actions or causes of actions against each other, their respective agents, officers and employees, for any loss or damage that may occur to the Premises, Building or Project, or personal property within the Building, regardless of cause or origin, including the negligence of Landlord and Tenant and their respective agents, officers, employees and contractors. Each party agrees to give immediately to its respective insurance company which has issued policies of insurance covering any risk of direct physical loss, written notice of the terms of the mutual waivers contained in this Section 19.4, and to have such insurance policies properly endorsed, if necessary, to prevent the invalidation of said insurance coverage by reason of said waivers. If either Landlord or Tenant fails to provide the insurance policy or policies required hereinabove, the waiver of subrogation contained in this Section 19.4 shall no longer inure to the benefit of the party failing to provide such insurance, and the party claiming against such uninsured party shall be entitled to restitution of all damages and expenses suffered and/or claimed, without limitation.
Section 19.5. Failure to Secure. If at any time during the Term, and after expiration of ten (10) business days’ prior written demand therefore from Landlord, Tenant fails to:
a) provide Landlord with access to a registered insurance broker of record that can verify Tenant’s compliance with the requirement contained in this Article 19; or
b) provide documentation reasonably acceptable to Landlord that Tenant has secured and maintained the insurance coverage required hereunder,
then such failure shall be considered a material default under this Lease, and Landlord shall have the option, but not the obligation, without further notice or demand to obtain such insurance on behalf of or as the agent of Tenant and in Tenant’s name.
ARTICLE 20
MISCELLANEOUS
Section 20.1. Entire Agreement. This Lease, including the exhibits and guaranty of lease, if any, annexed hereto, contains all of the agreements and understandings relating to the leasing of the Premises and the obligations of Landlord and Tenant in connection therewith and neither party and no agent or representative thereof has made or is making, and neither party in executing and delivering this Lease is relying upon, any warranties or representations, except to the extent set forth in this Lease. All understandings and agreements heretofore had between Landlord and Tenant relating to the leasing of the Premises are merged in this Lease, which alone fully and completely expresses their agreement. The Riders (if any) and Exhibits annexed to this Lease and the Construction Agreement are hereby incorporated herein and made a part hereof.
Section 20.2. No Waiver or Modification. The failure of Landlord or Tenant to insist in any instance upon the strict keeping, observance or performance of any covenant or agreement contained in this Lease or to exercise any election herein contained shall not be construed as a waiver or relinquishment for the
future of such covenant or agreement, but the same shall continue and remain in full force and effect. No waiver or modification by either Landlord or Tenant of any covenant or agreement contained in this Lease shall be deemed to have been made unless the same is in writing executed by the party whose rights are being waived or modified. No surrender of possession of any part of the Premises shall release Tenant from any of its obligations hereunder unless accepted in writing by Landlord. The receipt and retention by Landlord, and the payment by Tenant, of Fixed Monthly Rent or Additional Rent with knowledge of the breach of any covenant or agreement contained in this Lease shall not be deemed a waiver of such breach by either Landlord or Tenant.
Section 20.3. Time of the Essence. Time is of the essence of this Lease and of all provisions hereof, except in respect to the delivery of possession of the Premises at the Commencement Date.
Section 20.4. Force Majeure. For the purposes of this Lease, “Force Majeure” shall be defined as any or all prevention, delays or stoppages and/or the inability to obtain services, labor, materials or reasonable substitutes therefor, when such prevention, delay, stoppage or failure is due to strikes, lockouts, labor disputes, terrorist acts, acts of God, governmental actions, civil commotion, fire or other casualty, and/or other causes beyond the reasonable control of the party obligated to perform, except that Force Majeure may not be raised as a defense for Tenant’s non-performance of any obligations imposed by this Lease with regard to the payment of Fixed Monthly Rent and/or Additional Rent.
Notwithstanding anything to the contrary contained in this Lease, Force Majeure shall excuse the performance of such party for a period equal to any such prevention, delay, stoppage or inability. Therefore, if this Lease specifies a time period for performance of an obligation by either party, that time period shall be extended by the period of any delay in such party’s performance caused by a Force Majeure.
Section 20.5. Broker. Landlord and Tenant represent to one another that each has dealt with no broker or agent in connection with this Lease or its negotiations other than Douglas Emmett Management, Inc. and CBRE. Landlord and Tenant shall hold one another harmless from and against any and all liability, loss, damage, expense, claim, action, demand, suit or obligation arising out of or relating to a breach by the indemnifying party of such representation. Landlord agrees to pay all commissions due to the brokers listed above created by Tenant’s execution of this Lease.
Section 20.6. Governing Law. This Lease shall be governed by and construed in accordance with the laws of the State of California.
Section 20.7. Submission of Lease. Whether or not rental deposits have been received by Landlord from Tenant, and whether or not Landlord has delivered to Tenant an unexecuted draft version of this Lease for Tenant’s review and/or signature, no contractual or other rights shall exist between Landlord and Tenant with respect to the Premises, nor shall this Lease be valid and/or in effect until this Lease has been fully executed and a duplicate original of said fully-executed Lease has been delivered to both Landlord and Tenant.
The submission of this Lease to Tenant shall be for examination purposes only, and does not and shall not constitute a reservation of or an option for Tenant to lease, or otherwise create any interest by Tenant in the Premises or any other offices or space situated in the Building. Execution of this Lease by Tenant and its return to Landlord shall not be binding upon Landlord, notwithstanding any time interval, until Landlord has in fact executed and delivered a fully-executed duplicate original of this Lease to Tenant. Landlord and Tenant agree hereby to authorize transmission of all or portions of documents,
including signature lines thereon, by facsimile machines, and further authorize the other party to rely conclusively upon such facsimile transmissions as if the original had been received.
Section 20.8. Captions. The captions in this Lease are for convenience only and shall not in any way limit or be deemed to construe or interpret the terms and provisions hereof.
Section 20.9. Singular and Plural, Etc. The words “Landlord” and “Tenant”, as used herein, shall include the plural as well as the singular. Words used in the masculine gender include the feminine and neuter. If there be more than one Landlord or Tenant the obligations hereunder imposed upon Landlord and Tenant shall be joint and several.
Section 20.10. Independent Covenants. Except where the covenants contained in one Article of this Lease are clearly affected by or contingent upon fulfillment by either party of another Article or paragraph of this Lease, this Lease shall be construed as though the covenants herein between Landlord and Tenant are independent and not dependent and Tenant hereby expressly waives the benefit of any statute to the contrary and agrees that if Landlord fails to perform its obligations set forth herein, Tenant shall not be entitled to make any repairs or perform any actions hereunder at Landlord’s expense or to any set-off of the Rent or other amounts owing hereunder against Landlord; provided, however, that the foregoing shall in no way impair the right of Tenant to commence a separate action against Landlord for the violation by Landlord of the provisions hereof so long as notice is first given to Landlord and any holder of a mortgage or deed of trust covering the Building, Real Property or any portion thereof, of whose address Tenant has theretofore been notified, and an opportunity is granted to Landlord and such holder to correct such violations as provided above.
Section 20.11. Severability. If any covenant or agreement of this Lease or the application thereof to any person or circumstance shall be held to be invalid or unenforceable, then and in each such event the remainder of this Lease or the application of such covenant or agreement to any other person or any other circumstance shall not be thereby affected, and each covenant and agreement hereof shall remain valid and enforceable to the fullest extent permitted by law.
Section 20.12. Warranty of Authority. If Landlord or Tenant signs as a corporation, limited liability company or a partnership, each of the persons executing this Lease on behalf of Landlord or Tenant hereby covenant and warrant that each is a duly authorized and existing entity, that each has and is qualified to do business in California, that the persons signing on behalf of Landlord or Tenant have full right and authority to enter into this Lease, and that each and every person signing on behalf of either Landlord or Tenant are authorized to do so.
Section 20.13. No Representations or Warranties. Neither Landlord nor Landlord’s agents or attorneys have made any representations or warranties with respect to the Premises, the Building or this Lease, except as expressly set forth herein, and no rights, easements or licenses are or shall be acquired by Tenant by implication or otherwise.
Section 20.14. No Joint Venture or Partnership. This Lease shall not be deemed or construed to create or establish any relationship of partnership or joint venture or similar relationship or arrangement between Landlord and Tenant hereunder.
Section 20.15. Tenant’s Obligations At Its Sole Expense. Notwithstanding the fact that certain references in this Lease to acts required to be performed by Tenant hereunder, or to breaches or defaults of this Lease by Tenant, omit to state that such acts shall be performed at Tenant’s sole expense, or omit to state that such breaches or defaults by Tenant are material, unless the context clearly implies to the
contrary each and every act to be performed or obligation to be fulfilled by Tenant pursuant to this Lease shall be performed or fulfilled at Tenant’s sole expense, and all breaches or defaults by Tenant hereunder shall be deemed material.
Section 20.16. Attorneys’ Fees. If litigation is instituted between Landlord and Tenant, the cause for which arises out of or in relation to this Lease, the prevailing party in such litigation shall be entitled to receive its costs (not limited to court costs), expenses and reasonable attorneys’ fees from the non-prevailing party as the same may be awarded by the court.
Section 20.17. Waiver of Trial by Jury. In the interest of saving time and expense, Landlord and Tenant hereby consent to trial without a jury in any action, proceeding or counterclaim brought by either of the parties hereto against the other or their successor-in-interest in respect to any matters arising out of or relating to this Lease.
Section 20.18. No Merger. The voluntary or other surrender of this Lease by Tenant, or a mutual cancellation thereof, shall not work a merger, and shall, at the option of Landlord terminate all or any existing subleases or subtenancies, or may, at the option of Landlord, operate as an assignment to it of any or all such subleases or subtenancies.
Section 20.19. Prohibition Against Recording. Except as provided in Section 14.3 of this Lease, neither this Lease, nor any memorandum, affidavit or other writing with respect thereto, shall be recorded by Tenant or by anyone acting through, under or on behalf of Tenant, and the recording thereof in violation of this provision shall make this Lease null and void at Landlord’s election.
Section 20.20. Hazardous Waste. Tenant specifically agrees that, except for such limited quantities of office materials and supplies as are customarily used in Tenant’s normal business operations, Tenant shall not engage or permit at any time, any operations or activities upon, or any use or occupancy of the Premises, or any portion thereof, for the purpose of or in any way involving the handling, manufacturing, treatment, storage, use, transportation, spillage, leakage, dumping, discharge or disposal (whether legal or illegal, accidental or intentional) of any hazardous substances, materials or wastes, or any wastes regulated under any local, state or federal law.
Tenant shall, during the Term, remain in full compliance with all applicable laws governing its use and occupancy of the Premises, including, without limitation, the handling, manufacturing, treatment, storage, disposal, discharge, use, and transportation of hazardous substances, materials or wastes, and any wastes regulated under any local, state or federal law. Tenant will remain in full compliance with the terms and conditions of all permits and licenses issued to it by any governmental authority on account of any or all of its activities on the Premises. Tenant shall comply with any operations and maintenance program for the Real Property.
Section 20.21. Transportation Management. Tenant shall, at Tenant’s sole expense, fully comply with all present or future programs intended to manage parking, transportation or traffic in and around the Building, when the same have been mandated by an outside governmental authority having jurisdiction therefor and not when required for the convenience of Landlord.
In connection therewith, Tenant shall be responsible for the transportation planning and management for all of Tenant’s employees while located at the Premises, by working directly with Landlord, any governmental transportation management organization or any other transportation-related
committees or entities reasonably designated by Landlord. Such programs may include, without limitation:
a) restrictions on the number of peak-hour vehicle trips generated by Tenant;
b) requirements for increased vehicle occupancy;
c) implementing an in-house ride-sharing program and/or appointing an employee transportation coordinator;
d) working with employees of any Building (or area-wide) ridesharing program manager;
e) instituting employer-sponsored incentives (financial or in-kind) to encourage employees to ridesharing; and
f) utilizing flexible work shifts for employees.
Section 20.22. Signage. Landlord hereby confirms that Tenant shall be entitled to Building standard signage at the entrance of the Premises. Otherwise, Tenant may not install, inscribe, paint or affix any awning, shade, sign, advertisement or notice on or to any part of the outside or inside of the Building, or in any portion of the Premises visible to the outside of the Building or Common Areas without Landlord’s prior written consent, which consent may be granted or withheld in Landlord’s sole and absolute discretion.
All signage and/or directory listings installed on behalf of Tenant, whether installed in, on or upon the public corridors, doorways, Building directory and/or parking directory (if any), or in any other location whatsoever visible outside of the Premises, shall be installed by Landlord, at Tenant’s sole expense.
Tenant’s identification on or in any Common Area of the Building shall be limited to Tenant’s name and suite designation, and in no event shall Tenant be entitled to the installation of Tenant’s logo in any portion of the Building or Common Areas. Furthermore, the size, style, and placement of letters to be used in any of Tenant’s signage shall be determined by Landlord, in Landlord’s sole discretion, in full conformance with the previously established signage program for the Building.
Except as specified hereinbelow, Tenant shall only be entitled to one (1) listing on the Building directory, or any parking directory ancillary thereto, which shall only show Tenant’s business name and suite designation. Tenant shall also be entitled to a maximum of twenty (20) additional listings on said Building and/or parking directory, which listings shall be limited solely to Tenant’s officers, employees, subsidiaries, affiliates and/or sublessees, if any. All of said listings shall be subject to Landlord’s prior written approval, which shall not be unreasonably withheld, conditioned or delayed.
Section 20.23. Asbestos Notification. Tenant acknowledges that it has received and reviewed Exhibit D attached hereto and incorporated herein.
Section 20.24. Confidentiality. Landlord and Tenant agree that the covenants and provisions of this Lease shall not be disclosed except (a) as required by applicable law (including, without limitation, as required by any warrant, subpoena or order issued by a court of competent jurisdiction or law enforcement authority) and (b) to anyone directly involved in the management, administration,
ownership, lending against, or subleasing of the Premises, which permitted disclosure shall include, but not be limited to, the board members, legal counsel and/or accountants of either Landlord or Tenant.
Section 20.25. Intentionally Omitted.
Section 20.26. Landlord’s Right to Perform Tenant’s Obligations. All obligations to be performed by Tenant under this Lease shall be performed by Tenant at Tenant’s expense (unless this Lease expressly provides otherwise) without any reduction of or offset against Rent. Except to the extent set forth in Section 17.2 herein, in the event of a default by Tenant of any obligation under this Lease, Landlord may, after delivering notice to Tenant and allowing Tenant ten (10) business days to cure such default, perform the obligation on Tenant’s behalf, without waiving any of Landlord’s rights, remedies, claims or defenses with respect to Tenant’s failure to perform any obligations and without releasing Tenant from such obligations. If Landlord determines that such default reasonably requires additional time for cure, then Landlord’s notice may state such other time period, provided that Tenant commences its cure within ten (10) business days after notice and thereafter continuously prosecutes such cure to completion. Within fifteen (15) business days after receiving a statement from Landlord, Tenant shall pay to Landlord the amount of the expense reasonably incurred by Landlord in performing Tenant’s obligation. If Tenant fails to pay such amount to Landlord within the specified time period, Landlord may (in addition to any other remedies of Landlord under this Lease or applicable law) deduct the amount due from the Security Deposit under Section 3.7. The terms of this Section 20.26 shall survive the expiration or earlier termination of this Lease.
Section 20.27. Civil Code Section 1938 Disclosure. Pursuant to California Civil Code Section 1938, Landlord hereby discloses that the Premises have not undergone an inspection by a Certified Access Specialist to determine whether the Premises meet all applicable construction-related accessibility standards.
ARTICLE 21
21 PARKING
Section 21.1. Parking. Throughout the Term, Tenant’s parking allocation shall be as set forth in Section 21.1 of the Basic Lease Information (“BLI”). Except as otherwise permitted by Landlord’s management agent in its reasonable discretion, and based on the availability thereof, in no event shall Tenant be entitled to purchase more than the number of parking permits listed in the BLI. If additional parking permits are available on a month-to-month basis, which determination shall be in the sole discretion of Landlord’s parking agent, Tenant shall be permitted to purchase one or more of said permits on a first-come, first-served basis.
Said parking permits shall allow Tenant to park in the Building parking facility at the posted monthly parking rates and charges then in effect, plus any and all applicable taxes, provided that such rates may be changed from time to time, in Landlord’s sole discretion. Landlord shall retain sole discretion to designate the location of each parking space, and whether it shall be assigned, or unassigned, unless specifically agreed to otherwise in writing between Landlord and Tenant.
In the event Tenant is in default under this Lease, and notwithstanding that Tenant may be current in the payment of all parking charges required to be paid under this Lease, Landlord may terminate Tenant’s parking permits issued under this Lease effective five (5) days after notice to Tenant of such default. If Landlord has previously delivered a notice of default to Tenant and if such default remains uncured after the expiration of any notice and cure period, no additional notice shall be required and
Landlord may immediately terminate Tenant’s parking permits. The foregoing remedy shall be in addition to all of Landlord’s rights and remedies (which shall be cumulative with each other and cumulative and in addition to those rights and remedies available under this Lease and applicable law). To the extent there is any conflict between the terms of this grammatical paragraph and the terms of any separate parking agreement executed by Tenant or any of its employees at the request of Landlord or any third party contractor, the terms of this grammatical paragraph shall govern.
Guests and invitees of Tenant shall have the right to use, in common with guests and invitees of other tenants of the Building, the transient parking facilities of the Building at the then-posted parking rates and charges, or at such other rate or rates and charges as may be agreed upon from time to time between Landlord and Tenant in writing. Such rate(s) or charges may be changed by Landlord from time to time in Landlord’s sole discretion, and shall include, without limitation, any and all fees or taxes relating to parking assessed to Landlord for such parking facilities.
Tenant or Tenant’s agents, clients, contractors, directors, employees, invitees, licensees, officers, partners or shareholders continued use of said transient, as well as monthly parking, shall be contingent upon Tenant and Tenant’s agents, clients, contractors, directors, employees, invitees, licensees, officers, partners or shareholders continued compliance with the reasonable and non-discriminatory rules and regulations adopted by Landlord, which rules and regulations may change at any time or from time to time during the Term hereof in Landlord’s sole discretion.
ARTICLE 22
OPTION TO EXTEND TERM
Section 22.1. Option to Extend Term. Subject to the rights of pre-existing tenants as of the execution date of this Lease, and provided Tenant is not in material default after the expiration of notice and the opportunity to cure on the date or at any time during the remainder of the Term after Tenant gives notice to Landlord of Tenant’s exercise of its rights pursuant to this Article 22, Tenant is given the option to extend the term for an additional two (2) year period (the “Extended Term”), commencing the next calendar day after the expiration of the Term (the “Option”). The Option shall apply only to the entirety of the Premises, and Tenant shall have no right to exercise the Option as to only a portion of the Premises.
Tenant’s exercise of this Option is contingent upon Tenant giving written notice to Landlord (the “Option Notice”) of Tenant’s election to exercise its rights pursuant to this Option by Certified Mail, Return Receipt Requested, no sooner than August 1, 2015 and no later than October 31, 2015. The Option Notice shall be irrevocable.
Section 22.2. Fixed Monthly Rent Payable. The Fixed Monthly Rent payable by Tenant during the Extended Term shall be $77,707.80 per month for the period commencing August 1, 2016 and ending July 31, 2017 and $80,039.03 per month for the period commencing August 1, 2017 and ending July 31, 2018.
Section 22.3. No Right of Reinstatement or Further Extension. Once Tenant has failed to exercise its rights to extend the term pursuant to this Article 22, it shall have no right of reinstatement of its Option to Extend the Term, nor shall Tenant have any right to a further or second extension of the Term beyond the period stated in Section 22.1 hereinabove.
Section 22.4. No Assignment of Option. This Option is personal to the original Tenant signing the Lease, and shall be null, void and of no further force or effect as of the date that Tenant assigns this Lease
to an entity other than an Affiliate and/or subleases more than forty-nine percent (49%) of the total Rentable Area of the Premises to an entity other than an Affiliate.
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease, effective the later of the date(s) written below.
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LANDLORD:
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TENANT:
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DOUGLAS EMMETT 1995, LLC,
a Delaware limited liability company
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ZIPRECRUITER, INC.,
a Delaware corporation
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By:
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Douglas Emmett Management, Inc.,
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By:
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/s/ Ian Siegel
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a Delaware corporation, its Manager
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Name:
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Ian Siegel
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Title:
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CEO
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By:
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/s/ Michael J. Means
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Date:
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6/9/14
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Michael J. Means
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Senior Vice President
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By:
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Dated
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6-10-2014
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Name:
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Title:
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Date:
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EXHIBIT A - PREMISES PLAN
Suite 1100 at 401 Wilshire Boulevard, Santa Monica, California 90401
Rentable Area: approximately 16,893 square feet
Usable Area: approximately 15,277 square feet
(Measured pursuant to the provisions of Section 1.4 of the Lease)
EXHIBIT B
INTENTIONALLY OMITTED
EXHIBIT B-1
CONSTRUCTION BY TENANT DURING TERM
1. If Tenant wishes to make a Tenant Change, as specified in Section 12.12 of the Lease, such Tenant Change shall be completed pursuant to the provisions of Section 12.12 of the Lease and this Exhibit B-1. Tenant shall bear all costs of said Tenant Change, which shall be paid directly to Tenant’s general contractor (“Contractor”).
2. Contractor shall complete construction to the Premises pursuant to the final Plans and Specifications approved in writing by Landlord and Tenant (the “Tenant Change”), in compliance with all applicable codes and regulations. Tenant’s selections of finishes and materials shall be indicated on the Plans and Specifications, and shall be equal to or better than the minimum Building standards and specifications. All work not shown on the final Plans and Specifications, but which is to be included in the Tenant Change, including but not limited to, telephone service installation, furnishings or cabinetry, shall be installed pursuant to Landlord’s reasonable directives.
3. Prior to commencing any work:
a) Tenant’s proposed Contractor and the Contractor’s proposed subcontractors and suppliers shall be approved in writing by Landlord, which approval shall not be unreasonably withheld, conditioned or delayed. As a condition of such approval, so long as the same are reasonably cost competitive, then Contractor shall use Landlord’s Heating, Venting, and Air-conditioning, plumbing, and electrical subcontractors for such work.
b) During completion of any Tenant Change, neither Tenant or Contractor shall permit any sub contractors, workmen, laborers, material or equipment to come into or upon the Building if the use thereof, in Landlord’s reasonable judgment, would violate Landlord’s agreement with any union providing work, labor or services in or about the Building or disturb labor harmony with the workforce or trades engaged in performing other work, labor or services in or about the Building or the Common Areas. If any violation, disturbance, interference or conflict occurs, Tenant, upon demand by Landlord, shall immediately cause all contractors or subcontractors or all materials causing the violation, disturbance, interference, difficulty or conflict, to leave or be removed from the Building or the Common Areas immediately. Tenant shall indemnify and hold Landlord harmless from and against all claims, suits, demands, damages, judgments, costs, interest and expenses (including attorneys fees and costs incurred in the defense thereof) to which Landlord may be subject or suffer when the same arise out of or in connection with the use of, work in, construction to, or actions in, on, upon or about the Premises by Tenant or Tenant’s agents, contractors, directors, employees, licensees, officers, partners or shareholders, including any actions relating to the installation, placement, removal or financing of any Tenant Change, improvements, fixtures and/or equipment in, on, upon or about the Premises.
c) Contractor shall submit to Landlord and Tenant a written bid for completion of the Tenant Change. Said bid shall include Contractor’s overhead, profit, and fees, and, if the proposed Tenant Change is for cosmetic work in excess of $5,000 in aggregate value per occurrence or for structural work of any kind, Contractor shall:
i pre-pay to Landlord’s managing agent $250.00 as partial payment of said managing agent’s construction administration fee, as specified hereinbelow, and
EXHIBIT B-1
CONSTRUCTION BY TENANT DURING TERM (cont’d)
ii upon completion of said Tenant Change, pay an administration fee for supervision of said Tenant Change equal to seven and one-half percent (7.5%) of the total cost of the Tenant Change, to defray said agent’s costs for supervision of the construction.
4. Tenant or Contractor shall submit all Plans and Specifications to Landlord, and no work on the Premises shall be commenced before Tenant has received Landlord’s final written approval thereof, which shall not be unreasonably withheld, delayed or conditioned. In addition, Tenant shall reimburse Landlord for any and all of Landlord’s out of pocket costs incurred in reviewing Tenant’s plans for any Tenant Change or for any other “peer review” work associated with Landlord’s review of Tenant’s plans for any Tenant Change, including, without limitation, Landlord’s out of pocket costs incurred in engaging any third party engineers, contractors, consultants or design specialists. Tenant shall pay such costs to Landlord within five (5) business days after Landlord’s delivery to Tenant of a copy of the invoice(s) for such work.
5. Contractor shall complete all architectural and planning review and obtain all permits, including signage, required by the city, state or county in which the Premises are located.
6. Contractor shall submit to Landlord verification of public liability and worker’s compensation insurance adequate to fully protect Landlord and Tenant from and against any and all liability for death or injury to persons or damage to property caused in or about or by reason of the construction of any work done by Contractor or Contractor’s subcontractors or suppliers.
7. Unless otherwise waived in writing by Landlord, which waiver shall be in Landlord’s sole discretion, Contractor shall provide payment and performance bonds in an amount equal to 100% of the estimated amount of Tenant Change, as specified to Landlord pursuant to Paragraph 2.
8. Contractor and Contractor’s subcontractors and suppliers shall be subject to Landlord’s reasonable administrative control and supervision. Landlord shall provide Contractor and Contractor’s subcontractors and suppliers with reasonable access to the Premises.
9. During construction of the Tenant Change, Contractor shall adhere to the procedures contained hereinbelow, which represent Landlord’s minimum requirements for completion of the Tenant Change.
10. Upon completion of the Tenant Change, Tenant shall provide Landlord with such evidence as Landlord may reasonably request that the Contractor has been paid in full, and Contractor shall provide Landlord with lien releases as requested by Landlord, confirmation that no liens have been filed against the Premises or the Building. If any liens arise against the Premises or the Building as a result of the Tenant Change, Tenant shall immediately, at Tenant’s sole expense, remove such liens and provide Landlord evidence that the title to the Building and Premises have been cleared of such liens.
11. Whether or not Tenant or Contractor timely complete the Tenant Change, unless the Lease is otherwise terminated pursuant to the provisions contained therein, Tenant acknowledges and agrees that Tenant’s obligations under the Lease to pay Fixed Monthly Rent and/or Additional Rent shall continue unabated.
CONSTRUCTION POLICY
The following policies outlined are the construction procedures for the Building. As a material consideration to Landlord for granting Landlord’s permission to Tenant to complete the construction contemplated hereunder, Tenant agrees to be bound by and follow the provisions contained hereinbelow:
EXHIBIT B-1
CONSTRUCTION BY TENANT DURING TERM (cont’d)
1. Administration
a) Contractors to notify the management office for the Building prior to starting any work. All jobs must be scheduled by the general contractor or sub-contractor when no general contractor is being used.
b) The general contractor is to provide the Building Manager with a copy of the projected work schedule for the suite, prior to the start of construction.
c) Contractor will make sure that at least one set of drawings will have the Building Manager’s initials approving the plans and a copy delivered to the Building Office.
d) As-built construction, including mechanical drawings and air balancing reports will be submitted at the end of each project.
e) The HVAC contractor is to provide the following items to the Building Manager upon being awarded the contract from the general contractor:
i) A plan showing the new ducting layout, all supply and return air grille locations and all thermostat locations. The plan sheet should also include the location of any fire dampers.
ii) An Air Balance Report reflecting the supply air capacity throughout the suite, which is to be given to the Chief Building Engineer at the finish of the HVAC installation.
f) All paint bids should reflect a one-time touch-up paint on all suites. This is to be completed approximately five (5) days after move-in date.
g) The general contractor must provide for the removal of all trash and debris arising during the course of construction. At no time are the building’s trash compactors and/or dumpsters to be used by the general contractor’s clean-up crews for the disposal of any trash or debris accumulated during construction. The Building Office assumes no responsibility for bins. Contractor is to monitor and resolve any problems with bin usage without involving the Building Office. Bins are to be emptied on a regular basis and never allowed to overflow. Trash is to be placed in the bin.
h) Contractors will include in their proposals all costs to include: parking, elevator service, additional security (if required), restoration of carpets, etc. Parking will be validated only if contractor is working directly for the Building Office.
i) Any problems with construction per the plan, will be brought to the attention of and documented to the Building Manager. Any changes that need additional work not described in the bid will be approved in writing by the Building Manager. All contractors doing work on this project should first verify the scope of work (as stated on the plans) before submitting bids; not after the job has started.
2. Building Facilities Coordination
a) All deliveries of material will be made through the parking lot entrance.
EXHIBIT B-1
CONSTRUCTION BY TENANT DURING TERM (cont’d)
b) Construction materials and equipment will not be stored in any area without prior approval of the Building Manager.
c) Only the freight elevator is to be used by construction personnel and equipment. Under no circumstances are construction personnel with materials and/or tools to use the “passenger” elevators.
3. Housekeeping
a) Suite entrance doors are to remain closed at all times, except when hauling or delivering construction materials.
b) All construction done on the property that requires the use of lobbies or Common Area corridors will have carpet or other floor protection. The following are the only prescribed methods allowed:
i) Mylar: Extra heavy-duty to be taped from the freight elevator to the suite under construction.
ii) Masonite: 1/4 inch Panel Taped to floor and adjoining areas. All comers, edges and joints to have adequate anchoring to provide safe and ‘‘trip-free” transitions. Materials to be extra heavy-duty and installed from freight elevator to the suite under construction.
c) Restroom wash basins will not be used to fill buckets, make pastes, wash brushes, etc. If facilities are required, arrangements for utility closets will be made with the Building Office.
d) Food and related lunch debris are not to be left in the suite under construction.
e) All areas the general contractor or their sub-contractors work in must be kept clean. All suites the general contractor works in will have construction debris removed prior to completion inspection. This includes dusting of all window sills, light diffusers, cleaning of cabinets and sinks. All Common Areas are to be kept clean of building materials at all times so as to allow tenants access to their suites or the building.
4. Construction Requirements
a) All Life and Safety and applicable Building Codes will be strictly enforced (i.e., tempered glass, fire dampers, exit signs, smoke detectors, alarms, etc.). Prior coordination with the Building Manager is required.
b) Electric panel schedules must be brought up to date identifying all new circuits added.
c) All electrical outlets and lighting circuits are to be properly identified. Outlets will be labeled on back side of each cover plate.
d) All electrical and phone closets being used must have panels replaced and doors shut at the end of each day’s work. Any electrical closet that is opened with the panel exposed must have a work person present.
e) All electricians, telephone personnel, etc. will, upon completion of their respective projects, pick up and discard their trash leaving the telephone and electrical rooms clean. If this is not complied
EXHIBIT B-1
CONSTRUCTION BY TENANT DURING TERM (cont’d)
with, a clean-up will be conducted by the building janitors and the general contractor will be back charged for this service.
f) Welding or burning with an open flame will not be done without prior approval of the Building Manager. Fire extinguishers must be on hand at all times.
g) All “anchoring” of walls or supports to the concrete are not to be done during normal working hours (7:30 AM - 6:00 PM, Monday through Friday). This work must be scheduled before or after these hours during the week or on the weekend.
h) All core drilling is not to be done during normal working hours (7:30 AM - 6:00 PM, Monday through Friday). This work must be scheduled before or after these hours during the week or on the weekend.
i) All HVAC work must be inspected by the Building Engineer. The following procedures will be followed by the general contractor:
i) A preliminary inspection of the HVAC work in progress will be scheduled through the Building Office prior to the reinstallation of the ceiling grid.
ii) A second inspection of the HVAC operation will also be scheduled through the Building Office and will take place with the attendance of the HVAC contractor’s Air Balance Engineer. This inspection will take place when the suite in question is ready to be air balanced.
iii) The Building Engineer will inspect the construction on a periodic basis as well.
j) All existing thermostats, ceiling tiles, lighting fixtures and air conditioning grilles shall be saved and turned over to the Building Engineer.
Good housekeeping rules and regulations will be strictly enforced. The building office and engineering department will do everything possible to make your job easier. However, contractors who do not observe the construction policy will not be allowed to perform within this building. The cost of repairing any damages that are caused by Tenant or Tenant’s contractor during the course of construction shall be deducted from Tenant’s Security Deposit.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
EXHIBIT B-1
CONSTRUCTION BY TENANT DURING TERM (cont’d)
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LANDLORD:
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TENANT:
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DOUGLAS EMMETT 1995, LLC,
a Delaware limited liability company
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ZIPRECRUITER, INC.,
a Delaware corporation
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By:
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Douglas Emmett Management, Inc.,
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By:
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/s/ Ian Siegel
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a Delaware corporation, its Manager
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Name:
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Ian Siegel
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Title:
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CEO
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By:
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/s/ Michael J. Means
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Date:
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6/9/14
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Michael J. Means
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Senior Vice President
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By:
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Dated
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6-10-2014
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Name:
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Title:
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Date:
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EXHIBIT C
RULES AND REGULATIONS
BUILDING RULES AND REGULATIONS
1. Access. Tenant and/or Tenant’s agents, clients, contractors, directors, employees, invitees, licensees, officers, partners or shareholders shall only use the sidewalks, entrances, lobby(ies), garage(s), elevators, stairways, and public corridors as a means of ingress and egress, and shall take such actions as may reasonably be necessary to ensure that the same remain unobstructed at all times.
The entrance and exit doors to the Premises are to be kept closed at all times except as required for orderly passage to and from the Premises. Except on balconies available for the joint or exclusive use of Tenant as otherwise specified hereinabove, Tenant shall not permit its agents, clients, contractors, directors, employees, invitees, licensees, officers, partners or shareholders to loiter in any part of the Building or obstruct any means of ingress or egress. Tenant shall not cover any doors, and shall not cover any window, other than with vertical or mini-blinds pre-approved in writing by Landlord. Landlord specifically disapproves the installation of any film or foil covering whatsoever on the windows of the Premises.
Neither Tenant, nor its agents, clients, contractors, directors, employees, invitees, licensees, officers, partners or shareholders shall go up on the roof or onto any balcony serving the Building, except upon such roof: portion thereof: or balcony as may be contiguous to the Premises and is designated in writing by Landlord as a roof-deck, roof-garden area, or exclusive use balcony area.
2. Restroom Facilities. The toilet rooms, toilets, urinals, wash bowls and other apparatus (the “Restroom Facilities”), whether contained in the Common Areas of the Building and/or the interior of the Premises, shall not be used for any purpose other than that for which they were designed. Tenant shall not permit its agents, clients, contractors, directors, employees, invitees, licensees, officers, partners or shareholders to throw foreign substances of any kind whatsoever or papers not specifically designated for use in the Restroom facilities down any toilet, or to dispose of the same in any way not in keeping with the instructions provided to Tenant by the management of the Building regarding same, and Tenant hereby specifically agrees to reimburse Landlord directly for the expense of any breakage, stoppage or damage resulting from Tenant’s violation of this rule.
3. Heavy Equipment. Landlord reserves the right, in Landlord’s sole discretion, to decline, limit or designate the location for installation of any safes, other unusually heavy, or unusually large objects to be used or brought into the Premises or the Building. In each case where Tenant requests installation of one or more such unusually heavy item(s), which request shall be conclusively evidenced by Tenant’s effort to bring such item(s) into the Building or Premises, Tenant shall reimburse Landlord for the costs of any engineering or structural analysis required by Landlord in connection therewith. In all cases, each such heavy object shall be placed on a metal stand or metal plates or such other mounting detail of such size as shall be prescribed by Landlord.
Tenant hereby indemnifies Landlord against any damage or injury done to persons, places, things or the Building or its Common Areas when such damage or injury primarily arises out of Tenant’s installation or use of one or more unusually heavy objects. Tenant further agrees to reimburse Landlord for the costs of repair of any damage done to the Building or property therein by putting in, taking out, or maintaining such safes or other unusually heavy objects.
EXHIBIT C
RULES AND REGULATIONS
BUILDING RULES AND REGULATIONS (cont’d)
4. Transportation of Freight. Except as otherwise agreed to by Landlord in writing, Tenant or Tenant’s agents, clients, contractors, directors, employees, invitees, licensees, officers, partners or shareholders shall only carry freight, furniture or bulky materials in or out of the Building before or after Normal Business Hours, (as that term is defined in Section 8.1 of the Lease). Tenant may only install and/or move such freight, furniture or bulky material after previous written notice of its intention to complete such a move, given to the Office of the Building. The persons and/or company employed by Tenant for such work must be professional movers, reasonably acceptable to Landlord, and said movers must provide Landlord with a certificate of insurance evidencing the existence of worker’s compensation and all risk liability coverage in a minimum amount of $2,000,000.
Tenant may, subject to the provisions of the immediately preceding paragraph, move freight, furniture, bulky matter and other material in or out of the Premises on Saturdays between the hours of 8:00 A.M. and 6:00 P.M., provided that Tenant pays in advance for Landlord’s reasonably anticipated additional costs, if any, for elevator operators, security guards and other expenses arising by reason of such move by Tenant.
5. Flammable Materials. Except for such limited quantities of office materials and supplies as are customarily utilized in Tenant’s normal business operations, Tenant shall not use or keep in the Premises or the Building any kerosene, gasoline, flammable or combustible fluid or material, other than those limited quantities of normal business operating materials as may reasonably be necessary for the operation or maintenance of office equipment. Nor shall Tenant keep or bring into the Premises or the Building any other toxic or hazardous material specifically disallowed pursuant to California state law.
6. Cooking / Odors / Nuisances. Tenant shall not permit its agents, clients, contractors, directors, employees, invitees, licensees, officers, partners or shareholders to engage in the preparation and/or serving of foods unless the Premises includes a self-contained kitchen area. Nor shall Tenant permit the odors arising from such cooking, or any other improper noises, vibrations, or odors to be emanate from the Premises. Tenant shall not obtain for use in the Premises, ice, drinking water, food, beverage, towel or other similar services except at such reasonable hours and under such reasonable regulations as may be specified by Landlord.
Tenant hereby agrees to instruct all persons entering the Premises to comply with the requirements of the Building, by advising all persons entering the Premises that smoking of any tobacco or other substance is prohibited at all times, except in such Common Areas located outside the Building as may be designated by the Building management.
Tenant shall not permit Tenant’s agents, clients, contractors, directors, employees, invitees, licensees, officers, partners or shareholders to interfere in any way with other tenants of the Building or with those having business with them.
Tenant shall not permit its agents, clients, contractors, directors, employees, invitees, licensees, officers, partners or shareholders to bring or keep within the Building any animal, bird or bicycle, except such seeing-eye dog or other disability assistance type animal as may comply with the requirements of any handicapped ordinances having jurisdiction therefor.
Tenant shall store its trash and garbage within the Premises. No material shall be placed in the trash boxes or receptacles if such material is a hazardous waste or toxic substance or is of such a nature that its disposal in Landlord’s ordinary and customary manner of removing and disposing of trash and garbage would be a violation of any law, ordinance or company regulation governing such disposal. All
EXHIBIT C
RULES AND REGULATIONS
BUILDING RULES AND REGULATIONS (cont’d)
garbage and refuse disposal shall be made only through entry ways and elevators provided for such purposes and at such times as Landlord shall designate. As and when directed by Landlord and/or if required by any governmental agency having jurisdiction therefor, Tenant shall comply with all directives for recycling and separation of trash.
Tenant shall not employ any person to do janitorial work in any part of the Premises without the prior written consent of Landlord, which consent may be withheld in Landlord’s sole discretion.
Landlord reserves the right to exclude or expel from the Building any person who in Landlord’s sole discretion is intoxicated or under the influence of liquor or drugs or who, in any manner, engages in any act in violation of the Rules and Regulations of the Building.
Tenant shall not conduct any public or private auction, fire sale or other sale of Tenant’s personal property, furniture, fixtures or equipment or any other property located in or upon the Premises, without Landlord’s prior written consent, which consent shall be in Landlord’s sole discretion.
7. Storage. Tenant may only store goods, wares, or merchandise on or in the Premises in areas specifically designated by Landlord for such storage.
8. Directives to Management. Tenant’s requirements, other than those Landlord specifically agrees to perform elsewhere in this Lease, shall only be attended to upon the Building management’s receipt of Tenant’s written request therefor. Landlord’s employees shall not perform any work or do anything outside of their regular duties unless under special instruction from the Building management. No security guard, janitor or engineer or other employee of the Building management shall admit any person (Tenant or otherwise) to the Premises without specific instructions from the Office of the Building and written authorization for such admittance from Tenant.
9. Keys and Locks. Landlord shall furnish Tenant with two keys to each door lock existing in the Premises. Tenant shall reimburse Landlord a reasonable charge for these and any additional keys. Tenant shall not be permitted to have keys made, nor shall Tenant alter any lock or install a new or additional lock or bolts on any door of the Premises without Landlord’s prior written consent. Tenant shall, in each case, furnish Landlord with a key for any additional lock installed or changed by Tenant or Tenant’s agent(s). Tenant, upon the expiration or earlier termination of this Lease, shall deliver to Landlord all keys in the possession of Tenant or Tenant’s agents, clients, contractors, directors, employees, invitees, licensees, officers, partners or shareholders for doors in the Building, whether or not furnished to Tenant by Landlord. If Tenant, or Tenant’s agents, clients, contractors, directors, employees, invitees, licensees, officers, partners or shareholders, lose or misplace any key(s) to the Building, Landlord shall, in Landlord’s sole discretion, either replace said key(s) or re-key such locks as may be affected thereby, and Tenant shall reimburse Landlord for all such costs of such re-keying and/or replacement.
10. Solicitation. Tenant and/or its agents, clients, contractors, directors, employees, invitees, licensees, officers, partners or shareholders shall not permit any canvassing, peddling, soliciting and/or distribution of handbills or any other written materials to occur in the Premises and/or the Building, nor shall Tenant or Tenant’s agents, clients, contractors, directors, employees, invitees, licensees, officers, partners or shareholders engage in such solicitation or distribution activities.
11. Retail Sales, Services and Manufacturing Prohibited. Except with the prior written consent of Landlord, Tenant shall not sell, or permit the retail sale of, newspapers, magazines, periodicals, theater tickets or any other goods or merchandise to the general public in or on the Premises, nor shall Tenant carry on or permit or allow any employee or other person to carry on the independent business of
EXHIBIT C
RULES AND REGULATIONS
BUILDING RULES AND REGULATIONS (cont’d)
stenography, typewriting or any similar business in or from the Premises for the service or accommodation of other occupants of any other portion of the Building. Tenant shall not permit the Premises to be used for manufacturing or for any illegal activity of any kind, or for any business or activity other than for Tenant’s specific use.
12. Change in Name or Address. Landlord shall have the right, exercisable without notice and without liability to Tenant, to change the name and street address of the Building.
13. Projections from Premises. Tenant shall not install any radio or television antenna, loudspeaker or other device on the roof or the exterior walls of the Building or in any area projecting outside the interior walls of the Premises. Tenant shall not install or permit to be installed any awnings, air conditioning units or other projections, without the prior written consent of Landlord.
14. Superiority of Lease. These Rules and Regulations are in addition to, and shall not be construed to in any way modify or amend, in whole or in part, the covenants, agreements or provisions of this Lease. If a conflict or disagreement between the Lease and these Rules becomes apparent, this Lease shall prevail.
15. Changes to Rules and Regulations. Provided such changes do not materially harm Tenant’s ability to conduct its normal business operations, Landlord shall retain the right to change, add or rescind any rule or regulation contained herein, or to make such other and further reasonable and nondiscriminatory Rules and Regulations as in Landlord’s sole judgment may, from time to time, become necessary for the management, safety, care and cleanliness of the Premises, the Building or the Parking Facilities, or for the preservation of good order therein, or for the convenience of other occupants and tenants therein, so long as such rescission, addition, deletion or change is thereafter reasonably applied to all occupants of the Building affected thereby.
PARKING RULES AND REGULATIONS
A. Tenant shall strictly comply with all posted speed limits, directional signs, yield signs, stops signs and all other signs within or about the parking facilities.
B. Tenant shall register all vehicle license plate numbers with the Building management.
C. Tenant shall be responsible for the cost of repairing any damage to the parking facilities or cleaning any debris created or left by Tenant, including, without limitation, oil leakage from motor vehicles parked in the parking facilities under its auspices.
D. Landlord, in addition to reserving the right to designate one or more areas solely for visitor parking, which areas may be changed by Landlord from time to time with or without prior notice to Tenant, reserves the right to allocate additional visitor spaces on any floor of the parking facilities. Tenant shall not park any vehicles in any spaces designated as visitor only spaces or customer spaces within the parking facilities.
E. Tenant shall strictly comply with all rules, regulations, ordinances, speed limits, and statutes affecting handicapped parking and/or access, and shall not park any vehicles within the fire lanes, along parking curbs or in striped areas.
F. Tenant shall only use the number of parking permits allocated to it and shall not permit more than one of its employees to utilize the same parking permit. Landlord reserves the right to assign or
EXHIBIT C
RULES AND REGULATIONS
BUILDING RULES AND REGULATIONS (cont’d)
re assign parking spaces within the Parking facilities to Tenant from time to time, and provided Landlord is required to do so by reason of any action arising out of a governmental mandate imposed on Landlord, Landlord further reserves the right at any time to substitute an equivalent number of parking spaces in a parking facilities or subterranean or surface parking facility within a reasonable distance of the Premises.
G. Except with Landlord’s managing agent(s)’ prior written consent, Tenant shall not leave vehicles in the parking facilities overnight, nor park any vehicles in the parking facilities other than automobiles, motorcycles, motor-driven or non-motor-driven bicycles or four-wheeled trucks or vans. Landlord may, in its sole discretion, designate separate areas for bicycles and motorcycles. Tenant shall ensure that vehicles parking in the parking facilities by using the parking permits assigned to Tenant shall be parked entirely within the striped lines designating a single space and are not so situated or of such a width or length as to impede access to or egress from vehicles parked in adjacent areas or doors or loading docks. Further, all vehicles utilizing Tenant’s parking permits shall not be higher than any height limitation that may be posted, or of such a size, weight or dimension so that entry of such vehicle into the parking facilities would cause any damage or injury thereto.
H. Tenant shall not allow any of the vehicles parked using Tenant’s permits, or the vehicles of any of Tenant’s suppliers, shippers, customers or invitees to be loaded or unloaded in any area other than those specifically designated by Landlord for loading.
I. Tenant shall not use or occupy the parking facilities in any manner which will unreasonably interfere with the use of the parking facilities by other tenants or occupants of the Building. Without limitation, Tenant agrees to promptly turn off any vehicle alarm system activated and sounding an alarm in the parking facilities. In the event said alarm system fails to turn off and no longer sound an intruder alert fifteen (15) minutes after commencing such an alarm, Landlord shall reserve the right to remove the vehicle from the parking facilities at Tenant’s sole expense.
J. Tenant acknowledges that the Rules and Regulations as posted herein shall be in effect twenty-four hours per day, seven days per week, without exception.
K. Tenant acknowledges that the uniformed guard officers and parking attendants serving the parking facilities are authorized to issue verbal and written warnings of Tenant’s violations of any of the rules and regulations contained herein. Except in the case of a car alarm continuing to sound in excess of a maximum of fifteen (15) minutes, in which case no further notice by Landlord shall be required. If Tenant or Tenant’s agents, contractors, directors, employees, officers, partners or shareholders continue to materially breach these rules and regulations after expiration of written notice and the opportunity to cure has been given to Tenant, then in addition to such other remedies and request for injunctive relief it may have, Landlord shall have the right, without additional notice, to remove or tow away the vehicle involved and store the same, all costs of which shall be borne exclusively by Tenant and/or revoke Tenant’s parking privileges and rights under the Lease.
EXHIBIT C
RULES AND REGULATIONS
BUILDING RULES AND REGULATIONS (cont’d)
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LANDLORD:
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TENANT:
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DOUGLAS EMMETT 1995, LLC,
a Delaware limited liability company
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ZIPRECRUITER, INC.,
a Delaware corporation
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By:
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Douglas Emmett Management, Inc.,
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By:
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/s/ Ian Siegel
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a Delaware corporation, its Manager
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Name:
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Ian Siegel
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Title:
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CEO
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By:
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/s/ Michael J. Means
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Date:
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6/9/14
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Michael J. Means
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Senior Vice President
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By:
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Dated
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6-10-2014
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Name:
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Title:
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Date:
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EXHIBIT D
ASBESTOS RIDER
As you are probably aware, many buildings constructed during the 20th Century through the mid to late 1970s, such as this property, utilized some degree of asbestos in the construction process; such practice was formerly a standard in the building trade. Asbestos is the commercial name for a naturally occurring family of fibrous minerals which was used in building materials mainly as a fireproofing, reinforcing and insulating agent, and is typically encountered in wrapped heating system insulation, structural fire-proofing, acoustical ceilings, vinyl flooring and roofing felts. Asbestos was regularly used in many other building and non-building products as well. In fact, asbestos fibers are generally present in urban air and water.
Extensive governmental regulation of asbestos now exists, and proposals have been made for additional regulations. No federal laws, regulations or standards, however, require wholesale removal of asbestos from an occupied building. Indeed, the EPA has concluded that “The presence of asbestos in a building does not mean that the health of building occupants is endangered. If asbestos-containing material remains in good condition and is unlikely to be disturbed, exposure will be negligible.” Guidance for Controlling Asbestos-Containing Materials in Buildings (EPA 560/5-85-024 June 1985), page 1-1. According to the experts, the health risks associated with asbestos arise only when and if fibers become airborne and are inhaled, for example, as a result of maintenance or repairs conducted without proper controls. When inhaled, asbestos fibers can cause certain diseases, including asbestosis, mesothelioma and lung cancer (and risks for smokers are dramatically compounded). The thrust of both current EPA and OSHA requirements and non-binding guidance is to identify the materials that are releasing or could release asbestos fibers into the air, implement proper response actions when such materials are located, maintain asbestos in good condition, and follow appropriate work practices when disturbance of asbestos is unavoidable.
It is the policy of the property owner to provide a healthy environment by repairing, removing or otherwise abating any damaged asbestos materials that pose a health risk, and by complying with all regulations concerning asbestos at the property and following procedures that will minimize or avoid disturbance of asbestos-containing materials (ACM). We have engaged a qualified asbestos consultant to survey the property for asbestos and assist in implementing an asbestos management plan which includes, among other things, periodic reinspection and surveillance, air monitoring, information and training programs for building engineering and maintenance staff, cleaning procedures, emergency fiber release and training programs for building engineering and maintenance staff, cleaning procedures, emergency fiber release procedures, work procedures and other measures to minimize potential fiber releases, as well as recordkeeping requirements.
Because any tenant alterations or other work at the property could disturb ACM and possibly release asbestos fibers into the air, we must require the property manager’s written approval prior to beginning such projects. This includes major alterations, but might also include such activities as drilling or boring holes, installing electrical, telecommunications or computer lines, sanding floors, removing ceiling tiles, or other work which might disturb ACM. In many cases, such activities will not affect ACM, but you must check with the property manager in advance, just in case, and the property manager may make available such instructions as may be required. Any such work should not be attempted by an individual or contractor who is not qualified to handle ACM.
In connection with the foregoing, we are adopting the following new rules under tenant leases: (1) the owner, and representatives of the owner, including, without limitation, the owner’s ACM consultant,
EXHIBIT D
ASBESTOS RIDER (cont’d)
are entitled to enter into the premises of any tenant to inspect for ACM, perform air tests and abatement which may be legally required or prudent, and otherwise to comply with legal requirements or recommended practices relating to ACM; (2) any tenant, contractor, or other party must obtain the property manager’s prior written approval before performing any alterations on any tenant space, or performing any other work at the property that might disturb ACM or involve exposure to asbestos fibers as described above.
We trust that the implementation of the aforesaid requirements will not unduly inconvenience you. If you have any questions or concerns about asbestos, please contact the property manager. Thank you for your cooperation in this mutual endeavor.
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EXHIBIT D
ASBESTOS RIDER (cont’d)
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LANDLORD:
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TENANT:
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DOUGLAS EMMETT 1995, LLC,
a Delaware limited liability company
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ZIPRECRUITER, INC.,
a Delaware corporation
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By:
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Douglas Emmett Management, Inc.,
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By:
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/s/ Ian Siegel
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a Delaware corporation, its Manager
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Name:
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Ian Siegel
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Title:
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CEO
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By:
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/s/ Michael J. Means
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Date:
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6/9/14
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Michael J. Means
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Senior Vice President
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By:
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Dated
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6-10-2014
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Name:
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Title:
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Date:
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CONSENT TO SUBLEASE AGREEMENT
This Consent to Sublease Agreement (this “Agreement”), is made as of November 14, 2014, by and among DOUGLAS EMMETT 1995, LLC, a Delaware limited liability company (“Landlord”), with offices at 808 Wilshire Boulevard, Suite 200, Santa Monica, California 90401, IBISWORLD, INC., a Delaware corporation (“Tenant”), with an office at 11755 Wilshire Boulevard, 11th Floor, Los Angeles, California 90025, and ZIPRECRUITER, INC., a Delaware corporation (“Subtenant”), with an office at 1453 Third Street, Suite 335, Santa Monica, California 90401.
RECITALS
A. Reference is hereby made to that certain Office Lease dated July 29, 2009 (the “Original Lease”), as amended by that certain Memorandum of Lease Term Dates and Rent dated December 11, 2009 (the “Memorandum”), by and between Landlord and Tenant, pursuant to which Landlord leases to Tenant and Tenant leases from Landlord space in the property located at 401 Wilshire Boulevard, Santa Monica, California 90401 (the “Building”), commonly known as Suite 200 (the “Premises”);
B. Pursuant to the terms of Article 11 of the Original Lease, Tenant has requested Landlord’s consent to that certain Standard Sublease dated November 11, 2014 (the “Sublease”), attached hereto as Exhibit A, between Tenant and Subtenant with respect to a subletting by Subtenant of the Premises, consisting of approximately 7,793 rentable square feet, as more particularly described in the Sublease (the “Sublet Premises”); and
C. The Original Lease, as amended by the Memorandum, shall be collectively referred to herein as the “Lease”. All defined terms not otherwise expressly defined herein shall have the respective meanings given in the Lease.
AGREEMENT
1. Landlord’s Consent. Landlord hereby consents to the Sublease; provided however, notwithstanding anything contained in the Sublease to the contrary, such consent is granted by Landlord only upon the terms and conditions set forth in this Agreement. The Sublease is and at all times shall remain subject and subordinate to the Lease. Landlord shall not be bound by any of the terms, covenants, conditions, provisions or agreements of the Sublease.
2. Non-Release of Tenant; Further Transfers. Neither the Sublease nor this consent thereto shall release or discharge Tenant from any liability, whether past, present or future, under the Lease or alter the primacy liability of Tenant to pay the rent and perform and comply with all of the obligations of Tenant to be performed under the Lease (including the payment of all bills rendered by Landlord for charges incurred by Subtenant for services and materials supplied to the Sublet Premises). Neither the Sublease nor this consent thereto shall be construed as a waiver of Landlord’s right to consent to any further subletting either by Tenant or by Subtenant or to any assignment by Tenant of the Lease or assignment by Subtenant of the Sublease, or as a consent to any portion of the Sublet Premises being used or occupied by any other party. Landlord may consent to subsequent sublettings and assignments of the Lease or the Sublease or any amendments or modifications thereto without notifying Tenant nor anyone else liable under the Lease and without obtaining their consent. No such action by Landlord shall relieve such persons from any liability to Landlord or otherwise with regard to the Sublet Premises.
3. Relationship With Landlord. Tenant hereby assigns and transfers to Landlord Tenant’s interest in the Sublease and all rentals and income arising therefrom, subject to the terms of this Section 3. Landlord, by consenting to the Sublease agrees that until a default shall occur in the performance of Tenant’s obligations under the Lease, Tenant may receive, collect and enjoy the rents accruing under the Sublease. In the event Tenant shall default in the performance of its obligations to Landlord under the Lease, then whether or not Landlord terminates the Lease, Landlord may, at its option by notice to Tenant, either (i) terminate the Sublease, (ii) elect to receive and collect, directly from Subtenant, all rent and any other sums owing and to be owed under the Sublease, as further set forth in Section 3.l below, or (iii) elect to succeed to Tenant’s interest in the Sublease and cause Subtenant to attorn to Landlord, as further set forth in Section 3.2 below.
3.1 Landlord’s Election to Receive Rents. Landlord shall not, by reason of the Sublease, nor by reason of the collection of rents or any other sums from Subtenant pursuant to Section 3(ii) above, be deemed liable to Subtenant for any failure of Tenant to perform and comply with any obligation of Tenant,
and Tenant hereby irrevocably authorizes and directs Subtenant, upon receipt of any written notice from Landlord stating that a default exists in the performance of Tenant’s obligation under the Lease, to pay to Landlord the rents and any other sums due and to become due under the Sublease. Tenant agrees that Subtenant shall have the right to rely upon any such statement and request from Landlord, and that Subtenant shall pay any such rents and any other sums to Landlord with any obligation or right to inquire as to whether such default exists and notwithstanding any notice from or claim from Tenant to the contrary. Tenant shall not have any right or claim against Subtenant for any such rents or any other sums so paid by Subtenant to Landlord. Landlord shall credit Tenant with any rent received by Landlord under such assignment but the acceptance of any payment on account or rent from Subtenant as the result of any such default shall in no manner whatsoever be deemed an attornment by Landlord to Subtenant or by Subtenant to Landlord, be deemed a waiver by Landlord of any provision of the Lease or serve to release Tenant from any liability under the terms, covenants, conditions, provisions or agreements under the Lease. Notwithstanding the foregoing, any other payment of rent from Subtenant directly to Landlord, regardless of the circumstances or reasons therefor, shall in no manner whatsoever be deemed an attornment by Subtenant to Landlord in the absence of a specific written agreement signed by Landlord to such an effect.
3.2 Landlord’s Election of Tenant’s Attornment. In the event Landlord elects, at its option, to cause Subtenant to attorn to Landlord pursuant to Section 3.1 above, Landlord shall undertake the obligations of Tenant under the Sublease from the time of the exercise of the option, but Landlord shall not (i) be liable for any prepayment of more than one month’s rent or any security deposit paid by Subtenant, (ii) be liable for any previous act or omission of Tenant under the Lease or for any other defaults of Tenant under the Sublease, (iii) be subject to any defenses or offsets previously accrued which Subtenant may have against Tenant, or (iv) be bound by any changes or modifications made to the Sublease without the written consent of Landlord.
4. General Provisions.
4.1 Consideration for Sublease. Tenant and Subtenant represent and warrant that there are no additional payments of rent or any other consideration of any type of payable by Subtenant to Tenant with regard to the Sublet Premises other than as disclosed in the Sublease.
4.2 Brokerage Commission. Tenant and Subtenant covenant and agree that under no circumstances shall Landlord be liable for any brokerage commission or other charge or expense in connection with the Sublease and Tenant and Subtenant agree to protect, defend, indemnify and hold Landlord harmless from the same and from any cost or expense (including but not limited to attorneys’ fees) incurred by Landlord in resisting any claim for any such brokerage commission.
4.3 Term. Each of Tenant and Subtenant hereby expressly waives any right to extent the term of either the Lease or Sublease beyond June 30, 2016.
4.4 Recapture. This consent shall in no manner be construed as limiting Landlord’s ability to exercise its rights to recapture any portion of the Premises, as set forth in Article 11 of the Original Lease, in the event of a proposed future sublease or assignment of such portion of the Premises.
4.5 Controlling Law. The terms and provisions of this Agreement shall be construed in accordance with and governed by the laws of the State of California.
4.6 Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto, their heirs, successors and assigns. As used herein, the singular number includes the plural and the masculine gender includes the feminine and neuter.
4.7 Captions. The paragraph captions utilized herein are in no way intended to interpret or limit the terms and conditions hereof; rather, they are intended for purposes of convenience only.
4.8 Partial Invalidity. If any term, provision or condition contained in this Agreement shall to any extent, be invalid or unenforceable, the remainder of this Agreement, or the application of such term, provision or condition to persons or circumstances other than those with respect to which it is invalid or
unenforceable, shall not be affected thereby, and each and every other term, provision and condition of this Agreement shall be valid and enforceable to the fullest extent possible permitted by law.
4.9 Attorneys’ Fees. If either party commences litigation against the other for the specific performance of this Agreement, for damages for the breach hereof or otherwise for enforcement of any remedy hereunder, the parties hereto agree to and hereby do waive any right to a trial by jury and, in the event of any such commencement of litigation, the prevailing party shall be entitled to recover from the other party such costs and reasonable attorneys’ fees as may have been incurred.
4.10 Intentionally Omitted.
4.11 Processing Fee. Tenant shall, concurrently with their execution of this Agreement, cause to be delivered to Landlord the sum of $1,000.00, it being the aggregate of all amounts payable wider Section 11.7 of the Original Lease in connection with this Agreement. Landlord expressly conditions its execution of this Agreement upon receipt of such payment.
4.12 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall for all purposes be deemed to be an original, and all of which together shall constitute but one and the same instrument.
[Signatures Appear on the Following Page]
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LANDLORD:
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TENANT:
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DOUGLAS EMMETT 1995, LLC,
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IBISWORLD, INC.,
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a Delaware limited liability company
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a Delaware corporation
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By:
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Douglas Emmett Management, Inc.,
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By:
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/s/ Harvey Jones
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a Delaware corporation, its Manager
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Name:
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Harvey Jones
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Title:
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Chief Operating Officer
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By:
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/s/ Andrew B. Goodman
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Dated:
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11/16/14
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Andrew B. Goodman
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Senior Vice President
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By:
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Dated:
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11/25/14
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Name:
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Title:
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Dated:
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SUBTENANT
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ZIPRECRUITER, INC.,
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a Delaware corporation
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By:
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/s/ GiGi Goodling
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Name:
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GiGi Goodling
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Title:
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Business Affairs
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Dated:
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11/14/14
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By:
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Name:
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Title:
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Dated:
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EXHIBIT A
Sublease
[TO BE ATTACHED]
STANDARD SUBLEASE
(Short-Form to be used with Post 1995 Air Leases)
(NOTE: DO NOT USE IF LESS THAN ENTIRE PREMISES ARE BEING SUBLET. FOR SITUATIONS
WHERE THE PREMISES ARE TO BE OCCUPIED BY MORE THAN ONE TENANT OR SUBTENANT
USE THE “STANDARD SUBLEASE--MULTI-TENANT” FORM)
1. Basic Provisions (“Basic Provisions”).
1.1 Parties: This Sublease (“Sublease”), dated for reference purposes only November 11, 2014 is made by and between IBISWORLD, INC., a Delaware corporation (“Sublessor”) and ZIPRECRUITER, INC., a Delaware corporation (“Sublessee”), (collectively the “Parties”, or individually a “Party”).
1.2 Premises: That certain real property, including all improvements therein, and commonly known by the street address of 401 Wilshire Boulevard, Suite 200, Santa Monica located in the County of Los Angeles, State of California and generally described as (describe briefly the nature of the property) approximately 7,793 rentable square feet located on a portion of the 2nd floor, designated as suite 200 (“Premises”).
1.3 Term: approximately One (1) year & and seven ( 7) months commencing target date of December 1, 2014 (“Commencement Date”): however, the actual Commencement Date shall be 1 business day after Landlord’s Consent and when Sublessor delivers possession of the Premises free and clear of any furniture. and ending June 30, 2016 (“Expiration Date”).
1.4 Early Possession: If the Premises are available Sublessee may have non-exclusive possession of the Premises commencing upon full execution of the Sublease and Landlord Consent (“Early Possession Date”).
1.5 Base Rent: $21,430.75 per month (“Base Rent”), payable on the first (1st) day of each month commencing December 1, 2014
☒ If this box is checked, there are provisions in this Lease for the Base Rent to be adjusted. The Base Rent shall increase by 3% on each anniversary of the Commencement Date. Notwithstanding the foregoing, Sublessee shall not be responsible for Operating Expense and Real Estate Tax Pass-thrus during the term of the Sublease; however, Sublessee shall be responsible for any costs associated with the use of the HVAC unit that is separately metered serving the Server Room.
1.6 Base Rent and Other Monies Paid Upon Execution:
(a) Base Rent: $21,430.75 for the period December 1, 2014 – December 31, 2014
(b) Security Deposit: $22,073.67 (“Security Deposit”).
(c) Association Fees: $N/A for the period N/A.
(d) Other: $N/A for N/A.
(e) Total Due Upon Execution of this Lease: $43,504.42
1.7 Agreed Use: The Premises shall be used and occupied only for general office use consistent with the operation of a first class office building in Santa Monica and for no other purposes.
1.8 Real Estate Brokers:
(a) Representation: The following real estate brokers (the “Brokers”) and brokerage relationships exist in this transaction (check applicable boxes):
☒ Commercial Realty Partners represents Sublessor exclusively (“Sublessor’s Broker”);
☒ CBRE, Inc. represents Sublessee exclusively (“Sublessee’s Broker”);
or
☐ __________________________________________________ represents both Sublessor and Sublessee (“Dual Agency”).
(b) Payment to Brokers: Upon execution and delivery of this Sublease by both Parties, Sublessor shall pay to the Brokers CBRE, Inc. the brokerage fee agree to in a separate written agreement (or if there is no such agreement, the sum of ______________ or 4% of the total Base Rent) for the brokerage services rendered by the Brokers.
1.9 Guarantor. The obligations of the Sublessee under this Sublease shall be guaranteed by
(“Guarantor”).
1.10 Attachments. Attached hereto are the following, all of which constitute a part of this Sublease:
☐ an Addendum consisting of Paragraph ____ through ____;
☐ a plot plan depicting the Premises;
☐ a Work Letter;
☒ a copy of the master lease and any and all amendments to such lease (collectively the “Master Lease”);
☐ other (specify):
.
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INITIALS INITIALS
2. Premises.
2.1 Letting. Sublessor hereby subleases to Sublessee, and Sublessee hereby subleases from Sublessor, the Premises, for the term, at the rental, and upon all of the terms, covenants and conditions set forth in this Sublease. While the approximate square footage of the Premises may have been used in the marketing of the Premises for purposes of comparison, the Base Rent stated herein is NOT tied to square footage and is not subject to adjustment should the actual size be determined to be different. Note: Sublessee is advised to verify the actual size prior to executing this Sublease.
2.2 Condition. Sublessor shall deliver the Premises to Sublessee broom clean and free of debris on the Commencement Date or the Early Possession Date, whichever first occurs (“Start Date”), and warrants that the existing electrical, plumbing, fire sprinkler, lighting, heating, ventilating and air conditioning systems (“HVAC”), and any items which the Sublessor is obligated to construct pursuant to the Work Letter attached hereto, if any, other than those constructed by Sublessee, shall be in good operating condition on said date. If a non-compliance with such warranty exists as of the Start Date, or if one of such systems or elements should malfunction or fail within the appropriate warranty period, Sublessor shall, as Sublessor’s sole obligation with respect to such matter, except as otherwise provided in this Sublease, promptly after receipt or written notice from Sublessee setting forth with specificity the nature and extent of such non-compliance, malfunction or failure, rectify same at Sublessor's expense. The warranty periods shall be as follows: (i) 6 months as to the HVAC systems, and (ii) 30 days as to the remaining systems and other elements. If Sublessee does not give Sublessor the required notice within the appropriate warranty period, correction of any such non-compliance, malfunction or failure shall be the obligation of Sublessee at Sublessee’s sole cost and expense.
2.3 Compliance. Sublessor warrants that any improvements, alterations or utility installations made or installed by or on behalf of Sublessor to or on the Premises comply with all applicable covenants or restrictions of record and applicable building codes, regulations and ordinances (“Applicable Requirements”) in effect on the date that they were made or installed. Sublessor makes no warranty as to the use to which Sublessee will put the Premises or to modifications which may be required by the Americans with Disabilities Act or any similar laws as a result of Sublessee’s use. NOTE: Sublessee is responsible for determining whether or not the zoning and other Applicable Requirements are appropriate for Sublessee’s intended use, and acknowledges that past uses of the Premises may no longer be allowed. If the Premises do not comply with said warranty, Sublessor shall, except as otherwise provided, promptly after receipt of written notice from Sublessee setting forth with specificity the nature and extent of such non-compliance, rectify the same.
2.4 Acknowledgements. Sublessee acknowledges that: (a) it has been given an opportunity to inspect and measure the Premises, (b) it has been advised by Sublessor and/or Brokers to satisfy itself with respect to the size and condition of the Premises (including but not limited to the electrical, HVAC and fire sprinkler systems, security, environmental aspects, and compliance with Applicable Requirements and the Americans with Disabilities Act), and their suitability for Sublessee’s intended use, (c) Sublessee has made such investigation as it deems necessary with reference to such matters and assumes all responsibility therefor as the same relate to its occupancy of the Premises, (d) it is not relying on any representation as to the size of the Premises made by Brokers or Sublessor, (e) the square footage of the Premises was not material to Sublessee’s decision to sublease the Premises and pay the Rent stated herein, and (f) neither Sublessor, Sublessor’s agents, nor Brokers have made any oral or written representations or warranties with respect to said matters other than as set forth in this Sublease. In addition, Sublessor acknowledges that: (i) Brokers have made no representations, promises or warranties concerning Sublessee’s ability to honor the Sublease or suitability to occupy the Premises, and (ii) it is Sublessor’s sole responsibility to investigate the financial capability and/or suitability of all proposed tenants.
2.5 Americans with Disabilities Act. In the event that as a result of Sublessee’s use, or intended use, of the Premises the Americans with Disabilities Act or any similar law requires modifications or the construction or installation of improvements in or to the Premises, Building, Project and/or Common Areas, the Parties agree that such modifications, construction or improvements shall be made at: ☐ Sublessor’s expense ☒ Sublessee’s expense.
3. Possession.
3.1 Early Possession. Any provision herein granting Sublessee Early Possession of the Premises is subject to and conditioned upon the Premises being available for such possession prior 10 the Commencement Date. Any grant of Early Possession only conveys a non-exclusive right to occupy the Premises. If Sublessee totally or partially occupies the Premises prior to the Commencement Date, the obligation to pay Base Rent shall be abated for the period of such Early Possession. All other 1erms of this Sublease (including but not limited to the obligations to pay Sublessees Share of Common Area Operating Expenses, Real Property Taxes and insurance premiums and to maintain the Premises) shall, however, be in effect during such period. Any such Early Possession shall not affect the Expiration Date.
3.2 Delay in Commencement. Sublessor agrees to use its best commercially reasonable efforts to deliver possession of the Premises by the Commencement Date. If, despite said efforts, Sublessor is unable to deliver possession as agreed, the rights and obligations of Sublessor and Sublessee shall be as set forth in Paragraph 3.3 of the Master Lease (as modified by Paragraph 6.3 of this Sublease). Notwithstanding the foregoing, provided Sublessee performs its requirements hereunder within 24 hours of notice and does not cause a delay in executing this Sublease document beyond November 12, 2014, then in the event Landlord does not provide its Consent to Sublease by December 20, 2014, Sublessee has the right to terminate this Sublease.
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INITIALS INITIALS
3.3 Sublessee Compliance. Sublessor shall not be required to tender possession of the Premises to Sublessee until Sublessee complies with its obligation to provide evidence of insurance. Pending delivery of such evidence, Sublessee shall be required to perform all of its obligations under this Sublease from and after the Start Date, including the payment of Rent, notwithstanding Sublessor’s election to withhold possession pending receipt of such evidence of insurance. Further, if Sublessee is required to perform any other conditions prior to or concurrent with the Start Date, the Start Date shall occur but Sublessor may elect to withhold possession until such conditions are satisfied.
4. Rent and Other Charges.
4.1 Rent Defined. All monetary obligations of Sublessee to Sublessor under the terms of this Sublease (except for the Security Deposit) are deemed to be rent (“Rent”). Rent shall be payable in lawful money of the United States to Sublessor at the address stated herein or to such other persons or at such other places as Sublessor may designate in writing.
4.2 Utilities. Sublessee shall pay for all water, gas, heat, light, power, telephone, trash disposal and other utilities and services supplied to the Premises, together with any taxes thereon. Notwithstanding the foregoing, the air conditioning unit serving the existing server room is separately metered by the Landlord. Sublessee shall be responsible for any costs associated with the use of this air conditioning system.
5. Security Deposit. The rights and obligations of Sublessor and Sublessee as to said Security Deposit shall be as set forth in Paragraph 5 of the Master Lease (as modified by Paragraph 6.3 of this Sublease).
6. Master Lease.
6.1 Sublessor is the lessee of the Premises by virtue of the “Master Lease”, wherein Douglas Emmett 1995, LLC, a Delaware limited liability company is the lessor, hereinafter the “Master Lessor”.
6.2 This Sublease is and shall be at all times subject and subordinate to the Master Lease.
6.3 The terms, conditions and respective obligations of Sublessor and Sublessee to each other under this Sublease shall be the terms and conditions of the Master Lease except for those provisions of the Master Lease which are directly contradicted by this Sublease in which event the terms of this Sublease document shall control over the Master Lease. Therefore, for the purposes of this Sublease, wherever in the Master Lease the word “Lessor” is used it shalt be deemed to mean the Sublessor herein and wherever in the Master Lease the word “Lessee” is used it shall be deemed to mean the Sublessee herein.
6.4 During the term of this Sublease and for all periods subsequent for obligations which have arisen prior to the termination of this Sublease, Sublessee does hereby expressly assume and agree to perform and comply with, for the benefit of Sublessor and Master Lessor, each and every obligation of Sublessor under the Master Lease except for the following paragraphs which are excluded therefrom: Articles 2, 3, 4, 24, and Exhibit B.
6.5 The obligations that Sublessee has assumed under paragraph 6.4 hereof are hereinafter referred to as the “Sublessee’s Assumed Obligations”, The obligations that sublessee has not assumed under paragraph 6.4 hereof are hereinafter referred to as the “Sublessor’s Remaining Obligations”.
6.6 Sublessee shall hold Sublessor free and harmless from all liability, judgments, costs, damages, claims or demands, including reasonable attorneys fees, arising out of Sublessee’s failure to comply with or perform Sublessee’s Assumed Obligations.
6.7 Sublessor agrees to maintain the Master Lease during the entire term of this Sublease, subject, however, to any earlier termination of the Master Lease without the fault of the Sublessor, and to comply with or perform Sublessor’s Remaining Obligations and to hold Sublessee free and harmless from all liability, judgments, costs, damages, claims or demands arising out of Sublessor’s failure to comply with or perform Sublessor’s Remaining Obligations.
6.8 Sublessor represents to Sublessee that the Master Lease is in full force and effect and that no default exists on the part of any Party to the Master Lease.
7. Assignment of Sublease and Default.
7.1 Sublessor hereby assigns and transfers to Master Lessor Sublessor’s interest in this Sublease, subject however to the provisions of Paragraph 8.2 hereof.
7.3 Master lessor, by executing this document, agrees that until a Default shall occur in the performance of Sublessor’s Obligations under the Master Lease, that Sublessor may receive, collect and enjoy the Rent accruing under this Sublease. However, if Sublessor shall Default in the performance of its obligations to Master Lessor then Master Lessor may, at its option, receive and collect. directly from Sublessee, all Rent owing and to be owed under this Sublease. In the event, however, that the amount collected by Master Lessor exceeds Sublessor’s obligations any such excess shall be refunded to Sublessor. Master Lessor shall not, by reason of this assignment of the Sublease nor by reason of the collection of the Rent from the Sublessee, be deemed liable to Sublessee for any failure of the Sublessor to perform and comply with Sublessor’s Remaining Obligations.
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7.3 Sublessor hereby irrevocably authorizes and directs Sublessee upon receipt of any written notice from the Master Lessor stating that a Default exists in the performance of Sublessor’s obligations under the Master Lease, to pay to Master Lessor the Rent due and to become due under the Sublease. Sublessor agrees that Sublessee shall have the right to rely upon any such statement and request from Master lessor, and that Sublessee shall pay such Rent to Master Lessor without any obligation or right to inquire as to whether such Default exists and notwithstanding any notice from or claim from Sublessor to the contrary and Sublessor shall have no right or claim against Sublessee for any such Rent so paid by Sublessee.
7.4 No changes or modifications shall be made to this Sublease without the consent of Master Lessor.
8. Consent of Master Lessor.
8.1 In the event that the Master Lease requires that Sublessor obtain the consent of Master Lessor to any subletting by Sublessor then, this Sublease shall not be effective unless, within 10 days of the date hereof, Master Lessor signs this Sublease thereby giving its consent to this Subletting.
8.2 In the event that the obligations of the Sublessor under the Master Lease have been guaranteed by third parties then neither this Sublease, nor the Master Lessor’s consent, shall be effective unless, within 10 days of the date hereof, said guarantors sign this Sublease thereby giving their consent to this Sublease.
8.3 In the event that Master Lessor does give such consent then:
(a) Such consent shall not release Sublessor of its obligations or alter the primary liability of Sublessor to pay the Rent and perform and comply with all of the obligations of Sublessor to be performed under the Master Lease.
(b) The acceptance of Rent by Master Lessor from Sublessee or any one else liable under the Master Lease shall not be deemed a waiver by Master Lessor of any provisions of the Master lease.
(c) The consent to this Sublease shall not constitute a consent to any subsequent subletting or assignment.
(d) In the event of any Default of Sublessor under the Master Lease, Master Lessor may proceed directly against Sublessor, any guarantors or any one else liable under the Master Lease or this Sublease without first exhausting Master Lessor’s remedies against any other person or entity liable thereon to Master Lessor.
(e) Master Lessor may consent to subsequent sublettings and assignments of the Master Lease or this Sublease or any amendments or modifications thereto without notifying Sublessor or any one else liable under the Master Lease and without obtaining their consent and such action shall not relieve such persons from liability.
(f) In the event that Sublessor shall Default in its obligations under the Master Lease, then Master lessor, at its option and without being obligated to do so, may require Sublessee to attorn to Master Lessor in which event Master Lessor shall undertake the obligations of Sublessor under this Sublease from the time of the exercise of said option to termination of this Sublease but Master Lessor shall not be liable for any prepaid Rent nor any Security Deposit paid by Sublessee, nor shall Master Lessor be liable for any other Defaults of the Sublessor under the Sublease.
(g) Unless directly contradicted by other provisions of this Sublease, the consent of Master Lessor to this Sublease shall not constitute an agreement to allow Sublessee to exercise any options which may have been granted to Sublessor in the Master Lease (see Paragraph 39.2 of the Master Lease).
8.4 The signatures of the Master Lessor and any Guarantors of Sublessor at the end of this document shall constitute their consent to the terms of this Sublease.
8.5 Master Lessor acknowledges that, to the best of Master Lessors knowledge, no Default presently exists under the Master Lease of obligations to be performed by Sublessor and that the Master Lease Is in full force and effect.
8.6 In the event that Sublessor Defaults under its obligations to be performed under the Master Lease by Sublessor, Master Lessor agrees to deliver to Sublessee a copy of any such notice of default. Sublessee shall have the right to cure any Default of Sublessor described in any notice of default within ten days after service of such notice of default on Sublessee. If such Default is cured by Sublessee then Sublessee shall have the right of reimbursement and offset from and against Sublessor.
9. Additional Brokers Commissions.
9.1 Sublessor agrees that if Sublessee exercises any option or right of first refusal as granted by Sublessor herein, or any option or right substantially similar thereto, either to extend the term of his Sublease, to renew this Sublease, to purchase the Premises, or to lease or purchase adjacent property which Sublessor may own or in which Sublessor has an interest, then Sublessor shall pay to Broker a fee in accordance with the schedule of
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Broker in effect at the time of the execution of this Sublease. Notwithstanding the foregoing, Sublessor’s obligation under this Paragraph is limited to a transaction in which Sublessor is acting as a Sublessor, lessor or seller.
9.2 If a separate brokerage fee agreement is attached then Master Lessor agrees that is Sublessee shall exercise any option or right of first refusal granted to Sublessee by Master Lease in connection with this Sublease, or any option or right substantially similar thereto, either to extend or renew the Master Lease, to purchase the Premises or any part thereof, or to lease or purchase adjacent property which Master Lessor may own or in which Master Lessor has an interest, or if Broker is the procuring case of any other lease or sale entered into between Sublessee and Master Lessor pertaining to the Premises, any part thereof, or any adjacent property which Master Lessor owns or in which it has an interest, then as to any of said transactions, Master Lessor shall pay to Broker a fee, in cash, in accordance with the schedule attached to such brokerage fee agreement.
9.3 Any fee due from Sublessor or Master Lessor hereunder shall be due and payable upon the exercise of any option to extend or renew, upon the execution of any new lease, or, in the event of a purchase, at the close of escrow.
9.4 Any transferee of Sublessor’s interest in this Sublease, or of Master Lessor’s interest in the Master Lease, by accepting an assignment thereof, shall be deemed to have assumed the respective obligations of Sublessor or Master Lessor under this Paragraph 9. Broker shall be deemed to be a third party beneficiary of this paragraph 9.
10. Representations and Indemnities of Broker Relationships. The Parties each represent and warrant to the other that it has had no dealings with any person, firm, broker or finder (other than the Brokers, if any) in connection with this Sublease, and that no one other than said named Brokers is entitled to any commission or finder’s fee in connection herewith. Sublessee and Sublessor do each hereby agree to indemnify, protect, defend and hold the other harmless from and against liability for compensation or charges which may be claimed by any such unnamed broker, tinder or other similar party by reason of any dealings or actions of the indemnifying Party, including any costs, expenses, attorneys’ fees reasonably incurred with respect thereto.
11. Attorney’s fees. If any Party or Broker brings an action or proceeding involving the Premises whether founded in tort, contract or equity, or to declare rights hereunder, the Prevailing Party (as hereafter defined) in any such proceeding, action, or appeal thereon. shall be entitled to reasonable attorneys’ fees. Such fees may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursued to decision or judgment. The term, “Prevailing Party” shall include, without limitation, a Party or Broker who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment, or the abandonment by the other Party or Broker of its claim or defense. The attorneys’ fees award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorneys’ fees reasonably incurred. In addition, Sublessor shall be entitled to attorneys’ fees, costs and expenses incurred in the preparation and service of notices of Default and consultations in connection therewith, whether or not a legal action is subsequently commenced in connection with such Default or resulting Breach ($200 is a reasonable minimum per occurrence for such services and consultation).
12. No Prior or Other Agreements; Broker Disclaimer. This Sublease contains all agreements between the Parties with respect to any matter mentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective. Sublessor and Sublessee each represents and warrants to the Brokers that it has made, and is relying solely upon, its own investigation as to the nature, quality, character and financial responsibility of the other Party to this Sublease and as to the use, nature, quality and character of the Premises. Brokers have no responsibility with respect thereto or with respect to any default or breach hereof by either Party. The liability (including court costs and attorneys’ fees), of any Broker with respect to negotiation, execution, delivery or performance by either Sublessor or Sublessee under this Sublease or any amendment or modification hereto shall be limited to an amount up to the fee received by such Broker pursuant to this Sublease; provided, however, that the foregoing limitation on each Broker’s liability shall not be applicable to any gross negligence or willful misconduct of such Broker.
13. Accessibility; Americans with Disabilities Act.
(a) The Premises: ☐ have not undergone an inspection by a Certified Access Specialist (CASp).
☐ have undergone an inspection by a Certified Access Specialist (CASp) and it was determined that the Premises met all applicable construction-related accessibility standards pursuant to California Civil Code §55.51 et seq,
☐ have undergone an inspection by a Certified Access Specialist (CASp) and it was determined that the Premises did not meet all applicable construction-related accessibility standards pursuant to California Civil Code §55.51 et seq.
(b) Since compliance with the Americans with Disabilities Act (ADA) is dependent upon Lessee’s specific use of the Premises, lessor makes no warranty or representation as to whether or not the Premises comply with ADA or any similar legislation. In the event that Lessee’s use of the Premises requires modifications or additions to the Premises in order to be in ADA compliance, Lessee agrees to make any such necessary modifications and/or additions at Lessee’s expense.
ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AIR COMMERCIAL REAL ESTATE ASSOCIATION OR BY ANY REAL ESTATE BROKER AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS SUBLEASE OR THE TRANSACTION TO WHICH IT RELATES. THE PARTIES ARE URGED TO:
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1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS SUBLEASE.
2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PROPERTY, THE STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, AND THE SUITABILITY OF THE PREMISES FOR SUBLESSEE’S INTENDED USE.
WARNING: IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN PROVISIONS OF THE SUBLEASE MAY NEED TO BE REVISED TO COMPLY WITH LAWS OF THE STATE IN WHICH THE PROPERTY IS LOCATED
Executed at: _________________________________ Executed at: __________________________________
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By Sublessor:
IBISWORLD, INC.,
a Delaware corporation
By: /s/ Harvey Jones
Name Printed: Harvey Jones
Title: Chief Operating Officer
By:
Name Printed:
Title:
Address:
Telephone: ( )
Facsimile: ( )
Email:
Email:
Federal ID No.
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By Sublessee:
ZIPRECRUITER, INC.,
a Delaware corporation
By: /s/ GiGi Goodling
Name Printed: GiGi Goodling
Title: Business Affairs
By:
Name Printed:
Title:
Address:
Telephone: ( )
Facsimile: ( )
Email:
Email:
Federal ID No.
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BROKER:
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BROKER:
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Exhibit 10.13
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Douglas Emmett Management, LLC
808 Wilshire Boulevard, 2nd Floor
Santa Monica, California 90401
Telephone 310.255.7777
Facsimile 310.255.7778
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May 26, 2017
VIA CERTIFIED MAIL
Mr. David Feldman
ZipRecruiter, Inc.
401 Wilshire Boulevard, Suite 1100
Santa Monica, California 90401
Re: First Amendment to Office Lease
401 Wilshire Boulevard, Suite 350
Santa Monica, California 90401
Dear Mr. Feldman:
We are pleased we were able to accommodate your expansion requirements at 401 Wilshire. Enclosed for your records is one (1) fully executed First Amendment to Office Lease dated May 23, 2017 by and between Douglas Emmett 1995, LLC, a Delaware limited liability company and ZipRecruiter, Inc., a Delaware corporation.
If there is anything else we can do to assist you at this time, please do not hesitate to contact your property manager, Susan Stavis at (310) 451-1796. We look forward to your continued occupancy at 401 Wilshire.
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Sincerely,
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/s/ Andrew B. Goodman
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Andrew B. Goodman
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Senior Vice President
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ABG:awh
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Enclosure
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cc:
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Susan Stavis
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Andrew Sayer
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Bob Zelken
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David Toomey, Cresa Los Angeles
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FIRST AMENDMENT TO OFFICE LEASE
This First Amendment to Office Lease (this “First Amendment”), dated May 23, 2017, is made by and between DOUGLAS EMMETT 1995, LLC, a Delaware limited liability company (“Landlord”), with offices at 808 Wilshire Boulevard, Suite 200, Santa Monica, California 90401, and ZIPRECRUITER, INC., a Delaware corporation (“Tenant”), with offices at 401 Wilshire Boulevard, Suite 1100, Santa Monica, California 90401.
WHEREAS,
A. Landlord and Tenant are parties to that certain Office Lease dated May 16, 2014 (the “Original Lease”), as amended by that certain option exercise letter dated August 11, 2015 (the “OE Letter”), covering space in the property located at 401 Wilshire Boulevard, Santa Monica, California 90401 (the “Building”), commonly known as Suite 1100 (the “Existing Premises”);
B. The Extended Term (as defined in Article 22 of the Original Lease) expires on July 31, 2018 (the “Termination Date”);
C. Tenant wishes to expand its occupancy within the Building to include that portion of the third (3rd) floor commonly known as Suite 350 (which contains 9,562 rentable square feet [7,529 usable square feet] and shall be hereinafter referred to as the “Expansion Space”), as shown on Exhibit A attached hereto and made a part hereof, which expansion Landlord has conditionally permitted, contingent upon Tenant’s acceptance of and compliance with the provisions of this First Amendment; and
D. Landlord and Tenant, for their mutual benefit, wish to revise certain other covenants and provisions of the Original Lease, as amended.
NOW, THEREFORE, in consideration of the covenants and provisions contained herein, and other good and valuable consideration, the sufficiency of which Landlord and Tenant hereby acknowledge, Landlord and Tenant agree:
1. Confirmation of Defined Terms. Unless modified herein, all terms previously defined and capitalized in the Original Lease, as amended, shall hold the same meaning for the purposes of this First Amendment. The Original Lease, as modified by the OE Letter and this First Amendment, shall hereinafter be referred to as the “Lease.”
2. Expansion Date and Expansion Term. The term of the lease by Tenant of the Expansion Space (the “Expansion Term”) shall commence on the earlier of the date that is (i) thirty (30) days following the Delivery Date (as defined below) or (ii) the date Tenant commences normal business operations from the Expansion Space (the “Expansion Date”), and shall expire, unless otherwise sooner terminated pursuant to the terms of the Lease, on the Termination Date. Landlord shall deliver the Expansion Space to Tenant on the first day following the date Landlord substantially completes the Improvements (as defined in Section 9.1 of this First Amendment) (the “Delivery Date”). The anticipated Delivery Date is the date that is ten (10) days following the full execution of this First Amendment. In the event of any Tenant
Delay (as such term is defined in Exhibit B), in addition to any other remedies available to Landlord under the Lease or applicable law, the Delivery Date shall deemed to be the next day after the date the Improvements (as defined in Section 9.1 of this First Amendment) would have been substantially completed had no such Tenant Delay occurred. “Tenant Delay” shall mean any delay in the construction of the Improvements caused by any act, omission, delay or default by Tenant or any Tenant Party, including, without limitation, the failure of Tenant or Tenant Party to comply with any schedule or other provision of this First Amendment (including, without limitation, Section 9.1) requiring Tenant or any Tenant Party to respond to, review, authorize or approve any matter, or perform an obligation within a certain time period. A Tenant Delay shall also be assessed in the event any component of the Improvements or any Tenant change order is not Building standard, or is not customary for a normal office build out and, as a result, the same requires a longer lead time for ordering materials or a longer construction period. However, notwithstanding the foregoing, no Tenant Delay shall be deemed to commence until Landlord gives Tenant written notice of the claimed Tenant Delay and the reasons therefor, and Tenant fails to take the requested corrective action to eliminate or avoid the Tenant Delay within two (2) business days after receipt of Landlord’s written notice. Landlord and Tenant shall promptly execute an amendment to the Lease (the “Memorandum”) confirming the finalized Expansion Date and Expansion Term as soon as they are determined. Tenant shall execute the Memorandum and return it to Landlord within five (5) business days after receipt of a factually correct Memorandum. Failure of Tenant to timely execute and deliver the Memorandum shall constitute an acknowledgement by Tenant that the statements included in such Memorandum are true and correct, without exception.
Tenant’s access to the Expansion Space from and after the Delivery Date and prior to the Commencement Date (the “Access Period”) shall be permitted solely for the purpose of installing Tenant’s furniture, fixtures and equipment, computer and telephone cabling and any Landlord-approved alterations or improvements. Provided Tenant’s access to the Expansion Space is for the purposes herein stated and not for the conduct of its business in the Expansion Space, then such access shall not serve to accelerate the Expansion Date, it being expressly understood and agreed that Tenant’s fixturizing the Expansion Space and installing cabling and making any Landlord-approved alterations or improvements shall not be deemed Tenant’s conduct of normal business operations for purposes of this Section 2. During the Access Period, if any, Tenant shall be subject to Landlord’s reasonable administrative control and supervision and Tenant shall comply with all of the provisions and covenants contained in the Lease, except that Tenant shall not be obligated to pay Fixed Monthly Rent for the Expansion Space until the Expansion Date, subject to the express provisions of the last paragraph of Section 4 of this First Amendment.
For purposes of this First Amendment, substantial completion shall be defined as that point in the construction process when the Improvements have been completed in such a manner that Tenant could, if it took possession of the Expansion Space, have lawful occupancy and conduct normal business operations in the Expansion Space, but for minor punch-list items that do not materially impair Tenant’s normal business operations and can be and are corrected within five (5) business days thereafter.
Tenant’s taking possession of the Expansion Space and/or commencing Tenant’s normal business operations in the Expansion Space shall be deemed conclusive evidence that, as of the Expansion Date:
a) Landlord has substantially completed the Improvements contemplated hereunder, except for any minor punch-list items that do not materially impair Tenant’s normal business operations and can be and are corrected within five (5) business days thereafter; and
b) the Expansion Space is in good order and repair, subject to Landlord’s warranties set forth below in Section 9 below.
If for any reason (including any Tenant Delay or Landlord’s inability to complete the Improvements called for hereunder) Landlord is unable to deliver possession of the Expansion Space to Tenant with the Improvements substantially complete on the anticipated Delivery Date, this First Amendment shall not be void or voidable, nor shall Landlord be liable to Tenant for any damage resulting from Landlord’s inability to deliver such possession. However, Tenant shall not be obligated to pay the Fixed Monthly Rent or Additional Rent that Tenant is required to pay for the Expansion Space pursuant to this First Amendment until the Expansion Date, subject to the express provisions of the last paragraph of Section 4 of this First Amendment. Except for such delay in the commencement of Rent and the extension of the 12-month Additional Rent abatement period (but subject to any acceleration of the Expansion Date as a result of any Tenant Delay), Landlord’s failure to give possession on the anticipated Expansion Date shall in no way affect Tenant’s obligations hereunder.
If possession of the Expansion Space with the Improvements substantially complete is not tendered by Landlord within sixty (60) days after the anticipated Expansion Date, then, subject to any Tenant Delay, Tenant shall have the right to terminate this First Amendment by giving written notice to Landlord within ten (10) days after such failure. Landlord shall have fifteen (15) days after receipt of such notice to cure such failure and, if Landlord has not cured the matter within such time period (subject to any Tenant Delay), this First Amendment shall terminate upon a second (2nd) written notice from Tenant after such failure to cure and Landlord shall promptly refund to Tenant the prepaid Fixed Monthly Rent and incremental Security Deposit previously paid by Tenant to Landlord pursuant to this First Amendment. If such second written notice of termination is not so given by Tenant within said fifteen (15) day time period, then this First Amendment shall continue in full force and effect.
3. Expansion of Premises. As of the Expansion Date, (i) the Usable Area of the Premises shall increase from 15,277 square feet to 22,806 square feet and the Rentable Area of the Premises shall increase from 16,893 square feet to 26,455 square feet, and (ii) the definition of the Premises shall be revised to include both the Existing Premises and the Expansion Space, and wherever in the Lease the word “Premises” is found, it shall thereafter refer to both the Existing Premises and the Expansion Space together, as if the same had been originally included in said Lease.
Landlord engaged an independent third-party space plan audit firm to measure the Usable Area of the Expansion Space using the 2010 ANSI/BOMA Standard published collectively by
the American National Standards Institute and the Building Owners’ and Managers’ Association (“ANSI/BOMA Standard”) as a guideline. Based upon such measurement Landlord has been advised that the accurate Usable Area of the Expansion Space is approximately 7,529 square feet. Based on Landlord’s deemed load factor as indicated herein below, the Rentable Area of the Expansion Space is hereby agreed to be approximately 9,562 square feet.
Landlord and Tenant agree that Landlord is utilizing an add-on factor of 27.00% to compute the Rentable Area of the Expansion Space. Rentable Area herein is calculated as 1.2700 times the estimated Usable Area, regardless of what the actual square footage of the common areas of the Building may be, and whether or not they are more or less than 27.00% of the total estimated Usable Area of the Building. The purpose of this calculation is solely to provide a general basis for comparison and pricing of this space in relation to other spaces in the market area.
4. Fixed Monthly Rent - Expansion Space. The Fixed Monthly Rent payable for the Expansion Space shall be as follows:
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Period
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Fixed Monthly Rent**
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The Expansion Date through the last calendar day of the twelfth (12th) full calendar month following the Expansion Date
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$59,762.50
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The first calendar day of the thirteenth (13th) full calendar month following the Expansion Date through the Termination Date
** to be prorated for any partial calendar month based on the actual number of days in said calendar month
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$62,153.00
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Concurrent with Tenant’s execution and delivery to Landlord of this First Amendment, Tenant shall pay to Landlord the Fixed Monthly Rent due for the first month of the Expansion Term. All payments of Fixed Monthly Rent shall be made in immediately available funds.
5. Security Deposit. Landlord acknowledges that it currently holds the sum of $73,949.11 as a Security Deposit under the Lease, which amount Landlord shall continue to hold throughout the Expansion Term, unless otherwise applied pursuant to the provisions of the Lease. Concurrent with Tenant’s execution and tendering to Landlord of this First Amendment, Tenant shall tender the sum of $62,153.00, which amount Landlord shall add to the Security Deposit already held by Landlord, so that thereafter, throughout the Expansion Term, provided the same is not otherwise applied pursuant to the provisions of the Lease, Landlord shall hold a total of $136,102.11 as a Security Deposit on behalf of Tenant.
Tenant hereby waives the provisions of Section 1950.7 of the California Civil Code, and all other laws, statutes, ordinances or other governmental rules, regulations or requirements now in force or which may hereafter be enacted or promulgated, which (i) establish the time frame by which Landlord must refund a security deposit under a lease, and/or (ii) provide that Landlord
may claim from the Security Deposit only those sums reasonably necessary to remedy defaults in the payment of rent, or to repair damage caused by Tenant, it being agreed that Landlord may, in addition, claim those sums specified in Article 18 of the Original Lease, and/or those sums reasonably necessary to compensate Landlord for any loss or damage caused by Tenant’s breach of the Lease or the acts or omission of Tenant or any Tenant Party. As used in the Lease a “Tenant Party” shall mean Tenant, any employee of Tenant, or any agent, authorized representative, design consultant or construction manager engaged by or under the control of Tenant.
6. Base Year. As of the Expansion Date, the Base Year, solely as it relates to the Expansion Space, shall be calendar year 2017.
7. Tenant’s Share for Expansion Space. As of the Expansion Date, Tenant’s Share, solely as it relates to the Expansion Space, shall be 3.85%, which is calculated by dividing the number of usable square feet contained in the Premises (7,529) by the current number of usable square feet contained in the Building (195,560). Notwithstanding any contrary provision of the Lease, Tenant shall not be obligated to pay any portion of Tenant’s Share of increases in Operating Expenses over the Base Year of 2017 with respect to the Expansion Space during the first twelve (12) months of the Expansion Term.
8. Parking. As of the Expansion Date and due to Tenant’s rental of the Expansion Space (and in addition to the parking permits that Tenant is presently renting from Landlord in connection with Tenant’s rental of the Existing Premises), Tenant shall have (i) the obligation to purchase twenty (20) tandem-reserved parking permits (i.e. 10 two-car spaces) on a “must-take” basis, and (ii) the right, but not the obligation, to purchase up to nine (9) single unreserved parking permits. The rates chargeable to Tenant for each category of parking permit shall be at the posted monthly parking rates and charges then in effect, plus any and all applicable taxes (which rates are currently $210.00 for single-unreserved, $270.00 for single-reserved, and $180.00 for tandem-reserved (i.e., $360.00 per two-car space), provided that such rates may be changed from time to time, in Landlord’s sole discretion. All other terms of Tenant’s parking rights and obligations shall be as provided in Article 21 of the Original Lease, as supplemented by the Building rules and regulations specified in Exhibit C attached to and made a part of the Original Lease.
In addition to the above, Tenant may lease additional parking spaces at the Building at the then prevailing rates, subject to availability, on a month-to-month basis.
9. Acceptance of Premises. Tenant acknowledges that to the best of Tenant’s knowledge, as of the date hereof, it has no claim against Landlord in connection with the Existing Premises or the Lease. Landlord acknowledges that to the best of Landlord’s knowledge, as of the date hereof, it has no claim against Tenant in connection with the Existing Premises or the Lease. Tenant has made its own inspection of and inquiries regarding the Expansion Space, which is already improved. Therefore, except for the Improvements (as defined in Section 9.1 below) to be performed by Landlord in the Expansion Space, Tenant accepts the Expansion Space in its “as-is” condition, subject to Landlord’s maintenance and repair obligations under the Lease and those latent defects of which Tenant notifies Landlord within twelve (12) months following the
Expansion Date. Tenant further acknowledges that Landlord has made no currently effective representation or warranty, express or implied regarding the condition, suitability or usability of the Expansion Space or the Building for the purposes intended by Tenant. Notwithstanding the foregoing, Landlord hereby represents that as of the Expansion Date, (i) the systems serving the Expansion Space (lighting, electricity, HVAC, fire/life-safety, plumbing, etc.) shall be in good working order and repair and (ii) there shall be no asbestos-containing materials or other hazardous or toxic substances or materials in the Expansion Space. In addition, Landlord further represents that to the best of Landlord’s knowledge (without any independent inquiry), as of the date hereof, the Expansion Space is in compliance with all applicable building code and other governmental requirements (including without limitation applicable requirements of the Americans With Disabilities Act).
9.1 Improvements. Prior to the Delivery Date, Landlord shall, at Landlord’s sole cost and expense, and using Building standard materials, perform the following improvements in the Expansion Space (collectively, the “Improvements”):
a) Repaint the interior walls of the Expansion Space that were previously painted, using a maximum of two coats of paint, in a single color that is reasonably acceptable to Tenant;
b) Remove the graphics from all existing glass partitions within the Expansion Space; and
c) Steam clean or shampoo and spot-clean the carpeting.
Tenant shall provide Landlord with Tenant’s selection of color finishes for paint on or before May 30, 2017.
10. FF & E Reimbursement Allowance. Landlord shall, within thirty (30) days following Landlord’s receipt of true and correct invoices marked “Paid”, reimburse Tenant up to $1.50 per usable square foot contained in the Expansion Space for costs incurred by Tenant for furniture, fixtures and equipment (including low voltage cabling) to be used in the Expansion Space (which is equal to $11,293.50 and shall be hereinafter referred to as the “FF & E Reimbursement Allowance”). Landlord and Tenant expressly acknowledge and agree that Landlord shall have no obligation to disburse any unused portion of the FF & E Reimbursement Allowance that has not been requested by Tenant by December 31, 2017. All such furniture, fixtures and equipment shall belong to Tenant at the expiration of the Expansion Term.
11. Warranty of Authority. If Landlord or Tenant signs as a corporation or limited liability company or a partnership, each of the persons executing this First Amendment on behalf of Landlord or Tenant hereby covenants and warrants that the applicable entity executing herein below is a duly authorized and existing entity that is qualified to do business in California; that the person(s) signing on behalf of either Landlord or Tenant have full right and authority to enter into this First Amendment; and that each and every person signing on behalf of either Landlord or Tenant are authorized in writing to do so.
12. Broker Representation. Landlord and Tenant represent to one another that it has dealt with no broker in connection with this First Amendment other than Douglas Emmett Management, Inc. and Cresa Los Angeles. Landlord and Tenant shall hold one another harmless from and against any and all liability, loss, damage, expense, claim, action, demand, suit or obligation arising out of or relating to a breach by the indemnifying party of such representation. Landlord agrees to pay all commissions due to the brokers listed above created by Tenant’s execution of this First Amendment.
13. Confidentiality. Landlord and Tenant agree that the covenants and provisions of this First Amendment shall not be divulged to anyone not directly involved in the management, administration, ownership, lending against, or subleasing of the Premises, other than Tenant’s or Landlord’s counsel-of-record or leasing or sub-leasing broker of record.
14. Governing Law. The provisions of this First Amendment shall be governed by the laws of the State of California.
15. Reaffirmation. Landlord and Tenant acknowledge and agree that the Lease, as amended herein, constitutes the entire agreement by and between Landlord and Tenant relating to the Expansion Space, and supersedes any and all agreements written or oral between the parties hereto. Furthermore, except as modified herein, all other covenant and provisions of the lease shall remain unmodified and in full force and effect.
16. Civil Code Section 1938 Disclosure. Pursuant to Civil Code Section 1938, Landlord hereby discloses that neither the Existing Premises nor the Expansion Space have undergone an inspection by a Certified Access Specialist (“CASp”) to determine whether the Existing Premises or the Expansion Space meets all applicable construction-related accessibility standards. A CASp can inspect the subject premises and determine whether the subject premises comply with all the applicable construction-related accessibility standard under state law. Although state law does not require a CASp inspection of the subject premises, the commercial property owner or lessor may not prohibit the lessee or tenant from obtaining a CASp inspection of the subject premises for the occupancy or potential occupancy of the lessee or tenant if requested by the lessee or tenant. The parties shall mutually agree on the arrangements for the time and manner of the CASp inspection the payment of the fee for the CASp inspection, and the cost of making any repairs necessary to correct violations of construction-related accessibility standards within the premises.
17. Submission of Document. The submission of this First Amendment to Tenant shall be for examination purposes only, and does not constitute a reservation of or an option for Tenant to lease, or otherwise create any interest by Tenant in the Expansion Space or any other offices or space situated in the Building. Regardless of whether or not (a) Landlord has delivered to Tenant an unexecuted draft or final version of this First Amendment for Tenant’s review and/or signature, (b) this First Amendment has been executed by Tenant only and delivered to Landlord for its review and signature, and/or (c) Tenant has made payments of rent and/or security deposit to Landlord pursuant to this First Amendment it is understood and agreed that no contractual or other rights shall exist between Landlord and Tenant with respect to the Premises nor shall this First Amendment be valid binding on the parties and/or in effect unless and until this First
Amendment has been fully executed by Landlord and Tenant and such fully-executed First Amendment has been delivered to tenant.
18. Digital Counterparts. This First Amendment may be executed in several counterparts, each of which when executed and delivered shall be deemed an original, and all of which when taken together shall constitute one and the same agreement. The parties agree that a digital image of this First Amendment as fully-executed (such as in a portable document format (.pdf)) when sent to the email address of Tenant, its broker (if any), its attorney (if any), or its authorized agent (if any) shall be deemed delivery of a true and correct original of this First Amendment, and such digital image of this First Amendment shall be admissible as best evidence for the purposes of state law, Federal Rule of Evidence 1002, and the like statutes and regulations.
[SIGNATURES APPEAR ON FOLLOWING PAGE]
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this document, effective as of the later of the date(s) written below.
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LANDLORD:
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TENANT:
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DOUGLAS EMMETT 1995, LLC, a Delaware limited liability company
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ZIPRECRUITER, INC., a Delaware corporation
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By:
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Douglas Emmett Management, Inc.,
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By:
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/s/ David Feldman
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Delaware corporation, its Manager
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Name:
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David Feldman
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Title:
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Chief Business Officer
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By:
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/s/ Andrew B. Goodman
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Dated:
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23 May 2017
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Andrew B. Goodman
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Senior Vice President
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By:
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Name:
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Dated:
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5/30/17
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Title:
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Dated:
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EXHIBIT A
EXPANSION SPACE PLAN
Suite 350 at 401 Wilshire Boulevard, Santa Monica, California 90401
Rentable Area: approximately 9,562 square feet
Usable Area: approximately 7,529 square feet
(Measured pursuant to the provisions of Section 3 of this First Amendment)
LEASE AGREEMENT BETWEEN
HUDSON 604 ARIZONA, LLC,
a Delaware limited liability company
AS LANDLORD,
AND
ZIPRECRUITER, INC.,
a Delaware corporation
AS TENANT
604 ARIZONA AVENUE,
SANTA MONICA, CALIFORNIA
LEASE AGREEMENT
(California NNN Lease)
THIS LEASE AGREEMENT (“Lease”) is dated as of September 30, 2017, between HUDSON 604 ARIZONA, LLC, a Delaware limited liability company (“Landlord”), and ZIPRECRUITER, INC., a Delaware corporation (“Tenant”).
BASIC LEASE PROVISIONS
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Premises:
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All of that certain existing building having an address of 604 Arizona Avenue, Santa Monica, California, and consisting of approximately 44,260 rentable square feet (the “Building”) constructed on the Land (as defined below) as the Building and Land are approximately depicted on Exhibit A attached hereto. The “Premises” consists of the Land and the Building (collectively); provided, however, notwithstanding the foregoing, except to the extent expressly provided herein (including, without limitation, Paragraph 43 below), Tenant shall not have rights to the roof except as provided in this Lease. Landlord and its designees shall have the right to place necessary equipment serving the Premises on portions of the roof not covered by the Deck Space, and all necessary access right thereto. Subject to Landlord’s reasonable approval Tenant shall have the right to place equipment on the portion of the roof not occupied by the Deck Space to the extent same specifically serves the conduct of the Permitted Use from the Premises, including HVAC units, additional condenser water capacity, vents, roof mounted antenna(s) and/ or satellite dish(es). Tenant shall have no rights to the exterior walls of the Building and Landlord and its designees shall have all necessary access rights thereto.
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Land:
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The Land consists of approximately 22,462 square feet of land area (the “Land”), and is legally described on Exhibit A-1, on which the Building is constructed.
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Tenant’s Proportionate Share:
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100%
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Lease Term:
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Beginning on the Commencement Date (as defined below) and ending on the last day of the 84th full calendar month thereafter (the “Expiration Date”).
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Prepaid Rent:
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$243,430.00
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Commencement Date:
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June 1, 2018, subject to adjustment as provided in Paragraph 1.
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Option to Extend:
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See Paragraph 42 herein.
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Monthly Base Rent:
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The monthly Base Rent shall be as follows:
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Month of Lease Term:
1 - 12*
13 -24*
25 -36*
37-48
49-60*
61 -72
73 - 84
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Base Rent:
$243,430.00 per month
$251,950.05 per month
$260,768.30 per month
$269,895.19 per month
$279,341.52 per month
$289,118.48 per month
$299,237.62 per month
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*Subject to the Base Rent Credit (as defined in Paragraph 4(b) below).
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1
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Zip Recruiting/604 Arizona/Hudson-ZipRecruiter Lease
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Monthly Parking Fee:
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The monthly Parking Fee shall be as follows:
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Month of Lease Term
l - 12
13 -24
25-36
37-48
49-60
61-72
73 -84
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Parking Fee:
$8,500.00 per month
$8,755.00 per month
$9,017.65 per month
$9,288.18 per month
$9,566.82 per month
$9,853.83 per month
$10,149.44 per month
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Initial Estimated Monthly Operating Expense Payments (estimate only and subject to adjustment to actual costs and expenses according to the provisions of this Lease):
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$1.56 per square foot per month (estimate only and subject to adjustment to actual costs and expenses according to the provisions of this Lease).
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Letter of Credit:
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$2,000,000.00. See Paragraph 5 below.
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Permitted Use:
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General office use and ancillary and related uses thereto, so long as such ancillary and related uses are conducted (i) in accordance with all Legal Requirements, including applicable zoning for the Building, (ii) in a manner consistent with first-class buildings of the same or similar use as the Building and located in the metropolitan area in which the Building is located, and (iii) in accordance with the other terms and conditions of this Lease (the “Permitted Use”).
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Tenant’s Notice Address:
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401 Wilshire Blvd. 11th floor
Santa Monica, CA 90401
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Landlord’s Notice Address:
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HUDSON 604 ARIZONA, LLC
c/o Hudson Pacific Properties, Inc.
11601 Wilshire Boulevard, Suite 900
Los Angeles, California 90025
Attn: Property Management
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Broker(s):
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L.A. Realty Partners (Landlord’s broker)
CRESA (Tenant’s broker)
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Addenda:
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Rules and Regulations; Exhibit A (Premises); Exhibit A-1 (Legal Description of the Land); Exhibit B (Intentionally Omitted); Exhibit C (Tenant Work Letter).
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2
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Zip Recruiting/604 Arizona-ZipRecruiter Lease
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LEASE
1. Granting Clause; Lease Term.
(a) In consideration of the obligation of Tenant to pay rent as herein provided and in consideration of the other terms, covenants, and conditions hereof, Landlord leases to Tenant, and Tenant leases from Landlord, the Premises, to have and to hold for the Lease Term, subject to the terms, covenants and conditions of this Lease. The term of this Lease shall commence on the “Commencement Date” specified in or established above, and except as otherwise provided herein, shall continue in full force and effect through the number of months as provided above (the “Lease Term”); provided, however, that if the Commencement Date is a date other than the first day of a calendar month, the Lease Term shall consist of the remainder of the calendar month including and following the Commencement Date, plus said number of full calendar months. Notwithstanding the foregoing, immediately following execution of this Lease by both parties, provided payment of all sums due from Tenant to Landlord upon execution of this Lease has been made and Tenant has provided Landlord with evidence that Tenant has fulfilled its obligation to provide insurance pursuant to the provisions of this Lease, and further provided same does not materially interfere with the Substantial Completion of Landlord’s Work (as reasonably determined by Landlord), Tenant shall be granted entry and access to the Premises for the- purpose of conducting measurements, testing, and any other purpose related to preparing the Premises for construction of the Tenant Improvements (as defined in Exhibit C), including mobilization therefor. Such early entry will not advance the Commencement Date.
(b) Prior to February 1, 2018, Landlord shall use its commercially reasonable efforts to Substantially Complete Landlord’s Work (as defined in Exhibit C). Tenant agrees that prior to completion of Landlord’s Work, Tenant shall take no action which will materially interfere with the conduct of Landlord’s Work (as reasonably determined by Landlord). Upon Substantial Completion of Landlord’s Work, subject to all applicable laws, Landlord shall deliver the Premises to Tenant with Landlord’s Work substantially complete in all respects and otherwise in compliance with the requirements of this Lease (the “Delivery Date”), and Tenant shall be granted full possession of the Premises, and thereafter Tenant shall construct the Tenant Improvements in accordance with Exhibit C. After Landlord’s Work is Substantially Completed Landlord and Tenant will conduct a preliminary inspection of the Premises and will sign a schedule of items (the “Landlord’s Punch List”), if any, of Landlord’s Work requiring repair or completion. Landlord shall use its commercially reasonable efforts to cause to be repaired, at no expense to Tenant, all items set forth on Landlord’s Punch List within thirty (30) days thereafter. Completion of Landlord’s Punch List items by Landlord shall not delay Tenant’s acceptance of the Premises. However, if the completion of any item on Landlord’s Punch List materially delays the construction of the Tenant Improvements, the Commencement Date shall be deemed delayed by the extent of such delay in the construction of the Tenant Improvements. If Landlord fails to substantially complete the Punch List items within said 30-day period, Tenant shall have the right to notify Landlord in writing of such failure and if Landlord fails to substantially complete said Punch List items within fifteen (15) days following Landlord’s receipt of said notice, Tenant shall have the right to complete the same (at a reasonable cost, upon prior notice to Landlord and using vendors approved by Landlord) and seek reimbursement from Landlord of Tenant’s actual costs to complete said Punch List items. Furthermore, if any Landlord ACM Remediation Work (as defined in Section 30(f) below) is not completed prior to the Delivery Date or within sixty (60) days following the delivery by Tenant to Landlord of its demolition plan (the “Demo Plan”), then to the extent such delay in performing such Landlord ACM Remediation Work actually delays the construction of the Tenant Improvements, the Commencement Date shall be deemed delayed (on a day for day basis) by the extent of such delay in the construction of the Tenant Improvements. Notwithstanding anything to the contrary set forth herein, no conduct by Landlord under this paragraph shall be a basis for a claim of delay hereunder unless and until such conduct continues for three (3) business days after Landlord’s receipt of written notice thereof (which details the conduct causing the alleged delay). In addition, subject to compliance with Legal Requirements and receipt of written approval from the City of Santa Monica and provided the Delivery Date has occurred, Tenant may conduct business from the third (3rd) floor of the Premises from and after March 1, 2018. Tenant’s possession of the 3rd floor of the Premises as of March 1, 2018 following the Delivery Date will not advance the Commencement Date. In connection with the foregoing, Tenant agrees to deliver the Demo Plan with respect to the Tenant Improvements as soon as reasonably practicable.
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3
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Zip Recruiting/604 Arizona-ZipRecruiter Lease
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(c) If for any reason the Delivery Date has not occurred on or before February 28, 2018, unless due to delays caused solely by Tenant or its agents, employees or contractors, the Commencement Date will be delayed on a day for day basis equal to the time period following February 28, 2018 until the Delivery Date.
(d) If for any reason the Delivery Date has not occurred on or before March 31, 2018, unless due to delays caused solely by Tenant or its agents, employees or contractors, or Force Majeure events, Tenant shall accrue two (2) days of free Base Rent for each day of delay, commencing on April 1, 2018 and ending on the actual Delivery Date.
(e) If for any reason the Delivery Date has not occurred on or before June 30, 2018, unless due to delays caused solely by Tenant or its agents, employees or contractors, or Force Majeure events, Tenant shall have the right to terminate this Lease by delivering written notice thereof to Landlord, which notice may be delivered at any time prior to the Delivery Date, and neither party shall have further obligation to the other except for obligations of Landlord and Tenant which may have accrued prior to the date of such termination and for those provisions of this Lease that expressly survive its termination, and the obligation of Landlord to pay to Tenant, within thirty (30) days after such termination, the “Start-Up Costs” (as hereinafter defined). For purposes hereof, the term “Start-Up Costs” shall mean all out-of-pocket fees, costs and expenses incurred by Tenant in connection with this Lease for legal, architectural, design and Tenant Improvement work, and Tenant pursuing governmental approvals for the Tenant Improvements At Landlord’s request, Tenant shall deliver to Landlord copies of supporting invoices which evidence the Start-Up Costs.
(f) Tenant agrees to accept possession of the Premises, provided the Premises are in the condition required by this Lease, at such time as Landlord is able to tender the same. After the Commencement Date, Tenant shall, upon demand, execute and deliver a letter of acceptance of delivery of the Premises specifying the Commencement Date. Landlord and Tenant agree that the rentable square footage of the Building as set forth above shall be conclusive and binding on the parties.
(g) All of the provisions of this Lease shall apply to Tenant and Landlord during any early entry, including, without limitation, the indemnities set forth in this Lease, but excluding only the obligation to pay Base Rent, the Parking Fees and Operating Expenses until the Commencement Date has occurred, whereupon Base Rent, the Parking Fees, and Operating Expenses shall commence as provided herein. During any such early entry, Landlord shall not be responsible for any loss, including theft, damage or destruction to any work or material installed or stored by Tenant at the Premises or for any injury to Tenant or its agents, employees, contractors, subcontractors, subtenants, assigns, licensees or invitees. Landlord shall have the right to post appropriate notices of non-responsibility in connection with any early entry by Tenant.
2. Acceptance of Premises.
(a) Subject to Paragraph 2(b) below, Tenant shall accept the Premises on the Commencement Date in its “as-is” condition, subject to all applicable laws, ordinances, regulations, covenants and restrictions, and Landlord shall have no obligation to perform or pay for any repair or other work therein, except that Landlord shall perform Landlord’s Work as provided in Exhibit C. Subject to the performance of Landlord’s Work, Landlord has made no representation or warranty as to the suitability of the Premises for the conduct of Tenant’s business, and Tenant waives any implied warranty that the Premises are suitable for Tenant’s intended purposes. Subject to the performance of Landlord’s Work, Tenant acknowledges that (a) it has inspected and accepts the Premises in an “As-ls, Where-Is” condition, (b) the Building and improvements in the Premises are suitable for the purpose for which the Premises are leased and Landlord has made no warranty, representation, covenant, or agreement with respect to the merchantability or fitness for any particular purpose of the Premises, (c) the Premises are in good and satisfactory condition, (d) no representations as to the repair of the Premises, nor promises to alter, remodel or improve the Premises have been made by Landlord, and (e) there are no representations or warranties, expressed, implied or statutory, that extend beyond the description of the Premises. Except as provided in Exhibit C and Paragraph 10, in no event shall Landlord have any obligation for any defects in the Premises or any limitation on its use. Except as provided in Exhibit C, the taking of possession of the Premises shall be conclusive evidence that Tenant accepts the Premises and that the Premises were in good condition at the time possession was taken except
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4
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Zip Recruiting/604 Arizona-ZipRecruiter Lease
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for items that are Landlord’s responsibility under Paragraph 10 and any punch-list items agreed to in writing by Landlord and Tenant.
(b) Landlord hereby assigns to Tenant, to the extent assignable, on a non-exclusive basis, all warranties and guaranties by Landlord’s contractor relating to the portions of the Premises that Tenant is responsible to maintain and repair pursuant to Paragraph 11 below. Subject to the terms and conditions of this Paragraph 2(b), Landlord warrants that the work performed by Landlord’s contractor (if any) with respect to the construction of the Base Building and Landlord’s Work will be free from material defects in workmanship and materials for a period of one (1) year following the Delivery Date, and that the mechanical, electrical, plumbing, sanitary sewer, sprinkler, heating, ventilation and air conditioning (“HVAC”), security, life-safety, elevator and other service systems or facilities of the Premises (inclusive of all lighting and electrical outlets in the Premises) will be in good condition and repair and working order as of the Delivery Date and for a period of a period of one (1) year following the Delivery Date (“Landlord’s Construction Warranty”). If there is a breach of Landlord’s Construction Warranty, Landlord shall, following timely written notice from Tenant identifying such breach with reasonable specificity, as Tenant’s sole and exclusive remedy, perform the work as is reasonably necessary to cure such breach in Landlord’s Construction Warranty. In connection with the performance of any such warranty work, (a) Landlord shall have the right to enter upon the Premises and into the Building in accordance with Paragraph 19 below (except that Landlord may enter at any time, without notice, in case of an emergency) to perform such work, and in no event shall the performance of such work by Landlord entitle Tenant to any abatement of rent or other compensation; and (b) Tenant shall cooperate with Landlord in identifying the defect in question. Notwithstanding the foregoing, in the event that such repairs in, about or affecting the Premises, substantially interferes with Tenant’s use of the Premises and Tenant is forced to close the entire Premises for business as a result thereof for a period in excess of three (3) consecutive business days, then Tenant shall have the right to an abatement of Rent for the time period following the end of such three (3) consecutive business day period until such interference is sufficiently removed to allow Tenant to reopen the Premises for business. Notwithstanding the foregoing, Landlord’s Construction Warranty shall not apply with respect to defects arising in connection with the Tenant Improvements, any work performed by Tenant and/or the misuse, overuse, negligence or willful misconduct of Tenant and/or its agents, employees, contractors, successors, assigns, licensees and/or invitees.
3. Use; Compliance with Legal Requirements.
(a) Subject to Tenant’s compliance with all zoning ordinances and Legal Requirements (as hereinafter defined), the Premises shall be used only for the Permitted Use; provided, however, no retail sales may be made from the Premises. Tenant shall not conduct or give notice of any auction, liquidation, or going out of business sale on the Premises. Tenant will use the Premises in a careful, safe and proper manner and will not commit waste, overload the floor or structure of the Premises or subject the Premises to use that would damage the Premises. Tenant shall not permit any objectionable or unpleasant odors, smoke, dust, gas, noise, or vibrations to emanate from the Premises, or take any other action in a manner that would constitute a nuisance or endanger Landlord. Tenant will not use or permit the Premises to be used for any purpose or in any manner that would void Tenant’s or Landlord’s insurance, increase the insurance risk. If any increase in the cost of any insurance on the Premises is caused by Tenant’s use or occupation of the Premises, or because Tenant vacates the Premises, then Tenant shall pay the amount of such increase to Landlord. Outside storage, including without limitation, storage of trucks and other vehicles, is prohibited without Landlord’s prior written consent.
(b) Tenant, at its sole expense, shall comply with all laws, including, without limitation, the Americans With Disabilities Act, orders, judgments, ordinances, regulations, codes; directives, permits, licenses, covenants and restrictions now or hereafter applicable to the Premises (collectively, “Legal Requirements”). Tenant shall, at its expense, make any alterations or modifications, within or without the Premises, that are required by Legal Requirements related to Tenant’s specific use or occupation of the Premises. Notwithstanding the foregoing, Landlord acknowledges that as part of Landlord’s Work (except to the extent any of the following alterations or improvements are required as a result of Tenant’s specific use of the Premises (as opposed to general office use) or any alterations, improvements or other work performed by or on behalf of Tenant (including, without limitation, any Tenant-Made Alterations and/or the Tenant Improvements), in which case Tenant shall be responsible therefor at Tenant’s sole cost and expense), prior to the Delivery Date, Landlord (not Tenant) shall be
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5
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Zip Recruiting/604 Arizona-ZipRecruiter Lease
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responsible, at Landlord’s sole cost and expense, for making all alterations and improvements to remedy any existing violation of Legal Requirements (the “Existing Violations”) which existed prior to the Delivery Date.
(c) Landlord hereby discloses to Tenant, in accordance with California Civil Code Section 1938, and Tenant hereby acknowledges that the Premises have not undergone an inspection by a Certified Access Specialist (CASp) to determine whether the Premises meet all applicable construction-related accessibility standards pursuant to California Civil Code §55.51 et seq. As required by Section 1938(e) of the California Civil Code, Landlord hereby states as follows: “A Certified Access Specialist (CASp) can inspect the subject premises and determine whether the subject premises comply with all of the applicable construction-related accessibility standards under state law. Although state law does not require a CASp inspection of the subject premises, the commercial property owner or lessor may not prohibit the lessee or tenant from obtaining a CASp inspection of the subject premises for the occupancy or potential occupancy of the lessee or tenant, if requested by the lessee or tenant. The parties shall mutually agree on the arrangements for the time and manner of the CASp inspection, the payment of the fee for the CASp inspection, and the cost of making any repairs necessary to correct violations of construction related accessibility standards within the premises.” In furtherance of the foregoing, and notwithstanding anything to the contrary contained in this Lease, Landlord and Tenant hereby agree as follows: (i) any CASp inspection requested by Tenant shall be conducted at Tenant’s sole cost and expense, by a CASp approved in advance by Landlord, subject to Landlord’s rules and requirements; and (ii) Landlord shall have no obligation to perform any work or repairs identified in any such CASp inspection; and (iii) to the extent that any work, repairs, replacements, or improvements are recommended or required by the CASp in connection with a CASp inspection requested by Tenant (or otherwise required as a result of such CASp inspection requested by Tenant or anything done by Tenant in its use or occupancy of the Premises), then, at Landlord’s election, Tenant shall be required to perform the same at Tenant’s sole cost and expense (subject to the terms and conditions of Paragraph 12 below, including Landlord’s right to approve of detailed plans and specifications in advance); provided, however, Landlord shall have the option to perform any or all of the foregoing at Tenant’s sole cost and expense (with Tenant to reimburse Landlord upon demand for the costs and expenses incurred by Landlord in performing the same).
(d) Subject to compliance with all Legal Requirements, the requirements of Landlord’s insurance providers, and all reasonable rules and regulations established by Landlord from time to time (including, without limitation, the Animal Rules and Regulations for the Premises attached hereto as Exhibit D which the parties hereby agree are deemed reasonable), in connection with the Permitted Use of the Premises, a maximum of twenty (20) “Dogs” (as defined in Exhibit D attached hereto) shall be permitted at the Premises at any given time. Notwithstanding anything to the contrary contained in this Section, but subject to all zoning ordinances, applicable laws, the requirements of Landlord’s insurance providers, and all reasonable rules and regulations established by Landlord from time to time (including, without limitation, the Animal Rules and Regulations for the Premises attached hereto as Exhibit D), Tenant, its agents, employees, contractors, and/or invitees shall be permitted to use certified and trained service, animals as needed.
4. Base Rent.
(a) Tenant shall pay Base Rent in the amounts set forth on the first page of this Lease. The Prepaid Rent (as set forth in the Basic Lease Provisions above) shall be due and payable on the date hereof (and shall be applied against Base Rent first due under this Lease), and Tenant promises to pay to Landlord in advance; without demand, deduction or set-off, monthly installments of Base Rent on or before the first day of each calendar month succeeding the Commencement Date. Payments of Base Rent for any fractional calendar month shall be prorated. All payments required to be made by Tenant to Landlord hereunder shall be payable at such address as Landlord may specify from time to time by written notice delivered in accordance herewith. The obligation of Tenant to pay Base Rent and other sums to Landlord and the obligations of Landlord under this Lease are independent obligations and shall constitute rent. Tenant shall have no right any time to abate, reduce, or set-off any rent due hereunder except where expressly provided in this Lease. Tenant acknowledges that late payment by Tenant to Landlord of any rent due hereunder will cause Landlord to incur costs not contemplated by this Lease, the exact amount of such costs being extremely difficult and impractical to determine. Therefore, if Tenant is delinquent in any monthly installment of Base Rent, estimated Operating Expenses or other sums due and payable hereunder for more than five (5) days, Tenant shall pay to Landlord on demand a late charge equal to four percent (4%) of such delinquent sum. The parties agree that such late charge represents a fair and reasonable estimate of the
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costs that Landlord will incur by reason of such late payment by Tenant. The late charge shall be deemed to be rent, and the right to require it shall be in addition to all of Landlord’s other rights and remedies for a payment failure of Tenant, including the right to charge interest on the past due amount. Notwithstanding the foregoing, Tenant shall not be liable for the first late charge due during any calendar year, provided the overdue amounts for which such late charge would be assessed is paid within ten (10) days after written notice from Landlord.
(b) Subject to the terms and conditions of this Paragraph 4(b), provided that no Event of Default then exists under this Lease, Tenant shall be credited with (i) the payment of monthly Base Rent with respect to the entire Premises for the first (1st), second (2nd), sixth (6th), thirteenth (13th), twenty-fifth (25th) and forty-ninth (49th) full calendar months of the initial Lease Term only (collectively, the “Base Rent Credit”), as and when the same becomes due and payable, for a total Base Rent Credit equal to $1,522,349.80 in the aggregate. No such Base Rent Credit shall reduce or limit any other amounts which are otherwise payable by Tenant under this Lease (including, without limitation, Operating Expenses and the Parking Fees).
5. Letter of Credit.
(a) As security for the full and faithful payment of all sums due under this Lease and the full and faithful performance of every covenant and condition of this Lease to be performed by Tenant, upon delivery of an executed copy of this Lease to Landlord, Tenant shall deliver to Landlord a letter of credit in the amount of Two Million Dollars ($2,000,000.00) (the “LC Amount”) in favor of Landlord and effective immediately upon issuance (the “Letter of Credit”). The Letter of Credit initially delivered pursuant to this paragraph and all substitutions, replacements and renewals of it, must be consistent with and shall satisfy all the following requirements: (i) the Letter of Credit shall be clean, irrevocable and unconditional; (ii) the Letter of Credit must be issued by a national bank which is a member of the New York Clearing House and which has a banking office dedicated to the administration and payment of letters of credit in the State of California, which bank must be reasonably satisfactory to Landlord (provided that for purposes hereof, Silicon Valley Bank shall be deemed to be an approved bank); (iii) the Letter of Credit shall have an expiration date no earlier than the first anniversary of the date of its issuance and shall provide for its automatic renewal from year to year unless terminated by the issuing bank by notice to Landlord given not less than sixty (60) days prior to its expiration date by registered or certified mail or recognized overnight courier service (and the final expiration date of the Letter of Credit and all renewals of it shall be no earlier than sixty (60) days following the end of the Lease Term); (iv) the Letter of Credit may be drawn at the State of California banking office of the issuer and must allow for draws to be made at sight pursuant to a form of draw request which has been approved by Landlord; (v) the Letter of Credit must allow for one draw in the whole amount or multiple partial draws (and Landlord shall not, as a condition to any draw, be required to deliver any certificate, affidavit or other writing to the issuer expressing the basis for the draw, nor shall the issuer have the right to inquire as to the basis for the draw); (vi) the Letter of Credit shall be freely transferable by Landlord in connection with a transfer of Landlord’s interest in the Premises and this Lease; (vii) the Letter of Credit shall be governed by (A) the International Standby Practices (SP 98 published by the International Chamber of Commerce and (B) the United Nations Convention on Independent Guarantees and Standby Letters of Credit; and (viii) the Letter of Credit shall otherwise be in such reasonable form and shall be subject to such reasonable requirements as Landlord may require. Without limiting the generality of the foregoing, the Letter of Credit must be issued by a bank or financial institution reasonably acceptable to Landlord (x) that is chartered under the laws of the United States, any state thereof or the District of Columbia, and which is insured by the Federal Deposit Insurance Corporation, (y) whose long-term debt ratings on bank level senior debt obligations are rated in not lower than the second highest category by at least two of Pitch Ratings Ltd. (“Fitch”), Moody’s Investors Service, Inc. (“Moody’s”) and Standard & Poor’s Ratings Services (“S&P”) or their respective successors (the “Rating Agencies”) (which, as of the date hereof, shall mean AA from Fitch, Aa from Moody’s or AA from S&P) and (z) which has a short-term deposit rating at the bank level in the highest category from at least two Rating Agencies (which shall mean Fl from Fitch, P-1 from Moody’s and A-1 from S&P).
(b) Landlord may draw on the Letter of Credit, in whole or in part at Landlord’s election, without advance notice to Tenant at any time or from time to time on or after (a) the occurrence of any Event of Default, or (b) if Tenant, or anyone in possession of the Premises (or any portion thereof) through Tenant, holds over after the expiration or earlier termination of this Lease, or (c) Landlord is given notice by the issuer of the Letter of Credit that it is terminating the Letter of Credit, or (d) the Letter of Credit expires on a specified date by its terms
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and is not renewed or replaced at least thirty (30) days in advance of its expiration date, or (d) to the extent permitted by law, in the event any bankruptcy, insolvency reorganization or any other debtor creditor proceeding is instituted by or against Tenant. Tenant hereby waives the provisions of any law, now or hereafter in effect, which limits the manner in which Landlord may apply sums drawn from the Letter of Credit, it being agreed that Landlord may apply such amounts to pay delinquent payments due under this Lease, and the amount of any damage, loss, injury, expense or liability suffered or incurred by Landlord as a result of such Event of Default, without prejudice to any other remedy provided herein or provided by law. The balance of any amounts Landlord may draw on the Letter of Credit not so applied shall be held by Landlord as a cash security deposit to pay delinquent payments due under this Lease, and the amount of any damage, loss, injury, expense or liability suffered or incurred by Landlord as a result of an Event of Default.
(c) In addition, if at any time the bank or financial institution that issues the Letter of Credit is declared insolvent, or is placed into receivership by the Federal Deposit Insurance Corporation or any other governmental or quasi-governmental institution, or if there is a material adverse change in the financial or business condition of the bank or financial institution from the date of this Lease as reasonably determined by Landlord, then following written notice from Landlord, Tenant shall have ten (10) days to replace the Letter of Credit with a new letter of credit from a bank or financial institution reasonably acceptable to Landlord. If Tenant does not replace the Letter of Credit with a new letter of credit from a bank or financial institution reasonably acceptable to Landlord within such ten (10) day period, then notwithstanding anything to the contrary herein, Tenant shall be in default under the Lease (without any further notice or opportunity to cure), and Landlord shall have the right to draw upon the Letter of Credit for the full amount of the Letter of Credit, and such amount shall be held by Landlord as a cash security deposit for application, at Landlord’s election, to pay delinquent payments due under this Lease, and the amount of any damage, loss, injury, expense or liability suffered or incurred by Landlord as a result of an Event of Default.
(d) Landlord may apply any sum drawn on the Letter of Credit to pay delinquent payments due under this Lease, and the amount of any damage, loss, injury, expense or liability suffered or incurred by Landlord as a result of an Event of Default in such order and priority as Landlord elects in its absolute discretion. If any of the proceeds drawn on the Letter of Credit are not so applied immediately, Landlord shall retain any such excess proceeds as a cash security deposit for application, at Landlord’s election, to pay delinquent payments due under this Lease, and the amount of any damage, loss, injury, expense or liability suffered or incurred by Landlord as a result of an Event of Default, in such order and priority as Landlord elects in its absolute discretion. Tenant shall, within ten (10) days after Landlord’s demand, restore the amount of the Letter of Credit drawn so that the Letter of Credit is restored to the original amount of the Letter of Credit, less any amount Landlord has drawn down by Landlord and held as a cash security deposit. If Tenant does not restore the Letter of Credit to such amount within the required time period, such non-restoration shall be considered an Event of Default.
(e) Additionally, Landlord’s draw and application of all or any portion of the proceeds of the Letter of Credit shall not impair any other rights or remedies provided under this Lease or under applicable law and shall not be construed as a payment of liquidated damages. If Tenant shall have fully complied with all of the covenants and conditions of this Lease, the Letter of Credit and any amount held by Landlord as a cash security deposit shall be returned to Tenant or, if Landlord has drawn on the Letter of Credit, the amount being held as a cash security deposit, without interest, within sixty (60) days after the expiration or termination of the Lease Term, delivery of possession of the Premises by Tenant to Landlord in accordance with this Lease, and the satisfaction by Tenant of all of its obligations under the Lease,
(f) On any request by Landlord made during the Lease Term, Tenant shall cooperate in accomplishing any reasonable modification of the Letter of Credit requested by Landlord. If the Letter of Credit should be lost, mutilated, stolen or destroyed, Tenant shall cooperate, at no cost to Tenant, in obtaining the issuance of a replacement.
(g) Tenant shall not assign or grant any security interest in the Letter of Credit and any attempt to do so shall be void and of no effect.
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(h) In the event of a sale or transfer of Landlord’s estate or interest in the Premises, Landlord shall transfer the Letter of Credit to the vendee or the transferee, Tenant shall pay any transfer fees charged by the issuing bank and Landlord shall thereafter be considered released by Tenant from all liability for the return of the Letter of Credit. Tenant shall cooperate in effecting such transfer.
(i) No mortgagee or purchaser of any or all of the Premises at any foreclosure proceeding brought under the provisions of any mortgage shall (regardless of whether the Lease is at the time in question subordinated to the lien of any mortgage) be liable to Tenant or any other person for any or all amounts drawn against the Letter of Credit or any other or additional security deposit or other payment made by Tenant under the provisions of this Lease), unless Landlord has actually transferred the Letter of Credit to such mortgagee or purchaser, or delivered it in cash to such mortgagee or purchaser, as the case may be.
(j) Notwithstanding anything to the contrary contained in this Lease, the LC Amount shall be reduced in accordance with the following schedule. Any reduction of the LC Amount may be effectuated either via an amendment to the existing Letter of Credit or a replacement Letter of Credit.
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Reduction Date
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Reduction Amount
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LC Amount -after Reduction
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Last day of the 24th month following the later of the Commencement Date or the posting of the Letter of Credit
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$400,000.00
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$1,600,000.00
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Last day of the 36th month following the later of the Commencement Date or the posting of the Letter of Credit
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$400,000.00
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$1,200,000.00
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Last day of the 48th month following the later of the Commencement Date or the posting of the Letter of Credit
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$400,000.00
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$800,000.00
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Last day of the 60th month following the later of the Commencement Date
or the posting of the Letter of Cred it
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$250,000.00
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$550,000.00
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Tenant agrees and acknowledges that the foregoing LC Amount reduction schedule is conditioned upon no Event of Default occurring and/or existing under this Lease at the time of each such reduction. In the event an Event of Default then exists under this Lease, then the foregoing reduction schedule shall be null and void and Landlord shall not be required to accept (nor shall Tenant be entitled to) any further reduction of the LC Amount; provided that upon Tenant curing any such Event of Default (and provided no other Events of Default then exist), the LC Amount shall be retroactively reduced by the applicable “Reduction Amount” Tenant shall not be entitled to reduce the LC Amount except as expressly set forth in this Paragraph 5(j). Provided no Event of Default exists, Landlord agrees, within ten (10) business days after receipt of Tenant’s written request following the applicable reduction date, to execute and deliver to the bank a reduction certificate in the form required by the Letter of Credit to effect the applicable reduction permitted hereby. If Landlord fails to deliver such certificate to the bank within such ten (10) business day period, then without limiting any other rights or remedies of Tenant, Tenant shall have the right to charge Landlord an amount equal to Five Hundred Dollars ($500.00) per day for each day thereafter until Landlord delivers the reduction certificate to the bank pursuant to the terms hereof.
6. Operating Expense Payments.
(a) During each month of the Lease Term, on the same date that Base Rent is due, Tenant shall pay Landlord an amount equal to l/12th of the annual cost, as estimated by Landlord from time to time, of Tenant’s Proportionate Share (hereinafter defined) of Operating Expenses for the Premises. Payments thereof for any fractional calendar month shall be prorated. The provisions of this Paragraph 6 shall survive the expiration or earlier termination of the Lease.
(b) The term “Operating Expenses” means all costs and expenses incurred by Landlord in connection with the ownership, maintenance, and/or operation of the Premises including; but not limited to costs of:
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utilities; maintenance, repair and replacement of all portions of the Premises, including without limitation, paving and parking areas, roads, roofs, roof membrane, alleys, and driveways; mowing, snow removal, landscaping, and exterior painting; the cost of maintaining utility lines and installations, fire sprinklers and fire protection systems, exterior lighting and mechanical and building systems; amounts paid to contractors and subcontractors for work or services performed in connection with any of the foregoing; charges or assessments of any association to which the Premises is subject; fees payable to tax consultants and attorneys for consultation and contesting taxes; environmental insurance, environmental management fees and environmental audits; the cost of any insurance deductibles for insurance maintained by Landlord; property management fees (not to exceed 3% of Base Rent) payable to a property manager, including any affiliate of Landlord; an administration fee (not to exceed $75,000 per annum); security services (if requested by Tenant); trash collection, janitor services, sweeping and removal; and additions or alterations made by Landlord to the Premises or the Building in order to comply with Legal Requirements (other than those expressly required herein to be made by Tenant) or intended to effect economies in the operation or maintenance of the Premises, and/or intended to reduce current or future Operating Expenses (provided that the cost of such additions or alterations that are required to be capitalized for federal income tax purposes shall be amortized on a straight line basis with interest (at 3.5% over prime per annum) over a period equal to the useful life thereof for federal income tax purposes and included in Operating Expenses only to the extent of the amortized amount for the respective calendar year). In addition, Operating Expenses shall include (1) Taxes (hereinafter defined) due and payable each calendar year during the Lease Term, and (2) the cost of insurance maintained by Landlord for the Premises for each calendar year during the Lease Term. Subject to the below exclusions, the cost of any repairs or replacements which are classified as capital expenditures under generally accepted accounting principles shall not be wholly included in Operating Expenses in the year incurred and, instead, shall be amortized with interest (at 5% over prime per annum) over the useful life of the applicable item for federal income tax purposes and included in Operating Expenses only to the extent of the amortized amount for the respective calendar year. Landlord shall obtain at least three (3) bids for any repair or maintenance expense which is anticipated to be in excess of Twenty-Five Thousand Dollars ($25,000.00).
(c) Notwithstanding the foregoing, Operating Expenses do not include:
(1) Costs of leasing space in the Building, including brokerage commissions, lease concessions, rental abatements and construction allowances;
(2) Costs (including permit, license and inspection fees) incurred in renovating or otherwise improving or decorating, painting or redecorating space for tenants or other occupants or in renovating or redecorating vacant space, except in connection with general maintenance and repairs provided to the Premises in general;
(3) Depreciation;
(4) Sums paid to subsidiaries or other affiliates of Landlord for services on or to the Building and/or the Premises but only to the extent that the costs of such services exceed the reasonably competitive cost for such services rendered by persons or entities of similar skill, competence and experience;
(5) Landlord’s general corporate overhead, general administrative expenses, advertising and promotional expenditures;
(6) Compensation paid to clerks, attendants or other persons working in or managing commercial concessions operated by Landlord;
(7) Rentals and other related expenses incurred in leasing air conditioning systems, elevators or other equipment which if purchased the cost of which would be excluded from Operating Expenses as a capital cost, except equipment not affixed to the Building which is used in providing janitorial or similar services and, further excepting from this exclusion such equipment rented or leased to remedy or ameliorate an emergency condition in the Building and/or the Premises;
(8) Items and services to the extent Tenant reimburses Landlord other than through Operating Expenses (such that there would be duplication in charges to Tenant);
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(9) Repairs or other work occasioned by fire, windstorm or other casualty, or by condemnation, the costs of which are reimbursed to Landlord by insurers, other parties or by governmental authorities in eminent domain;
(10) Debt service under mortgages;
(11) Rental payments to any ground lessor or landlord;
(12) Penalties, interest or late fees in connection with Landlord’s late payment of Taxes, except to the extent the same was caused by Tenant’s failure to timely its Proportionate Share of Taxes to Landlord (in which case Tenant shall be responsible for same);
(13) costs incurred by Landlord in connection with the correction of latent defects in the original construction of the Building or latent defects with respect to any structural elements of the Building;
(14) capital expenditures required to remedy a condition existing prior to the Delivery Date which a governmental authority with jurisdiction, if it had knowledge of such condition prior to the Delivery Date and if such condition was not subject to a variance or a grandfathered code waiver exception, would have then required to be remedied pursuant to then-current applicable Legal Requirements, in their form existing as of the Delivery Date (and pursuant to the then current interpretation of such Legal Requirements by such governmental authority as of the Delivery Date);
(15) Costs of remediation of any Landlord’s Hazardous Materials (as defined in Paragraph 30 below); and
(16) Costs incurred as a result of the negligence or willful misconduct of Landlord, its agents, employees and contractors.
(d) Within one hundred eighty (180) days following the end of each calendar year wholly or partially included within the Term, Landlord shall use commercially reasonable efforts to deliver to Tenant a statement of annual Operating Expenses for such year in reasonable detail (each, an “Actual Statement”). If Tenant’s total payments of Operating Expenses for any year are less than Tenant’s Proportionate Share of actual Operating Expenses for such year, then Tenant shall pay the difference to Landlord within thirty (30) days after demand, and if more, then Landlord shall retain such excess and credit it against Tenant’s next payments. For purposes of calculating Tenant’s Proportionate Share of Operating Expenses, a year shall mean a calendar year except the first year, which shall begin on the Commencement Date, and the last year, which shall end on the expiration of this Lease. If Landlord fails to deliver the Actual Statement to Tenant within said 180-day period, then Tenant shall have no further obligation to make the payments referenced in Section 6(a) above until such time as Landlord delivers the Actual Statement to Tenant (provided that, within five (5) business days following the delivery by Landlord of the Actual Statement to Tenant, Tenant shall pay to Landlord the payments otherwise due and owing by Tenant to Landlord under Section 6(a) above which were not paid due to the late delivery of the Actual Statement to Tenant).
(e) Tenant’s “Proportionate Share” shall be the percentage set forth on the first page of this Lease. The estimated Operating Expenses for the Premises set forth on the first page of this Lease are only estimates, and Landlord makes no guaranty or warranty that such estimates will be accurate.
(f) Provided Tenant is not then in default beyond any applicable cure period of its obligations to pay rent, or any other payments required to be made by it under this Lease, Tenant shall have the right, once each calendar year, to cause a Qualified Person (as defined below) to reasonably review supporting data for any portion of an Actual Statement of annual Operating Expenses delivered by Landlord (provided, however, Tenant may not have an audit right to documentation relating to Building operations unrelated to Operating Expenses as this would far exceed the relevant information necessary to properly document a pass-through billing
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statement, but real estate tax statements, and information on utilities, repairs, maintenance and insurance will be available), in accordance with the following procedure:
(1) Tenant shall, within one (1) year after any Actual Statement is delivered, deliver a written notice to Landlord specifying that Tenant desires to review the underlying records and documentation relating to the items specified in the applicable Actual Statement in no event shall Tenant be entitled to withhold, deduct, or offset any monetary obligation of Tenant to Landlord under the Lease (including without limitation, Tenant’s obligation to make all payments of rent and all payments of Tenant’s Operating Expenses) pending the completion of and regardless of the results of any review of records under this Paragraph. The right of Tenant under this Paragraph may only be exercised once for any Actual Statement, and if Tenant fails to meet any of the above conditions as a prerequisite to the exercise of such right; the right of Tenant under this Paragraph for a particular Actual Statement shall be deemed waived.
(2) Tenant acknowledges that Landlord maintains its records for the Premises at the office of Landlord’s property manager in California, and Tenant agrees that any review of records under this Paragraph shall be at the sole expense of Tenant (except as otherwise provided herein) and shall be conducted by a Qualified Person. Tenant acknowledges and agrees that any records reviewed under this Paragraph constitute confidential information of Landlord, which shall not be disclosed to anyone other than (A) the Qualified Person performing the review, (B) the principals of Tenant who receive the results of the review, (C) Tenant’s employees, agents, contractors and consultants in the course of their respective businesses, (D) Tenant’s existing and prospective lenders, investors, assignees and/or subtenants, or (E) as may be required by applicable governmental authority. The disclosure of such information to any other person not permitted herein, whether or not caused by the conduct of Tenant, shall constitute a material breach of this Lease.
(3) Any errors disclosed by the review shall be promptly connected by Landlord, provided, however, that if Landlord disagrees with any such claimed errors, Landlord shall have the right to cause another review to be made by a Qualified Person. In the event of a disagreement between the two (2) reviews, the two (2) Qualified Persons who conducted Landlord’s and Tenant’s reviews shall jointly designate a third (3rd) Qualified Person, at Tenant’s sole cost and expense (except as otherwise indicated in this Lease), to conduct a review of Landlord’s records. The review of such third (3rd) Qualified Person shall be deemed correct and binding upon the parties. In the event that the final results of such review of Landlord’s records reveal that Tenant has overpaid obligations for the preceding period, the amount of such overpayment shall be credited against Tenant’s subsequent installment obligations to pay the estimated Operating Expenses; provided, however, if Tenant has overpaid by more than four percent (4%), Landlord shall pay the reasonable out-of-pocket cost of the review of Landlord’s records by Tenant’s Qualified Person and the reasonable out-of-pocket cost of the review of Landlord’s records by the third (3rd) Qualified Person. If this Lease has expired, Landlord shall return the amount of such overpayment to Tenant within thirty (30) days after such reviews have been made. In the event that such results show that Tenant has underpaid its obligations for a preceding period, the amount of such underpayment shall be paid by Tenant to Landlord within thirty (30) days thereafter. A “Qualified Person” means an employee of Tenant, an accountant or other person experienced in accounting for income and expenses of commercial projects engaged by Tenant.
7. Utilities.
(a) Upon the Commencement Date, Landlord shall cause the utilities for the Premises to be placed in the name of Tenant. Following the Commencement Date, Tenant shall timely pay for all water, gas, electricity, heat, light, power, telephone, sewer, sprinkler services, refuse and trash collection, and other utilities and services used on the Premises, all maintenance charges for utilities, and any storm sewer charges or other similar charges for utilities imposed by any governmental entity or utility provider, together with any taxes, penalties, surcharges or the like pertaining to Tenant’s use of the Premises. Landlord shall have no responsibilities whatsoever in connection with the foregoing. Landlord may cause at Tenant’s expense any utilities to be separately metered or charged directly to Tenant by the provider. Except as expressly provided in the remainder of this Paragraph 7(a), no interruption or failure of utilities shall result in the termination of this Lease or the abatement of rent. If Tenant is prevented from using, and does not use, the Premises or a substantial portion thereof as a result of any interruption in utilities to the extent caused by the negligence or willful misconduct of Landlord, its agents, employees and/or
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contractors, and such failure was not caused directly or indirectly by the negligence or willful misconduct of Tenant, its employees, agents, contractors, invitees or licensees (an “Abatement Event”), then Tenant shall give written notice of such Abatement Event to Landlord. If the Abatement Event continues for three (3) consecutive business days (the “Abatement Period”) after Landlord’s receipt of Tenant’s written notice, then Base Rent, Parking Fee and Operating Expenses shall be abated or reduced after expiration of the Abatement Period, for such time that Tenant continues (as a result of the Abatement Event) to be so prevented from using, and does not use, the Premises or a substantial portion thereof, in the proportion that the rentable area of the portion of the Premises that Tenant is prevented from using, and does not use, bears to the total rentable area of the Premises.
(b) Landlord shall provide standard janitorial services to the Premises five days per week (excluding any weekends and holidays) including but not limited to removal of Tenant’s refuse and trash to the Building trash area, the cost of which shall be included in Operating Expenses. Landlord shall obtain at least three (3) bids for janitorial services.
(c) Energy Consumption Data. Notwithstanding anything to the contrary contained in this Lease, Tenant agrees that Landlord, at its election, may contact any utility company providing utility services to the Premises in order to obtain data on the energy being consumed by the occupant of the Premises. Furthermore, Tenant agrees to provide Landlord with Tenant’s energy consumption data within thirty (30) days after Landlord’s request for the same. Tenant acknowledges that pursuant to applicable Legal Requirements, Landlord may be required to disclose information concerning Tenant’s energy usage at the Building to certain third parties, including, without limitation, prospective purchasers, lenders and tenants of the Building (the “Tenant Energy Use Disclosure”). Tenant hereby (A) consents to all such Tenant Energy Use Disclosures, and (B) acknowledges that Landlord shall not be required to notify Tenant of any Tenant Energy Use Disclosure. Tenant agrees to take such further actions as are necessary in order to further the purpose of this paragraph, including, without limitation, providing to Landlord the names and contact information for all utility providers serving the Premises, copies of utility bills, written authorization from Tenant to any such utility company to release information to Landlord, and any other relevant information reasonably requested by Landlord or the applicable utility company.
8. Taxes.
(a) General. Landlord shall pay all taxes, assessments, special assessments, improvement districts, and governmental charges (collectively referred to as “Taxes”) that accrue against the Premises during the Lease Term. Taxes shall be included as part of the Operating Expenses charged to Tenant pursuant to Paragraph 6 hereof during each year of the Lease Term, based upon Landlord’s reasonable estimate of the amount of Taxes, and shall be subject to reconciliation and adjustment pursuant to Paragraph 6 once the actual amount of Taxes is known. Taxes shall include without limitation any increase in any of the foregoing based upon construction of improvements on the Premises or changes in ownership (as defined in the California and Revenue Taxation Code). Landlord may contest by appropriate legal proceedings the amount, validity or application of any Taxes or liens thereof and any costs incurred in such contest may be included as part of Taxes. All capital levies or other taxes assessed or imposed on Landlord upon the rents payable to Landlord under this Lease and any franchise tax, any excise, transaction, sales, business and occupation or privilege tax, assessment, levy or charge measured by or based, in whole or in part, upon such results from the Premises or any portion thereof shall be paid by Tenant to Landlord monthly in estimated installments or within thirty (30) days of demand, at the option of Landlord, as additional rent; provided, however, in no event shall Tenant be liable for any net income taxes imposed on Landlord unless such net income taxes are in substitution for any Taxes payable here-under. If any such tax or excise is levied or assessed directly against Tenant, then Tenant shall be responsible for and shall pay the same at such times and in such manner as the taxing authority shall require. Tenant shall be liable for all taxes levied or assessed against any personal property or fixtures placed in the Premises, whether levied or assessed against Landlord or Tenant, and if any such taxes are levied or assessed against Landlord or Landlord’s property and (a) Landlord pays them or (b) the assessed value of Landlord’s property is increased thereby and Landlord pays the increased taxes, then Tenant shall pay to Landlord such taxes within thirty (30) days after Landlord’s request therefor. Nothing contained in this Lease shall require Tenant to pay any inheritance taxes, gift taxes, transfer taxes, franchise taxes, excise taxes, net income taxes, profit taxes, and/or capital levies, except to the extent same are specifically substituted in lieu of Taxes otherwise payable hereunder. Furthermore, nothing contained in this Lease shall require Tenant to pay any late payment charges and penalties arising out of Landlord’s failure to timely pay Taxes, except to the extent the same was caused by Tenant’s
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failure to timely its Proportionate Share of Taxes to Landlord (in which case Tenant shall be responsible for same). Assessments payable hereunder shall be payable by Tenant in installments if Landlord is permitted to pay same in installments without penalty, late charge or other additional cost associated therewith (other than any interest due to the assessing authority for assessments paid in installments, which interest shall be included in Taxes and charged to Tenant).
(b) Proposition 13 Protection. In the event that after August 1, 2017, but prior to the five (5) year anniversary of the Commencement Date (the “Protection Period”), any sale or change in ownership of the Premises is consummated by Landlord with another party (a “Change in Ownership”) and as a result thereof, and to the extent that in connection therewith, the Premises is reassessed (the “Reassessment”) for real estate tax purposes by the appropriate governmental authority pursuant to the terms of Proposition 13, then the terms of this Paragraph 8(b) shall apply to such Reassessment of the Premises.
(1) The Tax Increase. For purposes of this Paragraph 8(b), the term “Tax Increase” shall mean that portion of Taxes, as calculated immediately following the first Reassessment (if any) that occurs during the Protection Period, which is attributable solely to the Reassessment. Accordingly, the term “Tax Increase” shall not include any portion of Taxes, as calculated immediately following the Reassessment, which (A) is attributable to the initial assessment of the value of the Premises, Building, the Land, and/or the improvements located in the Premises, (B) is attributable to assessments which were pending immediately prior to the Reassessment which assessments were conducted during, and included in, such Reassessment, or which assessments were otherwise rendered unnecessary following the Reassessment, (C) is attributable to the annual inflationary increase of real estate taxes, (D) is attributable to any construction on the Land or Premises (excluding the construction of the Building, Landlord’s Work or the Tenant Improvements), or (E) is attributable to any sale or Change in Ownership occurring after the Protection Period.
(2) Protection. If a Reassessment occurs during the Protection Period (but not any other period of the Lease Term, including any extension or renewal of the Lease Term), the following provisions shall apply: (i) if the Reassessment occurs during the period from August 1, 2017 through the date immediately prior to the three (3) year anniversary of the Commencement Date, then any Tax Increase from such Reassessment shall not be included in Operating Expenses for the entirety of the Protection Period; (ii) if the Reassessment occurs during the period from the three (3) year anniversary of the Commencement Date through the date immediately prior to the four (4) year anniversary of the Commencement Date, then eighty percent (80%) of any Tax Increase from such Reassessment shall not be included in Operating Expenses for the entirety of the Protection Period and twenty percent (20%) of any Tax Increase from such Reassessment shall be included in Operating Expenses; and (iii) if the Reassessment occurs during the period from the four (4) year anniversary of the Commencement Date through the date immediately prior to the five (5) year anniversary of the Commencement Date, then sixty percent (60%) of any Tax Increase from such Reassessment shall not be included in Operating Expenses for the entirety of the Protection Period and forty percent (40%) of any Tax Increase from such Reassessment shall be included in Operating Expenses. Tenant shall be entitled to no other protections against Tax Increases hereunder, except as expressly provided in this Paragraph 8(b), it being understood, however, that the protection herein provided shall apply to any and all Reassessments which occur during the Protection Period Tenant acknowledges and agrees that Tenant shall be 100% responsible for all Tax Increases attributable to a Change In Ownership occurring at any time other than during the Protection Period (and with respect to a Tax Increase attributable to a Change In Ownership occurring during the Protection Period, Tenant shall be 100% responsible for such Tax Increase following the expiration of the Protection Period).
(3) Landlord’s Right to Purchase the Proposition 13 Protection Amount. The amount of Taxes which Tenant is not obligated to pay or will not be obligated to pay during the Protection Period in connection with any Reassessment pursuant to the terms of this Paragraph 8(h) shall be sometimes referred to hereafter as a “Proposition 13 Protection Amount”. If the occurrence of a Reassessment is reasonably foreseeable by Landlord and the Proposition 13 Protection Amount attributable to such Reassessment can be reasonably quantified or estimated for each calendar year commencing with the year in which the Reassessment will occur, the terms of this Paragraph 8(b)(3) shall apply to each such Reassessment. Upon notice to Tenant, Landlord shall have the right (but not the obligation) to purchase the Proposition 13 Protection Amount relating to the applicable Reassessment (the “Applicable Reassessment”), at any time during the Lease Term, by paying to Tenant an amount
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equal to the “Proposition 13 Purchase Price,” as that term is defined below. As used herein, “Proposition 13 Purchase Price” shall mean the present value of the Proposition 13 Protection Amount remaining during the Protection Period, as of the date of payment of the Proposition 13 Purchase Price by Landlord. Such present value shall be calculated (x) by using the portion of the Proposition 13 Protection Amount attributable to each remaining year of the Protection Period (as though the portion of such Proposition 13 Protection Amount benefited Tenant at the end of each month of each year of the Protection Period), as the amounts to be discounted, and (y) by using discount rates for each amount to be discounted equal to (A) the average rates of yield for United States Treasury Obligations with maturity dates as close as reasonably possible to the end of each year of the Term during which the portions of the Proposition 13 Protection Amount would have benefited Tenant, which rates shall be those in effect as of Landlord’s exercise of its right to purchase as set forth in this subsection (3), plus (B) two percent (2%) per annum. Upon such payment of the Proposition 13 Purchase Price, the provisions of Paragraph 8(b)(2) of this Lease shall not apply to any Tax Increase attributable to the Applicable Reassessment, and Tenant shall have no further protection whatsoever under this Paragraph 8(b), and Tenant shall be fully responsible for the entire Tax Increase. Notwithstanding the foregoing, since Landlord will be estimating the Proposition 13 Purchase Price because a Reassessment has not yet occurred, then when such Reassessment occurs, if Landlord has underestimated the Proposition 13 Purchase Price, Tenant’s Base Rent next due shall be credited with the amount of such underestimation, and if Landlord overestimates the Proposition 13 Purchase Price, then Tenant shall pay the amount of the overestimation to Landlord within thirty (30) days after demand. Landlord agrees that if Landlord sells the Premises following payment of a Proposition 13 Purchase Price, Landlord shall cause the purchaser of the Premises to acknowledge and assume the obligations of Landlord contained in the preceding sentence.
9. Insurance.
(a) Tenant Insurance Requirements.
(i) Effective as of the earlier of: (x) the date Tenant enters or occupies the Premises; or (y) the Commencement Date, and continuing during the Lease Term, Tenant, at its expense, shall obtain and maintain in full force the following insurance coverage (subject to increases in coverage amounts and additional types of coverage, as reasonably determined by Landlord from time to time):
(1) Commercial general liability insurance which insures against claims for bodily injury, personal injury, advertising injury, and property damage based upon, involving, or arising out of the use, occupancy, or maintenance of the Premises. Such insurance shall afford, at a minimum, the following limits:
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Each Occurrence
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$1,000,000
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General Aggregate
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$2,000,000
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Products/Completed Operations Aggregate
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$1,000,000
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Personal and Advertising Injury Liability
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$1,000,000
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Fire Damage Legal Liability
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$100,000
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Medical Payments
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$5,000
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Any general aggregate limit shall apply on a per location basis. Tenant’s commercial general liability insurance shall include Landlord, its trustees, officers, directors, members, agents, and employees, Landlord’s mortgagees, and Landlord’s representatives, as additional insureds. This coverage shall be written on the most current ISO CGL form (or its equivalent), shall include contractual liability, premises-operations and products-completed operations and shall contain an exception to any pollution exclusion which insures damage or injury arising out of heat, smoke, or fumes from a hostile fire. Such insurance shall be written on an occurrence basis and contain a standard separation of insureds provision.
(2) Business automobile liability insurance covering owned, hired and nonowned vehicles with limits of $1,000,000 combined single limit per occurrence.
(3) Workers’ compensation insurance in accordance with the laws of the state in which the Premises are located with employer’s liability insurance in an amount not less than $1,000,000.
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(4) Umbrella/excess liability insurance, on an occurrence basis, that applies excess of the required commercial general liability, business automobile liability; and employer’s liability policies with the following minimum limits:
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Each Occurrence
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$5,000,000
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$5,000,000
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Umbrella/Excess liability policies shall contain an endorsement stating that any entity qualifying as an additional insured on the insurance stated in the Schedule of Underlying Insurance shall be an additional insured on the umbrella/excess liability policies, and that they apply immediately upon exhaustion of the insurance stated in the Schedule of Underlying Insurance as respects the coverage afforded to any additional insured. The umbrella/excess liability policies shall also provide that they apply before any other insurance, whether primary, excess, contingent or on any other basis, available to an additional insured on which the additional insured is a named insured (which shall include any self-insurance), and that the insurer will not seek contribution from such insurance.
(5) Property insurance “the equivalent of causes of loss - special form” including flood, earthquake, windstorm, theft, sprinkler leakage and boiler and machinery coverage on all of Tenant’s trade fixtures, furniture, inventory and other personal property in the Premises, and on any alterations, additions, or improvements made by Tenant upon the Premises all for the full replacement cost thereof. Tenant shall use the proceeds from such insurance for the replacement of trade fixtures, furniture, inventory and other personal property and for the restoration of Tenant’s improvements, alterations, and additions to the Premises.
(6) Business income and extra expense insurance with limits not less than one hundred percent (100%) of all income and charges payable by Tenant under this lease for a period of twelve (12) months.
(ii) All policies required to be carried by Tenant hereunder shall be issued by an insurance company licensed or authorized to do business in the state in which the Premises is located with a rating of at least “A-; VIII” or better as set forth in the most current issue of Best’s Insurance Reports, unless otherwise approved by Landlord. Tenant shall not do or permit anything to be done that would invalidate the insurance policies required herein. Liability insurance maintained by Tenant shall be primary coverage on behalf of Landlord, its trustees, officers, directors, members, agents, and employees, Landlord’s mortgagees, and Landlord’s representatives and any policies of Landlord, its trustees, officers, directors, members, agents, and employees, Landlord’s mortgagees, and Landlord’s representatives shall be non-contributory. Certificates of insurance, reasonably acceptable to Landlord, evidencing the existence and amount of each insurance policy required hereunder shall be delivered to Landlord prior to delivery or possession of the Premises and ten (10) days following each renewal date. Certificates of insurance shall evidence that Landlord, its trustees, officers, directors, members, agents, and employees, Landlord’s mortgagees, and Landlord’s representatives are included as additional insureds on liability policies and that Landlord is included as loss payee on the property insurance as stated in Paragraph 9(a)(i)(5) above. Tenant shall be required to provide Landlord and each of the other additional insureds at least ten (10) days prior written notice of cancellation, non-renewal or material change in coverage. All such insurance may be carried in a single policy or a combination of primary and excess liability policies or under a blanket policy covering the Premises and any of Tenant’s other locations.
(iii) In the event that Tenant fails to provide evidence of insurance required to be provided by Tenant in this Lease, prior to the Commencement Date and thereafter during the Lease Term, within ten (10) days following Landlord’s request thereof, Landlord shall be authorized (but not required) to procure such coverage in the amount stated with all costs thereof to be chargeable to Tenant and payable within ten (10) business days following Tenant’s receipt of written invoice therefor.
(iv) The limits of insurance required by this Lease, or as carried by Tenant, shall not limit the liability of Tenant or relieve Tenant of any obligation under this Lease. Any deductibles selected by Tenant shall be the sole responsibility of Tenant.
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(v) The Tenant insurance requirements stipulated in Paragraph 9(a)(i) above are based upon current industry standards. Landlord reserves the right to reasonably require additional coverage or to increase limits as industry standards change based on the coverages and limits being required by other institutional owners of commercial properties similar to the Premises in the market in which the Premises is located.
(vi) Should Tenant engage the services of any contractor to perform work in the Premises, Tenant shall ensure that such contractor carries commercial general liability, business automobile liability, umbrella/excess liability, worker’s compensation and employers liability coverages in substantially the same forms as are required of Tenant under this Lease and in amounts approved in advance by Landlord and/or Landlord’s property manager. Contractor shall include Landlord, its trustees, officers, directors, members, agents and employees, Landlord’s mortgagees and Landlord’s representatives as additional insureds on the liability policies required hereunder. All policies required to be carried by any contractor shall be issued by and binding upon an insurance company licensed or authorized to do business in the state in which the Premises is located with a rating of at least “A-: VIII” or better as set forth in the most current issue of Best’s Insurance Reports, unless otherwise approved by Landlord. Certificates of insurance, acceptable to Landlord, evidencing the existence and amount of each insurance policy required hereunder shall be delivered to Landlord prior to the commencement of any work in the Premises.
(b) Landlord’s Insurance. Landlord shall obtain and maintain the following: (1) property insurance “the equivalent of causes of loss - special form” covering the full replacement cost of the Building (excluding foundations), less a commercially reasonable deductible if Landlord so chooses, including rent loss insurance covering at a minimum twelve (12) months of Rent under this Lease; provided, however, Landlord shall not be obligated to insure any furniture, equipment, trade fixtures, machinery, goods, or supplies which Tenant may keep or maintain in the Premises or any alteration, addition, or improvement which Tenant may make upon the Premises; and (2) commercial general liability insurance, which shall be in such amount as Landlord so determines (in its commercially reasonable discretion), and shall be in addition to, and not in lieu of, any insurance required to be maintained by Tenant. Tenant shall be named as an additional insured on any policy of liability insurance maintained by Landlord. In addition, Landlord may, but is not obligated to, maintain such other insurance and additional coverages as it may deem necessary, including, but not limited to, flood insurance and, earthquake insurance. The premiums for all such insurance shall be included as part of the Operating Expenses charged to Tenant pursuant to Paragraph 6 hereof. The Premises may be included in a blanket policy (in which case the cost of such insurance allocable to the Premises will be determined by Landlord based upon the insurer’s cost calculations). Tenant shall also reimburse Landlord for any increased premiums or additional insurance that Landlord reasonably deems necessary as a result of Tenant’s particular use of the Premises.
(c) Waiver of Subrogation. Landlord and Tenant each waives any and all rights of recovery against the other for or arising out of damage to, or destruction of the Premises to the extent that each party’s property insurance policies then in force insure against such damage or destruction and permit such waiver. Each party waives any and all rights of recovery against the other party for or arising out of damage to or destruction of any property of such party to the extent that such party’s property insurance policies then in force or the policies required by this Lease, whichever is broader, insure against such damage or destruction. Landlord will not be responsible for or liable to Tenant for any loss or damage resulting to Tenant or its property from burst, stopped or leaking water, gas, sewer or steam pipes or falling plaster, or electrical wiring or for any damage or loss of property within the Premises from any causes whatsoever, including but not limited to theft, and/or acts or threatened acts of terrorism, damage or injury due to mold, excepting only losses or damages resulting from the gross negligence or willful misconduct of Landlord. Except for Landlord’s right to pursue all damages Landlord is entitled to recover in accordance with California Civil Code Section 1951.2, neither Landlord nor Tenant will not be liable under any circumstances to the other for any incidental or consequential damages.
10. Landlord’s Repairs. This Lease is intended to be a triple net lease. Landlord shall maintain and repair, as part of Operating Expenses, only the parking facility serving the Premises, the mechanical, electrical, plumbing, sanitary, sprinkler, heating, ventilation and air conditioning (“HVAC”), security, life-safety, elevator and other service systems or facilities of the Premises, the roof of the Building, exterior walls, foundation piers and structural elements of the Building in good repair, reasonable wear and tear. The term “walls” as used in this Paragraph 10 shall not include windows, glass or plate glass, doors or overhead doors, special store fronts, dock
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bumpers, dock plates or levelers, or office entries, all of which shall be maintained by Tenant. Tenant shall promptly give Landlord written notice of any repair required by Landlord pursuant to this Paragraph 10, after which Landlord shall have a reasonable opportunity to repair such item. Tenant hereby waives the benefit of California Civil Code Sections 1941 and 1942, and any other statute providing a right to make repairs and deduct the cost thereof from the rent. Landlord shall use commercially reasonable efforts to minimize interference with Tenant’s Permitted Use of the Premises in connection with any such work performed by Landlord (to the extent reasonably practicable in light of the scope or work, and provided that in no event will Landlord be required to incur overtime or after hours charged or otherwise incur additional costs or expenses in connection therewith). If Tenant is prevented from using, and does not use, the Premises (including the Parking facility, or a substantial portion thereof as a result of the negligence or willful misconduct of Landlord, its agents, employees and/or contractors in the conduct of such work, then Tenant shall give written notice of such prevention to Landlord, and if such prevention continues for three (3) consecutive business days after Landlord’s receipt of Tenant’s written notice, then Base Rent, Parking Fee and Operating Expenses shall be abated or reduced after expiration of such 3-day period, for such time that Tenant continues to be so prevented from using, and does not use, the Premises or a substantial portion thereof, in the proportion that the rentable area of the portion of the Premises that Tenant is prevented from using, and does not use, bears to the total rentable area of the Premises.
11. Tenant’s Repairs.
(a) Subject to Landlord’s obligation in Paragraph 10 and/or elsewhere in this Lease, Tenant at its sole expense, shall repair, replace and maintain in good condition and in compliance with all Legal Requirements all portions of the Premises and all areas, improvements and systems exclusively serving the Premises including, without limitation, equipment and loading areas, plumbing, water, and sewer lines up to points of common connection, entries, doors, door frames, ceilings, windows, window frames, interior walls, and the interior side of demising walls, and heating, ventilation and air conditioning systems, and other building and mechanical systems serving the Premises. Such repair and replacements include capital expenditures and repairs whose benefit may extend beyond the Lease Term. If a capital replacement of any currently existing element of the Premises is required then, provided that such capital replacement (i) was not necessitated by Tenant’s misuse, failure to perform ordinary repair and maintenance in a commercially reasonable manner, or failure to timely comply with any of the terms of this Lease (it being understood that, subject to Section 9(c), Tenant shall solely be responsible for the cost thereof if such capital replacement was necessitated by Tenant’s misuse, failure to perform ordinary repair and maintenance in a commercially reasonable manner, or failure to timely comply with any of the terms of this Lease), and (ii) is not with respect to any Tenant-Made Alterations, Landlord shall perform such capital replacement and the cost thereof shall be amortized on a straight line basis (with interest at 8% per annum) over a period equal to the useful life thereof for federal income tax purposes, and Tenant shall pay such amortized payments to Landlord on the first day of each month together with its Base Rent payments (but without regard to any credit or abatement of Base Rent) through and including the expiration of the Lease Term (and any extensions thereof). Within ten (10) days of the Commencement Date, Tenant, at Tenant’s expense, shall enter into maintenance service contracts for the maintenance and repair of the heating, ventilation and air conditioning systems and other mechanical and building systems serving the Premises; provided, however, at Landlord’s written election (but at Tenant’s expense), Landlord shall have the right (but not the obligation) to enter into such maintenance service contracts. The scope of services and contractors under such maintenance contracts maintained by Tenant shall be subject to Landlord’s prior written approval, which approval shall not be unreasonably withheld, conditioned or delayed.
(b) In the event that any repair or maintenance obligation required to be performed by Tenant hereunder may affect the structural integrity of the Building (e.g., roof, foundation, structural members of the exterior walls) or any Building systems (e.g., plumbing, electrical, HVAC, fire and life safety), prior to commencing any such repair, Tenant shall provide Landlord with written notice of the necessary repair or maintenance and a brief summary of the structural component or components of the Building, and/or the Building systems, that may be affected by such repair or maintenance. Within ten (10) business days after Landlord’s receipt of Tenant’s written notice, Landlord shall have the right, but not the obligation, to elect to cause such repair or maintenance to be performed by Landlord, or a contractor selected and engaged by Landlord, but at Tenant’s sole cost and expense.
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12. Tenant-Made Alterations and Trade Fixtures.
(a) Any alterations, additions, or improvements made by or on behalf of Tenant to the Premises (“Tenant-Made Alterations”) shall be subject to Landlord’s prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed (except to the extent any such Tenant-Made Alterations could adversely impact the structure, systems or exterior appearance of the Building, in which event Landlord’s consent shall be in its sole and absolute discretion). Notwithstanding the foregoing, Landlord’s consent shall not be required for any Tenant-Made Alterations which are strictly cosmetic in nature and (i) do not modify or affect the Premises’ or Building’s structure, roof systems, or the electrical, plumbing, heating, ventilation and air conditioning, mechanical, security, life safety or other systems serving the Building and/or Premises, (ii) are not visible from the exterior of the Premises, (iii) do not require the issuance of a building permit, (iv) do not involve penetrations to the roof and/or roof membrane of the Building, and (v) otherwise comply with Legal Requirements (collectively, “Cosmetic Alterations”); provided that the aggregate cost of any such Cosmetic Alterations does not exceed One Hundred Fifty Thousand Dollars ($150,000.00) in any twelve (12) month period during the Lease Term. Cosmetic Alterations shall be deemed to constitute Tenant-Made Alterations for all purposes under this Lease (except that Landlord’s consent shall not be required so long as the foregoing provisions have been satisfied), Tenant shall cause, at its expense, all Tenant-Made Alterations to comply with insurance requirements and with Legal Requirements and shall construct at its expense any alteration or modification required by Legal Requirements as a result of any Tenant-Made Alterations.
(b) All Tenant-Made Alterations shall be constructed in a good and workmanlike manner by contractors reasonably acceptable to Landlord and only good grades of materials shall be used. All plans and specifications for any Tenant-Made Alterations requiring Landlord’s consent shall be submitted to Landlord for its approval, which approval shall not be unreasonably withheld, conditioned or delayed (except to the extent any such Tenant-Made Alterations could adversely impact the structure, systems or exterior appearance of the Building, in which event Landlord’s consent shall be in its sole and absolute discretion). Landlord may monitor construction of the Tenant-Made Alterations. Tenant shall reimburse Landlord for its actual out-of-pocket costs in reviewing plans and specifications and in monitoring construction not to exceed three percent (3%) of the total cost of such Tenant-Made Alterations, it being understood, however that no such reimbursement shall be made with respect to the Tenant Improvement or Cosmetic Alterations. Landlord’s right to review plans and specifications and to monitor construction shall be solely for its own benefit, and Landlord shall have no duty to see that such plans and specifications or construction comply with applicable laws, codes, rules and regulations.
(c) Tenant shall provide Landlord with the identities and mailing addresses of all persons performing work or supplying materials, prior to beginning such construction, and Landlord may post on and about the Premises notices of non-responsibility pursuant to applicable law. Tenant shall assure payment for the completion of all work free and clear of liens and shall provide certificates of insurance for worker’s compensation and other coverage in amounts and from an insurance company satisfactory to Landlord protecting Landlord against liability for personal injury or property damage during construction. Upon completion of any Tenant-Made Alterations, Tenant shall deliver to Landlord sworn statements setting forth the names of all contractors and subcontractors who did work on the Tenant-Made Alterations and final lien waivers from all such contractors and subcontractors for invoices in excess of $5,000.00.
(d) Upon surrender of the Premises, all Tenant-Made Alterations and any leasehold improvements constructed by Landlord or Tenant shall remain on the Premises as Landlord’s property, except to the extent Landlord’s requires removal at Tenant’s expense of any such items which Landlord notified Tenant in writing would be required to be removed at the time of Landlord’s consent thereto (it being understood and agreed that Tenant shall not be required to remove any Cosmetic Alterations of Tenant Improvements (unless Landlord required Tenant to remove such Tenant Improvements concurrently with Landlord’s approval of the same; provided that Landlord shall have no such right to require such removal with respect to standard general office improvements typically found in premises used for general office purposes). At the time Tenant requests Landlord’s consent and delivers all plans and specifications to any Tenant-Made Alteration, Landlord shall notify Tenant whether Tenant shall be obligated, or have the right, to remove the applicable Tenant-Made Alteration at the end of the Lease Term, in which event Tenant shall only be obligated to remove (i) those Tenant-Made Alterations that Landlord notified Tenant in writing at the time Landlord provides its consent that it must remove at the end of the Lease Term, and (ii)
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those Tenant-Made Alterations (other than Cosmetic Alterations) that Tenant did not timely seek or did not obtain Landlord’s written consent to leave in place at the end of the Lease Term, and that Landlord ultimately requires Tenant to remove. In the event that Landlord fails to respond to any such written request from Tenant within ten (10) business days, then Landlord will be deemed to have elected to allow Tenant to leave the subject Tenant-Made Alterations upon the expiration or earlier termination of this Lease. Notwithstanding the foregoing, in no event shall Tenant be responsible for or liable for the cost of removal of the initial Tenant Improvements (except to the extent the same are damaged or modified by Tenant). Prior to the expiration or termination of this Lease, Tenant, at its sole expense, shall repair any and all damage caused by such removal.
(e) Tenant, at its own cost and expense and without Landlord’s prior approval, may erect such shelves, bins, machinery and trade fixtures (collectively “Trade Fixtures”) in the ordinary course of its business provided that such items do not alter the basic character of the Premises, do not overload or damage the Premises, and may be removed without injury to the Premises, and the construction, erection, and installation thereof complies with all Legal Requirements and with Landlord’s requirements set forth above. Prior to the expiration or termination of this Lease, Tenant, at its sole expense, shall remove its Trade Fixtures and shall repair any and all damage caused by such removal.
13. Signs. Tenant shall have the right to place multiple building signs in mutually agreeable locations on the Building, subject to the terms and conditions contained herein. All signs, decorations, advertising media, blinds, draperies and other window treatment or bars or other security installations visible from outside the Premises shall be subject to Landlord’s prior written approval (which approval shall not be unreasonably withheld, conditioned or delayed) and shall conform in all respects to Legal Requirements applicable to the Premises, Tenant shall not make any changes to the exterior of the Premises, install any exterior lights, decorations, balloons, flags, pennants, banners or painting, or erect or install any signs, windows or door lettering, placards, decorations, or advertising media of any type which can be viewed from the exterior of the Premises, without Landlord’s prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed. Landlord shall be required to notify Tenant of whether it consents to any sign within fifteen (15) days after Landlord has received a request for such approval, together with detailed, to-scale drawings thereof specifying design, material composition, color scheme, and method of installation. Upon surrender or vacation of the Premises, Tenant shall have removed all signs and repair, paint, and/or replace the building fascia surface to which its signs are attached. Tenant shall obtain all applicable governmental permits and approvals for sign and exterior treatments.
14. Parking. So long as Tenant leases the entire Building, Tenant shall be entitled to the exclusive use of the vehicle parking spaces that serve the Building. Tenant shall use the parking areas in compliance with all Legal Requirements, the terms of this Lease, and with the rules and regulations which are attached hereto. Commencing on the Commencement Date, in addition to Base Rent, Operating Expenses, and all other charges and expenses due under this Lease, Tenant promises to pay to Landlord, as additional rent, in advance, concurrently with Tenant’s payment of Base Rent, without demand, deduction or set-off, the amount of Eight Thousand Five Hundred Dollars ($8,500.00) per month (the “Parking Fee”), on or before the first day of each calendar month throughout the Lease Term, which Parking Fee shall increase annually as set forth in the Parking Fee schedule contained in the Basic Lease Provisions above. Payments of the Parking Fee for any fractional calendar month shall be prorated. Landlord shall be responsible for payment of the full amount of any existing City taxes imposed in connection with the renting of such parking spaces by Tenant or the use of the parking spaces by Tenant (provided that Tenant shall be responsible for any new taxes imposed by any governmental authority from and after the Commencement Date in connection with said parking spaces). Tenant acknowledges and agrees that Landlord may, without incurring any liability to Tenant and without any abatement of Base Rent and/or Parking Fees under this Lease (except as otherwise provided in this Lease), from time to time, temporarily close-off or restrict access to the Premises parking facility for purposes of permitting or facilitating maintenance and repair required to be performed by Landlord under this Lease. Landlord shall use commercially reasonable efforts to minimize interference with Tenant’s Permitted Use of the Premises in connection with any such work performed by Landlord (to the extent reasonably practicable in light of the scope or work, and provided that in no event will Landlord be required to incur overtime or after hours charged or otherwise incur additional costs or expenses in connection therewith). Landlord shall not be responsible for enforcing Tenant’s parking rights against any third parties. Provided the same complies with Legal Requirements, Tenant may, at Tenant’s sole cost and expense, utilize a valet service from time to time to park
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additional vehicles at the Premises (without any increase in the Parking Fees associated with the additional vehicles being parked in the Premises in connection with such valet service). The parking rights granted to Tenant pursuant to this Paragraph 14 are provided to Tenant solely for use by Tenant’s own personnel, invitees, visitors and subtenants/assignees, and such rights may not be transferred, assigned, subleased or otherwise alienated by Tenant separate from this Lease without Landlord’s prior approval. All motor vehicles (including all contents thereof) shall be parked in the Premises’ parking areas at the sole risk of Tenant, it being expressly agreed and understood Landlord has no duty to insure any of said motor vehicles (including the contents thereof), and Landlord is not responsible for the protection and security of such vehicles. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS LEASE, LANDLORD SHALL HAVE NO LIABILITY WHATSOEVER FOR ANY PROPERTY DAMAGE OR LOSS WHICH MIGHT OCCUR ON THE PARKING AREAS OR AS A RESULT OF OR IN CONNECTION WITH THE PARKING OF MOTOR VEHICLES IN ANY OF THE PARKING SPACES.
15. Restoration.
(a) If at any time during the Lease Term the Premises are damaged by a fire or other casualty, Landlord shall notify Tenant within sixty (60) days after such damage as to the amount of time Landlord reasonably estimates it will take to restore the Premises. If the restoration time is estimated to exceed one hundred eighty (180) days from the date Landlord receives all permits, approvals, and licenses required to begin reconstruction, Tenant may elect to terminate this Lease upon notice to Landlord given no later than thirty (30) days after Landlord’s notice. If the restoration time is estimated to exceed two hundred seventy (270) days from the date Landlord receives all permits, approvals, and licenses required to begin reconstruction, or the damage is uninsured and the restoration time is estimated to exceed thirty (30) days, Landlord may elect to terminate this Lease upon notice to Tenant given no later than thirty (30) days after Landlord’s notice. If neither party elects to terminate this Lease or if Landlord estimates that restoration will take two hundred seventy (270) days or less (or the damage is uninsured and Landlord estimates that restoration will take thirty (30) days of less), then, Landlord shall promptly restore the Premises excluding the Tenant-Made Alterations, the Tenant Improvements, and any other improvements installed by Tenant or by Landlord and paid by Tenant, subject to delays arising from the collection of insurance proceeds or from Force Majeure events. Landlord shall not be required to expend more for the restoration of the Premises than the amount Landlord receives as insurance proceeds from Landlord’s insurer, or the amount Landlord would have received if Landlord had maintained the insurance required to be maintained by Landlord under this Lease and had diligently pursued a claim against such insurer. Tenant at Tenant’s expense shall promptly perform, subject to delays arising from the collection of insurance proceeds, or from Force Majeure events, all repairs or restoration not required to be done by Landlord and shall promptly re-enter the Premises and commence doing business in accordance with this Lease. Base Rent, Operating Expenses and Parking Fees shall be abated for the period of repair and restoration in the proportion which the area of the Premises, if any, which is not usable by Tenant bears to the total area of the Premises. Notwithstanding the foregoing, either party may terminate this Lease upon thirty (30) days written notice to the other if the Premises are damaged during the last year of the Lease Term and Landlord reasonably estimates that it will take more than sixty (60) days (or such lesser period as is remaining in the Term) to repair such damage. Tenant shall pay to Landlord, within thirty (30) days following Landlord’s demand therefor accompanied by reasonable supporting documentation with respect thereto, the amount of the deductible under Landlord’s insurance policy. Notwithstanding the above, Landlord will not be entitled to terminate this Lease solely because there is less than one (1) year on the Lease Term if Tenant has an exercisable right to renew or extend the Lease Term and Tenant, within ten (10) days after receipt of Landlord’s notice of termination, validly exercises such right. The foregoing shall not prohibit Landlord from exercising its right to terminate for any of the other reasons set forth herein. Notwithstanding the foregoing, if Tenant was entitled to but elected not to exercise its right to terminate the Lease and Landlord does not substantially complete the repair and restoration of the Premises within ninety (90) days after the expiration of the estimated period of time set forth in the Landlord’s estimate (except to the extent that substantial completion is delayed as a result of events of Force Majeure or any acts or omission of Tenant or any agent, employee, contractor, licensee or invitee of Tenant), then Tenant may terminate this Lease by written notice to Landlord within ten (10) days after the expiration of such period (but prior to substantial completion of the restoration), as the same may be extended.
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(b) If the Premises are destroyed or substantially damaged by any peril not covered by the insurance maintained by Landlord, Landlord may terminate this Lease by delivering written notice of termination to Tenant within thirty (30) days after such destruction or damage or such requirement is made known by any such Landlord’s mortgagee, as applicable, whereupon all rights and obligations hereunder shall cease and terminate, except for any liabilities of Tenant which accrued prior to Lease termination. If Landlord elects to repair or restore such damage or destruction, this Lease shall continue in full force and effect, but Base Rent shall be proportionately reduced as provided in Paragraph 15(a). If Landlord elects to terminate this Lease, such termination shall be effective as of the date of the occurrence of such damage or destruction.
(c) Notwithstanding the foregoing, if the Premises are wholly or partially damaged or destroyed as a result of the gross negligence or willful misconduct or omission of Tenant or any of Tenant’s Agents, Tenant shall forthwith diligently undertake to repair or restore all such damage or destruction at Tenant’s sole cost and expense, or Landlord may at its option undertake such repair or restoration at Tenant’s sole cost and expense; provided, however, that Tenant shall be relieved of its repair and payment obligations pursuant to this Paragraph 15(c) to the extent that insurance proceeds are collected by Landlord to repair such damage (or insurance proceeds would have been collected had Landlord maintained the insurance required to be maintained by Landlord under this Lease), although Tenant shall in such events pay to Landlord the full amount of the deductible under Landlord’s insurance policy and any amounts not insured. This Lease shall continue in full force and effect without any abatement or reduction in Base Rent or Operating Expenses or other payments owed by Tenant. In this regard, Landlord agrees to act diligently and in good faith in tendering any claim(s) to its insurance carrier(s) with respect to any insured damage and expeditiously pursuing any such claim to obtain all available insurance proceeds.
(d) The provisions of this Paragraph 15 shall constitute Tenant’s sole and exclusive remedy in the event of damage or destruction to the Premises, and Tenant waives and releases all statutory rights and remedies in favor of Tenant in the event of damage or destruction, including without limitation those available under California Civil Code Sections 1932 and 1933(4). No damages, compensation or claim shall be payable by Landlord for any inconvenience, any interruption or cessation of Tenant’s business, or any annoyance, arising from any damage or destruction of all or any portion of the Premises Notwithstanding the foregoing, Tenant shall have the right to bring an action to enforce Landlord’s obligations to perform its restoration obligations under this Lease.
16. Condemnation. If any part of the Premises should be taken for any public or quasi-public use under governmental law, ordinance, or regulation, or by right of eminent domain, or by private purchase in lieu thereof (a “Taking” or “Taken), and (a) the Taking would prevent or materially interfere with Tenant’s use of the Premises (as determined by Tenant’s in Tenant’s reasonable judgment), (b) in Landlord’s reasonable judgment would materially interfere with or impair its ownership or operation of the Premises then upon written notice by Landlord (in connection with item (b) above), or Tenant (in connection with item (a) above), this Lease shall terminate and Base Rent, Operating Expenses and Parking Fees shall be apportioned as of said date. If part of the Premises shall be Taken, and this Lease is not terminated as provided above, the Base Rent, Operating Expenses and Parking Fees payable hereunder during the unexpired Lease Term shall be reduced to such extent as may be fair and reasonable under the circumstances, and Landlord shall restore the Premises as near as reasonably attain able to its condition prior to the Taking; provided, however, Landlord’s obligation to so restore the Premises shall be limited to the award Landlord receives in respect of such Taking that is not required to be applied to the indebtedness secured by a mortgage. In the event of any such Taking, Landlord shall be entitled to receive the entire price or award from any such Taking without any payment to Tenant, except that Tenant shall have the right, to the extent that same shall not diminish Landlord’s award, to make a separate claim against the condemning authority (but not Landlord) for such compensation as may be separately awarded or recoverable by Tenant for moving expenses and damage to Tenant’s Trade Fixtures, and the unamortized value of leasehold improvements actually paid for by Tenant, but only to the extent that such compensation is in addition to and shall not diminish the compensation provided to Landlord. This paragraph shall be Tenant’s sole and exclusive remedy in the event of any taking and Tenant hereby waives any rights and the benefits of Section 1265.130 of the California Code of Civil Procedure or any other statute granting Tenant specific rights in the event of a Taking which are inconsistent with the provisions of this Paragraph.
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17. Assignment and Subletting.
(a) Without Landlord’s prior written consent (which consent shall not be unreasonably withheld, conditioned or delayed), Tenant shall not assign this Lease or sublease the Premises or any part thereof or mortgage, pledge, or hypothecate its leasehold interest or grant any concession or license within the Premises (each being a “Transfer”) and any attempt to do any of the foregoing shall be void and of no effect. For purposes of this Paragraph 17, a transfer of forty-nine percent (49%) or more of the ownership interests of Tenant shall be deemed a Transfer of this Lease unless such ownership interests are publicly traded. Notwithstanding the above, Tenant may assign or sublet the Premises, or any part thereof, to any entity controlling Tenant, controlled by Tenant or under common control with Tenant, or the surviving entity following a merger, consolidation or other reorganization of Tenant, or to an entity acquiring all or substantially all of the stock or assets of Tenant (each a “Tenant Affiliate”) without the prior written consent of Landlord; provided, however, Tenant shall provide at least ten (10 ) days written notice prior to assigning this Lease to, or entering into any sublease with, any Tenant Affiliate and the Tenant Affiliate must have a net worth (calculated in accordance with generally accepted accounting principles, consistently applied) greater than or equal to that of Tenant as of the date of this Lease. Tenant shall reimburse Landlord for all of Landlord’s reasonable out of-pocket expenses in connection with any Transfer (not to exceed $3,000.00 per Transfer), other than to a Tenant Affiliate. Upon Landlord’s receipt of Tenant’s written notice of Tenant’s intent to assign this Lease or sublet more than seventy-five percent (75%) of the entire Premises for the remainder of the lease term (other than to a Tenant Affiliate or to Permitted Licensees), Landlord may, by giving written notice to Tenant within thirty (30) days after receipt of Tenant’s notice, terminate this Lease in its entirety effective on a date no more than ninety (90) days thereafter. If Landlord does not exercise its recapture right within the time period provided, Tenant may proceed to sublease or assign more than seventy-five percent (75%) of the Premises subject to Landlord consent, and Landlord may not exercise its recapture right thereafter for a period of one (1) year. Tenant acknowledges and agrees that Landlord may withhold its consent to any proposed assignment or subletting for any reasonable basis including, but not limited to: (i) an Event of Default exists under this Lease; (ii) the assignee is unwilling to assume in writing all of Tenant’s obligations hereunder which arise from and after the date of the Transfer, or the subtenant is unwilling to agree that the sublease is subject and subordinate to the terms and conditions of the Lease; (iii) the assignee has a financial condition which is insufficient to satisfy the obligations of the Tenant under this Lease; or (iv) the Premises will be used for different purposes than those set forth in Paragraph 3(a) (which purposes Landlord reasonably determines will cause increased wear and tear on the Premises or increase insurance or liability risk to Landlord),or for a use requiring or generating Hazardous Materials (beyond what is expressly permitted under Paragraph 30 below). Tenant hereby waives and releases its rights under Section 1995.310 of the California Civil Code or under any similar law, statute or ordinance now or hereafter in effect.
(b) Notwithstanding any Transfer, Tenant and any guarantor or surety of Tenant’s obligations under this Lease shall at all times remain fully responsible and liable for the payment of the rent and for compliance with all of Tenant’s other obligations under this Lease (regardless of whether Landlord’s approval has been obtained for any such Transfer). In the event that the rent due and payable by a sublessee or assignee (or a combination of the rental payable under such sublease or assignment plus any bonus or other consideration therefor or incident thereto) exceeds the rental payable under this Lease, then Tenant shall be bound and obligated to pay Landlord as additional rent hereunder fifty percent (50%) of all such excess rental and other excess consideration within ten (10) days following receipt thereof by Tenant (which excess shall be calculated after first deducting the actual and reasonable out-of-pocket costs paid by Tenant to procure the transferee, including, without limitation, allowances, legal fees, market brokerage commissions, and other economic concessions). If such Transfer is for less than all of the Premises, such excess rental and other excess consideration shall be calculated on a rentable square foot basis.
(c) If this Lease is assigned or if the Premises is subleased (whether in whole or in part) or in the event of the mortgage, pledge, or hypothecation of Tenant’s leasehold interest or grant of any concession or license within the Premises or if the Premises be occupied in whole or in part by anyone other than Tenant, then upon a default by Tenant hereunder Landlord may collect rent from the assignee, sublessee; mortgagee, pledgee, party to whom the leasehold interest was hypothecated, concessionee or licensee or other occupant and, except to the extent set forth in the preceding subparagraph, apply the amount collected to the next rent payable hereunder; and all such rentals collected by Tenant shall be held in trust for Landlord and immediately forwarded to Landlord. No
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such transaction or collection of rent or application thereof by Landlord, however, shall be deemed a waiver of these provisions or a release of Tenant from the further performance by Tenant of its covenants, duties, or obligations hereunder. Any approved assignment or sublease shall be expressly subject to the terms and conditions of this Lease. Landlord’s consent to any Transfer shall not waive Landlord’s rights as to any subsequent Transfers. Notwithstanding anything to the contrary contained in this Lease, if Tenant or any proposed transferee claims that Landlord has unreasonably withheld or delayed its consent under this Paragraph 17 or otherwise has breached or acted unreasonably under this Paragraph 17, their sole remedies shall be a declaratory judgment and an injunction for the relief sought without any monetary damages, and Tenant hereby waives all other remedies, including, without limitation, any right at law or equity to terminate this Lease, on its own behalf and, to the extent permitted under all applicable laws, on behalf of the proposed transferee.
(d) Notwithstanding the anything to the contrary in this Paragraph 17, provided that no Event of Default exists hereunder and subject to the terms and conditions of this Paragraph 17(d). Tenant shall have the right to license, without Landlord’s prior written consent, up to fifteen percent (15%), in the aggregate, of the Premises as individual offices and workstations (each a “Permitted Licensee”), provided that (i) Tenant may not separately demise any such licensed space and the Permitted Licensee uses, in common with Tenant, one common entryway to the Premises; (ii) the Permitted Licensee uses such space only for the use permitted by this Lease and for no other purpose; and (iii) at least ten (10) business days before the Permitted Licensee commences occupancy of the Premises, Tenant shall notify Landlord in writing of the Permitted Licensee’s identity and any other information reasonably requested by Landlord. Tenant shall cause each Permitted Licensee, and each of its employees and licensees, to comply with the provisions of this Lease (including, without limitation, the insurance requirements under this Lease), and each Permitted Licensee, and each of its employees, agents, licensees or invitees, shall be deemed subtenants of Tenant for purposes of Tenant’s indemnity obligations under this Lease. No use or occupancy of any portion of the Premises by a Permitted Licensee shall release or excuse Tenant from any obligation hereunder or create a landlord/tenant relationship between Landlord and such Permitted Licensee. Landlord shall not be required to provide notices to any Permitted Licensee. The foregoing provision shall not be construed as a waiver of Landlord’s right to consent to any further subletting either by Tenant or by the any of the Permitted Licensees which is not specifically allowed under the provisions of this section, or to any assignment by Tenant of the Lease, or as a consent to any portion of the Premises being used or occupied by any other entity or party
18. Indemnification.
(a) Tenant agrees to indemnify, defend (with counsel reasonably acceptable to Landlord) and hold harmless Landlord, and Landlord’s agents employees and contractors, from and against any and all claims, demands, losses, liabilities, causes of action, suits, judgments, damages, costs and expenses (including attorneys’ fees) (collectively, “Claims”), arising from any occurrence in or about the Premises, the use and occupancy of the Premises, or from any activity, work, or thing done, permitted or suffered by Tenant, its agents, employees, contractors, shareholders, partners, invitees subtenants or assignees in or about the Premises or due to any other negligence or willful misconduct of Tenant, its subtenants, assignees, invitees, employees, contractors and agents, or from Tenant’s failure to perform its obligations under this Lease (other than any Claims to the extent caused by the negligence or willful misconduct of Landlord or its employees; agents or contractors). This indemnity provision shall survive termination or expiration of this Lease. The furnishing of insurance required hereunder shall not be deemed to limit Tenant’s obligations under this Paragraph 18. Notwithstanding anything to the contrary in this Lease, Landlord shall not be liable to Tenant, and Tenant hereby waives all Claims against Landlord and the other indemnified parties, for any damages arising from any act, omission or neglect of any third parties and in no event shall Landlord or any of the other indemnified parties be liable for any injury or interruption to Tenants business or any loss of income therefrom under any circumstances and neither Landlord nor any of the other indemnified parties shall be liable for any indirect or consequential losses or damages suffered by Tenant.
(b) Landlord agrees to indemnify, defend (with counsel reasonably acceptable to Tenant) and hold harmless Tenant from and against any and all Claims to the extent caused by the negligence or willful misconduct of Landlord, its agents, employees and/or contractors; provided, however, notwithstanding the foregoing or anything to the contrary in this Lease, Landlord shall not have any obligation to indemnify Tenant or its agents, employees, contractors subtenants or assignees for: (i) any Claims to the extent caused by the negligence or willful misconduct of Tenant or its agents, employees, contractors, subtenants or assignees (or any of their respective
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officers, directors, shareholders, members, agents, employees or contractors); or (ii) any Claims to the extent waived by Tenant pursuant to the provisions set forth in Paragraph 9(c). The furnishing of insurance required hereunder shall not be deemed to limit Landlord’s obligations under this Paragraph 18(b). Notwithstanding the foregoing or anything to the contrary in this Lease, in no event shall Landlord be liable for any injury or interruption to Tenant’s business or any loss of income therefrom under any circumstances, and in no event shall Landlord be liable for any indirect or consequential losses or damages suffered by Tenant (or any other party). This indemnity provision shall survive termination or expiration of this Lease.
19. Inspection and Access. Subject to the other provisions of this Lease, Landlord and its agents, representatives, and contractors may enter the Premises at any reasonable time (upon not less than 24 hours advance oral or written notice to Tenant, except in the event of an emergency in which case no notice shall be required) to inspect the Premises and to make such repairs as may be required or permitted pursuant to this Lease and for any other reasonable business purpose, including, without limitation, for the purpose of showing the Premises to prospective purchasers or, during the last year of the Lease Term, to prospective tenants. Landlord may erect a suitable sign on the Premises stating the Premises are available to let (during the last year of the Lease Term) or that the Premises is available for sale. Tenant shall have the right to have a representative of Tenant accompany Landlord during the course of any such entry (so long as such representative of Tenant is available during the time of Landlord’s entry) and Landlord shall use commercially reasonable efforts to conduct any such entry in a manner so as to minimize interference with Tenant’s Permitted Use of the Premises to the extent reasonably practicable in light of the scope or work, and provided that in no event will Landlord be required to incur overtime or after hours charged or otherwise incur additional costs or expenses in connection therewith. Landlord may grant easements, make public dedications, and create restrictions on or about the Premises, provided that no such easement, dedication, designation or restriction materially or unreasonably interferes with Tenant’s use or occupancy of the Premises (including the manner in which Tenant is then using the Premises, so long as in accordance with the Permitted Use). At Landlord’s request, Tenant shall execute such commercially reasonable instruments as may be necessary for such easements, dedications or restrictions.
20. Quiet Enjoyment. If Tenant shall perform all of the covenants and agreements herein required to be performed by Tenant, Tenant shall, subject to the terms of this Lease, any ground lease, mortgage or deed of trust now or hereafter encumbering the Premises and all matters of record, at all times during the Lease Term, have peaceful and quiet enjoyment of the Premises against any person claiming by, through or under Landlord.
21. Surrender. No act by Landlord shall be an acceptance of a surrender of the Premises, and no agreement to accept a surrender of the Premises shall be valid unless it is in writing and signed by Landlord. Upon termination of the Lease Term or earlier termination of Tenant’s right of possession, Tenant shall surrender the Premises to Landlord in the same condition as received, broom clean, ordinary wear and tear and casualty loss and condemnation covered by Paragraphs 15 and 16 excepted. Tenant shall give written notice to Landlord at least thirty (30) days prior to vacating the Premises and shall meet with Landlord for a joint inspection of the Premises at the time of vacating. In the event of Tenant’s failure to give such notice or to participate in such joint inspection, Landlord’s inspection shall be deemed conclusive for purposes of determining Tenants’ responsibility for repairs and restoration. No such performance by Landlord shall create any liability on the part of Landlord whatsoever. Any Trade Fixtures, Tenant-Made Alterations required to be removed by Tenant under Paragraph 12 and property not so removed by Tenant as permitted or required herein shall be deemed abandoned and may be stored, removed, and disposed of by Landlord at Tenant’s expense, and Tenant waives all claims against Landlord for any damages resulting from Landlord’s retention and disposition of such property. All obligations of Tenant hereunder not fully performed as of the termination of the Lease Term shall survive the termination of the Lease Term, including without limitation, indemnity obligations, payment obligations with respect to Operating Expenses and all obligations concerning the condition and repair of the Premises. If Tenant fails to perform any obligation prior to the expiration or earlier termination of this Lease, and such failure continues for more than five (5) business days following written notice from Landlord, Landlord may, but shall not be obligated to, perform such obligation and Tenant shall pay Landlord all costs associated therewith, plus an administrative fee of 5% of such costs, within thirty (30) days following Landlord’s delivery to Tenant of an invoice therefor accompanied by reasonable supporting documentation with respect thereto, and any time required by Landlord to complete such obligations shall be considered a period of holding over and the terms of Paragraph 22 shall apply.
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22. Holding Over. If Tenant fails to vacate the Premises after the termination of the Lease Term, Tenant shall be, at Landlord’s sole election, a tenant at will or at sufferance, and Tenant shall pay, in addition to any other rent or other sums then due Landlord, Base Rent equal to 150% of the Base Rent in effect on the expiration or termination date, computed on a monthly basis for each month or part thereof during such holdover, even if Landlord consents to such holdover (which consent shall be effective only if in writing). All other payments shall continue under the terms of this Lease. Tenant shall also be liable for all Operating Expenses incurred during such holdover period. In addition, Tenant shall be liable for all damages (including attorneys’ fees and expenses) of whatever type (including consequential damages) incurred by Landlord as a result of such holding over. No holding over by Tenant, whether with or without consent of Landlord, shall operate to extend this Lease except as otherwise expressly provided, and this Paragraph 22 shall not be construed as consent for Tenant to retain possession of the Premises.
23. Events of Default. Each of the following events shall be an event of default (“Event of Default”) by Tenant under this Lease:
(a) Tenant shall fail to pay any installment of Base Rent, Operating Expenses, Parking fees or any other recurring or non-recurring payment required herein when due, and such failure shall continue for a period of five (5) business days after written notice from Landlord that such amount is due and payable.
(b) Tenant or any guarantor or surety of Tenant’s obligations hereunder shall fail to cure any of the following within thirty (30) days after written notice from Landlord to Tenant (i) make a general assignment for the benefit of creditors; (ii) commence any case, proceeding or other action seeking to have an order for relief entered on its behalf as a debtor or to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, liquidation, dissolution or composition of it or its debts or seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or of any substantial part of its property (collectively a “proceeding for relief”); (iii) become the subject of any proceeding for relief which is not dismissed within sixty (60) days of its filing or entry; or (iv) die or suffer a legal disability (if Tenant, guarantor, or surety is an individual) or be dissolved or otherwise fail to maintain its legal existence (if Tenant, guarantor or surety is a corporation, partnership or other entity).
(c) Any insurance required to be maintained by Tenant pursuant to this Lease shall be canceled or terminated or shall expire or shall be reduced or materially changed, except, in each case, as permitted in this Lease, and Tenant has not obtained replacement coverage (effective retroactively to the date of termination or cancellation of the prior policy), within ten (10) business days following its receipt of written notice from Landlord.
(d) Tenant shall abandon or shall vacate the entire Premises whether or not Tenant is in monetary or other default under this Lease; provided, however, Tenant’s vacating of the Premises shall not constitute an Event of Default if, prior to vacating the Premises, Tenant has made arrangements reasonably acceptable to Landlord to ensure that (a) Tenant’s insurance for the Premises will not be voided or cancelled with respect to the Premises as a result of such vacancy, (b) the Premises are secured and not subject to vandalism, and (c) the Premises will be properly maintained after such vacation, including, but not limited to, keeping the HVAC systems maintenance contracts required by this Lease in full force and effect and maintaining all other the utility services. Tenant shall inspect the Premises at least once each month and upon written request of the Landlord, report monthly to Landlord on the condition of the Premises.
(e) There shall occur any assignment, subleasing or other transfer of Tenant’s interest in or with respect to this Lease except as otherwise permitted in this Lease, and such assignment, subleasing or other transfer of Tenant’s interest is not rescinded within ten (10) days following written notice from Landlord to Tenant.
(f) Tenant shall fail to discharge or bond over any lien placed upon the Premises in violation of this Lease within thirty (30) days after Tenant is notified in writing by Landlord that any such lien or encumbrance is filed against the Premises.
(g) Tenant shall fail to execute any instrument of subordination or attornment or any estoppel certificate within the time periods set forth in Paragraphs 27 and 29 respectively following Landlord’s request for
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the same (and such failure shall continue for a period of ten (10) days following written notice from Landlord to Tenant that the deadline for delivery, as set forth in Paragraph 27 or 29, as applicable, has expired).
(h) Tenant shall breach any of the requirements of Paragraph 30 and such failure shall continue for a period of ten (10) days or more after notice from Landlord to Tenant; provided, however, that if the nature of Tenant’s obligation under this subsection (h) is such that more than ten (10) days are reasonably required for performance, then Tenant shall not be in default under this subsection (h) if Tenant promptly commences performance within such ten (10) day period and thereafter diligently prosecutes the same to completion.
(i) Tenant shall fail to comply with any provision of this Lease other than those specifically referred to in this Paragraph 23, and except as otherwise expressly provided herein, such default shall continue for more than thirty (30) days after Landlord shall have given Tenant written notice of such default provided, however, that if the nature of Tenant’s obligation under this subsection (i) is such that more than thirty (30) days are reasonably required for performance, then Tenant shall not be in default under this subsection (h) if Tenant promptly commences performance within such thirty (30) day period and thereafter diligently prosecutes the same to completion.
Any notices to be provided by Landlord under this Paragraph 23 shall be in lieu of, and not in addition to, any notice required under Section 1161 et seq. of the California Code of Civil Procedure.
24. Landlord’s Remedies. Upon the occurrence of any default, Landlord shall have the following rights and remedies, in addition to those allowed by law or in equity, any one or more of which may be exercised or not exercised without precluding the Landlord from exercising any other remedy provided in this Lease or otherwise allowed by law or in equity:
(a) Termination of Lease. Landlord may terminate this Lease and Tenants’ right to possession of the Premises. If Tenant has abandoned and vacated the Premises, the mere entry of the Premises by Landlord in order to perform acts of maintenance, cure defaults, preserve the Premises or to attempt to relet the Premises, or the appointment of a receiver in order to protect the Landlord’s interest under this Lease, shall not be deemed a termination of Tenant’s right to possession or a termination of this Lease unless Landlord has notified Tenant in writing that this Lease is terminated. Notification of any default described in Paragraph 23 of this Lease shall be in lieu of, and not in addition to, any notice required under Section 1161 et seq. of the California Code of Civil Procedure. If Landlord terminates this Lease and Tenant’s right to possession of the Premises, Landlord may recover from Tenant:
(1) The worth at the time of the award of unpaid rent which had been earned at the time of termination; plus
(2) The worth at the time of the award of 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 Tenant proves could have been reasonably avoided; plus
(3) The worth at the time of the award of the amount by which the unpaid rent for the balance of the Lease Term after the time of the award exceeds the amount of such rental loss that Tenant proves could be reasonably avoided; plus
(4) Any other amounts necessary to compensate the Landlord for all of the detriment proximately caused by Tenant’s failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including any legal expenses, brokers’ commissions or finders fees (in connection with reletting the Premises and the pro rata portion of any leasing commission paid by landlord in connection with this Lease which is applicable to the portion of the Lease Term, including option periods, which is unexpired as of the date on which this Lease terminated), the costs of repairs, cleanup, refurbishing, removal and storage or disposal of Tenant’s personal property, equipment, fixtures and anything else that Tenant is required under this Lease to remove but does not remove (including those alterations which Tenant is required to remove pursuant to an election by Landlord and Landlord actually removes whether notice to remove
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shall be delivered to Tenant), and any costs for alterations, additions and renovations incurred by Landlord in regaining possession of and reletting (or attempting to re let) the Premises.
All computations of the “worth at the time of the award” of amounts recoverable by Landlord under (1) and (2) hereof shall be computed by allowing interest at the maximum lawful contract rate per annum. The “worth at the time of the award” recoverable by Landlord under (3) and the discount rate for purposes of determining any amounts recoverable under (4), if applicable, shall be computed by discounting the amount recoverable by Landlord at the discount rate of the Federal Reserve Bank, San Francisco, California, at the time of the award plus one percent (1%).
Upon termination of this Lease, whether by lapse of time or otherwise, Tenant shall immediately vacate the Premises and deliver possession to Landlord, and Landlord shall have the right to re-enter the Premises.
(b) Lease to Remain in Effect. Notwithstanding Landlord’s right to terminate this Lease pursuant to clause (a) above, Landlord may, at its option, even though Tenant has breached this Lease and abandoned the Premises, continue this Lease in full force and effect and not terminate Tenant’s right to possession, and enforce all of Landlord’s rights and remedies under this Lease. In such event, Landlord shall have the remedy described in California Civil Code Section 1951.4 (Landlord may continue the Lease in effect after Tenant’s breach and abandonment and recover rent as it becomes due, if Tenant has a right to sublet or assign, subject only to reasonable limitations). Further, in such event Landlord shall be entitled to recover from Tenant all costs of maintenance and preservation of the Premises, and all costs, including attorneys’ fees and receivers’ fees, incurred in connection with appointment of and performance by a receiver to protect the Premises and Landlord’s interest under this Lease. No re-entry or taking possession of the Premises by Landlord shall be construed as an election to terminate this Lease unless a notice (signed by a duly authorized representative of Landlord) of intention to terminate this Lease is given to Tenant.
(c) All Sums Collectible as Rent. All sums due and owing to Landlord by Tenant under this Lease shall be collectible by Landlord as rent.
(d) No Surrender. No act or omission by Landlord or its agents during the Lease Term shall be an acceptance of a surrender of the Premises, and no agreement to accept a surrender of the Premises shall be valid unless made in writing and signed by a duly authorized representative of Landlord. Landlord shall be entitled to a restraining order or injunction to prevent Tenant from defaulting under any of its obligations other than the payment of rent or other sums due hereunder.
(e) Effect of Termination. Neither the termination of this Lease nor the exercise of any remedy under this Lease or otherwise available at law or in equity shall affect Landlord’s right of indemnification set forth in this Lease or otherwise available at law or in equity for any act or omission of Tenant, and all rights to indemnification and other obligations of Tenant intended to be performed after termination of this Lease shall survive termination of this Lease.
(f) Waiver of Redemption by Tenant. In the event Landlord exercises any one or more of Landlord’s rights and remedies under this Article 24, Tenant expressly waives (for Tenant and for all those claiming under Tenant) any and all rights of redemption or relief from forfeiture under California Code of Civil Procedure Section 1174 or 1179, or granted by or under any present or future laws, and further releases Landlord from any and all claims, demands and liabilities by reason of such exercise by Landlord.
25. Tenant’s Remedies/Limitation of Liability.
(a) Landlord shall not be in default hereunder unless Landlord fails to perform any of its obligations hereunder within thirty (30) days after written notice from Tenant specifying such failure (unless such performance will, due to the nature of the obligation require a period of time in excess of thirty (30) days, then after such period of time as is reasonably necessary). All obligations of Landlord hereunder shall be construed as covenants, not conditions; and Tenant may not terminate this Lease for breach of Landlord’s obligations hereunder. Tenant hereby waives the benefit of any laws granting it the right to perform Landlord’s obligations or the right to terminate this Lease or withhold rent on account of any Landlord default. All obligations of Landlord under this Lease will be binding upon Landlord only during the period of its ownership of the Premises and not thereafter. The
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term “Landlord” in this Lease shall mean only the owner; for the time being of the Premises, and in the event of the transfer by Landlord of its interest in this Lease, the transferor shall thereupon be released and discharged from all obligations of “Landlord” thereafter accruing, but such obligations shall be binding during the Lease Term upon the transferee so long as such transferee continues to hold the interest of the “Landlord” under this Lease. Any liability of Landlord (and its partners, shareholders or members) to Tenant (or any person or entity claiming by, through or under Tenant) for any default by Landlord under this Lease or arising out of the relationship between Landlord and Tenant shall be limited solely to Tenant’s actual direct, but not consequential, damages therefor and shall be recoverable only from Landlord’s equity interest in the Premises and the proceeds therefrom, and in no event shall any personal liability be asserted against Landlord, its partners, shareholders, members, directors, employees or agents in connection with this Lease nor shall any recourse be had to any other property or assets of Landlord.
(b) Notwithstanding the foregoing, in the event that Landlord fails to make any repairs to the Premises which Landlord is required to make pursuant to the terms of this Lease (which failure to repair materially and adversely affects Tenant’s use of the Premises) within thirty (30) days after written notice from Tenant (or one (1) business day after written notice in the case of an emergency involving the likelihood of imminent harm to person or material damage to property) then Tenant may give Landlord an additional five (5) business days written notice (or additional one (1) business day’s written notice in the case of emergency as described above) (such additional notice, a “Self Help Notice”) specifying that Tenant is going to take such required action (which notice must describe in detail the action required of Landlord pursuant to this Lease, and state in the subject line in boldface, ALL CAPS that “LANDLORD’S ATTENTION IS REQUIRED. IF LANDLORD FAILS TO COMMENCE PERFORMANCE OF ITS OBLIGATIONS WITHIN FIVE (5) BUSINESS DAYS [ONE (1) BUSINESS DAY] FOLLOWING THE DATE OF THIS NOTICE, TENANT SHALL EXERCISE IT’S “SELF HELP” REMEDY PURSUANT TO PARAGRAPH 25(B) OF THE LEASE”). If Landlord has not commenced to repair such problem (or reasonably objected to the required action described in Tenant’s notice) within such five (5) business day period (or one (1) business day period in the case of an emergency) after receipt of the Self Help Notice from Tenant (which Self Help Notice must conform with the foregoing requirements), then Tenant shall have the right to perform the required action of Landlord, and, provided that Landlord has not reasonably disputed or objected to the required action described in Tenant’s notice, Landlord shall reimburse Tenant for the actual and reasonable costs thereof (except to the extent Tenant would otherwise ultimately have been responsible for such costs under this Lease, including through Operating Expenses) within thirty (30) days after presentation of a reasonably detailed invoice demonstrating the expenses incurred by Tenant, provided that if Landlord fails to timely reimburse Tenant following said 30-day period, Tenant may offset such amount from Base Rent until Tenant is repaid, provided that Tenant shall not be allowed to offset more than ten percent ( l0%) of Base Rent in any month. Any dispute between Landlord and Tenant as to whether any such action described by Tenant is required shall be resolved pursuant to the dispute resolution procedure described in Paragraph 26 below (unless otherwise resolved by the parties). In the event Tenant takes such action, and such work may affect the structure, systems or exterior appearance of the Building, then Tenant shall use only those contractors used by Landlord in the Premises for such work (provided that such contractors are known to Tenant and available to perform such work ). All work performed by Tenant pursuant to this Paragraph 25(b) shall be subject to all of the terms and conditions of this Lease (including, without limitation. Paragraphs 11 and 12 above) except that Landlord’s consent shall not be required (to the extent the other provisions of this paragraph have been complied with by Tenant). Except as provided above, in no event shall Tenant be entitled to offset any amounts owed by Landlord to Tenant under this Lease against Tenant’s obligations to Landlord.
26. Dispute Resolution. Each controversy, dispute or claim between Landlord and Tenant arising out of, based upon or relating to this Lease, with the exception of claims relating to Landlord’s exercise of any unlawful detainer rights pursuant to California law or rights or remedies used by Landlord to gain possession of the Premises or terminate Tenant’s right of possession of the Premises (which disputes shall be resolved by suit filed in the Superior Court of Los Angeles County, California), will be resolved by a reference proceeding in Los Angeles County, California in accordance with the provisions of Sections 638 et seq. of the California Code of Civil Procedure (“CCP”), or their successor sections. The Parties shall cooperate in good faith to ensure that all necessary
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and appropriate parties are included in the judicial reference proceeding. In the event litigation is filed based on any such dispute, the following shall apply:
(a) The proceeding shall be brought and held in Los Angeles County, unless Landlord and Tenant agree to an alternative venue. In disputes required to be submitted to a reference proceeding, either party may seek injunctive or other provisional relief from the referee or from a court of competent jurisdiction as set forth herein. At the outset of the dispute, a party may file an application for any provisional or injunctive remedy with the court, but only upon the ground that the decision to which the applicant may be entitled to may be rendered ineffectual without such provisional or injunctive relief.
(b) Landlord and Tenant shall agree upon a single referee who shall have the power to try any and all of the issues raised, whether of fact or of law, which may be pertinent to the matters in dispute, and to issue a statement of decision thereon to the court. The referee shall be (1) a retired Judge; and (2) selected by mutual agreement of Landlord and Tenant; provided, however, if they cannot so agree within thirty (30) days after the filing of any claim, the referee shall be promptly selected by the Presiding Judge of the Los Angeles County Superior Court (or its representative). Each party shall have one peremptory challenge pursuant to CCP 170.6. The referee shall be appointed to sit as a temporary judge, with all of the powers of a temporary judge, as authorized by law, and upon selection should take and subscribe to the oath of office as provided for in Rule 244 of the California Rules of Court (or any subsequently enacted Rule).
(c) The referee shall be required to determine all issues in accordance with existing case law and the statutory laws of the State of California. The rules of evidence applicable to proceedings at law in the State of California will be applicable to the reference proceeding. The referee shall be empowered to enter equitable as well as legal relief, to provide all temporary and/or provisional remedies and to enter equitable orders that will be binding upon the Parties.
(d) The referee may require one or more pre-trial conferences.
(e) Landlord and Tenant shall be entitled to discovery, and the referee shall oversee discovery and may enforce all discovery orders in the same manner as any trial court judge.
(f) Except as expressly set forth in this Lease, the referee shall determine the manner in which the reference proceeding is conducted including the time and place of all hearings, the order or presentation of evidence, and all other questions that arise with respect to the course of the reference proceeding.
(g) All proceedings and hearings conducted before the referee, except for trial; shall be conducted without a court reporter, except that when any party so requests, a court reporter will be used at any hearing conducted before the referee. The party making such a request shall have the obligation to arrange for and pay for the court reporter. A stenographic record of the trial shall be made. The cost of the court reporter at the trial shall be borne equally by Landlord and Tenant.
(h) The referee’s statement of decision shall contain findings of fact and conclusions of law to the extent applicable.
(i) The referee shall have the authority to rule on all post-trial motions in the same manner as a trial judge.
(j) Landlord and Tenant shall promptly and diligently cooperate with each other and the referee and perform such acts, as may be necessary, for an expeditious resolution of the dispute.
(k) All fees and costs of the referee shall be paid one-half by Landlord and one-half by Tenant. Each party shall initially bear its own costs and attorneys’ fees, but upon motion of the prevailing party, the referee shall, in his statement of decision, award all costs and expenses, including fees and costs paid to the referee, and reasonable attorneys’ fees (payable at standard hourly rates), to the prevailing party in accordance with California law. The prevailing party on appeal shall also be entitled to costs and reasonable attorneys’ fees incurred in connection with any appeal from any judgment entered by the Superior Court.
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(l) The statement of decision of the referee upon all of the issues considered by the referee shall be binding upon the parties, and upon filing of the statement of decision with the clerk of the court, or with the judge where there is no clerk, judgment may be entered thereon. The decision of the referee shall be appealable as if rendered by the court. This provision shall in no way be construed to limit any valid cause of action that may be brought by any party.
(m) The above procedures provide for resolution of disputes (except for unlawful detainer) through general judicial reference, or, in the alternative, binding arbitration. In either event, Landlord and Tenant expressly acknowledge and accept that they are waiving their respective rights to a jury trial. Each party further acknowledges and agrees that this paragraph has been negotiated at arms’ length with the assistance of legal counsel and the legal effect fully explained, and that its provisions constitute a knowing and voluntary agreement.
27. Subordination.
(a) This Lease and Tenant’s interest and rights hereunder are and shall be subject and subordinate at all times to the lien of any deed of trust or mortgage or any ground lease, now existing or hereafter created on or against the Premises, and all amendments, restatements, renewals, modifications, consolidations, refinancing, assignments and extensions thereof, without the necessity of any further instrument or act on the part of Tenant (provided, however, the subordination of this Lease to the lien of any future deed of trust, mortgage or ground lease shall be subject to Tenant’s receipt of a commercially reasonable subordination, non-disturbance and attornment agreement (“SNDA”) from the holder of such future lien). Landlord warrants that no deed of trust, mortgage or ground lease affecting the Premises exists as of the date of this Lease. Tenant agrees, at the election of the holder of any such mortgage, to attorn to any such holder with whom Tenant has executed an SNDA. Tenant agrees to execute, acknowledge and deliver such instruments, confirming such subordination and such instruments of attornment as shall be requested by any such holder within ten (10) days of such request (provided that such instruments include commercially reasonable non-disturbance provisions in favor of Tenant). Tenant’s obligation to furnish each such instrument requested hereunder in the time period provided is a material inducement for Landlord’s execution of this Lease and any failure of Tenant to timely deliver each instrument shall be deemed an Event of Default.
(b) Notwithstanding the foregoing, any such holder may at any time subordinate its mortgage to this Lease, without Tenant’s consent, by notice in writing to Tenant, and thereupon this Lease shall be deemed prior to such mortgage without regard to their respective dates of execution, delivery or recording and in that event such holder shall have the same rights with respect to this Lease as though this Lease had been executed prior to the execution, delivery and recording of such mortgage and had been assigned to such holder. The term “mortgage” whenever used in this Lease shall be deemed to include deeds of trust, security assignments and any other encumbrances, and any reference to the “holder” of a mortgage shall be deemed to include the beneficiary under a deed of trust.
(c) Tenant shall not seek to enforce any remedy it may have for any default on the part of Landlord without first giving written notice specifying the default in reasonable detail to any mortgage holder whose address has been given to Tenant, and affording such mortgage holder a reasonable opportunity to perform Landlord’s obligations hereunder.
28. Mechanic’s Liens. Tenant has no express or implied authority to create or place any lien or encumbrance of any kind upon, or in any manner to bind the interest of Landlord or Tenant in, the Premises or to charge the rentals payable hereunder for any claim in favor of any person dealing with Tenant, including those who may furnish materials or perform labor for any construction or repairs. Landlord may record, at its election, notices of non-responsibility pursuant to California Civil Code Section 8444 in connection with any work performed by Tenant. Tenant covenants and agrees that it will pay or cause to be paid all sums legally due and payable by it on account of any labor performed or materials furnished in connection with any work performed on the Premises (other than work performed by Landlord or Landlord’s employees, agents or contractors) and that it will save and hold Landlord harmless from all loss, cost or expense based on or arising out of asserted claims or liens against the leasehold estate or against the interest of Landlord in the Premises or under this Lease (other than as a result of work performed by Landlord or Landlord’s employees, agents or contractors), Tenant shall give Landlord immediate
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written notice of the placing of any lien or encumbrance against the Premises and cause such lien or encumbrance to be discharged within thirty (30) days of Tenant’s receipt of written notice of the filing or recording thereof; provided, however, Tenant may contest such liens or encumbrances as long as such contest prevents foreclosure of the lien or encumbrance and Tenant causes such lien or encumbrance to be bonded or insured over in a manner satisfactory to Landlord within such thirty (30) day period. Without limiting any other rights or remedies of Landlord, if Tenant fails for any reason to cause a lien or encumbrance to be discharged within thirty (30) days of Tenant’s receipt of written notice of the filing or recording thereof, then Landlord may take such action(s) as it deems necessary to cause the discharge of the same (including, without limitation, by paying any amount demanded by the party who has filed or recorded such lien or encumbrance, regardless of whether the same is in dispute), and Landlord shall be reimbursed by Tenant for all costs and expenses incurred by Landlord in connection therewith within ten (10) business days following written demand therefor accompanied by reasonable supporting documentation with respect thereto.
29. Estoppel Certificates. Each party agrees, from time to time, within ten (10) days after request of the other party, to execute and deliver to the requesting party, or the requesting party’s designee, any commercially reasonable estoppel certificate requested by the requesting party, stating that this Lease is in full force and effect, the date to which rent has been paid, that (to the actual knowledge of the certifying party) the requesting party is not in default hereunder (or specifying in detail the nature of such requesting party’s default, to the actual knowledge of the certifying party), the termination date of this Lease and such other matters pertaining to this Lease as may be reasonably requested by the requesting party.
30. Environmental Requirements.
(a) Except for Hazardous Material contained in products used by Tenant in the normal course for routine cleaning and maintenance of floors, bathrooms, windows, kitchens, and administrative offices on the Premises or in the performance of Tenant Improvements, Tenant hereby represents, warrants and covenants that Tenant will not produce, use, store or generate any “Hazardous Materials” (as defined below) on, under or about the Premises. If Tenant will be utilizing Hazardous Materials, in addition to all other rights and remedies Landlord may have under this Lease, including, without limitation, declaring a default hereunder by Tenant for a breach of representation, Landlord may require Tenant to execute an amendment to this Lease relating to such Hazardous Materials use and Tenant’s failure to execute any such amendment within ten (10) days of Landlord’s delivery thereof to Tenant shall constitute a default hereunder by Tenant. Tenant, at its sole cost and expense, shall operate its business in the Premises in strict compliance with all Environmental Requirements and all requirements of this Lease. Tenant shall complete and certify to disclosure statements as requested by Landlord from time to time relating to Tenant’s transportation, storage, use; generation, manufacture, or release of Hazardous Materials on the Premises, and Tenant shall promptly deliver to Landlord a copy of any notice of violation relating to the Premises of any Environmental Requirement. Tenant shall not conduct any invasive environmental testing or investigation (including, without limitation, any testing of any soils) on or about the Premises without obtaining Landlord’s prior written consent, and any investigations or remediation on or about the Premises shall be conducted only by a consultant approved in writing by Landlord and pursuant to a work letter approved in writing by Landlord.
(b) The term “Environmental Requirements” means all applicable present and future statutes, regulations, ordinances, rules, codes, judgments, permits, authorizations, orders, policies or other similar requirements of any governmental authority, agency or court regulating or relating to health, safety, or environmental conditions on, under, or about the Premises or the environment including without limitation, the following: the Comprehensive Environmental Response, Compensation and Liability Act; the Resource Conservation and Recovery Act; the Clean Air Act; the Clean Water Act; the Toxic Substances Control Act and all state and local counterparts thereto, and any common or civil law obligations including, without limitation, nuisance or trespass, and any other requirements of Paragraphs 3 and 31 of this Lease. The term “Hazardous Materials” means and includes any substance, material, waste, pollutant, or contaminant that is or could be regulated under any Environmental Requirement or that may adversely affect human health or the environment, including, without limitation, any solid or hazardous waste, hazardous substance, asbestos, petroleum (including crude oil or any fraction thereof, natural gas, synthetic gas, polychlorinated biphenyls (PCBs), and radioactive material). For purposes of Environmental Requirements, to the extent authorized by law, Tenant is and shall be deemed to be the responsible party, including without limitation, the “owner” and “operator” of Tenant’s “facility” and the “owner” of
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all Hazardous Materials brought on the Premises by Tenant, its agents, employees, contractors or invitees, and the wastes, by-products, or residues generated, resulting, or produced therefrom.
(c) Tenant, at its sole cost and expense, shall remove all Hazardous Materials stored, disposed of or otherwise released by Tenant, its assignees, subtenants, agents, employees, contractors or invitees onto or from the Premises, in a manner and to a level which complies with all Environmental Requirements and does not limit any future uses of the Premises or require the recording of any deed restriction or notice regarding the Premises. Tenant shall perform such work at any time during the period of the Lease upon written request by Landlord or, in the absence of a specific request by Landlord, before Tenant’s right to possession of the Premises terminates or expires. If Tenant fails to perform such work within the time period specified by Landlord or before Tenant’s right to possession terminates or expires (whichever is earlier), Landlord may at its discretion, and without waiving any other remedy available under this Lease or at law or equity (including without limitation an action to compel Tenant to perform such work), perform such work at Tenant’s cost. Tenant shall pay all costs incurred by Landlord in performing such work within ten (10) business days after Landlord’s request therefor accompanied by reasonable supporting documentation with respect thereto. Such work performed by Landlord is on behalf of Tenant and Tenant remains the owner, generator, operator, transporter, and/or arranger of the Hazardous Materials for purposes of Environmental Requirements. Tenant agrees not to enter into any agreement with any person, including without limitation any governmental authority, regarding the removal of Hazardous Materials that have been disposed of or otherwise released onto or from the Premises in violation of the provisions of this Lease for which Tenant is responsible hereunder without the written approval of the Landlord, which approval may be granted or withheld in Landlord’s sole and absolute discretion.
(d) Tenant shall indemnify, defend, and hold Landlord harmless from and against any and all losses (including, without limitation, diminution in value of the Premises and loss of rental income from the Premises), claims, demands, actions, suits, damages (including, without limitation, punitive damages), expenses (including, without limitation, remediation, removal repair, corrective action, or cleanup expenses ), and costs (including, without limitation, actual and reasonable attorneys’ fees, consultant fees or expert fees) which are brought or recoverable against or suffered or incurred by Landlord as a result of any release of Hazardous Materials by Tenant or its agents, employees, contractors, subtenants, assignees or invitees, or any breach of the requirements under this Paragraph 30 by Tenant, its agents, employees, representatives, contractors, subtenants, assignees or invitees, regardless of whether Tenant had knowledge of such noncompliance. The obligations of Tenant under this Paragraph 30 shall survive any termination of this Lease.
(e) Landlord shall have reasonable access to, and a right to perform reasonable inspections and tests of, the Premises to determine Tenant’s compliance with Environmental Requirements, its obligations under this Paragraph 30, or the environmental condition of the Premises, subject to compliance with Paragraph 19 above. Subject to compliance with Paragraph 19 above, access shall be granted to Landlord upon Landlord’s prior notice to Tenant and at such times so as to minimize, so far as may be reasonable under the circumstances, any disturbance to Tenant’s operations. Such inspections and tests shall be conducted at Landlord’s sole cost and expense unless it is established that Tenant has breached its obligations pursuant to this Paragraph 30 (in which Tenant shall reimburse Landlord for the costs and expenses incurred by Landlord in connection such inspections and tests). The foregoing shall not limit the inclusion of the reasonable cost and expenses of Landlords’ regularly scheduled environmental audits as an element of Operating Expenses. Landlord’s receipt of or satisfaction with any environmental assessment in no way waives any rights that Landlord holds against Tenant. Tenant shall promptly notify Landlord of any communication or report that Tenant makes to any governmental authority regarding any possible violation of Environmental Requirements or release or threat of release of any Hazardous Materials onto or from the Premises. Tenant shall, within five (5) days of receipt thereof, provide Landlord with a copy of any documents or correspondence received from any governmental agency or other party relating to a possible violation of Environmental Requirements or claim or liability associated with the release or threat of release of any Hazardous Materials onto or from the Premises.
(f) Landlord represents and warrants to Tenant that as of the date hereof, to the actual knowledge of Landlord except as otherwise set forth on Exhibit E, the Premises contain no Hazardous Materials in violation of applicable Environmental Requirements (which violation has not been cured). Tenant shall not be responsible to remediate (or indemnify Landlord with respect to) any Landlord’s Hazardous Materials (defined
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below). “Landlord’s Hazardous Materials” shall mean any Hazardous Materials (A) located in, on, under or about the Premises prior to the Delivery Date, (B) brought upon the Premises by Landlord or any employees, agent or contractor of Landlord, or (C) which originated or migrated (or originate or migrate) from any adjoining or adjacent properties (except to the extent any of the Hazardous Materials described in items (A), (B) or (C) above are generated, used or transported, or knowingly or negligently exacerbated, released or disturbed, generated, by Tenant or its agents, employees, contractors, subcontractors, subtenants, affiliates, consultants, customers, assignees, licensees or invitees). Notwithstanding the foregoing, Exhibit E discloses that there are asbestos or asbestos containing materials located in the Premises (the “ACM’s”). With respect thereto, following receipt by Landlord of the Demo Plan, Landlord, at Landlord’s sole cost and expense, shall conduct an asbestos inspection and assessment of all areas of the Premises which will be disturbed (as disclosed on the Demo Plan) by a qualified asbestos professional, and, (i) Landlord shall, at Landlord’s expense, be responsible for remediating any ACM’s which have been discovered during such inspection and assessment to the extent required by applicable Environmental Requirements so that Tenant can perform the Tenant Improvements without any further remediation of ACMs (herein, the “Landlord ACM Work”); and (ii) Tenant shall be responsible to encapsulate or otherwise remediate any ACM’s in connection with any subsequent Alterations or improvements performed by Tenant to the extent (i) required by applicable Environmental Requirements, or (ii) required in connection with such Alterations or improvements.
31. Rules and Regulations. Tenant shall, at all times during the Lease Term and any extension thereof, comply with all reasonable rules and regulations at any time or from time to time established by Landlord covering use of the Premises so long as such rules and regulations do not (i) materially interfere with the Permitted Use of the Premises by Tenant, (ii) materially reduce Tenant’s rights under this Lease, (iii) materially increase Tenant’s obligations under this Lease, or (iv) prevent Tenant from using the Premises in the manner in which Tenant is using the same (so long as such use by Tenant is consistent with the Permitted Use). The current rules and regulations are attached hereto. In the event of any conflict between said rules and regulations and other provisions of this Lease, the other terms and provisions of this Lease shall control. Landlord shall not have any liability or obligation for the breach of any rules or regulations by third parties.
32. Security Service. Tenant acknowledges and agrees that, while Landlord may (but shall not be obligated to) patrol the Premises, Landlord is not providing any security services with respect to the Premises and that Landlord shall not be liable to Tenant for, and Tenant waives any claim against Landlord with respect to, any loss by theft or any other damage suffered or incurred by Tenant in connection with any unauthorized entry into the Premises or any other breach of security with respect to the Premises. Tenant shall have the right, subject to Landlord’s reasonable consent, to install its own security system for the Premises, or for secured access to the Premises.
33. Force Majeure. Except with respect to Tenant’s monetary obligations (including, without limitation, Tenant’s obligation to pay Base Rent, Operating Expenses and Parking Fees), neither Landlord nor Tenant shall be held responsible for delays in the performance of its obligations hereunder when caused by strikes, lockouts, labor disputes, acts of God, inability to obtain labor or materials or reasonable substitutes therefor, governmental restrictions, governmental regulations, governmental controls, delay in issuance of permits, enemy or hostile governmental action, civil commotion, fire or other casualty, and other causes beyond the reasonable control of Landlord or Tenant, as applicable (“Force Majeure”).
34. Entire Agreement. This Lease constitutes the complete and entire agreement of Landlord and Tenant with respect to the subject matter hereof. No representations, inducements, promises or agreements, oral or written, have been made by Landlord or Tenant, or anyone acting on behalf of Landlord or Tenant, which are not contained herein, and any prior agreements, promises, negotiations, or representations are superseded by this Lease. This Lease may not be amended except by an instrument in writing signed by both parties hereto.
35. Severability. If any clause or provision of this Lease is illegal, invalid or unenforceable under present or future laws, then and in that event, it is the intention of the parties hereto that the remainder of this Lease shall not be affected thereby. It is also the intention of the parties to this Lease that in lieu of each clause or provision of this Lease that is illegal, invalid or unenforceable, there be added, as a part of this Lease, a clause or provision as
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similar in terms to such illegal, invalid or unenforceable clause or provision as may be possible and be legal, valid and enforceable.
36. Brokers. Tenant and Landlord each represents and warrants to the other that it has dealt with no broker, agent or other person in connection with this transaction and that no broker, agent or other person brought about this transaction, other than the broker(s), if any, set forth in the Basic Lease Provisions above, and each party agrees to indemnify and hold the other party harmless from and against any claims by any other broker, agent or other person claiming a commission or other form of compensation by virtue of having dealt with the indemnifying party with regard to this leasing transaction. Landlord shall pay a commission to the brokers listed in the Basic Lease Provisions pursuant to a separate written agreement.
37. Miscellaneous.
(a) Any payments or charges due from Tenant to Landlord hereunder shall be considered rent for all purposes of this Lease.
(b) If and when included within the term “Tenant,” as used in this instrument, there is more than one person, firm or corporation, each shall be jointly and severally liable for the obligations of Tenant.
(c) All notices required or permitted to be given under this Lease shall be in writing and shall be sent by registered or certified mail, return receipt requested, or by a reputable national overnight courier service, with proof of delivery and postage prepaid, or by hand delivery and sent to the notice address for each party listed in the Basic Lease Provisions. Either party may by notice given aforesaid change its address for all subsequent notices. Except where otherwise expressly provided to the contrary, notice shall be deemed given upon delivery.
(d) Except as otherwise expressly provided in this Lease or as otherwise required by law, neither Landlord nor Tenant shall unreasonably withhold, delay or condition any consent or approval required of such party under this Lease.
(e) Intentionally Deleted.
(f) Except as expressly provided below in this Paragraph 37(f), neither this Lease nor a memorandum of lease shall be filed by or on behalf of Tenant in any public record. Provided that Tenant is not then in default hereunder, upon request by Tenant, Landlord shall execute, acknowledge and deliver to Tenant a memorandum of lease (in form acceptable to Landlord) to be filed by Tenant, at Tenant’s sole cost and expense, in the public records of Los Angeles County. Notwithstanding the foregoing, prior to Landlord delivering any such memorandum of lease to Tenant, Tenant shall execute, acknowledge and deliver to Landlord, in recordable form, a memorandum of termination of lease, in such form as requested by Landlord, which memorandum of termination of lease Landlord agrees not to record until the expiration or earlier termination of the Lease (upon which event Landlord shall be authorized to record such memorandum of termination at Landlord’s sole cost and expense).
(g) Each party acknowledges that it has had the opportunity to consult counsel with respect to this Lease, and therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Lease or any exhibits or amendments hereto.
(h) The submission by Landlord to Tenant of this Lease shall have no binding force or effect, shall not constitute an option for the leasing of the Premises, nor confer any right or impose any obligations upon either party until execution of this Lease by both parties.
(i) Words of any gender used in this Lease shall be held and construed to include any other gender, and words in the singular number shall be held to include the plural, unless the context otherwise requires. The captions inserted in this Lease are for convenience only and in no way define, limit or otherwise describe the scope or intent of this Lease, or any provision hereof, or in any way affect the interpretation of this Lease.
(j) Any amount not paid by Tenant within five (5) days after its due date in accordance with the terms of this Lease shall bear interest from such due date until paid in full at the lesser of the highest rate
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permitted by applicable law or prime plus four percent (4%) per year. It is expressly the intent of Landlord and Tenant at all times to comply with applicable law governing the maximum rate or amount of any interest payable on or in connection with this Lease. If applicable law is ever judicially interpreted so as to render usurious any interest called for under this Lease, or contracted for, charged, taken, reserved, or received with respect to this Lease, then it is Landlord’s and Tenant’s express intent that all excess amounts theretofore collected by Landlord be credited on the applicable obligation (or, if the obligation has been or would thereby be paid in full, refunded to Tenant), and the provisions of this Lease immediately shall be deemed reformed and the amounts thereafter collectible hereunder reduced, without the necessity of the execution of any new document, so as to comply with the applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder.
(k) Construction and interpretation of this Lease shall be governed by the laws of the state in which the Premises is located, excluding any principles of conflicts of laws.
(l) Time is of the essence as to the performance of Tenant’s and Landlord’s respective obligations under this Lease.
(m) All exhibits and addenda attached hereto are hereby incorporated into this Lease and made a part hereof. In the event of any conflict between such exhibits or addenda (other than the rules and regulations) and the terms of this Lease, such exhibits or addenda shall control. In the event of a conflict between the rules and regulations attached hereto and the terms of this Lease, the terms of this Lease shall control.
(n) In the event either party shall commence an action to enforce any provision of this Lease, the prevailing party in such action shall be entitled to receive from the other party, in addition to damages, equitable or other relief, any and all costs and expenses incurred, including reasonable attorneys’ fees and court costs and the fees and costs of expert witnesses, and fees incurred to enforce any judgment obtained. This provision with respect to attorney’s fees incurred to enforce a judgment shall be severable from all other provisions of this Lease, shall survive any judgment, and shall not be deemed merged into the judgment. Tenant shall also reimburse Landlord for all costs incurred by Landlord in connection with enforcing its rights under this Lease in a bankruptcy proceeding, or other proceeding under Title 11 of the United States Code, as amended, including without limitation, legal fees, experts’ fees and expenses, court costs and consulting fees.
(o) There shall be no merger of the leasehold estate hereby created with the fee estate in the Premises or any part thereof if the same person acquires or holds, directly or indirectly, this Lease or any interest in this Lease and the fee estate in the leasehold Premises or any interest in such fee estate.
(p) To the extent Tenant or its agents or employees discover any water leakage, water damage or mold in or about the Premises, Tenant shall promptly notify Landlord thereof in writing.
(q) Whenever Tenant requests Landlord to take any action not required of it hereunder or give any consent required or permitted under this Lease, Tenant will reimburse Landlord for Landlord’s reasonable, out-of-pocket costs payable to third parties and incurred by Landlord in reviewing the proposed action or consent, including reasonable attorneys’, engineers’ or architects’ fees, within thirty (30) days after Landlord’s delivery to Tenant of a statement of such costs. Tenant will be obligated to make such reimbursement without regard to whether Landlord consents to any such proposed action.
(r) All providers of telecommunications systems, including voice, video, data, Internet, and any other services provided over wire, fiber optic, microwave, wireless, and any other transmission systems (“Telecommunications Services”) shall be required to comply with the rules and regulations of the Building, applicable Legal Requirements and Landlord’s commercially reasonable policies and practices for the Building. Tenant acknowledges that Landlord shall not be required to provide or arrange for any Telecommunications Services and that Landlord shall have no liability to a Tenant-related party in connection with the installation, operation or maintenance of Telecommunications Services or any equipment or facilities relating thereto. Tenant, at its cost and for its own account, shall be solely responsible for obtaining all Telecommunications Services.
(s) Tenant (if a corporation, partnership or other business entity) hereby represents and warrants to Landlord that Tenant is and will remain during the Lease Term a duly formed and existing entity
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qualified to do business in the state in which the Premises are located, that Tenant has full right and authority to execute and deliver this Lease, that each person signing on behalf of Tenant is authorized to do so, and that Tenant’s organizational identification number assigned by the California Secretary of State is C2759233. Landlord hereby represents and warrants to Tenant that Landlord is a duly formed and existing entity qualified to do business in the state in which the Premises are located, that Landlord has full right and authority to execute and deliver this Lease, and that each person signing on behalf of Landlord is authorized to do so.
(t) Landlord and Tenant agree that all administrative fees and late charges prescribed in this Lease are reasonable estimates of the costs that Landlord will incur by reason of Tenant’s failure to comply with the provisions of this Lease, and the imposition of such fees and charges shall be in addition to all of Landlord’s other rights and remedies hereunder or at law, and shall not be construed as a penalty.
(u) Intentionally Deleted
38. Intentionally Omitted.
39. Limitation of Liability of Landlord’s Partners, and Others. Tenant agrees that any obligation or liability whatsoever of Landlord which may arise at any time under this Lease, or any obligation or liability which may be incurred by Landlord pursuant to any other instrument, transaction, or undertaking contemplated hereby, shall not be personally binding upon, nor shall resort for the enforcement thereof be had to the property of the constituent partners of Landlord or any of their respective directors, officers, representatives, employees or agents, regardless of whether such obligation or liability is in the nature of contract, tort, or otherwise.
40. OFAC. Tenant and Landlord each represents and warrants to the other that the representing party is currently in compliance with and shall at all times during the Lease Term (including any extension thereof) remain in compliance with the regulations of the Office of Foreign Asset Control (“OFAC”) of the Department of the Treasury (including those named on OFAC’s Specially Designated and Blocked Persons List) and any statute, executive order (including the September 24, 2001, Executive Order Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit or Support Terrorism), or other governmental action relating thereto.
41. Easements; CC&R’s. Landlord reserves to itself the right, from time to time, to grant such easements, rights and dedications that Landlord deems necessary or desirable, and to cause the recordation of parcel maps, easement agreements and covenants, conditions and restrictions, so long as such easements, rights, dedications, maps and covenants, conditions and restrictions do not (i) interfere with the Permitted Use of the Premises by Tenant or a then current approved use, (ii) reduce Tenant’s rights under this Lease, (iii) increase Tenant’s obligations under this Lease, or (iv) prevent Tenant from using the Premises in the manner in which Tenant is using the same (so long as such use by Tenant is consistent with the Permitted Use). Tenant shall sign any of the aforementioned documents upon request of Landlord and failure to do so shall constitute a material breach of this Lease.
42. Option to Extend. Landlord hereby grants to Tenant one (1) option to extend the Lease Term (each, an “Option”) for a period of five (5) years (the “Option Term”) commencing upon the expiration of the initial Lease Term, upon each of the following conditions and terms:
(a) Tenant shall give to Landlord, and Landlord shall actually receive, on a date which is at least twelve (12) months and not more than fifteen (15) months prior to the then scheduled expiration date of the Lease Term, a written notice of Tenant’s exercise of the Option (the “Option Notice”), time being of the essence. If the Option Notice is not timely so given and received, the Option, and any subsequent Option (if any), shall automatically expire.
(b) Tenant shall have no right to exercise an Option, notwithstanding any provision hereof to the contrary, (i) during the time commencing from the date Landlord gives to Tenant a notice that an Event of Default has occurred and continuing until the noncompliance alleged in said notice of Event of Default is cured (provided, however, in no event shall the foregoing be interpreted to limit any rights or remedies of Landlord in connection with any such Event of Default, including the right of Landlord to terminate this Lease in accordance
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with the provisions of Paragraph 24 above), or (2) if, during the 12-month period of time immediately prior to the time that Tenant attempts to exercise the Option, Tenant has been in default in the payment of a monetary obligation or the performance of a non-monetary obligation on two or more occasions and Landlord has given notices of such default to Tenant under this Lease.
(c) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Tenant’s inability to exercise the Option because of the provisions of Paragraph 42(b) above.
(d) At Landlord’s sole election, all Option rights of Tenant under this Paragraph 43 shall terminate and be of no further force or effect, notwithstanding Tenant’s due and timely exercise of an Option, if, an Event of Default occurs subsequent to the date of the exercise of the Option and is not cured as of the commencement date of the Option Term (provided, however, in no event shall the foregoing be interpreted to limit any rights or remedies of Landlord in connection with any such Event of Default, including the right of Landlord to terminate this Lease in accordance with the provisions of Paragraph 24 above).
(e) The Options granted to Tenant in this Lease are personal to the original Tenant named in this Lease (the “Original Tenant”) and any Tenant Affiliate to whom this Lease has been assigned, and may be exercised only by the Original Tenant and/or such Tenant Affiliate while occupying at least eighty-five percent (85%) of the Premises who does so without the intent of thereafter assigning this Lease or subletting the Premises or any portion thereof, and may not be exercised or be assigned, voluntarily or involuntarily, by or to any person or entity other than the Original Tenant and/or any Tenant Affiliate to whom this Lease has been assigned. The Options herein granted to the Original Tenant and any Tenant Affiliate to whom this Lease has been assigned and are not assignable separate and apart from this Lease, nor may the Options be separated from this Lease in any manner, either by reservation or otherwise.
(f) All of the terms and conditions of this Lease except where specifically modified by this Paragraph 42 or as otherwise stated to be applicable only to the initial Lease Term shall apply during each Option Term.
(g) The monthly Base Rent payable during each Option Term shall be equal to one hundred percent (100%) of fair market rental rate (“FMRR”) for the Premises at the time of the commencement of the Option Term, and adjusted thereafter as provided. The term “FMRR” means the base rental rate, as of the date of Tenant’s exercise of each Option, equal to the face or stated rent, including all rental escalations and taking into account all operating expenses, additional rent and other charges (which are being paid by Tenant in addition to the Base Rent, as well as which are being paid by other tenants in addition to the base rental rate) at which tenants as of the commencement of the applicable Option Term are leasing comparable office space that are non-subleased, non-equity and on a renewal basis, in the area of Santa Monica bordered by Lincoln Boulevard on the east, Montana Avenue on the north, 4th Street on the west and Colorado Avenue on the south (“Comparable Buildings”) taking into consideration all concessions granted to renewal tenants in such Comparable Buildings, including abatements and allowances (but also and taking into account the value of the existing improvements in the Premises, such value of existing improvements to be based upon the age, quality and layout of the improvements and the extent to which the same could be utilized by general office users (as contrasted to the Tenant)) (such transactions to herein be referred to a “Comparable Transactions”); provided, however, that no consideration shall be given to (1) the fact that Landlord is or is not required to pay a real estate brokerage commission in connection with the applicable term or the fact that the Comparable Transactions do or do not involve the payment of real estate brokerage commissions, and (2) any period of rental abatement (if any) granted to tenants in Comparable Transactions in connection with the design, permitting and construction of tenant improvements in such comparable space. Thereafter during each Option Term the Minimum Rent shall be increased on each anniversary of the commencement of the Option Term at the market rate for escalations over the Base Rent for the prior year and if such prior year had any abatement or deductions in Minimum Rent the increase shall be calculated as though there was no such abatement or deduction. The FMRR shall be determined as of the beginning of the Option Term, as follows:
(1) Promptly following receipt by Landlord of Tenant’s Option Notice, Landlord and Tenant shall attempt to reach agreement on the FMRR for the Option Term, which FMRR shall be set in accordance with the criteria described above. If Landlord and Tenant are able to agree on the FMRR for the Option
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Term, Landlord and Tenant shall immediately execute an amendment to this Lease stating the FMRR for the Option Term.
(2) If agreement cannot be reached within thirty (30) days following receipt by Landlord of Tenant’s Option Notice, then both Landlord and Tenant shall each immediately make a reasonable determination of the FMRR (using the criteria set forth in Paragraph 42(g) above), including then current market periodic Base Rent adjustments during the Option Term, and submit such determination in writing to each other within 5 days thereafter.
(3) Within forth-five (45) days following receipt by Landlord of Tenant’s Option Notice, Landlord and Tenant shall each select a broker (“Consultant”) (each “Consultant” shall be a licensed California real estate broker with at least ten (10) years of current commercial real estate experience in the market area of the Premises of their choice to act as an arbitrator. The two Consultants so appointed shall immediately select a third mutually acceptable Consultant to act as a third arbitrator. If they are unable to agree on the third Consultant., either of the parties to this Lease, by giving ten (10) days’ notice to the other party, may apply to the presiding judge of the court of the County in which the Premises are located, for the selection of a third Consultant who meets the qualifications stated in this paragraph. The third broker, however selected, shall be a person who has not previously acted in any capacity for either party.
(4) The three (3) Consultants shall within thirty (30) days of the appointment of the third party Consultant reach a decision as to what the actual FMRR for the Premises is (using the criteria set forth in Paragraph 42(g) above), and whether Landlord’s or Tenant’s submitted FMRR is the closest thereto. The decision of a majority of the arbitrators shall be binding on the parties. The submitted FMRR which is determined by a majority of the arbitrators to be the closest to the actual FMRR shall thereafter be used by the parties.
(5) If either of the parties fails to appoint a Consultant within the specified forty-five (45) days, the Consultant timely appointed by one of them shall reach a decision on his or her own, and said decision shall be binding on the parties.
(6) The entire cost of such arbitration shall be paid by the party whose submitted FMRR is not selected, i.e., the one that is NOT the closest to the actual FMRR.
(h) If the Base Rent for an Option Term has not been determined by the commencement date of the Option Term, then until such Base Rent is determined, Tenant shall pay Base Rent to Landlord at the rate in effect immediately preceding the Option Term, and if the actual Base Rent for the Option Term is determined to be other than as theretofore paid, then within fifteen (15) days after the determination of such Base Rent, Tenant shall pay to Landlord the difference or Landlord shall refund to Tenant the difference, as applicable, for each month of the Option Term for which Base Rent has already become due.
43. Deck Space.
(a) The parties acknowledge that the Premises includes certain exterior deck space attached to the Building (the “Deck Space”), as identified in Exhibit A attached hereto. The Deck Space constitutes a portion of the Premises, for all purposes of this Lease and Tenant’s obligations under the Lease (including, without limitation, Tenant’s indemnification obligations under the Lease and Tenant’s obligations to comply with all Legal Requirements), except in the determination of the amount of rentable square feet in the Premises as used to determine the amount of the Base Rent, Operating Expenses and any improvement allowance (including, without limitation, the Tenant Improvement Allowance). Any reference in the Lease to the “Premises” or words of similar import shall mean the Premises, inclusive of the Deck Space, unless the context clearly indicates otherwise. Tenant shall be solely responsible, at Tenant’s sole cost and expense, for maintaining the Deck Space to the same standards required by the Lease for the remainder of the Premises. Should Tenant fail to maintain the Deck Space to the same standards required by the Lease for the remainder of the Premises, then Landlord shall have the right, but not the obligation, to perform such maintenance and/or make such repairs in accordance with the provisions of the Lease governing Landlord’s cure of Tenant’s failure to perform.
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(b) The Deck Space may be used by Tenant as a daily amenity of the Building and to hold events in connection with the Permitted Use of the Premises as set forth in the Lease, consistent with the Permitted Use of the Premises and the character of the Building as a first-class office building. Tenant shall not operate or permit to be operated any musical, sound or vibration-producing instrument or device in a manner which in any way violates any Legal Requirements or the rules and regulations established by Landlord from time to time. Tenant’s on-site management shall immediately comply with Landlord’s reasonable requests concerning reduction of the volume of such music and/or instrument(s) if Landlord receives any complaints from any governmental authority relating to same. Notwithstanding anything to the contrary contained in this Lease, as a condition precedent to any right of Tenant to play live or recorded music from the Deck Space, Landlord expressly reserves the right to require Tenant, at Tenant’s sole cost and expense, at any time during the Lease Term, to install sound attenuation measures on the Deck Space reasonably acceptable to Landlord so as cause such live or recorded music to be played in compliance with all Legal Requirements. Without limiting the foregoing, the following events and uses of the Deck Space are deemed inconsistent with the character of the Building as a first-class office building and are strictly prohibited: raves, night clubs, and/or any other use that constitutes a legal nuisance. Under no circumstances is Tenant permitted to assign the rights to hold such events on the Deck Space to any third party promoter of clubs or parties to use the Deck Space for events unrelated to the Permitted Use. Tenant shall be solely responsible, at Tenant’s sole cost and expense, for obtaining insurance (including, without limitation, the insurance required under Paragraph 43(c) below) and any and all governmental approvals and permits that may be required by any governmental authority with jurisdiction over the Building for such events.
(c) In the event that Tenant elects to serve (or permits to be served) beer, wine and/or other alcoholic beverages on the Deck Space, Tenant shall, at its sole cost and expense, obtain and maintain (and Tenant shall cause any other parties serving beer, wine and/or other alcoholic beverages [if not Tenant] to obtain and maintain) any necessary licenses and/or permits for same (if any such licenses and permits are in fact required by governmental authorities with jurisdiction), and shall at all times comply (and Tenant shall ensure such other parties comply) with Legal Requirements related to the serving of beer, wine and other alcoholic beverages on the Deck Space. At all times during the Lease Term during which Tenant holds (or permits to be held) events that offer beer, wine, or other alcoholic beverages of any kind from the Deck Space, Tenant at its expense, shall maintain (and shall cause any other parties holding the event [if not Tenant] to maintain) an insurance policy or endorsement covering liability related to the service of beer, wine and other alcoholic beverages, which policy or endorsement shall include Landlord (and Tenant, if Tenant is not the party holding the event) as an additional insured. The parties acknowledge and agree that Tenant’s indemnification obligations under this Lease includes any Claims arising out of or relating to the serving of beer, wine and other alcoholic beverages on the Deck Space by Tenant and/or any other party (including, but not limited to, claims for damage to property or injury to persons occurring elsewhere than in, on or upon the Premises and/or the Building). By way of example, and not of limitation, such indemnification obligations shall include indemnifying Landlord and Landlord’s agents, employees and contractors for claims by a third party that may have been injured or harmed outside of the Building by another party that was served beer, wine or other alcoholic beverages at the Premises.
(d) Subject to Tenant’s right to hold events in connection with the Permitted Use of the Premises (as governed by Paragraph 43(b) above), the rights herein granted to Tenant are not assignable separate and apart from the Lease, nor may the rights to the Deck Space be separated from the Lease in any manner, either by reservation or otherwise.
[SIGNATURE PAGE FOLLOWS]
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40
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Zip Recruiting/604 Arizona-ZipRecruiter Lease
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IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the day and year first set forth above.
LANDLORD:
HUDSON 604 ARIZONA, LLC,
a Delaware limited liability company
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By:
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Hudson Pacific Properties, L.P.
a Maryland limited partnership
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Its:
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Sole Member
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By:
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Hudson Pacific Properties, Inc.,
a Maryland corporation
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General Partner
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By:
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/s/ Mark T. Lammas
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Name:
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Mark T. Lammas
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Title:
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Chief Operating Officer, Chief Financial Officer & Treasurer
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TENANT:
ZIPRECRUITER, INC.,
a Delaware corporation
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By:
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/s/ Ian Siegel
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Name:
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Ian Siegel
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Title:
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CEO
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By:
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/s/ David Feldman
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Name:
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David Feldman
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Title:
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Chief Business Officer
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Zip Recruiting/604 Arizona/Hudson-ZipRecruiter Lease
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RULES AND REGULATIONS
In the event of a conflict between the following Rules and Regulations and the terms of the Lease to which this Addendum is attached, the terms of the Lease shall control,
1. The sidewalk, entries, and driveways of the Premises shall not be obstructed by Tenant, or its agents, or used by them for any purpose other than ingress and egress to and from the Premises.
2. [Intentionally Omitted].
3. Tenant shall not disturb the occupants of any buildings adjoining the Premises by the use of any radio or musical instrument or by the making of loud or improper noises.
4. Tenant shall not install or operate any steam or gas engine or boiler, or other mechanical apparatus in the Premises, except as specifically approved in the Lease. The use of oil, gas or inflammable liquids for heating, lighting or any other purpose is expressly prohibited. Explosives or other articles deemed extra hazardous shall not be brought into the Premises.
5. Parking any type of recreational vehicles is specifically prohibited on or about the Premises, except in compliance with Legal Requirements. No vehicle of any type shall be stored in the parking areas at any time, except in compliance with Legal Requirements. In the event that a vehicle is disabled, it shall be removed within 48 hours. All vehicles shall be parked in the designated parking areas in conformity with all signs and other markings. All parking will be open parking, and no reserved parking, numbering or lettering of individual spaces will be permitted except as specified by Landlord.
6. Tenant shall not wash or service any vehicles in or about the Premises, except in compliance with Legal Requirements.
7. Tenant shall maintain the Premises reasonably free from rodents, insects and other pests.
8. Landlord reserves the right to exclude or expel from the Premises any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs or who shall in any manner do any act in violation of the Rules and Regulations of the Premises.
9. Tenant shall not smoke or carry lighted cigarettes or cigars on the Premises, except outside the Premises in compliance with Legal Requirements.
10. Tenant shall not, without Landlord’s prior written consent (which consent may be granted or withheld in Landlord’s absolute discretion), allow any employee or agent to carry any type of gun or other firearm in or about any of the Premises.
11. Tenant shall not permit storage outside the Premises, including without limitation, outside storage of trucks and other vehicles (except to the extent such activities are permitted by Legal Requirements), or dumping of waste or refuse or permit any harmful materials to be placed in any drainage system or sanitary system in or about the Premises.
12. All moveable trash receptacles provided by the trash disposal firm for the Premises must be kept in the trash enclosure areas, if any, provided for that purpose.
13. No auction, public or private, will be permitted on the Premises.
14. No awnings shall be placed over the windows in the Premises except with the prior written consent of Landlord.
15. The Premises shall not be used for any illegal purposes or for any purpose other than the Permitted Use specified in the Lease.
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Zip Recruiting/604 Arizona/Hudson-ZipRecruiter Lease
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16. Tenant shall not operate any equipment in the Premises which causes unusual vibrations, noise or air wave interference to be transmitted outside the Premises.
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Rules and Regulations - 2
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Zip Recruiting/604 Arizona-ZipRecruiter Lease
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EXHIBIT A
PREMISES
The plan below is intended solely to identify the general location of the Premises, and should not be used for any other purpose. All areas, dimensions and locations are approximate, and any physical conditions indicated may not exist as shown.
First Floor
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Ex A—Page 1
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Zip Recruiting/604 Arizona-ZipRecruiter Lease
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Second Floor
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Ex. A—Page 2
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Zip Recruiting/604 Arizona-ZipRecruiter Lease
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Third Floor
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Ex. A—Page 3
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Zip Recruiting/604 Arizona-ZipRecruiter Lease
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EXHIBIT A-1
DESCRIPTION OF LAND
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Ex. A-1—Page 1
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Zip Recruiting/604 Arizona-ZipRecruiter Lease
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EXHIBIT B
INTENTIONALLY OMITTED
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Ex. B—Page 1
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Zip Recruiting/604 Arizona-ZipRecruiter Lease
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EXHIBIT C
TENANT WORK LETTER
(Tenant to Construct Improvements)
This Tenant Work Letter shall set forth the terms and conditions relating to the construction of initial improvements to Premises. This Tenant Work Letter is essentially organized chronologically and addresses the issues of the construction of the Premises, in sequence, as such issues will arise during the actual construction of the Premises.
SECTION 1
BASE BUILDING
The “Base Building” shall consist of those portions of the Premises which were in existence prior to the construction of Tenant Improvements in the Premises pursuant to this Tenant Work Letter. Prior to the Delivery Date, Landlord shall perform the following work (“Landlord’s Work”), at Landlord’s sole cost and expense.
1.1 Landlord shall make all alterations to the Base Building required to remedy any Existing Violations, including but not limited to the following:
1.1.1 Remedy all violations identified in that certain Notice of Violation dated October 30, 2015 from the City of Santa Monica which existed prior to the Delivery Date.
1.1.2 Cause the Base Building to be in compliance with the Americans With Disabilities Act (“ADA”), ADA violations in 3rd floor restrooms cited by the City of Santa Monica.
1.1.3 Corrections of violations identified by City of Santa Monica relating to the previous tenant’s construction in the Base Building.
1.2 Cause glass exit doors to the Deck Space to swing in (rather than out).
1.3 Replace wood deck structure on the Deck Space with Trex decking.
1.4 Provide a legal means of egress to meet Legal Requirements for the Deck Space in accordance with the site plan attached as Exhibit A.
1.5 Perform all work to deliver the roof in a water-tight condition.
1.6 Upgrade the current HVAC system from pneumatic to DDC system.
1.7 Perform all repairs and maintenance necessary to deliver the mechanical, electrical, plumbing, sanitary, sprinkler, heating, HVAC, security, life-safety, elevator and other service systems or facilities of the Base Building (inclusive of all lighting and electrical outlets) in good condition and repair and working order.
SECTION 2
TENANT IMPROVEMENTS
2.1 Tenant Improvement Allowance and Additional Allowance. Tenant shall be entitled to a one-time tenant improvement allowance (“Tenant Improvement Allowance”) in the amount of One Million Nine Hundred Ninety-One Thousand Seven Hundred Dollars ($1,991,700.00) (based upon $45.00 per rentable square foot of the Building) for the cost relating to the initial design and the actual cost of constructing the Tenant’s improvements, which are permanently affixed to the Premises and approved in advance by Landlord, which approval shall not be unreasonably withheld, conditioned or delayed (“Tenant Improvements”). Subject to the terms and conditions contained herein, Tenant may use any unused and unallocated portion of the Tenant Improvement Allowance (up to a maximum of One Hundred Ninety-Nine Thousand One Hundred Seventy Dollars $199,170.00 (based upon $4.50 per rentable square foot of the Building) towards reimbursement of Tenant’s accrual and reasonable out-of-pocket
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Ex. C—Page 1
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Zip Recruiting/604 Arizona-ZipRecruiter Lease
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costs paid to unaffiliated third parties for the installation of voice/data cabling, security equipment, and signage/graphics to be used by Tenant within the Premises.
2.2 Disbursement of the Tenant Improvement Allowance and Additional Allowance.
2.2.1 Tenant Improvement Allowance Items. Except as otherwise set forth in this Tenant Work Letter, the Tenant Improvement Allowance (and the Additional Allowance, if applicable) shall be disbursed by Landlord only for the following items and costs (collectively the “Tenant Improvement Allowance Items”):
2.2.1.1 The payment of plan check, permit, architects, engineers, project management and license fees relating to construction of the Tenant Improvements;
2.2.1.2 The cost of construction of the Tenant Improvements, including, without limitation, testing and inspection costs and trash removal costs, and contractors’ fees and general conditions;
2.2.1.3 The cost of any changes in the Base Building when such changes are required by the Construction Drawings (including if such changes are due to the fact that such work is prepared on an unoccupied basis), such cost to include all direct architectural and/or engineering fees and expenses incurred in connection therewith;
2.2.1.4 The cost of any changes to the Construction Drawings or Tenant Improvements required by applicable building codes (collectively, the “Code”);
2.2.1.5 Sales and use taxes and Title 24 fees;
2.2.1.6 Intentionally Deleted; and
2.2.1.7 Notwithstanding anything to the contrary set forth herein, costs for the payment of the fees of the “Architect” and the “Engineers,” as those terms are defined in Section 3.1 of this Tenant Work Letter, shall not exceed an aggregate amount of $10.00 per rentable square foot of the Building; and
2.2.1.8 All other costs to be expended by Tenant and reasonably approved by Landlord in connection with the construction of the Tenant Improvements.
2.2.2 Disbursement of Tenant Improvement Allowance and Additional Allowance. During the construction of the Tenant Improvements, Landlord shall make monthly disbursements of the Tenant Improvement Allowance (and the Additional Allowance, if applicable) for Tenant Improvement Allowance Items for the benefit of Tenant and shall authorize the release of monies for the benefit of Tenant as follows:
2.2.2.1 Monthly Disbursements. On or before the twenty-fifth (25th) day of each calendar month, during the construction of the Tenant Improvements, Tenant shall deliver to Landlord: (i) a request for payment of the “Contractor,” as that term is defined in Section 4.1 of this Tenant Work Letter, approved by Tenant, in a form to be provided by Landlord, showing the schedule, by trade, of percentage of completion of the Tenant Improvements in the Premises, detailing the portion of the work completed and the portion not completed; (ii) invoices from all of “Tenant’s Agents,” as that term is defined in Section 4.1.2 of this Tenant Work Letter, for labor rendered and materials delivered to the Premises; (iii) executed mechanic’s lien releases from all of Tenant’s Agents in a form reasonably acceptable to Landlord; and (iv) all other information reasonably requested by Landlord. Tenant’s request for payment shall be deemed Tenant’s acceptance and approval of the work furnished and /or the materials supplied as set forth in Tenant’s payment request. On or before the last day of the following month, Landlord shall deliver a check to Tenant made payable to Tenant in payment of the lesser of: (A) the amounts so requested by Tenant, as set forth in this Section 2.2.2.1, above, less a ten percent (10%) retention (the aggregate amount of such retentions to be known as the “Final Retention”), and (B) the balance of any remaining available portion of the Tenant Improvement Allowance and Additional Allowance, if applicable (not including the Final Retention), provided that Landlord does not dispute any request for payment based on a non-compliance of any work with the “Approved Working Drawings,” as that term is defined in Section 3.2 below, or due to any substandard work. Landlord’s payment of such amounts shall not be deemed Landlord’s approval or acceptance of the work furnished or materials supplied as set forth in Tenant’s payment request.
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Ex. C—Page 2
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Zip Recruiting/604 Arizona-ZipRecruiter Lease
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2.2.2.2 Final Retention. Subject to the provisions of this Tenant Work Letter, a check for the Final Retention payable jointly to Tenant and Contractor shall be delivered by Landlord to Tenant following the recording of the Notice of Completion, provided that (i) Tenant delivers to Landlord lien waivers and releases in form and content reasonably acceptable to Landlord, (ii) Landlord has reasonably determined that no substandard work exists which adversely affects the mechanical, electrical, plumbing, heating, ventilating and air conditioning, life-safety or other systems of the Building, the curtain wall of the Premises, or the structure or exterior appearance of the Premises, and (iii) Architect delivers to Landlord a certificate, in a form reasonably acceptable to Landlord, certifying that the construction of the Tenant Improvements in the Premises has been substantially completed.
2.2.2.3 Other Terms. Except as expressly provided to the contrary in Section 2.l above, Landlord shall only be obligated to make disbursements from the Tenant Improvement Allowance and Additional Allowance (if applicable) to the extent costs are incurred by Tenant for Tenant Improvement Allowance Hems. All Tenant Improvement Allowance Items for which the Tenant Improvement Allowance or Additional Allowance has been made available shall be deemed Landlord’s property under the terms of the Lease.
SECTION 3
CONSTRUCTION DRAWINGS
3.1 Selection of Architect/Construction Drawings. Tenant shall retain an architect reasonably approved by Landlord (the “Architect”) to prepare the Construction Drawings. Landlord hereby approves of RAPT Studios as Tenant’s Architect. Tenant shall retain the engineering consultants selected by Tenant and reasonably approved by Landlord (the “Engineers”) to prepare all plans and engineering working drawings relating to the structural, mechanical, electrical, plumbing, HVAC, life-safety, and sprinkler work in the Premises which work is not part of the Base Building. The plans and drawings to be prepared by Architect and the Engineers hereunder shall be known collectively as the “Construction Drawings”. All Construction Drawings shall comply with the drawing format and specifications reasonably acceptable to Landlord. Tenant and Architect shall verify, in the field, the dimensions and conditions as shown on the relevant portions of the base building plans, and Tenant and Architect shall be solely responsible for the same, and Landlord shall have no responsibility in connection therewith. Landlord’s review of the Construction Drawings as set forth in this Section 3, shall be for its sole purpose and shall not imply Landlord’s review of the same, or obligate Landlord to review the same, for quality, design, Code compliance or other like matters. Accordingly, notwithstanding that any Construction Drawings are reviewed by Landlord or its space planner, architect, engineers and consultants, and notwithstanding any advice or assistance which may be rendered to Tenant by Landlord or Landlord’s space planner, architect, engineers, and consultants, Landlord shall have no liability whatsoever in connection therewith and shall not be responsible for any omissions or errors contained in the Construction Drawings, and Tenant’s waiver and indemnity set forth.in the Lease shall specifically apply to the Construction Drawings.
3.2 Approved Working Drawings. Landlord shall approve (or disapprove with reasonably detailed explanation of the basis therefor), which approval shall not be unreasonably withheld, conditioned or delayed, working drawings prepared by Architect within ten (10) business days after Landlord receives the final Working Drawings (the “Approved Working Drawings”). Tenant shall submit the same to the applicable governmental agencies and diligently pursue its receipt of all applicable building permits. Tenant hereby agrees that neither Landlord nor Landlord’s consultants shall be responsible for obtaining any building permit or certificate of occupancy for the Premises and that obtaining the same shall be Tenant’s responsibility; provided, however, that Landlord shall cooperate with Tenant in executing permit applications and performing other ministerial acts reasonably necessary to enable Tenant to obtain any such permit or certificate of occupancy. No changes, modifications or alterations in the Approved Working Drawings (other than non-material field changes) may be made without the prior written consent of Landlord, which consent may not be unreasonably withheld, conditioned or delayed.
3.3 Landlord’s Premises Drawing Contribution. In addition to the Tenant Improvement Allowance, Landlord shall contribute an amount not to exceed Six Thousand Six Hundred Thirty-Nine ($6,639.00) (based upon $0.15 per rentable square foot of the Building) (“Landlord’s Premises Drawing Contribution”) toward the cost of a preliminary analysis and fit plan to be prepared by the Architect, and no portion of the Landlord’s Premises
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Ex. C—Page 3
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Zip Recruiting/604 Arizona-ZipRecruiter Lease
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Drawing Contribution, if any, remaining after completion of the Tenant Improvements shall be available for use by Tenant. Tenant shall deliver one (1) hard copy and one (1) electronic copy of the preliminary space plan to Landlord within fifteen (15) days after Tenant’s execution of the Lease (the “Space Plan Delivery Date”). Landlord shall disburse such Landlord’s Premises Drawing Contribution amount within thirty (30) days of written request by Tenant accompanied by an invoice and proof of payment from the Architect for such work.
3.4 Landlord’s Engineering As-Built Survey Contribution. In the absence of existing base building as-built or original engineering plans, Landlord shall contribute an amount not to exceed fifty percent (50%) of Six Thousand Six Hundred Thirty Nine Dollars ($6,639) which shall be additional tenant improvement allowance. The “Landlord’s Engineering As-Built Survey Contribution” shall be specifically for the site assessment and documentation of existing MEP infrastructure which serves the Premises. Landlord shall disburse such Landlord’s Engineering As-Built Survey Contribution amount within thirty (30) days of written request by Tenant accompanied by an invoice and proof of payment from the MEP Engineer for such work.
SECTION 4
CONSTRUCTION OF THE TENANT IMPROVEMENTS
4.1 Tenant’s Selection of Contractors.
4.1.1 The Contractor. A general contractor or contractors (collectively, “Contractor”) shall be retained by Tenant to construct the Tenant Improvements and Tenant shall contract directly with such Contractor(s). Landlord shall file a Notice of Non-Responsibility regarding payments under Tenant’s contract with the Contractor(s). Such Contractor(s) shall be selected by Tenant from a list of general contractors supplied by Tenant and approved by Landlord, which approval shall not be unreasonably withheld, conditioned or delayed.
4.1.2 Tenant’s Agents. All major subcontractors used by Tenant (such major subcontractors and the Contractor to be known collectively as “Tenant’s Agents”) must be approved in writing by Landlord, which approval shall not be unreasonably withheld, conditioned or delayed. If Landlord does not approve any of Tenant’s proposed major subcontractors, Tenant shall submit other proposed subcontractors, laborers, materialmen or suppliers for Landlord’s written approval pursuant hereto. Without limiting the foregoing, Tenant shall be obligated to use Landlord’s subcontractors to perform work to or affecting the fire/life/safety energy management systems or any of the other systems of the Building provided such subcontractors charge competitive rates. Notwithstanding anything in the contrary contained herein, Tenant shall not be required to utilize union labor in the construction of the Tenant Improvements, provided that if Tenant uses non-union labor with respect to any trades covered by the Carpenters’ Union, then without limiting any of the other terms and conditions of the Lease, any delays in the completion of the Tenant Improvements or additional costs or liabilities incurred due to union related picketing or other activities resulting from the use of non-union labor shall be solely borne by Tenant.
4.2 Construction of Tenant Improvements by Tenant’s Agency.
4.2.1 Construction Contract; Cost Budget. Prior to Tenant’s execution of the construction contract and general conditions with Contractor (the “Contract”), Tenant shall submit the Contract to Landlord for its approval with regard to proper insurance and licensing requirements, and which approval shall not be unreasonably withheld, conditioned or delayed by more than five (5) business days after Landlord’s receipt of the Contract. Prior to the commencement of the construction of the Tenant Improvements, and after Tenant has accepted all bids for the Tenant Improvements, Tenant shall provide Landlord with a detailed breakdown, by trade, of the final costs to be incurred or which have been incurred in connection with the design and construction of the Tenant Improvements to be performed by or at the direction of Tenant or the Contractor, which costs form a basis for the amount of the Contract (the “Final Costs”). In the event that the Final Costs are greater than the amount of the Tenant Improvement Allowance (the “Over-Allowance Amount”), then Tenant shall pay a percentage of each amount requested by the Contractor or otherwise to be disbursed under the Work Letter, which percentage shall be equal to the Over-Allowance Amount divided by the amount of the Final Costs, and such payments by Tenant (the “Over-Allowance Payments”) shall be a condition to Landlord’s obligation to pay any amounts from the Tenant Improvement Allowance. In the event that, after the breakdown of Final Costs has been delivered by Tenant to Landlord, the costs relating to the design and construction of the Tenant Improvements shall change, any additional
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Ex. C—Page 4
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Zip Recruiting/604 Arizona-ZipRecruiter Lease
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costs necessary for such design and construction in excess of the Final Costs shall be added to the Over-Allowance Amount and the Final Costs, and the Over-Allowance Payments shall be recalculated in accordance with the terms of the immediately preceding sentence. In connection with any payment of the Over-Allowance Amount made by Tenant pursuant to this Section 4.2.1, Tenant shall provide Landlord with the documents described in Sections 2.2.2.1 (i), (ii), (iii) and (iv) of this Tenant Work Letter, above. Notwithstanding anything set forth in the Work Letter to the contrary, (i) in no event shall Landlord be responsible for costs in excess of the Tenant Improvement Allowance, and (ii) construction of the Tenant Improvements shall not commence until (a) Landlord has approved (or deemed to have approved) the Contract, and (b) Tenant has procured and delivered to Landlord a copy of all permits for the applicable Tenant Improvements. Tenant shall be responsible for all costs incurred in connection with the construction of the Tenant Improvements in excess of the Tenant Improvement Allowance; provided that Tenant shall continue to provide Landlord with the documents described in Sections 2.2.2.1 (i), (ii), (iii) and (iv) of this Work Letter.
4.2.2 Tenant’s Agents.
4.2.2.1 Landlord’s General Conditions for Tenant’s Agents and Tenant Improvement Work. Tenant’s and Tenant’s Agent’s construction of the Tenant Improvements shall comply with the following: (i) the Tenant Improvements shall be constructed in substantial accordance with the Approved Working Drawings; (ii) Tenant’s Agents shall submit schedules of all work relating to the Tenant’s Improvements to Contractor and Contractor shall, within five (5) business days of receipt thereof, inform Tenant’s Agents of any changes which are necessary thereto, and Tenant’s Agents shall adhere to such corrected schedule; and (iii) Tenant shall abide by all reasonable rules made by Landlord’s project manager with respect to the use of freight, loading dock and service elevators, storage of materials, coordination of work with the contractors of Landlord, and any other matter in connection with this Tenant Work Letter, including, without limitation, the construction of the Tenant Improvements.
4.2.2.2 Indemnity. Tenant’s indemnity of Landlord as set forth in the Lease shall also apply with respect to any and all costs, losses, damages, injuries and liabilities related in any way to any act or omission of Tenant or Tenant’s Agents, or anyone directly or indirectly employed by any of them, or in connection with Tenant’s non-payment of any amount arising out of the Tenant Improvements and/or Tenant’s disapproval of all or any portion of any request for payment. Such indemnity by Tenant, as set forth in the Lease, shall also apply with respect to any and all costs, losses, damages, injuries and liabilities related in any way to Landlord’s performance of any ministerial acts reasonably necessary (i) to permit Tenant to complete the Tenant Improvements, and (ii) to enable Tenant to obtain any permit or certificate of occupancy for the Premises.
4.2.2.3 Requirements of Tenant’s Agents. Each of Tenant’s Agents shall guarantee to Tenant that the portion of the Tenant Improvements for which it is responsible shall be free from any defects in workmanship and materials for a period of not less than one (1) year from the date of completion thereof. Each of Tenant’s Agents shall be responsible for the replacement or repair, without additional charge, of all work done or furnished in accordance with its contract that shall become defective within one (1) year after the completion of the work performed by such contractor or subcontractors. The correction of such work shall include, without additional charge, all additional expenses and damages incurred in connection with such removal or replacement of all or any part of the Tenant Improvements, and/or any portion of the Premises that may be damaged or disturbed thereby. All such warranties or guarantees as to materials or workmanship of or with respect to the Tenant Improvements shall be contained in the Contract or subcontract and shall be written such that such guarantees or warranties shall inure to the benefit Tenant.
4.2.2.3.1 Lien-Free Basis. Tenant’s Contractor and agents shall perform all work on a lien-free basis. If a lien is filed or recorded against the Premises due to, or in any way associated with, the construction of the Tenant Improvements, Tenant agrees to have such lien released of record (in compliance with Legal Requirements) within fifteen (15) days of Landlord’s notice to Tenant regarding same. If Tenant fails to cause the release of such lien within such fifteen (15) day period to Landlord’s satisfaction, Landlord may cause the removal of such lien by the filing of a surety bond of a responsible licensed California corporate surety in the amount and manner sufficient to release the Premises from the charge of the lien as contemplated by Section 8424 of the California Civil Code, and Tenant agrees to repay Landlord for all costs and expenses incurred by Landlord to
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release the lien within ten (10) business days of Landlord’s request therefor, and such amount shall be considered Additional Rent due under the Lease.
4.2.2.4 Insurance Requirements.
4.2.2.4.1 General Coverages. All of Tenant’s Agents shall carry insurance that complies with the requirements set forth on Schedule 1 attached hereto. Notwithstanding anything to the contrary contained in Schedule 1 attached hereto, Landlord hereby approves of Tenant’s Agents (i.e. subcontractors) maintaining (a) Commercial General Liability insurance on an occurrence basis equal to the greater of (i) $3,000,000 for each occurrence, $3,000,000 general aggregate, and $3,000,000 Products and Completed Operations aggregate, or (ii) such Tenant’s Agents current limits carried, and (b) Automobile Liability in an amount not less than $3,000,000 Combined Single Limit, which must include Owned (Long Term Leased), Employer’s Non-Owned and Hired Automobile Coverage.
4.2.2.4.2 Special Coverages. Tenant shall carry “Builder’s All Risk” insurance in an amount reasonably approved by Landlord covering the construction of the Tenant Improvements, it being understood and agreed that the Tenant Improvements shall be insured by Tenant pursuant to the Lease immediately upon completion thereof. Such insurance shall be in amounts and shall include such extended coverage endorsements as may be reasonably required by Landlord including, but not limited to, the requirement that all of Tenant’s Agents shall carry excess liability and Products and Completed Operating Coverage insurance, each in amounts not less than $500,000 for each incident, $1,000,000 in aggregate, and in form and with companies as are required to be carried by Tenant as set forth in the Lease.
4.2.2.4.3 General Terms. Certificates for all insurance carried pursuant to this Section 4.2.2.4 shall be delivered to Landlord before the commencement of construction of the Tenant Improvements and before the Contractor’s equipment is moved onto the site. In the event that the Tenant Improvements are damaged by any cause during the course of the construction thereof, Tenant shall immediately repair the same at Tenant’s sole cost and expense, unless arising from the negligence or intentional acts of Landlord. Tenant’s Agents shall maintain all of the foregoing insurance coverage in force until the Tenant Improvements are fully completed and accepted by Landlord, except for any Products and Completed Operation Coverage insurance required by Landlord, which is to be maintained for one (1) year following completion of the work and acceptance by Landlord and Tenant. All policies carried under this Section 4.2.2.4 shall insure Landlord and Tenant, as their interests may appear, as well as Contractor and Tenant’s Agents. All insurance, except Workers’ Compensation, maintained by Tenant’s Agents shall preclude subrogation claims by the insurer against anyone insured thereunder. Such insurance shall provide that it is primary insurance as respects the owner and that any other insurance maintained by owner is excess and noncontributing with the insurance required hereunder. The requirements for the foregoing insurance shall not derogate from the provisions for indemnification of Landlord by Tenant under Section 4.2.2.2 of this Tenant Work Letter.
4.2.3 Governmental Compliance. The Tenant Improvements shall comply in all respects with the following: (i) the Code and other state, federal, city or quasi-governmental laws, codes, ordinances and regulations, as each may apply according to the rulings of the controlling public official, agent or other person; (ii) applicable standards of the American Insurance Association (formerly, the National Board of Fire Underwriters) and the National Electrical Code; and (iii) material manufacturer’s specifications.
4.2.4 Inspection by Landlord. Landlord shall have the right to inspect the Tenant Improvements at all times, provided however, that Landlord’s failure to inspect the Tenant Improvements shall in no event constitute a waiver of any of Landlord’s rights hereunder nor shall Landlord’s inspection of the Tenant Improvements constitute Landlord’s approval of the same. Should Landlord disapprove any portion of the Tenant Improvements because they are not in compliance with the provisions of this Work Letter, Landlord shall notify Tenant in writing of such disapproval and shall specify the items disapproved. Any defects or deviations in, and/or disapproval by Landlord of, the Tenant Improvements shall be rectified by Tenant at no expense to Landlord.
4.2.5 Meetings. Commencing upon the execution of this Lease, Tenant and Landlord shall hold meetings as required at a reasonable time, with the Architect and the Contractor regarding the progress of the
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preparation of Construction Drawings and the construction of the Tenant Improvements, which meetings shall be held at a location designated by the parties, and Landlord and/or its agents shall receive prior notice of, and shall have the right to attend, all such meetings, and, upon Landlord’s request, certain of Tenant’s Agents shall attend such meetings. One such meeting each month shall include the review of Contractor’ s current request for payment.
4.3 Notice of Completion: Copy of “As Built” Plans. Within ten (10) days after completion of construction of the Tenant Improvements, Tenant shall cause a Notice of Completion to be recorded in the office of the Recorder of the County of Los Angeles, and shall furnish a copy thereof to Landlord upon such recordation. If Tenant fails to do so within ten (10) days after written notice form Landlord, Landlord may execute and file the same on behalf of Tenant as Tenant’s agent for such purpose, at Tenant’s sole cost and expense. At the conclusion of construction, (i) Tenant shall cause the Architect and Contractor (A) to update the Approved Working Drawings as necessary to reflect all changes made to the Approved Working Drawings during the course of construction, (B) to certify to the best of their knowledge that the “record-set” of as-built drawings are true and correct, which certification shall survive the expiration or termination of the Lease, and (C) to deliver to Landlord two (2) sets of copies of such as-built or field corrected drawings within ninety (90) days following issuance of a certificate of occupancy for the Premises; and (ii) Tenant shall deliver to Landlord a copy of all warranties, guaranties, and operating manuals and information relating to the improvements, equipment, and systems in the Premises which are the subject of Landlord’s obligations to repair and maintain.
SECTION 5
MISCELLANEOUS
5.1 Tenant’s Representative. Tenant has designated Amy Klimek as its sole representative with respect to the matters set forth in this Tenant Work Letter, who shall have full authority and responsibility to act on behalf of the Tenant as required in this Tenant Work Letter.
5.2 Landlord’s Representative. Landlord shall designate an individual as its sole representative with respect to the matters set forth in this Tenant Work Letter, who, until further notice to Tenant, shall have full authority and responsibility to act on behalf of the Landlord as required in this Tenant Work Letter.
5.3 Time of the Essence in This Tenant Work Letter. Time is of the essence with respect to the performance by Tenant of every provision of this Tenant Work Letter. Unless otherwise indicated, all references herein to a “number of days” shall mean and refer to calendar days. If any item requiring approval is timely disapproved by Landlord, the procedure for preparation of the document and approval thereof shall be repeated until the document is approved by Landlord.
5.4 Tenant’s Lease Default. Notwithstanding any provision to the contrary contained in the Lease, if an Event of Default as described in the Lease or this Tenant Work Letter has occurred at any time, then in addition to all other rights and remedies granted to Landlord pursuant to the Lease, Landlord shall have the right to withhold payment of all or any portion of the Tenant Improvement Allowance and/or Additional Allowance and/or Landlord may cause Contractor to cease the construction (in which case, Tenant shall be responsible for any day in the substantial completion caused by such work stoppage); provided that promptly following the cure by Tenant of any such Event of Default, any previously unpaid Tenant Improvement Allowance or Additional Allowance which is otherwise due and owing by Landlord to Tenant shall be paid to Tenant.
5.5 Additional Services. If the construction of the Tenant Improvements shall require that additional services or facilities (including, but not limited to, hoisting, cleanup or other cleaning services, trash removal, field supervision, or ordering of materials) be provided by Landlord, then Tenant shall pay Landlord for such items at Landlord’s cost or at a reasonable charge if the item involves time of Landlord’s personnel only. Notwithstanding the foregoing, during construction of the Tenant Improvements, Landlord shall not charge Tenant for any cost for utilities, elevator usage, or for any parking charges for contractors, vendors, or Tenant during construction.
5.6 Construction Defects. Landlord shall have no responsibility for the Tenant Improvements and Tenant will remedy, at Tenant’s own expense, and be responsible for any and all defects in the Tenant Improvements that may appear during or after the completion thereof whether the same shall affect the Tenant Improvements in particular or any parts of the Premises in general. Tenant shall indemnify, hold harmless and
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reimburse Landlord for any costs or expenses incurred by Landlord by reason of any defect in any portion of the Tenant Improvements constructed by Tenant or Tenant’s contractor or subcontractors, or by reason of inadequate cleanup following completion of the Tenant Improvements.
5.7 Coordination of Labor. Prior to the Delivery Date, all of Tenant’s contractors, subcontractors, employees, servants and agents must work in harmony with and shall not interfere with any labor employed by Landlord, or Landlord’s contractors with respect to any portion of the Premises.
5.8 Freight Elevators, Utilities and Parking. During the period of construction of the Tenant Improvements, Landlord shall allow Tenant and Tenant’s Agents nonexclusive freight elevator service at no cost to Tenant, subject to reasonable scheduling by Landlord, use of Premises utilities during normal Premises hours without charge, and free parking in the Premises parking facility.
5.9 Additional Services. If the construction of the Tenant Improvements shall require that additional services or facilities (including, but not limited to, hoisting, cleanup or other cleaning services, trash removal field supervision, or ordering of materials) be provided by Landlord at Tenant’s specific request, then Tenant shall pay Landlord for such items at Landlord’s cost or at a reasonable charge if the item involves time of Landlord’s personnel only. Electrical power shall be available to Tenant 24 hours per day, 7 days per week, and heating, ventilation and air conditioning shall be available to Tenant during normal business hours for construction purposes at no charge to Tenant.
5.10 Approval of Plans. Landlord will not check Tenant drawings for building code compliance. Approval of the Construction Drawings by Landlord is not a representation that the drawings are in compliance with the requirements of governing authorities, and it shall be Tenant’s responsibility to meet and comply with all federal, state, and local code requirements. Approval of the Construction Drawings does not constitute assumption of responsibility by Landlord or its architect for their accuracy, sufficiency or efficiency, and Tenant shall be solely responsible for such matters.
5.11 Intentionally Deleted.
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Ex. C—Page 8
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SCHEDULE 1
INSURANCE REQUIREMENTS FOR
CONSTRUCTION CONTRACT
Contractor must maintain the following minimum insurance over the duration of the service:
LIABILITY INSURANCE
Contractor shall maintain the following insurance coverage, at the minimum types and amounts of insurance set forth below, insuring Contractor, its employees, agents and designees, which insurance shall be placed with insurance companies rated, at a minimum, “A-VIII” by Best’s Key Rating Guide, and shall incorporate the provisions requiring the giving of written notice to Owner at least thirty (30) days prior to the cancellation, non-renewal, or material modification of any policies as evidenced by return receipt of United States certified mail :
a) Coverage for Contractor, any subcontractor, or anyone directly or indirectly employed by either of them, including commercial general liability insurance on an occurrence basis. For bodily injury liability and property damage liability, Contractor shall maintain coverage of $6,000,000 for each occurrence and $6,000, 000 general aggregate.
b) Commercial general liability insurance, including Blanket Contractual Liability, Products/Completed Operations, Independent Contractors and Personal Injury. If the policy is subject to a “general aggregate”, it must contain a “per job” or “per location” aggregate extension with respect to work for Owner.
c) For automobile liability, Contractor must carry Bodily Injury Liability and Property Damage Liability in an amount not less than $6,000,000 Combined Single Limit, and the insurance must include Owned (Long-Term Leased), Employer’s Non-Owned and Hired Automobile Coverage.
Notwithstanding the foregoing, the above limits can be achieved by a combination of primary and excess (umbrella) liability coverage.
d) Workers compensation coverage, in compliance with applicable law for the State which the Property is located, and a minimum policy of $1,000,000 for employer’s liability.
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Schedule 1—Page 1
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EXHIBITD
ANIMAL RULES AND REGULATIONS
Conditional Authorization for Dogs.
Tenant shall be permitted to have at the Premises up to twenty (20) dogs (each individually a “Dog” and collectively, the “Dogs”), and no other animals, subject to the following:
1. Revocable Permission. Tenant’s permission to bring any particular Dog to the Premises may be revoked by Landlord for any reason Landlord deems appropriate, in its reasonable. Landlord reserves the right to deny access or permission to Tenant for any Dog due to its breed, or mix with a breed with a history of aggressive behavior.
2. Specifically Prohibited Breeds: No “potentially dangerous dog” or “vicious dog” (as such terms are defined in Section 31602 and Section 31603 [respectively] of the Food and Agricultural Code of California) shall be permitted in the Premises and/or the Premises. In addition, the following specific breeds of dogs (or dogs mixed with these breeds) are not permitted on the Premises except to the extent the same are licensed service animals and are being utilized by Tenant, its agents, employees, contractors, subtenants, and/or invitees for such purpose. Landlord reserves the right to change or add to such list at any time and from time to time:
Pit Bulls (aka American Staffordshire Terriers, Staffordshire Bull Terriers, or American Pit Bull Terriers), Bull Terriers, Bull Mastiffs, German Shepherds, Huskies, Malamutes, Doberman Pinschers, Rottweilers, Chow Chows, Rhodesian Ridgebacks, and any wolf, coyote or other wild dog breed mix. Dogs must be contained in an area so as not to interfere with any maintenance service which has been requested. Under no circumstances shall any other animals or any wild animals be permitted, including, by way of example only and without limitation, any birds, chinchillas, ferrets, fish, iguanas, monkeys, pot-bellied pigs, rabbits, raccoons, rodents of any kind, skunks, snakes, weasels or reptiles of any kind, tarantulas, scorpions or spiders of any kind.
3. Cleaning and Repairs. Tenant shall be solely liable for the entire amount of all damage of any kind to property arising out of the presence of any Dog permitted by Tenant to be brought or onto the Premises (including, without limitation, the parking structure serving the Premises). If any portion of the Premises cannot be satisfactorily cleaned or repaired, Tenant shall pay for complete replacement of such portion of the Premises. Dog odors, stains, and claw or tooth marks shall be considered “extraordinary damage” and not a part of “normal wear and tear” at the Premises.
4. Injuries. Tenant shall be strictly and solely liable for the entire amount of any injury of any kind to persons or property caused by or arising out of the presence of any Dog permitted by Tenant to be brought or onto the Premises (including, without limitation, the parking structure serving the Premises) any Dog, and Tenant shall indemnify, defend and hold harmless Landlord, with counsel acceptable to Landlord, for all liability, losses, claims, demands, damages, lawsuits, judgments, costs and expenses (including without limitation reasonable attorneys’ fees), resulting from same.
5. Nuisance. Tenant agrees that no Dog shall be permitted to create a public nuisance or to disturb the rights, comforts and conveniences of any neighboring buildings’ tenants, permittees or invitees. The foregoing shall apply whether the Dog is inside or outside of the Building.
6. Sanitary Problems. Dogs must be housebroken. No Dog may be allowed to urinate or defecate on any unprotected car, vinyl floor, or hardwood floor inside the Premises. Tenant shall not permit the Dog to defecate or urinate anywhere on the Premises, including patio areas, walkways, stairs, stairwells, parking lots, grassy areas, or other places and must take their Dog off the property for that purpose. If Dog defecation occurs anywhere on the Premises (including fenced yards for Tenants’ exclusive use), Tenants shall be responsible for the immediate removal of waste and repair of any damage. In additional Tenant shall require the caretaker of any Dog to have a sanitary waste remover, commonly known as a “Pooper
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Scooper” or “Dog Scooper” or other waste removal supplies on hand at all times while walking the Dog outside the Premises, and Tenant agrees to remove and properly dispose of any Dog waste.
7. Tethering. Dogs shall not be tied to any fixed object outside the Premises, including any patio areas, walkways, stairs, stairwells, parking lots, grassy areas, or any other part of the Premises.
8. Feeding of Dogs. Dog food or water may not be left unattended on the interior or exterior of the premises at any time.
9. Intentionally Deleted.
10. Additional Rules. Landlord reserves the right to make reasonable changes and additions to the above Dog Rules from time to time.
11. Violation of Rules. If any rule or provision of these Rules is violated by Tenant or Tenant’s guests or occupants in the reasonable judgment of Landlord, Tenant shall immediately and permanently remove the Dog from the Premises upon written notice from Landlord’s representative; and Landlord shall have all other rights and remedies set forth in the Lease.
12. Complaints About Dog. Tenant agrees to immediately and permanently remove the Dog from the Premises if Landlord, in Landlord’s reasonable discretion, determines that the Dog is creating a public nuisance.
13. Surrender. Upon surrender of the Premises at the expiration or earlier termination of the Lease, Tenant shall pay for defleaing, deodorizing, and/or steam cleaning regardless of how long the Dog occupied the Premises.
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Ex. D—Page 2
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EXHIBIT E
ENVIRONMENTAL DISCLOSURE
604 ARIZONA
CONSTRUCTION CONTRACT
Schedule 2
(v) Based on the survey reports by Owner, known ACM and Presumed ACM has been identified in the locations listed below:
(b) List of records and reports available to the Owner:
The foregoing is a summary of the operations and maintenance plan and test results for known ACM. Copies of the following can be reviewed at the Management Office:
a) Limited Environmentally-Regulated Materials (ERMS) Screening Report, 604 Arizona Avenue, Santa Monica, California by Citadel Environmental Services, Inc. dated July 5, 2011.
b) Asbestos Operations and Maintenance Program, 604 Arizona Avenue, Santa Monica, California by Citadel Environmental Services, Inc. dated December 27, 2011.
c) Limited Asbestos & Lead Bulk Sampling Letter Report, 604 Arizona Avenue, Santa Monica, California by Citadel Environmental Services, Inc. dated September 21, 2012.
d) Limited Asbestos Bulk Sampling Letter Report, - Additional Sampling 2nd & 3rd Floors, 604 Arizona Avenue, Santa Monica, California by Citadel Environmental Services, Inc. dated December 19, 2012.
e) Lead-Containing Paint Operations and Maintenance Program, 604 Arizona Avenue, Santa Monica, California by Citadel Environmental Services, Inc. dated December 20, 2012.
f) Limited Asbestos Bulk Sampling Letter Report - Additional Sampling Roof Penthouse, 604 Arizona Avenue, Santa Monica, California by Citadel Environmental Services Inc. dated March 25, 2013.
g) Asbestos & Lead Close-Out Documentation — 2nd Floor Window Repair Project, 604 Arizona Avenue, Santa Monica, California by Citadel Environmental Services, Inc. dated May 14, 2013.
h) Asbestos Close-Out Documentation — Roof, 604 Arizona Avenue, Santa Monica, California by Citadel Environmental Services, Inc. dated January 22, 2014.
i) Asbestos & Lead Close-Out Documentation – 3rd Floor Window Removal, 604 Arizona Avenue, Santa Monica, California by Citadel Environmental Services, Inc. dated May 17, 2016.
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Ex. E—Page 1
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You may also contact the Hudson 604 Arizona, LLC representative designated below, for more detailed information.
CONTACT: DEANNA EVERIDGE PHONE: (310) 361-0120
We have received and reviewed a copy of Asbestos to Tenants and Vendors. We will contact the Property Manager with any questions or concerns.
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Ex. E—Page 2
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VIA FEDEX DELIVERY
December 18, 2017
Mr. Ian Siegel
ZipRecruiter INC.
401 Wilshire Blvd. 11th Floor
Santa Monica, CA 90401
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RE:
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The First Amendment to Lease Agreement (this “Amendment”) dated December 15, 2017, by and between HUDSON 604 ARIZONA, LLC, a Delaware limited liability company (“Landlord”), and ZIPRECRUITER, INC., a Delaware corporation (“Tenant”) for premises located at 604 Arizona Avenue, Santa Monica, California (“Premises”) as more particularly described in the Original Lease.
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Dear Mr. Siegel:
Enclosed for your records, please find one (1) fully executed, original Amendment for the Premises as noted above.
Should you have any questions, please do not hesitate to contact me at (310) 361-0120.
Sincerely,
HUDSON PACIFIC PROPERTIES
as authorized agent of Landlord
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/s/Jericho Gilmore
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Jericho Gilmore, RPA®, LEED AP
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Senior Property Manager
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Enclosure: (1)
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FIRST AMENDMENT TO LEASE AGREEMENT
This First Amendment to Lease Agreement (this “Amendment”) is made and entered into as of December 15, 2017, by and between HUDSON 604 ARIZ0NA, LLC, a Delaware limited liability company (“Landlord”), and ZIPRECRUITER, INC., a Delaware corporation (“Tenant”).
RECITALS
A. Landlord and Tenant are parties to that certain Lease Agreement dated as of September 30, 2017 (the “Original Lease”), pursuant to which Landlord leases to Tenant, and Tenant leases from Landlord, certain premises located at 604 Arizona Avenue, Santa Monica, California (the “Premises”), as more particularly described in the Original Lease.
B. Landlord and Tenant desire to amend the Original Lease to, among other things, modify Tenant’s maintenance and repair obligations with respect to the Premises, all in accordance with the terms and condition set forth below.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree as follows:
1. Defined Terms. All capitalized terms used herein but not specifically defined in this Amendment shall have the meanings ascribed to such terms in the Original Lease. The term “Lease” where used in the Original Lease and this Amendment shall hereafter refer to the Original Lease, as amended by this Amendment.
2. Tenant’s Repairs. Section 11(a) of the Original Lease is hereby deleted in its entirety and replaced with the following paragraph:
“(a) subject to landlord’s obligation in Paragraph 10 and/or elsewhere in this Lease, Tenant, at its sole expense, shall repair, replace and maintain in good condition and in compliance with all legal Requirements all portions of the Premises and all areas, improvements and systems exclusively serving the Premises including, without limitation, equipment and loading areas, plumbing, water, and sewer lines up to points of common connection, entries, doors, door frames, ceilings, windows, window frames, interior walls, and the interior side of demising walls, and other building and mechanical systems serving the Premises. Such repair and replacements include capital expenditures and repairs whose benefit may extend beyond the lease Term. If a capital replacement of any currently existing element of the Premises is required then, provided that such capital replacement (i) was not necessitated by Tenant’s misuse, failure to perform ordinary repair and maintenance in a commercially reasonable manner, or failure to timely comply with any of the terms of this Lease (it being understood that, subject to Section 9(c), Tenant shall solely be responsible for the cost thereof if such capital replacement was necessitated by Tenant’s misuse, failure to perform ordinary repair and maintenance in a commercially reasonable manner, or failure to timely comply with any of the terms of this lease), and (ii) is
not with respect to any Tenant-Made Alterations, landlord shall perform such capital replacement and the cost thereof shall be amortized on a straight line basis (with interest at 8% per annum) over a period equal to the useful life thereof for federal income tax purposes, and Tenant shall pay such amortized payments to landlord on the first day of each month together with its Base Rent payments (but without regard to any credit or abatement of Base Rent) through and including the expiration of the lease Term and any extensions thereof).”
3. Severability. Any provision of this Amendment which shall prove to be invalid, void, or illegal shall in no way affect, impair or invalidate any other provision hereof and such other provisions shall remain in full force and effect.
4. Further Assurances. Each of the parties hereto agrees to execute and deliver all such further documents and to take all such further actions as may be reasonably requested by the other party hereto to effectuate fully the terms and provisions of this Amendment, provided such documents or actions do not limit, reduce or impair the rights of the party upon whom such request is made.
5. Binding Effect. This Amendment shall be binding upon and inure to the benefit of Landlord, its successors and assigns and Tenant and its permitted successors and assigns.
6. PDF; Counterparts. Each party hereto, and their respective successors and assigns shall be authorized to rely upon the signatures of all of the parties hereto on this Amendment which are delivered by PDF as constituting a duly authorized, irrevocable, actual, current delivery of this Amendment with original ink signatures of each person and entity. This Amendment may be executed in counterparts, each of which shall be deemed an original part and all of which together shall constitute a single agreement.
7. Original Lease in Full Force. Except for those provisions which are inconsistent with this Amendment and those terms, covenants and conditions for which performance has heretofore been completed, all other terms, covenants and conditions of the Original Lease shall remain unmodified and in full force and effect and Landlord and Tenant hereby ratify the Original Lease, as amended hereby.
[Signature page follows]
IN WITNESS WHEREOF, this Amendment is executed as of the day and year first set forth above.
LANDLORD:
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HUDSON 604 ARIZONA, LLC,
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a Delaware limited liability company
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By:
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Hudson Pacific Properties, L.P.,
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a Maryland limited partnership
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Its:
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Sole Member
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By:
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Hudson Pacific Properties, L.P.,
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a Maryland limited partnership
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Its: General Partner
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By:
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/s/ Mark T. Lammas
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Name:
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Mark T. Lammas
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Title:
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Chief Operating Officer,
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Chief Financial Officer & Treasurer
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TENANT:
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ZIPRECRUITER, INC.,
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a Delaware corporation
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By:
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/s/ Ian Siegel
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Name:
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Ian Siegel
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Title:
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CEO
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By:
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/s/ David Feldman
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Name:
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David Feldman
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Title:
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Chief Business Officer,
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SECOND AMENDMENT TO OFFICE LEASE
This Second Amendment to Office Lease (this “Second Amendment”), dated May 3, 2018, is made by and between DOUGLAS EMMETT 1995, LLC, a Delaware limited liability company (“Landlord”), with offices at 808 Wilshire Boulevard, Suite 200, Santa Monica, California 90401, and ZIPRECRUITER, INC., a Delaware corporation (“Tenant”), with offices at 401 Wilshire Boulevard, Suite 1100, Santa Monica, California 90401.
WHEREAS,
A. Landlord and Tenant are parties to that certain Office Lease dated May 16, 2014 (the “Original Lease”), as amended by that certain option exercise letter dated August 11, 2015 (the “OE Letter”) and that certain First Amendment to Office Lease dated May 23, 2017 (the “First Amendment”), covering space in the property located at 401 Wilshire Boulevard, Santa Monica, California 90401 (the “Building”), commonly known as Suite 1100 and Suite 350 (collectively, the “Premises”);
B. The Term of the Original Lease, as amended, expires on July 31, 2018, which Term Landlord and Tenant wish to hereby extend with respect only to Suite 1100; and
C. Landlord and Tenant, for their mutual benefit, wish to revise certain other covenants and provisions of the Original Lease, as amended.
NOW, THEREFORE, in consideration of the covenants and provisions contained herein, and other good and valuable consideration, the sufficiency of which Landlord and Tenant hereby acknowledge, Landlord and Tenant agree:
1. Confirmation of Defined Terms. Unless modified herein, all terms previously defined and capitalized in the Original Lease, as amended, shall hold the same meaning for the purposes of this Second Amendment. The Original Lease, as modified by the OE Letter, the First Amendment and this Second Amendment, shall hereinafter be referred to as the “Lease.”
2. Extension of Extended Term. The Extended Term is hereby extended with respect only to Suite 1100 for a period of five (5) years and three (3) months (the “Second Extended Term”), from and including August 1, 2018 (the “Effective Date”), through and including 11:59 p.m. on October 31, 2023 (the “Termination Date”). On or before July 31, 2018, Tenant shall surrender Suite 350 to Landlord in accordance with the requirements of Article 7 of the Original Lease, and Landlord hereby acknowledges and agrees that there is no Tenant Change in Suite 350 which Tenant shall be required to remove upon such surrender of Suite 350. From and after August 1, 2018, any and all obligations of Tenant under the Lease with respect to Suite 350 shall be of no further force or effect, except for those obligations which specifically survive the expiration or earlier termination of the Lease.
3. Correction to Usable Area and Rentable Area of Suite 1100. Tenant acknowledges and agrees that Landlord engaged an independent third party space plan audit firm to measure the usable area (“Usable Area”) of Suite 1100 in accordance with the 2010 ANSI/BOMA Standard set forth collectively by the American National Standards Institute and the Building Owners and Managers Association (“ANSI/BOMA Standard”) as a guideline. Based upon such re-measurement Landlord has been advised that the accurate Usable Area of the Suite 1100 is approximately 15,299 square feet. Based on Landlord’s deemed load factor as indicated herein below, the corrected rentable area (“Rentable Area”) of Suite 1100 is hereby agreed to be approximately 17,900 square feet. It is specifically understood and agreed that the modification to the Useable Area and Rentable Area of Suite 1100 as set forth in this Section 3 shall have no effect on Tenant’s financial obligations under the Lease prior to the Effective Date.
SECOND AMENDMENT TO OFFICE LEASE
Landlord and Tenant agree that Landlord is utilizing a deemed load factor of 17.00% to compute the Rentable Area of Suite 1100. Rentable Area herein is calculated as 1.1700 times the estimated Usable Area, regardless of what the actual square footage of the common areas of the Building may be, and whether or not they are more or less than 17.00% of the total estimated Usable Area of the Building. The purpose of this calculation is solely to provide a general basis for comparison and pricing of this space in relation to other spaces in the market area.
4. Revision in Fixed Monthly Rent. Tenant shall pay Fixed Monthly Rent during the Second Extended Term as follows:
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Period
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Fixed Monthly Rent
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August 1, 2018 through July 31, 2019
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$117,245.00
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August 1, 2019 through July 31, 2020
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$121,934.80
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August 1, 2020 through July 31, 2021
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$126,812.19
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August 1, 2021 through July 31, 2022
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$131,884.68
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August 1, 2022 through July 31, 2023
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$137,160.07
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August 1, 2023 through October 31, 2023
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$142,646.47
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All payments of Fixed Monthly Rent shall be made in immediately available funds.
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Notwithstanding the foregoing, one hundred percent (100%) of the Fixed Monthly Rent due for each of the months of September 2018, September 2019 and September 2020 shall be abated.
5. Modification to Security Deposit. Landlord acknowledges that it currently holds the sum of $136,102.11 ($73,949.11 of which was deposited by Tenant in accordance with the Original Lease, and $62,153.00 of which was deposited by Tenant in accordance with the First Amendment) as a Security Deposit under the Lease. Provided that Tenant timely delivers the Letter of Credit (as defined in Section 18 of this Second Amendment) to Landlord, Landlord shall apply (1) $117,245.00 of the Security Deposit against the Fixed Monthly Rent due for the month of August 2018 (which is equal to $117,245.00), so that the Security Deposit shall then equal $18,857.11 (the “Remaining Security Deposit”), and (2) the entire Remaining Security Deposit against the Fixed Monthly Rent due for the month of September 2018, and Tenant shall thereafter have no obligation to maintain a security deposit under the Lease.
Tenant hereby waives the provisions of Section 1950.7 of the California Civil Code, and all other laws, statutes, ordinances or other governmental rules, regulations or requirements now in force or which may hereafter be enacted or promulgated, which (i) establish the time frame by which Landlord must refund a security deposit under a lease, and/or (ii) provide that Landlord may claim from the Security Deposit only those sums reasonably necessary to remedy defaults in the payment of rent, to repair damage caused by Tenant or to clean the Premises, it being agreed that Landlord may, in addition, claim those sums specified in Article 18 of the Original Lease, and/or those sums reasonably necessary to compensate Landlord for any loss or damage caused by Tenant's breach of the Lease or the acts or omission of Tenant or any Tenant Party. As used in the Lease a “Tenant Party” shall mean Tenant, any employee of Tenant, or any agent, authorized representative, design consultant or construction manager engaged by or under the control of Tenant. Notwithstanding Tenant’s waiver set forth in clause (i) above, Landlord and Tenant agree that at the expiration or earlier termination of the Lease, Landlord may deduct from the Security
SECOND AMENDMENT TO OFFICE LEASE
Deposit being held on behalf of Tenant only those unpaid sums, expenses or damages payable by Tenant pursuant to the express provisions of the Lease (including, without limitation, any default in the payment of Rent) and shall, within thirty (30) days after the expiration or earlier termination of the Lease, deliver to Tenant a detailed written accounting of the amount so deducted (including reasonably detailed supporting documentation therefor) and shall return to Tenant, without interest, all or such part of the Security Deposit which has not been properly deducted and accounted for as provided above, unless the Lease is terminated prior to the expiration of the Second Extended Term due to a material default by Tenant, in which event Landlord may retain the Security Deposit (or any portion thereof) to apply to future rent delinquencies.
6. Revision to Base Year. As of the Effective Date, the Base Year shall be calendar year 2018. Notwithstanding any contrary provision of the Lease, Tenant shall not be obligated to pay any portion of Tenant’s Share of increases in Operating Expenses over the Base Year of 2018 applicable to the period prior to August 1, 2019. In addition, notwithstanding any contrary provision of the Lease, during the Second Extended Term, the increases in Operating Expenses shall be limited to five percent (5%) per annum on a cumulative basis (the “OER Controllable Item Cap”), of Operating Expenses, excluding insurance premiums, utilities, janitorial, and all general and special real estate taxes (the “Controllable Items”); provided, however, that should the actual percentage change in the increase in Operating Expenses attributable to the Controllable Items exceed the OER Controllable Item Cap per annum, that excess amount shall accrue for application in any future year that the percentage increase in Operating Expenses attributable to the Controllable Items is less than the OER Controllable Item Cap per annum. Landlord and Tenant agree that as to Tenant's Share of any increase in Operating Expenses shown on the Escalation Statement for calendar year 2018, Tenant shall only be liable for an amount equal to 7/12 of such increase, being for the period from January 1, 2018 through July 31, 2018. In addition, as to Tenant's Share of any increase in Operating Expenses shown on the Escalation Statement for calendar year 2019, Tenant shall only be liable for an amount equal to 5/12 of such increase, being for the period from August 1, 2019 through December 31, 2019.
7. Revision to Tenant’s Share. As of the Effective Date, Tenant’s Share shall be 7.82%, which is calculated by dividing the number of usable square feet contained in Suite 1100 (15,299) by the number of usable square feet contained in the Building (195,562) and multiplying the quotient by 100.
8. Proposition 13 Protection. Notwithstanding any other provision of the Lease, if at any time during the first forty-eight (48) months of the Second Extended Term (the “Protection Period”), any sale, transfer, new construction, refinancing or change of ownership of the Building or any portion of the same or in any entity having a direct or indirect interest in all or any portion of the same is consummated and, as a result thereof, all or part of the Building and/or Real Property is reassessed (the “Reassessment”) for real estate tax purposes by the appropriate government authority subject to the terms of Proposition 13 (or any successor statute), the terms of this Section 8 shall apply to such Reassessment.
(i) For purposes of this Section 8, the term “Tax Increase” shall mean that portion of Operating Expenses (as calculated immediately following the Reassessment) that is attributable solely to the Reassessment. Accordingly, a Tax Increase shall not include any portion of Operating Expenses, as calculated immediately following the Reassessment that is attributable to: (i) the assessed value of the Building, the Real Property, or the tenant improvements located in the Building prior to the Reassessment; (ii) assessments pending immediately before the Reassessment that were conducted during, and included in, such Reassessment or that were otherwise rendered unnecessary following the Reassessment; (iii) the annual inflationary increase in real estate taxes permitted under California law but not in excess of two percent
SECOND AMENDMENT TO OFFICE LEASE
(2%) per annum; or (iv) any real property taxes and assessments incurred during the Base Year as determined under the Lease.
(ii) (1) for Operating Expenses assessed during the period commencing August 1, 2018 and ending July 31, 2019, Tenant shall not be obligated to pay any portion of any Tax Increase allocable to the Reassessment; (2) for Operating Expenses assessed during the period commencing August 1, 2019 and ending July 31, 2020, Tenant shall be obligated to pay only twenty-five percent (25%) of any Tax Increase allocable to the Reassessment; (3) for Operating Expenses assessed during the period commencing August 1, 2020 and ending July 31, 2021, Tenant shall be obligated to pay only fifty percent (50%) of any Tax Increase allocable to the Reassessment; (4) for Operating Expenses assessed during the period commencing August 1, 2021 and ending July 31, 2022, Tenant shall be obligated to pay only seventy-five percent (75%) of any Tax Increase allocable to the Reassessment; and (5) for Operating Expenses assessed during any period from and after August 1, 2022, Tenant shall be obligated to pay one hundred percent (100%) of any Tax Increase allocable to the Reassessment.
The amount of Tax Expenses which Tenant is not obligated to pay or will not be obligated to pay during the initial Second Extended Term in connection with any such Reassessment shall be sometimes referred to hereafter as a “Proposition 13 Protection Amount.” If the occurrence of any such Reassessment is reasonably foreseeable by Landlord and the Proposition 13 Protection Amount attributable to such Reassessment can be reasonably quantified or estimated for each Lease Year commencing with the Lease Year in which such Reassessment will occur, then upon notice to Tenant, Landlord shall have the right to purchase the Proposition 13 Protection Amount relating to the Reassessment, at any time during the Second Extended Term, by paying to Tenant an amount equal to the Proposition 13 Purchase Price (as defined below), provided that the right of any successor of Landlord to exercise its right of repurchase hereunder shall not apply to any Reassessment which results from the event pursuant to which such successor of Landlord became the Landlord under the Lease. As used herein, “Proposition 13 Purchase Price” shall mean the present value of the Proposition 13 Protection Amount remaining during the Second Extended Term, as of the date of payment of the Proposition 13 Purchase Price by Landlord. Such present value shall be calculated (i) by using the portion of the Proposition 13 Protection Amount attributable to each remaining Lease Year in the Second Extended Term (as though the portion of such Proposition 13 Protection Amount benefited Tenant at the end of each Lease Year), as the amounts to be discounted, and (ii) by using discount rates for each amount to be discounted equal to (A) the average rates of yield for United States Treasury Obligations with maturity dates as close as reasonably possible to the end of each Lease Year during which the portions of the Proposition 13 Protection Amount would have benefited Tenant, which rates shall be those in effect as of Landlord's exercise of its right to purchase, plus (B) two percent (2%) per annum. Upon such payment of the Proposition 13 Purchase Price, the protection provisions of this clause (ii) shall not apply to any Tax Increase attributable to the Reassessment. Since Landlord is estimating the Proposition 13 Purchase Price because the Reassessment has not yet occurred, if Landlord has underestimated the Proposition 13 Purchase Price, Tenant's Fixed Monthly Rent next due shall be credited with the amount of such underestimation, and if Landlord overestimates the Proposition 13 Purchase Price, then Tenant shall pay the amount of the overestimation to Landlord within thirty (30) days after demand. Landlord agrees that if Landlord sells the Premises following payment of a Proposition 13 Purchase Price, Landlord shall cause the purchaser of the Premises to acknowledge and assume the obligations of Landlord contained in the preceding sentence.
9. Parking. Notwithstanding any contrary provision of the Lease, as of the Effective Date, Tenant shall have the obligation to purchase twenty (20) permits for unreserved parking spaces in the
SECOND AMENDMENT TO OFFICE LEASE
parking facility serving the Building (the “Building Parking Facility”) on a “must take” basis, and the right, but not the obligation, to purchase up to additional thirty-two (32) permits for unreserved parking spaces in the Building Parking Facility. The rates chargeable to Tenant for such parking permits shall be at the posted monthly parking rates and charges then in effect, plus any and all applicable taxes, provided that such rates may be changed from time to time, in Landlord’s sole discretion. Notwithstanding the foregoing, the monthly parking rates payable by Tenant for such parking permits during the Second Extended Term shall not increase by more than five and one half percent (5.5%) per year, on a cumulative basis, over the monthly parking rates payable by Tenant as of the date of this Second Amendment. All other terms of Tenant’s parking rights and obligations shall be as provided in Article 21 of the Original Lease, as supplemented by the Building rules and regulations specified in Exhibit C attached to and made a part of the Original Lease, it being understood that in addition to the above, Tenant may lease additional parking spaces at the Building at the then prevailing rates, subject to availability, on a month-to-month basis.
10. Option to Extend Second Extended Term.
10.1. Option to Extend Second Extended Term. Provided Tenant is not in material default after the expiration of notice and the opportunity to cure on the date Tenant gives notice to Landlord of Tenant’s exercise of its rights pursuant to this Section 10, Tenant is given the option to extend the Second Extended Term for an additional one (1) year and seven (7) month period (the “Third Extended Term”), commencing the next calendar day after the expiration of the Second Extended Term (the “Option”). The Option shall apply only to the entirety of the Premises, and Tenant shall have no right to exercise the Option as to only a portion of the Premises. Tenant’s exercise of this Option is contingent upon Tenant giving written notice to Landlord (the “Option Notice”) of Tenant’s election to exercise its rights pursuant to this Option by Certified Mail, Return Receipt Requested or by a reputable overnight courier service (such as FedEx or UPS), no more than twelve (12) and no less than nine (9) months prior to the Termination Date. The Option Notice shall be irrevocable.
10.2. Fixed Monthly Rent Payable. The Rent payable by Tenant during the Third Extended Term (“Option Rent”) shall be $148,352.33 per month for the period commencing November 1, 2023 and ending October 31, 2024, and $154,286.42 per month for the period commencing November 1, 2024 and ending May 31, 2025.
10.3. No Right of Reinstatement or Further Extension. Once Tenant has failed to exercise its rights to extend the Second Extended Term pursuant to this Section 11, it shall have no right of reinstatement of its Option to extend the Second Extended Term, nor shall Tenant have any right to a further or second extension of the Second Extended Term.
10.4. No Assignment of Option. This Option is personal to the original Tenant signing this Second Amendment, and shall be null, void and of no further force or effect as of the date that Tenant assigns the Lease to an entity other than an Affiliate and/or subleases more than forty-nine percent (49%) of the total Rentable Area of the Premises to an entity other than an Affiliate.
11. Option to Extend the Third Extended Term.
11.1. Option to Extend the Third Extended Term. Provided Tenant is not in material default after the expiration of notice and the opportunity to cure on the date Tenant gives notice to Landlord of Tenant’s exercise of its rights pursuant to this Section 11, Tenant is given the second option to extend the extended term for one (1) additional five (5) year period (the “Fourth Extended Term”), commencing the next calendar day after the expiration of the Third Extended Term (the “Second Option”). The Second Option shall apply only to the entirety of the Premises, and Tenant shall have no right to exercise
SECOND AMENDMENT TO OFFICE LEASE
the Second Option as to only a portion of the Premises, and can only be exercised if Tenant exercises its Option right under Section 11 of this Second Amendment.
Tenant’s exercise of this Second Option is contingent upon Tenant giving written notice to Landlord (the “Second Option Notice”) of Tenant’s election to exercise its rights pursuant to this Second Option by Certified Mail, Return Receipt Requested, no more than twelve (12) and no less than nine (9) months prior to the Termination Date. The Option Notice shall be irrevocable.
11.2. Fixed Monthly Rent Payable. The Fixed Monthly Rent payable during the Fourth Extended Term shall be equal to one hundred percent (100%) of fair market rental rate (“FMRR”) for the Premises at the time of the commencement of the Option Term, and adjusted thereafter as provided. The term “FMRR” means the base rental rate, as of the date of Tenant’s exercise of the Second Option, equal to the face or stated rent, including all rental escalations and taking into account all operating expenses, additional rent and other charges (which are being paid by Tenant in addition to the Fixed Monthly Rent) at which tenants as of the commencement of the Fourth Extended Term are leasing comparable office space that are non-subleased, non-equity and on a renewal basis, in the area of Santa Monica bordered by Lincoln Avenue on the east, Wilshire Boulevard on the north, 2nd Street on the west and Colorado Avenue on the south (“Comparable Buildings”) taking into consideration all concessions granted to renewal tenants in such Comparable Buildings, including abatements and allowances (but also and taking into account the value of the existing improvements in the Premises, such value of existing improvements to be based upon the age, quality and layout of the improvements and the extent to which the same could be utilized by general office users (as contrasted to the Tenant)) (such transactions to herein be referred to a “Comparable Transactions”); provided, however, that no consideration shall be given to (1) the fact that Landlord is or is not required to pay a real estate brokerage commission in connection with the applicable term or the fact that the Comparable Transactions do or do not involve the payment of real estate brokerage commissions, and (2) any period of rental abatement (if any) granted to tenants in Comparable Transactions in connection with the design, permitting and construction of tenant improvements in such comparable space. Thereafter during the Fourth Extended Term the Fixed Monthly Rent shall be increased on each anniversary of the commencement of the Fourth Extended Term at the market rate for escalations over the Fixed Monthly Rent for the prior year and if such prior year had any abatement or deductions in Fixed Monthly Rent the increase shall be calculated as though there was no such abatement or deduction.
11.3. Determination of FMRR. The FMRR shall be determined as of the beginning of the Fourth Extended Term, as follows:
(a) Promptly following receipt by Landlord of Tenant's Second Option Notice, Landlord and Tenant shall attempt to reach agreement on the FMRR for the Fourth Extended Term, which FMRR shall be set in accordance with the criteria described above. If Landlord and Tenant are able to agree on the FMRR for the Fourth Extended Term, Landlord and Tenant shall promptly execute an amendment to this Lease stating the FMRR for the Fourth Extended Term.
(b) If agreement cannot be reached within thirty (30) days following receipt by Landlord of Tenant's Second Option Notice, then both Landlord and Tenant shall each immediately make a reasonable determination of the FMRR (using the criteria set forth in Section 12.2 above), including then current market periodic Fixed Monthly Rent adjustments during the Fourth Extended Term, and submit such determination in writing to each other within 5 days thereafter.
(c) Within forth-five (45) days following receipt by Landlord of Tenant's Second Option Notice, Landlord and Tenant shall each select a broker (“Consultant”) (each “Consultant”) shall be a licensed California real estate broker with at least ten (10) years of current commercial real estate experience in the
SECOND AMENDMENT TO OFFICE LEASE
market area of the Premises of their choice to act as an arbitrator. The two Consultants so appointed shall immediately select a third mutually acceptable Consultant to act as a third arbitrator. If they are unable to agree on the third Consultant, either of the parties to this Lease, by giving ten (10) days' notice to the other party, may apply to the presiding judge of the court of the County in which the Premises are located, for the selection of a third Consultant who meets the qualifications stated in this paragraph. The third Consultant, however selected, shall be a person who has not previously acted in any capacity for either party.
(d) The three (3) Consultants shall within thirty (30) days of the appointment of the third party Consultant reach a decision as to what the actual FMRR for the Premises is (using the criteria set forth in Section 12.2 above), and whether Landlord’s or Tenant’s submitted FMRR is the closest thereto. The decision of a majority of the Consultants shall be binding on the parties. The submitted FMRR which is determined by a majority of the Consultants to be the closest to the actual FMRR shall thereafter be used by the parties.
(e) If either of the parties fails to appoint a Consultant within the specified forty-five (45) days, the Consultant timely appointed by one of them shall reach a decision on his or her own, and said decision shall be binding on the parties.
(f) The entire cost of such arbitration shall be paid by the party whose submitted FMRR is not selected, i.e., the one that is NOT the closest to the actual FMRR.
(g) Following determination of the FMRR as provided above, Landlord and Tenant shall immediately execute an amendment to the Lease, extending the Third Extended Term and revising the Fixed Monthly Rent payable pursuant to the FMRR so established.
11.4. Delay in Determination of FMRR. If the Fixed Monthly Rent for the Fourth Extended Term has not been determined by the commencement date of the Fourth Extended Term, then until such Fixed Monthly Rent is determined, Tenant shall pay Fixed Monthly Rent to Landlord at the rate in effect immediately preceding the Fourth Extended Term, and if the actual Fixed Monthly Rent for the Fourth Extended Term is determined to be other than as theretofore paid, then within fifteen (15) days after the determination of such Fixed Monthly Rent, Tenant shall pay to Landlord the difference or Landlord shall refund to Tenant the difference, as applicable, for each month of the Fourth Extended Term for which Fixed Monthly Rent has already become due.
11.5. No Right of Reinstatement or Further Extension. Once Tenant has either failed to exercise its rights to extend the extended term pursuant to this Section 11, or failed to execute the amendment called for hereunder, it shall have no right of reinstatement of its Second Option to Extend the Third Extended Term, nor shall Tenant have any right to a further or second extension of the Third Extended Term beyond the period stated in Section 11.1 hereinabove.
11.6. No Assignment of Second Option. This Second Option is personal to the original Tenant signing the Lease, and shall be null, void and of no further force or effect as of the date that Tenant assigns the Lease to an entity other than an Affiliate and/or subleases more than forty-nine percent (49%) of the total Rentable Area of the Premises to an entity other than an Affiliate.
12. Right of First Offer.
12.1. First Offer Space. Landlord hereby grants to Tenant a one-time right of first offer with respect to each of (A) Suite 900 of the Building, and (B) Suite 1200 of the Building (Suite 900 and Suite 1200 each being referred to, for the sake of convenience, as the “First Offer Space”), if the same becomes vacant and available following the Effective Date. The term of the Lease with respect to the
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applicable First Offer Space shall (x) commence only following the expiration or earlier termination of the existing lease (including renewals) of the applicable First Offer Space and after the applicable First Offer Space is actually vacated and becomes available for lease following the Effective Date, and (y) expire on the Termination Date. Tenant's right of first offer shall be on the terms and conditions set forth in this Section 12.
12.2. Procedure for Offer. Landlord shall notify Tenant in writing (the “First Offer Notice”) when Landlord reasonably anticipates that the applicable First Offer Space will become available for lease to third parties. The First Offer Notice shall specify the terms and conditions upon which Landlord is willing to lease the applicable First Offer Space to Tenant. Notwithstanding the foregoing, Landlord shall have no obligation to give a First Offer Notice for Suite 1200, and the right of first offer shall not apply to Suite 1200 after the date which is nine (9) months prior to the last day of the Second Extended Term (as the Second Extended Term may have been extended by Landlord and Tenant), if Tenant has not exercised its option under Section 10 above, and Landlord shall have no obligation to give a First Offer Notice for Suite 1200, and the right of first offer shall not apply to Suite 1200 after the date which is nine (9) months prior to the last day of the Third Extended Term (as the Third Extended Term may have been extended by Landlord and Tenant), if Tenant has not exercised its options under both Section 10 and Section 11 above.
12.3. Procedure for Acceptance. If Tenant wishes to exercise Tenant's right of first offer with respect to the applicable First Offer Space, then within ten (10) business days of delivery of the First Offer Notice to Tenant, Tenant shall deliver notice to Landlord of Tenant's intention to exercise its right of first offer with respect to the applicable First Offer Space on the terms set forth in the First Offer Notice (the “Acceptance Notice”). If Tenant does not elect to exercise its right to lease the applicable First Offer Space within such ten (10) business day period (the “Exercise Period”), then Landlord may lease the First Offer Space to any third party on terms that are not Substantially More Favorable Terms (as defined below), provided, however, if Landlord does not execute a binding lease document (on terms that are not Substantially More Favorable Terms) within one hundred eighty (180) days from expiration of the Exercise Period, then Landlord must deliver a new First Offer Notice to Tenant prior to entering into a lease agreement with respect to the space described in original First Offer Notice and the procedures set forth in this Section 12.3 shall apply to such new First Offer Notice. “Substantially More Favorable Terms” shall mean that the average “net effective rent” (defined below) offered to the potential tenant is less than ninety-five percent (95%) of the average net effective rent set forth in the First Offer Notice. The term “net effective rent” shall mean the net rental amount to be paid to Landlord, taking into account any tenant improvement expenses and allowances to be incurred by Landlord and any free rent or other monetary concessions granted by Landlord (amortized on a straight-line basis over the life of the lease term proposed under the First Offer Notice or the terms to the potential tenant, as applicable). Notwithstanding anything to the contrary contained herein, Tenant must elect to exercise its right of first offer, if at all, with respect to all of the applicable First Offer Space, and Tenant may not elect to lease only a portion thereof.
12.4. Amendment to Lease. If Tenant timely exercises Tenant's right to lease the applicable First Offer Space, Landlord and Tenant shall within fifteen (15) days thereafter execute an amendment to the Lease for such First Offer Space upon the terms and conditions as set forth in the First Offer Notice and this Section 12.
12.5. Termination of Right of First Offer. The rights contained in this Section 13 may only be exercised by Tenant or an entity to which Tenant assigns this Lease which is an Affiliate, provided no subleases exist of more than forty-nine percent (49%) of the total Rentable Area of the Premises to an entity other than an Affiliate. The right of first offer granted herein with respect to the applicable First
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Offer Space shall terminate upon the failure by Tenant to exercise its right of first offer with respect to such First Offer Space, it being understood and agreed, however, that the right of first offer with respect to any First Offer Space which has not otherwise been terminated shall continue in full force and effect. Tenant shall not have the right to lease the applicable First Offer Space, as provided in this Section 12 if, as of the date of Tenant’s delivery of the Acceptance Notice, Tenant is in default under the Lease beyond any applicable notice and/or cure period.
13. Monument Signage. Subject to the provisions of this Section 13, Tenant shall, at Tenant's sole expense, have the right to affix Tenant’s name (but not Tenant’s logo) to one (1) panel (“Tenant’s Monument Signage”) on the new monument sign located in front of the Building to be constructed by Landlord at Landlord’s sole cost and expense and completed no later than February 28, 2019 (the “New Monument Sign”), it being expressly understood and agreed that Landlord shall pay for all costs for permits and approvals for the structure of the New Monument Sign and the cost of bringing utilities to the New Monument Sign. Tenant’s Monument Signage shall be subject to the terms of Exhibit B attached hereto and made a part hereof.
Tenant’s Monument Signage shall be provided by a sign contractor selected by Tenant and reasonably approved by Landlord. The elevations, styles, colors, sizes, lettering, fonts, and formats and any and all other design elements, materials and plans and specifications for Tenant’s Monument Signage shall be subject to Landlord’s prior written approval in Landlord’s reasonable discretion, using the same criteria as will be used for approval of the panels on the New Monument Sign for other tenants of the Building. Tenant’s Monument Signage shall be consistent with Landlord’s then-current signage program (as may be modified from time to time in Landlord’s reasonable discretion). In addition, Tenant shall bear all expenses relating to Tenant’s Monument Signage, including, without limitation:
(a) the cost of obtaining and maintaining in full force and effect all permits and approvals;
(b) the cost of maintaining, repairing, and replacing Tenant’s Monument Signage; and
(c) if applicable, the cost of any electrical consumption illuminating Tenant’s Monument Signage.
Tenant shall pay to Landlord, within thirty (30) days after receipt of Landlord’s demand and substantiating documentation, any actual and reasonable expenses incurred by Landlord with respect to Tenant’s Monument Signage, except for those payable directly by Tenant to any third party. Tenant’s payment obligation under this Section 13 shall survive the expiration or earlier termination of the Lease Term.
At the expiration or earlier termination of the Lease, Tenant shall, at Tenant's sole expense, shall remove the Tenant’s Monument Signage and replace it with unlettered material reasonably acceptable to Landlord. The signage right granted hereunder is personal to the original Tenant signing this Second Amendment and any Affiliate of Tenant to which the Lease has been assigned and shall be null, void and of no further force or effect as of the date (i) that Tenant assigns the Lease (other than an assignment to an Affiliate), or subleases more than forty-nine percent (49%) of the total Rentable Area of the Premises to an entity other than an Affiliate; or (ii) at any time Tenant is in material default of its obligations under the Lease (including, without limitation, Exhibit B attached hereto) beyond any applicable notice and/or cure period.
14. Acceptance of Premises. Tenant acknowledges that it has been in possession of the Premises for over three (3) years, and to the best of Tenant’s knowledge, as of the date hereof, it has no claim against Landlord in connection with the Premises or the Lease. Landlord acknowledges that to the best of Landlord’s knowledge, as of the date hereof, it has no claim against Tenant in connection with the
SECOND AMENDMENT TO OFFICE LEASE
Premises or the Lease. Tenant has made its own inspection of and inquiries regarding the Premises, which is already improved. Therefore, Tenant accepts the Premises in its “as-is” condition, subject to Landlord’s continuing maintenance and repair obligations under the Lease. Tenant further acknowledges that Landlord has made no currently effective representation or warranty, express or implied regarding the condition, suitability or usability of the Premises or the Building for the purposes intended by Tenant.
15. Lobby Renovation. Landlord hereby advises Tenant that Landlord shall perform a renovation of the lobby and exterior plaza of the Building (hereinafter referred to as the “Lobby Renovation”). The Lobby Renovation is anticipated to take about eight (8) months, commencing in April 2018. In connection with the Lobby Renovation, (i) perimeter construction barricades are likely to be erected around some or all of the ground floor of the Building, (ii) ingress to and egress from the Building will be temporary modified but the Building and the Building Parking Facility will remain accessible at all times, (iii) concrete demolition will occur, and (iv) no impact to the parking areas is anticipated. Tenant acknowledges that Landlord shall not be obligated to commence the Lobby Renovation until receiving all required governmental approvals and permits; provided, however, that once commenced, Landlord will prosecute the Lobby Renovation to completion in a diligent manner. Landlord shall complete the Lobby Renovation (a) in a good and workmanlike manner, (b) in compliance with all applicable laws, and (c) lien free. Notwithstanding any provision of this Lease to the contrary, Tenant shall not be entitled to any abatement, deduction or setoff against the Rent payable under the Lease as a result of the Lobby Renovation. In addition, Tenant acknowledges and agrees that construction of the Lobby Renovation may cause, among other things, noise, vibration, dust and odors, and in recognition of the foregoing, Tenant hereby releases the Landlord Parties from any and all claims (including claims for lost profits or other consequential damages, abatement of Rent or constructive eviction), debts, liabilities, demands, obligations, costs, expenses, actions and causes of action of every nature, character and description, whether known or unknown, asserted or unasserted, fixed or contingent arising out of or in connection with the activities and conditions described above. Tenant hereby agrees that none of the activities and conditions described hereinabove shall be grounds for any claim by Tenant or any party claiming through Tenant that Landlord has breached any provision of the Lease.
16. Subordination. Landlord hereby confirms that (i) there is no underlying lease, mortgage or deed of trust affecting the Building, and (ii) Landlord's delivery to Tenant of commercially reasonable recognition and non-disturbance agreement(s) in favor of Tenant from any ground lessors, mortgage holders or lien holders of Landlord who come into existence following the date hereof but prior to the Termination Date shall be in consideration of, and a condition precedent to, Tenant's agreement to be bound by the terms and conditions of Article 14 of the Original Lease.
17. Surrender of the Premises. Landlord and Tenant expressly acknowledge and agree that upon the expiration or earlier termination of the Lease, Tenant shall not be obligated to remove any of the then-existing improvements of the Premises but shall be obligated to remove Tenant’s data cabling from the Premises in accordance with the provisions of Section 7.1 of the Original Lease.
18. Letter of Credit. On or before June 1, 2018, Tenant shall deliver to Landlord, as collateral for the full and faithful performance by Tenant of all of its obligations under the Lease, an irrevocable and unconditional negotiable letter of credit (the “Letter of Credit”), in form and substance reasonably acceptable to Landlord, payable in the County of Los Angeles, California, running in favor of Landlord, issued by a solvent bank reasonably approved by Landlord under the supervision of the Superintendent of Banks of the State of California, or a National Banking Association, in the amount of $475,000.00 (the “LC Amount”). Tenant shall deliver a draft of the Letter of Credit to Landlord on or before May 15,
SECOND AMENDMENT TO OFFICE LEASE
2018 to allow Landlord an opportunity to review the same and provide changes required to conform to this Section 18 prior to issuance of the original Letter of Credit. The Letter of Credit shall be:
(a) at sight and irrevocable;
(b) maintained in effect for the entire period from the date of the Letter of Credit through November 30, 2023 (the “Letter of Credit Expiration Date”); provide that the expiration date of the Letter of Credit shall be no earlier than the Letter of Credit Expiration Date or provide for automatic renewal thereof at least through the Letter of Credit Expiration Date, unless the issuing bank provides at least sixty (60) days prior written notice to Landlord of such non-renewal by certified mail, return receipt requested (or overnight service with a signature required upon receipt) at the following address: Douglas Emmett Management LLC, 808 Wilshire Boulevard, Suite 200, Santa Monica, California 90401, Attention: Chief Financial Officer, and Tenant shall deliver a new Letter of Credit to Landlord at least sixty (60) days prior to the expiration of the Letter of Credit without any action whatsoever on the part of Landlord;
(c) subject to the Uniform Customs and Practices for Documentary Credits (1993-Rev) International Chamber of Commerce Publication #600; and
(d) fully assignable by Landlord in connection with any number of transfers of Landlord’s interest in the Lease (with Tenant bearing any fees, costs or expenses in connection with any such transfer), and permit partial draws.
In addition to the foregoing, the form and terms of the Letter of Credit (and the bank issuing the same) shall be acceptable to Landlord, in Landlord’s reasonable discretion, and shall provide, among other things, in effect that:
(i) Landlord, or its then managing agent, shall have the right to draw down an amount up to the face amount of the Letter of Credit upon the presentation to the issuing bank of Landlord’s (or Landlord’s then managing agent’s) written statement that Landlord is entitled to make such drawing under the Lease, it being understood that if Landlord or its managing agent be a corporation, partnership or other entity, then such statement shall be signed by an officer (if a corporation), a general partner (if a partnership), or any authorized party (if another entity);
(ii) the Letter of Credit will be honored by the issuing bank without inquiry as to the accuracy thereof and regardless of whether the Tenant disputes the content of such statement; and
(iii) in the event of a transfer of Landlord’s interest in the Building, Landlord shall transfer the Letter of Credit, in whole or in part (or cause a substitute letter of credit to be delivered, as applicable) to the transferee and thereupon the Landlord shall, without any further agreement between the parties, be released by Tenant from all liability therefor, and it is agreed that the provisions hereof shall apply to every transfer or assignment of the whole or any portion of said Letter of Credit to a new landlord.
If, as a result of any application or use by Landlord of all or any part of the Letter of Credit, the amount of the Letter of Credit shall be less than the LC Amount (as such amount may be reduced in accordance with the last paragraph of this Section 18), Tenant shall, within five (5) business days thereafter, provide Landlord with an additional letter(s) of credit in an amount equal to the deficiency (or a replacement letter of credit in the total amount of the LC Amount) and any such additional (or replacement) letter of credit shall comply with all of the provisions of this Section 18.
Tenant further covenants and warrants that it will neither assign nor encumber the Letter of Credit, or any part thereof and that neither Landlord nor its successors or assigns will be bound by any
SECOND AMENDMENT TO OFFICE LEASE
such assignment, encumbrance, attempted assignment or attempted encumbrance. Without limiting the generality of the foregoing, if the Letter of Credit expires earlier than the Letter of Credit Expiration Date, Landlord will accept a renewal letter of credit or substitute letter of credit (such renewal or substitute letter of credit to be in effect and delivered to Landlord, as applicable, not later than thirty (30) days prior to the expiration of the Letter of Credit), which shall be irrevocable and automatically renewable as above provided through the Letter of Credit Expiration Date upon the same terms as the expiring Letter of Credit or such other terms as may be acceptable to Landlord in its reasonable discretion. However, if the Letter of Credit is not timely renewed or a substitute letter of credit is not timely received, or if Tenant fails to maintain the Letter of Credit in the amount and in accordance with the terms set forth in this Section 18, Landlord shall have the right to present the Letter of Credit to the issuing bank in accordance with the terms of this Section 18, and the entire sum evidenced thereby shall be paid to and held by Landlord as cash (the “Cash Collateral”) to be held as collateral for performance of all of Tenant’s obligations under this Lease and for all losses and damages Landlord may suffer as a result of any default by Tenant under this Lease pending Tenant’s delivery to Landlord of the required replacement letter of credit in the LC Amount and otherwise complying with all of the provisions of this Section 18. Upon delivery of such replacement letter of credit, any Cash Collateral held by Landlord shall be returned to Tenant. Landlord shall have the right to hold Cash Collateral in a deposit account in the name of Landlord and commingle the Cash Collateral with its general assets and Tenant hereby grants Landlord a security interest in the Cash Collateral. Tenant shall not be entitled to any interest earned on the Cash Collateral.
If there shall occur a default under the Lease beyond any applicable grace period, Landlord may, but without obligation to do so, draw upon the Letter of Credit and/or utilize the Cash Collateral, in part or in whole, to cure any default of Tenant and/or to compensate Landlord for any and all damages of any kind or nature sustained or which may be sustained by Landlord resulting from Tenant’s default. Tenant agrees not to interfere in any way with payment to Landlord of the proceeds of the Letter of Credit, either prior to or following a “draw” by Landlord of any portion of the Letter of Credit, regardless of whether any dispute exists between Tenant and Landlord as to Landlord’s right to draw from the Letter of Credit. No condition or term of this Lease shall be deemed to render the Letter of Credit conditional to justify the issuer of the Letter of Credit in failing to honor a drawing upon such Letter of Credit in a timely manner.
Landlord and Tenant acknowledge and agree that in no event or circumstance shall the Letter of Credit or any renewal thereof or substitute therefor or Cash Collateral be:
(a) deemed to be or treated as a “security deposit” within the meaning of California Civil Code Section 1950.7;
(b) subject to the terms of such Section 1950.7; or
(c) intended to serve as a “security deposit” within the meaning of such Section 1950.7. The parties hereto:
(i) recite that the Letter of Credit and/or Cash Collateral, as the case may be, is not intended to serve as a security deposit and such Section 1950.7 and any and all other laws, rules and regulations applicable to security deposits in the commercial context (“Security Deposit Laws”) shall have no applicability or relevancy thereto; and
(ii) waive any and all rights, duties and obligations either party may now or, in the future, will have relating to or arising from the Security Deposit Laws.
Notwithstanding any contrary provision of this Section 18 and subject to the conditions set forth in the last sentence of this grammatical paragraph, the LC Amount shall decrease to (i) $390,000.00 as of
SECOND AMENDMENT TO OFFICE LEASE
August 1, 2019, (ii) $305,000.00 as of August 1, 2020, (iii) $220,000.00 as of August 1, 2021, and (iv) $135,000.00 as of August 1, 2022 (it being expressly understood and agreed that each such reduction may be accomplished by delivery to Landlord of an amendment to the Letter of Credit or a replacement letter of credit). There shall be no further reductions of the LC Amount thereafter and the Letter of Credit shall stay in full force and effect through the Letter of Credit Expiration Date. Notwithstanding any contrary provision of this Section 18, the LC Amount shall be decreased only if (a) there does not then exist a default or breach by Tenant of its obligations or liabilities under the Lease which continues after the expiration of any applicable cure period, (b) neither the Lease nor Tenant’s right to possession of the Premises has been terminated, and (c) Tenant has provided to Landlord, prior to each scheduled reduction date, audited financials of Tenant for the calendar year immediately preceding such scheduled reduction date that show a positive EBIDTA greater than $5,000,000.00 (the “EBIDTA Threshold”), it being expressly understood and agreed that if Tenant does not meet the EBIDTA Threshold in one year but does meet the EBIDTA Threshold in the following year, the LC Amount shall be reduced for both the current year and the previous year.
19. Janitorial Specifications. During the Second Extended Term, Landlord shall provide janitorial services to the Premises in accordance with the janitorial specifications attached as Exhibit C to this Second Amendment. In addition, Landlord shall clean and stock the restrooms on the eleventh (11th) floor twice a day (Monday through Friday) during Normal Business Hours (as defined in Section 8.1 of the Original Lease), except when the Building is closed on a Holiday (as defined in said Section 8.1).
20. Warranty of Authority. If Landlord or Tenant signs as a corporation, or a limited liability company or a partnership, each of the persons executing this Second Amendment on behalf of Landlord or Tenant hereby covenants and warrants that the applicable entity executing herein below is a duly authorized and existing entity that is qualified to do business in California; that the person(s) signing on behalf of either Landlord or Tenant have full right and authority to enter into this Second Amendment; and that each and every person signing on behalf of either Landlord or Tenant are authorized in writing to do so.
21. Broker Representation. Landlord and Tenant represent to one another that it has dealt with no broker in connection with this Second Amendment other than Douglas Emmett Management, Inc. and Cresa Los Angeles (“Cresa”). Landlord and Tenant shall hold one another harmless from and against any and all liability, loss, damage, expense, claim, action, demand, suit or obligation arising out of or relating to a breach by the indemnifying party of such representation. Landlord agrees to pay all commissions due to the brokers listed above created by Tenant’s execution of this Second Amendment, it being expressly understood and agreed that Landlord shall not be obligated to pay any portion of the brokerage commission to Cresa until Landlord receives the Letter of Credit (as defined in Section 18 of this Second Amendment).
22. Confidentiality. Tenant agrees that the covenants and provisions of this Second Amendment shall not be divulged to anyone not directly involved in the management, administration, ownership, lending against, or subleasing of the Premises, other than Tenant’s or Landlord's counsel-of-record or leasing or sub-leasing broker of record.
23. Governing Law. The provisions of this Second Amendment shall be governed by the laws of the State of California.
24. Reaffirmation. Landlord and Tenant acknowledge and agree that the Lease, as amended herein, constitutes the entire agreement by and between Landlord and Tenant relating to the Premises, and supersedes any and all other agreements written or oral between the parties hereto. Furthermore, except as
SECOND AMENDMENT TO OFFICE LEASE
modified herein, all other covenants and provisions of the Lease shall remain unmodified and in full force and effect.
25. Civil Code Section 1938 Disclosure. Pursuant to California Civil Code Section 1938, Landlord hereby discloses that the Premises have not undergone an inspection by a Certified Access Specialist to determine whether the Premises meet all applicable construction-related accessibility standards. A Certified Access Specialist (“CASp”) can inspect the Premises and determine whether the Premises comply with all of the applicable construction-related accessibility standards under California law. Although California law does not require a CASp inspection of the Premises, Landlord may not prohibit the Tenant from obtaining a CASp inspection of the Premises for the occupancy or potential occupancy of Tenant, if requested by Tenant. Landlord and Tenant shall mutually agree on the arrangements for the time and manner of the CASp inspection, the payment of the fee for the CASp inspection, and the cost of making any repairs necessary to correct violations of construction-related accessibility standards within the Premises.
26. Submission of Document. The submission of this Second Amendment to Tenant shall be for examination purposes only, and does not constitute a reservation of or an option for Tenant to lease, or otherwise create any interest by Tenant in the Premises or any other offices or space situated in the Building. Regardless of whether or not (a) Landlord has delivered to Tenant an unexecuted draft or final version of this Second Amendment for Tenant’s review and/or signature, (b) this Second Amendment has been executed by Tenant only and delivered to Landlord for its review and signature, and/or (c) Tenant has made payments of rent and/or security deposit to Landlord pursuant to this Second Amendment, it is understood and agreed that no contractual or other rights shall exist between Landlord and Tenant with respect to the Premises, nor shall this Second Amendment be valid, binding on the parties and/or in effect unless and until this Second Amendment has been fully executed by Landlord and Tenant and such fully-executed Second Amendment has been delivered to Tenant.
27. Digital Counterparts. This Second Amendment may be executed in several counterparts, each of which when executed and delivered shall be deemed an original, and all of which when taken together shall constitute one and the same agreement. The parties agree that a digital image of this Second Amendment as fully-executed (such as in a portable document format (.pdf)) when sent to the email address of Tenant, its broker (if any), its attorney (if any), or its authorized agent (if any) shall be deemed delivery of a true and correct original of this Second Amendment, and such digital image of this Second Amendment shall be admissible as best evidence for the purposes of state law, Federal Rule of Evidence 1002, and the like statutes and regulations.
[SIGNATURES APPEAR ON FOLLOWING PAGE]
SECOND AMENDMENT TO OFFICE LEASE
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this document, effective as of the later of the date(s) written below.
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LANDLORD:
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TENANT:
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DOUGLAS EMMETT 1995, LLC,
a Delaware limited liability company
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ZIPRECRUITER, INC.,
a Delaware corporation
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By:
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Douglas Emmett Management, Inc.
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By:
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/s/ David L. Feldman
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a Delaware Corporation, its Manager
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Name
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David L. Feldman
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By:
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/s/ Andrew B. Goodman
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Andrew B. Goodman
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Title:
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Chief Business Officer
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Senior Vice President
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Date:
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5/3/2018
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Dated:
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5/7/2018
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EXHIBIT A
CONSTRUCTION AGREEMENT
CONSTRUCTION PERFORMED BY TENANT
Section 1. Tenant to Complete Construction. Tenant's general contractor (“Contractor”) shall furnish and install within Suite 1100 those items of general construction (the “Improvements”), shown on the Final Plans and Specifications (as defined in Section 6 below). The definition of the “Improvements” shall include all costs associated with completing the Improvements, including but not limited to, space planning, design, architectural, project management and engineering fees, contracting, labor and material costs, graphics costs, municipal fees, plan check and permit costs, and document development and/or reproduction costs. The Improvements shall comply in all respects with the following: (i) all state, federal, city or quasi-governmental laws, codes, ordinances and regulations, as each may apply according to the rulings of the controlling public official, agent or other person; (ii) applicable standards of the American Insurance Association (formerly, the National Board of Fire Underwriters) and the National Electrical Code; (iii) building material manufacturer's specifications and (iv) the Final Plans and Specifications.
All Tenant selections of finishes shall be indicated in the Final Plans and Specifications.
Any work not shown in the Final Plans and Specifications or included in the Improvements such as, but not limited to, telephone service, furnishings, or cabinetry, for which Tenant contracts separately shall be subject to Landlord's policies and shall be conducted in such a way as to not unreasonably hinder or delay the construction of the Improvements.
Section 2. Tenant’s Payment of Costs. Subject to Landlord's reimbursement as specified herein below, Tenant shall bear all costs of the Improvements, and shall timely pay said costs directly to the Contractor. From time to time, Tenant shall provide Landlord with such evidence as Landlord may reasonably request that the Contractor has been paid in full for the work completed to-date.
In addition, if the Improvements contemplate any structural modifications to the Premises (the “Structural Modifications”), Tenant shall reimburse Landlord for any and all of Landlord’s out of pocket costs incurred in reviewing Tenant’s Plans and Specifications or for any other “peer review” work associated with Landlord’s review of Tenant’s Plans and Specifications with respect to the Structural Modifications, including, without limitation, Landlord’s out of pocket costs incurred in engaging any third party engineers, contractors, consultants or design specialists. Tenant shall pay such costs to Landlord within thirty (30) days after Landlord’s delivery to Tenant of a copy of the invoice(s) for such work.
Landlord, at Landlord’s sole cost and expense, shall pay for the cost of any renovations or revisions which Landlord is required to make, by any governmental authority having jurisdiction, to any portion of the Common Areas of the Building or other areas exterior to the Premises (the “Code Compliance Work”), in the event such Code Compliance Work arises out of or is required in connection with Tenant’s completion of the Improvements, unless such Code Compliance Work arises out of or is required as a result of any aspect of the Improvements performed by Tenant which does not constitute a typical office improvement, in which event such Code Compliance Work shall be paid for by Tenant.
The failure by Tenant to timely pay such amounts as required under this Paragraph 2, after the expiration of notice and the opportunity to cure in accordance with the Lease, shall be a material default under the Lease.
Section 3. Lien Waiver and Releases. During the course of construction Contractor shall provide Landlord with executed lien waiver and release forms as requested by Landlord (including any
EXHIBIT A
CONSTRUCTION AGREEMENT
conditional or unconditional waiver and release forms in the form required under California Civil Code Sections 8132 through 8138 and confirmation that no liens have been filed against the Suite 1100 or the Building. If any liens arise against the Suite 1100 or the Building as a result of the Improvements, Tenant shall promptly, at Tenant’s sole expense, remove such liens and provide Landlord evidence that the title to the Building and Suite 1100 have been cleared of such liens. If Tenant desires to contest any claim of lien, it shall within fifteen (15) calendar days after the filing of the lien, furnish Landlord with a surety bond of a responsible licensed California corporate surety in the amount and manner sufficient to release the Building and the Premises from the charge of the lien as contemplated by Section 8424 of the California Civil Code.
Section 4. Intentionally Deleted.
Section 5. Landlord’s Reimbursement for Costs.
5.1 Allowance. In accordance with the terms and procedures specified below, Landlord shall pay to Tenant for the Improvements as defined in Paragraph 1 above, an allowance in the amount of $536,994.40 (being $35.10 per square foot of Usable Area within the Premises) (the “Allowance”). Tenant acknowledges Landlord shall have no obligation to disburse any portion of the Allowance prior to the date of Landlord’s receipt of the Letter of Credit (as defined in Section 18 of the Second Amendment) or subsequent to December 31, 2019.
5.2 Use of the Allowance.
5.2.1 Tenant Improvement Allowance Items. Except as otherwise set forth in this Exhibit A, the Allowance shall be disbursed by Landlord only for the following items and costs (collectively, the “Allowance Items”):
5.2.1.1 Payment of any space planning, construction management, project management, engineering or architectural fees in connection with the preparation and review of the Plans and Specifications (up to a maximum of $76,495.00 [being $5.00 per square foot of Usable Area in the aggregate]);
5.2.1.2 The cost of purchasing graphics, furniture, fixtures and equipment to be used in the Premises (up to a maximum amount of $100,000.00 in the aggregate);
5.2.1.3 The payment of plan check permit and license fees relating to construction of the Improvements;
5.2.1.4 The costs of construction of the Improvements, including without limitation, demolition, testing and inspection costs, installation of built-in work stations, cabling, floor loading reinforcement costs, hoisting and trash removal costs, and contractors’ fees and general conditions;
5.2.1.5 The cost of any changes in the base, shell and core when such changes are required by the Plans and Specifications, such cost to include all direct architectural and/or engineering fees and expenses incurred in connection therewith;
5.2.1.6 The cost of any changes to the Plans and Specifications or the Improvements required by all applicable building codes (the “Code”);
5.2.1.7 Payment of the Supervision Fee (as defined in Section 6 below);
5.2.1.8 Payment of any fees and costs to Tenant’s Agents (as defined below); and
EXHIBIT A
CONSTRUCTION AGREEMENT
5.2.1.9 All other permitted costs to be expended by Tenant in connection with the construction of the Improvements.
5.2.2 Disbursement of the Allowance. Tenant may request and Landlord shall make monthly disbursements of the Allowance for the Allowance Items for the benefit of Tenant and shall authorize the release of monies for the benefit of Tenant as follows:
5.2.2.1 Disbursements. Tenant may request up to four (4) payments out of the Allowance in accordance with this Section 5.2.2.1. In connection with the foregoing, and not more than once each calendar month, Tenant shall deliver to Landlord: (i) a request for payment approved by Tenant detailing the work completed and paid for; (ii) paid invoices from the Contractor for all labor rendered and materials delivered to the Premises that are the subject of such request; and (iii) executed conditional mechanic’s lien releases from all of Tenant’s Agents which shall comply with the appropriate provisions, as reasonably determined by Landlord, of California Civil Code Sections 8132 through 8138. Within thirty (30) days after Landlord has received all of the items in the foregoing clauses (i) through (iii), Landlord shall deliver a check to Tenant in payment of the lesser of (A) the amounts so requested by Tenant (which may be based on the gross amount due a Contractor if such Contractor includes a 10% retention with its pay application), less an amount equal to a ten percent (10%) retention, (the aggregate amount of such retentions to be referred to herein as the “Final Retention”), and (B) the balance of any remaining available portion of the Allowance, not including the Final Retention. Landlord's payment of such amounts shall not be deemed Landlord's approval or acceptance of the work furnished or materials supplied as set forth in Tenant's payment request.
5.2.2.2 Final Retention. Subject to the provisions of this Exhibit A, a check for the Final Retention payable to Tenant shall be delivered by Landlord to Tenant following the completion of construction of the Improvements, provided that (i) Tenant delivers to Landlord properly executed mechanics lien releases in compliance with both California Civil Code Section 8134 and either Section 8136 or Section 8138, (ii) Landlord has determined that no defective work exists which materially adversely affects the mechanical, electrical, plumbing, heating, ventilating and air conditioning, life-safety or other systems of the Building, the curtain wall of the Building, the structure or exterior appearance of the Building, or any other tenant's use of such other tenant's leased premises in the Building, (iii) Tenant delivers to Landlord a “close-out” package that includes mechanical and electrical final as-builts; and architectural as-builts; and (iv) Tenant delivers to Landlord a certificate from Tenant’s Architect certifying that the construction of the Improvements in the Premises has been substantially completed.
5.2.2.3 Other Terms. Landlord shall only be obligated to make disbursements from the Allowance to the extent costs are incurred by Tenant for the Allowance Items. All Improvements for which the Allowance has been made available shall be deemed Landlord's property under the terms of the Lease.
5.2.2.4 Failure to Disburse Allowance. If Landlord fails to make any disbursement of the Allowance for any Allowance Items within thirty (30) days after Landlord’s receipt of all of the items above (and if one or more items required above is not delivered to Landlord with Tenant’s request, the thirty (30) day time period for disbursement of the Allowance shall not be deemed to commence until all such items have been delivered), then Tenant shall promptly notify Landlord in writing that Tenant has not received any such disbursement (the “Failure to Disburse Notice”). Tenant shall deliver the Failure to Disburse Notice in the manner required under Section 16.1 of the Lease to the property manager at the property management office of the Building and to Landlord at 808 Wilshire Boulevard, Suite 200, Santa Monica, California 90401 Attn: Portfolio Manager. If Landlord fails to make
EXHIBIT A
CONSTRUCTION AGREEMENT
such disbursement (the “Withheld Amount”) within five (5) business days after Landlord’s receipt of the Failure to Disburse Notice, then Tenant shall be entitled to treat such Withheld Amount as a credit against the Fixed Monthly Rent next becoming due under the Lease (which amount shall thereafter be deducted from available amounts of the Allowance). Landlord hereby acknowledges and agrees that Tenant’s delivery of the Failure to Disburse Notice to Landlord and the five (5) business day period provided hereinabove for Landlord to pay the Withheld Amount following Landlord’s receipt of such Failure to Disburse Notice is in lieu of (and not in addition to) any notice requirements or cure periods otherwise required to be given to Landlord under the Lease.
Section 6. Retention of Professionals; Pre-Construction Requirements and Approvals. Prior to Tenant or Contractor commencing any work:
a) Tenant shall retain an architect/space planner, subject to Landlord's approval, which approval shall not be unreasonably withheld (the “Architect”) to prepare the space plan (the “Space Plan”). The plans and drawings to be prepared by Architect shall be known collectively as the “Plans and Specifications.”
b) Contractor, and its subcontractors and suppliers, shall be subject to Landlord’s prior written approval, which approval shall not be unreasonably withheld, conditioned or delayed. Tenant shall cause Contractor to execute and deliver to Landlord the Agreement By Contractor of Indemnification/Hold Harmless of Landlord attached to this Exhibit A as Schedule 1. Contractor shall provide Landlord with a true, complete and correct copy of the construction contract between Contractor and Tenant. As a condition of such approval, Contractor shall use Landlord's fire-life safety, heating, venting, air-conditioning, plumbing, and electrical subcontractors for such work, provided such subcontractors’ rates are competitive. All subcontractors, laborers, materialmen, and suppliers, and the Contractor, Architect and Engineers shall be known collectively as “Tenant's Agents”. During completion of the Improvements, neither Tenant nor Contractor shall permit any sub-contractors, workmen, laborers, material or equipment to come into or upon the Building if the use thereof would disturb labor harmony with the workforce or trades engaged in performing other work, labor or services in or about the Building or the Common Areas. If any such disturbance outside of the Building occurs, and Landlord receives three (3) or more complaints in writing in the same one (1) week period from three (3) separate tenants of the Building that such disturbance is disrupting their normal business operations, Tenant, upon demand by Landlord, shall promptly use commercially reasonable efforts to cause all contractors or subcontractors or all materials causing such disturbance to leave or be removed from the Building or the Common Areas. Except to the extent resulting from the negligence or willful misconduct of Landlord or any Landlord Party, Tenant shall indemnify and hold Landlord harmless from and against all claims, suits, demands, damages, judgments, costs, interest and expenses (including reasonable attorneys’ fees and costs incurred in the defense thereof) to which Landlord may be subject or suffer when the same arise out of or in connection with the use of, work in, construction to, or actions in, on, upon or about Suite 1100 by Tenant or Tenant’s agents, contractors, directors, employees, licensees, officers, partners or shareholders, including any actions relating to the installation, placement, removal or financing of the Improvements and any other improvements, fixtures and/or equipment in, on, upon or about Suite 1100.
c) All Plans and Specifications shall be subject to Landlord's reasonable prior approval. Notwithstanding anything contained in this Exhibit A to the contrary, and without limiting Landlord’s discretion to withhold its approval, it shall be deemed reasonable for Landlord to deny its consent to any aspect of the Plans and Specifications that (i) adversely affect Building systems, the structure of the Building or the safety of the Building and/or its occupants, (ii) would violate any applicable governmental laws, rules or ordinances; (iii) would require any alterations to the base, shell and core of the Building, and/
EXHIBIT A
CONSTRUCTION AGREEMENT
or (iv) are inconsistent with the design, construction or aesthetics of the Building. Tenant and Architect shall verify, in the field, the dimensions and conditions as shown on the relevant portions of the base building plans, and Tenant and Architect shall be solely responsible for the same, and Landlord shall have no responsibility in connection therewith. Landlord's review of the Plans and Specifications as set forth in this Paragraph 6, shall be for its sole purpose and shall not imply Landlord's approval of the same, or obligate Landlord to review the same, for quality, design, Code compliance or other like matters. Accordingly, notwithstanding that any Plans and Specifications are reviewed by Landlord or its space planner, architect, engineers and consultants, and notwithstanding any advice or assistance which may be rendered to Tenant by Landlord or Landlord's space planner, architect, engineers, and consultants, Tenant agrees that Landlord shall have no liability whatsoever in connection therewith and shall not be responsible for any omissions or errors contained in the Plans and Specifications.
Tenant or Architect shall supply Landlord with two (2) copies signed by Tenant of its final space plan for Suite 1100 before any architectural working drawings or engineering drawings have been commenced. The Space Plan shall include a layout and designation of all offices, rooms and other partitioning, their intended use, and equipment to be contained therein. Landlord may request clarification or more specific drawings for special use items not included in the Space Plan. Landlord shall advise Tenant within five (5) business days after Landlord's receipt of the Space Plan for the Suite 1100 if the same is inaccurate or incomplete in any respect. If Tenant is so advised, Tenant shall promptly cause the Space Plan to be revised to correct any deficiencies or other matters Landlord may reasonably require.
Upon approval of the Space Plan by Landlord and Tenant, Tenant shall promptly cause the Architect to complete the architectural and engineering drawings for Suite 1100, and Architect shall compile a fully coordinated set of architectural, structural, mechanical, electrical and plumbing working drawings in a form which is complete to allow subcontractors to bid on the work and to obtain all applicable permits (collectively, the “Plans and Specifications”) and shall submit the same to Landlord for Landlord's approval, which approval shall not be unreasonably withheld. Tenant shall supply Landlord with two (2) copies certified by the Architect of such Plans and Specifications. Landlord shall advise Tenant within ten (10) business days after Landlord's receipt of the Plans and Specifications for Suite 1100 if the same is inaccurate or incomplete in any respect. If Tenant is so advised, Tenant shall promptly revise the Plans and Specifications in accordance with such review and any reasonable disapproval of Landlord in connection therewith. The Plans and Specifications must be approved by Landlord prior to the commencement of construction of Suite 1100 by Tenant. The final Plans and Specifications approved by Landlord are herein referred to as the “Final Plans and Specifications”. Concurrently with Tenant's submittal of the Plans and Specifications to Landlord for its approval, Tenant may submit the same to the appropriate municipal authorities for all applicable building permits (provided that such submission shall be at Tenant's sole risk and shall not alter or modify Landlord's right to approve the Plans and Specifications in accordance with the terms hereof). Tenant hereby agrees that neither Landlord nor Landlord's consultants shall be responsible for obtaining any building permit or certificate of occupancy (or their substantial equivalent) for Suite 1100 and that obtaining the same shall be Tenant's responsibility; provided, however, that Landlord shall cooperate with Tenant in executing permit applications and performing other ministerial acts reasonably necessary to enable Tenant to obtain any such permit or certificate of occupancy at no cost to Landlord. No changes, modifications or alterations in the Plans and Specifications may be made without the prior written consent of Landlord, which consent may not be unreasonably withheld and shall be granted or denied within five (5) business days following submission by Tenant.
EXHIBIT A
CONSTRUCTION AGREEMENT
d) Prior to the commencement of the construction of the Improvements, and after Tenant has accepted all bids for the Improvements, Tenant shall provide Landlord with a detailed breakdown, by trade, of the final costs to be incurred or which have been incurred in connection with the design and construction of the Improvements to be performed by or at the direction of Tenant or the Contractor, which costs form a basis for the amount of the construction contract with Contractor. Such breakdown shall include Contractor's overhead, profit, and fees, and a supervision fee equal to $7,500.00 (the “Supervision Fee”), which shall be deducted from the Allowance and disbursed to Landlord’s managing agent to defray said agent’s costs for supervision of the construction.
e) Contractor shall submit to Landlord verification of public liability and workmen's compensation insurance.
f) Landlord and Tenant agree that if the Improvements are actually constructed by Tenant’s Contractor at a cost which is less than the Allowance, there shall be no monetary adjustment between Landlord and Tenant or offset against Rent or other sums owed by Tenant to Landlord under this Lease and the entire cost savings shall be retained by Landlord and relinquished by Tenant.
Section 7. Landlord’s Administration of Construction. Tenant's Contractor and its subcontractors and suppliers shall be subject to Landlord's reasonable administrative control and supervision. Landlord shall provide the Contractor and its subcontractors reasonable access to Suite 1100 so as to timely complete the Improvements; reasonable use of the freight elevators, loading docks and parking facilities, without charge, for the movement of Contractor’s and its subcontractor’s materials and laborers.
Tenant represents, warrants and covenants that Tenant shall, and shall cause its contractors, agents, and employees to (a) plan and construct the Improvements and enter and exit Suite 1100, elevators, parking facilities, and the Building in a manner that will not unreasonably disturb any other tenants, subtenants or other occupants of the Building or any of their employees, officers or invitees, and (b) engage in any demolition, anchoring of walls or supports, drilling, or conduct any other aspect of planning or construction or operate any equipment in Suite 1100 or any Common Areas that may cause excessive noise, dust, vibrations or odors only during such hours as approved in writing in advance by Landlord’s building manager and only in the manner prescribed in writing by such building manager. Except to the extent resulting from the negligence or willful misconduct of Landlord or any Landlord Party, Tenant shall indemnify and hold Landlord harmless from and against all claims, suits, demands, causes of action, damages, judgments, costs, interest and expenses (including attorneys’ fees and costs incurred in the defense thereof) to which Landlord or any of Landlord’s affiliates, partners, contractors, members assigns, officers, directors, shareholders, agents, predecessors, successors, trustees, beneficiaries and representatives, may be subject to or suffer when the same arise out of, are caused by or occur in connection with the breach by Tenant of the representation, warranty and covenant specified in the foregoing clauses (a) and (b).
Tenant's subcontractors shall submit schedules of all work relating to the Improvements to Contractor and Contractor shall, within five (5) business days of receipt thereof, inform Tenant's subcontractors of any changes which are necessary thereto, and Tenant's subcontractors shall adhere to such corrected schedule. Tenant shall abide by all rules made by Landlord's Building manager with respect to the storage of materials, coordination of work with the contractors of other tenants, and any other matter in connection with this Exhibit A. In the event Landlord reasonably determines that third party security services are reasonably required as a result of the construction of the Improvements, Tenant shall pay such out of pocket costs to Landlord within five (5) business days after Landlord bills Tenant therefor. Landlord shall provide Tenant notice prior to Landlord engaging such third-party security services.
EXHIBIT A
CONSTRUCTION AGREEMENT
From time to time during the construction of the Improvements Tenant shall, upon request from Landlord, provide reasonable progress reports to Landlord regarding the progress of the preparation of plans and specifications and the construction of the Improvements. In addition, Landlord shall have the right to inquire of Tenant from time to time regarding meetings to be held between Tenant, the Architect and the Contractor, and shall have the right to attend any such meetings. Further, Landlord shall have the right to reasonably require Tenant, Architect and the Contractor to meet with Landlord to discuss the progress of the preparation of plans and specifications and the construction of the Improvements, as deemed reasonably necessary by Landlord.
Section 8. Intentionally Deleted.
Section 9. Compliance with Construction Policies. During construction of the Improvements, Tenant’s Contractor shall adhere to the Construction Policies specified hereinbelow.
CONSTRUCTION POLICIES
The following policies outlined are the construction procedures for the Building. As a material consideration to Landlord for granting Landlord's permission to Tenant to complete the construction contemplated hereunder, Tenant agrees to be bound by and follow the provisions contained hereinbelow:
Section 10. Administration.
a) Contractors to notify Building Office prior to starting any work. No exceptions. All jobs must be scheduled by the general contractor or sub-contractor when no general contractor is being used.
b) The general contractor is to provide the Building Manager with a copy of the projected work schedule for the suite, prior to the start of construction.
c) Contractor will make sure that at least one set of drawings will have the Building Manager's initials approving the plans and a copy delivered to the Building Office.
d) As-built construction, including mechanical drawings and air balancing reports will be submitted within three (3) business days after Landlord’s written request at the end of each project, to be delivered at Tenant’s sole cost and expense, without any requirement that Landlord execute any release forms or other documents as a condition to such delivery and notwithstanding any intellectual property rights in such property claimed by Tenant, its architect, contractor or other third party.
e) The HVAC contractor is to provide the following items to the Building Manager upon being awarded the contract from the general contractor at Tenant’s sole cost and expense:
(i) A plan showing the new ducting layout, all supply and return air grille locations and all thermostat locations. The plan sheet should also include the location of any fire dampers.
(ii) An Air Balance Report reflecting the supply air capacity throughout the suite, which is to be given to the Chief Building Engineer at the finish of the HVAC installation.
f) Intentionally Deleted.
g) The general contractor must provide for the removal of all trash and debris arising during the course of construction. At no time are the building's trash compactors and/or dumpsters to be used by the general contractor's clean-up crews for the disposal of any trash or debris accumulated during construction. The Building Office assumes no responsibility for bins. Contractor is to monitor and
EXHIBIT A
CONSTRUCTION AGREEMENT
resolve any problems with bin usage without involving the Building Office. Bins are to be emptied on a regular basis and never allowed to overflow. Trash is to be placed in the bin.
h) Contractors will include in their proposals all costs to include: additional security (if required), restoration of carpets, etc. Parking will be validated by Landlord for Tenant’s Agents.
i) Any problems with construction per the plan, will be brought to the attention of and documented to the Building Manager. Any changes that need additional work not described in the bid will be approved in writing by the Building Manager. All contractors doing work on this project should first verify the scope of work (as stated on the plans) before submitting bids; not after the job has started.
Section 11. Building Facilities Coordination.
a) All deliveries of material will be made through the parking lot entrance.
b) Construction materials and equipment will not be stored in any area without prior approval of the Building Manager.
c) Only the freight elevator is to be used by construction personnel and equipment. Under no circumstances are construction personnel with materials and/or tools to use the “passenger” elevators.
Section 12. Housekeeping.
a) Intentionally Deleted.
b) All construction done on the property that requires the use of lobbies or common area corridors will have carpet or other floor protection. The following are the only prescribed methods allowed:
(i) Mylar -- Extra heavy-duty to be taped from the freight elevator to the suite under construction.
(ii) Masonite --1/4 inch Panel, Taped to floor and adjoining areas. All corners, edges and joints to have adequate anchoring to provide safe and “trip-free” transitions. Materials to be extra heavy-duty and installed from freight elevator to the suite under construction.
c) Restroom wash basins will not be used to fill buckets, make pastes, wash brushes, etc. If facilities are required, arrangements for utility closets will be made with the Building Office.
d) Food and related lunch debris are not to be left in the suite under construction.
e) All areas the general contractor or their sub-contractors work in must be kept clean. All suites the general contractor works in will have construction debris removed prior to completion inspection. This includes dusting of all window sills, light diffusers, cleaning of cabinets and sinks. All common areas are to be kept clean of building materials at all times so as to allow tenants access to their suites or the building.
Section 13. Construction Requirements.
a) All Life and Safety and applicable Building Codes will be strictly enforced (i.e., tempered glass, fire dampers, exit signs, smoke detectors, alarms, etc.). Prior coordination with the Building Manager is required.
b) Electric panel schedules must be brought up to date identifying all new circuits added.
EXHIBIT A
CONSTRUCTION AGREEMENT
c) All electrical outlets and lighting circuits are to be properly identified. Outlets will be labeled on back side of each cover plate.
d) All electrical and phone closets being used must have panels replaced and doors shut at the end of each day's work. Any electrical closet that is opened with the panel exposed must have a work person present.
e) All electricians, telephone personnel, etc. will, upon completion of their respective projects, pick up and discard their trash leaving the telephone and electrical rooms clean. If this is not complied with, a clean-up will be conducted by the building janitors and the general contractor will be back-charged for this service.
f) Welding or burning with an open flame will not be done without prior approval of the Building Manager. Fire extinguishers must be on hand at all times.
g) All “anchoring” of walls or supports to the concrete are not to be done during normal working hours (7:30 AM - 6:00 PM, Monday through Friday). This work must be scheduled before or after these hours during the week or on the weekend.
h) All core drilling is not to be done during normal working hours (7:30 AM - 6:00 PM, Monday through Friday). This work must be scheduled before or after these hours during the week or on the weekend.
i) All HVAC work must be inspected by the Building Engineer. The following procedures will be followed by the general contractor:
(i) A preliminary inspection of the HVAC work in progress will be scheduled through the Building Office prior to the reinstallation of the ceiling grid.
(ii) A second inspection of the HVAC operation will also be scheduled through the Building Office and will take place with the attendance of the HVAC contractor's Air Balance Engineer. This inspection will take place when the suite in question is ready to be air-balanced.
iii) The Building Engineer will inspect the construction on a periodic basis as well.
j) All existing thermostats, ceiling tiles, lighting fixtures and air conditioning grilles shall be saved and turned over to the Building Engineer.
Good housekeeping rules and regulations will be strictly enforced. The building office and engineering department will do everything possible to make your job easier. However, contractors who do not observe the construction policy will not be allowed to perform within this building. The cost of repairing any damages that are caused by Tenant or Tenant's contractor during the course of construction shall be deducted from Tenant's Allowance or Tenant’s Security Deposit, as appropriate.
SCHEDULE 1
Agreement By Contractor of Indemnification/Hold Harmless of Landlord
(“Agreement”)
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Owner:
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Douglas Emmett 1995, LLC
c/o Douglas Emmett Management, LLC
Director of Property Management
808 Wilshire Boulevard, Suite 200
Santa Monica, California 90401
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Contractor:
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Re: 401 Wilshire Boulevard, Santa Monica, California 90401 (the “Real Property”)
The undersigned (referred to herein as “Contractor”) has been engaged by Ziprecruiter, Inc., a Delaware corporation (“Tenant”) to perform work (the “Work”) in or on the above referenced Real Property, which is owned by Douglas Emmett 1995, LLC, a Delaware limited liability company (“Owner”), and managed by Owner’s duly authorized agent, Douglas Emmett Management, LLC, a Delaware limited liability company (“Manager”). Contractor acknowledges and agrees that Contractor has reviewed and shall comply with the “Construction Policies” that are a part of the Construction Agreement attached as Exhibit A to that certain Second Amendment to Office Lease dated May 3, 2018 by and between Owner and Tenant. Contractor also agrees that Contractor shall, and shall cause its subcontractors, agents and employees to (a) perform the Work and enter and exit the Real Property, elevators, and parking facilities in a manner that will not unreasonably disturb any other tenants, subtenants or other occupants of the Real Property or any of their employees, officers or invitees; (b) engage in any demolition, anchoring of walls or supports, drilling, or conduct any other aspect of planning or construction or operate any equipment in Tenant’s premises or any other part of the Real Property that may cause excessive noise, dust, vibrations or odors only during such hours as approved in writing in advance by Owner or Manager and only in the manner prescribed in writing by Owner or Manager; (c) comply with the Construction Policies or any written guidelines or instructions delivered to Contractor from Owner or Manager regarding performance of the Work; and (d) comply with applicable laws. Contractor understands and agrees that, prior to Contractor commencing the Work, Owner requires Contractor to provide the Landlord Parties (as hereinafter defined) with certain protections and that such protections are a material inducement to Owner’s consent to allowing Contractor to perform the Work at the Real Property. Accordingly, Contractor hereby agrees to and/or shall comply with the following:
1. Except to the extent resulting from the negligence or willful misconduct of Landlord Parties (as defined below), Contractor shall indemnify and hold harmless Owner and Manager and their respective affiliates, members, interest holders, managing members, officers, directors, partners, employees, agents, predecessors, successors and assigns (hereinafter collectively referred to as “Landlord Parties” and individually a “Landlord Party”) from and against all liabilities, claims, damages, losses, liens, causes of actions, judgments, costs and expenses, of whatever kind or
nature, including without limitation, bodily injury or death (whether or not those injured or deceased are performing work under this Agreement or are affiliated with the parties hereto), property damage, costs of litigation (including, without limitation, actual attorneys’ fees and costs) (collectively, “Claims”) arising out of or resulting from (1) the failure of Contractor or any of its subcontractors, employees or agents to comply with the requirements set forth in clauses (a), (b), (c) or (d) above; or any other obligation of Contractor under this Agreement, (2) the negligent acts or omissions of Contractor, its owners, agents, servants, employees, or subcontractors, or (3) the Work performed by Contractor. This indemnification obligation shall not be limited in any way by any limitation on the amount or types of damages, compensation, or benefits payable by or for Contractor or its subcontractors under workers compensation or disability laws. Contractor’s duty to indemnify shall include and extend to (i) situations in which Contractor has been negligent in the screening, hiring and training of its employees, contractors and subcontractors, said negligence of which causes liability in which any Landlord Party is alleged to be responsible for any Claims arising out of such negligent screening, hiring or training; and (ii) Claims for labor performed, equipment, tools, supplies or materials used or furnished in the performance of Contractor’s services, including any costs and expenses incurred in the defense of such Claims and any damages to any Landlord Party resulting from such Claims.
2. Contractor agrees after written demand to promptly cause the effect of any suit or lien to be removed from the Real Property and in the event Contractor shall fail to do so, Owner, after ten (10) days’ prior written notice to Contractor, is authorized to use whatever means in its discretion it may deem appropriate to cause said lien or suit to be removed or dismissed and the costs thereof, together with attorneys’ fees shall be due and payable by Contractor to Owner within thirty (30) days following written demand, including reasonable backup. In the event a suit is brought against any Landlord Party or if any Landlord Party is named as a defendant in any suit against Contractor or Tenant, Contractor shall, at the option of Owner in Owner’s sole discretion, defend the Landlord Parties with counsel selected by Contractor and acceptable to Owner, in Owner's reasonable discretion. Contractor shall pay any and all costs and expenses in connection therewith as well as all additional costs and expenses incurred in such suit, including without limitation, professional fees such as expert fees, and/or appraisers' and accountants' fees, and will pay and satisfy any such claim, lien, or judgment as may be established by the decision of the court in such suit. Contractor may litigate any such lien or suit provided Contractor causes the effect thereof to be removed from the Real Property promptly in advance.
3. Contractor shall promptly pay all indebtedness incurred in Contractor’s performance of the Work. Should any lien or charge attach to the Real Property by reason of Contractor’s failure to pay such indebtedness, Contractor shall promptly procure the release of any such lien or charge and shall indemnify, defend (with counsel reasonably approved by Owner) and hold the Landlord Parties harmless from all loss, cost damage or expense incidental thereto.
4. If at any time there should be evidence of any lien or claim for which Owner or Manager is or might become liable, or for which the Real Property is, or might become subject to and which is chargeable to Contractor or any of its subcontractors, after allowing Contractor thirty (30) days to remove such lien, Owner or Manager shall have the right to retain out of any amounts due Contractor (as in for example, disbursements of any tenant improvement allowance), which shall be above and beyond any retention amounts, an amount sufficient to clear the lien or claim and completely indemnify the Landlord Parties against such lien or claim along with all associated costs, which shall in no way serve as an election of remedies by Owner or Manager. Contractor may obtain possession of the retained amount, provided that Contractor (a) posts a bond or other security in an amount sufficient to fully indemnify the Landlord Parties against the lien or claim,
and (b) obtains Owner or Manager’s approval as to the adequacy and quality of the bond or security, which Owner or Manager shall not unreasonable withhold. The cost of any such bond shall be borne by Contractor.
5. Contractor shall not take and is not authorized to take any action in the name of or otherwise on behalf of Owner or Manager which would violate any applicable law. If Contractor knowingly performs any Work or engages in any other activities contrary to applicable law, Contractor shall bear any and all additional costs resulting therefrom, including, but not limited to, the costs of correcting the Work or repairing the Real Property to comply with such law and the cost of fully indemnifying the Landlord Parties from all violations.
6. Contractor shall promptly cause all Landlord Parties to be released from any liability or penalty which may be imposed on Contractor, its employees, agents or subcontractors by reason of any alleged violation or violations of applicable law by Contractor in performance of the Work.
7. Each party waives any right to consequential, special or indirect damages or loss of anticipated profits, except for acts of negligence or intentional misconduct by the other party. Notwithstanding anything else contained herein to the contrary, Contractor shall look solely to Owner’s interest in the Real Property and any proceeds from a sale of the Real Property that actually remain undistributed, for satisfaction of any liabilities or obligations of Owner under this Agreement. No Landlord Party shall be personally liable for any such liabilities or obligations whatsoever.
8. If litigation is instituted between Owner and Contractor, the cause for which arises out of or in relation to this Agreement, the prevailing party in such litigation shall be entitled to receive its costs (not limited to court costs), expenses and reasonable attorneys' fees from the non-prevailing party as the same may be awarded by the court.
It is expressly understood and agreed that the foregoing provisions shall survive the termination or expiration of any agreement between Contractor and Tenant.
ALL OF THE ABOVE TERMS ARE AGREED TO AND ACKNOWLEDGED BY: CONTRACTOR
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Signature
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Company Name
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Title
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Street Address
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Date
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City, State, Zip
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EXHIBIT B
SIGN CRITERIA
1. Introduction. The intent of this sign criteria is to provide the guidelines necessary to achieve a visually coordinated, balanced and appealing signage environment at the Building.
2. Signage Allotment. Tenant is hereby permitted to install Tenant’s Monument Signage (as defined in Section 14 of the Second Amendment), subject to Tenant’s compliance with all of the terms of this Exhibit B and Landlord’s prior written approval, which approval may be granted or withheld in Landlord’s reasonable discretion.
3. Control over Design and Installation. Landlord and the City of Santa Monica (the “City”, which definition shall include any architectural review board, design review board or similar decision-making body with jurisdiction over the Building) shall retain sole rights of approval over the design and installation location(s) of any sign used in the Building. Tenant shall, at Tenant’s sole cost and expense, obtain all approvals necessary from the City. Tenant shall diligently and in good faith prosecute such approval process and shall advise Landlord in writing of its progress and shall provide Landlord with copies of all applications, correspondence and other written submissions to the City. Tenant shall deliver to Landlord documentation evidencing the City’s approval, if received, immediately upon Tenant’s receipt of the same. In no event shall Landlord approve installation of awnings over window areas in lieu of signage, nor shall the installation of neon lighting or “canned” signage be permitted. No modification of the requirements of this Exhibit B shall be valid, unless executed in advance by Landlord and the City.
4. Tenant’s Failure to Comply. Landlord shall rigorously enforce Tenant’s compliance with the requirements of this Exhibit B. Tenant’s failure, following written notice to so comply and the expiration of any cure period in accordance with the Lease, shall be a material default under the Lease. Further, in addition to any other remedies available to Landlord under this Lease and applicable law, if Tenant fails to comply with any requirement set forth in this Exhibit B or fails to comply with Landlord’s request to remove any non-conforming signage within five (5) business days after Tenant has received written notice from Landlord, then Landlord shall have the right, but not the obligation, to remove and store any non-conforming sign or signs at Tenant’s sole expense in accordance with Section 20.26 of the Lease. Tenant’s obligations hereunder shall survive the expiration or early termination of the Term of the Lease.
5. Limitations on Signage.
a. Intentionally Omitted.
b. Tenant shall not be permitted to hang any additional advertisement (i.e., flags, pennants, cloth signs, sidewalk boards, banners, placards or similar devices) outside the Premises, nor display the same on the inside of windows facing towards the exterior of the Premises or in such a manner so that the same are visible from the exterior of the Premises.
c. Tenant and/or Tenant’s signage contractor shall comply with all local, city, and state building, electrical, and signage codes. If submission to and acceptance of Tenant’s proposed signs by any design review board or committee for the neighborhood or city in which the Building is located is required, Tenant agrees to comply with all requirements of said committee or board.
d. Tenant shall ensure that all penetrations of the structure required for installation of Tenant’s sign shall be sealed in a water tight condition and shall be patched to match the adjacent building finish.
e. Tenant shall not be permitted to install any signage in such a manner so that raceways, cross-overs, conduits, conductors, transformers, or the like are exposed and/or visible.
6. Installation Requirements.
a. Tenant shall submit to Landlord four (4) copies of detailed shop drawings of Tenant’s proposed sign(s). Said shop drawings shall be prepared in full conformance with the sign criteria contained herein; include details of the proposed installation(s); and shall include renderings of the building elevation(s), showing the proposed final installation.
b. Tenant shall pay for all costs associated with manufacture and installation of the proposed sign(s), including, without limitation, all costs of final connection, transformers and labor and materials. In addition, Tenant shall reimburse Landlord for any and all of Landlord’s reasonable out of pocket costs incurred in reviewing Tenant’s signage specifications or for any other “peer review” work associated with Landlord’s review of Tenant’s signage specifications, including, without limitation, Landlord’s reasonable out of pocket costs reasonably incurred in engaging any third party engineers, contractors, consultants or design specialists. Tenant's reimbursement obligation for the foregoing shall in no event exceed $1,500.00. Tenant shall pay such costs to Landlord within thirty (30) days after Landlord’s delivery to Tenant of a copy of the invoice(s) for such work.
c. Tenant shall have the sign(s) proposed to be installed pursuant to this Exhibit B manufactured and installed by licensed contractors reasonably acceptable to Landlord. Tenant’s contractor shall obtain all necessary permits, at Tenant’s sole cost and expense. Tenant shall be fully responsible for the operations of Tenant’s sign contractor, and shall hold Landlord and Landlord’s agents, clients, contractors, directors, employees, invitees, licensees, officers, partners or shareholders harmless from any damages arising out of or in connection with Tenant’s installation of signage during the entire Term.
d. Tenant’s contractor shall maintain workmen’s compensation insurance as required by the State of California; all-risk liability insurance in a minimum amount of $1,000,000, prior to commencing installation of Tenant’s signs, shall provide to Landlord certificates of insurance evidencing such coverages, and naming Landlord as additional insured under the liability policy.
e. Landlord shall pay for cost of providing electricity to the New Monument Sign and Tenant shall pay its pro-rata share thereof to Landlord within thirty (30) days following Tenant’s receipt of Landlord’s billing.
7. Maintenance and Repair. Tenant shall repair and maintain the signage installed on or in the Building in good order and repair. If, after the expiration of ten (10) days’ prior written notice to Tenant from Landlord, Tenant fails to make such reasonable repairs as may be necessary to ensure that Tenant’s signage does not detract from the first-class appearance of the Building, Landlord shall have the option, but not the obligation, to, at Tenant’s sole expense, make such repairs as may be reasonably necessary and/or remove the signage which Tenant has failed to maintain, and store the same on behalf of Tenant.
8. Intentionally Deleted.
9. Removal of Signage at Expiration. At the expiration or earlier termination of the Lease, Tenant shall, at Tenant’s sole cost, remove all signage installed by Tenant, whether pursuant to this Exhibit B or not, and restore the Premises and/or the affected portion of the Building to the condition existing prior to the installation of such signage.
10. Expiration of Signage Right. Tenant acknowledges that if Tenant has not installed Tenant’s Monument Signage by June 30, 2019, Tenant’s right to install said signage shall expire and as of July 1, 2019, Tenant’s right to install Tenant’s Monument Signage shall be null and void.
11. Right Personal to Original Tenant. Tenant’s right to install and maintain said signage shall be personal to the original Tenant signing the Second Amendment, and shall of no further force or effect as of the date that Tenant assigns the Lease to an entity other than an Affiliate and/or subleases more than forty-nine percent (49%) of the total Rentable Area of the Premises to an entity other than an Affiliate. Should Tenant so assign or sublease in contravention of the foregoing, or such signage shall upon the request of Landlord be removed immediately at Tenant’s sole cost.
EXHIBIT C
JANITORIAL SPECIFICATIONS
OFFICE AREAS
Public Conference Rooms, Offices, Kitchens/Breakrooms, and all other Tenant Areas
NIGHTLY SERVICES
1. Vacuuming Modified Scope- Monday, Wednesday, and Friday - Vacuum all rugs and carpets including interior offices and high traffic areas.
2. Dust mop all resilient and hard surface flooring, using a treated mop.
3. Spot clean both sides of entrance door.
4. Empty wastebaskets, trash receptacles and desk-side recycling containers. Replace trash liners as necessary.
5. Where applicable, empty central recycling units in tenant space prior to full capacity. Discard paper into designated recycling containers.
6. Clean all kitchen and coffee stations, including walls surrounding trash receptacles.
7. Wipe clean and remove fingerprints and dirt from exterior surfaces of kitchen cabinets and appliances.
8. Clean and polish sinks, counters, and kitchen table tops.
9. Upon completion of nightly duties in each tenant suite:
• All chairs, furniture and wastebaskets to be returned to proper position when cleaned.
• Floor areas to be policed thoroughly to ensure paper, paper clips and other debris are removed.
• Perimeter office doors will be closed to conserve energy.
• Interior doors, shut or locked upon entering, shall be re-shut or re-locked when cleaning is completed.
• All lights will be turned off.
• Tenant entry doors will be locked and secured.
WEEKLY SERVICES
1. Dust vertical and horizontal surfaces of office furniture, including desks, credenzas, tables, file cabinets.
2. Dust all door frames.
3. Clean and polish suite entrance door metal, including door jambs, handles, kick plates and thresholds.
4. Clean upholstered chairs and furniture with lint brush or vacuum.
5. Damp mop kitchen/break room floors using an environmentally-friendly germicidal solution or certified green seal solution.
6. All carpeted areas are to be thoroughly vacuumed and edged.
MONTHLY SERVICES
1. High dust all horizontal and vertical surfaces over 7 feet, including but not limited to ledges, corners, ceiling diffusers, vents, light fixtures and lenses, moldings, shelves, artwork, etc. Treated dust clothes used.
2. Clean fire extinguishers and/or fire hose cabinet; dust and clean glass.
3. Raise and dust all cleared levelers, blinds, window frames, sills and mullions. Return to original position.
QUARTERLY SERVICES
1. Strip floor sealer/finish from vinyl composition flooring and seal it.
2. Dust/vacuum HVAC return vents and grills (ceiling vents) where needed.
RESTROOMS
Public restrooms and private Tenant restrooms.
NIGHTLY SERVICES
1. Empty all trash and sanitary receptacles. All receptacles will be cleaned and disinfected and new liners installed.
2. Scour, wash and disinfect all basins, bowls, urinals, and metal fixtures with an environmentally-friendly germicidal solution. De-scale and remove stains. Clean underside of rim, urinals and bowls thoroughly to prevent calcium and iron oxide deposits. Remove and clean urinal screens. Wash both sides of all toilet seats with approved germicidal solution and wipe dry. Toilet seats to be left in an upright position.
3. Flush all urinals and toilets to ensure proper function.
4. Damp wipe all toilet partitions, modesty screens, hinges/ hardware and walls using an approved germicidal solution. All surfaces are to be wiped dry so that all wipe marks are removed and surface has a uniformly bright appearance.
5. Wash and polish all mirrors, basin and vanity countertops, towel dispensers, dispensers, receptacles, bright work including faucets, wash basin traps, exposed piping, handles, seat hinges, etc. and any other metal fixtures, using non-abrasive, non-acidic cleaning agents, as approved by Manager.
6. Disinfect all dispensers, faucets, door handles, stall handles, locks, grab bars, and flush handles using a nonabrasive, non-acidic germicidal solution.
7. Wipe clean and remove fingerprints, smudges, graffiti and marks from walls, wall switches/ plates, glass, metal and enamel surfaces. Polish as required.
8. Wipe clean all signage, doors, frames, hinges and hardware. Kick plates and thresholds shall be thoroughly cleaned and polished and all marks and smudges removed.
9. Re-stock toilet tissue holders, seat cover containers, soap dispensers, towel dispensers, feminine product dispensers and air fresheners. The filling of such dispensers to be in such quantity as to last the entire business day. Hand soap and lotion dispensers will be checked nightly to ensure full operation.
10. Dust all horizontal and vertical surfaces, including stall doors, ledges, and tops of partitions, mirrors, vents and grilles.
11. Sweep and wet mop floors, using a germicidal detergent approved by Manager. Rinse with clear water and dry buff to eliminate streaking. All watermarks and stains will be removed from walls, baseboards and metal partition bases. Alkaline deposits and soap spills will be removed from floor tile grout. Police for mop threads around partitions and receptacles.
12. Vacuum carpeting in vestibule and edge with an edging tool.
13. Promptly report any graffiti that cannot be removed, lights out, plumbing and fixture malfunctions to Manager.
14. It is the intention of this specification to keep restrooms thoroughly clean and not use disinfectant to mask odors. No caustic or abrasive chemicals will be used in the performance of work. Odorless disinfectants are required.
WEEKLY SERVICES
1. Clean, disinfect and polish floor drain covers. Flush floor drains.
2. Clean all partitions, tile walls and baseboards, using an environmentally-friendly germicidal solution.
3. Wipe clean all painted and vinyl wall surfaces.
4. Restrooms located on vacant floors will be fully cleaned on a weekly basis.
MONTHLY SERVICES
1. Thoroughly wash all dispensers, receptacles, toilet partitions, modesty screens, hinges/hardware and walls using a Manager-approved germicidal solution. All surfaces are to be wiped dry so that all wipe marks are removed and surface has a uniformly bright appearance.
2. Polish all wood doors and surfaces, using Manager-approved products and methods.
3. Vacuum all louvers, vents, grills and light lenses.
4. Machine scrub restroom floors using an environmentally-friendly germicidal solution and a non-abrasive detergent and water. After scrubbing, floors will be rinsed with clear water and dried. All water marks will be removed from walls, partitions and fixtures.
QUARTERLY SERVICES
1. Wipe clean all ceilings, lights lenses, recessed lighting, diffusers, grilles, vents, access doors and ledges.
ELECTRONIC RECORD AND SIGNATURE DISCLOSURE
From time to time, Douglas Emmett (we, us or Company) may be required by law to provide to you certain written notices or disclosures. Described below are the terms and conditions for providing to you such notices and disclosures electronically through the DocuSign, Inc. (DocuSign) electronic signing system. Please read the information below carefully and thoroughly, and if you can access this information electronically to your satisfaction and agree to these terms and conditions, please confirm your agreement by clicking the ‘I agree’ button at the bottom of this document.
Getting paper copies
At any time, you may request from us a paper copy of any record provided or made available electronically to you by us. You will have the ability to download and print documents we send to you through the DocuSign system during and immediately after signing session and, if you elect to create a DocuSign signer account, you may access them for a limited period of time (usually 30 days) after such documents are first sent to you. After such time, if you wish for us to send you paper copies of any such documents from our office to you, you will be charged a $0.00 per-page fee. You may request delivery of such paper copies from us by following the procedure described below.
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If you decide to receive notices and disclosures from us electronically, you may at any time change your mind and tell us that thereafter you want to receive required notices and disclosures only in paper format. How you must inform us of your decision to receive future notices and disclosure in paper format and withdraw your consent to receive notices and disclosures electronically is described below.
Consequences of changing your mind
If you elect to receive required notices and disclosures only in paper format, it will slow the speed at which we can complete certain steps in transactions with you and delivering services to you because we will need first to send the required notices or disclosures to you in paper format, and then wait until we receive back from you your acknowledgment of your receipt of such paper notices or disclosures. To indicate to us that you are changing your mind, you must withdraw your consent using the DocuSign ‘Withdraw Consent’ form on the signing page of a DocuSign envelope instead of signing it. This will indicate to us that you have withdrawn your consent to receive required notices and disclosures electronically from us and you will no longer be able to use the DocuSign system to receive required notices and consents electronically from us or to sign electronically documents from us.
All notices and disclosures will be sent to you electronically
Unless you tell us otherwise in accordance with the procedures described herein, we will provide
electronically to you through the DocuSign system all required notices, disclosures, authorizations, acknowledgements, and other documents that are required to be provided or made available to you during the course of our relationship with you. To reduce the chance of you inadvertently not receiving any notice or disclosure, we prefer to provide all of the required notices and disclosures to you by the same method and to the same address that you have given us. Thus, you can receive all the disclosures and notices electronically or in paper format through the paper mail delivery system. If you do not agree with this process, please let us know as described below. Please also see the paragraph immediately above that describes the consequences of your electing not to receive delivery of the notices and disclosures electronically from us.
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To let us know of a change in your e-mail address where we should send notices and disclosures electronically to you, you must send an email message to us at docusign@douglasemmett.com and in the
body of such request you must state: your previous e-mail address, your new e-mail address. We do not require any other information from you to change your email address. In addition, you must notify DocuSign, Inc. to arrange for your new email address to be reflected in your DocuSign account by following the process for changing e-mail in the DocuSign system.
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Required hardware and software
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Operating Systems:
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Windows® 2000, Windows® XP, WindowsVista®; Mac OS® X
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Browsers:
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Final release versions of Internet Explorer® 6.0 or above (Windows only); Mozilla Firefox 2.0 or above (Windows and Mac); Safari™ 3.0 or above (Mac only)
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PDF Reader:
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Acrobat® or similar software may be required to view and print PDF files
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Screen Resolution:
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800 x 600 minimum
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Allow per session cookies
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** These minimum requirements are subject to change. If these requirements change, you will be asked to re-accept the disclosure. Pre-release (e.g. beta) versions of operating systems and browsers are not supported.
Acknowledging your access and consent to receive materials electronically
To confirm to us that you can access this information electronically, which will be similar to other electronic notices and disclosures that we will provide to you, please verify that you were able to read this electronic disclosure and that you also were able to print on paper or electronically save this page for your future reference and access or that you were able to e-mail this disclosure and consent to an address where you will be able to print on paper or save it for your future reference and access. Further, if you consent to receiving notices and disclosures exclusively in electronic format on the terms and conditions described above, please let us know by clicking the ‘I agree’ button below.
By checking the ‘I agree’ box, I confirm that:
• I can access and read this Electronic CONSENT TO ELECTRONIC RECEIPT OF ELECTRONIC RECORD AND SIGNATURE DISCLOSURES document; and
• I can print on paper the disclosure or save or send the disclosure to a place where I can print it, for future reference and access; and
• Until or unless I notify Douglas Emmett as described above, I consent to receive from exclusively through electronic means all notices, disclosures, authorizations, acknowledgements, and other documents that are required to be provided or made available to me by Douglas Emmett during the course of my relationship with you.
EXECUTION VERSION
CREDIT AGREEMENT
dated as of
April 30, 2021
among
ZIPRECRUITER, INC.
The Lenders Party Hereto
JPMORGAN CHASE BANK, N.A.
as Administrative Agent
______________________________
JPMORGAN SECURITIES LLC and
SILICON VALLEY BANK
Joint Lead Arrangers
and
JPMORGAN SECURITIES LLC,
SILICON VALLEY BANK and
GOLDMAN SACHS BANK USA
as Joint Bookrunners
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Page
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ARTICLE I Definitions
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1
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SECTION 1.01. Defined Terms
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1
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SECTION 1.02. Classification of Loans and Borrowings
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37
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SECTION 1.03. Terms Generally
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38
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SECTION 1.04. Accounting Terms; GAAP
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38
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SECTION 1.05. Status of Obligations
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39
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SECTION 1.06. Interest Rates; LIBOR Notification
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39
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SECTION 1.07. Divisions
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40
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SECTION 1.08. Letter of Credit Amounts
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40
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ARTICLE II The Credits
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40
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SECTION 2.01. Commitments
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40
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SECTION 2.02. Loans and Borrowings
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40
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SECTION 2.03. Requests for Borrowings
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41
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SECTION 2.04. Determination of Dollar Amounts
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42
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SECTION 2.05. Swingline Loans
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42
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SECTION 2.06. Letters of Credit
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43
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SECTION 2.07. Funding of Borrowings
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48
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SECTION 2.08. Interest Elections
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49
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SECTION 2.09. Termination and Reduction of Commitments
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50
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SECTION 2.10. Repayment and Amortization of Loans; Evidence of Debt
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50
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SECTION 2.11. Prepayment of Loans
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51
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SECTION 2.12. Fees
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52
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SECTION 2.13. Interest
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53
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SECTION 2.14. Alternate Rate of Interest
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54
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SECTION 2.15. Increased Costs
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56
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SECTION 2.16. Break Funding Payments
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57
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SECTION 2.17. Taxes
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57
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SECTION 2.18. Payments Generally; Allocations of Proceeds; Pro Rata Treatment; Sharing of Set-offs
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61
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SECTION 2.19. Mitigation Obligations; Replacement of Lenders
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63
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SECTION 2.20. Judgment Currency
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64
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SECTION 2.21. Defaulting Lenders
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64
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SECTION 2.22. Expansion Option
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67
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ARTICLE III Representations and Warranties
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68
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SECTION 3.01. Organization; Powers; Subsidiaries
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68
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SECTION 3.02. Authorization; Enforceability
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68
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SECTION 3.03. Governmental Approvals; No Conflicts
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69
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SECTION 3.04. Financial Condition; No Material Adverse Change
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69
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SECTION 3.05. Properties
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69
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SECTION 3.06. Litigation, Environmental and Labor Matters
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69
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Table of Contents
(continued)
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SECTION 3.07. Compliance with Laws and Agreements
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70
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SECTION 3.08. Investment Company Status
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70
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SECTION 3.09. Taxes
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70
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SECTION 3.10. ERISA
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70
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SECTION 3.11. Disclosure
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70
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SECTION 3.12. Federal Reserve Regulations
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71
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SECTION 3.13. Liens.
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71
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SECTION 3.14. No Default
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71
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SECTION 3.15. No Burdensome Restrictions
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71
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SECTION 3.16. Solvency
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71
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SECTION 3.17. Insurance
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71
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SECTION 3.18. Security Interest in Collateral
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71
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SECTION 3.19. Anti-Corruption Laws and Sanctions
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71
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SECTION 3.20. Affected Financial Institutions.
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72
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ARTICLE IV Conditions
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72
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SECTION 4.01. Effective Date
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72
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SECTION 4.02. Each Credit Event
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73
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ARTICLE V Affirmative Covenants
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73
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SECTION 5.01. Financial Statements and Other Information
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74
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SECTION 5.02. Notices of Material Events
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75
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SECTION 5.03. Existence; Conduct of Business
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75
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SECTION 5.04. Payment of Obligations
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76
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SECTION 5.05. Maintenance of Properties; Insurance
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76
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SECTION 5.06. Books and Records; Inspection Rights
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76
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SECTION 5.07. Compliance with Laws and Material Contractual Obligations
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77
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SECTION 5.08. Use of Proceeds
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77
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SECTION 5.09. Subsidiary Guarantors; Pledges; Additional Collateral; Further Assurances
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77
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SECTION 5.10. Depository Banks
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78
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ARTICLE VI Negative Covenants
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79
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SECTION 6.01. Indebtedness
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79
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SECTION 6.02. Liens
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80
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SECTION 6.03. Fundamental Changes and Asset Sales
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82
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SECTION 6.04. Investments, Loans, Advances, Guarantees and Acquisitions
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83
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SECTION 6.05. Swap Agreements
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85
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SECTION 6.06. Transactions with Affiliates
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85
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SECTION 6.07. Restricted Payments.
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85
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SECTION 6.08. Restrictive Agreements.
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86
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SECTION 6.09. Subordinated Indebtedness and Amendments to Subordinated Indebtedness Documents.
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86
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SECTION 6.10. Sale and Leaseback Transactions.
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87
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SECTION 6.11. Financial Covenants
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87
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Table of Contents
(continued)
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ARTICLE VII Events of Default
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87
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ARTICLE VIII The Administrative Agent
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87
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SECTION 8.01. Authorization and Action
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90
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SECTION 8.02. Administrative Agent’s Reliance, Limitation of Liability, Etc
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92
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SECTION 8.03. Posting of Communications
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94
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SECTION 8.04. The Administrative Agent Individually
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95
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SECTION 8.05. Successor Administrative Agent
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95
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SECTION 8.06. Acknowledgments of Lenders and Issuing Banks
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96
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SECTION 8.07. Collateral Matters.
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98
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SECTION 8.08. Credit Bidding
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99
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SECTION 8.09. Certain ERISA Matters
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100
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ARTICLE IX Miscellaneous
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101
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SECTION 9.01. Notices
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101
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SECTION 9.02. Waivers; Amendments
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102
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SECTION 9.03. Expenses; Limitation of Liability; Indemnity; Etc
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105
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SECTION 9.04. Successors and Assigns
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107
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SECTION 9.05. Survival
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110
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SECTION 9.06. Counterparts; Integration; Electronic Execution; Effectiveness
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111
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SECTION 9.07. Severability
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112
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SECTION 9.08. Right of Setoff
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112
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SECTION 9.09. Governing Law; Jurisdiction; Consent to Service of Process
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112
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SECTION 9.10. WAIVER OF JURY TRIAL
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113
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SECTION 9.11. Headings
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113
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SECTION 9.12. Confidentiality
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114
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SECTION 9.13. USA PATRIOT Act
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115
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SECTION 9.14. Releases of Subsidiary Guarantors
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115
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SECTION 9.15. Appointment for Perfection
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116
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SECTION 9.16. Interest Rate Limitation
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116
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SECTION 9.17. No Fiduciary Duty, etc
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116
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SECTION 9.18. Acknowledgement and Consent to Bail-In of Affected Financial Institutions
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117
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SECTION 9.19. Acknowledgement Regarding Any Supported QFCs
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117
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ARTICLE X Borrower Guarantee
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120
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Table of Contents
(continued)
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Page
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SCHEDULES:
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Schedule 1.01 – Existing Letters of Credit
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Schedule 2.01 – Commitments
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Schedule 3.01 – Subsidiaries
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Schedule 3.06 – Disclosed Matters
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Schedule 6.01 – Existing Indebtedness
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Schedule 6.02 – Existing Liens
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Schedule 6.04 – Existing Investments
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EXHIBITS:
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Exhibit A – Form of Assignment and Assumption
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Exhibit B – Form of Opinion of Loan Parties’ Counsel
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Exhibit C – List of Closing Documents
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Exhibit D-1 – Form of U.S. Tax Certificate (Non-U.S. Lenders That Are Not Partnerships)
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Exhibit D-2 – Form of U.S. Tax Certificate (Non-U.S. Lenders That Are Partnerships)
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Exhibit D-3 – Form of U.S. Tax Certificate (Non-U.S. Participants That Are Not Partnerships)
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Exhibit D-4 – Form of U.S. Tax Certificate (Non-U.S. Participants That Are Partnerships)
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Exhibit E – Form of Increasing Lender Supplement
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Exhibit F – Form of Augmenting Lender Supplement
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Exhibit G-1 – Form of Borrowing Request
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Exhibit G-2 – Form of Interest Election Request
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Exhibit H – Form of Subsidiary Guaranty
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CREDIT AGREEMENT (this “Agreement”) dated as of April 30, 2021 among ZIPRECRUITER, INC., the LENDERS from time to time party hereto and JPMORGAN CHASE BANK, N.A., as Administrative Agent.
The parties hereto agree as follows:
ARTICLE I
Definitions
SECTION 1.01. Defined Terms. As used in this Agreement, the following terms have the meanings specified below:
“ABR”, when used in reference to any Loan or Borrowing, refers to such Loan, or the Loans comprising such Borrowing, bearing interest at a rate determined by reference to the Alternate Base Rate.
“Adjusted LIBO Rate” means, with respect to any Eurocurrency Borrowing for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate.
“Administrative Agent” means JPMorgan Chase Bank, N.A. (including its branches and affiliates), in its capacity as administrative agent for the Lenders hereunder.
“Administrative Questionnaire” means an Administrative Questionnaire in a form supplied by the Administrative Agent.
“Affected Financial Institution” means (a) any EEA Financial Institution or (b) any UK Financial Institution.
“Affiliate” means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.
“Agent-Related Person” has the meaning assigned to such term in Section 9.03(d).
“Aggregate Dollar Account Value” means (i) the aggregate dollar value of all accounts of the Borrower and its Domestic Subsidiaries at all financial institutions measured as of the last day of each calendar month minus (ii) Five Million Dollars ($5,000,000).
“Agreed Currencies” means (i) Dollars, (ii) EUR, (iii) CAD, (iv) GBP, (v) ILS and (v) any other currency (x) that is a lawful currency (other than Dollars) that is readily available and freely transferable and convertible into Dollars and (y) that is agreed to by the Administrative Agent and the applicable Issuing Bank.
“Agreement” has the meaning assigned to such term in the introductory paragraph.
“Alternate Base Rate” means, for any day, a rate per annum equal to the greatest of (a) the Prime Rate in effect on such day, (b) the NYFRB Rate in effect on such day plus ½ of 1% and (c) the Adjusted LIBO Rate for a one month Interest Period in Dollars on such day (or if such day is not a Business Day, the immediately preceding Business Day) plus 1%; provided that for the purpose of this definition, the Adjusted LIBO Rate for any day shall be based on the LIBO Screen Rate (or if the LIBO
Screen Rate is not available for such one month Interest Period, the LIBO Interpolated Rate) at approximately 11:00 a.m. London time on such day. Any change in the Alternate Base Rate due to a change in the Prime Rate, the NYFRB Rate or the Adjusted LIBO Rate shall be effective from and including the effective date of such change in the Prime Rate, the NYFRB Rate or the Adjusted LIBO Rate, respectively. If the Alternate Base Rate is being used as an alternate rate of interest pursuant to Section 2.14 (for the avoidance of doubt, only until the Benchmark Replacement has been determined pursuant to Section 2.14(b)), then the Alternate Base Rate shall be the greater of clauses (a) and (b) above and shall be determined without reference to clause (c) above. For the avoidance of doubt, if the Alternate Base Rate as determined pursuant to the foregoing would be less than 1.00%, such rate shall be deemed to be 1.00% for purposes of this Agreement.
“Ancillary Document” has the meaning assigned to such term in Section 9.06.
“Anti-Corruption Laws” means the United States Foreign Corrupt Practices Act of 1977, as amended, and the United Kingdom Bribery Act of 2010, as amended.
“Applicable LC Sublimit” means (i) with respect to JPMorgan Chase Bank, N.A. in its capacity as an Issuing Bank under this Agreement and any of its Affiliates constituting Issuing Banks, $12,500,000, (ii) with respect to Silicon Valley Bank in its capacity as an Issuing Bank under this Agreement and any of its Affiliates constituting Issuing Banks, $12,500,000, and (iii) with respect to any other Person that becomes an Issuing Bank pursuant to the terms of this Agreement, such amount as agreed to in writing by the Borrower, the Administrative Agent and such Person at the time such Person becomes an Issuing Bank pursuant to the terms of this Agreement, as each of the foregoing amounts may be decreased or increased from time to time with the written consent of the Borrower, the Administrative Agent and the Issuing Banks (provided that any increase in the Applicable LC Sublimit with respect to any Issuing Bank shall only require the consent of the Borrower and such Issuing Bank).
“Applicable Party” has the meaning assigned to such term in Section 8.03(c).
“Applicable Percentage” means, with respect to any Lender, with respect to Revolving Loans, LC Exposure or Swingline Loans, the percentage equal to a fraction the numerator of which is such Lender’s Revolving Commitment and the denominator of which is the aggregate Revolving Commitments of all Revolving Lenders (if the Revolving Commitments have terminated or expired, the Applicable Percentages shall be determined based upon the Revolving Commitments most recently in effect, giving effect to any assignments); provided that, in the case of Section 2.21 when a Defaulting Lender shall exist, any such Defaulting Lender’s Revolving Commitment shall be disregarded in the calculation.
“Applicable Pledge Percentage” means 100%, but 65% in the case of a pledge by the Borrower or any Domestic Subsidiary of its voting Equity Interests in a Foreign Subsidiary that is a CFC.
“Applicable Rate” means, for any day, with respect to any Eurocurrency Revolving Loan or any ABR Revolving Loan or with respect to the commitment fees payable hereunder, as the case may be, the applicable rate per annum set forth below under the caption “Eurocurrency Spread”, “ABR Spread” or “Commitment Fee Rate”, as the case may be, based upon the Total Net Leverage Ratio applicable on such date:
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Total Net Leverage Ratio:
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Eurocurrency
Spread
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ABR
Spread
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Commitment Fee Rate
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Level I:
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Greater than 3.00 to 1.00
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2.00%
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1.00%
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0.35%
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Level II:
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Less than or equal to 3.00 to 1.00 but
greater than 2.00 to 1.00
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1.75%
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0.75%
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0.30%
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Level III:
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Less than or equal to 2.00 to 1.00 but
greater than 1.00 to 1.00
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1.50%
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0.50%
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0.25%
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Level IV:
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Less than or equal to 1.00 to 1.00
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1.25%
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0.25%
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0.25%
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For purposes of the foregoing,
(i) if at any time the Borrower fails to deliver the Financials on or before the date the Financials are due pursuant to Section 5.01, Level I shall be deemed applicable for the period commencing three (3) Business Days after the required date of delivery and ending on the date which is three (3) Business Days after the Financials are actually delivered, after which the Level shall be determined in accordance with the table above as applicable;
(ii) adjustments, if any, to the Level then in effect shall be effective three (3) Business Days after the Administrative Agent has received the applicable Financials (it being understood and agreed that each change in Level shall apply during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next such change); and
(iii) notwithstanding the foregoing, Level IV shall be deemed to be applicable until the Administrative Agent’s receipt of the Financials for the Borrower’s fiscal quarter ending on June 30, 2021 and adjustments to the Level then in effect shall thereafter be effected in accordance with the preceding paragraphs.
“Approved Electronic Platform” has the meaning assigned to such term in Section 8.03(a).
“Approved Fund” has the meaning assigned to such term in Section 9.04.
“Arranger” means each of JPMorgan Securities LLC and Silicon Valley Bank in its capacity as a joint lead arranger hereunder.
“Assignment and Assumption” means an assignment and assumption agreement entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 9.04), and accepted by the Administrative Agent, in the form of Exhibit A or any other form (including electronic records generated by the use of an electronic platform) approved by the Administrative Agent.
“Augmenting Lender” has the meaning assigned to such term in Section 2.22.
“Availability Period” means the period from and including the Effective Date to but excluding the earlier of the Maturity Date and the date of termination of the Revolving Commitments.
“Available Revolving Commitment” means, at any time with respect to any Lender, the Revolving Commitment of such Lender then in effect minus the Revolving Credit Exposure of such
Lender at such time; it being understood and agreed that any Lender’s Swingline Exposure shall not be deemed to be a component of the Revolving Credit Exposure for purposes of calculating the commitment fee under Section 2.12(a).
“Available Tenor” means, as of any date of determination and with respect to the then-current Benchmark, as applicable, any tenor for such Benchmark or payment period for interest calculated with reference to such Benchmark, as applicable, that is or may be used for determining the length of an Interest Period pursuant to this Agreement as of such date and not including, for the avoidance of doubt, any tenor for such Benchmark that is then-removed from the definition of “Interest Period” pursuant to clause (f) of Section 2.14.
“Bail-In Action” means the exercise of any Write-Down and Conversion Powers by the applicable Resolution Authority in respect of any liability of an Affected Financial Institution.
“Bail-In Legislation” means, (a) with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law, regulation, rule or requirement for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule and (b) with respect to the United Kingdom, Part I of the United Kingdom Banking Act 2009 (as amended from time to time) and any other law, regulation or rule applicable in the United Kingdom relating to the resolution of unsound or failing banks, investment firms or other financial institutions or their affiliates (other than through liquidation, administration or other insolvency proceedings).
“Banking Services” means each and any of the following bank services provided to the Borrower or any Subsidiary by any Lender or any of its Affiliates: (a) credit cards for commercial customers (including, without limitation, commercial credit cards and purchasing cards), (b) stored value cards, (c) merchant processing services and (d) treasury management services (including, without limitation, controlled disbursement, automated clearinghouse transactions, return items, any direct debit scheme or arrangement, overdrafts and interstate depository network services).
“Banking Services Agreement” means any agreement entered into by the Borrower or any Subsidiary in connection with Banking Services.
“Bankruptcy Code” means Title 11 of the United States Code entitled “Bankruptcy”, as now and hereafter in effect, or any successor statute.
“Bankruptcy Event” means, with respect to any Person, such Person becomes the subject of a voluntary or involuntary bankruptcy or insolvency proceeding, or has had a receiver, conservator, trustee, administrator, custodian, assignee for the benefit of creditors or similar Person charged with the reorganization or liquidation of its business appointed for it, or, in the good faith determination of the Administrative Agent, has taken any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any such proceeding or appointment or has had any order for relief in such proceeding entered in respect thereof; provided that a Bankruptcy Event shall not result solely by virtue of any ownership interest, or the acquisition of any ownership interest, in such Person by a Governmental Authority or instrumentality thereof, unless such ownership interest results in or provides such Person with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on its assets or permits such Person (or such Governmental Authority or instrumentality) to reject, repudiate, disavow or disaffirm any contracts or agreements made by such Person.
“Benchmark” means, initially, the LIBO Rate; provided that if a Benchmark Transition Event or an Early Opt-in Election, as applicable, and its related Benchmark Replacement Date have
occurred with respect to the LIBO Rate or the then-current Benchmark, then “Benchmark” means the applicable Benchmark Replacement to the extent that such Benchmark Replacement has replaced such prior benchmark rate pursuant to clause (b) or clause (c) of Section 2.14.
“Benchmark Replacement” means, for any Available Tenor, the first alternative set forth in the order below that can be determined by the Administrative Agent for the applicable Benchmark Replacement Date:
(1) the sum of: (a) Term SOFR and (b) the related Benchmark Replacement Adjustment;
(2) the sum of: (a) Daily Simple SOFR and (b) the related Benchmark Replacement Adjustment;
(3) the sum of: (a) the alternate benchmark rate that has been selected by the Administrative Agent and the Borrower as the replacement for the then-current Benchmark for the applicable Corresponding Tenor giving due consideration to (i) any selection or recommendation of a replacement benchmark rate or the mechanism for determining such a rate by the Relevant Governmental Body or (ii) any evolving or then-prevailing market convention for determining a benchmark rate as a replacement for the then-current Benchmark for U.S. dollar-denominated syndicated credit facilities at such time and (b) the related Benchmark Replacement Adjustment;
provided that, in the case of clause (1), such Unadjusted Benchmark Replacement is displayed on a screen or other information service that publishes such rate from time to time as selected by the Administrative Agent in its reasonable discretion; provided further that, notwithstanding anything to the contrary in this Agreement or in any other Loan Document, upon the occurrence of a Term SOFR Transition Event, and the delivery of a Term SOFR Notice, on the applicable Benchmark Replacement Date the “Benchmark Replacement” shall revert to and shall be deemed to be the sum of (a) Term SOFR and (b) the related Benchmark Replacement Adjustment, as set forth in clause (1) of this definition (subject to the first proviso above).
If the Benchmark Replacement as determined pursuant to clause (1), (2) or (3) above would be less than the Floor, the Benchmark Replacement will be deemed to be the Floor for the purposes of this Agreement and the other Loan Documents.
“Benchmark Replacement Adjustment” means, with respect to any replacement of the then-current Benchmark with an Unadjusted Benchmark Replacement for any applicable Interest Period and Available Tenor for any setting of such Unadjusted Benchmark Replacement:
(1) for purposes of clauses (1) and (2) of the definition of “Benchmark Replacement,” the first alternative set forth in the order below that can be determined by the Administrative Agent:
(a) the spread adjustment, or method for calculating or determining such spread adjustment, (which may be a positive or negative value or zero) as of the Reference Time such Benchmark Replacement is first set for such Interest Period that has been selected or recommended by the Relevant Governmental Body for the replacement of such Benchmark with the applicable Unadjusted Benchmark Replacement for the applicable Corresponding Tenor;
(b) the spread adjustment (which may be a positive or negative value or zero) as of the Reference Time such Benchmark Replacement is first set for such Interest Period that would apply to the fallback rate for a derivative transaction referencing the ISDA Definitions to be
effective upon an index cessation event with respect to such Benchmark for the applicable Corresponding Tenor; and
(2) for purposes of clause (3) of the definition of “Benchmark Replacement,” the spread adjustment, or method for calculating or determining such spread adjustment, (which may be a positive or negative value or zero) that has been selected by the Administrative Agent and the Borrower for the applicable Corresponding Tenor giving due consideration to (i) any selection or recommendation of a spread adjustment, or method for calculating or determining such spread adjustment, for the replacement of such Benchmark with the applicable Unadjusted Benchmark Replacement by the Relevant Governmental Body on the applicable Benchmark Replacement Date and/or (ii) any evolving or then-prevailing market convention for determining a spread adjustment, or method for calculating or determining such spread adjustment, for the replacement of such Benchmark with the applicable Unadjusted Benchmark Replacement for U.S. dollar-denominated syndicated credit facilities at such time;
provided that, in the case of clause (1) above, such adjustment is displayed on a screen or other information service that publishes such Benchmark Replacement Adjustment from time to time as selected by the Administrative Agent in its reasonable discretion.
“Benchmark Replacement Conforming Changes” means, with respect to any Benchmark Replacement, any technical, administrative or operational changes (including changes to the definition of “Alternate Base Rate,” the definition of “Business Day,” the definition of “Interest Period,” timing and frequency of determining rates and making payments of interest, timing of borrowing requests or prepayment, conversion or continuation notices, length of lookback periods, the applicability of breakage provisions, and other technical, administrative or operational matters) that the Administrative Agent reasonably decides may be appropriate to reflect the adoption and implementation of such Benchmark Replacement and to permit the administration thereof by the Administrative Agent in a manner substantially consistent with market practice (or, if the Administrative Agent decides that adoption of any portion of such market practice is not administratively feasible or if the Administrative Agent determines that no market practice for the administration of such Benchmark Replacement exists, in such other manner of administration as the Administrative Agent decides is reasonably necessary in connection with the administration of this Agreement and the other Loan Documents).
“Benchmark Replacement Date” means, with respect to any Benchmark, the earliest to occur of the following events with respect to such then-current Benchmark:
(1) in the case of clause (1) or (2) of the definition of “Benchmark Transition Event,” the later of (a) the date of the public statement or publication of information referenced therein and (b) the date on which the administrator of such Benchmark (or the published component used in the calculation thereof) permanently or indefinitely ceases to provide all Available Tenors of such Benchmark (or such component thereof);
(2) in the case of clause (3) of the definition of “Benchmark Transition Event,” the date of the public statement or publication of information referenced therein;
(3) in the case of a Term SOFR Transition Event, the date that is thirty (30) days after the date a Term SOFR Notice is provided to the Lenders and the Borrower pursuant to Section 2.14(c); or
(4) in the case of an Early Opt-in Election, the sixth (6th) Business Day after the date notice of such Early Opt-in Election is provided to the Lenders, so long as the Administrative Agent has not received, by 5:00 p.m., New York City time, on the fifth (5th) Business Day after the date notice of such Early Opt-in Election is provided to the Lenders, written notice of objection to such Early Opt-in Election from Lenders comprising the Required Lenders.
For the avoidance of doubt, (i) if the event giving rise to the Benchmark Replacement Date occurs on the same day as, but earlier than, the Reference Time in respect of any determination, the Benchmark Replacement Date will be deemed to have occurred prior to the Reference Time for such determination and (ii) the “Benchmark Replacement Date” will be deemed to have occurred in the case of clause (1) or (2) with respect to any Benchmark upon the occurrence of the applicable event or events set forth therein with respect to all then-current Available Tenors of such Benchmark (or the published component used in the calculation thereof).
“Benchmark Transition Event” means, with respect to any Benchmark, the occurrence of one or more of the following events with respect to such then-current Benchmark:
(1) a public statement or publication of information by or on behalf of the administrator of such Benchmark (or the published component used in the calculation thereof) announcing that such administrator has ceased or will cease to provide all Available Tenors of such Benchmark (or such component thereof), permanently or indefinitely, provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide any Available Tenor of such Benchmark (or such component thereof);
(2) a public statement or publication of information by the regulatory supervisor for the administrator of such Benchmark (or the published component used in the calculation thereof), the Federal Reserve Board, the NYFRB, an insolvency official with jurisdiction over the administrator for such Benchmark (or such component), a resolution authority with jurisdiction over the administrator for such Benchmark (or such component) or a court or an entity with similar insolvency or resolution authority over the administrator for such Benchmark (or such component), in each case which states that the administrator of such Benchmark (or such component) has ceased or will cease to provide all Available Tenors of such Benchmark (or such component thereof) permanently or indefinitely; provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide any Available Tenor of such Benchmark (or such component thereof); or
(3) a public statement or publication of information by the regulatory supervisor for the administrator of such Benchmark (or the published component used in the calculation thereof) announcing that all Available Tenors of such Benchmark (or such component thereof) are no longer representative.
For the avoidance of doubt, a “Benchmark Transition Event” will be deemed to have occurred with respect to any Benchmark if a public statement or publication of information set forth above has occurred with respect to each then-current Available Tenor of such Benchmark (or the published component used in the calculation thereof).
“Benchmark Unavailability Period” means, with respect to any Benchmark, the period (if any) (x) beginning at the time that a Benchmark Replacement Date pursuant to clauses (1) or (2) of that definition has occurred if, at such time, no Benchmark Replacement has replaced such then-current Benchmark for all purposes hereunder and under any Loan Document in accordance with Section 2.14 and (y) ending at the time that a Benchmark Replacement has replaced such then-current Benchmark for all purposes hereunder and under any Loan Document in accordance with Section 2.14.
“Beneficial Ownership Certification” means a certification regarding beneficial ownership or control as required by the Beneficial Ownership Regulation.
“Beneficial Ownership Regulation” means 31 C.F.R. § 1010.230.
“Benefit Plan” means any of (a) an “employee benefit plan” (as defined in Section 3(3) of ERISA) that is subject to Title I of ERISA, (b) a “plan” as defined in Section 4975 of the Code to which Section 4975 of the Code applies, and (c) any Person whose assets include (for purposes of the Plan Asset Regulations or otherwise for purposes of Title I of ERISA or Section 4975 of the Code) the assets of any such “employee benefit plan” or “plan”.
“BHC Act Affiliate” of a party means an “affiliate” (as such term is defined under, and interpreted in accordance with, 12 U.S.C. 1841(k)) of such party.
“Board” means the Board of Governors of the Federal Reserve System of the United States of America.
“Bookrunner” means each of JPMorgan Securities LLC, Silicon Valley Bank and Goldman Sachs Bank USA in its capacity as a joint bookrunner hereunder.
“Borrower” means ZipRecruiter, Inc., a Delaware corporation.
“Borrowing” means Revolving Loans of the same Type, made, converted or continued on the same date and, in the case of Eurocurrency Loans, as to which a single Interest Period is in effect or () a Swingline Loan.
“Borrowing Request” means a request by the Borrower for a Borrowing in accordance with Section 2.03, which shall be substantially in the form attached hereto as Exhibit G-1 or any other form approved by the Administrative Agent.
“Burdensome Restrictions” means any consensual encumbrance or restriction of the type described in clause (a) or (b) of Section 6.08.
“Business Day” means any day that is not a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to remain closed; provided that when used in connection with (a) a Eurocurrency Loan, the term “Business Day” shall also exclude any day on which banks are not open for dealings in Dollar deposits in the London interbank market, (b) any LC Disbursements that are the subject of a drawing, payment, reimbursement or rate selection denominated in EUR, the term “Business Day” shall also exclude any day on which the TARGET2 payment system is not open for the settlement of payments in EUR and (c) a Letter of Credit denominated in a Foreign Currency other than EUR, the term “Business Day” shall also exclude any day on which banks are not open for dealings in deposits in such Foreign Currency in the interbank market in the principal financial center of the country whose lawful currency is such Foreign Currency.
“CAD” or “C$” means the lawful money of Canada.
“Capital Lease Obligations” of any Person means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases or financing leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP.
“CFC” means “controlled foreign corporation” within the meaning of Section 957 of the Code.
“Change in Control” means (a) prior to a Public Listing, the failure by the Permitted Holders to own, beneficially and of record, Equity Interests in the Borrower representing at least 50.1% of the aggregate ordinary voting power represented by the issued and outstanding Equity Interests in the Borrower; or (b) after a Public Listing, (i) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or group (within the meaning of the Securities Exchange Act of 1934 and the rules of the SEC thereunder as in effect on the date hereof), other than the Permitted Holders, of Equity Interests representing more than 40% of the aggregate ordinary voting power represented by the issued and outstanding Equity Interests of the Borrower on a fully diluted basis; or (ii) during any period of 24 consecutive months, a majority of the members of the board of directors or other equivalent governing body of the Borrower ceases to be composed of individuals (A) who were members of that board or equivalent governing body on the first day of such period, (B) whose election or nomination to that board or equivalent governing body was approved by individuals referred to in clause (A) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body or (C) whose election or nomination to that board or other equivalent governing body was approved by individuals referred to in clauses (A) and (B) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body; provided however, solely in the case of a Change of Control pursuant to clause (b) hereto, that acquisitions by or on behalf of an employee benefit plan or an employee stock purchase plan of the Borrower shall not be included in determining whether a Change in Control shall have occurred.
“Change in Law” means the occurrence, after the date of this Agreement (or with respect to any Lender, if later, the date on which such Lender becomes a Lender), of any of the following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation, implementation or application thereof by any Governmental Authority, or (c) compliance by any Lender or Issuing Bank (or, for purposes of Section 2.15(b), by any lending office of such Lender or by such Lender’s or Issuing Bank’s holding company, if any) with any request, rule, guideline, requirement or directive (whether or not having the force of law) by any Governmental Authority made or issued after the date of this Agreement; provided however, that notwithstanding anything herein to the contrary, (i) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines, requirements and directives thereunder, issued in connection therewith or in implementation thereof, and (ii) all requests, rules, guidelines, requirements and directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to be a “Change in Law” regardless of the date enacted, adopted, issued or implemented.
“Class”, (a) when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are Revolving Loans or Swingline Loans and (b) when
used with respect to Lenders, refers to whether such Lenders have a Loan or Commitment with respect to a particular Class of Loans.
“Code” means the Internal Revenue Code of 1986, as amended.
“Collateral” means all of the “Collateral” referred to in the Collateral Documents and any and all other property of any Loan Party, now existing or hereafter acquired, that is or is intended under the terms of the Collateral Documents to be subject to a security interest or Lien in favor of Administrative Agent, on behalf of itself and the Secured Parties, to secure the Secured Obligations, other than the Excluded Assets.
“Collateral Documents” means, collectively, the Security Agreement and all other agreements, instruments and documents executed in connection with this Agreement that are intended to create, perfect or evidence Liens to secure the Secured Obligations, including, without limitation, all other security agreements, pledge agreements, loan agreements, notes, guarantees, subordination agreements, pledges, powers of attorney, consents, assignments, contracts, fee letters, notices, leases, financing statements and all other written matter whether heretofore, now, or hereafter executed by the Borrower or any of its Subsidiaries and delivered to the Administrative Agent.
“Commitment” means, (a) the Revolving Commitments and (b) with respect to each Lender, such Lender’s Revolving Commitment. The initial amount of each Lender’s Commitment is set forth on Schedule 2.01, or in the Assignment and Assumption or other documentation contemplated hereby pursuant to which such Lender shall have assumed its Revolving Commitment, as applicable.
“Commodity Exchange Act” means the Commodity Exchange Act (7 U.S.C. § 1 et seq.), as amended from time to time, and any successor statute.
“Communications” means, collectively, any notice, demand, communication, information, document or other material provided by or on behalf of any Loan Party pursuant to any Loan Document or the transactions contemplated therein which is distributed by the Administrative Agent, any Lender or the Issuing Bank by means of electronic communications pursuant to Section 8.03, including through an Approved Electronic Platform.
“Consolidated Capital Expenditures” means, without duplication, any expenditures for any purchase or other acquisition of any asset other than a Permitted Acquisition which would be classified as a fixed or capital asset on a consolidated balance sheet of the Borrower and its Subsidiaries prepared in accordance with GAAP.
“Consolidated EBITDA” means, with reference to any period, Consolidated Net Income for such period plus, without duplication and to the extent deducted from revenues in determining Consolidated Net Income for such period, (i) Consolidated Interest Expense, (ii) the provision for federal, state, local and foreign income taxes paid or accrued by the Borrower and its Subsidiaries, including any franchise taxes or other taxes based on income, profits or capital (including in respect of repatriated funds) and all other taxes that are included in the provision for income tax line item on the consolidated income statement of the Borrower and its Subsidiaries, (iii) depreciation, (iv) amortization (including the amortization or impairment of intangible assets), (v) extraordinary or non-recurring cash expenses or losses to the extent corresponding to extraordinary, unusual or non-recurring cash income or gains deducted from Consolidated EBITDA pursuant to clause (3) below, (vi) non-cash charges, expenses or losses, including, without limitation, (A) non-cash equity based employee compensation expenses for such period, (B) unrealized losses resulting from mark-to-market accounting in respect of convertible notes, Swap Agreements, Permitted Call Spread Swap Agreements, bond hedge transactions,
non-cash foreign currency translation losses and other derivative or similar instruments, (C) unrealized losses on equity investments, (D) non-cash expenses, losses and charges for deferred tax asset valuation allowances, (E) non-cash operating lease costs and (F) non-cash charges and expenses relating to convertible notes, (vii) fees, costs and expenses paid in connection with the financing transaction contemplated by this Agreement and the other Loan Documents, (viii) cash restructuring charges, expenses or losses (including severance costs, closing and consolidation expenses, charges and fees); provided that in no event shall the aggregate amount added back pursuant to this clause (viii), together with the aggregate amounts added back pursuant to clause (ix), clause (xi) and clause (xii) below, exceed 25% of Consolidated EBITDA for the Reference Period ending on any date of determination (calculated prior to giving effect to the add-back of any item pursuant to this clause (viii) or pursuant to clause (ix), clause (xi) and clause (xii) below), (ix) (A) cash integration costs in connection with Permitted Acquisitions and (B) any cost-savings, operating expense reductions, other operating improvements and initiatives and cost synergies related to any acquisition or disposition of property that are projected by Borrower in good faith to be reasonably anticipated to be realizable within 18 months of the date of such acquisition or disposition (to be added on a Pro Forma Basis as so projected until fully realized), net of the amount of actual benefits realized during such period from such actions; provided, that, with respect to this clause (xi)(B) such cost-savings, operating expense reductions, other operating improvements and initiatives or cost synergies are reasonably identifiable and factually supportable (in the good faith determination of the Borrower); provided that in no event shall the aggregate amount added back pursuant to this clause (xi), together with the aggregate amounts added back pursuant to clause (viii) above and clause (ix) and clause (xii) below, exceed 25% of Consolidated EBITDA for the Reference Period ending on any date of determination (calculated prior to giving effect to the add-back of any item pursuant to this clause (ix) or pursuant to clause (viii) above or clause (xi) or clause (xii) below), (x) transaction costs and expenses (including any fees or expenses of financial, accounting, legal or other advisors) incurred in connection with any proposed or actual Permitted Acquisitions, asset sales and dispositions permitted by Section 6.03, issuances of Indebtedness permitted under Section 6.01 (including any amendment, modification or refinancing of such Indebtedness), any Public Listing (including any bonuses paid or payable in connection with any Public Listing), and issuances of Equity Interests by the Borrower, in each case, whether or not successfully consummated, and (xi) any fees, expenses, charges or losses related to legal settlements, legal proceedings, investigations, regulatory matters fines, judgments, orders (including legal expenses related thereto); provided that in no event shall the aggregate amount added back pursuant to this clause (xi), together with the aggregate amounts added back pursuant to clause (viii) and clause (ix) above and clause (xii) below, exceed 25% of Consolidated EBITDA for the Reference Period ending on any date of determination (calculated prior to giving effect to the add-back of any item pursuant to this clause (xi) or pursuant to clause (viii) or clause (ix) above or clause (xii) below), (xii) other adjustments that determined on a basis consistent with Article 11 of Regulation S-X promulgated under the Exchange Act and as interpreted by the staff of the SEC (or any successor agency); provided that in no event shall the aggregate amount added back pursuant to this clause (xii), together with the aggregate amounts added back pursuant to clause (viii), clause (ix) and clause (xi) above, exceed 25% of Consolidated EBITDA for the Reference Period ending on any date of determination (calculated prior to giving effect to the add-back of any item pursuant to this clause (xii) or pursuant to clause (viii), clause (ix) or clause (xi) above), (xiii) the net amount, if any, of the difference between (to the extent the amount in the following clause (A) exceeds the amount in the following clause (B)): (i) the current portion of deferred revenue as of the last day of such period (the “Determination Date”) (net of deferred contract acquisition and fulfillment costs, net of related amortization) and (ii) the current portion of deferred revenue as of the date that is twelve months prior to the Determination Date (net of deferred contract acquisition and fulfillment costs, net of related amortization), in each case, calculated in a manner consistent with past practices and without giving effect to any purchase accounting adjustment, (xiv) expenses associated with any loss from the early extinguishment of Indebtedness or of any Permitted Call Spread Swap Agreements, and expenses associated with the equity component of, and any mark-to-market losses with respect to
convertible notes, and (xv) any net loss incurred in such period from foreign currency exchanges, conversions, translations and/or related contracts; minus, to the extent included in Consolidated Net Income for such period, (1) income tax credits and refunds (to the extent not netted from tax expense), (2) any cash payments made during such period in respect of items described in clause (vi) above subsequent to the fiscal quarter in which the relevant non-cash charges, expenses or losses were incurred and all non-cash income or gains for such period including unrealized gains resulting from mark-to-market accounting in respect of convertible notes, Swap Agreements, Permitted Call Spread Swap Agreements, bond hedge transactions, foreign currency exchanges, conversions, transactions and/or contracts and other derivative or similar instruments and unrealized gains on equity investments (excluding any items that represent the reversal of any accrual of, or cash reserve for, anticipated cash charges in any prior period that are described in clause (vi) above or any such item that is non-cash during such period but the subject of a cash payment in a prior or future period), (3) extraordinary, unusual or non-recurring income or gains realized other than in the ordinary course of business, all calculated for the Borrower and its Subsidiaries in accordance with GAAP on a consolidated basis, (4) the net amount, if any, of the difference between (to the extent the amount in the following clause (A) exceeds the amount in the following clause (B)): (i) the current portion of deferred revenue as of the date that is twelve months prior to the Determination Date net of deferred contract acquisition and fulfillment costs, net of related amortization), and (ii) the current portion of deferred revenue as of the Determination Date (net of deferred contract acquisition and fulfillment costs, net of related amortization), in each case, calculated in a manner consistent with past practices and without giving effect to any purchase accounting adjustment, and (5) any gains associated with the early extinguishment of Indebtedness or of any Permitted Call Spread Swap Agreements, gains associated with the equity component of, and any mark-to-market gains with respect to convertible notes, and gains from foreign currency exchanges, conversions, translations and/or related contracts. The parties hereto agree that Consolidated EBITDA for the fiscal quarter ending on March 31, 2020 shall be deemed to be $(6,400,000), (ii) on June 30, 2020 shall be deemed to be $26,000,000, on September 30, 2020 shall be deemed to be $27,400,000, and on December 31, 2020 shall be deemed to be $35,000,000. For the purposes of calculating Consolidated EBITDA for any period of four consecutive fiscal quarters (each, a “Reference Period”), (i) if at any time during such Reference Period the Borrower or any Subsidiary shall have made any Material Disposition, the Consolidated EBITDA for such Reference Period shall be reduced by an amount equal to the Consolidated EBITDA (if positive) attributable to the property that is the subject of such Material Disposition for such Reference Period or increased by an amount equal to the Consolidated EBITDA (if negative) attributable thereto for such Reference Period, and (ii) if during such Reference Period the Borrower or any Subsidiary shall have made a Material Acquisition, Consolidated EBITDA for such Reference Period shall be calculated after giving effect thereto on a Pro Forma Basis as if such Material Acquisition occurred on the first day of such Reference Period. As used in this definition, “Material Acquisition” means any acquisition of property or series of related acquisitions of property that (a) constitutes (i) assets comprising all or substantially all or any significant portion of a business or operating unit of a business, or (ii) all or substantially all of the common stock or other Equity Interests of a Person, and (b) involves the payment of consideration by the Borrower and its Subsidiaries in excess of $25,000,000; and “Material Disposition” means any sale, transfer or disposition of property or series of related sales, transfers, or dispositions of property that (a) constitutes (i) assets comprising all or substantially all or any significant portion of a business or operating unit of a business, or (ii) all or substantially all of the common stock or other Equity Interests of a Person, and (b) yields gross proceeds to the Borrower or any of its Subsidiaries in excess of $25,000,000.
“Consolidated Interest Expense” means, with reference to any period, the interest expense (including without limitation interest expense under Capital Lease Obligations that is treated as interest in accordance with GAAP) of the Borrower and its Subsidiaries calculated on a consolidated basis for such period with respect to all outstanding Indebtedness of the Borrower and its Subsidiaries allocable to such period in accordance with GAAP. In the event that the Borrower or any Subsidiary
shall have completed a Material Acquisition or a Material Disposition since the beginning of the relevant period, Consolidated Interest Expense shall be determined for such period on a Pro Forma Basis as if such acquisition or disposition, and any related incurrence or repayment of Indebtedness, had occurred at the beginning of such period.
“Consolidated Net Income” means, with reference to any period, the net income (or loss) of the Borrower and its Subsidiaries calculated in accordance with GAAP on a consolidated basis (without duplication) for such period; provided that there shall be excluded (i) any income (or loss) of any Person other than the Borrower or a Subsidiary, but any such income so excluded may be included in such period or any later period to the extent of any cash dividends or distributions actually paid in the relevant period to the Borrower or any Subsidiary of the Borrower and (ii) the effects of adjustments relating to purchase accounting, or the allocation of the purchase price, paid in acquisitions.
“Consolidated Tangible Assets” means, as of any date of determination thereof, Consolidated Total Assets minus the Intangible Assets of the Borrower and its Subsidiaries on such date.
“Consolidated Total Assets” means, as of the date of any determination thereof, total assets of the Borrower and its Subsidiaries calculated in accordance with GAAP on a consolidated basis as of such date.
“Consolidated Total Indebtedness” means at any time the sum, without duplication, of (a) the aggregate Indebtedness of the Borrower and its Subsidiaries calculated on a consolidated basis as of such time in accordance with GAAP, (b) the aggregate amount of Indebtedness of the Borrower and its Subsidiaries relating to the maximum drawing amount of all letters of credit outstanding and bankers acceptances and (c) Indebtedness of the type referred to in clauses (a) or (b) hereof of another Person guaranteed by the Borrower or any of its Subsidiaries.
“Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. “Controlling” and “Controlled” have meanings correlative thereto.
“Corresponding Tenor” with respect to any Available Tenor means, as applicable, either a tenor (including overnight) or an interest payment period having approximately the same length (disregarding business day adjustment) as such Available Tenor.
“Covered Entity” means any of the following:
(i) a “covered entity” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 252.82(b);
(ii) a “covered bank” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 47.3(b); or
(iii) a “covered FSI” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 382.2(b).
“Covered Party” has the meaning assigned to it in Section 9.19.
“Credit Event” means a Borrowing, the issuance, amendment, renewal or extension of a Letter of Credit, an LC Disbursement or any of the foregoing.
“Credit Exposure” means, as to any Lender at any time, such Lender’s Revolving Credit Exposure at such time.
“Credit Party” means the Administrative Agent, any Issuing Bank, the Swingline Lender or any other Lender.
“Daily Simple SOFR” means, for any day, SOFR, with the conventions for this rate (which may include a lookback) being established by the Administrative Agent in accordance with the conventions for this rate selected or recommended by the Relevant Governmental Body for determining “Daily Simple SOFR” for business loans; provided that, if the Administrative Agent decides that any such convention is not administratively feasible for the Administrative Agent, then the Administrative Agent may establish another convention in its reasonable discretion.
“Default” means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default.
“Default Right” has the meaning assigned to that term in, and shall be interpreted in accordance with, 12 C.F.R. §§ 252.81, 47.2 or 382.1, as applicable.
“Defaulting Lender” means any Lender that (a) has failed, within two (2) Business Days of the date required to be funded or paid, to (i) fund any portion of its Loans, (ii) fund any portion of its participations in Letters of Credit or Swingline Loans or (iii) pay over to any Credit Party any other amount required to be paid by it hereunder, unless, in the case of clause (i) above, such Lender notifies the Administrative Agent in writing that such failure is the result of such Lender’s good faith determination that a condition precedent to funding (specifically identified and including the particular default, if any) has not been satisfied, (b) has notified the Borrower or any Credit Party in writing, or has made a public statement to the effect, that it does not intend or expect to comply with any of its funding obligations under this Agreement (unless such writing or public statement indicates that such position is based on such Lender’s good faith determination that a condition precedent (specifically identified and including the particular default, if any) to funding a Loan under this Agreement cannot be satisfied) or generally under other agreements in which it commits to extend credit, (c) has failed, within three (3) Business Days after request by a Credit Party, acting in good faith, to provide a certification in writing from an authorized officer of such Lender that it will comply with its obligations (and is financially able to meet such obligations) to fund prospective Loans and participations in then outstanding Letters of Credit and Swingline Loans under this Agreement, provided that such Lender shall cease to be a Defaulting Lender pursuant to this clause (c) upon such Credit Party’s receipt of such certification in form and substance satisfactory to it and the Administrative Agent, or (d) has become the subject of (A) a Bankruptcy Event or (B) a Bail-In Action. Nothing contained in the foregoing shall be deemed to constitute a waiver by the Borrower of any of its rights or remedies (whether in equity or law) against any Lender which fails to fund any of its Loans hereunder at the time or in the amount required to be funded under the terms of this Agreement.
“Disclosed Matters” means the actions, suits and proceedings and the environmental matters disclosed in Schedule 3.06.
“Dollar Amount” of any amount of any currency means, at the time of determination thereof, (a) if such amount is expressed in Dollars, such amount, (b) if such amount is expressed in a Foreign Currency, the equivalent of such amount in Dollars determined by using the rate of exchange for the purchase of Dollars with such Foreign Currency last provided (either by publication or otherwise provided to the Administrative Agent) by the applicable Reuters source on the Business Day (New York City time) immediately preceding the date of determination or if such service ceases to be available or
ceases to provide a rate of exchange for the purchase of Dollars with such Foreign Currency, as provided by such other publicly available information service which provides that rate of exchange at such time in place of Reuters chosen by the Administrative Agent in its reasonable discretion (or if such service ceases to be available or ceases to provide such rate of exchange, the equivalent of such amount in Dollars as determined by the Administrative Agent, in consultation with the Borrower, using any method of determination it deems reasonably appropriate) and (c) if such amount is denominated in any other currency, the equivalent of such amount in Dollars as determined by the Administrative Agent, in consultation with the Borrower, using any method of determination it deems reasonably appropriate.
“Dollars” or “$” refers to lawful money of the United States of America.
“Domestic Subsidiary” means a Subsidiary organized under the laws of a jurisdiction located in the United States of America.
“Early Opt-in Election” means the occurrence of:
(1) a notification by the Administrative Agent to (or the request by the Borrower to the Administrative Agent to notify) each of the other parties hereto that at least five currently outstanding Dollar-denominated syndicated credit facilities at such time contain (as a result of amendment or as originally executed) a SOFR-based rate (including SOFR, a term SOFR or any other rate based upon SOFR) as a benchmark rate (and such syndicated credit facilities are identified in such notice and are publicly available for review), and
(2) the joint election by the Administrative Agent and the Borrower to trigger a fallback from the LIBO Rate and the provision, as applicable, by the Administrative Agent of written notice of such election to the Borrower and the Lenders.
“ECP” means an “eligible contract participant” as defined in Section 1(a)(18) of the Commodity Exchange Act or any regulations promulgated thereunder and the applicable rules issued by the Commodity Futures Trading Commission and/or the SEC.
“EEA Financial Institution” means (a) any credit institution or investment firm established in any EEA Member Country which is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described in clause (a) of this definition, or (c) any financial institution established in an EEA Member Country which is a subsidiary of an institution described in clauses (a) or (b) of this definition and is subject to consolidated supervision with its parent.
“EEA Member Country” means any of the member states of the European Union, Iceland, Liechtenstein, and Norway.
“EEA Resolution Authority” means any public administrative authority or any Person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution.
“Effective Date” means the date on which the conditions specified in Section 4.01 are satisfied (or waived in accordance with Section 9.02).
“Electronic Signature” means an electronic sound, symbol, or process attached to, or associated with, a contract or other record and adopted by a Person with the intent to sign, authenticate or accept such contract or record.
“Environmental Laws” means all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the environment, protection of natural resources, the management, release or threatened release of any Hazardous Material or to health and safety matters (but excluding occupational and safety matters, to the extent regulated by the Occupational and Safety Health Act).
“Environmental Liability” means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrower or any Subsidiary directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.
“Equity Interests” means shares of capital stock, partnership interests, membership interests in a limited liability company, beneficial interests in a trust or other equity ownership interests in a Person, and any warrants, options or other rights entitling the holder thereof to purchase or acquire any such equity interest, but excluding any debt securities convertible into any of the foregoing.
“ERISA” means the Employee Retirement Income Security Act of 1974.
“ERISA Affiliate” means any trade or business (whether or not incorporated) that, together with the Borrower, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code.
“ERISA Event” means (a) any “reportable event”, as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived); (b) the failure to satisfy the “minimum funding standard” (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(c) of the Code or Section 302(c) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by the Borrower or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the Borrower or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal of the Borrower or any of its ERISA Affiliates from any Plan or Multiemployer Plan; or (g) the receipt by the Borrower or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice, concerning the imposition upon the Borrower or any of its ERISA Affiliates of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA.
“EU Bail-In Legislation Schedule” means the EU Bail-In Legislation Schedule published by the Loan Market Association (or any successor Person), as in effect from time to time.
“EUR” or “€” means the lawful currency of the member states of the European Union that have adopted a single currency in accordance with applicable law or treaty.
“Eurocurrency”, when used in reference to any Loan or Borrowing, means that such Loan, or the Loans comprising such Borrowing, bears interest at a rate determined by reference to the Adjusted LIBO Rate.
“Eurocurrency Payment Office” shall mean, for each Foreign Currency, the office, branch, affiliate or correspondent bank of the Administrative Agent for such currency as specified from time to time by the Administrative Agent to the Borrower and each Issuing Bank.
“Event of Default” has the meaning assigned to such term in Article VII.
“Excluded Assets” means the collective reference to (a) all Equity Interests in excess of the Applicable Pledge Percentage in any Foreign Subsidiary that is a Pledge Subsidiary, (b) any Equity Interests in any Foreign Subsidiary which is not a Pledge Subsidiary, (c) any Equity Interests in any Domestic Subsidiary which is not a Pledge Subsidiary, (d) all owned or leased real property of the Borrower or any Subsidiary, (e) rights in any property to the extent that and only for as long as the grant of a security interest in such property (i) is prohibited by any law, treaty, rule or regulation or determination of an arbitrator or a court or other governmental authority applicable to or binding upon the Borrower or any Subsidiary Guarantor, or (ii) constitutes a breach or default under or results in the termination of, or requires any consent not obtained under, any lease, license or agreement (other than to the extent that the provisions of any such lease, license or agreement are ineffective under applicable law or would be ineffective under Sections 9-406, 9-407, 9-408 or 9-409 of the Uniform Commercial Code of any relevant jurisdiction to prevent the attachment of the security interest granted under the Collateral Documents), (f) property and assets owned by the Borrower or any Subsidiary Guarantor in which a Lien may not be granted without governmental approval or consent (but only for so long as the Borrower or the applicable Subsidiary Guarantor has not obtained such approval or consents), (g) any United States Trademark, Copyright or Patent applications filed on the basis of the Borrower’s or any Subsidiary Guarantor’s intent-to-use such mark, but only if and to the extent that the granting of a security interest in such application would result in the invalidation of such application, provided that, upon the submission of evidence of use of such trademark, copyright or patent in interstate commerce is submitted to the United States Patent and Trademark Office or United States Copyright Office, such trademark, patent or copyright application shall automatically be included in the Collateral, (h) motor vehicles and other assets subject to certificates of title to the extent that a lien therein cannot be perfected by the filing of UCC financing statements in the jurisdictions of organization of the Borrower and the Subsidiary Guarantors, (i) any property (other than, for the avoidance of doubt, Equity Interests in a Pledge Subsidiary that is a First Tier Foreign Subsidiary) located in any jurisdiction outside the United States, (j) deposit accounts used in the ordinary course of business for payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of any Loan Party’s salaried employees, which accounts are funded only in the ordinary course of business, pension fund accounts, 401(k) accounts, tax withholding accounts and trust accounts, and escrow or other fiduciary accounts maintained for the benefit of Persons who are not Loan Parties or any Affiliate of a Loan Party, (k) any Equity Interests in any Person (other than the Loan Parties) that is not wholly-owned by any Loan Party or any combination of Loan Parties to the extent the organization documents of such Person prohibits or requires the consent of any Person other than a Loan Party which has not been obtained as a condition to the creation by such Loan Party of a Lien on any right, title or interest in such Equity Interests but only to the extent, and for as long as, such prohibition is not terminated or rendered unenforceable or otherwise deemed ineffective by the UCC or any other applicable law, and (l) such other assets as may be reasonably agreed by the Administrative Agent in writing to the extent the Borrower and the Administrative Agent determine that the cost of creating or perfecting a security interest in such assets is too burdensome or excessive in relation to the value of the security interest to be afforded thereby. Notwithstanding the foregoing and for the avoidance of doubt, “Excluded Assets” shall not include any proceeds, products, substitutions or
replacements of Excluded Assets (unless such proceeds, products, substitutions or replacements would otherwise constitute Excluded Assets).
“Excluded Swap Obligation” means, with respect to any Loan Party, any Specified Swap Obligation if, and to the extent that, all or a portion of the Guarantee of such Loan Party of, or the grant by such Loan Party of a security interest to secure, such Specified Swap Obligation (or any Guarantee thereof) is or becomes illegal under the Commodity Exchange Act or any rule, regulation or order of the Commodity Futures Trading Commission (or the application or official interpretation of any thereof) by virtue of such Loan Party’s failure for any reason to constitute an ECP at the time the Guarantee of such Loan Party or the grant of such security interest becomes or would become effective with respect to such Specified Swap Obligation. If a Specified Swap Obligation arises under a master agreement governing more than one swap, such exclusion shall apply only to the portion of such Specified Swap Obligation that is attributable to swaps for which such Guarantee or security interest is or becomes illegal.
“Excluded Taxes” means, with respect to any payment made by any Loan Party under any Loan Document, any of the following Taxes imposed on or with respect to a Recipient:
(a) Taxes imposed on or measured by net income (however denominated), franchise Taxes, and branch profits Taxes, that are Other Connection Taxes;
(b) Taxes attributable to such Recipient’s failure to comply with Section 2.17(f);
(c) in the case of a Lender, U.S. Federal withholding Taxes with respect to an applicable interest in a Loan or Commitment resulting from any law in effect on the date on which (i) such Lender acquires its applicable ownership interest in the Loan or Commitment (other than a Lender acquiring its applicable ownership interest pursuant to Section 2.19(b)) or (ii) such Lender changes its lending office, except in each case to the extent that, pursuant to Section 2.17, amounts with respect to such Taxes were payable either to such Lender’s assignor immediately before such Lender became a Lender with respect to its applicable ownership interest in the Loan or Commitment or to such Lender immediately before it changed its lending office; and
(d) any withholding Taxes imposed under FATCA.
“Existing Credit Agreement” means that certain Second Amended and Restated Loan and Security Agreement dated as of September 2, 2020 between Silicon Valley Bank and the Borrower, as amended, restated and otherwise modified from time to time.
“Existing Letters of Credit” means the letters of credit for the account of the Borrower issued prior to the Effective Date, as in effect on the Effective Date and listed on Schedule 1.01.
“FCA” has the meaning assigned to such term in Section 1.05.
“FATCA” means Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof, any agreement entered into pursuant to Section 1471(b)(1) of the Code and any fiscal or regulatory legislation, rules or practices adopted pursuant to any intergovernmental agreement, treaty or convention among Governmental Authorities and implementing such Sections of the Code.
“Federal Funds Effective Rate” means, for any day, the rate calculated by the NYFRB based on such day’s federal funds transactions by depositary institutions, as determined in such manner
as shall be set forth on the NYFRB’s Website from time to time, and published on the next succeeding Business Day by the NYFRB as the effective federal funds rate; provided that, if the Federal Funds Effective Rate as so determined would be less than zero, such rate shall be deemed to be zero for the purposes of this Agreement.
“Fee Letters” means, collectively, (i) the Lender Fee Letter, dated as of the Effective Date, between the Borrower and the Lenders, as amended, restated, amended and restated, modified or supplemented from time to time and (ii) the Arranger Fee Letter, dated as of the Effective Date, between the Borrower and the Arrangers, as amended, restated, amended and restated, modified or supplemented from time to time.
“Financial Officer” means the chief financial officer, principal accounting officer, treasurer, assistant treasurer or controller of the Borrower.
“Financials” means the annual or quarterly financial statements, and accompanying certificates and other documents, of the Borrower and its Subsidiaries required to be delivered pursuant to Section 5.01(a) or 5.01(b).
“First Tier Foreign Subsidiary” means each Foreign Subsidiary with respect to which any one or more of the Borrower and its Domestic Subsidiaries directly owns or Controls more than 50% of such Foreign Subsidiary’s issued and outstanding Equity Interests.
“Floor” means the benchmark rate floor, if any, provided in this Agreement initially (as of the execution of this Agreement, the modification, amendment or renewal of this Agreement or otherwise) with respect to the LIBO Rate, as applicable.
“Foreign Currencies” means Agreed Currencies other than Dollars.
“Foreign Currency LC Exposure” means, at any time, the sum of (a) the Dollar Amount of the aggregate undrawn and unexpired amount of all outstanding Foreign Currency Letters of Credit at such time plus (b) the aggregate principal Dollar Amount of all LC Disbursements in respect of Foreign Currency Letters of Credit that have not yet been reimbursed at such time.
“Foreign Currency Letter of Credit” means a Letter of Credit denominated in a Foreign Currency.
“Foreign Subsidiary” means any Subsidiary which is not a Domestic Subsidiary.
“GAAP” means generally accepted accounting principles in the United States of America.
“GBP” or “£” means the lawful currency of the United Kingdom.
“Governmental Authority” means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.
“Guarantee” of or by any Person (the “guarantor”) means any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation of any other Person (the “primary obligor”) in any manner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect, (a) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation or (d) as an account party in respect of any letter of credit or letter of guaranty issued to support such Indebtedness or obligation; provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business.
“Hazardous Materials” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.
“ILS” or “₪” means the lawful money of Israel.
“Impacted LIBO Rate Interest Period” has the meaning assigned to such term in the definition of “LIBO Rate”.
“Increasing Lender” has the meaning assigned to such term in Section 2.22.
“Incremental Term Loan” has the meaning assigned to such term in Section 2.22.
“Incremental Term Loan Amendment” has the meaning assigned to such term in Section 2.22.
“Indebtedness” of any Person means, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (d) all obligations of such Person in respect of the deferred purchase price of property or services (excluding current accounts payable, accrued salaries, vacation and other employee benefits, in each case incurred in the ordinary course of business), (e) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed; provided that if such Indebtedness has not been assumed, the amount thereof shall be deemed to be the lesser of (1) the actual amount of such Indebtedness and (2) the book value of such Person’s Property securing such Indebtedness, (f) all Guarantees by such Person of Indebtedness of others, (g) all Capital Lease Obligations of such Person, (h) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty, (i) all obligations, contingent or otherwise, of such Person in respect of bankers’ acceptances and (j) all obligations of such Person under Sale and Leaseback Transactions. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person’s ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor.
“Indemnified Taxes” means (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on behalf of any Loan Party under any Loan Document and (b) Other Taxes.
“Indemnitee” has the meaning assigned to such term in Section 9.03(c).
“Ineligible Institution” has the meaning assigned to such term in Section 9.04(b).
“Intangible Assets” means, as of any date of determination thereof, the aggregate amount, for the Borrower and its Subsidiaries on a consolidated basis, of all assets as of such date classified as intangible assets under GAAP, including, without limitation, customer lists, goodwill, computer software, trademarks, patents, copyrights, organization expenses, franchises, licenses, trade names, brand names, mailing lists, catalogs, unamortized debt discount and capitalized research and development costs.
“Interest Election Request” means a request by the Borrower to convert or continue a Borrowing in accordance with Section 2.08, which shall be substantially in the form attached hereto as Exhibit G-2 or any other form approved by the Administrative Agent.
“Interest Payment Date” means (a) with respect to any ABR Loan (other than a Swingline Loan), the last day of each March, June, September and December and the Maturity Date, (b) with respect to any Eurocurrency Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Eurocurrency Borrowing with an Interest Period of more than three months’ duration, each day prior to the last day of such Interest Period that occurs at intervals of three months’ duration after the first day of such Interest Period and the Maturity Date and (c) with respect to any Swingline Loan, the day that such Loan is required to be repaid and the Maturity Date.
“Interest Period” means with respect to any Eurocurrency Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day in the calendar month that is one, three or six months (or, with the consent of each Lender and the Administrative Agent, such other duration) thereafter, as the Borrower may elect; provided that (i) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day and (ii) any Interest Period pertaining to a Eurocurrency Borrowing that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing.
“IRS” means the United States Internal Revenue Service.
“ISDA Definitions” means the 2006 ISDA Definitions published by the International Swaps and Derivatives Association, Inc. or any successor thereto, as amended or supplemented from time to time, or any successor definitional booklet for interest rate derivatives published from time to time by the International Swaps and Derivatives Association, Inc. or such successor thereto.
“Issuing Bank” means each of JPMorgan Chase Bank, N.A., Silicon Valley Bank and each other Lender designated by the Borrower as an “Issuing Bank” hereunder that has agreed to such designation (and is reasonably acceptable to the Administrative Agent), each in its capacity as the issuer of Letters of Credit hereunder, and its successors in such capacity as provided in Section 2.06(i). Each Issuing Bank may, in its discretion, arrange for one or more Letters of Credit to be issued by Affiliates of such Issuing Bank, in which case the term “Issuing Bank” shall include any such Affiliate with respect to Letters of Credit issued by such Affiliate. Each reference herein to the “Issuing Bank” in connection
with a Letter of Credit or other matter shall be deemed to be a reference to the relevant Issuing Bank with respect thereto, and, further, references herein to “the Issuing Bank” shall be deemed to refer to each of the Issuing Banks or the relevant Issuing Bank, as the context requires.
“LC Collateral Account” has the meaning assigned to such term in Section 2.06(j).
“LC Disbursement” means a payment made by an Issuing Bank pursuant to a Letter of Credit.
“LC Exposure” means, at any time, the sum of (a) the aggregate undrawn Dollar Amount of all outstanding Letters of Credit at such time plus (b) the aggregate Dollar Amount of all LC Disbursements that have not yet been reimbursed by or on behalf of the Borrower at such time. The LC Exposure of any Revolving Lender at any time shall be its Applicable Percentage of the total LC Exposure at such time. For all purposes of this Agreement, if on any date of determination a Letter of Credit has expired by its terms but any amount may still be drawn thereunder by reason of the operation of Article 29(a) of the Uniform Customs and Practice for Documentary Credits, International Chamber of Commerce Publication No. 600 (or such later version thereof as may be in effect at the applicable time) or Rule 3.13 or Rule 3.14 of the International Standby Practices, International Chamber of Commerce Publication No. 590 (or such later version thereof as may be in effect at the applicable time) or similar terms of the Letter of Credit itself, or if compliant documents have been presented but not yet honored, such Letter of Credit shall be deemed to be “outstanding” and “undrawn” in the amount so remaining available to be paid, and the obligations of the Borrower and each Revolving Lender shall remain in full force and effect until the relevant Issuing Bank and the Revolving Lenders shall have no further obligations to make any payments or disbursements under any circumstances with respect to any Letter of Credit.
“Lender Parent” means, with respect to any Lender, any Person as to which such Lender is, directly or indirectly, a subsidiary.
“Lender-Related Person” has the meaning assigned to such term in Section 9.03(b).
“Lenders” means the Persons listed on Schedule 2.01 and any other Person that shall have become a Lender hereunder pursuant to Section 2.22 or pursuant to an Assignment and Assumption or other documentation contemplated hereby, other than any such Person that ceases to be a party hereto pursuant to an Assignment and Assumption or other documentation contemplated hereby. Unless the context otherwise requires, the term “Lenders” includes the Swingline Lender and the Issuing Banks.
“Letter of Credit” means any letter of credit issued, renewed, extended or amended hereunder and shall include the Existing Letters of Credit.
“Letter of Credit Agreement” has the meaning assigned to such term in Section 2.06(b).
“Leverage Ratio Increase” has the meaning assigned thereto in Section 6.11.
“Liabilities” means any losses, claims (including intraparty claims), demands, damages or liabilities of any kind.
“LIBO Interpolated Rate” means, at any time, with respect to any Eurocurrency Borrowing and for any Interest Period, the rate per annum (rounded to the same number of decimal places as the LIBO Screen Rate) determined by the Administrative Agent (which determination shall be conclusive and binding absent manifest error) to be equal to the rate that results from interpolating on a
linear basis between: (a) the LIBO Screen Rate for the longest period (for which the LIBO Screen Rate is available) that is shorter than the Impacted LIBO Rate Interest Period; and (b) the LIBO Screen Rate for the shortest period (for which the LIBO Screen Rate is available) that exceeds the Impacted LIBO Rate Interest Period, in each case, at such time; provided that if any LIBO Interpolated Rate as so determined would be less than 0.00%, such rate shall be deemed to be 0.00% for the purposes of this Agreement.
“LIBO Rate” means, with respect to any Eurocurrency Borrowing and for any Interest Period, the LIBO Screen Rate at approximately 11:00 a.m., London time, on the Quotation Day; provided that if the LIBO Screen Rate shall not be available at such time for such Interest Period (an “Impacted LIBO Rate Interest Period”) then the LIBO Rate shall be the LIBO Interpolated Rate.
“LIBO Screen Rate” means, for any day and time, with respect to any Eurocurrency Borrowing and for any Interest Period, the London interbank offered rate as administered by ICE Benchmark Administration (or any other Person that takes over the administration of such rate) for a period equal in length to such Interest Period as displayed on such day and time on pages LIBOR01 or LIBOR02 of the Reuters screen that displays such rate (or, in the event such rate does not appear on a Reuters page or screen, on any successor or substitute page on such screen that displays such rate, or on the appropriate page of such other information service that publishes such rate from time to time as selected by the Administrative Agent in its reasonable discretion); provided that if the LIBO Screen Rate as so determined would be less than 0.00%, such rate shall be deemed to be 0.00% for the purposes of this Agreement.
“Lien” means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities.
“Liquidity” shall mean at any time the lesser of (i) $100,000,000 and (ii) the aggregate amount of cash and Permitted Investments maintained by the Borrower and its Subsidiaries in the United States as of such date which (a) does not appear (and is not required to appear in accordance with GAAP) as “restricted” on the consolidated balance sheet of the Borrower and its Subsidiaries, (b) is not subject to any Lien in favor of any Person (other than Liens securing the Secured Obligations and Liens permitted under clauses (k)(i) and (m) of the definition of “Permitted Encumbrances”, Section 6.02(h) or Section 6.02(i)) and (c) is otherwise generally available for use by the Borrower or any other Subsidiaries.
“Loan Documents” means this Agreement, any promissory notes issued pursuant to Section 2.10(e) of this Agreement, any Letter of Credit applications, any Letter of Credit Agreement, the Fee Letters, the Collateral Documents, the Subsidiary Guaranty, and all other agreements, instruments, documents and certificates identified in Section 4.01 executed and delivered to, or in favor of, the Administrative Agent or any Lenders and including all other pledges, powers of attorney, consents, assignments, contracts, notices, letter of credit agreements and all other written matter whether heretofore, now or hereafter executed by or on behalf of any Loan Party, or any employee of any Loan Party, and delivered to the Administrative Agent or any Lender in connection with this Agreement or the transactions contemplated hereby. Any reference in this Agreement or any other Loan Document to a Loan Document shall include all appendices, exhibits or schedules thereto, and all amendments, restatements, supplements or other modifications thereto, and shall refer to this Agreement or such Loan Document as the same may be in effect at any and all times such reference becomes operative.
“Loan Parties” means, collectively, the Borrower and the Subsidiary Guarantors.
“Loans” means the loans made by the Lenders to the Borrower pursuant to this Agreement.
“Local Time” means (i) New York City time in the case of a Loan, Borrowing or LC Disbursement denominated in Dollars and (ii) local time in the case of a LC Disbursement denominated in a Foreign Currency (it being understood that such local time shall mean (a) London, England time with respect to any Foreign Currency (other than EUR) and (b) Brussels, Belgium time with respect to EUR, in each case of the foregoing clauses (a) and (b) unless the Borrower is otherwise notified by the Administrative Agent).
“Material Adverse Effect” means a material adverse effect on (a) the business, assets, operations or financial condition of the Borrower and the Subsidiaries taken as a whole, (b) the ability of the Loan Parties to perform their respective payment obligations under the Loan Documents or (c) the validity or enforceability of this Agreement or any and all other Loan Documents or the rights or remedies of the Administrative Agent and the Lenders thereunder.
“Material Indebtedness” means Indebtedness (other than the Loans and Letters of Credit), or obligations in respect of one or more Swap Agreements, of any one or more of the Borrower and its Subsidiaries in an aggregate principal amount exceeding $25,000,000. For purposes of determining Material Indebtedness, the “principal amount” of the obligations of the Borrower or any Subsidiary in respect of any Swap Agreement at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that the Borrower or such Subsidiary would be required to pay if such Swap Agreement were terminated at such time.
“Material Subsidiary” means (a) each Subsidiary (i) which, as of the most recent fiscal quarter of the Borrower, for the period of four consecutive fiscal quarters then ended, for which Financials have been delivered pursuant to Section 5.01, contributed greater than five percent (5%) of the Borrower’s Consolidated EBITDA for such period or (ii) which contributed greater than five percent (5%) of the Borrower’s Consolidated Total Assets as of such date; provided that, if at any time the aggregate amount of the Consolidated EBITDA or Consolidated Total Assets attributable to all Subsidiaries that are not Material Subsidiaries exceeds ten percent (10%) of the Borrower’s Consolidated EBITDA for any such period or ten percent (10%) of the Borrower’s Consolidated Total Assets as of the end of any such fiscal quarter, the Borrower (or, in the event the Borrower has failed to do so within ten (10) Business Days, the Administrative Agent) shall designate sufficient Subsidiaries as “Material Subsidiaries” to eliminate such excess, and such designated Subsidiaries shall for all purposes of this Agreement constitute Material Subsidiaries.
“Maturity Date” means April 30, 2026; provided, however, if such date is not a Business Day, the Maturity Date shall be the next preceding Business Day.
“Moody’s” means Moody’s Investors Service, Inc.
“Multiemployer Plan” means a multiemployer plan as defined in Section 4001(a)(3) of ERISA.
“Net Proceeds” means, with respect to any event, (a) the cash proceeds received in respect of such event including (i) any cash received in respect of any non-cash proceeds (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or purchase price adjustment receivable or otherwise, but excluding any interest payments),
but only as and when received, (ii) in the case of a casualty, insurance proceeds and (iii) in the case of a condemnation or similar event, condemnation awards and similar payments, net of (b) the sum of (i) all reasonable fees and out-of-pocket expenses paid by the Borrower or any Subsidiary to third parties (other than Affiliates) in connection with such event, (ii) in the case of a sale, transfer or other disposition of an asset (including pursuant to a Sale and Leaseback Transaction or a casualty or a condemnation or similar proceeding), the amount of all payments required to be made as a result of such event to repay Indebtedness (other than Loans) secured by such asset or otherwise subject to mandatory prepayment as a result of such event and (iii) the amount of all taxes paid (or reasonably estimated to be payable) and the amount of any reserves established to fund contingent liabilities (including indemnity obligations) reasonably estimated to be payable that are directly attributable to such event (as determined reasonably and in good faith by a Financial Officer).
“Non-U.S. Lender” means a Lender that is not a U.S. Person.
“NYFRB” means the Federal Reserve Bank of New York.
“NYFRB Rate” means, for any day, the greater of (a) the Federal Funds Effective Rate in effect on such day and (b) the Overnight Bank Funding Rate in effect on such day (or for any day that is not a Business Day, for the immediately preceding Business Day); provided that if none of such rates are published for any day that is a Business Day, the term “NYFRB Rate” means the rate for a federal funds transaction quoted at 11:00 a.m., New York City time, on such day received by the Administrative Agent from a federal funds broker of recognized standing selected by it; provided, further, that if any of the aforesaid rates as so determined would be less than zero, such rate shall be deemed to be zero for purposes of this Agreement.
“NYFRB’s Website” means the website of the NYFRB at http://www.newyorkfed.org, or any successor source.
“Obligations” means all unpaid principal of and accrued and unpaid interest on the Loans, all LC Exposure, all accrued and unpaid fees and all expenses, reimbursements, indemnities and other obligations and indebtedness (including interest and fees accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), obligations and liabilities of any of the Borrower and its Subsidiaries to any of the Lenders, the Administrative Agent, any Issuing Bank or any indemnified party, individually or collectively, existing on the Effective Date or arising thereafter, direct or indirect, joint or several, absolute or contingent, matured or unmatured, liquidated or unliquidated, secured or unsecured, arising by contract, operation of law or otherwise, in each case arising or incurred under this Agreement or any of the other Loan Documents or in respect of any of the Loans made or reimbursement or other obligations incurred or any of the Letters of Credit or other related instruments at any time evidencing any thereof.
“OFAC” means the Office of Foreign Assets Control of the U.S. Department of the Treasury.
“Other Connection Taxes” means, with respect to any Recipient, Taxes imposed as a result of a present or former connection between such Recipient and the jurisdiction imposing such Taxes (other than a connection arising from such Recipient having executed, delivered, enforced, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, or engaged in any other transaction pursuant to, any Loan Document, or sold or assigned an interest in any Loan or Loan Document).
“Other Taxes” means any present or future stamp, court, documentary, intangible, recording, filing or similar excise or property Taxes that arise from any payment made under, from the execution, delivery, performance, enforcement or registration of, or from the registration, receipt or perfection of a security interest under, or otherwise with respect to, any Loan Document, except any such Taxes that are Other Connection Taxes imposed with respect to an assignment or participation (other than an assignment pursuant to Section 2.19(b)).
“Overnight Bank Funding Rate” means, for any day, the rate comprised of both overnight federal funds and overnight eurodollar borrowings by U.S.-managed banking offices of depository institutions, as such composite rate shall be determined by the NYFRB as set forth on the NYFRB’s Website from time to time, and published on the next succeeding Business Day by the NYFRB as an overnight bank funding rate.
“Overnight Foreign Currency Rate” means, for any amount payable in a Foreign Currency, the rate of interest per annum as reasonably determined by the Administrative Agent at which overnight or weekend deposits in the relevant currency (or if such amount due remains unpaid for more than three (3) Business Days, then for such other period of time as the Administrative Agent may reasonably elect) for delivery in immediately available and freely transferable funds would be offered by the Administrative Agent to major banks in the interbank market upon request of such major banks for the relevant currency as determined above and in an amount comparable to the unpaid principal amount of the related Credit Event, plus any taxes, levies, imposts, duties, deductions, charges or withholdings imposed upon, or charged to, the Administrative Agent by any relevant correspondent bank in respect of such amount in such relevant currency.
“Participant” has the meaning assigned to such term in Section 9.04(c).
“Participant Register” has the meaning assigned to such term in Section 9.04(c).
“Payment” has the meaning assigned to it in Section 8.07(c).
“Payment Notice” has the meaning assigned to it in Section 8.07(c).
“PBGC” means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions.
“Permitted Acquisition” means any acquisition (whether by purchase, merger, consolidation or otherwise) or series of related acquisitions by the Borrower or any Subsidiary of (i) all or substantially all the assets of or (ii) all or substantially all the Equity Interests in, a Person or division or line of business of a Person, if, at the time of and immediately after giving effect thereto, (a) no Default has occurred and is continuing or would arise after giving effect thereto, (b) such Person or division or line of business is engaged in a line of business consistent with the provisions of Section 6.03(b), (c) all actions required to be taken with respect to such acquired or newly formed Subsidiary (if any) under Section 5.09 shall have been taken, (d) the Borrower and the Subsidiaries are in compliance, on a Pro Forma Basis after giving effect to such acquisition (but without giving effect to any synergies or cost savings unless permitted in accordance with Regulation S-X), with the financial covenants contained in Section 6.11 (giving effect to any Leverage Ratio Increase then in effect pursuant to Section 6.11) recomputed as of the last day of the most recently ended fiscal quarter of the Borrower for which financial statements are available, as if such acquisition (and any related incurrence or repayment of Indebtedness, with any new Indebtedness being deemed to be amortized over the applicable testing period in accordance with its terms) had occurred on the first day of each relevant period for testing such compliance and, if the aggregate consideration paid in respect of such acquisition exceeds $25,000,000,
the Borrower shall have delivered to the Administrative Agent a certificate of a Financial Officer of the Borrower to such effect, together with all relevant financial information, statements and projections reasonably requested by the Administrative Agent and (e) in the case of an acquisition occurring by merger or consolidation involving the Borrower or another Loan Party, the Borrower or such other Loan Party is the surviving entity of such merger and/or consolidation.
“Permitted Call Spread Swap Agreements” means (a) a Swap Agreement pursuant to which the Borrower acquires a call option, capped call option (or substantively equivalent derivatives transaction) requiring the counterparty thereto to deliver to the Borrower shares of common stock of the Borrower, the cash value of such shares or a combination thereof from time to time upon exercise of such option and (b) a Swap Agreement pursuant to which the Borrower issues to the counterparty thereto a call option, warrants or rights to acquire (or substantively equivalent derivative transaction) common stock of the Borrower, in each case entered into by the Borrower concurrently with the issuance of Permitted Convertible Notes; provided that (i) the terms, conditions and covenants of each such Swap Agreement shall be such as are typical and customary for Swap Agreements of such type (as determined by the Board of Directors of the Borrower in good faith) and (ii) in the case of clause (b) above, such Swap Agreement would be classified as an equity instrument in accordance with GAAP, and the settlement of such Swap Agreement does not require the Borrower to make any payment in cash or cash equivalents that would disqualify such Swap Agreement from so being classified as an equity instrument.
“Permitted Convertible Notes” means any unsecured notes issued by the Borrower that are convertible into common stock of the Borrower, cash or any combination thereof, and the Indebtedness thereunder is in compliance with the requirements of Section 6.01(j).
“Permitted Encumbrances” means:
(a) Liens imposed by law for Taxes that are not yet due or are being contested in compliance with Section 5.04;
(b) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s and other like Liens imposed by law, arising in the ordinary course of business and securing obligations that are not overdue by more than forty-five (45) days or are being contested in compliance with Section 5.04;
(c) pledges and deposits made in the ordinary course of business in compliance with workers’ compensation, unemployment insurance, pension and other social security laws or regulations;
(d) deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business;
(e) judgment Liens in respect of judgments, orders, attachments, decrees or awards that do not constitute an Event of Default under clause (k) of Article VII;
(f) easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affected property or interfere with the ordinary conduct of business of the Borrower or any Subsidiary;
(g) unrecorded minor Liens, leases, easements or other encumbrances on the real property or other assets of the Borrower or any of its Subsidiaries which do not interfere materially with
the use of the property or assets affected in the ordinary course of such Person’s business and do not secure Indebtedness for borrowed money;
(h) any interest or title of a lessor, sublessor, licensee or licensor under any lease (other than a Capital Lease) or license agreement not prohibited by this Agreement, including any Lien filed to prevent the impairment of any such interest;
(i) Liens in favor of customs and revenue authorities as a matter of law to secure payment of customs duties in connection with the importation of goods;
(j) Liens of vendors arising in the ordinary course of business on assets sold by such vendors;
(k) (i) Liens in favor of a banking or other financial institution arising as a matter of law or in the ordinary course of business under customary general terms and conditions encumbering deposits or other funds maintained with a financial institution (including the right of setoff), and (ii) deposits to secure bank services, cash management and treasury management services, in the case of each of clauses (i) and (ii), that are within the general parameters customary in the banking, cash management or treasury management industry or arising pursuant to such financial institution’s general terms and conditions;
(l) Liens on specific items of inventory or other goods (other than fixed or capital assets) and proceeds thereof of any Person securing such Person’s obligations in respect of bankers’ acceptances or letters of credit issued or created for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods in the ordinary course of business;
(m) Liens encumbering reasonable customary initial deposits and margin deposits and similar Liens attaching to commodity trading accounts or other brokerage accounts incurred in the ordinary course of business and not for speculative purposes;
(n) Liens arising out of conditional sale, title retention, consignment or similar arrangements for the sale of goods;
(o) Liens imposed by law arising mandatorily on the assets of any Foreign Subsidiary; and
(p)Liens on Equity Interests (i) deemed to exist in connection with any options, put and call arrangements, rights of first refusal and similar rights relating to Investments in Persons that are not Material Subsidiaries of Borrower or (ii) of any joint venture or similar arrangement pursuant to any joint venture or similar arrangement;
provided that the term “Permitted Encumbrances” shall not include any Lien securing Indebtedness.
“Permitted Holders” means the existing stockholders of the Borrower on the Effective Date.
“Permitted Investments” means:
(a) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States of America), in each case maturing within one year from the date of acquisition thereof;
(b) investments in commercial paper maturing within 270 days from the date of acquisition thereof and having, at such date of acquisition, the highest credit rating obtainable from S&P or from Moody’s;
(c) investments in certificates of deposit, banker’s acceptances and time deposits maturing within 180 days from the date of acquisition thereof issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, any domestic office of any commercial bank organized under the laws of the United States of America or any State thereof which has a combined capital and surplus and undivided profits of not less than $500,000,000;
(d) fully collateralized repurchase agreements with a term of not more than one year for securities described in clause (a) above and entered into with a financial institution satisfying the criteria described in clause (c) above;
(e) money market funds that (i) comply with the criteria set forth in SEC Rule 2a-7 under the Investment Company Act of 1940, (ii) are rated AAA by S&P and Aaa by Moody’s and (iii) have portfolio assets of at least $1,000,000,000; and
(f) investments made in accordance with the Investment Policy adopted by the Borrower’s Board of Directors as in effect on the date hereof, a copy of which has been furnished to the Administrative Agent and as amended, supplemented or modified after the date hereof with the consent of the Administrative Agent (such consent not to be unreasonably withheld or delayed).
“Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.
“Plan” means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an “employer” as defined in Section 3(5) of ERISA.
“Plan Asset Regulations” means 29 CFR § 2510.3-101 et seq., as modified by Section 3(42) of ERISA, as amended from time to time.
“Pledge Subsidiary” means (i) each Domestic Subsidiary that is not a Subsidiary of a Foreign Subsidiary that is a CFC and (ii) each First Tier Foreign Subsidiary which is a Material Subsidiary.
“Prepayment Event” means:
(a) any sale, transfer or other disposition (including pursuant to a Sale and Leaseback Transaction) of any property or asset of the Borrower or any Subsidiary, other than sales, transfers or dispositions described in Section 6.03(a); or
(b) any casualty or other insured damage to, or any taking under power of eminent domain or by condemnation or similar proceeding of, any property or asset of the Borrower or any Subsidiary with a fair market value immediately prior to such event equal to or greater than $50,000,000; or
(c) the incurrence by the Borrower or any Subsidiary of any Indebtedness (other than Loans), other than Indebtedness permitted under Section 6.01 or permitted by the Required Lenders pursuant to Section 9.02.
“Prime Rate” means the rate of interest last quoted by The Wall Street Journal as the “Prime Rate” in the U.S. or, if The Wall Street Journal ceases to quote such rate, the highest per annum interest rate published by the Board in Federal Reserve Statistical Release H.15 (519) (Selected Interest Rates) as the “bank prime loan” rate or, if such rate is no longer quoted therein, any similar rate quoted therein (as determined reasonably and in good faith by the Administrative Agent) or any similar release by the Board (as determined reasonably and in good faith by the Administrative Agent). Each change in the Prime Rate shall be effective from and including the date such change is publicly announced or quoted as being effective.
“Pro Forma Basis” means, with respect to any event, that the Borrower is in compliance on a pro forma basis with the applicable covenant, calculation or requirement herein recomputed as if the event with respect to which compliance on a Pro Forma Basis is being tested had occurred on the first day of the four fiscal quarter period most recently ended on or prior to such date for which financial statements have been delivered pursuant to Section 5.01.
“Proceeding” means any claim, litigation, investigation, action, suit, arbitration or administrative, judicial or regulatory action or proceeding in any jurisdiction.
“PTE” means a prohibited transaction class exemption issued by the U.S. Department of Labor, as any such exemption may be amended from time to time.
“Public Listing” means a listing of the common stock of the Borrower on a nationally recognized securities exchange, including pursuant to any direct listing or underwritten initial public offering.
“QFC” has the meaning assigned to the term “qualified financial contract” in, and shall be interpreted in accordance with, 12 U.S.C. 5390(c)(8)(D).
“QFC Credit Support” has the meaning assigned to it in Section 9.19.
“Quotation Day” means, with respect to any Eurocurrency Borrowing for any Interest Period, two (2) Business Days prior to the commencement of such Interest Period.
“Recipient” means, as applicable, (a) the Administrative Agent, (b) any Lender (and, in the case of a Lender that is classified as a partnership for U.S. Federal tax purposes, a Person treated as the beneficial owner thereof for U.S. Federal tax purposes), (c) any Issuing Bank, and (d) the Swingline Lender.
“Reference Time” with respect to any setting of the then-current Benchmark means (1) if such Benchmark is the LIBO Rate, 11:00 a.m., London time, on the day that is two London banking days preceding the date of such setting, and (2) if such Benchmark is not the LIBO Rate, the time determined by the Administrative Agent in its reasonable discretion.
“Register” has the meaning set forth in Section 9.04.
“Regulation S-X” means Regulation S-X under the Securities Act.
“Related Parties” means, with respect to any specified Person, such Person’s Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person’s Affiliates.
“Relevant Governmental Body” means the Board or the NYFRB, or a committee officially endorsed or convened by the Board or the NYFRB, or in each case, any successor thereto.
“Required Lenders” means, subject to Section 2.21, (a) at any time prior to the earlier of the Loans becoming due and payable pursuant to Article VII or the Revolving Commitments terminating or expiring, Lenders having Credit Exposures and Unfunded Commitments representing more than 50% of the sum of the total Credit Exposures and Unfunded Commitments at such time; provided that, solely for purposes of declaring the Loans to be due and payable pursuant to Article VII, the Unfunded Commitment of each Revolving Lender shall be deemed to be zero; and (b) for all purposes after the Loans become due and payable pursuant to Article VII or the Revolving Commitments expire or terminate, Lenders having Credit Exposures representing more than 50% of the sum of the total Credit Exposures at such time; provided that, in the case of clauses (a) and (b) above, (x) the Revolving Credit Exposure of any Revolving Lender that is the Swingline Lender shall be deemed to exclude any amount of its Swingline Exposure in excess of its Applicable Percentage of all outstanding Swingline Loans, adjusted to give effect to any reallocation under Section 2.21 of the Swingline Exposures of Defaulting Lenders in effect at such time, and the Unfunded Commitment of such Lender shall be determined on the basis of its Revolving Credit Exposure excluding such excess amount and (y) for the purpose of determining the Required Lenders needed for any waiver, amendment, modification or consent of or under this Agreement or any other Loan Document, any Lender that is a Loan Party or an Affiliate of any Loan Party shall be disregarded.
“Resolution Authority” means an EEA Resolution Authority or, with respect to any UK Financial Institution, a UK Resolution Authority.
“Responsible Officer” means the chief executive officer, president, a Financial Officer or chief legal officer of the Borrower.
“Restricted Payment” means any dividend or other distribution (whether in cash, securities or other property) with respect to any Equity Interests in the Borrower or any Subsidiary, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such Equity Interests in the Borrower or any Subsidiary or any option, warrant or other right to acquire any such Equity Interests in the Borrower or any Subsidiary.
“Reuters” means, as applicable, Thomson Reuters Corp., Refinitiv, or any successor thereto.
“Revolving Commitment” means, with respect to each Lender, the amount set forth on Schedule 2.01 opposite such Lender’s name under the heading “Revolving Commitment”, or in the Assignment and Assumption or other documentation or record (as such term is defined in Section 9-102(a)(70) of the New York Uniform Commercial Code) contemplated hereby pursuant to which such Lender shall have assumed its Revolving Commitment, as applicable, and giving effect to (a) any reduction in such amount from time to time pursuant to Section 2.09, (b) any increase from time to time pursuant to Section 2.22 and (c) any reduction or increase in such amount from time to time pursuant to assignments by or to such Lender pursuant to Section 9.04; provided that at no time shall the Revolving
Credit Exposure of any Lender exceed its Revolving Commitment. The initial aggregate amount of the Revolving Commitments on the Effective Date is $250,000,000.
“Revolving Credit Exposure” means, with respect to any Lender at any time, the sum of the outstanding principal amount of such Lender’s Revolving Loans, its LC Exposure and its Swingline Exposure at such time.
“Revolving Lender” means, as of any date of determination, each Lender that has a Revolving Commitment or, if the Revolving Commitments have terminated or expired, a Lender with Revolving Credit Exposure.
“Revolving Loan” means a Loan made by a Revolving Lender pursuant to Section 2.01(a).
“S&P” means Standard & Poor’s Ratings Services, a Standard & Poor’s Financial Services LLC business.
“Sale and Leaseback Transaction” means any sale or other transfer of any property or asset owned by any Person with the intent to lease such property or asset as lessee.
“Sanctioned Country” means, at any time, a country, region or territory which is itself the subject or target of any Sanctions (at the time of this Agreement, Crimea Region of Ukraine, Cuba, Iran, North Korea and Syria).
“Sanctioned Person” means, at any time, (a) any Person listed in any Sanctions-related lists of designated Persons maintained by OFAC, the U.S. Department of State, the United Nations Security Council, the European Union, any European Union member state in which the Borrower or any Subsidiary conducts business or Her Majesty’s Treasury of the United Kingdom or other relevant sanctions authority, (b) any Person operating, organized or resident in a Sanctioned Country or (c) any Person 50% or more owned or controlled by any such Person or Persons described in the foregoing clauses (a) or (b).
“Sanctions” means all economic or financial sanctions or trade embargoes imposed, administered or enforced from time to time by (a) the U.S. government, including those administered by OFAC or the U.S. Department of State or (b) the United Nations Security Council, the European Union, any European Union member state in which the Borrower or any Subsidiary conducts business or Her Majesty’s Treasury of the United Kingdom or other relevant sanctions authority.
“SEC” means the United States Securities and Exchange Commission.
“Securities Act” means the United States Securities Act of 1933.
“Secured Banking Services Obligations” means any and all obligations of the Borrower or any Subsidiary, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor) in connection with Banking Services with respect to which, at or prior to the Effective Date or the time that the Banking Services Agreement is entered into (other than any Banking Services Agreement relating to Secured Banking Services Obligations owing to the Administrative Agent or an Affiliate thereof), the Borrower (or any Subsidiary) and the Lender (or Affiliate thereof) providing such Banking Services (except in the case of the Administrative Agent and its Affiliates) shall have delivered
written notice to the Administrative Agent that such transaction has been entered into and that it constitutes a Secured Banking Services Obligation entitled to the benefits of the Collateral Documents.
“Secured Obligations” means all Obligations, together with all Secured Swap Obligations and Secured Banking Services Obligations owing to one or more Lenders or their respective Affiliates; provided that the definition of “Secured Obligations” shall not create or include any guarantee by any Loan Party of (or grant of security interest by any Loan Party to support, as applicable) any Excluded Swap Obligations of such Loan Party for purposes of determining any obligations of any Loan Party.
“Secured Parties” means the holders of the Secured Obligations from time to time and shall include (i) each Lender and the Issuing Bank in respect of its Loans and LC Exposure respectively, (ii) the Administrative Agent, the Issuing Banks and the Lenders in respect of all other present and future obligations and liabilities of the Borrower and each Subsidiary of every type and description arising under or in connection with this Agreement or any other Loan Document, (iii) each Lender and Affiliate of such Lender in respect of Secured Swap Obligations and Secured Banking Services Obligations, (iv) each indemnified party under Section 9.03 in respect of the obligations and liabilities of the Borrower to such Person hereunder and under the other Loan Documents, and (v) their respective successors and (in the case of a Lender, permitted) transferees and assigns.
“Secured Swap Obligations” means any and all obligations of the Borrower or any Subsidiary, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor), under (a) any and all Swap Agreements permitted hereunder with a Lender or an Affiliate of a Lender, and (b) any and all cancellations, buy backs, reversals, terminations or assignments of any such Swap Agreement transaction in each case with respect to which, at or prior to the Effective Date or the time that the Swap Agreement is entered into (other than any Swap Agreement relating to Secured Swap Obligations owing to the Administrative Agent or an Affiliate thereof), the Borrower (or any Subsidiary) and the Lender (or Affiliate thereof) party to such Swap Agreement (except in the case of the Administrative Agent and its Affiliates) shall have delivered written notice to the Administrative Agent that such transaction has been entered into and that it constitutes a Secured Swap Obligation entitled to the benefits of the Collateral Documents.
“Security Agreement” means that certain Pledge and Security Agreement (including any and all supplements thereto), dated as of the Effective Date, between the Loan Parties and the Administrative Agent, for the benefit of the Administrative Agent and the other Secured Parties, and any other pledge or security agreement entered into, after the date of this Agreement by any other Loan Party (as required by this Agreement or any other Loan Document), or any other Person that becomes a Loan Party, as the same may be amended, restated, supplemented or otherwise modified from time to time.
“SOFR” means, with respect to any Business Day, a rate per annum equal to the secured overnight financing rate for such Business Day published by the SOFR Administrator on the SOFR Administrator’s Website on the immediately succeeding Business Day.
“SOFR Administrator” means the NYFRB (or a successor administrator of the secured overnight financing rate).
“SOFR Administrator’s Website” means the NYFRB’s website, currently at http://www.newyorkfed.org, or any successor source for the secured overnight financing rate identified as such by the SOFR Administrator from time to time.
“Solvent” and “Solvency” mean, with respect to any Person on any date of determination, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including contingent liabilities, of such Person, (b) the present fair saleable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay such debts and liabilities as they mature, (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person’s property would constitute an unreasonably small capital, and (e) such Person is able to pay its debts and liabilities, contingent obligations and other commitments as they mature in the ordinary course of business. The amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.
“Specified Ancillary Obligations” means all obligations and liabilities (including interest and fees accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) of any of the Subsidiaries, existing on the Effective Date or arising thereafter, direct or indirect, joint or several, absolute or contingent, matured or unmatured, liquidated or unliquidated, secured or unsecured, arising by contract, operation of law or otherwise, to the Lenders or any of their Affiliates under any Swap Agreement or any Banking Services Agreement; provided that the definition of “Specified Ancillary Obligations” shall not create or include any guarantee by any Loan Party of (or grant of security interest by any Loan Party to support, as applicable) any Excluded Swap Obligations of such Loan Party for purposes of determining any obligations of any Loan Party.
“Specified Swap Obligation” means, with respect to any Loan Party, any obligation to pay or perform under any agreement, contract or transaction that constitutes a “swap” within the meaning of Section 1a(47) of the Commodity Exchange Act or any rules or regulations promulgated thereunder.
“Statutory Reserve Rate” means, with respect to any currency, a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve, liquid asset, fees or similar requirements (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Federal Reserve Board to which the Administrative Agent is subject with respect to the Adjusted LIBO Rate for eurocurrency funding (currently referred to as “Eurocurrency liabilities” in Regulation D) or any other reserve ratio or analogous requirement of any central banking or financial regulatory authority imposed in respect of the maintenance of the Commitments or the funding of the Loans. Such reserve, liquid asset, fees or similar requirements shall include those imposed pursuant to Regulation D of the Board. Eurocurrency Loans shall be deemed to be subject to such reserve, liquid asset, fee or similar requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under any applicable law, rule or regulation, including Regulation D of the Board. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve, liquid asset or similar requirement.
“Subordinated Indebtedness” means any Indebtedness of the Borrower or any Subsidiary the payment of which is subordinated to payment of the Secured Obligations.
“Subordinated Indebtedness Documents” means any document, agreement or instrument evidencing any Subordinated Indebtedness or entered into in connection with any Subordinated Indebtedness.
“subsidiary” means, with respect to any Person (the “parent”) at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent’s consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, Controlled or held, or (b) that is, as of such date, otherwise Controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent.
“Subsidiary” means any subsidiary of the Borrower.
“Subsidiary Guarantor” means each Wholly-Owned Domestic Subsidiary that is a Material Subsidiary that is party to the Subsidiary Guaranty. The Subsidiary Guarantors on the Effective Date are identified as such in Schedule 3.01 hereto.
“Subsidiary Guaranty” means the Guaranty (including any and all supplements thereto) executed by each Subsidiary Guarantor in substantially in the form of Exhibit H, as amended, restated, supplemented or otherwise modified from time to time.
“Supported QFC” has the meaning assigned to it in Section 9.19.
“Swap Agreement” means any agreement with respect to any swap, forward, future or derivative transaction or option or similar agreement involving, or settled by reference to, one or more rates, currencies, commodities, equity or debt instruments or securities, or economic, financial or pricing indices or measures of economic, financial or pricing risk or value or any similar transaction or any combination of these transactions; provided that no phantom stock or similar plan providing for payments only on account of services provided by current or former directors, officers, employees or consultants of the Borrower or the Subsidiaries shall be a Swap Agreement.
“Swingline Exposure” means, at any time, the aggregate principal amount of all Swingline Loans outstanding at such time. The Swingline Exposure of any Lender at any time shall be the sum of (without duplication) (a) its Applicable Percentage of the aggregate principal amount of all Swingline Loans outstanding at such time (excluding, in the case of any Lender that is a Swingline Lender, Swingline Loans made by it that are outstanding at such time to the extent that the other Lenders shall not have funded their participations in such Swingline Loans), adjusted to give effect to any reallocation under Section 2.21 of the Swingline Exposure of Defaulting Lenders in effect at such time, and (b) in the case of any Lender that is a Swingline Lender, the aggregate principal amount of all Swingline Loans made by such Lender outstanding at such time, less the amount of participations funded by the other Lenders in such Swingline Loans.
“Swingline Lender” means JPMorgan Chase Bank, N.A., in its capacity as lender of Swingline Loans hereunder.
“Swingline Loan” means a Loan made pursuant to Section 2.05.
“Swingline Sublimit” means $15,000,000.
“TARGET2” means the Trans-European Automated Real-time Gross Settlement Express Transfer (TARGET2) payment system (or, if such payment system ceases to be operative, such other
payment system (if any) reasonably determined by the Administrative Agent to be a suitable replacement) for the settlement of payments in EUR.
“TARGET2 Day” means a day that TARGET2 is open for the settlement of payments in EUR.
“Taxes” means all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), value added taxes, or any other goods and services, use or sales taxes, assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.
“Term SOFR” means, for the applicable Corresponding Tenor as of the applicable Reference Time, the forward-looking term rate based on SOFR that has been selected or recommended by the Relevant Governmental Body.
“Term SOFR Notice” means a notification by the Administrative Agent to the Lenders and the Borrower of the occurrence of a Term SOFR Transition Event.
“Term SOFR Transition Event” means the determination by the Administrative Agent that (a) Term SOFR has been recommended for use by the Relevant Governmental Body, (b) the administration of Term SOFR is administratively feasible for the Administrative Agent and (c) a Benchmark Transition Event or an Early Opt-in Election, as applicable, has previously occurred resulting in a Benchmark Replacement in accordance with Section 2.14 that is not Term SOFR.
“Total Net Leverage Ratio” has the meaning assigned to such term in Section 6.11.
“Total Revolving Credit Exposure” means, at any time, the sum of (a) the outstanding principal amount of the Revolving Loans and Swingline Loans at such time and (b) the total LC Exposure at such time.
“Transactions” means the execution, delivery and performance by the Loan Parties of this Agreement and the other Loan Documents, the borrowing of Loans and other credit extensions hereunder, the use of the proceeds thereof and the issuance of Letters of Credit hereunder.
“Type”, when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the Adjusted LIBO Rate or the Alternate Base Rate.
“UCC” means the Uniform Commercial Code as in effect from time to time in the State of New York or any other state the laws of which are required to be applied in connection with the issue of perfection of security interests.
“UK Financial Institution” means any BRRD Undertaking (as such term is defined under the PRA Rulebook (as amended from time to time) promulgated by the United Kingdom Prudential Regulation Authority) or any person falling within IFPRU 11.6 of the FCA Handbook (as amended from time to time) promulgated by the United Kingdom Financial Conduct Authority, which includes certain credit institutions and investment firms, and certain affiliates of such credit institutions or investment firms.
“UK Resolution Authority” means the Bank of England or any other public administrative authority having responsibility for the resolution of any UK Financial Institution.
“Unadjusted Benchmark Replacement” means the applicable Benchmark Replacement excluding the related Benchmark Replacement Adjustment.
“Unfinanced Capital Expenditures” means, for any period, Consolidated Capital Expenditures made during such period which are not financed from the proceeds of any Indebtedness (other than the Revolving Loans; it being understood and agreed that, to the extent any Consolidated Capital Expenditures are financed with Revolving Loans, such Consolidated Capital Expenditures shall be deemed Unfinanced Capital Expenditures).
“Unfunded Commitment” means, with respect to each Lender, the Revolving Commitment of such Lender less its Revolving Credit Exposure.
“Unliquidated Obligations” means, at any time, any Secured Obligations (or portion thereof) that are contingent in nature or unliquidated at such time, including any Secured Obligation that is: (i) an obligation to reimburse a bank for drawings not yet made under a letter of credit issued by it; (ii) any other obligation (including any guarantee) that is contingent in nature at such time; or (iii) an obligation to provide collateral to secure any of the foregoing types of obligations.
“U.S. Person” means a “United States person” within the meaning of Section 7701(a)(30) of the Code.
“U.S. Special Resolution Regime” has the meaning assigned to it in Section 9.19.
“U.S. Tax Certificate” has the meaning assigned to such term in Section 2.17(f)(ii)(D)(2).
“Wholly-Owned Subsidiary” means a Subsidiary with respect to which 100% of the issued and outstanding Equity Interests are owned directly or indirectly by the Borrower (other than (i) directors’ qualifying shares; (ii) shares issued to foreign nationals to the extent required by applicable law; and (iii) shares held by a Person on trust for, or otherwise where the beneficial interest is held by, the Borrower (directly or indirectly)).
“Withdrawal Liability” means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.
“Withholding Agent” means the Borrower and the Administrative Agent.
“Write-Down and Conversion Powers” means, (a) with respect to any EEA Resolution Authority, the write-down and conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down and conversion powers are described in the EU Bail-In Legislation Schedule, and (b) with respect to the United Kingdom, any powers of the applicable Resolution Authority under the Bail-In Legislation to cancel, reduce, modify or change the form of a liability of any UK Financial Institution or any contract or instrument under which that liability arises, to convert all or part of that liability into shares, securities or obligations of that person or any other person, to provide that any such contract or instrument is to have effect as if a right had been exercised under it or to suspend any obligation in respect of that liability or any of the powers under that Bail-In Legislation that are related to or ancillary to any of those powers.
SECTION 1.02. Classification of Loans and Borrowings. For purposes of this Agreement, Loans may be classified and referred to by Class (e.g., a “Revolving Loan”) or by Type (e.g.,
a “Eurocurrency Loan”) or by Class and Type (e.g., a “Eurocurrency Revolving Loan”). Borrowings also may be classified and referred to by Class (e.g., a “Revolving Borrowing”) or by Type (e.g., a “Eurocurrency Borrowing”) or by Class and Type (e.g., a “Eurocurrency Revolving Borrowing”).
SECTION 1.03. Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”. The word “will” shall be construed to have the same meaning and effect as the word “shall”. The word “law” shall be construed as referring to all statutes, rules, regulations, codes and other laws (including official rulings and interpretations thereunder having the force of law or with which affected Persons customarily comply), and all judgments, orders and decrees, of all Governmental Authorities. Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, restated, supplemented or otherwise modified (subject to any restrictions on such amendments, restatements, supplements or modifications set forth herein), (b) any definition of or reference to any law, statute, rule or regulation shall be construed as referring thereto as from time to time amended, supplemented or otherwise modified (including by succession of comparable successor laws), (c) any reference herein to any Person shall be construed to include such Person’s successors and assigns (subject to any restrictions on assignment set forth herein) and, in the case of any Governmental Authority, any other Governmental Authority that shall have succeeded to any or all functions thereof, (d) the words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (e) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement and (f) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.
SECTION 1.04. Accounting Terms; GAAP. Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided that, if at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth in any Loan Document, and either the Borrower or the Required Lenders shall so request, the Administrative Agent, the Lenders and the Borrower shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP (subject to the approval of the Required Lenders); provided further that, (A) until so amended, such ratio or requirement shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective and (B) the Borrower shall provide to the Administrative Agent and the Lenders financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP. Notwithstanding any other provision contained herein, all terms of an accounting or financial nature used herein shall be construed, and all computations of amounts and ratios referred to herein shall be made (i) without giving effect to any election under Financial Accounting Standards Board Accounting Standards Codification 825 (or any other Accounting Standards Codification or Financial Accounting Standard having a similar result or effect) to value any Indebtedness or other liabilities of the Borrower or any Subsidiary at “fair value”, as defined therein, (ii) without giving effect to any treatment of Indebtedness under Accounting Standards Codification 470-20 or 2015-03 (or any other Accounting Standards Codification or Financial Accounting Standard having a similar result or effect) to value any such Indebtedness in a reduced or bifurcated manner as described therein, and such Indebtedness shall at all times be valued at the full stated principal amount thereof and (iii) with respect to capital leases, the amounts of Capital Lease Obligations, any lease that was classified or accounted for as an operating lease
as of (and any similar lease entered into after) December 31, 2015 in accordance with GAAP shall be classified or accounted for as an operating lease and not a capital lease, even though, as a result of a change in GAAP or the Borrower’s implementation of FASB ASC 840 or other applicable accounting standard, such lease would be classified and accounted for as a capital lease under GAAP.
SECTION 1.05. Status of Obligations. In the event that the Borrower or any other Loan Party shall at any time issue or have outstanding any Subordinated Indebtedness, the Borrower shall take or cause such other Loan Party to take all such actions as shall be necessary to cause the Secured Obligations to constitute senior indebtedness (however denominated) in respect of such Subordinated Indebtedness and to enable the Administrative Agent and the Lenders to have and exercise any payment blockage or other remedies available or potentially available to holders of senior indebtedness under the terms of such Subordinated Indebtedness. Without limiting the foregoing, the Secured Obligations are hereby designated as “senior indebtedness” and as “designated senior indebtedness” and words of similar import under and in respect of any indenture or other agreement or instrument under which such Subordinated Indebtedness is outstanding and are further given all such other designations as shall be required under the terms of any such Subordinated Indebtedness in order that the Lenders may have and exercise any payment blockage or other remedies available or potentially available to holders of senior indebtedness under the terms of such Subordinated Indebtedness.
SECTION 1.06. Interest Rates; LIBOR Notification. The interest rate on a U.S. dollar-denominated Loan may be derived from an interest rate benchmark that is, or may in the future become, the subject of regulatory reform. Regulators have signaled the need to use alternative benchmark reference rates for some of these interest rate benchmarks and, as a result, such interest rate benchmarks may cease to comply with applicable laws and regulations, may be permanently discontinued, and/or the basis on which they are calculated may change. The London interbank offered rate is intended to represent the rate at which contributing banks may obtain short-term borrowings from each other in the London interbank market. On March 5, 2021, the U.K. Financial Conduct Authority (“FCA”) publicly announced that: (a) immediately after December 31, 2021, publication of all seven euro LIBOR settings, all seven Swiss Franc LIBOR settings, the spot next, 1-week, 2-month and 12-month Japanese Yen LIBOR settings, the overnight, 1-week, 2-month and 12-month British Pound Sterling LIBOR settings, and the 1-week and 2-month U.S. Dollar LIBOR settings will permanently cease; immediately after June 30, 2023, publication of the overnight and 12-month U.S. Dollar LIBOR settings will permanently cease; immediately after December 31, 2021, the 1-month, 3-month and 6-month Japanese Yen LIBOR settings and the 1-month, 3-month and 6-month British Pound Sterling LIBOR settings will cease to be provided or, subject to consultation by the FCA, be provided on a changed methodology (or “synthetic”) basis and no longer be representative of the underlying market and economic reality they are intended to measure and that representativeness will not be restored; and immediately after June 30, 2023, the 1-month, 3-month and 6-month U.S. Dollar LIBOR settings will cease to be provided or, subject to the FCA’s consideration of the case, be provided on a synthetic basis and no longer be representative of the underlying market and economic reality they are intended to measure and that representativeness will not be restored. There is no assurance that dates announced by the FCA will not change or that the administrator of LIBOR and/or regulators will not take further action that could impact the availability, composition, or characteristics of LIBOR or the currencies and/or tenors for which LIBOR is published. Each party to this agreement should consult its own advisors to stay informed of any such developments. Public and private sector industry initiatives are currently underway to identify new or alternative reference rates to be used in place of the London interbank offered rate. Upon the occurrence of a Benchmark Transition Event, a Term SOFR Transition Event or an Early Opt-in Election, Section 2.14(b) and Section 2.14(c) provide a mechanism for determining an alternative rate of interest. The Administrative Agent will promptly notify the Borrower, pursuant to Section 2.14(e), of any change to the reference rate upon which the interest rate on Eurocurrency Loans is based. However, the Administrative Agent does not warrant or accept any responsibility for, and shall not have any
liability with respect to, the administration, submission or any other matter related to the London interbank offered rate or other rates in the definition of “LIBO Rate” or with respect to any alternative or successor rate thereto, or replacement rate thereof (including, without limitation, (i) any such alternative, successor or replacement rate implemented pursuant to Section 2.14(b) or Section 2.14(c), whether upon the occurrence of a Benchmark Transition Event, a Term SOFR Transition Event or an Early Opt-in Election, and (ii) the implementation of any Benchmark Replacement Conforming Changes pursuant to Section 2.14(d)), including without limitation, whether the composition or characteristics of any such alternative, successor or replacement reference rate will be similar to, or produce the same value or economic equivalence of, the LIBO Rate or have the same volume or liquidity as did the London interbank offered rate prior to its discontinuance or unavailability.
SECTION 1.07. Divisions. For all purposes under the Loan Documents, in connection with any division or plan of division under Delaware law (or any comparable event under a different jurisdiction’s laws): (a) if any asset, right, obligation or liability of any Person becomes the asset, right, obligation or liability of a different Person, then it shall be deemed to have been transferred from the original Person to the subsequent Person, and (b) if any new Person comes into existence, such new Person shall be deemed to have been organized and acquired on the first date of its existence by the holders of its Equity Interests at such time.
SECTION 1.08. Letter of Credit Amounts. Unless otherwise specified herein, the amount of a Letter of Credit at any time shall be deemed to be the amount of such Letter of Credit available to be drawn at such time; provided that, with respect to any Letter of Credit that, by its terms or the terms of any Letter of Credit Agreement related thereto, provides for one or more automatic increases in the available amount thereof, the amount of such Letter of Credit shall be deemed to be the maximum amount of such Letter of Credit after giving effect to all such increases, whether or not such maximum amount is available to be drawn at such time.
ARTICLE II
The Credits
SECTION 2.01. Commitments. Subject to the terms and conditions set forth herein each Revolving Lender (severally and not jointly) agrees to make Revolving Loans to the Borrower in Dollars from time to time during the Availability Period in an aggregate principal amount that will not result (after giving effect to any application of proceeds of such Borrowing to any Swingline Loans outstanding pursuant to Section 2.10(a)) in, subject to Section 2.11(b), (i) such Lender’s Revolving Credit Exposure exceeding such Lender’s Revolving Commitment, (ii) the Total Revolving Credit Exposure exceeding the aggregate Revolving Commitments or (iii) the total outstanding Revolving Loans and LC Exposure. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower may borrow, prepay and reborrow Revolving Loans.
SECTION 2.02. Loans and Borrowings. (a) Each Loan (other than a Swingline Loan) shall be made as part of a Borrowing consisting of Loans of the same Class and Type made by the applicable Lenders ratably in accordance with their respective Commitments of the applicable Class. The failure of any Lender to make any Loan required to be made by it shall not relieve any other Lender of its obligations hereunder; provided that the Commitments of the Lenders are several and no Lender shall be responsible for any other Lender’s failure to make Loans as required. Any Swingline Loan shall be made in accordance with the procedures set forth in Section 2.05.
(b) Subject to Section 2.14, each Revolving Borrowing shall be comprised entirely of ABR Loans or Eurocurrency Loans as the Borrower may request in accordance herewith. Each
Swingline Loan shall be an ABR Loan. Each Lender at its option may make any Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan (and in the case of an Affiliate, the provisions of Sections 2.14, 2.15, 2.16 and 2.17 shall apply to such Affiliate to the same extent as to such Lender); provided that any exercise of such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of this Agreement.
(c) At the commencement of each Interest Period for any Eurocurrency Revolving Borrowing, such Borrowing shall be in an aggregate amount that is an integral multiple of $100,000. At the time that each ABR Revolving Borrowing is made, such Borrowing shall be in an aggregate amount that is an integral multiple of $100,000 and not less than $500,000; provided that an ABR Revolving Borrowing may be in an aggregate amount that is equal to the entire unused balance of the aggregate Revolving Commitments or that is required to finance the reimbursement of an LC Disbursement as contemplated by Section 2.06(e). Each Swingline Loan shall be in an amount that is an integral multiple of $50,000 and not less than $250,000. Borrowings of more than one Type and Class may be outstanding at the same time; provided that there shall not at any time be more than a total of eight (8) Eurocurrency Borrowings outstanding.
(d)Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled to request, or to elect to convert or continue, any Borrowing if the Interest Period requested with respect thereto would end after the Maturity Date.
SECTION 2.03. Requests for Borrowings. To request a Borrowing, the Borrower shall notify the Administrative Agent of such request (a) by irrevocable written notice (via a written Borrowing Request signed by a Responsible Officer of the Borrower) in the case of a Eurocurrency Borrowing, not later than 11:00 a.m., New York City time, three (3) Business Days or (b) by irrevocable written notice (via a written Borrowing Request signed by a Responsible Officer of the Borrower) in the case of an ABR Borrowing, not later than 12:00 noon, New York City time, on the date of the proposed Borrowing. Each such Borrowing Request shall specify the following information in compliance with Section 2.02:
(i) the aggregate principal amount of the requested Borrowing;
(ii) the date of such Borrowing, which shall be a Business Day;
(iii) whether such Borrowing is to be an ABR Borrowing or a Eurocurrency Borrowing;
(iv) in the case of a Eurocurrency Borrowing, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term “Interest Period”; and
(v) the location and number of the Borrower’s account to which funds are to be disbursed, which shall comply with the requirements of Section 2.07.
If no election as to the Type of Borrowing is specified, then the requested Borrowing shall be an ABR Borrowing. If no Interest Period is specified with respect to any requested Eurocurrency Borrowing, then the Borrower shall be deemed to have selected an Interest Period of one month’s duration. Promptly following receipt of a Borrowing Request in accordance with this Section, the Administrative Agent shall advise each Lender of the details thereof and of the amount of such Lender’s Loan to be made as part of the requested Borrowing.
SECTION 2.04. Determination of Dollar Amounts. The Administrative Agent will determine the Dollar Amount of :
(a) any Letter of Credit denominated in a Foreign Currency, on each of the following: (i) the date on which such Letter of Credit is issued, (ii) the first Business Day of each calendar month and (iii) the date of any amendment of such Letter of Credit that has the effect of increasing the face amount thereof, and
(b) any Credit Event, on any additional date as the Administrative Agent may determine at any time when an Event of Default exists.
Each day upon or as of which the Administrative Agent determines Dollar Amounts as described in the preceding clauses (a) and (b) is herein described as a “Computation Date” with respect to each Credit Event for which a Dollar Amount is determined on or as of such day.
SECTION 2.05. Swingline Loans. (a) Subject to the terms and conditions set forth herein, the Swingline Lender may in its sole discretion make Swingline Loans in Dollars to the Borrower from time to time during the Availability Period, in an aggregate principal amount at any time outstanding that will not result in (i) the aggregate principal amount of outstanding Swingline Loans exceeding the Swingline Sublimit, (ii) the Swingline Lender’s Revolving Credit Exposure exceeding its Revolving Commitment or (iii) the Total Revolving Credit Exposure exceeding the aggregate Revolving Commitments; provided that the Swingline Lender shall not be required to make a Swingline Loan to refinance an outstanding Swingline Loan. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower may borrow, prepay and reborrow Swingline Loans.
(b) To request a Swingline Loan, the Borrower shall notify the Administrative Agent of such request by irrevocable written notice (via a written Borrowing Request in a form approved by the Administrative Agent and signed by a Responsible Officer of the Borrower), not later than 1:00 p.m., New York City time, on the day of a proposed Swingline Loan. Each such notice shall be irrevocable and shall specify the requested date (which shall be a Business Day) and amount of the requested Swingline Loan. The Administrative Agent will promptly advise the Swingline Lender of any such notice received from the Borrower. The Swingline Lender shall make each Swingline Loan available to the Borrower by means of a credit to an account of the Borrower with the Administrative Agent designated for such purpose (or, in the case of a Swingline Loan made to finance the reimbursement of an LC Disbursement as provided in Section 2.06(e), by remittance to the relevant Issuing Bank) by 3:00 p.m., New York City time, on the requested date of such Swingline Loan.
(c) The Swingline Lender may by written notice given to the Administrative Agent require the Revolving Lenders to acquire participations in all or a portion of the Swingline Loans outstanding. Such notice shall specify the aggregate amount of Swingline Loans in which Revolving Lenders will participate. Promptly upon receipt of such notice, the Administrative Agent will give notice thereof to each Revolving Lender, specifying in such notice such Lender’s Applicable Percentage of such Swingline Loan or Loans. Each Revolving Lender hereby absolutely and unconditionally agrees, promptly upon receipt of such notice from the Administrative Agent (and in any event, if such notice is received by 12:00 noon, New York City time, on a Business Day, no later than 5:00 p.m., New York City time, on such Business Day and if received after 12:00 noon, New York City time, on a Business Day, no later than 10:00 a.m., New York City time, on the immediately succeeding Business Day), to pay to the Administrative Agent, for the account of the Swingline Lender, such Lender’s Applicable Percentage of such Swingline Loan or Loans. Each Revolving Lender acknowledges and agrees that its obligation to acquire participations in Swingline Loans pursuant to this paragraph is absolute and unconditional and shall not be affected by any circumstance whatsoever, including the occurrence and continuance of a
Default or reduction or termination of the Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. Each Revolving Lender shall comply with its obligation under this paragraph by wire transfer of immediately available funds, in the same manner as provided in Section 2.07 with respect to Loans made by such Lender (and Section 2.07 shall apply, mutatis mutandis, to the payment obligations of the Revolving Lenders), and the Administrative Agent shall promptly pay to the Swingline Lender the amounts so received by it from the Revolving Lenders. The Administrative Agent shall notify the Borrower of any participations in any Swingline Loan acquired pursuant to this paragraph, and thereafter payments in respect of such Swingline Loan shall be made to the Administrative Agent and not to the Swingline Lender. Any amounts received by the Swingline Lender from the Borrower (or other party on behalf of the Borrower) in respect of a Swingline Loan after receipt by the Swingline Lender of the proceeds of a sale of participations therein shall be promptly remitted to the Administrative Agent; any such amounts received by the Administrative Agent shall be promptly remitted by the Administrative Agent to the Revolving Lenders that shall have made their payments pursuant to this paragraph and to the Swingline Lender, as their interests may appear; provided that any such payment so remitted shall be repaid to the Swingline Lender or to the Administrative Agent, as applicable, if and to the extent such payment is required to be refunded to the Borrower for any reason. The purchase of participations in a Swingline Loan pursuant to this paragraph shall not relieve the Borrower of any default in the payment thereof.
(d) The Swingline Lender may be replaced at any time by written agreement among the Borrower, the Administrative Agent, the replaced Swingline Lender and the successor Swingline Lender. The Administrative Agent shall notify the Revolving Lenders of any such replacement of the Swingline Lender. At the time any such replacement shall become effective, the Borrower shall pay all unpaid interest accrued for the account of the replaced Swingline Lender pursuant to Section 2.13(a). From and after the effective date of any such replacement, (i) the successor Swingline Lender shall have all the rights and obligations of the replaced Swingline Lender under this Agreement with respect to Swingline Loans made thereafter and (ii) references herein to the term “Swingline Lender” shall be deemed to refer to such successor or to any previous Swingline Lender, or to such successor and all previous Swingline Lenders, as the context shall require. After the replacement of a Swingline Lender hereunder, the replaced Swingline Lender shall remain a party hereto and shall continue to have all the rights and obligations of a Swingline Lender under this Agreement with respect to Swingline Loans made by it prior to its replacement, but shall not be required to make additional Swingline Loans.
(e) Subject to the appointment and acceptance of a successor Swingline Lender, the Swingline Lender may resign as a Swingline Lender at any time upon thirty (30) days’ prior written notice to the Administrative Agent, the Borrower and the Revolving Lenders, in which case, such Swingline Lender shall be replaced in accordance with Section 2.05(d) above.
SECTION 2.06. Letters of Credit. (a) General. Subject to the terms and conditions set forth herein, the Borrower may request the issuance of, and subject to the terms and conditions set forth herein, each Issuing Bank agrees to provide, Letters of Credit denominated in Agreed Currencies as the applicant thereof for the support of its or its Subsidiaries’ obligations, in a form reasonably acceptable to the Administrative Agent and the relevant Issuing Bank, at any time and from time to time during the Availability Period. In the event of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any form of letter of credit application or other agreement submitted by the Borrower to, or entered into by the Borrower with, the relevant Issuing Bank relating to any Letter of Credit, the terms and conditions of this Agreement shall control. Notwithstanding anything herein to the contrary, no Issuing Bank shall have any obligation hereunder to issue any Letter of Credit the proceeds of which would be made available to any Person (i) to fund any activity or business of or with any Sanctioned Person, or in any country or territory that, at the time of such funding, is itself the
subject of any Sanctions, unless such activity or business is not prohibited by Sanctions or (ii) in any manner that would result in a violation of any Sanctions by any party to this Agreement.
(b) Notice of Issuance, Amendment, Extension; Certain Conditions. To request the issuance of a Letter of Credit (or the amendment or extension of an outstanding Letter of Credit), the Borrower shall hand deliver or telecopy (or transmit by electronic communication, if arrangements for doing so have been approved by the relevant Issuing Bank) to the relevant Issuing Bank and the Administrative Agent (reasonably in advance of the requested date of issuance, amendment or extension, but in any event no less than three (3) Business Days) a notice requesting the issuance of a Letter of Credit, or identifying the Letter of Credit to be amended or extended, and specifying the date of issuance, amendment or extension (which shall be a Business Day), the date on which such Letter of Credit is to expire (which shall comply with paragraph (c) of this Section), the amount of such Letter of Credit, the Agreed Currency applicable thereto, the name and address of the beneficiary thereof and such other information as shall be necessary to prepare, amend or extend such Letter of Credit. In addition, as a condition to any such Letter of Credit issuance, the Borrower shall have entered into a continuing agreement (or other letter of credit agreement) for the issuance of letters of credit and/or shall submit a letter of credit application, in each case, as required by the relevant Issuing Bank and using such Issuing Bank’s standard form (each, a “Letter of Credit Agreement”). In the event of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any Letter of Credit Agreement, the terms and conditions of this Agreement shall control. A Letter of Credit shall be issued, amended or extended only if (and upon issuance, amendment or extension of each Letter of Credit the Borrower shall be deemed to represent and warrant that), after giving effect to such issuance, amendment or extension, subject to Section 2.11(b), (i) the Dollar Amount of the LC Exposure shall not exceed $25,000,000, (ii) the Total Revolving Credit Exposure shall not exceed the aggregate Revolving Commitments, (iii) each Lender’s Revolving Credit Exposure shall not exceed such Lender’s Revolving Commitment, (iv) [reserved] and (v) the Dollar Amount of the aggregate face amount of all Letters of Credit issued and then outstanding by any Issuing Bank shall not exceed such Issuing Bank’s Applicable LC Sublimit.
No Issuing Bank shall be under any obligation to issue any Letter of Credit if any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain such Issuing Bank from issuing such Letter of Credit, or any law applicable to such Issuing Bank shall prohibit, or require that such Issuing Bank refrain from, the issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon such Issuing Bank with respect to such Letter of Credit any restriction, reserve or capital requirement (for which such Issuing Bank is not otherwise compensated hereunder) not in effect on the Effective Date, or shall impose upon such Issuing Bank any unreimbursed loss, cost or expense that was not applicable on the Effective Date and that such Issuing Bank in good faith deems material to it.
(c) Expiration Date. Each Letter of Credit shall expire (or be subject to termination by notice from the relevant Issuing Bank to the beneficiary thereof) at or prior to the close of business on the earlier of (i) the date one year after the date of the issuance of such Letter of Credit (or, in the case of any extension of the expiration date thereof, one year after such extension) and (ii) the date that is five (5) Business Days prior to the Maturity Date.
(d) Participations. By the issuance of a Letter of Credit (or an amendment to a Letter of Credit increasing the amount thereof) and without any further action on the part of the relevant Issuing Bank or the Revolving Lenders, the relevant Issuing Bank hereby grants to each Revolving Lender, and each Revolving Lender hereby acquires from the relevant Issuing Bank, a participation in such Letter of Credit equal to such Lender’s Applicable Percentage of the aggregate amount available to be drawn under such Letter of Credit. In consideration and in furtherance of the foregoing, each Revolving Lender
hereby absolutely and unconditionally agrees to pay to the Administrative Agent, for the account of the relevant Issuing Bank, such Lender’s Applicable Percentage of each LC Disbursement made by such Issuing Bank and not reimbursed by the Borrower on the date due as provided in paragraph (e) of this Section, or of any reimbursement payment required to be refunded to the Borrower for any reason, including after the Maturity Date. Each Revolving Lender acknowledges and agrees that its obligation to acquire participations pursuant to this paragraph in respect of Letters of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever, including any amendment or extension of any Letter of Credit or the occurrence and continuance of a Default or reduction or termination of the Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever.
(e) Reimbursement. If the relevant Issuing Bank shall make any LC Disbursement in respect of a Letter of Credit, the Borrower shall reimburse such LC Disbursement by paying to the Administrative Agent in Dollars in the Dollar Amount equal to such LC Disbursement, calculated as of the date such Issuing Bank made such LC Disbursement not later than 12:00 noon, Local Time, on the date that such LC Disbursement (or if such Issuing Bank shall so elect in its sole discretion by notice to the Borrower, in such other Agreed Currency which was paid by such Issuing Bank pursuant to such LC Disbursement in an amount equal to such LC Disbursement) is made, if the Borrower shall have received notice of such LC Disbursement prior to 10:00 a.m., Local Time, on such date, or, if such notice has not been received by the Borrower prior to such time on such date, then not later than 12:00 noon, Local Time, on the Business Day immediately following the day that the Borrower receives such notice, if such notice is not received prior to such time on the day of receipt; provided that, if such LC Disbursement is not less than the Dollar Amount of $500,000, the Borrower may, subject to the conditions to borrowing set forth herein, request in accordance with Section 2.03 or 2.05 that such payment be financed with an ABR Revolving Borrowing, Eurocurrency Revolving Borrowing or Swingline Loan in Dollars in an amount equal to the Dollar Amount of such LC Disbursement and, in each case, to the extent so financed, the Borrower’s obligation to make such payment shall be discharged and replaced by the resulting ABR Revolving Borrowing, Eurocurrency Revolving Borrowing or Swingline Loan, as applicable. If the Borrower fails to make such payment when due, the Administrative Agent shall notify each Revolving Lender of the applicable LC Disbursement, the payment then due from the Borrower in respect thereof and such Lender’s Applicable Percentage thereof. Promptly following receipt of such notice, each Revolving Lender shall pay to the Administrative Agent its Applicable Percentage of the payment then due from the Borrower, in the same manner as provided in Section 2.07 with respect to Loans made by such Lender (and Section 2.07 shall apply, mutatis mutandis, to the payment obligations of the Revolving Lenders), and the Administrative Agent shall promptly pay to the relevant Issuing Bank the amounts so received by it from the Revolving Lenders. Promptly following receipt by the Administrative Agent of any payment from the Borrower pursuant to this paragraph, the Administrative Agent shall distribute such payment to such Issuing Bank or, to the extent that Revolving Lenders have made payments pursuant to this paragraph to reimburse such Issuing Bank, then to such Lenders and such Issuing Bank as their interests may appear. Any payment made by a Revolving Lender pursuant to this paragraph to reimburse the relevant Issuing Bank for any LC Disbursement (other than the funding of Revolving Loans or a Swingline Loan as contemplated above) shall not constitute a Loan and shall not relieve the Borrower of its obligation to reimburse such LC Disbursement. If the Borrower’s reimbursement of, or obligation to reimburse, any amounts in any Foreign Currency would subject the Administrative Agent, any Issuing Bank or any Lender to any stamp duty, ad valorem charge or similar Tax that would not be payable if such reimbursement were made or required to be made in Dollars, the Borrower shall, at its option, either (x) pay the amount of any such Tax requested by the Administrative Agent, the relevant Issuing Bank or the relevant Lender or (y) reimburse each LC Disbursement made in such Foreign Currency in Dollars, in an amount equal to the Dollar Amount thereof calculated on the date such LC Disbursement is made.
(f) Obligations Absolute. The Borrower’s obligation to reimburse LC Disbursements as provided in paragraph (e) of this Section shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever and irrespective of (i) any lack of validity or enforceability of any Letter of Credit, any Letter of Credit Agreement or this Agreement, or any term or provision therein or herein, (ii) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect, (iii) any payment by the relevant Issuing Bank under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit, or (iv) any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of, or provide a right of setoff against, the Borrower’s obligations hereunder. Neither the Administrative Agent, the Revolving Lenders nor the Issuing Banks, nor any of their respective Related Parties, shall have any liability or responsibility by reason of or in connection with the issuance or transfer of any Letter of Credit or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to in the preceding sentence), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit (including any document required to make a drawing thereunder), any error in interpretation of technical terms, any error in translation or any consequence arising from causes beyond the control of the relevant Issuing Bank; provided that the foregoing shall not be construed to excuse the relevant Issuing Bank from liability to the Borrower to the extent of any direct damages (as opposed to special, indirect, consequential or punitive damages, claims in respect of which are hereby waived by the Borrower to the extent permitted by applicable law) suffered by the Borrower that are caused by such Issuing Bank’s failure to exercise care when determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof. The parties hereto expressly agree that, in the absence of gross negligence or willful misconduct on the part of such Issuing Bank (as finally determined by a court of competent jurisdiction), such Issuing Bank shall be deemed to have exercised care in each such determination. In furtherance of the foregoing and without limiting the generality thereof, the parties agree that, with respect to documents presented which appear on their face to be in substantial compliance with the terms of a Letter of Credit, each Issuing Bank may, in its sole discretion, either accept and make payment upon such documents without responsibility for further investigation, regardless of any notice or information to the contrary, or refuse to accept and make payment upon such documents if such documents are not in strict compliance with the terms of such Letter of Credit.
(g) Disbursement Procedures. Each Issuing Bank shall, within the time allowed by applicable law or the specific terms of the Letter of Credit following its receipt thereof, examine all documents purporting to represent a demand for payment under a Letter of Credit. Each Issuing Bank shall promptly after such examination notify the Administrative Agent and the Borrower by telephone (confirmed by telecopy) of such demand for payment and whether such Issuing Bank has made or will make an LC Disbursement thereunder; provided that any failure to give or delay in giving such notice shall not relieve the Borrower of its obligation to reimburse such Issuing Bank and the Revolving Lenders with respect to any such LC Disbursement.
(h) Interim Interest. If any Issuing Bank shall make any LC Disbursement, then, unless the Borrower shall reimburse such LC Disbursement in full on the date such LC Disbursement is made and notice thereof is provided to the Borrower in accordance with paragraph (e) of this Section, the unpaid amount thereof shall bear interest, for each day from and including the date such LC Disbursement is made to but excluding the date that the reimbursement is due and payable, at the rate per annum then applicable to ABR Revolving Loans (or in the case such LC Disbursement is denominated in a Foreign Currency, at the Overnight Foreign Currency Rate for such Agreed Currency plus the then-effective Applicable Rate with respect to Eurocurrency Revolving Loans) and such interest shall be
due and payable on the date when such reimbursement is payable; provided that, if the Borrower fails to reimburse such LC Disbursement when due pursuant to paragraph (e) of this Section, then Section 2.13(c) shall apply. Interest accrued pursuant to this paragraph shall be for the account of the relevant Issuing Bank, except that interest accrued on and after the date of payment by any Revolving Lender pursuant to paragraph (e) of this Section to reimburse such Issuing Bank shall be for the account of such Revolving Lender to the extent of such payment.
(i) Replacement of Issuing Bank. (A) Any Issuing Bank may be replaced at any time by written agreement among the Borrower, the Administrative Agent, the replaced Issuing Bank and the successor Issuing Bank. The Administrative Agent shall notify the Revolving Lenders of any such replacement of any Issuing Bank. At the time any such replacement shall become effective, the Borrower shall pay all unpaid fees accrued for the account of the replaced Issuing Bank pursuant to Section 2.12(b). From and after the effective date of any such replacement, (i) the successor Issuing Bank shall have all the rights and obligations of an Issuing Bank under this Agreement with respect to Letters of Credit to be issued thereafter and (ii) references herein to the term “Issuing Bank” shall be deemed to refer to such successor or to any previous Issuing Bank, or to such successor and all previous Issuing Banks, as the context shall require. After the replacement of an Issuing Bank hereunder, the replaced Issuing Bank shall remain a party hereto and shall continue to have all the rights and obligations of an Issuing Bank under this Agreement with respect to Letters of Credit then outstanding and issued by it prior to such replacement, but shall not be required to issue additional Letters of Credit or extend or otherwise amend any existing Letter of Credit.
(B) Subject to the appointment and acceptance of a successor Issuing Bank, any Issuing Bank may resign as an Issuing Bank at any time upon thirty days’ prior written notice to the Administrative Agent, the Borrower and the Revolving Lenders, in which case, such Issuing Bank shall be replaced in accordance with Section 2.06(i)(A) above.
(j) Cash Collateralization. If any Event of Default shall occur and be continuing, on the Business Day that the Borrower receives notice from the Administrative Agent or the Required Lenders (or, if the maturity of the Loans has been accelerated, Revolving Lenders with LC Exposure representing greater than 50% of the total LC Exposure) demanding the deposit of cash collateral pursuant to this paragraph, the Borrower shall deposit in an account with the Administrative Agent, in the name of the Administrative Agent and for the benefit of the Revolving Lenders (the “LC Collateral Account”), an amount in cash equal to 105% of the Dollar Amount of the LC Exposure as of such date plus any accrued and unpaid interest thereon; provided that (i) the portions of such amount attributable to undrawn Foreign Currency Letters of Credit or LC Disbursements in a Foreign Currency that the Borrower is not late in reimbursing shall be deposited in the applicable Foreign Currencies in the actual amounts of such undrawn Letters of Credit and LC Disbursements and (ii) the obligation to deposit such cash collateral shall become effective immediately, and such deposit shall become immediately due and payable, without demand or other notice of any kind, upon the occurrence of any Event of Default with respect to the Borrower described in clause (h) or (i) of Article VII. For the purposes of this paragraph, the Dollar Amount of the Foreign Currency LC Exposure shall be calculated on the date notice demanding cash collateralization is delivered to the Borrower. The Borrower also shall deposit cash collateral pursuant to this paragraph as and to the extent required by Section 2.11(b). Such deposit shall be held by the Administrative Agent as collateral for the payment and performance of the Secured Obligations. In addition, and without limiting the foregoing or Section 2.06(c), if any LC Exposure remains outstanding after the expiration date specified in Section 2.06(c)(ii), the Borrower shall immediately deposit into the LC Collateral Account an amount in cash equal to 105% of the Dollar Amount of such LC Exposure as of such date plus any accrued and unpaid interest thereon. The Administrative Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account and the Borrower hereby grants the Administrative Agent a security interest in the LC Collateral Account. Other
than any interest earned on the investment of such deposits, which investments shall be made at the option and sole discretion of the Administrative Agent and at the Borrower’s risk and expense, such deposits shall not bear interest. Interest or profits, if any, on such investments shall accumulate in such account. Moneys in such account shall be applied by the Administrative Agent to reimburse the relevant Issuing Bank for LC Disbursements for which it has not been reimbursed, together with related fees, costs and customary processing charges, and, to the extent not so applied, shall be held for the satisfaction of the reimbursement obligations of the Borrower for the LC Exposure at such time or, if the maturity of the Loans has been accelerated (but subject to the consent of Revolving Lenders with LC Exposure representing greater than 50% of the total LC Exposure), be applied to satisfy other Secured Obligations. If the Borrower is required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, such amount (to the extent not applied as aforesaid) shall be returned to the Borrower within three (3) Business Days after all Events of Default have been cured or waived.
(k) Letters of Credit Issued for Account of Subsidiaries. Notwithstanding that a Letter of Credit issued or outstanding hereunder supports any obligations of, or is for the account of, a Subsidiary, or states that a Subsidiary is the “account party,” “applicant,” “customer,” “instructing party,” or the like of or for such Letter of Credit, and without derogating from any rights of the relevant Issuing Bank (whether arising by contract, at law, in equity or otherwise) against such Subsidiary in respect of such Letter of Credit, the Borrower (i) shall reimburse, indemnify and compensate such Issuing Bank hereunder for such Letter of Credit (including to reimburse any and all drawings thereunder) as if such Letter of Credit had been issued solely for the account of the Borrower and (ii) irrevocably waives any and all defenses that might otherwise be available to it as a guarantor or surety of any or all of the obligations of such Subsidiary in respect of such Letter of Credit. The Borrower hereby acknowledges that the issuance of such Letters of Credit for its Subsidiaries inures to the benefit of the Borrower, and that the Borrower’s business derives substantial benefits from the businesses of such Subsidiaries.
(l) Issuing Bank Agreements. Each Issuing Bank agrees that, unless otherwise requested by the Administrative Agent, such Issuing Bank shall report in writing to the Administrative Agent (i) on or prior to each Business Day on which such Issuing Bank expects to issue, amend or extend any Letter of Credit, the date of such issuance, amendment or extension, and the aggregate face amount and currency of the Letters of Credit to be issued, amended or extended by it and outstanding after giving effect to such issuance, amendment or extension occurred (and whether the amount thereof changed), (ii) on each Business Day on which such Issuing Bank pays any amount in respect of one or more drawings under Letters of Credit, the date of such payment(s) and the amount and currency of such payment(s), (iii) on any Business Day on which the Borrower fails to reimburse any amount required to be reimbursed to such Issuing Bank on such day, the date of such failure and the amount and currency of such payment in respect of Letters of Credit and (iv) on any other Business Day, such other information as the Administrative Agent shall reasonably request.
SECTION 2.07. Funding of Borrowings. (a) Each Lender shall make each Loan to be made by it hereunder on the proposed date thereof solely by wire transfer of immediately available funds by 1:00 p.m., New York City time, to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders; provided that Swingline Loans shall be made as provided in Section 2.05. Except in respect of the provisions of this Agreement covering the reimbursement of Letters of Credit, the Administrative Agent will make such Loans available to the Borrower by promptly crediting the funds so received to an account of the Borrower maintained with the Administrative Agent and designated by the Borrower in the applicable Borrowing Request; provided that Revolving Loans made to finance the reimbursement of an LC Disbursement as provided in Section 2.06(e) shall be remitted by the Administrative Agent to the relevant Issuing Bank.
(b)Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Borrowing (or in the case of an ABR Borrowing, prior to 1:00 p.m., New York City time, on the date of such Borrowing) that such Lender will not make available to the Administrative Agent such Lender’s share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with paragraph (a) of this Section and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Administrative Agent, then the applicable Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the Administrative Agent, at (i) in the case of such Lender, the greater of the NYFRB Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation or (ii) in the case of the Borrower, the interest rate applicable to ABR Loans. If such Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender’s Loan included in such Borrowing.
SECTION 2.08. Interest Elections. (a) Each Borrowing initially shall be of the Type specified in the applicable Borrowing Request and, in the case of a Eurocurrency Borrowing, shall have an initial Interest Period as specified in such Borrowing Request. Thereafter, the Borrower may elect to convert such Borrowing to a different Type or to continue such Borrowing and, in the case of a Eurocurrency Borrowing, may elect Interest Periods therefor, all as provided in this Section. The Borrower may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders holding the Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing. This Section shall not apply to Swingline Borrowings, which may not be converted or continued.
(b)To make an election pursuant to this Section, the Borrower shall notify the Administrative Agent of such election (by irrevocable written notice via an Interest Election Request signed by a Responsible Officer of the Borrower) by the time that a Borrowing Request would be required under Section 2.03 if the Borrower were requesting a Borrowing of the Type resulting from such election to be made on the effective date of such election. Notwithstanding any contrary provision herein, this Section shall not be construed to permit the Borrower to (i) change the currency of any Borrowing, (ii) elect an Interest Period for Eurocurrency Loans that does not comply with Section 2.02(d) or (iii) convert any Borrowing to a Borrowing of a Type not available under the Class of Commitments pursuant to which such Borrowing was made.
(c)Each Interest Election Request shall specify the following information in compliance with Section 2.02:
(i) the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) below shall be specified for each resulting Borrowing);
(ii) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day;
(iii) whether the resulting Borrowing is to be an ABR Borrowing or a Eurocurrency Borrowing; and
(iv) if the resulting Borrowing is a Eurocurrency Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which Interest Period shall be a period contemplated by the definition of the term “Interest Period”.
If any such Interest Election Request requests a Eurocurrency Borrowing but does not specify an Interest Period, then the Borrower shall be deemed to have selected an Interest Period of one month’s duration.
(d) Promptly following receipt of an Interest Election Request, the Administrative Agent shall advise each Lender of the details thereof and of such Lender’s portion of each resulting Borrowing.
(e) If the Borrower fails to deliver a timely Interest Election Request with respect to a Eurocurrency Borrowing prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period, such Borrowing shall be converted to an ABR Borrowing. Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing and the Administrative Agent, at the request of the Required Lenders, so notifies the Borrower, then, so long as an Event of Default is continuing (i) no outstanding Borrowing may be converted to or continued as a Eurocurrency Borrowing and (ii) unless repaid, each Eurocurrency Borrowing shall be converted to an ABR Borrowing at the end of the Interest Period applicable thereto.
SECTION 2.09. Termination and Reduction of Commitments. (a) Unless previously terminated, the Commitments shall terminate on the Maturity Date.
(b) The Borrower may at any time terminate, or from time to time reduce, the Revolving Commitments; provided that (i) each reduction of the Revolving Commitments shall be in an amount that is an integral multiple of $1,000,000 and not less than $5,000,000 and (ii) the Borrower shall not terminate or reduce the Revolving Commitments if, after giving effect to any concurrent prepayment of the Loans in accordance with Section 2.11, (A) any Lender’s Revolving Credit Exposure would exceed its Revolving Commitment or (B) the Total Revolving Credit Exposure would exceed the aggregate Revolving Commitments.
(c) The Borrower shall notify the Administrative Agent of any election to terminate or reduce the Commitments under paragraph (b) of this Section at least three (3) Business Days prior to the effective date of such termination or reduction, specifying such election and the effective date thereof. Promptly following receipt of any notice, the Administrative Agent shall advise the Lenders of the contents thereof. Each notice delivered by the Borrower pursuant to this Section shall be irrevocable; provided that a notice of termination of the Commitments delivered by the Borrower may state that such notice is conditioned upon the effectiveness of other credit facilities or other transactions specified therein, in which case such notice may be revoked by the Borrower (by notice to the Administrative Agent on or prior to the specified effective date) if such condition is not satisfied. Any termination or reduction of the Commitments shall be permanent. Each reduction of the Commitments shall be made ratably among the Lenders in accordance with their respective Commitments.
SECTION 2.10. Repayment and Amortization of Loans; Evidence of Debt. (a) The Borrower hereby unconditionally promises to pay (i) to the Administrative Agent for the account of each Revolving Lender the then unpaid principal amount of each Revolving Loan on the Maturity Date in the currency of such Loan and (ii) to the Administrative Agent for the account of the Swingline Lender the then unpaid principal amount of each Swingline Loan on the earlier of the Maturity Date and the fifth (5th) Business Day after such Swingline Loan is made; provided that on each date that a Revolving Borrowing is made, the Borrower shall repay all Swingline Loans then outstanding and the proceeds of
any such Borrowing shall be applied by the Administrative Agent to repay any Swingline Loans outstanding.
(b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder.
(c) The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Class and Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender’s share thereof.
(d) The entries made in the accounts maintained pursuant to paragraph (b) or (c) of this Section shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the Obligations.
(e) Any Lender may request that Loans made by it be evidenced by a promissory note. In such event, the Borrower shall prepare, execute and deliver to such Lender a promissory note payable to such Lender (or, if requested by such Lender, to such Lender and its registered assigns) and in a form approved by the Administrative Agent. Thereafter, the Loans evidenced by such promissory note and interest thereon shall at all times (including after assignment pursuant to Section 9.04) be represented by one or more promissory notes in such form payable to the payee named therein (or, if such promissory note is a registered note, to such payee and its registered assigns).
SECTION 2.11. Prepayment of Loans.
(a)The Borrower shall have the right at any time and from time to time to prepay any Borrowing in whole or in part, subject to prior notice in accordance with the provisions of this Section 2.11(a). The Borrower shall notify the Administrative Agent (and, in the case of prepayment of a Swingline Loan, the Swingline Lender) by written notice of any prepayment hereunder (i) in the case of prepayment of a Eurocurrency Borrowing, not later than 11:00 a.m., New York City time, three (3) Business Days before the date of prepayment, (ii) in the case of prepayment of an ABR Borrowing, not later than 11:00 a.m., New York City time, one (1) Business Day before the date of prepayment or (iii) in the case of prepayment of a Swingline Loan, not later than 12:00 noon, New York City time, on the date of prepayment. Each such notice shall be irrevocable and shall specify the prepayment date and the principal amount of each Borrowing or portion thereof to be prepaid; provided that, if a notice of prepayment is given in connection with a conditional notice of termination of the Commitments as contemplated by Section 2.09, then such notice of prepayment may be revoked if such notice of termination is revoked in accordance with Section 2.09. Promptly following receipt of any such notice relating to a Borrowing, the Administrative Agent shall advise the Lenders of the contents thereof. Each partial prepayment of any Borrowing shall be in an amount that would be permitted in the case of an advance of a Borrowing of the same Type as provided in Section 2.02. Each prepayment of a Revolving Borrowing shall be applied ratably to the Revolving Loans included in the prepaid Revolving Borrowing. Prepayments shall be accompanied by (i) accrued interest to the extent required by Section 2.13 and (ii) break funding payments pursuant to Section 2.16.
(b) If at any time, the aggregate principal Total Revolving Credit Exposure exceeds the aggregate Revolving Commitments, the Borrower shall in each case immediately repay Revolving Borrowings or cash collateralize LC Exposure in an account with the Administrative Agent pursuant to Section 2.06(j), as applicable, in an aggregate principal amount sufficient to cause the aggregate Total Revolving Credit Exposure (so calculated) to be less than or equal to the aggregate Revolving Commitments.
(c) In the event and on each occasion that any Net Proceeds are received by or on behalf of the Borrower or any of its Subsidiaries in respect of any Prepayment Event, the Borrower shall, within ten (10) Business Days after such Net Proceeds are received, prepay the Obligations as set forth in Section 2.11(d) below in an aggregate amount equal to 100% of such Net Proceeds; provided that, in the case of any event described in clause (a) or (b) of the definition of the term “Prepayment Event”, if the Borrower shall deliver to the Administrative Agent a certificate of a Financial Officer to the effect that the Borrower or its relevant Subsidiaries intend to apply the Net Proceeds from such event (or a portion thereof specified in such certificate), within 270 days after receipt of such Net Proceeds, to acquire (or replace or rebuild) real property, equipment or other tangible assets (excluding inventory) to be used in the business of the Borrower and/or its Subsidiaries, and certifying that no Default has occurred and is continuing, then no prepayment shall be required pursuant to this paragraph in respect of the Net Proceeds specified in such certificate; provided further that, to the extent of any such Net Proceeds therefrom that have not been so applied by the end of such 270 day period, at which time a prepayment shall be required in an amount equal to such Net Proceeds that have not been so applied.
(d) All such amounts pursuant to Sections 2.11(b) and (c) shall be applied ratably to the Revolving Loans and shall be applied to reduce the then-remaining outstanding Revolving Loans on a pro rata basis based upon the remaining principal amounts thereof.
SECTION 2.12. Fees. (a) The Borrower agrees to pay to the Administrative Agent for the account of each Revolving Lender a commitment fee, which shall accrue at the Applicable Rate on the average daily amount of the Available Revolving Commitment of any Lender that is not a Defaulting Lender during the period from and including the Effective Date to but excluding the date on which such Revolving Commitment terminates; provided that, if such Lender continues to have any Revolving Credit Exposure after its Revolving Commitment terminates, then such commitment fee shall continue to accrue on the daily amount of such Lender’s Revolving Credit Exposure from and including the date on which its Revolving Commitment terminates to but excluding the date on which such Lender ceases to have any Revolving Credit Exposure. Accrued commitment fees shall be payable in arrears on the fifteenth (15th) day following the last day of March, June, September and December of each year and on the date on which the Revolving Commitments terminate, commencing on the first such date to occur after the date hereof. All commitment fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). Participation fees and fronting fees in respect of Letters of Credit denominated in Dollars shall be paid in Dollars, and participation fees and fronting fees in respect of Letters of Credit denominated in a Foreign Currency shall be paid in Dollars in the Dollar Amount thereof.
(b) The Borrower agrees to pay (i) to the Administrative Agent for the account of each Revolving Lender a participation fee with respect to its participations in Letters of Credit, which shall accrue at the same Applicable Rate used to determine the interest rate applicable to Eurocurrency Revolving Loans on the average daily amount of such Revolving Lender’s LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements) during the period from and including the Effective Date to but excluding the later of the date on which such Revolving Lender’s Revolving Commitment terminates and the date on which such Revolving Lender ceases to have any LC Exposure and (ii) to the relevant Issuing Bank for its own account a fronting fee, which shall accrue at the rate of
0.125% per annum on the average daily amount of the LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements) attributable to Letters of Credit issued by such Issuing Bank during the period from and including the Effective Date to but excluding the later of the date of termination of the Revolving Commitments and the date on which there ceases to be any LC Exposure, as well as such Issuing Bank’s standard fees and commissions with respect to the issuance, amendment, cancellation, negotiation, transfer, presentment, renewal or extension of any Letter of Credit or processing of drawings thereunder. Unless otherwise specified above, participation fees and fronting fees accrued through and including the last day of March, June, September and December of each year shall be payable on the fifteenth (15th) day following such last day, commencing on the first such date to occur after the Effective Date; provided that all such fees shall be payable on the date on which the Revolving Commitments terminate and any such fees accruing after the date on which the Revolving Commitments terminate shall be payable on demand. Any other fees payable to any Issuing Bank pursuant to this paragraph shall be payable within ten (10) days after demand with reasonable detail to determine the amount owed. All participation fees and fronting fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day).
(c) The Borrower agrees to pay to the Administrative Agent and the Lenders, for their own accounts, fees payable in the amounts and at the times separately agreed upon between the Borrower and the Administrative Agent and/or the Lenders pursuant to the Fee Letters.
(d) All fees payable hereunder shall be paid on the dates due, in Dollars (except as otherwise expressly provided in this Section 2.12) and immediately available funds, to the Administrative Agent (or to each Issuing Bank, in the case of fees payable to it) for distribution, in the case of commitment fees and participation fees, to the applicable Lenders. Fees paid shall not be refundable under any circumstances.
SECTION 2.13. Interest. (a) The Loans comprising each ABR Borrowing (including each Swingline Loan) shall bear interest at the Alternate Base Rate plus the Applicable Rate.
(b) The Loans comprising each Eurocurrency Borrowing shall bear interest at the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Rate.
(c) Notwithstanding the foregoing, if any principal of or interest on any Loan or any fee or other amount payable by the Borrower hereunder is not paid when due, whether at stated maturity, upon acceleration or otherwise, such overdue amount shall bear interest, after as well as before judgment, at a rate per annum equal to (i) in the case of overdue principal of any Loan, 2% plus the rate otherwise applicable to such Loan as provided in the preceding paragraphs of this Section or (ii) in the case of any other amount, 2% plus the rate applicable to ABR Loans as provided in paragraph (a) of this Section.
(d) Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan and, in the case of Revolving Loans, upon termination of the Revolving Commitments; provided that (i) interest accrued pursuant to paragraph (c) of this Section shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan (other than a prepayment of an ABR Revolving Loan prior to the end of the Availability Period), accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment and (iii) in the event of any conversion of any Eurocurrency Loan prior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion.
(e) All interest hereunder shall be computed on the basis of a year of 360 days, except that interest computed by reference to the Alternate Base Rate at times when the Alternate Base Rate is
based on the Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year). The applicable Alternate Base Rate, Adjusted LIBO Rate or LIBO Rate shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error.
SECTION 2.14. Alternate Rate of Interest.
(a) Subject to clauses (b), (c), (d), (e), (f) and (g) of this Section 2.14, if prior to the commencement of any Interest Period for a Eurocurrency Borrowing:
(i) the Administrative Agent determines (which determination shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the Adjusted LIBO Rate or the LIBO Rate, as applicable (including because the LIBO Rate is not available or published on a current basis), for U.S. Dollars and such Interest Period or payment period, as applicable; or
(ii) the Administrative Agent is advised by the Required Lenders that the Adjusted LIBO Rate or the LIBO Rate, as applicable, for U.S. Dollars and such Interest Period or payment period, as applicable, will not adequately and fairly reflect the cost to such Lenders (or Lender) of making or maintaining their Loans (or its Loan) included in such Borrowing for U.S. Dollars and such Interest Period or payment period, as applicable;
then the Administrative Agent shall give notice thereof to the Borrower and the Lenders by telephone, telecopy or electronic mail as promptly as practicable thereafter and, until the Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, (i) any Interest Election Request that requests the conversion of any Borrowing to, or continuation of any Borrowing as, a Eurocurrency Borrowing shall be ineffective and (ii) if any Borrowing Request requests a Eurocurrency Borrowing, such Borrowing shall be made as an ABR Borrowing; provided that if the circumstances giving rise to such notice affect only one Type of Borrowings, then all other Types of Borrowings shall be permitted. Furthermore, if any Eurocurrency Loan is outstanding on the date of the Borrower’s receipt of the notice from the Administrative Agent referred to in this Section 2.14(a) with respect to the LIBO Rate, then on the last day of the Interest Period applicable to such Loan (or the next succeeding Business Day if such day is not a Business Day), such Loan shall be converted by the Administrative Agent to, and shall constitute, an ABR Loan on such day.
(b) Notwithstanding anything to the contrary herein or in any other Loan Document (and any Swap Agreement shall be deemed not to be a “Loan Document” for purposes of this Section 2.14), if a Benchmark Transition Event or an Early Opt-in Election, as applicable, and its related Benchmark Replacement Date have occurred prior to the Reference Time in respect of any setting of the then-current Benchmark, then (x) if a Benchmark Replacement is determined in accordance with clause (1) or (2) of the definition of “Benchmark Replacement” for such Benchmark Replacement Date, such Benchmark Replacement will replace such Benchmark for all purposes hereunder and under any Loan Document in respect of such Benchmark setting and subsequent Benchmark settings without any amendment to, or further action or consent of any other party to, this Agreement or any other Loan Document and (y) if a Benchmark Replacement is determined in accordance with clause (3) of the definition of “Benchmark Replacement” for such Benchmark Replacement Date, such Benchmark Replacement will replace such Benchmark for all purposes hereunder and under any Loan Document in respect of any Benchmark setting at or after 5:00 p.m., New York City time, on the fifth (5th) Business Day after the date notice of such Benchmark Replacement is provided to the Lenders without any amendment to, or further action or consent of any other party to, this Agreement or any other Loan Document so long as the Administrative
Agent has not received, by such time, written notice of objection to such Benchmark Replacement from Lenders comprising the Required Lenders.
(c) Notwithstanding anything to the contrary herein or in any other Loan Document and subject to the proviso below in this paragraph, if a Term SOFR Transition Event and its related Benchmark Replacement Date have occurred prior to the Reference Time in respect of any setting of the then-current Benchmark, then the applicable Benchmark Replacement will replace the then-current Benchmark for all purposes hereunder or under any Loan Document in respect of such Benchmark setting and subsequent Benchmark settings, without any amendment to, or further action or consent of any other party to, this Agreement or any other Loan Document; provided that this clause (c) shall not be effective unless the Administrative Agent has delivered to the Lenders and the Borrower a Term SOFR Notice. For the avoidance of doubt, the Administrative Agent shall not be required to deliver a Term SOFR Notice after the occurrence of a Term SOFR Transition Event and may do so in its sole discretion.
(d) In connection with the implementation of a Benchmark Replacement, the Administrative Agent will have the right to make Benchmark Replacement Conforming Changes from time to time and, notwithstanding anything to the contrary herein or in any other Loan Document, any amendments implementing such Benchmark Replacement Conforming Changes will become effective without any further action or consent of any other party to this Agreement or any other Loan Document.
(e) The Administrative Agent will promptly notify the Borrower and the Lenders of (i) any occurrence of a Benchmark Transition Event or an Early Opt-in Election, as applicable, and its related Benchmark Replacement Date, (ii) the implementation of any Benchmark Replacement, (iii) the effectiveness of any Benchmark Replacement Conforming Changes, (iv) the removal or reinstatement of any tenor of a Benchmark pursuant to clause (f) below and (v) the commencement or conclusion of any Benchmark Unavailability Period. Any determination, decision or election that may be made by the Administrative Agent or, if applicable, any Lender (or group of Lenders) pursuant to this Section 2.14, including any determination with respect to a tenor, rate or adjustment or of the occurrence or non-occurrence of an event, circumstance or date and any decision to take or refrain from taking any action or any selection, will be conclusive and binding absent manifest error and may be made in its or their sole discretion and without consent from any other party to this Agreement or any other Loan Document, except, in each case, as expressly required pursuant to this Section 2.14 or any related definitions.
(f) Notwithstanding anything to the contrary herein or in any other Loan Document, at any time (including in connection with the implementation of a Benchmark Replacement), (i) if the then-current Benchmark is a term rate (including Term SOFR or the LIBO Rate) and either (A) any tenor for such Benchmark is not displayed on a screen or other information service that publishes such rate from time to time as selected by the Administrative Agent in its reasonable discretion or (B) the regulatory supervisor for the administrator of such Benchmark has provided a public statement or publication of information announcing that any tenor for such Benchmark is or will be no longer representative, then the Administrative Agent may modify the definition of “Interest Period” for any Benchmark settings at or after such time to remove such unavailable or non-representative tenor and (ii) if a tenor that was removed pursuant to clause (i) above either (A) is subsequently displayed on a screen or information service for a Benchmark (including a Benchmark Replacement) or (B) is not, or is no longer, subject to an announcement that it is or will no longer be representative for a Benchmark (including a Benchmark Replacement), then the Administrative Agent may modify the definition of “Interest Period” for all Benchmark settings at or after such time to reinstate such previously removed tenor.
(g) Upon the Borrower’s receipt of notice of the commencement of a Benchmark Unavailability Period, the Borrower may revoke any request for a Eurocurrency Borrowing of, conversion to or continuation of Eurocurrency Loans to be made, converted or continued during any Benchmark Unavailability Period and, failing that, the Borrower will be deemed to have converted any request for a Eurocurrency Borrowing into a request for a Borrowing of or conversion to ABR Loans. During any Benchmark Unavailability Period or at any time that a tenor for the then-current Benchmark is not an Available Tenor, the component of ABR based upon the then-current Benchmark or such tenor for such Benchmark, as applicable, will not be used in any determination of ABR. Furthermore, if any Eurocurrency Loan is outstanding on the date of the Borrower’s receipt of notice of the commencement of a Benchmark Unavailability Period with respect to the LIBO Rate, then on the last day of the Interest Period applicable to such Loan (or the next succeeding Business Day if such day is not a Business Day), such Loan shall be converted by the Administrative Agent to, and shall constitute, an ABR Loan on such day.
SECTION 2.15. Increased Costs. (a) If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special deposit, liquidity or similar requirement (including any compulsory loan requirement, insurance charge or other assessment) against assets of, deposits with or for the account of, or credit extended by, any Lender (except any such reserve requirement reflected in the Adjusted LIBO Rate) or any Issuing Bank;
(ii) impose on any Lender or any Issuing Bank or the London interbank market any other condition, cost or expense affecting this Agreement or Loans made by such Lender or any Letter of Credit or participation therein; or
(iii) subject any Recipient to any Taxes (other than (A) Indemnified Taxes and (B) Excluded Taxes (including any change in the rate of Excluded Taxes)) on its loans, loan principal, letters of credit, commitments, or other obligations, or its deposits, reserves, other liabilities or capital attributable thereto;
and the result of any of the foregoing shall be to increase the cost to such Lender or such other Recipient of making, continuing, converting or maintaining any Loan or of maintaining its obligation to make any such Loan or to increase the cost to such Lender, such Issuing Bank or such other Recipient of participating in, issuing or maintaining any Letter of Credit or to reduce the amount of any sum received or receivable by such Lender, such Issuing Bank or such other Recipient hereunder, whether of principal, interest or otherwise, then the Borrower will pay to such Lender, such Issuing Bank or such other Recipient, as the case may be, such additional amount or amounts as will compensate such Lender, such Issuing Bank or such other Recipient, as the case may be, for such additional costs incurred or reduction suffered.
(b)If any Lender or any Issuing Bank determines that any Change in Law regarding capital or liquidity requirements has or would have the effect of reducing the rate of return on such Lender’s or such Issuing Bank’s capital or on the capital of such Lender’s or such Issuing Bank’s holding company, if any, as a consequence of this Agreement or the Loans made by, or participations in Letters of Credit or Swingline Loans held by, such Lender, or the Letters of Credit issued by such Issuing Bank, to a level below that which such Lender or such Issuing Bank or such Lender’s or such Issuing Bank’s holding company could have achieved but for such Change in Law (taking into consideration such Lender’s or such Issuing Bank’s policies and the policies of such Lender’s or such Issuing Bank’s holding company with respect to capital adequacy and liquidity), then from time to time the Borrower will pay to such Lender or such Issuing Bank, as the case may be, such additional amount or amounts as
will compensate such Lender or such Issuing Bank or such Lender’s or such Issuing Bank’s holding company for any such reduction suffered.
(c)A certificate of a Lender or an Issuing Bank setting forth in reasonable detail the amount or amounts necessary to compensate such Lender or such Issuing Bank or its holding company, as the case may be, as specified in paragraph (a) or (b) of this Section shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender or such Issuing Bank, as the case may be, the amount shown as due on any such certificate within ten (10) days after receipt thereof.
(d)Failure or delay on the part of any Lender or any Issuing Bank to demand compensation pursuant to this Section shall not constitute a waiver of such Lender’s or such Issuing Bank’s right to demand such compensation; provided that the Borrower shall not be required to compensate a Lender or an Issuing Bank pursuant to this Section for any increased costs or reductions incurred more than 180 days prior to the date that such Lender or such Issuing Bank, as the case may be, notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender’s or such Issuing Bank’s intention to claim compensation therefor; provided further that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the 180-day period referred to above shall be extended to include the period of retroactive effect thereof.
SECTION 2.16. Break Funding Payments. In the event of (a) the payment of any principal of any Eurocurrency Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default or as a result of any prepayment pursuant to Section 2.11), (b) the conversion of any Eurocurrency Loan other than on the last day of the Interest Period applicable thereto, (c) the failure to borrow, convert, continue or prepay any Eurocurrency Loan on the date specified in any notice delivered pursuant hereto (regardless of whether such notice may be revoked under Section 2.11(a) and is revoked in accordance therewith) or (d) the assignment of any Eurocurrency Loan other than on the last day of the Interest Period applicable thereto as a result of a request by the Borrower pursuant to Section 2.19 or 9.02(e), then, in any such event, the Borrower shall compensate each Lender for the loss, cost and expense attributable to such event. Such loss, cost or expense to any Lender shall be deemed to include an amount determined by such Lender to be the excess, if any, of (i) the amount of interest which would have accrued on the principal amount of such Loan had such event not occurred, at the Adjusted LIBO Rate, that would have been applicable to such Loan, for the period from the date of such event to the last day of the then current Interest Period therefor (or, in the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period for such Loan), over (ii) the amount of interest which would accrue on such principal amount for such period at the interest rate which such Lender would bid were it to bid, at the commencement of such period, for deposits in the relevant currency of a comparable amount and period from other banks in the eurocurrency market. A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate within ten (10) days after receipt thereof.
SECTION 2.17. Taxes. (a) Withholding of Taxes; Gross-Up. Each payment by or on behalf of any Loan Party under any Loan Document shall be made without withholding for any Taxes, unless such withholding is required by any law. If any Withholding Agent determines, in its sole discretion exercised in good faith, that it is so required to withhold Taxes, then such Withholding Agent may so withhold and shall timely pay the full amount of withheld Taxes to the relevant Governmental Authority in accordance with applicable law. If such Taxes are Indemnified Taxes, then the amount payable by such Loan Party shall be increased as necessary so that, net of such withholding (including
such withholding applicable to additional amounts payable under this Section), the applicable Recipient receives the amount it would have received had no such withholding been made.
(b) Payment of Other Taxes by the Loan Parties. The Loan Parties shall timely pay to the relevant Governmental Authority in accordance with applicable law, or at the option of the Administrative Agent timely reimburse it for, any Other Taxes.
(c) Evidence of Payments. As soon as practicable after any payment of Taxes by any Loan Party to a Governmental Authority pursuant to this Section, such Loan Party shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.
(d) Indemnification by the Loan Parties. The Loan Parties shall indemnify each Recipient for any Indemnified Taxes that are paid or payable by such Recipient or required to be withheld or deducted from a payment to such Recipient in connection with any Loan Document (including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this Section 2.17(d)) and any reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. The indemnity under this Section 2.17(d) shall be paid within ten (10) days after the Recipient delivers to the Borrower a certificate stating the amount of any Indemnified Taxes so paid or payable by such Recipient. Such certificate shall be conclusive of the amount so paid or payable absent manifest error. Such Recipient, if not the Administrative Agent, shall deliver a copy of such certificate to the Administrative Agent. In the case of any Lender making a claim under this Section 2.17(d) on behalf of any of its beneficial owners, an indemnity payment under this Section 2.17(d) shall be due only to the extent that such Lender is able to establish that, with respect to the applicable Indemnified Taxes, such beneficial owners supplied to the applicable Persons, in accordance with Section 2.17(f), such properly completed and executed documentation necessary to claim any applicable exemption from, or reduction of, such Indemnified Taxes to the extent it is legally eligible to do so.
(e) Indemnification by the Lenders. Each Lender shall severally indemnify the Administrative Agent for any Taxes (including any Taxes attributable to a failure to comply with the provisions of Section 9.04(c) relating to the maintenance of a Participant Register but, in the case of any Indemnified Taxes, only to the extent that any Loan Party has not already indemnified the Administrative Agent for such Indemnified Taxes and without limiting the obligation of the Loan Parties to do so) attributable to such Lender that are paid or payable by the Administrative Agent in connection with any Loan Document and any reasonable expenses arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. The indemnity under this Section 2.17(e) shall be paid within ten (10) days after the Administrative Agent delivers to the applicable Lender a certificate stating the amount of Taxes so paid or payable by the Administrative Agent. Such certificate shall be conclusive of the amount so paid or payable absent manifest error. Each Lender hereby authorizes the Administrative Agent to set off and apply any and all amounts at any time owing to such Lender under any Loan Document or otherwise payable by the Administrative Agent to the Lender from any other source against any amount due to the Administrative Agent under this paragraph (e).
(f) Status of Lenders. (i) Any Lender that is entitled to an exemption from, or reduction of, any applicable withholding Tax with respect to any payments under any Loan Document shall deliver to the Borrower and the Administrative Agent, at the time or times reasonably requested by the Borrower or the Administrative Agent, such properly completed and executed documentation prescribed by law or reasonably requested by the Borrower or the Administrative Agent as will permit such payments to be
made without, or at a reduced rate of, withholding. In addition, any Lender, if reasonably requested by the Borrower or the Administrative Agent, shall deliver such other documentation prescribed by applicable law or reasonably requested by the Borrower or the Administrative Agent as will enable the Borrower or the Administrative Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements. Notwithstanding anything to the contrary in the preceding two sentences, the completion, execution and submission of such documentation (other than such documentation set forth in Section 2.17(f)(ii)(A) through (E) and (iii) below) shall not be required if in the Lender’s judgment such completion, execution or submission would subject such Lender to any material unreimbursed cost or expense or would materially prejudice the legal or commercial position of such Lender. Upon the reasonable request of the Borrower or the Administrative Agent, any Lender shall update any form or certification previously delivered pursuant to this Section 2.17(f). If any form or certification previously delivered pursuant to this Section expires or becomes obsolete or inaccurate in any respect with respect to a Lender, such Lender shall promptly notify the Borrower and the Administrative Agent in writing of such expiration, obsolescence or inaccuracy and update the form or certification if it is legally eligible to do so.
(ii) Without limiting the generality of the foregoing, if the Borrower is a U.S. Person, any Lender with respect to the Borrower shall, if it is legally eligible to do so, deliver to the Borrower and the Administrative Agent (in such number of copies reasonably requested by the Borrower and the Administrative Agent) on or prior to the date on which such Lender becomes a party hereto (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), duly completed and executed copies of whichever of the following is applicable:
(A) in the case of a Lender that is a U.S. Person, an executed copy of IRS Form W-9 certifying that such Lender is exempt from U.S. Federal backup withholding tax;
(B) in the case of a Non-U.S. Lender claiming the benefits of an income tax treaty to which the United States is a party (1) with respect to payments of interest under any Loan Document, an executed copy of IRS Form W-8BEN or IRS Form W-8BEN-E, as applicable, establishing an exemption from, or reduction of, U.S. Federal withholding Tax pursuant to the “interest” article of such tax treaty and (2) with respect to any other applicable payments under any Loan Document, an executed copy of IRS Form W-8BEN or IRS Form W-8BEN-E, as applicable, establishing an exemption from, or reduction of, U.S. Federal withholding Tax pursuant to the “business profits” or “other income” article of such tax treaty;
(C) in the case of a Non-U.S. Lender for whom payments under any Loan Document constitute income that is effectively connected with such Lender’s conduct of a trade or business in the United States, an executed copy of IRS Form W-8ECI;
(D) in the case of a Non-U.S. Lender claiming the benefits of the exemption for portfolio interest under Section 881(c) of the Code both (1) an executed copy of IRS Form W-8BEN or IRS Form W-8BEN-E, as applicable, and (2) a certificate substantially in the form of Exhibit D (a “U.S. Tax Certificate”) to the effect that such Lender is not (a) a “bank” within the meaning of Section 881(c)(3)(A) of the Code, (b) a “10 percent shareholder” of the Borrower within the meaning of Section 881(c)(3)(B) of the Code, (c) a “controlled foreign corporation” related to the Borrower described in Section 881(c)(3)(C) of the Code and (d) conducting a trade or business in the United States with which the relevant interest payments are effectively connected;
(E) in the case of a Non-U.S. Lender that is not the beneficial owner of payments made under this Agreement (including a partnership or a participating Lender) (1) an executed copy of IRS Form W-8IMY on behalf of itself and (2) the relevant forms prescribed in clauses (A), (B), (C) and (D) of this paragraph (f)(ii) that would be required of each such beneficial owner or partner of such partnership if such beneficial owner or partner were a Lender; provided, however, that if the Lender is a partnership and one or more of its partners are claiming the exemption for portfolio interest under Section 881(c) of the Code, such Lender may provide a U.S. Tax Certificate on behalf of such partners; or
(F) any other form prescribed by law as a basis for claiming exemption from, or a reduction of, U.S. Federal withholding Tax together with such supplementary documentation necessary to enable the Borrower or the Administrative Agent to determine the amount of Tax (if any) required by law to be withheld.
(iii) If a payment made to a Lender under any Loan Document would be subject to U.S. Federal withholding Tax imposed by FATCA if such Lender were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Lender shall deliver to the Borrower and the Administrative Agent, at the time or times prescribed by law and at such time or times reasonably requested by the Borrower and the Administrative Agent, such documentation prescribed by applicable law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by the Borrower and the Administrative Agent as may be necessary for the Borrower and the Administrative Agent to comply with its obligations under FATCA, to determine that such Lender has complied with such Lender’s obligations under FATCA or to determine the amount to deduct and withhold from such payment. Solely for purposes of this Section 2.17(f)(iii), “FATCA” shall include any amendments made to FATCA after the date of this Agreement.
(g) Treatment of Certain Refunds. If any party determines, in its sole discretion exercised in good faith, that it has received a refund of any Taxes as to which it has been indemnified pursuant to this Section 2.17 (including additional amounts paid pursuant to this Section 2.17), it shall pay to the indemnifying party an amount equal to such refund (but only to the extent of indemnity payments made under this Section with respect to the Taxes giving rise to such refund), net of all out-of-pocket expenses (including any Taxes) of such indemnified party and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund). Such indemnifying party, upon the request of such indemnified party, shall repay to such indemnified party the amount paid to such indemnified party pursuant to the previous sentence (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) in the event such indemnified party is required to repay such refund to such Governmental Authority. Notwithstanding anything to the contrary in this Section 2.17(g), in no event will any indemnified party be required to pay any amount to any indemnifying party pursuant to this Section 2.17(g) if such payment would place such indemnified party in a less favorable position (on a net after-Tax basis) than such indemnified party would have been in if the Tax subject to indemnification and giving rise to such refund had not been deducted, withheld or otherwise imposed and the indemnification payments or additional amounts with respect to such Tax had never been paid. This Section 2.17(g) shall not be construed to require any indemnified party to make available its Tax returns (or any other information relating to its Taxes which it deems confidential) to the indemnifying party or any other Person.
(h) Issuing Bank. For purposes of this Section 2.17, the term “Lender” includes each Issuing Bank and Swingline Lender.
(i) Survival. Each party’s obligations under this Section 2.17 shall survive the resignation or replacement of the Administrative Agent or any assignment of rights by, or the replacement of, a Lender, the termination of the Commitments and the repayment, satisfaction or discharge of all obligations under any Loan Document.
SECTION 2.18. Payments Generally; Allocations of Proceeds; Pro Rata Treatment; Sharing of Set-offs.
(a) The Borrower shall make each payment or prepayment required to be made by it hereunder (whether of principal, interest, fees or reimbursement of LC Disbursements, or of amounts payable under Section 2.15, 2.16 or 2.17, or otherwise) prior to (i) in the case of payments denominated in Dollars, 12:00 noon, New York City time and (ii) in the case of payments denominated in a Foreign Currency, 12:00 noon, Local Time, in the city of the Administrative Agent’s Eurocurrency Payment Office for such currency, in each case, on the date when due or the date fixed for any prepayment hereunder, in immediately available funds, without set-off, recoupment or counterclaim (subject to the right to revoke a prepayment notice in accordance with Section 2.11). Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made (i) in the same currency in which the applicable Credit Event was made (or where such currency has been converted to EUR, in EUR) and (ii) to the Administrative Agent at its offices at 10 South Dearborn Street, Chicago, Illinois 60603 or, in the case of a Credit Event denominated in a Foreign Currency, the Administrative Agent’s Eurocurrency Payment Office for such currency, except payments to be made directly to any Issuing Bank or the Swingline Lender as expressly provided herein and except that payments pursuant to Sections 2.15, 2.16, 2.17 and 9.03 shall be made directly to the Persons entitled thereto. The Administrative Agent shall distribute any such payments denominated in the same currency received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. Notwithstanding the foregoing provisions of this Section, if, after the making of any Credit Event in any Foreign Currency, currency control or exchange regulations are imposed in the country which issues such currency with the result that the type of currency in which the Credit Event was made (the “Original Currency”) no longer exists or the Borrower is not able to make payment to the Administrative Agent for the account of the Lenders in such Original Currency, then all payments to be made by the Borrower hereunder in such currency shall instead be made when due in Dollars in an amount equal to the Dollar Amount (as of the date of repayment) of such payment due, it being the intention of the parties hereto that the Borrower takes all risks of the imposition of any such currency control or exchange regulations.
(b) All payments and any proceeds of Collateral received by the Administrative Agent (i) not constituting a specific payment of principal, interest, fees or other sum payable under the Loan Documents (which shall be applied as specified by the Borrower) or (ii) after an Event of Default has occurred and is continuing and the Administrative Agent so elects or the Required Lenders so direct, shall be applied ratably first, to pay any fees, non-contingent indemnification obligations, or expense reimbursements including amounts then due to the Administrative Agent and the Issuing Banks from the Borrower, second, to pay any fees or expense reimbursements then due to the Lenders from the Borrower, third, to pay interest then due and payable on the Loans ratably, fourth, to prepay principal on the Loans and unreimbursed LC Disbursements and any other amounts owing with respect to Secured Banking Services Obligations and Secured Swap Obligations ratably, fifth, to pay an amount to the
Administrative Agent equal to one hundred five percent (105%) of the aggregate undrawn face amount of all outstanding Letters of Credit, to be held as cash collateral for such Obligations, and sixth, to the payment of any other Secured Obligation due to the Administrative Agent or any Lender by the Borrower. Notwithstanding the foregoing, amounts received from any Loan Party shall not be applied to any Excluded Swap Obligation of such Loan Party. Notwithstanding anything to the contrary contained in this Agreement, unless so directed by the Borrower, or unless a Default is in existence, none of the Administrative Agent or any Lender shall apply any payment which it receives to any Eurocurrency Loan of a Class, except (a) on the expiration date of the Interest Period applicable to any such Eurocurrency Loan or (b) in the event, and only to the extent, that there are no outstanding ABR Loans of the same Class and, in any event, the Borrower shall pay the break funding payment required in accordance with Section 2.16. The Administrative Agent and the Lenders shall have the continuing and exclusive right to apply and reverse and reapply any and all such proceeds and payments to any portion of the Secured Obligations.
(c) At the election of the Administrative Agent, all payments of principal, interest, LC Disbursements, fees, premiums, reimbursable expenses (including, without limitation, all reimbursement for fees and expenses pursuant to Section 9.03), and other sums payable under the Loan Documents, may be paid from the proceeds of Borrowings made hereunder whether made following a request by the Borrower pursuant to Section 2.03 or a deemed request as provided in this Section or may be deducted from any deposit account of the Borrower maintained with the Administrative Agent. The Borrower hereby irrevocably authorizes (i) the Administrative Agent to make a Borrowing for the purpose of paying each payment of principal, interest and fees as it becomes due hereunder or any other amount due under the Loan Documents and agrees that all such amounts charged shall constitute Loans (including Swingline Loans) and that all such Borrowings shall be deemed to have been requested pursuant to Sections 2.03 or 2.05, as applicable and (ii) the Administrative Agent to charge any deposit account of the Borrower maintained with the Administrative Agent for each payment of principal, interest and fees as it becomes due hereunder or any other amount due under the Loan Documents.
(d) If, except as expressly provided herein, any Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Loans or participations in LC Disbursements or Swingline Loans resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Loans and participations in LC Disbursements and Swingline Loans and accrued interest thereon than the proportion received by any other similarly situated Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Loans and participations in LC Disbursements and Swingline Loans of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by all such Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Loans and participations in LC Disbursements and Swingline Loans; provided that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to apply to any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans or participations in LC Disbursements and Swingline Loans to any assignee or participant, other than to the Borrower or any Subsidiary or Affiliate thereof (as to which the provisions of this paragraph shall apply). The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation.
(e) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the relevant Lenders or the relevant Issuing Banks hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the relevant Lenders or the relevant Issuing Banks, as the case may be, the amount due. In such event, if the Borrower has not in fact made such payment, then each of the relevant Lenders or the relevant Issuing Banks, as the case may be, severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender or such Issuing Bank with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the NYFRB Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation.
(f) If any Lender shall fail to make any payment required to be made by it pursuant to Section 2.05(c), 2.06(d) or (e), 2.07(b), 2.18(e) or 9.03(c), then the Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), (i) apply any amounts thereafter received by the Administrative Agent for the account of such Lender and for the benefit of the Administrative Agent, the Swingline Lender or the Issuing Banks to satisfy such Lender’s obligations to it under such Section until all such unsatisfied obligations are fully paid and/or (ii) hold any such amounts in a segregated account as cash collateral for, and application to, any future funding obligations of such Lender under any such Section; in the case of each of clauses (i) and (ii) above, in any order as determined by the Administrative Agent in its discretion.
SECTION 2.19. Mitigation Obligations; Replacement of Lenders. (a) If any Lender requests compensation under Section 2.15, or the Borrower is required to pay any Indemnified Taxes or additional amounts to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.17, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or Affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.15 or 2.17, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment.
(b) If (i) any Lender requests compensation under Section 2.15, (ii) the Borrower is required to pay any Indemnified Taxes or additional amounts to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.17 or (iii) any Lender becomes a Defaulting Lender, then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 9.04), all its interests, rights (other than its existing rights to payments pursuant to Sections 2.15 or 2.17) and obligations under the Loan Documents to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that (i) the Borrower shall have received the prior written consent of the Administrative Agent (and if a Revolving Commitment is being assigned, the Issuing Banks and the Swingline Lender), which consent shall not unreasonably be withheld, delayed or conditioned, (ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans and participations in LC Disbursements and Swingline Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts) and (iii) in the case of any such assignment resulting from a claim for compensation under Section 2.15 or payments required to be made pursuant to Section 2.17, such assignment will result in a reduction in such compensation or
payments. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply. Each party hereto agrees that (i) an assignment required pursuant to this paragraph may be effected pursuant to an Assignment and Assumption executed by the Borrower, the Administrative Agent and the assignee (or, to the extent applicable, an agreement incorporating an Assignment and Assumption by reference pursuant to an Approved Electronic Platform as to which the Administrative Agent and such parties are participants), and (ii) the Lender required to make such assignment need not be a party thereto in order for such assignment to be effective and shall be deemed to have consented to and be bound by the terms thereof; provided that, following the effectiveness of any such assignment, the other parties to such assignment agree to execute and deliver such documents necessary to evidence such assignment as reasonably requested by the applicable Lender, provided that any such documents shall be without recourse to or warranty by the parties thereto.
SECTION 2.20. Judgment Currency. If for the purposes of obtaining judgment in any court it is necessary to convert a sum due from the Borrower hereunder in the currency expressed to be payable herein (the “specified currency”) into another currency, the parties hereto agree, to the fullest extent that they may effectively do so, that the rate of exchange used shall be that at which in accordance with normal banking procedures the Administrative Agent could purchase the specified currency with such other currency at the Administrative Agent’s main New York City office on the Business Day preceding that on which final, nonappealable judgment is given. The obligations of the Borrower in respect of any sum due to any Lender or the Administrative Agent hereunder shall, notwithstanding any judgment in a currency other than the specified currency, be discharged only to the extent that on the Business Day following receipt by such Lender or the Administrative Agent (as the case may be) of any sum adjudged to be so due in such other currency such Lender or the Administrative Agent (as the case may be) may in accordance with normal, reasonable banking procedures purchase the specified currency with such other currency. If the amount of the specified currency so purchased is less than the sum originally due to such Lender or the Administrative Agent, as the case may be, in the specified currency, the Borrower agrees, to the fullest extent that it may effectively do so, as a separate obligation and notwithstanding any such judgment, to indemnify such Lender or the Administrative Agent, as the case may be, against such loss, and if the amount of the specified currency so purchased exceeds (a) the sum originally due to any Lender or the Administrative Agent, as the case may be, in the specified currency and (b) any amounts shared with other Lenders as a result of allocations of such excess as a disproportionate payment to such Lender under Section 2.18, such Lender or the Administrative Agent, as the case may be, agrees to remit such excess to the Borrower.
SECTION 2.21. Defaulting Lenders. Notwithstanding any provision of this Agreement to the contrary, if any Lender becomes a Defaulting Lender, then the following provisions shall apply for so long as such Lender is a Defaulting Lender:
(a) fees shall cease to accrue on the unfunded portion of the Revolving Commitment of such Defaulting Lender pursuant to Section 2.12(a);
(b) any payment of principal, interest, fees or other amounts received by the Administrative Agent for the account of such Defaulting Lender (whether voluntary or mandatory, at maturity, pursuant to Section 2.18(b) or otherwise) or received by the Administrative Agent from a Defaulting Lender pursuant to Section 9.08 shall be applied at such time or times as may be determined by the Administrative Agent as follows: first, to the payment of any amounts owing by such Defaulting Lender to the Administrative Agent hereunder; second, to the payment on a pro rata basis of any amounts owing by such Defaulting Lender to any Issuing Bank or the Swingline Lender hereunder; third, to cash collateralize each Issuing Bank’s LC Exposure with respect to such Defaulting Lender in accordance with this Section; fourth, as the Borrower may request (so long as no Default or Event of Default exists),
to the funding of any Loan in respect of which such Defaulting Lender has failed to fund its portion thereof as required by this Agreement, as determined by the Administrative Agent; fifth, if so determined by the Administrative Agent and the Borrower, to be held in a deposit account and released pro rata in order to (x) satisfy such Defaulting Lender’s potential future funding obligations with respect to Loans under this Agreement and (y) cash collateralize each Issuing Bank’s future LC Exposure with respect to such Defaulting Lender with respect to future Letters of Credit issued under this Agreement, in accordance with this Section; sixth, to the payment of any amounts owing to the Lenders, the Issuing Banks or the Swingline Lender as a result of any judgment of a court of competent jurisdiction obtained by any Lender, any Issuing Bank or the Swingline Lender against such Defaulting Lender as a result of such Defaulting Lender’s breach of its obligations under this Agreement or under any other Loan Document; seventh, so long as no Default or Event of Default exists, to the payment of any amounts owing to the Borrower as a result of any judgment of a court of competent jurisdiction obtained by the Borrower against such Defaulting Lender as a result of such Defaulting Lender’s breach of its obligations under this Agreement or under any other Loan Document; and eighth, to such Defaulting Lender or as otherwise directed by a court of competent jurisdiction; provided that, if (x) such payment is a payment of the principal amount of any Loans or LC Disbursements in respect of which such Defaulting Lender has not fully funded its appropriate share, and (y) such Loans were made or the related Letters of Credit were issued at a time when the conditions set forth in Section 4.02 were satisfied or waived, such payment shall be applied solely to pay the Loans of, and LC Disbursements owed to, all non-Defaulting Lenders on a pro rata basis prior to being applied to the payment of any Loans of, or LC Disbursements owed to, such Defaulting Lender until such time as all Loans and funded and unfunded participations in the Borrower’s obligations corresponding to such Defaulting Lender’s LC Exposure and Swingline Loans are held by the Lenders pro rata in accordance with the Commitments without giving effect to clause (d) below. Any payments, prepayments or other amounts paid or payable to a Defaulting Lender that are applied (or held) to pay amounts owed by a Defaulting Lender or to post cash collateral pursuant to this Section shall be deemed paid to and redirected by such Defaulting Lender, and each Lender irrevocably consents hereto;
(c) the Commitment and Revolving Credit Exposure of such Defaulting Lender shall not be included in determining whether the Required Lenders have taken or may take any action hereunder (including any consent to any amendment, waiver or other modification pursuant to Section 9.02); provided that any amendment, waiver or other modification requiring the consent of all Lenders or all Lenders directly affected thereby shall not, except as otherwise provided in Section 9.02, require the consent of such Defaulting Lender in accordance with the terms hereof;
(d) if any Swingline Exposure or LC Exposure exists at the time such Lender becomes a Defaulting Lender then:
(i) all or any part of the Swingline Exposure and LC Exposure of such Defaulting Lender (other than, in the case of a Defaulting Lender that is the Swingline Lender, the portion of such Swingline Exposure referred to in clause (b) of the definition of such term) shall be reallocated among the non-Defaulting Lenders in accordance with their respective Applicable Percentages but only to the extent that such reallocation does not, as to any non-Defaulting Lender, cause such non-Defaulting Lender’s Revolving Credit Exposure to exceed its Revolving Commitment;
(ii) if the reallocation described in clause (i) above cannot, or can only partially, be effected, the Borrower shall within one (1) Business Day following notice by the Administrative Agent (x) first, prepay such Swingline Exposure and (y) second, cash collateralize for the benefit of each Issuing Bank only the Borrower’s obligations corresponding to such Defaulting Lender’s LC Exposure (after giving effect to any partial reallocation pursuant to clause (i) above) in
accordance with the procedures set forth in Section 2.06(j) for so long as such LC Exposure is outstanding;
(iii) if the Borrower cash collateralizes any portion of such Defaulting Lender’s LC Exposure pursuant to clause (ii) above, the Borrower shall not be required to pay any fees to such Defaulting Lender pursuant to Section 2.12(b) with respect to such Defaulting Lender’s LC Exposure during the period such Defaulting Lender’s LC Exposure is cash collateralized;
(iv) if the LC Exposure of the non-Defaulting Lenders is reallocated pursuant to clause (i) above, then the fees payable to the Lenders pursuant to Sections 2.12(a) and Section 2.12(b) shall be adjusted in accordance with such non-Defaulting Lenders’ Applicable Percentages; and
(v) if all or any portion of such Defaulting Lender’s LC Exposure is neither reallocated nor cash collateralized pursuant to clause (i) or (ii) above, then, without prejudice to any rights or remedies of the relevant Issuing Bank or any other Lender hereunder, all letter of credit fees payable under Section 2.12(b) with respect to such Defaulting Lender’s LC Exposure shall be payable to such Issuing Bank until and to the extent that such LC Exposure is reallocated and/or cash collateralized; and
(e) so long as such Lender is a Defaulting Lender, the Swingline Lender shall not be required to fund any Swingline Loan and the relevant Issuing Bank shall not be required to issue, amend or increase any Letter of Credit, unless it is satisfied that the related exposure and the Defaulting Lender’s then outstanding LC Exposure will be 100% covered by the Revolving Commitments of the non-Defaulting Lenders and/or cash collateral will be provided by the Borrower in accordance with Section 2.21(d), and Swingline Exposure related to any such newly made Swingline Loan or LC Exposure related to any newly issued or increased Letter of Credit shall be allocated among non-Defaulting Lenders in a manner consistent with Section 2.21(d)(i) (and such Defaulting Lender shall not participate therein).
If (i) a Bankruptcy Event or a Bail-In Action with respect to a Lender Parent shall occur following the date hereof and for so long as such event shall continue or (ii) the Swingline Lender or any Issuing Bank has a good faith belief that any Lender has defaulted in fulfilling its obligations under one or more other agreements in which such Lender commits to extend credit, the Swingline Lender shall not be required to fund any Swingline Loan and no Issuing Bank shall be required to issue, amend or increase any Letter of Credit, unless the Swingline Lender or the relevant Issuing Bank, as the case may be, shall have entered into arrangements with the Borrower or such Lender, satisfactory to the Swingline Lender or such Issuing Bank, as the case may be, to defease any risk to it in respect of such Lender hereunder.
In the event that the Administrative Agent, the Borrower, the Swingline Lender and each Issuing Bank each agrees that a Defaulting Lender has adequately remedied all matters that caused such Lender to be a Defaulting Lender, then the Swingline Exposure and LC Exposure of the Lenders shall be readjusted to reflect the inclusion of such Lender’s Commitment and on such date such Lender shall purchase at par such of the Loans of the other Lenders (other than Swingline Loans) as the Administrative Agent shall determine may be necessary in order for such Lender to hold such Loans in accordance with its Applicable Percentage.
Nothing contained in this Section 2.21 shall be deemed to be a waiver by the Borrower of any claim the Borrower may have against any Defaulting Lender, whether in equity or at law, for its failure to perform its obligations under this Agreement or other Loan Documents.
SECTION 2.22. Expansion Option. The Borrower may from time to time elect to increase the Revolving Commitments or enter into one or more tranches of term loans (each an “Incremental Term Loan”), in each case in a minimum amount of $10,000,000 and in minimum increments of $5,000,000 in excess thereof so long as, after giving effect thereto, the aggregate amount of such increases in Revolving Commitments and all such Incremental Term Loans does not exceed $100,000,000 in the aggregate, and not more than $50,000,000 in the case of all such Incremental Term Loans. The Borrower may arrange for any such increase or tranche to be provided by one or more Lenders (each Lender so agreeing to an increase in its Revolving Commitment or to participate in such Incremental Term Loans, an “Increasing Lender”), or by one or more new banks, financial institutions or other entities (each such new bank, financial institution or other entity, an “Augmenting Lender”; provided that no Ineligible Institution may be an Augmenting Lender), which agree to increase their existing Revolving Commitments or to participate in such Incremental Term Loans, or provide new Revolving Commitments, as the case may be; provided that (i) each Augmenting Lender shall be subject to the approval of the Borrower and the Administrative Agent and (ii) (x) in the case of an Increasing Lender, the Borrower and such Increasing Lender execute an agreement substantially in the form of Exhibit E hereto, and (y) in the case of an Augmenting Lender, the Borrower and such Augmenting Lender execute an agreement substantially in the form of Exhibit F hereto. No consent of any Lender (other than the Lenders participating in the increase or any Incremental Term Loan) shall be required for any increase in Revolving Commitments or Incremental Term Loan pursuant to this Section 2.22. Increases and new Revolving Commitments and Incremental Term Loans created pursuant to this Section 2.22 shall become effective on the date agreed by the Borrower, the Administrative Agent and the relevant Increasing Lenders or Augmenting Lenders, and the Administrative Agent shall notify each Lender thereof. Notwithstanding the foregoing, no increase in the Revolving Commitments (or in the Revolving Commitment of any Lender) or tranche of Incremental Term Loans shall become effective under this paragraph unless, (i) on the proposed date of the effectiveness of such increase or Incremental Term Loans, (A) the conditions set forth in paragraphs (a) and (b) of Section 4.02 shall be satisfied or waived by the Required Lenders and the Administrative Agent shall have received a certificate to that effect dated such date and executed by a Financial Officer of the Borrower and (B) the Borrower shall be in compliance (on a Pro Forma Basis) with the covenants contained in Section 6.11 (giving effect to any Leverage Ratio Increase then in effect pursuant to Section 6.11) and (ii) the Administrative Agent shall have received (x) documents and opinions consistent with those delivered on the Effective Date as to the organizational power and authority of the Borrower to borrow hereunder after giving effect to such increase or Incremental Term Loans and (y) reaffirmations from the Loan Parties. On the effective date of any increase in the Revolving Commitments or any Incremental Term Loans being made, (i) each relevant Increasing Lender and Augmenting Lender shall make available to the Administrative Agent such amounts in immediately available funds as the Administrative Agent shall determine, for the benefit of the other Lenders, as being required in order to cause, after giving effect to such increase and the use of such amounts to make payments to such other Lenders, each Lender’s portion of the outstanding Revolving Loans of all the Lenders to equal its Applicable Percentage of such outstanding Revolving Loans, and (ii) except in the case of any Incremental Term Loans, the Borrower shall be deemed to have repaid and reborrowed all outstanding Revolving Loans as of the date of any increase in the Revolving Commitments (with such reborrowing to consist of the Types of Revolving Loans, with related Interest Periods if applicable, specified in a notice delivered by the Borrower, in accordance with the requirements of Section 2.03). The deemed payments made pursuant to clause (ii) of the immediately preceding sentence shall be accompanied by payment of all accrued interest on the amount prepaid and, in respect of each Eurocurrency Loan, shall be subject to indemnification by the Borrower pursuant to the provisions of Section 2.16 if the deemed payment occurs other than on the last day of the related Interest Periods. The Incremental Term Loans (a) shall rank pari passu in right of payment and of security with the Revolving Loans, (b) shall not mature earlier than the Maturity Date (but may have amortization prior to such date), (c) shall not be guaranteed by any person other than a Loan Party and shall not be secured by
any Lien on any asset other than an asset constituting Collateral and (d) shall have terms and conditions substantially the same as (and in any event no more favorable than) the Revolving Loans; provided that (i) the terms and conditions applicable to any tranche of Incremental Term Loans maturing after the Maturity Date may provide for material additional or different financial or other covenants or prepayment requirements applicable only during periods after the Maturity Date and (ii) the Incremental Term Loans may be priced differently (whether in the form of interest rate margin, upfront fees, original issue discount, call protection or otherwise) than the Revolving Loans. Incremental Term Loans may be made hereunder pursuant to an amendment or restatement (an “Incremental Term Loan Amendment”) of this Agreement and, as appropriate, the other Loan Documents, executed by the Borrower, each Increasing Lender participating in such tranche, each Augmenting Lender participating in such tranche, if any, and the Administrative Agent. The Incremental Term Loan Amendment may, without the consent of any other Lenders, effect such amendments to this Agreement and the other Loan Documents as may be necessary or appropriate, in the reasonable opinion of the Administrative Agent, to effect the provisions of this Section 2.22. Nothing contained in this Section 2.22 shall constitute, or otherwise be deemed to be, a commitment on the part of any Lender to increase its Revolving Commitment hereunder, or provide Incremental Term Loans, at any time.
ARTICLE III
Representations and Warranties
The Borrower represents and warrants to the Lenders that:
SECTION 3.01. Organization; Powers; Subsidiaries. Each of the Borrower and its Subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, has all requisite corporate or other power and authority to carry on its business as now conducted and, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required. On the Effective Date, Schedule 3.01 hereto (as supplemented from time to time) identifies each Subsidiary, noting whether such Subsidiary is a Material Subsidiary, the jurisdiction of its incorporation or organization, as the case may be, the percentage of issued and outstanding shares of each class of its capital stock or other equity interests owned by the Borrower and the other Subsidiaries and, if such percentage is not 100% (excluding directors’ qualifying shares as required by law), a description of each class issued and outstanding. On the Effective Date, all of the outstanding shares of capital stock and other equity interests of each Subsidiary are validly issued and outstanding and fully paid and nonassessable and all such shares and other equity interests indicated on Schedule 3.01 as owned by the Borrower or another Loan Party are owned, beneficially and of record, by the Borrower or any Subsidiary free and clear of all Liens, other than Liens created under the Loan Documents and Permitted Encumbrances. On the Effective Date, except as set forth on Schedule 3.01, there are no outstanding commitments or other obligations of any Subsidiary to issue, and no options, warrants or other rights of any Person to acquire, any shares of any class of capital stock or other equity interests of any Pledge Subsidiary.
SECTION 3.02. Authorization; Enforceability. The Transactions are within each Loan Party’s organizational powers and have been duly authorized by all necessary organizational actions and, if required, actions by equity holders. The Loan Documents to which each Loan Party is a party have been duly executed and delivered by such Loan Party and constitute a legal, valid and binding obligation of such Loan Party, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.
SECTION 3.03. Governmental Approvals; No Conflicts. The Transactions (a) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except such as have been obtained or made and are in full force and effect and except for filings necessary to perfect Liens created pursuant to the Loan Documents, (b) will not in any material respect violate any applicable law or regulation or the charter, by-laws or other organizational documents of the Borrower or any other Subsidiary or any order of any Governmental Authority, (c) will not violate or result in a default under any indenture, material agreement or other material instrument binding upon the Borrower or any of its Subsidiaries or its assets, or give rise to a right thereunder to require any payment to be made by the Borrower or any of its Subsidiaries, unless, in the case of this clause (c), such violation, default or creation of payment could not reasonably be expected to result in a Material Adverse Effect, and (d) will not result in the creation or imposition of any Lien on any asset of the Borrower or any of its Subsidiaries, other than Liens created under the Loan Documents.
SECTION 3.04. Financial Condition; No Material Adverse Change. (a) The Borrower has heretofore furnished to the Lenders its consolidated balance sheet and statements of income, stockholders equity and cash flows as of and for the fiscal year ended December 31, 2020. Such financial statements present fairly, in all material respects, the financial position and results of operations and cash flows of the Borrower and its consolidated Subsidiaries as of such dates and for such periods in accordance with GAAP except as set forth therein, subject to year-end audit adjustments and the absence of footnotes in the case of the statements referred to in clause (ii) above.
(b) Since December 31, 2020, there has been no event, development or circumstance that has had, or would reasonably be expected to have, a material adverse change in the business, assets, operations or financial condition of the Borrower and its Subsidiaries, taken as a whole.
SECTION 3.05. Properties. (a) Each of the Borrower and its Subsidiaries has good title to, or valid leasehold interests in, all its real and personal property material to its business, except for minor defects in title that do not interfere with its ability to conduct its business as currently conducted or to utilize such properties for their intended purposes.
(b) Each of the Borrower and its Subsidiaries owns, or is licensed to use, all trademarks, trade names, copyrights, patents and other intellectual property material to its business, and the use thereof by the Borrower and its Subsidiaries does not infringe upon the rights of any other Person, except for any failure to be owned or licensed or such infringements that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.
SECTION 3.06. Litigation, Environmental and Labor Matters. (a) There are no actions, suits, proceedings or investigations by or before any arbitrator or Governmental Authority pending against or, to the knowledge of the Borrower, threatened against the Borrower or any of its Subsidiaries (i) as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect (other than the Disclosed Matters) or (ii) that involve the validity or enforceability of this Agreement or the Transactions.
(b) Except for the Disclosed Matters, and except with respect to any other matters that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, neither the Borrower nor any of its Subsidiaries (i) has failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law, (ii) has become subject to any Environmental Liability, (iii) has received notice of
any claim with respect to any Environmental Liability or (iv) knows of any basis for any Environmental Liability.
(c) There are no strikes, lockouts or slowdowns against the Borrower or any of its Subsidiaries pending or, to their knowledge, threatened, or any violation of the Occupational Safety and Health Act, which could reasonably be expected to have a Material Adverse Effect. The hours worked by and payments made to employees of the Borrower and its Subsidiaries have not been in violation of the Fair Labor Standards Act or any other applicable Federal, state, local or foreign law relating to such matters, to the extent such violation could reasonably be expected to have a Material Adverse Effect. All material payments due from the Borrower or any of its Subsidiaries, or for which any claim may be made against the Borrower or any of its Subsidiaries, on account of wages and employee health and welfare insurance and other benefits, have been paid or accrued as liabilities on the books of the Borrower or such Subsidiary, except to the extent the failure to make such payments or accruals individually or in the aggregate could not reasonably be expected to result in a Material Adverse Effect. The consummation of the Transactions will not give rise to any right of termination or right of renegotiation on the part of any union under any collective bargaining agreement under which the Borrower or any of its Subsidiaries is bound.
SECTION 3.07. Compliance with Laws and Agreements. Each of the Borrower and its Subsidiaries is in compliance with all laws, regulations and orders of any Governmental Authority applicable to it or its property and all indentures, agreements and other instruments binding upon it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.
SECTION 3.08. Investment Company Status. Neither the Borrower nor any of its Subsidiaries is an “investment company” as defined in, or subject to regulation under, the Investment Company Act of 1940.
SECTION 3.09. Taxes. Each of the Borrower and its Subsidiaries has timely filed or caused to be filed all Tax returns and reports required to have been filed and has paid or caused to be paid all Taxes required to have been paid by it, except (a) Taxes that are being contested in good faith by appropriate proceedings and for which the Borrower or such Subsidiary, as applicable, has set aside on its books adequate reserves or (b) to the extent that the failure to do so could not reasonably be expected to result in a Material Adverse Effect.
SECTION 3.10. ERISA. No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Effect.
SECTION 3.11. Disclosure. No reports, financial statements, certificates or other information furnished by or on behalf of the Borrower or any Subsidiary to the Administrative Agent or any Lender in connection with the negotiation of this Agreement or delivered hereunder (as modified or supplemented by other information so furnished), taken as a whole and as of the date furnished, contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that, with respect to projected financial information, the Borrower represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time (it being understood that projected financial information are predictions as to future events and are not to be viewed as facts and are subject to significant uncertainties and contingencies, which are beyond the control of Borrower and its Subsidiaries, and that no assurance or guarantee can be given that any such projected financial information will be realized, that actual results may differ and such differences may be material). As of
the Effective Date, the information included in the Beneficial Ownership Certification provided (if any) on or prior to the Effective Date to any Lender in connection with this Agreement is true and correct in all respects.
SECTION 3.12. Federal Reserve Regulations. No part of the proceeds of any Loan have been used or will be used, whether directly or indirectly, for any purpose that violates any of the Regulations of the Board, including Regulations T, U and X.
SECTION 3.13. Liens. There are no Liens on any of the real or personal properties of the Borrower or any Subsidiary except for Liens permitted by Section 6.02.
SECTION 3.14. No Default. No Default or Event of Default has occurred and is continuing.
SECTION 3.15. No Burdensome Restrictions. The Borrower is not subject to any Burdensome Restrictions except Burdensome Restrictions permitted under Section 6.08.
SECTION 3.16. Solvency. Immediately after the consummation of the Transactions to occur on the Effective Date, the Borrower and its Subsidiaries, taken as a whole, are and will be Solvent.
SECTION 3.17. Insurance. The Borrower maintains, and has caused each Subsidiary to maintain, with financially sound and reputable insurance companies, insurance on all their real and personal property in such amounts, subject to such deductibles and self-insurance retentions and covering such properties and risks as are adequate and customarily maintained by companies engaged in the same or similar businesses operating in the same or similar locations, subject to commercially reasonable adjustments made by Borrower and its Subsidiaries; provided that the Borrower and its Subsidiaries may reduce the amount of insurance required to be maintained above to the extent the Borrower reasonably determines that it is prudent and appropriate to maintain self‑insurance coverage in lieu of such insurance.
SECTION 3.18. Security Interest in Collateral. Collectively, the provisions of this Agreement and the other Loan Documents create legal and valid Liens on all the Collateral in favor of the Administrative Agent, for the benefit of the Secured Parties, and such Liens constitute perfected and continuing Liens on the Collateral in which a security interest may be perfected under the UCC (except to the extent otherwise provided or permitted by the Loan Documents), securing the Secured Obligations, enforceable against the applicable Loan Party and all third parties, and having priority over all other Liens on the Collateral except in the case of (a) Permitted Encumbrances and other liens permitted by Section 6.02, (b) Liens perfected only by possession or control (including possession of any certificate of title) to the extent the Administrative Agent has not obtained or does not maintain possession or control of such Collateral, (c) the filing of financing statements or fixture filings or the recordation of the security agreements with respect to intellectual property, in each case which have not been made and (d) Liens which have priority by operation of law.
SECTION 3.19. Anti-Corruption Laws and Sanctions. The Borrower has implemented and maintains in effect policies and procedures reasonably designed to promote compliance by the Borrower, its Subsidiaries and their respective directors, officers, employees, Affiliates and appointed agents and advisors with Anti-Corruption Laws and applicable Sanctions, and the Borrower, its Subsidiaries and, to the knowledge of the Borrower, their respective officers, directors, employees, Affiliates and appointed agents and advisors are in compliance with Anti-Corruption Laws and applicable Sanctions in all material respects. None of (a) the Borrower, any Subsidiary, or to the knowledge of the Borrower, any of their respective directors, officers, employees or Affiliates or (b) to
the knowledge of the Borrower, any appointed agent or advisor of the Borrower or any Subsidiary that will act in any capacity in connection with or directly benefit from the credit facilities established hereby, is a Sanctioned Person. No Borrowing or Letter of Credit, use of proceeds or other transaction contemplated by this Agreement will violate any Anti-Corruption Law or applicable Sanctions.
SECTION 3.20. Affected Financial Institutions. No Subsidiary is an Affected Financial Institution.
ARTICLE IV
Conditions
SECTION 4.01. Effective Date. The obligations of the Lenders to make Loans and of the Issuing Banks to issue Letters of Credit hereunder shall not become effective until the date on which each of the following conditions is satisfied (or waived in accordance with Section 9.02):
(a) The Administrative Agent (or its counsel) shall have received (i) from each party hereto a counterpart of this Agreement signed on behalf of such party (which, subject to Section 9.06, may include any Electronic Signatures transmitted by telecopy, emailed pdf, or any other electronic means that reproduces an image of an actual executed signature page), (ii) duly executed copies of the Fee Letters and (iii) duly executed copies of the other Loan Documents and such other legal opinions, certificates, documents, instruments and agreements as the Administrative Agent shall reasonably request in connection with the Transactions, all in form and substance satisfactory to the Administrative Agent and its counsel and as further described in the list of closing documents attached as Exhibit C.
(b) The Administrative Agent shall have received a favorable written opinion (addressed to the Administrative Agent and the Lenders and dated the Effective Date) of Fenwick & West LLP, legal counsel for the Loan Parties, substantially in the form of Exhibit B, covering such matters relating to the Loan Parties, the Loan Documents or the Transactions as the Administrative Agent shall reasonably request. The Borrower hereby requests such counsel to deliver such opinion.
(c) The Administrative Agent shall have received such documents and certificates as the Administrative Agent or its counsel may reasonably request relating to the organization, existence and good standing (jurisdiction of organization only) of the initial Loan Parties, the authorization of the Transactions and any other legal matters relating to such Loan Parties, the Loan Documents or the Transactions, all in form and substance satisfactory to the Administrative Agent and its counsel and as further described in the list of closing documents attached as Exhibit C.
(d) The Administrative Agent shall have received a certificate, dated the Effective Date and signed by the President, a Vice President or a Financial Officer of the Borrower, confirming compliance with the conditions set forth in paragraphs (a) and (b) of Section 4.02.
(e) The Administrative Agent shall have received evidence satisfactory to it that the credit facilities evidenced by the Existing Credit Agreement shall have been terminated and cancelled and all indebtedness thereunder shall have been fully repaid (except to the extent being so repaid with the initial Loans) and any and all liens thereunder shall have been terminated.
(f) (i) The Administrative Agent shall have received, at least five (5) days prior to the Effective Date, all documentation and other information regarding the Borrower requested in connection with applicable “know your customer” and anti-money laundering rules and regulations, including the Patriot Act, to the extent requested in writing of the Borrower at least ten (10) days prior to the Effective Date and (ii) to the extent the Borrower qualifies as a “legal entity customer” under the Beneficial Ownership Regulation, at least five (5) days prior to the Effective Date, any Lender that has requested, in a written notice to the Borrower at least ten (10) days prior to the Effective Date, a Beneficial Ownership Certification in relation to the Borrower shall have received such Beneficial Ownership Certification (provided that, upon the execution and delivery by such Lender of its signature page to this Agreement, the condition set forth in this clause (e) shall be deemed to be satisfied).
(g) The Administrative Agent shall have received all fees and other amounts due and payable on or prior to the Effective Date, including fees required to be paid on or prior to the Effective Date pursuant to the Fee Letters and, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Borrower hereunder.
(h)The Administrative Agent shall have received the audited financial statements of the Borrower referred to in Section 3.04(a).
The Administrative Agent shall notify the Borrower and the Lenders of the Effective Date, and such notice shall be conclusive and binding.
SECTION 4.02. Each Credit Event. The obligation of each Lender to make a Loan on the occasion of any Borrowing, and of the Issuing Banks to issue, amend or extend any Letter of Credit, is subject to the satisfaction of the following conditions:
(a) The representations and warranties of the Borrower set forth in this Agreement shall be true and correct in all material respects (or, in the case of any representation or warranty qualified by materiality or Material Adverse Effect, in all respects) on and as of the date of such Borrowing or the date of issuance, amendment, renewal or extension of such Letter of Credit, as applicable (except to the extent that any such representations and warranties are made as of an earlier date, in which case such representations and warranties shall have been true and correct in all material respects (or, in the case of any representation or warranty qualified by materiality or Material Adverse Effect, in all respects) on and as of such earlier date).
(b) At the time of and immediately after giving effect to such Borrowing or the issuance, amendment or extension of such Letter of Credit, as applicable, no Default or Event of Default shall have occurred and be continuing.
Each Borrowing and each issuance, amendment or extension of a Letter of Credit shall be deemed to constitute a representation and warranty by the Borrower on the date thereof as to the matters specified in paragraphs (a) and (b) of this Section.
ARTICLE V
Affirmative Covenants
Until the Commitments have expired or been terminated and the principal of and interest on each Loan and all fees payable hereunder shall have been paid in full and all Letters of Credit shall
have expired, terminated or been cash collateralized to the reasonable satisfaction of the Administrative Agent, in each case, without any pending draw, and all LC Disbursements shall have been reimbursed, the Borrower covenants and agrees with the Lenders that:
SECTION 5.01. Financial Statements and Other Information. The Borrower will furnish to the Administrative Agent and each Lender:
(a) within ninety (90) days after the end of each fiscal year of the Borrower (or, if earlier, by the date three (3) Business Days after the Annual Report on Form 10-K of the Borrower for such fiscal year would be required to be filed under the rules and regulations of the SEC, giving effect to any automatic extension available thereunder for the filing of such form), its audited consolidated balance sheet and related statements of operations, stockholders’ equity and cash flows as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by independent public accountants of recognized national standing (without a “going concern” or like qualification or exception and without any qualification or exception as to the scope of such audit) to the effect that such consolidated financial statements present fairly in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP;
(b) within forty-five (45) days after the end of each of the first three fiscal quarters of each fiscal year of the Borrower (or, if earlier, by the date three (3) Business Days after the Quarterly Report on Form 10-Q of the Borrower for such fiscal quarter would be required to be filed under the rules and regulations of the SEC, giving effect to any automatic extension available thereunder for the filing of such form), its consolidated balance sheet and related statements of operations, stockholders’ equity and cash flows as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all certified by one of its Financial Officers as presenting fairly in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP, subject to normal year-end audit adjustments and the absence of footnotes;
(c) concurrently with any delivery of financial statements under clause (a) or (b) above, a certificate of a Financial Officer of the Borrower (i) certifying as to whether a Default has occurred and, if a Default has occurred, specifying the details thereof and any action taken or proposed to be taken with respect thereto, (ii) setting forth reasonably detailed calculations demonstrating compliance with Section 6.11 (giving effect to any Leverage Ratio Increase then in effect pursuant to Section 6.11) and (iii) stating whether any change in GAAP or in the application thereof has occurred since the date of the audited financial statements referred to in Section 3.04 and, if any such change has occurred, specifying the effect of such change on the financial statements accompanying such certificate;
(d) prior to a Public Listing, as soon as available, but in any event not more than ninety (90) days after the end of each fiscal year of the Borrower, a copy of the plan and forecast (including a projected consolidated balance sheet, income statement and funds flow statement) of the Borrower for the following fiscal year in form reasonably satisfactory to the Administrative Agent;
(e) promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed by the Borrower or any Subsidiary with the
SEC, or any Governmental Authority succeeding to any or all of the functions of said Commission, or with any national securities exchange, or distributed by the Borrower to its shareholders generally, as the case may be; and
(f) promptly following any request therefor, (x) such other information regarding the operations, business affairs and financial condition of the Borrower or any Subsidiary, or compliance with the terms of this Agreement, as the Administrative Agent or any Lender (through the Administrative Agent) may reasonably request and (y) information and documentation reasonably requested by the Administrative Agent or any Lender for purposes of compliance with applicable “know your customer” and anti-money laundering rules and regulations, including the Patriot Act and the Beneficial Ownership Regulation.
Following a Public Listing, documents required to be delivered pursuant to clauses (a), (b) and (e) of this Section 5.01 shall be deemed to have been delivered on the date on which such documents are filed for public availability on the SEC’s Electronic Data Gathering and Retrieval System. Notwithstanding anything contained herein, in every instance the Borrower shall be permitted to provide electronic copies of the compliance certificates required by clause (c) of this Section 5.01 to the Administrative Agent.
SECTION 5.02. Notices of Material Events. The Borrower will furnish to the Administrative Agent and each Lender prompt written notice after a Responsible Officer has knowledge of the following:
(a) the occurrence of any Default;
(b) the filing or commencement of any action, suit or proceeding by or before any arbitrator or Governmental Authority against or affecting the Borrower or any Affiliate thereof as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, could reasonably be expected to result in a Material Adverse Effect;
(c) the occurrence of any ERISA Event that, alone or together with any other ERISA Events that have occurred, could reasonably be expected to result in a Material Adverse Effect;
(d) any other development that results in, or could reasonably be expected to result in, a Material Adverse Effect;
(e) any change in the information provided in the Beneficial Ownership Certification delivered to such Lender that would result in a change to the list of beneficial owners identified in such certification; and
(f)any material change in accounting or financial reporting practices by the Borrower or any Subsidiary.
Each notice delivered under this Section shall be accompanied by a statement of a Financial Officer or other executive officer of the Borrower setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto.
SECTION 5.03. Existence; Conduct of Business. The Borrower will, and will cause each of its Material Subsidiaries to, do or cause to be done (i) all things necessary to preserve, renew and keep in full force and effect its legal existence and (ii) take, or cause to be taken, all reasonable actions to preserve, renew and keep in full force and effect the rights, qualifications, licenses, permits, privileges,
franchises, governmental authorizations and intellectual property rights material to the conduct of its business, and maintain all requisite authority to conduct its business in each jurisdiction in which its business is conducted, except, in the case of this clause (ii), where the failure to do so could not reasonably be expected to cause a Material Adverse Effect; provided that the foregoing shall not prohibit any merger, consolidation, liquidation, disposition of assets or dissolution permitted under Section 6.03.
SECTION 5.04. Payment of Obligations. The Borrower will, and will cause each of its Subsidiaries to, pay its obligations, including Tax liabilities, that, if not paid, could result in a Material Adverse Effect before the same shall become delinquent or in default, except where (a) the validity or amount thereof is being contested in good faith by appropriate proceedings, (b) the Borrower or such Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP and (c) the failure to make payment while such contest is pending could not reasonably be expected to result in a Material Adverse Effect.
SECTION 5.05. Maintenance of Properties; Insurance. The Borrower will, and will cause each of its Subsidiaries to, (a) keep and maintain all property material to the conduct of its business in good working order and condition, ordinary wear and tear excepted, and (b) maintain with financially sound and reputable carriers insurance in such amounts (with no greater risk retention) and against such risks and such other hazards, as is customarily maintained by companies of established repute engaged in the same or similar businesses operating in the same or similar locations, subject to commercially reasonable adjustments made by Borrower and its Subsidiaries; provided that the Borrower and its Subsidiaries may reduce the amount of insurance required to be maintained above to the extent the Borrower reasonably determines that it is prudent and appropriate to maintain self‑insurance coverage in lieu of such insurance. The Borrower will furnish to the Lenders, upon request of the Administrative Agent, information in reasonable detail as to the insurance so maintained. The Borrower shall deliver to the Administrative Agent endorsements within 30 days of the Effective Date (as such time period may be extended by the Administrative Agent in its sole discretion) or otherwise from time to time thereafter (x) to all insurance policies on all of the Loan Parties’ tangible personal property and assets naming the Administrative Agent as lender loss payee, and (y) to all general liability and other liability policies naming the Administrative Agent an additional insured. In the event the Borrower or any of its Subsidiaries at any time or times hereafter shall fail to obtain or maintain any of the policies or insurance required herein or to pay any premium in whole or in part relating thereto, then the Administrative Agent, without waiving or releasing any obligations or resulting Default hereunder, may at any time or times thereafter (but shall be under no obligation to do so) obtain and maintain such policies of insurance and pay such premiums and take any other action with respect thereto which the Administrative Agent reasonably deems advisable; provided that the Administrative Agent provides the Borrower with prior written notice of its intent to obtain such insurance policies. All sums so disbursed by the Administrative Agent shall constitute part of the Obligations, payable as provided in this Agreement. The Borrower will furnish to the Administrative Agent and the Lenders prompt written notice of any casualty or other insured damage to any material portion of the Collateral with a fair market value immediately prior to such event greater than $5,000,000 or the commencement of any action or proceeding for the taking of any material portion of the Collateral with a fair market value immediately prior to such event greater than $5,000,000 or interest therein under power of eminent domain or by condemnation or similar proceeding.
SECTION 5.06. Books and Records; Inspection Rights. The Borrower will, and will cause each of its Subsidiaries to, keep proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities. The Borrower will, and will cause each of its Subsidiaries to, permit any representatives designated by the Administrative Agent or any Lender, upon reasonable prior notice, to visit and inspect its properties, to examine and make extracts from its books and records, including environmental assessment reports and
Phase I or Phase II studies, and to discuss its affairs, finances and condition with its officers and independent accountants, all at reasonable times and during normal business hours; provided that so long as no Event of Default exists the Administrative Agent and Lenders shall not be entitled to visit and inspect the Borrower and its Subsidiaries more than one (1) time per year (such visit and inspection to be conducted by the Administrative Agent). The Borrower acknowledges that the Administrative Agent, after exercising its rights of inspection, may prepare and distribute to the Lenders certain reports pertaining to the Borrower and its Subsidiaries’ assets for internal use by the Administrative Agent and the Lenders.
SECTION 5.07. Compliance with Laws and Material Contractual Obligations. The Borrower will, and will cause each of its Subsidiaries to, (i) comply with all laws, rules, regulations and orders of any Governmental Authority applicable to it or its property (including without limitation Environmental Laws) and (ii) perform in all material respects its obligations under material agreements to which it is a party, in each case except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. The Borrower will maintain in effect and enforce policies and procedures reasonably designed to ensure compliance by the Borrower, its Subsidiaries and their respective directors, officers, employees and agents with Anti-Corruption Laws and applicable Sanctions.
SECTION 5.08. Use of Proceeds. The proceeds of the Revolving Loans will be used only to finance the working capital needs and for general corporate purposes of the Borrower and its Subsidiaries. No part of the proceeds of any Loan will be used, whether directly or indirectly, for any purpose that entails a violation of any of the Regulations of the Board, including Regulations T, U and X. The Borrower will not request any Borrowing or Letter of Credit, and the Borrower shall not use, and shall procure that its Subsidiaries and its or their respective directors, officers, employees and agents shall not use, the proceeds of any Borrowing or Letter of Credit (i) in furtherance of an offer, payment, promise to pay, or authorization of the payment or giving of money, or anything else of value, to any Person in violation of any Anti-Corruption Laws, (ii) for the purpose of funding, financing or facilitating any activities, business or transaction of or with any Sanctioned Person, or in any Sanctioned Country, to the extent such activities, businesses or transaction would be prohibited by Sanctions or (iii) in any manner that would result in the violation of any Sanctions applicable to any party hereto.
SECTION 5.09. Subsidiary Guarantors; Pledges; Additional Collateral; Further Assurances.
(a) As promptly as possible but in any event within sixty (60) days (or such later date as may be agreed upon by the Administrative Agent) after (i) any Person (other than an existing Subsidiary) becomes a Domestic Subsidiary that qualifies as a Material Subsidiary or (ii) the end of a fiscal quarter during which any Domestic Subsidiary qualifies independently as, or is designated by the Borrower or the Administrative Agent as, a Material Subsidiary pursuant to the definition of “Material Subsidiary”, the Borrower shall provide the Administrative Agent with written notice thereof setting forth information in reasonable detail describing the material assets of such Person and shall cause each such Domestic Subsidiary which also qualifies as a Material Subsidiary to deliver to the Administrative Agent the Subsidiary Guaranty or a joinder to the Subsidiary Guaranty and the Security Agreement (in each case in the form contemplated thereby) pursuant to which such Domestic Subsidiary agrees to be bound by the terms and provisions thereof, such Subsidiary Guaranty and the Security Agreement to be accompanied by appropriate corporate resolutions, other corporate documentation and legal opinions to the extent requested by, and in form and substance reasonably satisfactory to, the Administrative Agent and its counsel.
(b) The Borrower will cause, and will cause each other Loan Party to cause, all of its owned property constituting Collateral (whether personal, tangible, intangible, or mixed but excluding Excluded Assets) to be subject at all times to first priority, perfected (to the extent any such Lien may be perfected under the UCC) Liens in favor of the Administrative Agent for the benefit of the Secured Parties to secure the Secured Obligations to the extent required by the terms and conditions of the Collateral Documents, subject in any case to Liens permitted by Section 6.02. Without limiting the generality of the foregoing, the Borrower will cause the Applicable Pledge Percentage of the issued and outstanding Equity Interests of each Pledge Subsidiary directly owned by the Borrower or any other Loan Party to be subject at all times to a first priority, perfected Lien (subject in any case to Liens permitted by Section 6.02) in favor of the Administrative Agent to secure the Secured Obligations in accordance with the terms and conditions of the Collateral Documents or such other pledge and security documents as the Administrative Agent shall reasonably request. Notwithstanding the foregoing, no such foreign law governed pledge agreement in respect of the Equity Interests of a Foreign Subsidiary that is a Pledge Subsidiary shall be required until the date that occurs ninety (90) days after the date such pledge agreement is reasonably requested by the Administrative Agent or such later date as the Administrative Agent may agree in the exercise of its reasonable discretion with respect thereto.
(c) Without limiting the foregoing, the Borrower will, and will cause each Subsidiary to, execute and deliver, or cause to be executed and delivered, to the Administrative Agent such documents, agreements and instruments, and will take or cause to be taken such further actions (including the filing and recording of financing statements and other documents and such other actions or deliveries of the type required by Section 4.01, as applicable, but excluding any mortgages, deeds of trust or fixture filings), which may be required by law or which the Administrative Agent may, from time to time, reasonably request to carry out the terms and conditions of this Agreement and the other Loan Documents and to ensure perfection and priority of the Liens created or intended to be created by the Collateral Documents, all at the expense of the Borrower. Notwithstanding anything to the contrary in the Loan Documents, no actions in any jurisdiction outside the United States or required by the laws of any jurisdiction outside the United States shall be required (other than with respect to the pledge of Equity Interests in a Pledge Subsidiary that is a First Tier Foreign Subsidiary) in order to create any security interests in any asset of the Borrower or any Subsidiary physically located in any jurisdiction outside the United States or subject to a document of title governed by the laws of any jurisdiction outside the United States or to perfect any security interests under such laws.
SECTION 5.10. Depository Banks. Within ninety (90) days following the Effective Date, the Borrower will, and will cause each of its Domestic Subsidiaries to, maintain the Administrative Agent as (a) its principal depository bank, including for the maintenance of operating, administrative, cash management, collection, disbursement, deposit and other accounts for the conduct of its business, which accounts shall represent as of the last day of each calendar month at least fifty percent (50%) of the Aggregate Dollar Account Value, and (b) the principal provider for the following domestic bank treasury management services of the Borrower and its Domestic Subsidiaries: checks, wires, lockbox, controlled disbursements, automated clearinghouse transactions, return items, any direct debit scheme or arrangement, and overdrafts and interstate depository network services. Notwithstanding anything to the contrary, nothing herein shall require Borrower or its Subsidiaries to use the Administrative Agent for (i) any payment processing services, (ii) any other asset management services, including investments in money markets funds, bonds, commercial paper or foreign investments or (iii) any corporate credit cards or purchase cards.
ARTICLE VI
Negative Covenants
Until the Commitments have expired or terminated and the principal of and interest on each Loan and all fees payable hereunder have been paid in full and all Letters of Credit have expired, terminated or been cash collateralized to the reasonable satisfaction of the Administrative Agent, in each case, without any pending draw, and all LC Disbursements shall have been reimbursed, the Borrower covenants and agrees with the Lenders that:
SECTION 6.01. Indebtedness. The Borrower will not, and will not permit any Subsidiary to, create, incur, assume or permit to exist any Indebtedness, except:
(a) the Secured Obligations
(b) Indebtedness existing on the date hereof and set forth in Schedule 6.01 and extensions, renewals and replacements of any such Indebtedness with Indebtedness of a similar type that does not increase the outstanding principal amount thereof (except by the amount of any accrued interest and premiums with respect to such Indebtedness and transaction fees, costs and expenses in connection with such extension, renewal or replacement thereof);
(c) Indebtedness of the Borrower to any Subsidiary and of any Subsidiary to the Borrower or any other Subsidiary; provided that Indebtedness of any Subsidiary that is not a Loan Party to any Loan Party shall be subject to the limitations set forth in Section 6.04(d);
(d) Guarantees by the Borrower of Indebtedness of any Subsidiary and by any Subsidiary of Indebtedness of the Borrower or any other Subsidiary;
(e) Indebtedness of the Borrower or any Subsidiary incurred to finance the acquisition, construction or improvement of any fixed or capital assets, including Capital Lease Obligations and any Indebtedness assumed in connection with the acquisition of any such assets or secured by a Lien on any such assets prior to the acquisition thereof, and extensions, renewals and replacements of any such Indebtedness that do not increase the outstanding principal amount thereof (except by the amount of any accrued interest and premiums with respect to such Indebtedness and transaction fees, costs and expenses in connection with such extension, renewal or replacement thereof); provided that (i) such original Indebtedness (but not extensions, renewals or replacements thereof) is incurred prior to or within ninety (90) days after such acquisition or the completion of such construction or improvement and (ii) the aggregate principal amount of Indebtedness permitted by this clause (e) shall not exceed $15,000,000 at any time outstanding;
(f) Indebtedness of the Borrower or any Subsidiary as an account party in respect of trade letters of credit;
(g) Indebtedness of the Borrower or any Subsidiary secured by a Lien on any asset of the Borrower or any Subsidiary; provided that the aggregate outstanding principal amount of Indebtedness permitted by this clause (g) shall not in the aggregate exceed $10,000,000 at any time;
(h) Indebtedness in respect of Swap Agreements permitted under Section 6.05;
(i) Indebtedness under performance bonds, letter of credit obligations to provide security for workers compensation claims and bank overdrafts, in each case, in the ordinary course of business;
(j) unsecured Indebtedness of the Borrower (including unsecured Subordinated Indebtedness to the extent subordinated to the Secured Obligations on terms reasonably acceptable to the Administrative Agent and Permitted Convertible Notes), to the extent not otherwise permitted under this Section 6.01, and any Indebtedness of the Borrower constituting refinancings, renewals or replacements of any such Indebtedness; provided that (i) both immediately prior to and after giving effect (including pro forma effect) thereto, no Default or Event of Default shall exist or would result therefrom, (ii) such Indebtedness matures after, and does not require any scheduled amortization or other scheduled payments of principal prior to, the date that is 181 days after the Maturity Date (it being understood that neither (x) any provision requiring an offer to purchase such Indebtedness as a result of change of control or asset sale or other fundamental change nor (y) any early conversion of any Permitted Convertible Notes in accordance with the terms thereof shall violate the foregoing restriction), (iii) such Indebtedness is not guaranteed by any Subsidiary of the Borrower other than the Subsidiary Guarantors (which guarantees, if such Indebtedness is subordinated, shall be expressly subordinated to the Secured Obligations on terms not less favorable to the Lenders than the subordination terms of such Subordinated Indebtedness) and (iv) the covenants applicable to such Indebtedness are not more onerous or more restrictive in any material respect (taken as a whole) than the applicable covenants set forth in this Agreement (as determined by the Board of Directors of the Borrower in good faith);
(k) Indebtedness of any Person that becomes, and continues as, a Subsidiary, and Indebtedness in respect of assets acquired, pursuant to a Permitted Acquisition and existing at the time of such Permitted Acquisition, so long as the Borrower shall be in compliance (on a Pro Forma Basis) with the covenants contained in Section 6.11 (giving effect to any Leverage Ratio Increase then in effect pursuant to Section 6.11); provided that such Indebtedness is not created in contemplation of or in connection with such Permitted Acquisition or such Person becoming a Subsidiary, as the case may be;
(l) Indebtedness in respect of overdraft facilities, foreign exchange facilities, payment facilities, cash management obligations and similar obligations incurred in the ordinary course of business; and
(m) unsecured Indebtedness of the Borrower and its Subsidiaries in an aggregate principal amount not exceeding $20,000,000 at any time outstanding.
SECTION 6.02. Liens. The Borrower will not, and will not permit any Subsidiary to, create, incur, assume or permit to exist any Lien on any property or asset now owned or hereafter acquired by it, or assign or sell any income or revenues (including accounts receivable) or rights in respect of any thereof, except:
(a) Liens created pursuant to any Loan Document;
(b) Permitted Encumbrances;
(c) Liens or assignments of life insurance policies owned by the Borrower or any of its Subsidiaries securing borrowings against the cash value of such policies provided that the Indebtedness in respect of such borrowings is permitted under Section 6.01;
(d) any Lien on any property or asset of the Borrower or any Subsidiary existing on the date hereof and set forth in Schedule 6.02; provided that (i) such Lien shall not apply to any other property or asset of the Borrower or any Subsidiary other than any proceeds therefrom and (ii) such Lien shall secure only those obligations which it secures on the date hereof and extensions, renewals and replacements thereof that do not increase the outstanding principal amount thereof (except by the amount of any accrued interest and premiums with respect to such Indebtedness and transaction fees, costs and expenses in connection with such extension, renewal or replacement thereof);
(e) any Lien existing on any property or asset prior to the acquisition thereof by the Borrower or any Subsidiary or existing on any property or asset of any Person that becomes a Subsidiary after the date hereof prior to the time such Person becomes a Subsidiary; provided that (i) such Lien is not created in contemplation of or in connection with such acquisition or such Person becoming a Subsidiary, as the case may be, (ii) such Lien shall not apply to any other property or assets of the Borrower or any Subsidiary (other than the acquired Subsidiary) and (iii) such Lien shall secure only those obligations which it secures on the date of such acquisition or the date such Person becomes a Subsidiary, as the case may be, and extensions, renewals and replacements thereof that do not increase the outstanding principal amount thereof (except by the amount of any accrued interest and premiums with respect to such Indebtedness and transaction fees, costs and expenses in connection with such extension, renewal or replacement thereof);
(f) Liens on fixed or capital assets acquired, constructed or improved by the Borrower or any Subsidiary; provided that (i) such security interests secure Indebtedness permitted by clause (e) of Section 6.01, (ii) such security interests and the Indebtedness secured thereby are incurred prior to or within ninety (90) days after such acquisition or the completion of such construction or improvement, (iii) the Indebtedness secured thereby does not exceed the cost of acquiring, constructing or improving such fixed or capital assets (except by the amount of any accrued interest and premiums with respect to such Indebtedness, acquisition, construction or improvement and transaction fees, costs and expenses in connection therewith) and (iv) such security interests shall not apply to any other property or assets of the Borrower or any Subsidiary;
(g) Liens on any cash earnest money deposit made by the Borrower or any Subsidiary in connection with any letter of intent or acquisition agreement that is not prohibited by this Agreement;
(h) Liens arising as a matter of law or in the nature of (i) normal and customary rights of setoff and bankers’ liens upon deposits of cash in favor of banks or other depository institutions and (ii) Liens securing reasonable and customary fees for services in favor of banks, securities intermediaries or other depository institutions;
(i) Liens arising in the ordinary course of business from treasury, depository or cash management services, overdraft facilities, foreign exchange facilities, payment facilities or automated clearing house transfers of funds;
(j) Liens on assets of the Borrower and its Subsidiaries so long as the aggregate principal amount of the Indebtedness and other obligations subject to such Liens does not at any time exceed $10,000,000; and
(k) Liens securing any Swap Agreements permitted under Section 6.05.
SECTION 6.03. Fundamental Changes and Asset Sales. (a) The Borrower will not, and will not permit any Subsidiary to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions) any of its assets (including pursuant to a Sale and Leaseback Transaction), or any of the Equity Interests of any of its Subsidiaries (in each case, whether now owned or hereafter acquired), or liquidate or dissolve, except that, if at the time thereof and immediately after giving effect thereto no Default shall have occurred and be continuing:
(i) any Person may merge into the Borrower in a transaction in which the Borrower is the surviving corporation;
(ii) any Subsidiary may merge into a Loan Party in a transaction in which the surviving entity is such Loan Party (provided that any such merger involving the Borrower must result in the Borrower as the surviving entity), and any Subsidiary that is not a Loan Party may merge with or into any other Subsidiary that is not a Loan Party;
(iii) (A) any Subsidiary that is not a Loan Party may sell, transfer, lease or otherwise dispose of its assets to any other Subsidiary that is not a Loan Party or to any Loan Party and (B) any Loan Party may sell, transfer, lease or otherwise dispose of its assets to a Loan Party;
(iv) the Borrower and its Subsidiaries may (A) sell inventory, dispose of cash and cash equivalents, lease or sublease interests in real property, dispose of accounts receivable in connection with the collection or compromise thereof, surrender or waive contractual rights or settle, release or surrender contract or tort claims, in each case, in the ordinary course of business, (B) effect sales, trade-ins or dispositions of surplus, used or obsolete equipment for value in the ordinary course of business, (C) enter into licenses of technology in the ordinary course of business, (D) sell or otherwise dispose of auction rate securities or other similar Equity Interests, (E) dispose of cash and Permitted Investments in the ordinary course of business (including the conversion of Permitted Investments into cash or other Permitted Investments in the ordinary course of business) (F) dispose of property resulting from casualty or condemnation events, (G) dispose of property to the extent that (x) such property is exchanged for credit against the purchase price of similar replacement property or (y) the proceeds of such disposition are promptly applied to the purchase price of such replacement property, (H) abandon, fail to maintain, not renew or otherwise dispose of any intellectual property (or rights relating thereto) that is no longer desirable in the conduct of any Loan Party’s or any Subsidiaries’ business, as determined in good faith by such Loan Party or such Subsidiary, (I) cancel any employee notes, (J) terminate or dispose of real property leases in the ordinary course of business, (K) permit the expiration or termination of contracts in the ordinary course of business, (L) unwind any Swap Agreement and any Permitted Call Spread Swap Agreements, (M) grant non-exclusive licenses or sublicenses of software or other intellectual property rights in the ordinary course of business that do not materially interfere with the ordinary course of business of the Borrower and the Subsidiaries taken as a whole, (N) sell, transfer or otherwise dispose of investments in joint ventures or any Subsidiary that is not a wholly owned Subsidiary to the extent required by, or made pursuant to customary buy/sell arrangements between, the parties set forth in joint venture arrangements and similar binding agreements, and (O) make any other sales, transfers, leases or
dispositions of assets not otherwise permitted under this Section 6.03, the book value of which (excluding goodwill relating thereto), together with all other property of the Borrower and its Subsidiaries previously leased, sold, transferred or disposed of as permitted by this clause (O) during any fiscal year of the Borrower, does not exceed 10% of Consolidated Tangible Assets (determined as of the last day of the most recent fiscal quarter for which financial statements shall have been delivered pursuant to Section 5.01(a) or Section 5.01(b) (or, prior to the delivery of any such financial statements, the last day of the last fiscal quarter included in the financial statements referred to in Section 3.04(a)); provided that the aggregate book value of all of the assets (excluding goodwill relating thereto) of the Borrower and its Subsidiaries sold, transferred, leased or disposed of in reliance upon this clause (O) during the term of this Agreement shall not exceed an amount equal to $70,000,000;
(v) [Reserved];
(vi) any Subsidiary that is not a Loan Party may (A) liquidate or dissolve if the Borrower determines in good faith that such liquidation or dissolution is in the best interests of the Borrower and is not materially disadvantageous to the Lenders and (B) sell, transfer, lease or otherwise dispose of its assets to another Subsidiary that is not a Loan Party;
(vii) the Borrower and its Subsidiaries may enter into Sale and Leaseback Transactions permitted under Section 6.10;
(viii) the sale, disposition or discount or factoring, in each case of accounts receivable in connection with the collection, write down or compromise thereof in the ordinary course of business; and
(ix) the Borrower and its Subsidiaries may make Investments permitted by Section 6.04, create, incur or assume any Lien permitted under Section 6.02 and make any Restricted Payments permitted by Section 6.07;
provided that any such merger or consolidation involving a Person that is not a Wholly-Owned Subsidiary immediately prior to such merger or consolidation shall not be permitted unless it is also permitted by Section 6.04.
(b) The Borrower will not, and will not permit any of its Subsidiaries to, engage to any material extent in any business other than businesses of the type conducted by the Borrower and its Subsidiaries (taken as a whole) on the date of execution of this Agreement and businesses reasonably related, ancillary, similar, complementary or synergistic thereto or reasonable extensions, development or expansion thereof.
(c) The Borrower will not, nor will it permit any of its Subsidiaries to, change its fiscal year from the basis in effect on the Effective Date.
SECTION 6.04. Investments, Loans, Advances, Guarantees and Acquisitions. The Borrower will not, and will not permit any of its Subsidiaries to, purchase, hold or acquire (including pursuant to any merger or consolidation with any Person that was not a Wholly-Owned Subsidiary prior to such merger or consolidation) any capital stock, evidences of indebtedness or other securities (including any option, warrant or other right to acquire any of the foregoing) of, make or permit to exist any loans or advances to, Guarantee any obligations of, or make or permit to exist any investment or any
other interest in, any other Person, or purchase or otherwise acquire (in one transaction or a series of transactions) any Person or any assets of any other Person constituting a business unit, except:
(a) Permitted Investments;
(b) Permitted Acquisitions;
(c) investments by the Borrower and its Subsidiaries existing on the date hereof in the capital stock of its Subsidiaries and such other investments of the Borrower and its Subsidiaries existing on the date hereof and set forth on Schedule 6.04;
(d) investments, loans, advances or capital contributions made by the Borrower in or to any Subsidiary and made by any Subsidiary in or to the Borrower or any other Subsidiary (provided that the aggregate amount of such investments, loans, advances and capital contributions that are made and remain outstanding, at any time, by Loan Parties to Subsidiaries which are not Loan Parties does not exceed 10% of Consolidated Total Assets (determined as of the last day of the most recent fiscal quarter for which financial statements shall have been delivered pursuant to Section 5.01(a) or Section 5.01(b) (or, prior to the delivery of any such financial statements, the last day of the last fiscal quarter included in the financial statements referred to in Section 3.04(a));
(e) Guarantees constituting Indebtedness permitted by Section 6.01;
(f) loans or advances to officers and directors of the Borrower or any of its Subsidiaries the net proceeds of which are used solely to purchase Equity Interests in the Borrower pursuant to a restricted stock or stock purchase plan;
(g) loans or advances to officers and employees of the Borrower or any of its Subsidiaries (in addition to those permitted by clause (f)), not at any time in excess of $5,000,000 thereof in the aggregate for the Borrower and its Subsidiaries;
(h) loans or advances to, or deposits with, contractors and suppliers in the ordinary course of business not at any time in excess of $10,000,000;
(i) any loan to a Person purchasing or leasing real property or equipment from the Borrower or any Subsidiary;
(j) investments consisting of promissory notes received as proceeds of asset dispositions permitted by Section 6.03;
(k) bank deposits in the ordinary course of business;
(l) investments, loans or advances in or to joint ventures so long as the aggregate amount of all such investments, loans and advances made in any fiscal year does not exceed $15,000,000;
(m) Investments consisting of Swap Agreements permitted under Section 6.05;
(n) investments consisting of the redemption, purchase, repurchase or retirement of Equity Interests permitted under Section 6.07;
(o) Investments of a Person (i) existing at the time such Person becomes a Subsidiary or consolidates or merges with the Borrower or any Subsidiary or (ii) that are acquired as part of an
Permitted Acquisition, in each case, so long as such Investments were not made in contemplation of such Person becoming a Subsidiary or of such consolidation or merger or other Permitted Acquisition;
(p) any other investment, loan or advance (other than acquisitions) so long as the aggregate outstanding amount of all such investments, loans and advances at any time does not exceed $10,000,000; and
(q) any other investment, loan or advance (including Permitted Acquisitions) so long as (i) the Borrower shall be in compliance (on a Pro Forma Basis) with the covenants contained in Section 6.11 (giving effect to any Leverage Ratio Increase then in effect pursuant to Section 6.11) and (ii) both immediately prior to and after giving effect (including pro forma effect) thereto, no Default or Event of Default shall exist or would result therefrom.
SECTION 6.05. Swap Agreements. The Borrower will not, and will not permit any of its Subsidiaries to, enter into any Swap Agreement, except (a) Swap Agreements not entered into for speculative purposes, (b) Swap Agreements entered into in order to effectively cap, collar or exchange interest rates (from fixed to floating rates, from one floating rate to another floating rate or otherwise) with respect to any interest-bearing liability or investment of the Borrower or any Subsidiary and (c) the Borrower may enter into, and perform its obligations under, Permitted Call Spread Swap Agreements.
SECTION 6.06. Transactions with Affiliates. The Borrower will not, and will not permit any of its Subsidiaries to, sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) in the ordinary course of business at prices and on terms and conditions not less favorable to the Borrower or such Subsidiary than could be obtained on an arm’s-length basis from unrelated third parties, (b) transactions between or among the Borrower and its Subsidiaries, (c) any employment and severance arrangements for and compensation, bonuses, stock option and stock ownership plans and indemnification arrangements and benefit plans (and the marking of payments, awards or grants in cash, securities or otherwise pursuant thereto or the funding thereof) for officers, directors and employees of the Loan Parties, (d) any Restricted Payment permitted by Section 6.07, (e) any investment permitted by Section 6.04, and (f) any sale, lease, license, transfer or disposition permitted under Section 6.03.
SECTION 6.07. Restricted Payments. The Borrower will not, and will not permit any of its Subsidiaries to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, except (a) the Borrower may declare and pay dividends with respect to its Equity Interests payable solely in additional shares of its common stock, (b) Subsidiaries may declare and pay Restricted Payments ratably with respect to their Equity Interests, (c) the Borrower may make Restricted Payments pursuant to and in accordance with stock option plans or other benefit plans for management or employees of the Borrower and its Subsidiaries, (d) the Borrower may enter into, exercise its rights and perform its obligations under Permitted Call Spread Swap Agreements and make any required payments with respect to, or required early unwind or settlement of any Permitted Call Spread Swap Agreements, in each case, in accordance with the terms of the agreements governing such under Permitted Call Spread Swap Agreements, (e) the Borrower may make cash payments and/or deliveries of shares of its common stock upon conversion, exchange or repurchase of Permitted Convertible Notes pursuant to the terms thereof, (f) the Borrower may make interest payments in respect of Indebtedness under Permitted Convertible Notes, (g) the Borrower or its Subsidiaries may make payments or distributions to dissenting stockholders pursuant to applicable law, (h) the Borrower or any Subsidiary may make cash payments in lieu of fractional shares in connection with the conversion of any Equity Interests or make cash settlement payments upon the exercise of warrants to purchase its Equity Interest or “net share settle” warrants, (i) the Borrower and each Subsidiary may distribute Equity Interests to shareholders of any
Person (other than an Affiliate of the Borrower) acquired by merger pursuant to an acquisition permitted under this Agreement, (j) the Borrower and its Subsidiaries may make Restricted Payments so long as at the time of and immediately after giving effect (including giving effect on a Pro Forma Basis) thereto no Default or Event of Default has occurred and is continuing in an aggregate amount during any fiscal year of the Borrower made in reliance on this clause (j) not to exceed $30,000,000 and (k) the Borrower and its Subsidiaries may make any other Restricted Payment so long as at the time of and immediately after giving effect (including giving effect on a Pro Forma Basis) thereto (x) no Default or Event of Default has occurred and is continuing and (y) the Total Net Leverage Ratio is less than or equal to 3.00 to 1.00.
SECTION 6.08. Restrictive Agreements. The Borrower will not, and will not permit any of its Subsidiaries to, directly or indirectly, enter into, incur or permit to exist any agreement or other arrangement that prohibits, restricts or imposes any condition upon (a) the ability of the Borrower or any Subsidiary to create, incur or permit to exist any Lien upon any of its property or assets, or (b) the ability of any Subsidiary to pay dividends or other distributions with respect to holders of its Equity Interests or to make or repay loans or advances to the Borrower or any other Subsidiary or to Guarantee the Obligations; provided that (i) the foregoing shall not apply to restrictions and conditions imposed by law or by any Loan Document, (ii) the foregoing shall not apply to customary restrictions and conditions contained in leases, subleases or licenses entered into in the ordinary course of business or agreements relating to the sale of a Subsidiary or assets pending such sale, provided such restrictions and conditions apply only to the Subsidiary or assets that are to be sold and such sale is permitted hereunder, (iii) the foregoing shall not apply to such restrictions and conditions applicable to any Subsidiary acquired after the date hereof if such restrictions and conditions existed at the time such Subsidiary was acquired and were not created in anticipation of such acquisitions, (iv) clause (a) of the foregoing shall not apply to restrictions or conditions imposed by any agreement relating to secured Indebtedness permitted by this Agreement if such restrictions or conditions apply only to the property or assets securing such Indebtedness, (v) clause (a) of the foregoing shall not apply to customary provisions in permits, leases and other contracts restricting the assignment or subletting thereof, (vi) clause (a) of the foregoing shall not apply to agreements are entered into with any person in connection with a sale, lease, license, transfer or disposition permitted under Section 6.03 relating solely to the assets to be sold, leased, licensed, transferred or disposed of, (vii) the foregoing shall not apply to customary provisions in joint venture agreements and other similar agreements applicable to joint ventures permitted hereunder and applicable solely to such joint venture entered into in the ordinary course of business, and (viii) the foregoing shall not apply to customary negative pledges and restrictions on Liens in favor of any holder of (y) Indebtedness permitted under Section 6.01(e) or (l), or (z) Indebtedness under Section 6.01(g) secured by a Lien permitted under Section 6.02(e), in each case, solely to the extent any negative pledge relates to the property financed by or the subject of such Indebtedness.
SECTION 6.09. Subordinated Indebtedness and Amendments to Subordinated Indebtedness Documents. Except to the extent permitted in accordance with any applicable subordination agreement executed by the Administrative Agent, the Borrower will not, and will not permit any Subsidiary to, directly or indirectly voluntarily prepay, defease or in substance defease, purchase, redeem, retire or otherwise acquire, any Subordinated Indebtedness or any Indebtedness from time to time outstanding under the Subordinated Indebtedness Documents. Furthermore, the Borrower will not, and will not permit any Subsidiary to, amend the Subordinated Indebtedness Documents or any document, agreement or instrument evidencing any Indebtedness incurred pursuant to the Subordinated Indebtedness Documents (or any replacements, substitutions, extensions or renewals thereof) or pursuant to which such Indebtedness is issued where such amendment, modification or supplement amends, modifies or adds any provision thereof in a manner which (i) when taken as a whole, is materially adverse to the Borrower, any Subsidiary and/or the Lenders or (ii) is more onerous, when taken as a whole with any other applicable amendments, modifications or supplements, than the existing applicable
provision in the Subordinated Indebtedness Documents, as determined in the good faith judgment of the board of directors of the Borrower.
Notwithstanding the foregoing, this Section 6.09 shall not apply to any Indebtedness evidenced by Permitted Convertible Notes.
SECTION 6.10. Sale and Leaseback Transactions. The Borrower shall not, nor shall it permit any Subsidiary to, enter into any Sale and Leaseback Transaction, other than Sale and Leaseback Transactions in respect of which the net cash proceeds received in connection therewith does not exceed $10,000,000 in the aggregate during any fiscal year of the Borrower, determined on a consolidated basis for the Borrower and its Subsidiaries.
SECTION 6.11. Financial Covenant – Maximum Total Net Leverage Ratio. The Borrower will not permit the ratio (the “Total Net Leverage Ratio”), determined as of the end of each of its fiscal quarters ending on and after June 30, 2021, of (i) (x) Consolidated Total Indebtedness minus (y) Liquidity to (ii) Consolidated EBITDA for the period of four (4) consecutive fiscal quarters ending with the end of such fiscal quarter, all calculated for the Borrower and its Subsidiaries on a consolidated basis, to be greater than 3.50 to 1.00. Notwithstanding the foregoing, in connection with any Permitted Acquisition or other similar permitted acquisition for which either (i) the aggregate consideration (including Equity Interests, cash, Cash Equivalents and other deferred payment obligations) is at least 25,000,000 or (ii) the resulting Total Net Leverage Ratio, calculated on a pro forma basis, is higher than the Total Net Leverage Ratio reflected in the compliance certificate most recently delivered by the Borrower pursuant to Section 5.01(c), the Borrower may, at its election, in connection with such acquisition and upon prior written notice to the Administrative Agent increase the required Total Net Leverage Ratio pursuant to this Section 6.11 to 4.00 to 1.00, which such increase shall be applicable for the fiscal quarter in which such acquisition is consummated and the three (3) consecutive quarterly test periods thereafter (a “Leverage Ratio Increase”); provided that (x) such increase shall apply solely with respect to compliance with this Section 6.11 and shall not apply to any other incurrence test set forth in this Agreement and (y) there shall be at least one full fiscal quarter following the cessation of each such Leverage Ratio Increase during which no Leverage Ratio Increase shall then be in effect.
ARTICLE VII
Events of Default
If any of the following events (“Events of Default”) shall occur:
(a) the Borrower shall fail to pay any principal of any Loan when and as the same shall become due and payable or any reimbursement obligation in respect of any LC Disbursement when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise;
(b) the Borrower shall fail to pay any interest on any Loan or any fee or any other amount (other than an amount referred to in clause (a) of this Article) payable under this Agreement or any other Loan Document, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of five (5) Business Days;
(c) any representation or warranty made or deemed made by or on behalf of the Borrower or any Subsidiary Guarantor in or in connection with this Agreement or any other Loan Document or any amendment or modification hereof or thereof or waiver hereunder or thereunder, or in any report,
certificate, financial statement or other document furnished pursuant to or in connection with this Agreement or any other Loan Document or any amendment or modification thereof or waiver thereunder, shall prove to have been materially incorrect when made or deemed made;
(d) the Borrower shall fail to observe or perform any covenant, condition or agreement contained in Section 5.02(a), 5.03 (with respect to the Borrower’s existence), 5.08 or 5.09 or in Article VI or in Article X;
(e) the Borrower or any Subsidiary Guarantor, as applicable, shall fail to observe or perform any covenant, condition or agreement contained in this Agreement (other than those specified in clause (a), (b) or (d) of this Article) or any other Loan Document, and such failure shall continue unremedied for a period of thirty (30) days after written notice thereof from the Administrative Agent to the Borrower (which notice will be given at the request of any Lender);
(f) the Borrower or any Subsidiary shall fail to make any payment (whether of principal or interest and regardless of amount) in respect of any Material Indebtedness, when and as the same shall become due and payable after giving effect to any grace or cure periods applicable thereto;
(g) any event or condition occurs that results in any Material Indebtedness becoming due prior to its scheduled maturity or that enables or permits (with or without the giving of notice, the lapse of time or both) the holder or holders of any Material Indebtedness or any trustee or agent on its or their behalf to cause any Material Indebtedness to become due, or to require the prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity; provided that this clause (g) shall not apply to (i) any secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness, (ii) any requirement to make a cash payment as a result of the early termination of a Permitted Call Spread Swap Agreement and (iii) any requirement to deliver cash upon conversion of Permitted Convertible Notes;
(h) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of the Borrower or any Material Subsidiary or its debts, or of a substantial part of its assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Material Subsidiary or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue undismissed for sixty (60) days or an order or decree approving or ordering any of the foregoing shall be entered;
(i) the Borrower or any Material Subsidiary shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (h) of this Article, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Material Subsidiary or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing;
(j) the Borrower or any Material Subsidiary shall become insolvent or admit in writing its inability or fail generally to pay its debts as they become due;
(k) one or more final judgments for the payment of money in an aggregate amount in excess of $25,000,000 (excluding any portion thereof which is covered by insurance so long as the insurer is an unaffiliated creditworthy insurer, is reasonably likely to be able to pay and has accepted a tender of defense and indemnification without reservation of rights) shall be rendered against the Borrower, any Material Subsidiary or any combination thereof and the same shall remain undischarged for a period of thirty (30) consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to attach or levy upon any assets of the Borrower or any Material Subsidiary to enforce any such judgment;
(l) an ERISA Event shall have occurred that, in the reasonable opinion of the Required Lenders, when taken together with all other ERISA Events that have occurred, could reasonably be expected to result in a Material Adverse Effect;
(m) a Change in Control shall occur;
(n) any material provision of any Loan Document for any reason ceases to be valid, binding and enforceable in accordance with its terms other than as expressly permitted hereunder or thereunder (or the Borrower or any Subsidiary shall challenge the enforceability of any Loan Document or shall assert in writing, or engage in any action or inaction based on any such assertion, that any provision of any of the Loan Documents has ceased to be or otherwise is not valid, binding and enforceable in accordance with its terms); or
(o) any Collateral Document shall for any reason (other than due to a failure of the Administrative Agent to take any required action within its control to maintain the perfection or priority of the Liens created in favor of the Administrative Agent pursuant to the Loan Documents but excluding any action or inaction based on facts or circumstances for which the Administrative Agent has not been notified in accordance with the provisions of the Loan Documents) fail to create a valid and perfected first priority security interest (subject to Liens permitted under Section 6.02) in any material portion of the Collateral purported to be covered thereby, except as permitted by the terms of any Loan Document;
then, and in every such event (other than an event with respect to the Borrower described in clause (h) or (i) of this Article), and at any time thereafter during the continuance of such Event of Default, the Administrative Agent may with the consent of the Required Lenders, and shall at the request of the Required Lenders, by notice to the Borrower, take any or all of the following actions, at the same or different times: (i) terminate the Commitments, and thereupon the Commitments shall terminate immediately, (ii) declare the Loans then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other Secured Obligations of the Borrower accrued hereunder and under the other Loan Documents, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower, and (iii) require cash collateral for the LC Exposure in accordance with Section 2.06(j); and in case of any event with respect to the Borrower described in clause (h) or (i) of this Article, the Commitments shall automatically terminate and the principal of the Loans then outstanding and cash collateral for the LC Exposure, together with accrued interest thereon and all fees and other Secured Obligations accrued hereunder and under the other Loan Documents, shall automatically become due and payable, and the obligation of the Borrower to cash collateralize the LC Exposure as provided in clause (iii) above shall automatically become effective, in each case, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower.
In addition to any other rights and remedies granted to the Administrative Agent and the Lenders in the Loan Documents, the Administrative Agent on behalf of the Lenders may exercise all rights and remedies of a secured party under the UCC or any other applicable law. The Administrative Agent shall apply the net proceeds of any action taken by it pursuant to this Article VII, after deducting all reasonable costs and expenses of every kind incurred in connection therewith or incidental to the care or safekeeping of any of the Collateral or in any other way relating to the Collateral or the rights of the Administrative Agent and the Lenders hereunder, including reasonable attorneys’ fees and disbursements, to the payment in whole or in part of the Secured Obligations, in such order as set forth in Section 2.18(b), and only after such application and after the payment by the Administrative Agent of any other amount required by any provision of law, including Section 9-615(a)(3) of the New York Uniform Commercial Code, need the Administrative Agent account for the surplus, if any, to any Loan Party.
ARTICLE VIII
The Administrative Agent
SECTION 8.01. Authorization and Action.
(a) Each Lender and Issuing Bank hereby irrevocably appoints the entity named as Administrative Agent in the heading of this Agreement and its successors and assigns to serve as the administrative agent and collateral agent under the Loan Documents and each Lender and Issuing Bank authorizes the Administrative Agent to take such actions as agent on its behalf and to exercise such powers under this Agreement and the other Loan Documents as are delegated to the Administrative Agent under such agreements and to exercise such powers as are reasonably incidental thereto. Further, each of the Lenders and the Issuing Banks, on behalf of itself and any of its Affiliates that are Secured Parties, hereby irrevocably empower and authorize JPMorgan Chase Bank, N.A. (in its capacity as Administrative Agent) to execute and deliver the Collateral Documents and all related documents or instruments as shall be necessary or appropriate to effect the purposes of the Collateral Documents. In addition, to the extent required under the laws of any jurisdiction other than within the United States, each Lender and Issuing Bank hereby grants to the Administrative Agent any required powers of attorney to execute and enforce any Collateral Document governed by the laws of such jurisdiction on such Lender’s or such Issuing Bank’s behalf. Without limiting the foregoing, each Lender and Issuing Bank hereby authorizes the Administrative Agent to execute and deliver, and to perform its obligations under, each of the Loan Documents to which the Administrative Agent is a party, and to exercise all rights, powers and remedies that the Administrative Agent may have under such Loan Documents.
(b) As to any matters not expressly provided for herein and in the other Loan Documents (including enforcement or collection), the Administrative Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the written instructions of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary, pursuant to the terms in the Loan Documents), and, unless and until revoked in writing, such instructions shall be binding upon each Lender and Issuing Bank; provided, however, that the Administrative Agent shall not be required to take any action that (i) the Administrative Agent in good faith believes exposes it to liability unless the Administrative Agent receives an indemnification and is exculpated in a manner satisfactory to it from the Lenders and the Issuing Banks with respect to such action or (ii) is contrary to this Agreement or any other Loan Document or applicable law, including any action that may be in violation of the automatic stay under any requirement of law relating to bankruptcy, insolvency or reorganization or relief of debtors or that may effect a forfeiture, modification or termination of property of a Defaulting Lender in violation of any requirement of law relating to bankruptcy, insolvency or reorganization or relief of
debtors; provided, further, that the Administrative Agent may seek clarification or direction from the Required Lenders prior to the exercise of any such instructed action and may refrain from acting until such clarification or direction has been provided. Except as expressly set forth in the Loan Documents, the Administrative Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower, any Subsidiary or any Affiliate of any of the foregoing that is communicated to or obtained by the Person serving as Administrative Agent or any of its Affiliates in any capacity. Nothing in this Agreement shall require the Administrative Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it.
(c) In performing its functions and duties hereunder and under the other Loan Documents, the Administrative Agent is acting solely on behalf of the Lenders and the Issuing Banks (except in limited circumstances expressly provided for herein relating to the maintenance of the Register), and its duties are entirely mechanical and administrative in nature. Without limiting the generality of the foregoing:
(i) the Administrative Agent does not assume and shall not be deemed to have assumed any obligation or duty or any other relationship as the agent, fiduciary or trustee of or for any Lender, any Issuing Bank or any other Secured Party other than as expressly set forth herein and in the other Loan Documents, regardless of whether a Default or an Event of Default has occurred and is continuing (and it is understood and agreed that the use of the term “agent” (or any similar term) herein or in any other Loan Document with reference to the Administrative Agent is not intended to connote any fiduciary duty or other implied (or express) obligations arising under agency doctrine of any applicable law, and that such term is used as a matter of market custom and is intended to create or reflect only an administrative relationship between contracting parties); additionally, each Lender agrees that it will not assert any claim against the Administrative Agent based on an alleged breach of fiduciary duty by the Administrative Agent in connection with this Agreement and/or the transactions contemplated hereby;
(ii) where the Administrative Agent is required or deemed to act as a trustee in respect of any Collateral over which a security interest has been created pursuant to a Loan Document expressed to be governed by the laws of any jurisdiction other than the United States of America, or is required or deemed to hold any Collateral “on trust” pursuant to the foregoing, the obligations and liabilities of the Administrative Agent to the Secured Parties in its capacity as trustee shall be excluded to the fullest extent permitted by applicable law; and
(iii) nothing in this Agreement or any Loan Document shall require the Administrative Agent to account to any Lender for any sum or the profit element of any sum received by the Administrative Agent for its own account.
(d) The Administrative Agent may perform any of its duties and exercise its rights and powers hereunder or under any other Loan Document by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any of their respective duties and exercise their respective rights and powers through their respective Related Parties. The exculpatory provisions of this Article shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities pursuant to this Agreement. The Administrative Agent shall not be responsible for the negligence or misconduct of any sub-agent except to the extent that a court of competent jurisdiction
determines in a final and nonappealable judgment that the Administrative Agent acted with gross negligence or willful misconduct in the selection of such sub-agent.
(e) No Arranger or Bookrunner shall have obligations or duties whatsoever in such capacity under this Agreement or any other Loan Document and shall incur no liability hereunder or thereunder in such capacity, but all such persons shall have the benefit of the indemnities provided for hereunder.
(f) In case of the pendency of any proceeding with respect to any Loan Party under any federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, the Administrative Agent (irrespective of whether the principal of any Loan or any reimbursement obligation in respect of any LC Disbursement shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Administrative Agent shall have made any demand on any Loan Party) shall be entitled and empowered (but not obligated) by intervention in such proceeding or otherwise:
(i) to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Loans, LC Disbursements and all other Secured Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders, the Issuing Banks and the Administrative Agent (including any claim under Sections 2.12, 2.13, 2.15, 2.17 and 9.03) allowed in such judicial proceeding; and
(ii) to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such proceeding is hereby authorized by each Lender, each Issuing Bank and each other Secured Party to make such payments to the Administrative Agent and, in the event that the Administrative Agent shall consent to the making of such payments directly to the Lenders, the Issuing Banks or the other Secured Parties, to pay to the Administrative Agent any amount due to it, in its capacity as the Administrative Agent, under the Loan Documents (including under Section 9.03). Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or consent to or accept or adopt on behalf of any Lender or any Issuing Bank any plan of reorganization, arrangement, adjustment or composition affecting the Secured Obligations or the rights of any Lender or any Issuing Bank or to authorize the Administrative Agent to vote in respect of the claim of any Lender or any Issuing Bank in any such proceeding.
(g) The provisions of this Article VIII are solely for the benefit of the Administrative Agent, the Lenders and the Issuing Banks, and, except solely to the extent of the Borrower’s rights to consent pursuant to and subject to the conditions set forth in this Article VIII, none of the Borrower or any Subsidiary, or any of their respective Affiliates, shall have any rights as a third party beneficiary under any such provisions. Each Secured Party, whether or not a party hereto, will be deemed, by its acceptance of the benefits of the Collateral and of the Guarantees of the Secured Obligations provided under the Loan Documents, to have agreed to the provisions of this Article VIII.
SECTION 8.02. Administrative Agent’s Reliance, Limitation of Liability, Etc.
(a) Neither the Administrative Agent nor any of its Related Parties shall be (i) liable for any action taken or omitted to be taken by such party, the Administrative Agent or any of its Related Parties under or in connection with this Agreement or the other Loan Documents (x) with the consent of or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be
necessary, or as the Administrative Agent shall believe in good faith to be necessary, under the circumstances as provided in the Loan Documents) or (y) in the absence of its own gross negligence or willful misconduct (such absence to be presumed unless otherwise determined by a court of competent jurisdiction by a final and non-appealable judgment) or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by any Loan Party or any officer thereof contained in this Agreement or any other Loan Document or in any certificate, report, statement or other document referred to or provided for in, or received by the Administrative Agent under or in connection with, this Agreement or any other Loan Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document (including, for the avoidance of doubt, in connection with the Administrative Agent’s reliance on any Electronic Signature transmitted by telecopy, emailed pdf, or any other electronic means that reproduces an image of an actual executed signature page) or for any failure of any Loan Party to perform its obligations hereunder or thereunder.
(b) The Administrative Agent shall be deemed not to have knowledge of any (i) notice of any of the events or circumstances set forth or described in Section 5.02 unless and until written notice thereof stating that it is a “notice under Section 5.02” in respect of this Agreement and identifying the specific clause under said Section is given to the Administrative Agent by the Borrower or (ii) notice of any Default or Event of Default unless and until written notice thereof (stating that it is a “notice of Default” or a “notice of an Event of Default”) is given to the Administrative Agent by the Borrower, a Lender or an Issuing Bank, and the Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with any Loan Document, (ii) the contents of any certificate, report or other document delivered thereunder or in connection therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth in any Loan Document or the occurrence of any Default or Event of Default, (iv) the sufficiency, validity, enforceability, effectiveness or genuineness of any Loan Document or any other agreement, instrument or document, (v) the satisfaction of any condition set forth in Article IV or elsewhere in any Loan Document, other than to confirm receipt of items (which on their face purport to be such items) expressly required to be delivered to the Administrative Agent or satisfaction of any condition that expressly refers to the matters described therein being acceptable or satisfactory to the Administrative Agent or (vi) the creation, perfection or priority of Liens on the Collateral or the existence of the Collateral.
(c) Without limiting the foregoing, the Administrative Agent (i) may treat the payee of any promissory note as its holder until such promissory note has been assigned in accordance with Section 9.04, (ii) may rely on the Register to the extent set forth in Section 9.04(b), (iii) may consult with legal counsel (including counsel to the Borrower), independent public accountants and other experts selected by it, and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts, (iv) makes no warranty or representation to any Lender or any Issuing Bank and shall not be responsible to any Lender or any Issuing Bank for any statements, warranties or representations made by or on behalf of any Loan Party in connection with this Agreement or any other Loan Document, (v) in determining compliance with any condition hereunder to the making of a Loan, or the issuance of a Letter of Credit, that by its terms must be fulfilled to the satisfaction of a Lender or an Issuing Bank, may presume that such condition is satisfactory to such Lender or an Issuing Bank unless the Administrative Agent shall have received notice to the contrary from such Lender or such Issuing Bank sufficiently in advance of the making of such Loan or the issuance of such Letter of Credit and (vi) shall be entitled to rely on, and shall incur no liability under or in respect of this Agreement or any other Loan Document by acting upon, any notice, consent, certificate or other instrument or writing (which writing may be a fax, any electronic message, Internet or intranet website posting or other distribution) or any statement made to it orally or by telephone and believed by it to be genuine and signed or sent or otherwise authenticated by the proper
party or parties (whether or not such Person in fact meets the requirements set forth in the Loan Documents for being the maker thereof).
SECTION 8.03. Posting of Communications.
(a) The Borrower agrees that the Administrative Agent may, but shall not be obligated to, make any Communications available to the Lenders and the Issuing Banks by posting the Communications on IntraLinks™, DebtDomain, SyndTrak, ClearPar or any other electronic platform chosen by the Administrative Agent to be its electronic transmission system (the “Approved Electronic Platform”).
(b) Although the Approved Electronic Platform and its primary web portal are secured with generally-applicable security procedures and policies implemented or modified by the Administrative Agent from time to time (including, as of the Effective Date, a user ID/password authorization system) and the Approved Electronic Platform is secured through a per-deal authorization method whereby each user may access the Approved Electronic Platform only on a deal-by-deal basis, each of the Lenders, each of the Issuing Banks and the Borrower acknowledges and agrees that the distribution of material through an electronic medium is not necessarily secure, that the Administrative Agent is not responsible for approving or vetting the representatives or contacts of any Lender that are added to the Approved Electronic Platform, and that there may be confidentiality and other risks associated with such distribution. Each of the Lenders, the Issuing Banks and the Borrower hereby approves distribution of the Communications through the Approved Electronic Platform and understands and assumes the risks of such distribution.
(c) THE APPROVED ELECTRONIC PLATFORM AND THE COMMUNICATIONS ARE PROVIDED “AS IS” AND “AS AVAILABLE”. THE APPLICABLE PARTIES (AS DEFINED BELOW) DO NOT WARRANT THE ACCURACY OR COMPLETENESS OF THE COMMUNICATIONS, OR THE ADEQUACY OF THE APPROVED ELECTRONIC PLATFORM AND EXPRESSLY DISCLAIM LIABILITY FOR ERRORS OR OMISSIONS IN THE APPROVED ELECTRONIC PLATFORM AND THE COMMUNICATIONS. NO WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD PARTY RIGHTS OR FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS, IS MADE BY THE APPLICABLE PARTIES IN CONNECTION WITH THE COMMUNICATIONS OR THE APPROVED ELECTRONIC PLATFORM. IN NO EVENT SHALL THE ADMINISTRATIVE AGENT, ANY ARRANGER, ANY BOOKRUNNER OR ANY OF THEIR RESPECTIVE RELATED PARTIES (COLLECTIVELY, “APPLICABLE PARTIES”) HAVE ANY LIABILITY TO ANY LOAN PARTY, ANY LENDER, ANY ISSUING BANK OR ANY OTHER PERSON OR ENTITY FOR DAMAGES OF ANY KIND, INCLUDING DIRECT OR INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, LOSSES OR EXPENSES (WHETHER IN TORT, CONTRACT OR OTHERWISE) ARISING OUT OF ANY LOAN PARTY’S OR THE ADMINISTRATIVE AGENT’S TRANSMISSION OF COMMUNICATIONS THROUGH THE INTERNET OR THE APPROVED ELECTRONIC PLATFORM EXCEPT WITH RESPECT TO ACTUAL AND DIRECT DAMAGES TO THE EXTENT DETERMINED BY A COURT OF COMPETENT JURISDICTION BY FINAL AND NONAPPEALABLE JUDGMENT TO HAVE RESULTED FROM THE WILLFUL MISCONDUCT OR GROSS NEGLIGENCE OF ANY APPLICABLE PARTY; PROVIDED THAT ANY COMMUNICATION TO ANY LENDERS, PROSPECTIVE LENDERS, PARTICIPANTS OR PROSPECTIVE PARTICIPANTS OR, TO THE EXTENT SUCH DISCLOSURE IS OTHERWISE PERMITTED, TO ANY OTHER PERSON THROUGH AN APPROVED ELECTRONIC PLATFORM SHALL BE MADE SUBJECT TO THE ACKNOWLEDGEMENT AND ACCEPTANCE BY SUCH PERSON THAT SUCH COMMUNICATION IS BEING DISSEMINATED OR DISCLOSED ON A
CONFIDENTIAL BASIS (ON TERMS SUBSTANTIALLY THE SAME AS SET FORTH IN SECTION 9.12 OR OTHERWISE REASONABLY ACCEPTABLE TO THE ADMINISTRATIVE AGENT AND THE BORROWER), WHICH SHALL IN ANY EVENT REQUIRE “CLICK THROUGH” OR OTHER AFFIRMATIVE ACTIONS ON THE PART OF THE RECIPIENT TO ACCESS SUCH COMMUNICATION.
(d) Each Lender and each Issuing Bank agrees that notice to it (as provided in the next sentence) specifying that Communications have been posted to the Approved Electronic Platform shall constitute effective delivery of the Communications to such Lender for purposes of the Loan Documents. Each Lender and each Issuing Bank agrees (i) to notify the Administrative Agent in writing (which could be in the form of electronic communication) from time to time of such Lender’s or such Issuing Bank’s (as applicable) email address to which the foregoing notice may be sent by electronic transmission and (ii) that the foregoing notice may be sent to such email address.
(e) Each of the Lenders, each Issuing Bank and the Borrower agrees that the Administrative Agent may, but (except as may be required by applicable law) shall not be obligated to, store the Communications on the Approved Electronic Platform in accordance with the Administrative Agent’s generally applicable document retention procedures and policies.
(f) Nothing herein shall prejudice the right of the Administrative Agent, any Lender or any Issuing Bank to give any notice or other communication pursuant to any Loan Document in any other manner specified in such Loan Document.
SECTION 8.04. The Administrative Agent Individually. With respect to its Commitments, Loans (including Swingline Loans) and Letters of Credit, the Person serving as the Administrative Agent shall have and may exercise the same rights and powers hereunder and is subject to the same obligations and liabilities as and to the extent set forth herein for any other Lender or Issuing Bank, as the case may be. The terms “Issuing Bank”, “Lenders”, “Required Lenders” and any similar terms shall, unless the context clearly otherwise indicates, include the Administrative Agent in its individual capacity as a Lender, an Issuing Bank or as one of the Required Lenders, as applicable. The Person serving as the Administrative Agent and its Affiliates may accept deposits from, lend money to, own securities of, act as the financial advisor or in any other advisory capacity for and generally engage in any kind of banking, trust or other business with, the Borrower, any Subsidiary or any Affiliate of any of the foregoing as if such Person was not acting as the Administrative Agent and without any duty to account therefor to the Lenders or the Issuing Bank.
SECTION 8.05. Successor Administrative Agent.
(a) The Administrative Agent may resign at any time by giving 30 days’ prior written notice thereof to the Lenders, the Issuing Banks and the Borrower, whether or not a successor Administrative Agent has been appointed. Upon any such resignation, the Required Lenders shall have the right to appoint a successor Administrative Agent. If no successor Administrative Agent shall have been so appointed by the Required Lenders, and shall have accepted such appointment, within 30 days after the retiring Administrative Agent’s giving of notice of resignation, then the retiring Administrative Agent may, on behalf of the Lenders and the Issuing Banks, appoint a successor Administrative Agent, which shall be a bank with an office in New York, New York or an Affiliate of any such bank. In either case, such appointment shall be subject to the prior written approval of the Borrower (which approval may not be unreasonably withheld and shall not be required while an Event of Default has occurred and is continuing). Upon the acceptance of any appointment as Administrative Agent by a successor Administrative Agent, such successor Administrative Agent shall succeed to, and become vested with, all the rights, powers, privileges and duties of the retiring Administrative Agent. Upon the acceptance of
appointment as Administrative Agent by a successor Administrative Agent, the retiring Administrative Agent shall be discharged from its duties and obligations under this Agreement and the other Loan Documents. Prior to any retiring Administrative Agent’s resignation hereunder as Administrative Agent, the retiring Administrative Agent shall take such action as may be reasonably necessary to assign to the successor Administrative Agent its rights as Administrative Agent under the Loan Documents.
(b) Notwithstanding paragraph (a) of this Section, in the event no successor Administrative Agent shall have been so appointed and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its intent to resign, the retiring Administrative Agent may give notice of the effectiveness of its resignation to the Lenders, the Issuing Banks and the Borrower, whereupon, on the date of effectiveness of such resignation stated in such notice, (i) the retiring Administrative Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents; provided that, solely for purposes of maintaining any security interest granted to the Administrative Agent under any Collateral Document for the benefit of the Secured Parties, the retiring Administrative Agent shall continue to be vested with such security interest as collateral agent for the benefit of the Secured Parties, and continue to be entitled to the rights set forth in such Collateral Document and Loan Document, and, in the case of any Collateral in the possession of the Administrative Agent, shall continue to hold such Collateral, in each case until such time as a successor Administrative Agent is appointed and accepts such appointment in accordance with this Section (it being understood and agreed that the retiring Administrative Agent shall have no duty or obligation to take any further action under any Collateral Document, including any action required to maintain the perfection of any such security interest) and (ii) the Required Lenders shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent; provided that (A) all payments required to be made hereunder or under any other Loan Document to the Administrative Agent for the account of any Person other than the Administrative Agent shall be made directly to such Person and (B) all notices and other communications required or contemplated to be given or made to the Administrative Agent shall directly be given or made to each Lender and each Issuing Bank. Following the effectiveness of the Administrative Agent’s resignation from its capacity as such, the provisions of this Article VIII and Section 9.03, as well as any exculpatory, reimbursement and indemnification provisions set forth in any other Loan Document, shall continue in effect for the benefit of such retiring Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while the retiring Administrative Agent was acting as Administrative Agent and in respect of the matters referred to in the proviso under clause (i) above.
SECTION 8.06. Acknowledgments of Lenders and Issuing Banks.
(a) Each Lender and each Issuing Bank represents and warrants that (i) the Loan Documents set forth the terms of a commercial lending facility, (ii) it is engaged in making, acquiring or holding commercial loans and in providing other facilities set forth herein as may be applicable to such Lender or Issuing Bank, in each case in the ordinary course of business, and not for the purpose of purchasing, acquiring or holding any other type of financial instrument (and each Lender and each Issuing Bank agrees not to assert a claim in contravention of the foregoing), (iii) it has, independently and without reliance upon the Administrative Agent, any Arranger, any Bookrunner or any other Lender or Issuing Bank, or any of the Related Parties of any of the foregoing, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement as a Lender, and to make, acquire or hold Loans hereunder and (iv) it is sophisticated with respect to decisions to make, acquire and/or hold commercial loans and to provide other facilities set forth herein, as may be applicable to such Lender or such Issuing Bank, and either it, or the Person exercising discretion in making its decision to make, acquire and/or hold such commercial loans or to provide such other facilities, is experienced in making, acquiring or holding such commercial loans or providing such other facilities. Each Lender and each Issuing Bank also acknowledges that it
will, independently and without reliance upon the Administrative Agent, any Arranger, any Bookrunner or any other Lender or Issuing Bank, or any of the Related Parties of any of the foregoing, and based on such documents and information (which may contain material, non-public information within the meaning of the United States securities laws concerning the Borrower and its Affiliates) as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document or any related agreement or any document furnished hereunder or thereunder.
(b) Each Lender, by delivering its signature page to this Agreement on the Effective Date, or delivering its signature page to an Assignment and Assumption or any other Loan Document pursuant to which it shall become a Lender hereunder, shall be deemed to have acknowledged receipt of, and consented to and approved, each Loan Document and each other document required to be delivered to, or be approved by or satisfactory to, the Administrative Agent or the Lenders on the Effective Date.
(c) (i) Each Lender hereby agrees that (x) if the Administrative Agent notifies such Lender that the Administrative Agent has determined in its sole discretion that any funds received by such Lender from the Administrative Agent or any of its Affiliates (whether as a payment, prepayment or repayment of principal, interest, fees or otherwise; individually and collectively, a “Payment”) were erroneously transmitted to such Lender (whether or not known to such Lender), and demands the return of such Payment (or a portion thereof), such Lender shall promptly, but in no event later than one (1) Business Day thereafter, return to the Administrative Agent the amount of any such Payment (or portion thereof) as to which such a demand was made in same day funds, together with interest thereon in respect of each day from and including the date such Payment (or portion thereof) was received by such Lender to the date such amount is repaid to the Administrative Agent at the greater of the NYFRB Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation from time to time in effect, and (y) to the extent permitted by applicable law, such Lender shall not assert, and hereby waives, as to the Administrative Agent, any claim, counterclaim, defense or right of set-off or recoupment with respect to any demand, claim or counterclaim by the Administrative Agent for the return of any Payments received, including without limitation any defense based on “discharge for value” or any similar doctrine. A notice of the Administrative Agent to any Lender under this Section 8.07(c) shall be conclusive, absent manifest error.
(ii) Each Lender hereby further agrees that if it receives a Payment from the Administrative Agent or any of its Affiliates (x) that is in a different amount than, or on a different date from, that specified in a notice of payment sent by the Administrative Agent (or any of its Affiliates) with respect to such Payment (a “Payment Notice”) or (y) that was not preceded or accompanied by a Payment Notice, it shall be on notice, in each such case, that an error has been made with respect to such Payment. Each Lender agrees that, in each such case, or if it otherwise becomes aware a Payment (or portion thereof) may have been sent in error, such Lender shall promptly notify the Administrative Agent of such occurrence and, upon demand from the Administrative Agent, it shall promptly, but in no event later than one Business Day thereafter, return to the Administrative Agent the amount of any such Payment (or portion thereof) as to which such a demand was made in same day funds, together with interest thereon in respect of each day from and including the date such Payment (or portion thereof) was received by such Lender to the date such amount is repaid to the Administrative Agent at the greater of the NYFRB Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation from time to time in effect.
(iii) The Borrower and each other Loan Party hereby agrees that (x) in the event an erroneous Payment (or portion thereof) are not recovered from any Lender that has received such Payment (or portion thereof) for any reason, the Administrative Agent shall be subrogated to all
the rights of such Lender with respect to such amount and (y) an erroneous Payment shall not pay, prepay, repay, discharge or otherwise satisfy any Obligations owed by the Borrower or any other Loan Party.
(iv) Each party’s obligations under this Section 8.06(c) shall survive the resignation or replacement of the Administrative Agent or any transfer of rights or obligations by, or the replacement of, a Lender, the termination of the Commitments or the repayment, satisfaction or discharge of all Obligations under any Loan Document.
SECTION 8.07. Collateral Matters.
(a) Except with respect to the exercise of setoff rights in accordance with Section 9.08 or with respect to a Secured Party’s right to file a proof of claim in an insolvency proceeding, no Secured Party shall have any right individually to realize upon any of the Collateral or to enforce any Guarantee of the Secured Obligations, it being understood and agreed that all powers, rights and remedies under the Loan Documents may be exercised solely by the Administrative Agent on behalf of the Secured Parties in accordance with the terms thereof. In its capacity, the Administrative Agent is a “representative” of the Secured Parties within the meaning of the term “secured party” as defined in the UCC. In the event that any Collateral is hereafter pledged by any Person as collateral security for the Secured Obligations, the Administrative Agent is hereby authorized, and hereby granted a power of attorney, to execute and deliver on behalf of the Secured Parties any Loan Documents necessary or appropriate to grant and perfect a Lien on such Collateral in favor of the Administrative Agent on behalf of the Secured Parties. The Lenders hereby authorize the Administrative Agent, at its option and in its discretion, to release any Lien granted to or held by the Administrative Agent upon any Collateral (i) as described in Section 9.02(d); (ii) as permitted by, but only in accordance with, the terms of the applicable Loan Document; or (iii) if approved, authorized or ratified in writing by the Required Lenders, unless such release is required to be approved by all of the Lenders hereunder. Upon request by the Administrative Agent at any time, the Lenders will confirm in writing the Administrative Agent’s authority to release particular types or items of Collateral pursuant hereto. Upon any sale or transfer of assets constituting Collateral which is permitted pursuant to the terms of any Loan Document, or consented to in writing by the Required Lenders or all of the Lenders, as applicable, and upon at least five (5) Business Days’ prior written request by the Borrower to the Administrative Agent, the Administrative Agent shall (and is hereby irrevocably authorized by the Lenders to) execute such documents as may be necessary to evidence the release of the Liens granted to the Administrative Agent for the benefit of the Secured Parties herein or pursuant hereto upon the Collateral that was sold or transferred; provided, however, that (i) the Administrative Agent shall not be required to execute any such document on terms which, in the Administrative Agent’s reasonable opinion, would expose the Administrative Agent to liability or create any obligation or entail any consequence other than the release of such Liens without recourse or warranty, and (ii) such release shall not in any manner discharge, affect or impair the Secured Obligations or any Liens upon (or obligations of the Loan Parties in respect of) all interests retained by any Loan Party, including (without limitation) the proceeds of the sale, all of which shall continue to constitute part of the Collateral. Any execution and delivery by the Administrative Agent of documents in connection with any such release shall be without recourse to or warranty by the Administrative Agent.
(b) In furtherance of the foregoing and not in limitation thereof, no Banking Services Agreement or Swap Agreement will create (or be deemed to create) in favor of any Secured Party that is a party thereto any rights in connection with the management or release of any Collateral or of the obligations of any Loan Party under any Loan Document. By accepting the benefits of the Collateral, each Secured Party that is a party to any such Banking Services Agreement or Swap Agreement, as applicable, shall be deemed to have appointed the Administrative Agent to serve as administrative agent
and collateral agent under the Loan Documents and agreed to be bound by the Loan Documents as a Secured Party thereunder, subject to the limitations set forth in this paragraph.
(c) The Secured Parties irrevocably authorize the Administrative Agent, at its option and in its discretion, to subordinate any Lien on any property granted to or held by the Administrative Agent under any Loan Document to the holder of any Lien on such property that is permitted by Section 6.02(b). The Administrative Agent shall not be responsible for or have a duty to ascertain or inquire into any representation or warranty regarding the existence, value or collectability of the Collateral, the existence, priority or perfection of the Administrative Agent’s Lien thereon or any certificate prepared by any Loan Party in connection therewith, nor shall the Administrative Agent be responsible or liable to the Lenders or any other Secured Party for any failure to monitor or maintain any portion of the Collateral.
SECTION 8.08. Credit Bidding. The Secured Parties hereby irrevocably authorize the Administrative Agent, at the direction of the Required Lenders, to credit bid all or any portion of the Secured Obligations (including by accepting some or all of the Collateral in satisfaction of some or all of the Secured Obligations pursuant to a deed in lieu of foreclosure or otherwise) and in such manner purchase (either directly or through one or more acquisition vehicles) all or any portion of the Collateral (a) at any sale thereof conducted under the provisions of the Bankruptcy Code, including under Sections 363, 1123 or 1129 of the Bankruptcy Code, or any similar laws in any other jurisdictions to which a Loan Party is subject, or (b) at any other sale, foreclosure or acceptance of collateral in lieu of debt conducted by (or with the consent or at the direction of) the Administrative Agent (whether by judicial action or otherwise) in accordance with any applicable law. In connection with any such credit bid and purchase, the Secured Obligations owed to the Secured Parties shall be entitled to be, and shall be, credit bid by the Administrative Agent at the direction of the Required Lenders on a ratable basis (with Secured Obligations with respect to contingent or unliquidated claims receiving contingent interests in the acquired assets on a ratable basis that shall vest upon the liquidation of such claims in an amount proportional to the liquidated portion of the contingent claim amount used in allocating the contingent interests) for the asset or assets so purchased (or for the equity interests or debt instruments of the acquisition vehicle or vehicles that are issued in connection with such purchase). In connection with any such bid, (i) the Administrative Agent shall be authorized to form one or more acquisition vehicles and to assign any successful credit bid to such acquisition vehicle or vehicles, (ii) each of the Secured Parties’ ratable interests in the Secured Obligations which were credit bid shall be deemed without any further action under this Agreement to be assigned to such vehicle or vehicles for the purpose of closing such sale, (iii) the Administrative Agent shall be authorized to adopt documents providing for the governance of the acquisition vehicle or vehicles (provided that any actions by the Administrative Agent with respect to such acquisition vehicle or vehicles, including any disposition of the assets or equity interests thereof, shall be governed, directly or indirectly, by, and the governing documents shall provide for, control by the vote of the Required Lenders or their permitted assignees under the terms of this Agreement or the governing documents of the applicable acquisition vehicle or vehicles, as the case may be, irrespective of the termination of this Agreement and without giving effect to the limitations on actions by the Required Lenders contained in Section 9.02 of this Agreement), (iv) the Administrative Agent on behalf of such acquisition vehicle or vehicles shall be authorized to issue to each of the Secured Parties, ratably on account of the relevant Secured Obligations which were credit bid, interests, whether as equity, partnership interests, limited partnership interests or membership interests, in any such acquisition vehicle and/or debt instruments issued by such acquisition vehicle, all without the need for any Secured Party or acquisition vehicle to take any further action, and (v) to the extent that Secured Obligations that are assigned to an acquisition vehicle are not used to acquire Collateral for any reason (as a result of another bid being higher or better, because the amount of Secured Obligations assigned to the acquisition vehicle exceeds the amount of Secured Obligations credit bid by the acquisition vehicle or otherwise), such Secured Obligations shall automatically be reassigned to the Secured Parties pro rata with their original interest in such Secured Obligations and the equity interests and/or debt instruments issued by
any acquisition vehicle on account of such Secured Obligations shall automatically be cancelled, without the need for any Secured Party or any acquisition vehicle to take any further action. Notwithstanding that the ratable portion of the Secured Obligations of each Secured Party are deemed assigned to the acquisition vehicle or vehicles as set forth in clause (ii) above, each Secured Party shall execute such documents and provide such information regarding the Secured Party (and/or any designee of the Secured Party which will receive interests in or debt instruments issued by such acquisition vehicle) as the Administrative Agent may reasonably request in connection with the formation of any acquisition vehicle, the formulation or submission of any credit bid or the consummation of the transactions contemplated by such credit bid.
SECTION 8.09. Certain ERISA Matters.
(a)Each Lender (x) represents and warrants, as of the date such Person became a Lender party hereto, to, and (y) covenants, from the date such Person became a Lender party hereto to the date such Person ceases being a Lender party hereto, for the benefit of, the Administrative Agent, and the Arrangers, the Bookrunners and their respective Affiliates, and not, for the avoidance of doubt, to or for the benefit of the Borrower or any other Loan Party, that at least one of the following is and will be true:
(i) such Lender is not using “plan assets” (within the meaning of the Plan Asset Regulations) of one or more Benefit Plans in connection with the Loans, the Letters of Credit or the Commitments,
(ii) the transaction exemption set forth in one or more PTEs, such as PTE 84-14 (a class exemption for certain transactions determined by independent qualified professional asset managers), PTE 95-60 (a class exemption for certain transactions involving insurance company general accounts), PTE 90-1 (a class exemption for certain transactions involving insurance company pooled separate accounts), PTE 91-38 (a class exemption for certain transactions involving bank collective investment funds) or PTE 96-23 (a class exemption for certain transactions determined by in-house asset managers), is applicable with respect to such Lender’s entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, the Commitments and this Agreement,
(iii) (A) such Lender is an investment fund managed by a “Qualified Professional Asset Manager” (within the meaning of Part VI of PTE 84-14), (B) such Qualified Professional Asset Manager made the investment decision on behalf of such Lender to enter into, participate in, administer and perform the Loans, the Letters of Credit, the Commitments and this Agreement, (C) the entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, the Commitments and this Agreement satisfies the requirements of sub-sections (b) through (g) of Part I of PTE 84-14 and (D) to the best knowledge of such Lender, the requirements of subsection (a) of Part I of PTE 84-14 are satisfied with respect to such Lender’s entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, the Commitments and this Agreement, or
(iv) such other representation, warranty and covenant as may be agreed in writing between the Administrative Agent, in its sole discretion, and such Lender.
(b) In addition, unless sub-clause (i) in the immediately preceding clause (a) is true with respect to a Lender or such Lender has provided another representation, warranty and covenant as provided in sub-clause (iv) in the immediately preceding clause (a), such Lender further (x) represents and warrants, as of the date such Person became a Lender party hereto, to, and (y) covenants, from the date such Person became a Lender party hereto to the date such Person ceases being a Lender party
hereto, for the benefit of, the Administrative Agent, and the Arrangers, Bookrunners or any of their respective Affiliates, and not, for the avoidance of doubt, to or for the benefit of the Borrower or any other Loan Party, that none of the Administrative Agent, or the Arrangers, Bookrunners or any of their respective Affiliates is a fiduciary with respect to the Collateral or the assets of such Lender (including in connection with the reservation or exercise of any rights by the Administrative Agent under this Agreement, any Loan Document or any documents related hereto or thereto).
(c) The Administrative Agent, each Arranger and each Bookrunner hereby informs the Lenders that each such Person is not undertaking to provide investment advice, or to give advice in a fiduciary capacity, in connection with the transactions contemplated hereby, and that such Person has a financial interest in the transactions contemplated hereby in that such Person or an Affiliate thereof (i) may receive interest or other payments with respect to the Loans, the Letters of Credit, the Commitments, this Agreement and any other Loan Documents, (ii) may recognize a gain if it extended the Loans, the Letters of Credit or the Commitments for an amount less than the amount being paid for an interest in the Loans, the Letters of Credit or the Commitments by such Lender or (iii) may receive fees or other payments in connection with the transactions contemplated hereby, the Loan Documents or otherwise, including structuring fees, commitment fees, arrangement fees, facility fees, commitment fees, upfront fees, underwriting fees, ticking fees, agency fees, administrative agent fees or collateral agent fees, utilization fees, minimum usage fees, letter of credit fees, fronting fees, deal-away or alternate transaction fees, amendment fees, processing fees, term out premiums, banker’s acceptance fees, breakage or other early termination fees or fees similar to the foregoing.
ARTICLE IX
Miscellaneous
SECTION 9.01. Notices. (a) Except in the case of notices and other communications expressly permitted to be given by telephone (and subject to paragraph (b) below), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows:
(i) if to the Borrower, to it at 604 Arizona Avenue, Santa Monica, California 90401, Attn: Chief Financial Officer and General Counsel (email: david.travers@ziprecruiter.com and ryan.sakamoto@ziprecruiter.com), with a copy, which shall not constitute notice, to Fenwick & West LLP, 801 California Street, Mountain View, California, 94041, Attn: Eric Shedlosky (email: eshedlosky@fenwick.com);
(ii) if to the Administrative Agent, to JPMorgan Chase Bank, N.A., 10 South Dearborn, Floor L2S, Chicago, Illinois 60603-2300, Attention of Account Manager (email: sean.melvin@chase.com and jpm.agency.cri@jpmorgan.com; facsimile: (844) 490-5663);
(iii) if to JPMorgan Chase Bank, N.A. in its capacity as an Issuing Bank, to it at JPMorgan Chase Bank, N.A., 10 South Dearborn, Floor L2S, Chicago, Illinois 60603-2300, Attention of LC Trade Execution Team (email: cb.trade.execution.team@chase.com);
(iv) if to the Swingline Lender, to it at JPMorgan Chase Bank, N.A., 10 South Dearborn, Floor L2S, Chicago, Illinois 60603-2300, Attention of Account Manager (email: sean.melvin@chase.com and jpm.agency.cri@jpmorgan.com; facsimile: (844) 490-5663); and
(v) if to any other Lender or Issuing Bank, to it at its address (or telecopy number) set forth in its Administrative Questionnaire.
Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices sent by facsimile shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next business day for the recipient). Notices delivered through Approved Electronic Platforms, to the extent provided in paragraph (b) below, shall be effective as provided in said paragraph (b).
(b) Notices and other communications to any Loan Party, the Lenders and the Issuing Banks hereunder may be delivered or furnished by using Approved Electronic Platforms pursuant to procedures approved by the Administrative Agent; provided that the foregoing shall not apply to notices pursuant to Article II unless otherwise agreed by the Administrative Agent and the applicable Lender. The Administrative Agent or the Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications.
(c) Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement), and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient, at its e-mail address as described in the foregoing clause (i), of notification that such notice or communication is available and identifying the website address therefor; provided that, for both clauses (i) and (ii) above, if such notice, email or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next business day for the recipient.
(d) Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto.
SECTION 9.02. Waivers; Amendments. (a) No failure or delay by the Administrative Agent, any Issuing Bank or any Lender in exercising any right or power hereunder or under any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agent, the Issuing Banks and the Lenders hereunder and under the other Loan Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Agreement or consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan or issuance of a Letter of Credit shall not be construed as a waiver of any Default, regardless of whether the Administrative Agent, any Lender or any Issuing Bank may have had notice or knowledge of such Default at the time.
(b) Except as provided in Section 2.22 with respect to an Incremental Term Loan Amendment or as provided in Section 2.14(b), Section 2.14(c) and Section 2.14(d), neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Borrower and the Required Lenders or by the
Borrower and the Administrative Agent with the consent of the Required Lenders; provided that no such agreement shall (i) increase the Commitment of any Lender without the written consent of such Lender, (ii) reduce the principal amount of any Loan or LC Disbursement or reduce the rate of interest thereon, or reduce any fees payable hereunder, without the written consent of each Lender directly affected thereby (except that any amendment or modification of the financial covenants in this Agreement (or defined terms used in the financial covenants in this Agreement) shall not constitute a reduction in the rate of interest or fees for purposes of this clause (ii)), (iii) postpone the scheduled date of payment of the principal amount of any Loan or LC Disbursement, or any interest thereon, or any fees payable hereunder, or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date of expiration of any Commitment, without the written consent of each Lender directly affected thereby (other than any reduction of the amount of, or any extension of the payment date for, the mandatory prepayments required under Section 2.11, in each case which shall only require the approval of the Required Lenders), (iv) change Section 2.09(c), Section 2.18(b) or (d) or the definition of “Applicable Percentage” in a manner that would alter the ratable reduction of Commitments or the pro rata sharing of payments required thereby, without the written consent of each Lender, (v) change the payment waterfall provisions of Section 2.18(b) or Section 2.21(b) without the written consent of each Lender, (vi) change any of the provisions of this Section or the definition of “Required Lenders” or any other provision hereof specifying the number or percentage of Lenders required to waive, amend or modify any rights hereunder or make any determination or grant any consent hereunder, without the written consent of each Lender (it being understood that, solely with the consent of the parties prescribed by Section 2.22 to be parties to an Incremental Term Loan Amendment, Incremental Term Loans may be included in the determination of Required Lenders on substantially the same basis as the Commitments and the Loans are included on the Effective Date), (vii) (x) except as provided in Section 9.14, release all or substantially all of the Subsidiary Guarantors from their obligations under the Subsidiary Guaranty or (y) release the Borrower from its obligations under Article X, in each case, without the written consent of each Lender, (viii) except as provided in clause (d) of this Section or in any Collateral Document, release all or substantially all of the Collateral, without the written consent of each Lender or (ix) except as expressly permitted under this Agreement as of the Effective Date, voluntarily subordinate the Liens on all or substantially all of the Collateral under the Loan Documents to Liens securing other Indebtedness or voluntarily subordinate in right of payment the Obligations under the Loan Documents to any other Indebtedness, in each case, in any transaction or series of related transactions, without the written consent of each Lender directly affected thereby, provided that it is understood and agreed that only those Lenders that have not been provided a reasonable opportunity to receive the most-favorable treatment under or in connection with an amendment, waiver or supplement described in this clause (ix) (other than the right to receive customary administrative agency, arranging, underwriting and other similar fees) that is provided to any other Person, including the opportunity to participate on a pro rata basis on the same terms in any new loans or other Indebtedness permitted to be issued as a result of such amendment, waiver or supplement, shall be deemed to be directly and adversely affected by such amendment, waiver or supplement; and provided that no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent, any Issuing Bank or the Swingline Lender hereunder without the prior written consent of the Administrative Agent, such Issuing Bank or the Swingline Lender, as the case may be (it being understood that any change to Section 2.21 shall require the consent of the Administrative Agent, the Issuing Banks and the Swingline Lender); and provided further that no such agreement shall amend or modify the provisions of Section 2.06 without the prior written consent of the Administrative Agent and the Issuing Banks; and provided further any amendment or waiver that by its terms affects the rights or duties of Lenders holding Loans or Commitments of a particular Class (but not the Lenders holding Loans or Commitments of any other Class) will require only the requisite percentage in interest of the affected Class of Lenders that would be required to consent thereto if such Class of Lenders were the only Class of Lenders. Notwithstanding the foregoing, no consent with respect to any amendment, waiver or other modification of this Agreement shall be required of any Defaulting Lender, except with respect to any amendment, waiver or other modification referred
to in clause (i), (ii) or (iii) of the first proviso of this paragraph and then only in the event such Defaulting Lender shall be directly affected by such amendment, waiver or other modification.
(c) Notwithstanding the foregoing, this Agreement and any other Loan Document may be amended (or amended and restated) with the written consent of the Required Lenders, the Administrative Agent and the Borrower (x) to add one or more credit facilities (in addition to the Incremental Term Loans pursuant to an Incremental Term Loan Amendment) to this Agreement and to permit extensions of credit from time to time outstanding thereunder and the accrued interest and fees in respect thereof to share ratably in the benefits of this Agreement and the other Loan Documents with the Revolving Loans, Incremental Term Loans and the accrued interest and fees in respect thereof and (y) to include appropriately the Lenders holding such credit facilities in any determination of the Required Lenders and Lenders (it being understood and agreed that any such amendment or Incremental Term Loan Amendment to implement new Commitments or increases to the Commitments or Incremental Term Loans in accordance with, and pursuant to the requirements of, Section 2.22 shall require solely the consent of the parties prescribed by such Section and shall not require the consent of the Required Lenders).
(d) The Lenders hereby irrevocably authorize the Administrative Agent, at its option and in its sole discretion, to release any Liens granted to the Administrative Agent by the Loan Parties on any Collateral (i) upon the termination of all the Commitments, payment and satisfaction in full in cash of all Secured Obligations (other than Secured Swap Obligations not yet due and payable, Secured Banking Services Obligations not yet due and payable, Unliquidated Obligations for which no claim has been made and other Obligations expressly stated to survive such payment and termination), and the cash collateralization of all Unliquidated Obligations (other than contingent indemnification obligations in respect of which no claim has been asserted) in a manner satisfactory to the Administrative Agent, (ii) constituting property being sold or disposed of if the Borrower certifies to the Administrative Agent that the sale or disposition is made in compliance with the terms of this Agreement (and the Administrative Agent may rely conclusively on any such certificate, without further inquiry), (iii) constituting property leased to the Borrower or any Subsidiary under a lease which has expired or been terminated in a transaction permitted under this Agreement, or (iv) as required to effect any sale or other disposition of such Collateral in connection with any exercise of remedies of the Administrative Agent and the Lenders pursuant to Article VII. Any such release shall not in any manner discharge, affect, or impair the Secured Obligations or any Liens (other than those expressly being released) upon (or obligations of the Loan Parties in respect of) all interests retained by the Loan Parties, including the proceeds of any sale, all of which shall continue to constitute part of the Collateral. In addition, each of the Lenders, on behalf of itself and any of its Affiliates that are Secured Parties, irrevocably authorizes the Administrative Agent, at its option and in its discretion, (i) to subordinate any Lien on any assets granted to or held by the Administrative Agent under any Loan Document to the holder of any Lien on such property that is permitted by Section 6.02(f) or (ii) in the event that the Borrower shall have advised the Administrative Agent that, notwithstanding the use by the Borrower of commercially reasonable efforts to obtain the consent of such holder (but without the requirement to pay any sums to obtain such consent) to permit the Administrative Agent to retain its liens (on a subordinated basis as contemplated by clause (i) above), the holder of such other Indebtedness requires, as a condition to the extension of such credit, that the Liens on such assets granted to or held by the Administrative Agent under any Loan Document be released, to release the Administrative Agent’s Liens on such assets.
(e) If, in connection with any proposed amendment, waiver or consent requiring the consent of “each Lender” or “each Lender directly affected thereby,” the consent of the Required Lenders is obtained, but the consent of other necessary Lenders is not obtained (any such Lender whose consent is necessary but not obtained being referred to herein as a “Non-Consenting Lender”), then the Borrower may elect to replace a Non-Consenting Lender as a Lender party to this Agreement, provided
that, concurrently with such replacement, (i) another bank or other entity which is reasonably satisfactory to the Borrower and the Administrative Agent shall agree, as of such date, to purchase for cash the Loans and other Obligations due to the Non-Consenting Lender pursuant to an Assignment and Assumption and to become a Lender for all purposes under this Agreement and to assume all obligations of the Non-Consenting Lender to be terminated as of such date and to comply with the requirements of clause (b) of Section 9.04, (ii) the Borrower shall pay to such Non-Consenting Lender in same day funds on the day of such replacement (1) all interest, fees and other amounts then accrued but unpaid to such Non-Consenting Lender by the Borrower hereunder to and including the date of termination, including without limitation payments due to such Non-Consenting Lender under Sections 2.15 and 2.17, and (2) an amount, if any, equal to the payment which would have been due to such Lender on the day of such replacement under Section 2.16 had the Loans of such Non-Consenting Lender been prepaid on such date rather than sold to the replacement Lender and (iii) such Non-Consenting Lender shall have received the outstanding principal amount of its Loans and participations in LC Disbursements. Each party hereto agrees that (i) an assignment required pursuant to this paragraph may be effected pursuant to an Assignment and Assumption executed by the Borrower, the Administrative Agent and the assignee (or, to the extent applicable, an agreement incorporating an Assignment and Assumption by reference pursuant to an Approved Electronic Platform as to which the Administrative Agent and such parties are participants), and (ii) the Lender required to make such assignment need not be a party thereto in order for such assignment to be effective and shall be deemed to have consented to and be bound by the terms thereof; provided that, following the effectiveness of any such assignment, the other parties to such assignment agree to execute and deliver such documents necessary to evidence such assignment as reasonably requested by the applicable Lender, provided that any such documents shall be without recourse to or warranty by the parties thereto.
(f) Notwithstanding anything to the contrary herein the Administrative Agent may, with the consent of the Borrower only, amend, modify or supplement this Agreement or any of the other Loan Documents to cure any ambiguity, omission, mistake, defect or inconsistency.
SECTION 9.03. Expenses; Limitation of Liability; Indemnity; Etc.
(a) Expenses. The Borrower shall pay (i) all reasonable and documented out-of-pocket expenses incurred by the Administrative Agent and its Affiliates (which shall be limited in the case of legal fees and expenses, to the reasonable and documented fees, charges and disbursements of one primary counsel for the Administrative Agent and, if applicable, a single local counsel to the Administrative Agent in each relevant jurisdiction), in connection with the syndication and distribution (including, without limitation, via the internet or through a service such as Intralinks) of the credit facilities provided for herein, the preparation and administration of this Agreement and the other Loan Documents or any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), (ii) all reasonable and documented out-of-pocket expenses incurred by the Issuing Banks in connection with the issuance, amendment or extension of any Letter of Credit or any demand for payment thereunder and (iii) all reasonable and documented out-of-pocket expenses incurred by the Administrative Agent, any Issuing Bank and any Lender (which shall be limited, in the case of legal fees and expenses, to the reasonable and documented fees, charges and disbursements of one counsel for the Administrative Agent, the Issuing Banks and the Lenders (and, if reasonably necessary, a single local counsel to the Administrative Agent, the Issuing Banks and the Lenders in each relevant jurisdiction and regulatory counsel), unless a Lender reasonably determines that it would create a conflict of interest to not have individual counsel, in which case similarly affected lenders may have one additional firm of counsel), in connection with the enforcement or protection of its rights in connection with this Agreement and any other Loan Document, including its rights under this Section, or in connection with the Loans made or Letters of Credit issued
hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans or Letters of Credit.
(b) Limitation of Liability. To the extent permitted by applicable law (i) the Borrower and any other Loan Party shall not assert, and the Borrower and each other Loan Party hereby waives, any claim against the Administrative Agent, any Arranger, any Bookrunner, any Issuing Bank and any Lender, and any Related Party of any of the foregoing Persons (each such Person being called a “Lender-Related Person”) for any Liabilities arising from the use by others of information or other materials (including, without limitation, any personal data) obtained through telecommunications, electronic or other information transmission systems (including the Internet), and (ii) no party hereto shall assert, and each such party hereby waives, any Liabilities against any other party hereto, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document, or any agreement or instrument contemplated hereby or thereby, the Transactions, any Loan or Letter of Credit or the use of the proceeds thereof; provided that, nothing in this Section 9.03(b) shall relieve the Borrower or any other Loan Party of any obligation it may have to indemnify an Indemnitee, as provided in Section 9.03(c), against any special, indirect, consequential or punitive damages asserted against such Indemnitee by a third party; provided further that nothing in this Section 9.03(b) shall limit any Lender-Related Person’s obligations under Section 9.12.
(c) Indemnity. The Borrower shall indemnify the Administrative Agent, each Issuing Bank and each Lender, and each Related Party of any of the foregoing Persons (each such Person being called an “Indemnitee”) against, and hold each Indemnitee harmless from, any and all Liabilities and related expenses (which shall be limited, in the case of legal fees and expenses, to the reasonable and documented, including the fees, charges and disbursements of one primary counsel for the Indemnitees (and of a single local counsel to the Indemnitees in each relevant jurisdiction and regulatory counsel) unless an Indemnitee reasonably determines that it would create a conflict of interest to not have individual counsel, in which case similarly affected Indemnitees may have one additional firm of counsel (and, to the extent reasonably required by such Indemnitees, a single local counsel for all of the such Indemnitees in each relevant jurisdiction and regulatory counsel)), incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of (i) the execution or delivery of any Loan Document or any agreement or instrument contemplated thereby, the performance by the parties hereto of their respective obligations thereunder or the consummation of the Transactions or any other transactions contemplated hereby, (ii) any Loan or Letter of Credit or the use of the proceeds therefrom (including any refusal by any Issuing Bank to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by the Borrower or any of its Subsidiaries, or any Environmental Liability related in any way to the Borrower or any of its Subsidiaries, or (iv) any actual or prospective Proceeding relating to any of the foregoing, whether or not such Proceeding is brought by the Borrower or any other Loan Party or its or their respective equity holders, Affiliates, creditors or any other third Person and whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such Liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from (x) the gross negligence, bad faith or willful misconduct of such Indemnitee, (y) a material breach by such Indemnitee of its express contractual obligations under the Loan Documents pursuant to a claim made by the Borrower or (z) any dispute solely among Indemnitees (not arising as a result of any act or omission by the Borrower or any of its Subsidiaries or Affiliates) other than any Proceeding against any Indemnitee in its capacity as, or in fulfilling its role as, the Administrative Agent, an Issuing Bank, the Swingline Lender, a lead arranger, bookrunner, agent or any similar role under or in
connection with this Agreement. This Section 9.03(c) shall not apply with respect to Taxes other than any Taxes that represent losses, claims or damages arising from any non-Tax claim.
(d) Lender Reimbursement. To the extent that the Borrower fails to pay any amount required to be paid by it under paragraph (a) or (c) of this Section, each Lender severally agrees to pay to the Administrative Agent, such Issuing Bank or the Swingline Lender and each Related Party of any of the foregoing Persons (each, an “Agent-Related Person”), as the case may be, such Lender’s Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount (it being understood that the Borrower’s failure to pay any such amount shall not relieve the Borrower of any default in the payment thereof); provided that the unreimbursed expense or indemnified Liability or related expense, as the case may be, was incurred by or asserted against such Agent-Related Person in its capacity as such.
(e) Payments. All amounts due under this Section shall be payable not later than fifteen (15) days after written demand therefor.
SECTION 9.04. Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby (including any Affiliate of any Issuing Bank that issues any Letter of Credit), except that (i) the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by the Borrower without such consent shall be null and void) and (ii) no Lender may assign or otherwise transfer its rights or obligations hereunder except in accordance with this Section. Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby (including any Affiliate of any Issuing Bank that issues any Letter of Credit), Participants (to the extent provided in paragraph (c) of this Section) and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent, the Issuing Banks and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.
(b)(i) Subject to the conditions set forth in paragraph (b)(ii) below, any Lender may assign to one or more Persons (other than an Ineligible Institution) all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitments, participations in Letters of Credit and the Loans at the time owing to it) with the prior written consent (such consent not to be unreasonably withheld, conditioned or delayed) of:
(A) the Borrower (provided that the Borrower shall be deemed to have consented to any such assignment unless it shall object thereto by written notice to the Administrative Agent within ten (10) Business Days after having received notice thereof); provided, further, that no consent of the Borrower shall be required for an assignment to a Lender, an Affiliate of a Lender, an Approved Fund or, if an Event of Default has occurred and is continuing, any other assignee;
(B) the Administrative Agent; provided that no consent of the Administrative Agent shall be required for an assignment to any Lender, an Affiliate of a Lender or an Approved Fund;
(C) the Issuing Banks; provided that no consent of the Issuing Banks shall be required for an assignment of all or any portion of an Incremental Term Loan; and
(D) the Swingline Lender; provided that no consent of the Swingline Lender shall be required for an assignment of all or any portion of an Incremental Term Loan.
(ii) Assignments shall be subject to the following additional conditions:
(A) except in the case of an assignment to a Lender or an Affiliate of a Lender or an Approved Fund or an assignment of the entire remaining amount of the assigning Lender’s Commitment or Loans of any Class, the amount of the Commitment or Loans of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent) shall not be less than $5,000,000 unless each of the Borrower and the Administrative Agent otherwise consent, provided that no such consent of the Borrower shall be required if an Event of Default has occurred and is continuing;
(B) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this Agreement, provided that this clause shall not be construed to prohibit the assignment of a proportionate part of all the assigning Lender’s rights and obligations in respect of one Class of Commitments or Loans;
(C) the parties to each assignment shall execute and deliver to the Administrative Agent (x) an Assignment and Assumption or (y) to the extent applicable, an agreement incorporating an Assignment and Assumption by reference pursuant to an Approved Electronic Platform as to which the Administrative Agent and the parties to the Assignment and Assumption are participants, together with a processing and recordation fee of $3,500, such fee to be paid by either the assigning Lender or the assignee Lender or shared between such Lenders;
(D) the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire in which the assignee designates one or more credit contacts to whom all syndicate-level information (which may contain material non-public information about the Borrower and its Affiliates and their Related Parties or their respective securities) will be made available and who may receive such information in accordance with the assignee’s compliance procedures and applicable laws, including federal and state securities laws;
(E) without the prior written consent of the Administrative Agent, no assignment shall be made to a prospective assignee that bears a relationship to the Borrower described in Section 108(e)(4) of the Code; and
(F) so long as no Event of Default shall have occurred and be continuing, no such assignment shall be made to any Person that is not capable of lending each Type and Class of Loan.
For the purposes of this Section 9.04(b), the terms “Approved Fund” and “Ineligible Institution” have the following meanings:
“Approved Fund” means any Person (other than a natural person) that is engaged in making, purchasing, holding or investing in bank loans and similar extensions of credit in the ordinary
course of its business and that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.
“Ineligible Institution” means (a) a natural person, (b) a Defaulting Lender or its Lender Parent, (c) the Borrower, any of its Subsidiaries or any of its Affiliates, or (d) a company, investment vehicle or trust for, or owned and operated for the primary benefit of, a natural person or relative(s) thereof.
(iii) Subject to acceptance and recording thereof pursuant to paragraph (b)(iv) of this Section, from and after the effective date specified in each Assignment and Assumption the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.15, 2.16, 2.17 and 9.03). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this Section 9.04 shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (c) of this Section.
(iv) The Administrative Agent, acting solely for this purpose as a non-fiduciary agent of the Borrower, shall maintain at one of its offices a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount (and stated interest) of the Loans and LC Disbursements owing to, each Lender pursuant to the terms hereof from time to time (the “Register”). The entries in the Register shall be conclusive absent manifest error, and the Borrower, the Administrative Agent, the Issuing Banks and the Lenders shall treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower, any Issuing Bank and any Lender, at any reasonable time and from time to time upon reasonable prior notice.
(v) Upon its receipt of (x) a duly completed Assignment and Assumption executed by an assigning Lender and an assignee or (y) to the extent applicable, an agreement incorporating an Assignment and Assumption by reference pursuant to an Approved Electronic Platform as to which the Administrative Agent and the parties to the Assignment and Assumption are participants, the assignee’s completed Administrative Questionnaire (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, the Administrative Agent shall accept such Assignment and Assumption and record the information contained therein in the Register; provided that if either the assigning Lender or the assignee shall have failed to make any payment required to be made by it pursuant to Section 2.05(c), 2.06(d) or (e), 2.07(b), 2.18(e) or 9.03(d), the Administrative Agent shall have no obligation to accept such Assignment and Assumption and record the information therein in the Register unless and until such payment shall have been made in full, together with all accrued interest thereon. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph.
(c) Any Lender may, without the consent of the Borrower, the Administrative Agent, the Issuing Banks or the Swingline Lender, sell participations to one or more banks or other entities (a “Participant”), other than an Ineligible Institution, in all or a portion of such Lender’s rights and/or obligations under this Agreement (including all or a portion of its Commitment and/or the Loans owing to it); provided that (A) such Lender’s obligations under this Agreement shall remain unchanged,
(B) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (C) the Borrower, the Administrative Agent, the Issuing Banks and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in the first proviso to Section 9.02(b) that affects such Participant. The Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.15, 2.16 and 2.17 (subject to the requirements and limitations therein, including the requirements under Section 2.17(f) (it being understood that the documentation required under Section 2.17(f) shall be delivered to the participating Lender)) to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section; provided that such Participant (A) agrees to be subject to the provisions of Sections 2.18 and 2.19 as if it were an assignee under paragraph (b) of this Section; and (B) shall not be entitled to receive any greater payment under Sections 2.15 or 2.17, with respect to any participation, than its participating Lender would have been entitled to receive, except to the extent such entitlement to receive a greater payment results from a Change in Law that occurs after the Participant acquired the applicable participation. Each Lender that sells a participation agrees, at the Borrower’s request and expense, to use reasonable efforts to cooperate with the Borrower to effectuate the provisions of Section 2.19(b) with respect to any Participant. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 9.08 as though it were a Lender, provided such Participant agrees to be subject to Section 2.18(d) as though it were a Lender. Each Lender that sells a participation shall, acting solely for this purpose as a non-fiduciary agent of the Borrower, maintain a register on which it enters the name and address of each Participant and the principal amounts (and stated interest) of each Participant’s interest in the Loans or other obligations under the Loan Documents (the “Participant Register”); provided that no Lender shall have any obligation to disclose all or any portion of the Participant Register (including the identity of any Participant or any information relating to a Participant’s interest in any Commitments, Loans, Letters of Credit or its other obligations under any Loan Document) to any Person except to the extent that such disclosure is necessary to establish that such Commitment, Loan, Letter of Credit or other obligation is in registered form under Section 5f.103-1(c) of the United States Treasury Regulations or Section 1.163-5(b) of the Proposed United States Treasury Regulations (or, in each case, any amended or successor version). The entries in the Participant Register shall be conclusive absent manifest error, and such Lender shall treat each Person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary. For the avoidance of doubt, the Administrative Agent (in its capacity as Administrative Agent) shall have no responsibility for maintaining a Participant Register.
(d) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including without limitation any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.
SECTION 9.05. Survival. All covenants, agreements, representations and warranties made by the Loan Parties in the Loan Documents and in the certificates or other instruments delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of the Loan Documents and the making of any Loans and issuance of any Letters of Credit, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative
Agent, any Issuing Bank or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement or any other Loan Document is outstanding and unpaid (other than Unliquidated Obligations) or any Letter of Credit is outstanding (unless such Letter of Credit has been cash collateralized or backstopped pursuant to arrangements reasonably satisfactory to the Administrative Agent) and so long as the Commitments have not expired or terminated. The provisions of Sections 2.15, 2.16, 2.17 and 9.03 and Article VIII shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Letters of Credit and the Commitments or the termination of this Agreement or any other Loan Document or any provision hereof or thereof.
SECTION 9.06. Counterparts; Integration; Electronic Execution; Effectiveness. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement, the other Loan Documents and any separate letter agreements with respect to fees payable to the Administrative Agent constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 4.01, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Delivery of an executed counterpart of a signature page of (x) this Agreement, (y) any other Loan Document and/or (z) any document, amendment, approval, consent, information, notice (including, for the avoidance of doubt, any notice delivered pursuant to Section 9.01), certificate, request, statement, disclosure or authorization related to this Agreement, any other Loan Document and/or the transactions contemplated hereby and/or thereby (each an “Ancillary Document”) that is an Electronic Signature transmitted by telecopy, emailed pdf, or any other electronic means that reproduces an image of an actual executed signature page shall be effective as delivery of a manually executed counterpart of this Agreement, such other Loan Document or such Ancillary Document, as applicable. The words “execution,” “signed,” “signature,” “delivery,” and words of like import in or relating to this Agreement, any other Loan Document and/or any Ancillary Document shall be deemed to include Electronic Signatures, deliveries or the keeping of records in any electronic form (including deliveries by telecopy, emailed pdf, or any other electronic means that reproduces an image of an actual executed signature page), 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; provided that nothing herein shall require the Administrative Agent to accept Electronic Signatures in any form or format without its prior written consent and pursuant to procedures approved by it; provided, further, without limiting the foregoing, (i) to the extent the Administrative Agent has agreed to accept any Electronic Signature, the Administrative Agent and each of the Lenders shall be entitled to rely on such Electronic Signature purportedly given by or on behalf of the Borrower or any other Loan Party without further verification thereof and without any obligation to review the appearance or form of any such Electronic Signature and (ii) upon the request of the Administrative Agent or any Lender, any Electronic Signature shall be promptly followed by a manually executed counterpart. Without limiting the generality of the foregoing, the Borrower and each other Loan Party hereby (i) agrees that, for all purposes, including without limitation, in connection with any workout, restructuring, enforcement of remedies, bankruptcy proceedings or litigation among the Administrative Agent, the Lenders, the Borrower and the other Loan Parties, Electronic Signatures transmitted by telecopy, emailed pdf, or any other electronic means that reproduces an image of an actual executed signature page and/or any electronic images of this Agreement, any other Loan Document and/or any Ancillary Document shall have the same legal effect, validity and enforceability as any paper
original, (ii) agrees that the Administrative Agent and each of the Lenders may, at its option, create one or more copies of this Agreement, any other Loan Document and/or any Ancillary Document in the form of an imaged electronic record in any format, which shall be deemed created in the ordinary course of such Person’s business, and destroy the original paper document (and all such electronic records shall be considered an original for all purposes and shall have the same legal effect, validity and enforceability as a paper record), (iii) waives any argument, defense or right to contest the legal effect, validity or enforceability of this Agreement, any other Loan Document and/or any Ancillary Document based solely on the lack of paper original copies of this Agreement, such other Loan Document and/or such Ancillary Document, respectively, including with respect to any signature pages thereto and (iv) waives any claim against any Lender-Related Person for any Liabilities arising solely from the Administrative Agent’s and/or any Lender’s reliance on or use of Electronic Signatures and/or transmissions by telecopy, emailed pdf, or any other electronic means that reproduces an image of an actual executed signature page, including any Liabilities arising as a result of the failure of the Borrower and/or any other Loan Party to use any available security measures in connection with the execution, delivery or transmission of any Electronic Signature.
SECTION 9.07. Severability. Any provision of any Loan Document held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions thereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.
SECTION 9.08. Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender, each Issuing Bank, and each of their respective Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to setoff and apply any and all deposits (general or special, time or demand, provisional or final) at any time held, and other obligations at any time owing, by such Lender, such Issuing Bank or any such Affiliate, to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under this Agreement or any other Loan Document to such Lender or such Issuing Bank or their respective Affiliates, irrespective of whether or not such Lender, Issuing Bank or Affiliate shall have made any demand under this Agreement or any other Loan Document and although such obligations of the Borrower may be owed to a branch office or Affiliate of such Lender or such Issuing Bank different from the branch office or Affiliate holding such deposit or obligated on such indebtedness; provided that in the event that any Defaulting Lender shall exercise any such right of setoff, (x) all amounts so setoff shall be paid over immediately to the Administrative Agent for further application in accordance with the provisions of Section 2.21 and, pending such payment, shall be segregated by such Defaulting Lender from its other funds and deemed held in trust for the benefit of the Administrative Agent, the Issuing Banks, and the Lenders, and (y) the Defaulting Lender shall provide promptly to the Administrative Agent a statement describing in reasonable detail the Secured Obligations owing to such Defaulting Lender as to which it exercised such right of setoff. The rights of each Lender, each Issuing Bank and their respective Affiliates under this Section are in addition to other rights and remedies (including other rights of setoff) that such Lender, such Issuing Bank or their respective Affiliates may have. Each Lender and Issuing Bank agrees to notify the Borrower and the Administrative Agent promptly after any such setoff and application; provided that the failure to give such notice shall not affect the validity of such setoff and application.
SECTION 9.09. Governing Law; Jurisdiction; Consent to Service of Process. (a) This Agreement shall be construed in accordance with and governed by the law of the State of New York.
(b) Each of the Lenders and the Administrative Agent hereby irrevocably and unconditionally agrees that, notwithstanding the governing law provisions of any applicable Loan
Document, any claims brought against the Administrative Agent by any Secured Party relating to this Agreement, any other Loan Document, the Collateral or the consummation or administration of the transactions contemplated hereby or thereby shall be construed in accordance with and governed by the law of the State of New York.
(c) Each party to this Agreement hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of the United States District Court for the Southern District of New York sitting in the Borough of Manhattan (or if such court lacks subject matter jurisdiction, the Supreme Court of the State of New York sitting in the Borough of Manhattan), and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or any other Loan Document or the transactions relating hereto or thereto, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may (and any such claims, cross-claims or third party claims brought against the Administrative Agent or any of its Related Parties may only) be heard and determined in such Federal (to the extent permitted by law) or New York State court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement or any other Loan Document shall affect any right that the Administrative Agent, any Issuing Bank or any Lender may otherwise have to bring any action or proceeding relating to this Agreement or any other Loan Document against any Loan Party or its properties in the courts of any jurisdiction.
(d) Each party to this Agreement hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or any other Loan Document in any court referred to in paragraph (b) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.
(e)Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 9.01. Nothing in this Agreement or any other Loan Document will affect the right of any party to this Agreement to serve process in any other manner permitted by law.
SECTION 9.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
SECTION 9.11. Headings. Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement.
SECTION 9.12. Confidentiality. Each of the Administrative Agent, the Issuing Banks and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its and its Affiliates’ directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential); provided that the disclosing Administrative Agent, Issuing Bank or Lender, as applicable, shall be responsible for compliance by such Persons with the provisions of this Section 9.12, (b) to the extent requested by any Governmental Authority (including any self-regulatory authority, such as the National Association of Insurance Commissioners) purporting to have jurisdiction over the Administrative Agent, applicable Issuing Bank, the applicable Lender or its or their applicable Affiliates, (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process (provided that the Administrative Agent, such Issuing Bank or such Lender, as applicable, agrees that it will, to the extent practicable and other than with respect to any audit or examination conducted by bank accountants or any governmental bank regulatory authority exercising examination or regulatory authority, notify the Borrower promptly thereof, unless such notification is prohibited by law, rule or regulation), (d) to any other party to this Agreement, (e) in connection with the exercise of any remedies under this Agreement or any other Loan Document or any suit, action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to (1) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement or (2) any actual or prospective counterparty (or its advisors) to any swap or derivative transaction relating to the Borrower and its obligations, (g) on a confidential basis to (1) any rating agency in connection with rating the Borrower or its Subsidiaries or the credit facilities provided for herein or (2) the CUSIP Service Bureau or any similar agency in connection with the issuance and monitoring of identification numbers with respect to the credit facilities provided for herein, (h) with the consent of the Borrower or (i) to the extent such Information (1) becomes publicly available other than as a result of a breach of this Section or (2) becomes available to the Administrative Agent, any Issuing Banks or any Lender on a nonconfidential basis from a source other than the Borrower. For the purposes of this Section, “Information” means all information received from the Borrower relating to the Borrower or its business, other than any such information that is available to the Administrative Agent, any Issuing Bank or any Lender on a nonconfidential basis prior to disclosure by the Borrower and other than information pertaining to this Agreement routinely provided by arrangers to data service providers, including league table providers, that serve the lending industry. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information.
EACH LENDER ACKNOWLEDGES THAT INFORMATION AS DEFINED IN THE IMMEDIATELY PRECEDING PARAGRAPH FURNISHED TO IT PURSUANT TO THIS AGREEMENT MAY INCLUDE MATERIAL NON-PUBLIC INFORMATION CONCERNING THE BORROWER AND ITS RELATED PARTIES OR THEIR RESPECTIVE SECURITIES, AND CONFIRMS THAT IT HAS DEVELOPED COMPLIANCE PROCEDURES REGARDING THE USE OF MATERIAL NON-PUBLIC INFORMATION AND THAT IT WILL HANDLE SUCH MATERIAL NON-PUBLIC INFORMATION IN ACCORDANCE WITH THOSE PROCEDURES AND APPLICABLE LAW, INCLUDING FEDERAL AND STATE SECURITIES LAWS.
ALL INFORMATION, INCLUDING REQUESTS FOR WAIVERS AND AMENDMENTS, FURNISHED BY THE BORROWER OR THE ADMINISTRATIVE AGENT PURSUANT TO, OR IN THE COURSE OF ADMINISTERING, THIS AGREEMENT WILL BE SYNDICATE-LEVEL INFORMATION, WHICH MAY CONTAIN MATERIAL NON-PUBLIC
INFORMATION ABOUT THE BORROWER, THE OTHER LOAN PARTIES AND THEIR RELATED PARTIES OR THEIR RESPECTIVE SECURITIES. ACCORDINGLY, EACH LENDER REPRESENTS TO THE BORROWER AND THE ADMINISTRATIVE AGENT THAT IT HAS IDENTIFIED IN ITS ADMINISTRATIVE QUESTIONNAIRE A CREDIT CONTACT WHO MAY RECEIVE INFORMATION THAT MAY CONTAIN MATERIAL NON-PUBLIC INFORMATION IN ACCORDANCE WITH ITS COMPLIANCE PROCEDURES AND APPLICABLE LAW.
SECTION 9.13. USA PATRIOT Act. Each Lender that is subject to the requirements of the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Act”) and the requirements of the Beneficial Ownership Regulation hereby notifies each Loan Party that, pursuant to the requirements of the Act and the Beneficial Ownership Regulation, it is required to obtain, verify and record information that identifies such Loan Party, which information includes the name, address and tax identification number of such Loan Party and other information that will allow such Lender to identify such Loan Party in accordance with the Act and the Beneficial Ownership Regulation and other applicable “know your customer” and anti-money laundering rules and regulations.
SECTION 9.14. Releases of Subsidiary Guarantors and Collateral.
(a) A Subsidiary Guarantor shall automatically be released from its obligations under the Subsidiary Guaranty upon the consummation of any transaction permitted by this Agreement as a result of which such Subsidiary Guarantor ceases to be a Material Subsidiary; provided that, if so required by this Agreement, the Required Lenders shall have consented to such transaction and the terms of such consent shall not have provided otherwise. In connection with any termination or release pursuant to this Section, the Administrative Agent shall (and is hereby irrevocably authorized by each Lender to) execute and deliver to any Loan Party, at such Loan Party’s expense, all documents that such Loan Party shall reasonably request to evidence such termination or release. Any execution and delivery of documents pursuant to this Section shall be without recourse to or warranty by the Administrative Agent.
(b) Further, the Administrative Agent may (and is hereby irrevocably authorized by each Lender to), upon the request of the Borrower, release any Subsidiary Guarantor from its obligations under the Subsidiary Guaranty if such Subsidiary Guarantor is no longer a Material Subsidiary.
(c) At such time as the principal and interest on the Loans, all LC Disbursements, the fees, expenses and other amounts payable under the Loan Documents and the other Secured Obligations (other than Secured Swap Obligations not yet due and payable, Secured Banking Services Obligations not yet due and payable, Unliquidated Obligations for which no claim has been made and other Obligations expressly stated to survive such payment and termination) shall have been paid in full, the Commitments shall have been terminated and no Letters of Credit shall be outstanding (or any outstanding Letters of Credit shall have been cash collateralized or backstopped pursuant to arrangements reasonably satisfactory to the Administrative Agent), the Subsidiary Guaranty and all obligations (other than those expressly stated to survive such termination) of each Subsidiary Guarantor thereunder shall automatically terminate, all without delivery of any instrument or performance of any act by any Person.
(d) Upon (a) any sale or disposition by any Loan Party (other than to any Loan Party) of any Collateral in a transaction permitted under this Agreement or (b) the effectiveness of any written consent to the release of the security interest created under any Collateral Document in any Collateral pursuant to Section 9.02, the security interests in such Collateral created by the Collateral Documents shall be automatically released. In connection with any such termination or release pursuant to this Section, the Administrative Agent shall execute and deliver to any Loan Party, at such Loan Party’s expense, all documents that such Loan Party shall reasonably request to evidence such termination or
release in accordance with Section 9.02; provided, however, that (i) the Administrative Agent shall not be required to execute any such document on terms which, in the Administrative Agent’s reasonable opinion, would expose the Administrative Agent to liability or create any obligation or entail any consequence other than the release of such Liens without recourse or warranty, and (ii) such release shall not in any manner discharge, affect or impair the Secured Obligations or any Liens upon (or obligations of the Borrower or any Subsidiary in respect of) all interests retained by the Borrower or any Subsidiary, including (without limitation) the proceeds of such sale or disposition, all of which shall continue to constitute part of the Collateral. Any execution and delivery of documents pursuant to this Section shall be without recourse to or warranty by the Administrative Agent.
SECTION 9.15. Appointment for Perfection. Each Lender hereby appoints each other Lender as its agent for the purpose of perfecting Liens, for the benefit of the Administrative Agent and the Secured Parties, in assets which, in accordance with Article 9 of the UCC or any other applicable law can be perfected only by possession or control. Should any Lender (other than the Administrative Agent) obtain possession or control of any such Collateral, such Lender shall notify the Administrative Agent thereof, and, promptly upon the Administrative Agent’s request therefor shall deliver such Collateral to the Administrative Agent or otherwise deal with such Collateral in accordance with the Administrative Agent’s instructions.
SECTION 9.16. Interest Rate Limitation. Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to any Loan, together with all fees, charges and other amounts which are treated as interest on such Loan under applicable law (collectively the “Charges”), shall exceed the maximum lawful rate (the “Maximum Rate”) which may be contracted for, charged, taken, received or reserved by the Lender holding such Loan in accordance with applicable law, the rate of interest payable in respect of such Loan hereunder, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest and Charges that would have been payable in respect of such Loan but were not payable as a result of the operation of this Section shall be cumulated and the interest and Charges payable to such Lender in respect of other Loans or periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the NYFRB Rate to the date of repayment, shall have been received by such Lender.
SECTION 9.17. No Fiduciary Duty, etc.
(a) The Borrower acknowledges and agrees, and acknowledges its Subsidiaries’ understanding, that no Credit Party will have any obligations except those obligations expressly set forth herein and in the other Loan Documents and each Credit Party is acting solely in the capacity of an arm’s length contractual counterparty to the Borrower with respect to the Loan Documents and the transactions contemplated herein and therein and not as a financial advisor or a fiduciary to, or an agent of, the Borrower or any other person. The Borrower agrees that it will not assert any claim against any Credit Party based on an alleged breach of fiduciary duty by such Credit Party in connection with this Agreement and the transactions contemplated hereby. Additionally, the Borrower acknowledges and agrees that no Credit Party is advising the Borrower as to any legal, tax, investment, accounting, regulatory or any other matters in any jurisdiction. The Borrower shall consult with its own advisors concerning such matters and shall be responsible for making its own independent investigation and appraisal of the transactions contemplated herein or in the other Loan Documents, and the Credit Parties shall have no responsibility or liability to the Borrower with respect thereto.
(b) The Borrower further acknowledges and agrees, and acknowledges its Subsidiaries’ understanding, that each Credit Party, together with its Affiliates, is a full service securities or banking firm engaged in securities trading and brokerage activities as well as providing investment
banking and other financial services. In the ordinary course of business, any Credit Party may provide investment banking and other financial services to, and/or acquire, hold or sell, for its own accounts and the accounts of customers, equity, debt and other securities and financial instruments (including bank loans and other obligations) of, the Borrower, its Subsidiaries and other companies with which the Borrower or any of its Subsidiaries may have commercial or other relationships. With respect to any securities and/or financial instruments so held by any Credit Party or any of its customers, all rights in respect of such securities and financial instruments, including any voting rights, will be exercised by the holder of the rights, in its sole discretion.
(c) In addition, the Borrower acknowledges and agrees, and acknowledges its Subsidiaries’ understanding, that each Credit Party and its Affiliates may be providing debt financing, equity capital or other services (including financial advisory services) to other companies in respect of which the Borrower or any of its Subsidiaries may have conflicting interests regarding the transactions described herein and otherwise. No Credit Party will use confidential information obtained from the Borrower by virtue of the transactions contemplated by the Loan Documents or its other relationships with the Borrower in connection with the performance by such Credit Party of services for other companies, and no Credit Party will furnish any such information to other companies. The Borrower also acknowledges that no Credit Party has any obligation to use in connection with the transactions contemplated by the Loan Documents, or to furnish to the Borrower or any of its Subsidiaries, confidential information obtained from other companies.
SECTION 9.18. Acknowledgement and Consent to Bail-In of Affected Financial Institutions. Notwithstanding anything to the contrary in any Loan Document or in any other agreement, arrangement or understanding among any such parties, each party hereto acknowledges that any liability of any Affected Financial Institution arising under any Loan Document may be subject to the Write-Down and Conversion Powers of the applicable Resolution Authority and agrees and consents to, and acknowledges and agrees to be bound by:
(a) the application of any Write-Down and Conversion Powers by the applicable Resolution Authority to any such liabilities arising hereunder which may be payable to it by any party hereto that is an Affected Financial Institution; and
(b) the effects of any Bail-In Action on any such liability, including, if applicable:
(i) a reduction in full or in part or cancellation of any such liability;
(ii) a conversion of all, or a portion of, such liability into shares or other instruments of ownership in such Affected Financial Institution, its parent entity, or a bridge institution that may be issued to it or otherwise conferred on it, and that such shares or other instruments of ownership will be accepted by it in lieu of any rights with respect to any such liability under this Agreement or any other Loan Document; or
(iii) the variation of the terms of such liability in connection with the exercise of the Write-Down and Conversion Powers of the applicable Resolution Authority.
SECTION 9.19. Acknowledgement Regarding Any Supported QFCs. To the extent that the Loan Documents provide support, through a guarantee or otherwise, for Swap Agreements or any other agreement or instrument that is a QFC (such support “QFC Credit Support” and each such QFC a “Supported QFC”), the parties acknowledge and agree as follows with respect to the resolution power of the Federal Deposit Insurance Corporation under the Federal Deposit Insurance Act and Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act (together with the regulations
promulgated thereunder, the “U.S. Special Resolution Regimes”) in respect of such Supported QFC and QFC Credit Support (with the provisions below applicable notwithstanding that the Loan Documents and any Supported QFC may in fact be stated to be governed by the laws of the State of New York and/or of the United States or any other state of the United States):
In the event a Covered Entity that is party to a Supported QFC (each, a “Covered Party”) becomes subject to a proceeding under a U.S. Special Resolution Regime, the transfer of such Supported QFC and the benefit of such QFC Credit Support (and any interest and obligation in or under such Supported QFC and such QFC Credit Support, and any rights in property securing such Supported QFC or such QFC Credit Support) from such Covered Party will be effective to the same extent as the transfer would be effective under the U.S. Special Resolution Regime if the Supported QFC and such QFC Credit Support (and any such interest, obligation and rights in property) were governed by the laws of the United States or a state of the United States. In the event a Covered Party or a BHC Act Affiliate of a Covered Party becomes subject to a proceeding under a U.S. Special Resolution Regime, Default Rights under the Loan Documents that might otherwise apply to such Supported QFC or any QFC Credit Support that may be exercised against such Covered Party are permitted to be exercised to no greater extent than such Default Rights could be exercised under the U.S. Special Resolution Regime if the Supported QFC and the Loan Documents were governed by the laws of the United States or a state of the United States. Without limitation of the foregoing, it is understood and agreed that rights and remedies of the parties with respect to a Defaulting Lender shall in no event affect the rights of any Covered Party with respect to a Supported QFC or any QFC Credit Support.
ARTICLE X
Borrower Guarantee
In order to induce the Lenders to extend credit to the Borrower hereunder and for other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the Borrower hereby absolutely and irrevocably and unconditionally guarantees, as a primary obligor and not merely as a surety, the payment when and as due of the Specified Ancillary Obligations of the Subsidiaries. The Borrower further agrees that the due and punctual payment of such Specified Ancillary Obligations may be extended or renewed, in whole or in part, without notice to or further assent from it, and that it will remain bound upon its guarantee hereunder notwithstanding any such extension or renewal of any such Specified Ancillary Obligation.
The Borrower waives presentment to, demand of payment from and protest to any Subsidiary of any of the Specified Ancillary Obligations, and also waives notice of acceptance of its obligations and notice of protest for nonpayment. The obligations of the Borrower hereunder shall not be affected by (a) the failure of any applicable Lender (or any of its Affiliates) to assert any claim or demand or to enforce any right or remedy against any Subsidiary under the provisions of any Banking Services Agreement, any Swap Agreement or otherwise; (b) any extension or renewal of any of the Specified Ancillary Obligations; (c) any rescission, waiver, amendment or modification of, or release from, any of the terms or provisions of this Agreement, any other Loan Document, any Banking Services Agreement, any Swap Agreement or other agreement; (d) any default, failure or delay, willful or otherwise, in the performance of any of the Specified Ancillary Obligations; (e) the failure of any applicable Lender (or any of its Affiliates) to take any steps to perfect and maintain any security interest in, or to preserve any rights to, any security or collateral for the Specified Ancillary Obligations, if any; (f) any change in the corporate, partnership or other existence, structure or ownership of any Subsidiary or any other guarantor of any of the Specified Ancillary Obligations; (g) the enforceability or validity of the Specified Ancillary Obligations or any part thereof or the genuineness, enforceability or validity of any agreement relating thereto or with respect to any collateral securing the Specified Ancillary Obligations or any part thereof, or any other invalidity or unenforceability relating to or against any Subsidiary or any other guarantor of any of the Specified Ancillary
Obligations, for any reason related to this Agreement, any other Loan Document, any Banking Services Agreement, any Swap Agreement, or any provision of applicable law, decree, order or regulation of any jurisdiction purporting to prohibit the payment by such Subsidiary or any other guarantor of the Specified Ancillary Obligations, of any of the Specified Ancillary Obligations or otherwise affecting any term of any of the Specified Ancillary Obligations; or (h) any other act, omission or delay to do any other act which may or might in any manner or to any extent vary the risk of the Borrower or otherwise operate as a discharge of a guarantor as a matter of law or equity or which would impair or eliminate any right of the Borrower to subrogation.
The Borrower further agrees that its agreement hereunder constitutes a guarantee of payment when due (whether or not any bankruptcy or similar proceeding shall have stayed the accrual or collection of any of the Specified Ancillary Obligations or operated as a discharge thereof) and not merely of collection, and waives any right to require that any resort be had by any applicable Lender (or any of its Affiliates) to any balance of any deposit account or credit on the books of the Administrative Agent, any Issuing Bank or any Lender in favor of any Subsidiary or any other Person.
The obligations of the Borrower hereunder shall not be subject to any reduction, limitation, impairment or termination for any reason, and shall not be subject to any defense or set-off, counterclaim, recoupment or termination whatsoever, by reason of the invalidity, illegality or unenforceability of any of the Specified Ancillary Obligations, any impossibility in the performance of any of the Specified Ancillary Obligations or otherwise.
The Borrower further agrees that its obligations hereunder shall constitute a continuing and irrevocable guarantee of all Specified Ancillary Obligations now or hereafter existing and shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of any Specified Ancillary Obligation (including a payment effected through exercise of a right of setoff) is rescinded, or is or must otherwise be restored or returned by any applicable Lender (or any of its Affiliates) upon the insolvency, bankruptcy or reorganization of any Subsidiary or otherwise (including pursuant to any settlement entered into by a holder of Specified Ancillary Obligations in its discretion).
In furtherance of the foregoing and not in limitation of any other right which any applicable Lender (or any of its Affiliates) may have at law or in equity against the Borrower by virtue hereof, upon the failure of any Subsidiary to pay any Specified Ancillary Obligation when and as the same shall become due, whether at maturity, by acceleration, after notice of prepayment or otherwise, the Borrower hereby promises to and will, upon receipt of written demand by any applicable Lender (or any of its Affiliates), forthwith pay, or cause to be paid, to such applicable Lender (or any of its Affiliates) in cash an amount equal to the unpaid principal amount of such Specified Ancillary Obligations then due, together with accrued and unpaid interest thereon.
Upon payment by the Borrower of any sums as provided above, all rights of the Borrower against any Subsidiary arising as a result thereof by way of right of subrogation or otherwise shall in all respects be subordinated and junior in right of payment to the prior indefeasible payment in full in cash of all the Specified Ancillary Obligations owed by such Subsidiary to the applicable Lender (or its applicable Affiliates).
The Borrower hereby absolutely, unconditionally and irrevocably undertakes to provide such funds or other support as may be needed from time to time by each Subsidiary Guarantor to honor all of its obligations under the Subsidiary Guaranty in respect of Specified Swap Obligations (provided, however, that the Borrower shall only be liable under this paragraph for the maximum amount of such liability that can be hereby incurred without rendering its obligations under this paragraph or otherwise
under this Article X voidable under applicable law relating to fraudulent conveyance or fraudulent transfer, and not for any greater amount). The Borrower intends that this paragraph constitute, and this paragraph shall be deemed to constitute, a “keepwell, support, or other agreement” for the benefit of each Subsidiary Guarantor for all purposes of Section 1a(18)(A)(v)(II) of the Commodity Exchange Act.
Nothing shall discharge or satisfy the liability of the Borrower hereunder except the full performance and payment in cash of the Secured Obligations.
[Signature Pages Follow]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective authorized officers as of the day and year first above written.
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ZIPRECRUITER, INC.,
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as the Borrower
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By
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/s/ David Travers
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Name: David Travers
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Title: Chief Financial Officer
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JPMORGAN CHASE BANK, N.A., individually as a Lender, as the Swingline Lender, as an Issuing Bank and as Administrative Agent
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By
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/s/ Daniel J. Maniaci
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Name: Daniel J. Maniaci
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Title: Vice President
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SILICON VALLEY BANK
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By:
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/s/ Robby Kumar
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Name: Robby Kumar
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Title: Managing Director
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GOLDMAN SACHS BANK USA
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By:
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/s/ Kevin Raisch
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Name: Kevin Raisch
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Title: Authorized Signatory
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BARCLAYS BANK PLC
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By:
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/s/ Sean Duggan
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Name: Sean Duggan
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Title: Vice President
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HSBC BANK USA, NATIONAL ASSOCIATION
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By:
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/s/ Kathryn E. Benjamin
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Name: Kathryn E. Benjamin
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Title: Senior Vice President
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SCHEDULE 1.01
EXISTING LETTERS OF CREDIT
[SCHEDULE OMITTED; SCHEDULE CONTAINS LIST OF EXISTING LETTERS OF CREDIT]
SCHEDULE 2.01
COMMITMENTS
LENDER REVOLVING
COMMITMENT
JPMORGAN CHASE BANK, N.A. $80,000,000
SILICON VALLEY BANK $80,000,000
GOLDMAN SACHS BANK USA $40,000,000
BARCLAYS BANK PLC $25,000,000
HSBC BANK USA, NATIONAL ASSOCIATION $25,000,000
AGGREGATE COMMITMENTS $250,000,000
SCHEDULE 3.01
Subsidiaries
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Name
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Jurisdiction
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Equity Interest owned by Borrower or Loan Party
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Material Subsidiary/Subsidiary Guarantor
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ZipRecruiter UK Ltd.
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United Kingdom
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100%
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No
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ZipRecruiter Israel Ltd.
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Israel
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100%
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No
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ZipRecruiter Canada Ltd.
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Canada
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100%
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No
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SCHEDULE 3.06
Disclosed Matters
None.
SCHEDULE 6.01
Existing Indebtedness
1.Convertible Promissory Notes in an aggregate principal amount of $25,000,000 issued pursuant to that certain Note Purchase Agreement dated as of June 22, 2020 by and among the Borrower and the parties listed on the Schedule of Investors attached thereto.
SCHEDULE 6.02
Existing Liens
None.
SCHEDULE 6.04
Existing Investments
None.
EXHIBIT A
ASSIGNMENT AND ASSUMPTION
This Assignment and Assumption (the “Assignment and Assumption”) is dated as of the Effective Date set forth below and is entered into by and between [Insert name of Assignor] (the “Assignor”) and [Insert name of Assignee] (the “Assignee”). Capitalized terms used but not defined herein shall have the meanings given to them in the Credit Agreement identified below (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), receipt of a copy of which is hereby acknowledged by the Assignee. The Standard Terms and Conditions set forth in Annex 1 attached hereto are hereby agreed to and incorporated herein by reference and made a part of this Assignment and Assumption as if set forth herein in full.
For an agreed consideration, the Assignor hereby irrevocably sells and assigns to the Assignee, and the Assignee hereby irrevocably purchases and assumes from the Assignor, subject to and in accordance with the Standard Terms and Conditions and the Credit Agreement, as of the Effective Date inserted by the Administrative Agent as contemplated below (i) all of the Assignor’s rights and obligations in its capacity as a Lender under the Credit Agreement and any other documents or instruments delivered pursuant thereto to the extent related to the amount and percentage interest identified below of all of such outstanding rights and obligations of the Assignor under the respective facilities identified below (including any letters of credit, guarantees, and swingline loans included in such facilities) and (ii) to the extent permitted to be assigned under applicable law, all claims, suits, causes of action and any other right of the Assignor (in its capacity as a Lender) against any Person, whether known or unknown, arising under or in connection with the Credit Agreement, any other documents or instruments delivered pursuant thereto or the loan transactions governed thereby or in any way based on or related to any of the foregoing, including contract claims, tort claims, malpractice claims, statutory claims and all other claims at law or in equity related to the rights and obligations sold and assigned pursuant to clause (i) above (the rights and obligations sold and assigned pursuant to clauses (i) and (ii) above being referred to herein collectively as the “Assigned Interest”). Such sale and assignment is without recourse to the Assignor and, except as expressly provided in this Assignment and Assumption, without representation or warranty by the Assignor.
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1.
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Assignor:
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2.
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Assignee:
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[and is an Affiliate/Approved Fund of [identify Lender]1]
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3.
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Borrower(s):
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ZipRecruiter, Inc.
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4.
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Administrative Agent:
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JPMorgan Chase Bank, N.A., as the administrative agent under the Credit Agreement
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5.
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Credit Agreement:
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The Credit Agreement dated as of April 30, 2021 among ZipRecruiter, Inc., the Lenders parties thereto and JPMorgan Chase Bank, N.A., as Administrative Agent
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_________________________
1 Select as applicable.
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6.Assigned Interest:
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Aggregate Amount of Commitment/Loans for all Lenders
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Amount of Commitment/
Loans Assigned
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Percentage Assigned of
Commitment/Loans2
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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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$
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$
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%
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Effective Date: _____________ ___, 20___ [TO BE INSERTED BY ADMINISTRATIVE AGENT AND WHICH SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE REGISTER THEREFOR.]
The Assignee agrees to deliver to the Administrative Agent a completed Administrative Questionnaire in which the Assignee designates one or more credit contacts to whom all syndicate-level information (which may contain material non-public information about the Borrower, the Loan Parties and their Related Parties or their respective securities) will be made available and who may receive such information in accordance with the Assignee’s compliance procedures and applicable laws, including federal and state securities laws.
The terms set forth in this Assignment and Assumption are hereby agreed to:
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ASSIGNOR
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[NAME OF ASSIGNOR]
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By:
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Title:
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ASSIGNEE
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[NAME OF ASSIGNEE]
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By:
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Title:
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[Consented to and]3 Accepted:
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JPMORGAN CHASE BANK, N.A., as Administrative Agent[, Swingline Lender and Issuing Bank] 4
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_________________________
2 Set forth, to at least 9 decimals, as a percentage of the Commitment/Loans of all Lenders thereunder.
3 To be added only if the consent of the Administrative Agent is required by the terms of the Credit Agreement.
4 To be added only if the consent of the Swingline Lender and the Issuing Banks is required by the terms of the Credit Agreement.
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By:
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Title:
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[Consented to:
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_____________________. as Issuing Bank
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By:
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Title:
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]5
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[Consented to:]6
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ZIPRECRUITER, INC.
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By:
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Title:
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_________________________
5 To be added only if the consent of the Issuing Banks is required by the terms of the Credit Agreement.
6 To be added only if the consent of the Borrower is required by the terms of the Credit Agreement.
ANNEX I
STANDARD TERMS AND CONDITIONS FOR
ASSIGNMENT AND ASSUMPTION
1. Representations and Warranties.
1.1 Assignor. The Assignor (a) represents and warrants that (i) it is the legal and beneficial owner of the Assigned Interest, (ii) the Assigned Interest is free and clear of any lien, encumbrance or other adverse claim and (iii) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby; and (b) assumes no responsibility with respect to (i) any statements, warranties or representations made in or in connection with the Credit Agreement or any other Loan Document, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Documents or any collateral thereunder, (iii) the financial condition of the Borrower, any of its Subsidiaries or Affiliates or any other Person obligated in respect of any Loan Document, (iv) any requirements under applicable law for the Assignee to become a lender under the Credit Agreement or to charge interest at the rate set forth therein from time to time or (v) the performance or observance by the Borrower, any of its Subsidiaries or Affiliates or any other Person of any of their respective obligations under any Loan Document.
1.2. Assignee. The Assignee (a) represents and warrants that (i) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby and to become a Lender under the Credit Agreement, (ii) it satisfies the requirements, if any, specified in the Credit Agreement and under applicable law that are required to be satisfied by it in order to acquire the Assigned Interest and become a Lender, (iii) from and after the Effective Date, it shall be bound by the provisions of the Credit Agreement as a Lender thereunder and, to the extent of the Assigned Interest, shall have the obligations of a Lender thereunder, (iv) it is sophisticated with respect to decisions to acquire assets of the type represented by the Assigned Interest and either it, or the Person exercising discretion in making its decision to acquire the Assigned Interest, is experienced in acquiring assets of such type, (v) it has received a copy of the Credit Agreement, together with copies of the most recent financial statements delivered pursuant to Section 5.01 thereof, as applicable, and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Assumption and to purchase the Assigned Interest on the basis of which it has made such analysis and decision independently and without reliance on the Administrative Agent, any Arranger, any Bookrunner, the Assignor or any other Lender or any of their respective Related Parties, and (vi) attached to the Assignment and Assumption is any documentation required to be delivered by it pursuant to the terms of the Credit Agreement, including pursuant to Section 2.17(f), duly completed and executed by the Assignee; and (vii) it does not bear a relationship to the Borrower described in Section 108(e)(4) of the Code; and (b) agrees that (i) it will, independently and without reliance on the Administrative Agent, any Arranger, any Bookrunner, the Assignor or any other Lender or any of their respective Related Parties, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents, and (ii) it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender.
2. Payments. From and after the Effective Date, the Administrative Agent shall make all payments in respect of the Assigned Interest (including payments of principal, interest, fees and other
amounts) to the Assignor for amounts which have accrued to but excluding the Effective Date and to the Assignee for amounts which have accrued from and after the Effective Date.
3. General Provisions. This Assignment and Assumption shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. This Assignment and Assumption may be executed in any number of counterparts, which together shall constitute one instrument. Acceptance and adoption of the terms of this Assignment and Assumption by the Assignee and the Assignor by Electronic Signature or delivery of an executed counterpart of a signature page of this Assignment and Assumption by any Approved Electronic Platform shall be effective as delivery of a manually executed counterpart of this Assignment and Assumption. This Assignment and Assumption shall be governed by, and construed in accordance with, the law of the State of New York.
EXHIBIT B
OPINION OF LOAN PARTIES’ COUNSEL
[ATTACHED]
EXHIBIT C
LIST OF CLOSING DOCUMENTS
ZIPRECRUITER, INC.
April 30, 2021
LIST OF CLOSING DOCUMENTS1
A. LOAN DOCUMENTS
1. Credit Agreement (the “Credit Agreement”) by and among ZipRecruiter, Inc., a Delaware corporation (the “Borrower”), the institutions from time to time parties thereto as Lenders (the “Lenders”) and JPMorgan Chase Bank, N.A., in its capacity as Administrative Agent for itself and the other Lenders (the “Administrative Agent”), evidencing a revolving credit facility to the Borrower from the Revolving Lenders in an aggregate principal amount of $250,000,000.
SCHEDULES
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Schedule 1.01
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--
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Existing Letters of Credit
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Schedule 2.01
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--
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Commitments
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Schedule 3.01
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--
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Subsidiaries
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Schedule 3.06
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--
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Disclosed Matters
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Schedule 6.01
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--
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Existing Indebtedness
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Schedule 6.02
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--
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Existing Liens
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Schedule 6.04
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--
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Existing Investments
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EXHIBITS
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Exhibit A
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--
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Form of Assignment and Assumption
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Exhibit B
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Form of Opinion of Loan Parties’ Counsel
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Exhibit C
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--
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List of Closing Documents
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Exhibit D-1
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--
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Form of U.S. Tax Certificate (Non-U.S. Lenders That Are Not Partnerships)
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Exhibit D-2
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--
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Form of U.S. Tax Certificate (Non-U.S. Lenders That Are Partnerships)
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Exhibit D-3
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--
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Form of U.S. Tax Certificate (Non-U.S. Participants That Are Not Partnerships)
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Exhibit D-4
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--
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Form of U.S. Tax Certificate (Non-U.S. Participants That Are Partnerships)
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Exhibit E
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--
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Form of Increasing Lender Supplement
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Exhibit F
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--
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Form of Augmenting Lender Supplement
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Exhibit G-1
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--
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Form of Borrowing Request
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Exhibit G-2
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--
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Form of Interest Election Request
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Exhibit H
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--
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Form of Subsidiary Guaranty
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1 Each capitalized term used herein and not defined herein shall have the meaning assigned to such term in the above-defined Credit Agreement. Items appearing in bold italics shall be prepared and/or provided by the Borrower and/or Borrower’s counsel.
2. the Lender Fee Letter executed by the Borrower and the Lenders and the Arranger Fee Letter executed by the Borrower and the Arrangers.
3. Notes executed by the Borrower in favor of each of the Lenders, if any, which has requested a note pursuant to Section 2.10(e) of the Credit Agreement.
4. Pledge and Security Agreement executed by the Loan Parties, together with pledged instruments and allonges, stock certificates, stock powers executed in blank, pledge instructions and acknowledgments, as appropriate.
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Exhibit A
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--
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Legal and Prior Names; Principal Place of Business and Chief Executive Office; Properties Leased by the Grantors; Properties Owned by the Grantors; Public Warehouses or Other Locations
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Exhibit B
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--
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Aircraft/Engines, Ships, Railcars and Other Vehicles Governed by Federal Statute; Patents, Copyrights and Trademarks Protected under Federal Law
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Exhibit C
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--
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List of Instruments, Pledged Securities and other Investment Property
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Exhibit D
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--
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UCC Financing Statement Filing Locations
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Exhibit E
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--
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Commercial Tort Claims
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Exhibit F
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--
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FEIN; State Organization Number and Jurisdiction of Incorporation
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Exhibit G
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Deposit Accounts; Securities Accounts
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Exhibit H
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Amendment
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Annex I
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Security Agreement Supplement
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Annex II
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Confirmatory Grant of Security Interest In United States [Patents][Trademarks][Copyrights]
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5. Confirmatory Grant of Security Interest in United States Trademarks made by certain of the Loan Parties in favor of the Administrative Agent for the benefit of the Secured Parties.
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Exhibit A
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Schedule of Trademarks
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6. Certificates of Insurance listing the Administrative Agent as (x) lender loss payee for the property and casualty insurance policies of the Loan Parties and (y) additional insured with respect to the liability insurance of the Loan Parties.
B. UCC / IP SEARCHES & UCC DOCUMENTS
7. UCC, tax lien and name variation search reports naming each Loan Party from the appropriate offices in relevant jurisdictions.
8. Intellectual property searches against each Loan Party at the United States Patent and Trademark Office and United States Copyright Office.
9. UCC financing statements naming each Loan Party as debtor and the Administrative Agent as secured party as filed with the appropriate offices in applicable jurisdictions.
C. CORPORATE DOCUMENTS
10. Certificate of the Secretary or an Assistant Secretary of each Loan Party certifying (i) that there have been no changes in the Certificate of Incorporation or other charter document of such Loan Party, as attached thereto and as certified as of a recent date by the Secretary of State (or analogous governmental entity) of the jurisdiction of its organization, since the date of the certification thereof by such governmental entity, (ii) the By-Laws or other applicable organizational document, as attached thereto, of such Loan Party as in effect on the date of such certification, (iii) resolutions of the Board of Directors or other governing body of such Loan Party authorizing the execution, delivery and performance of each Loan Document to which it is a party, and (iv) the names and true signatures of the incumbent officers of each Loan Party authorized to sign the Loan Documents to which it is a party, and (in the case of the Borrower) authorized to request a Borrowing or the issuance of a Letter of Credit under the Credit Agreement.
11. Good Standing Certificate (or analogous documentation if applicable) for each Loan Party from the Secretary of State (or analogous governmental entity) of the jurisdiction of its organization, to the extent generally available in such jurisdiction.
D. OPINIONS
12. Opinion of Fenwick & West LLP, counsel for the Loan Parties.
E. CLOSING CERTIFICATES AND MISCELLANEOUS
13. A Certificate signed by the President, a Vice President or a Financial Officer of the Borrower confirming compliance with the conditions set forth in paragraphs (a) and (b) of Section 4.02 of the Credit Agreement.
14. A Certificate of the chief financial officer of the Borrower in form and substance satisfactory to the Administrative Agent supporting the conclusions that, after giving effect to the Transactions, the Borrower and its Subsidiaries, taken as a whole, are Solvent and will be Solvent subsequent to incurring the indebtedness in connection with the Transactions.
15. Payoff documentation providing evidence satisfactory to the Administrative Agent that the Existing Credit Agreement has been terminated and cancelled (along with all of the agreements, documents and instruments delivered in connection therewith) and all indebtedness thereunder has been fully repaid (except to the extent being so repaid with the initial Loans) and any and all liens thereunder have been terminated.
EXHIBIT D-1
FORM OF U.S. TAX CERTIFICATE
(For Non-U.S. Lenders That Are Not Partnerships For U.S. Federal Income Tax Purposes)
Reference is hereby made to the Credit Agreement dated as of April 30, 2021 (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), among ZipRecruiter, Inc. (the “Borrower”), the Lenders from time to time party thereto and JPMorgan Chase Bank, N.A., as administrative agent (in such capacity, the “Administrative Agent”).
Pursuant to the provisions of Section 2.17 of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record and beneficial owner of the Loan(s) (as well as any Note(s) evidencing such Loan(s)) in respect of which it is providing this certificate, (ii) it is not a bank within the meaning of Section 881(c)(3)(A) of the Code, (iii) it is not a ten percent shareholder of the Borrower within the meaning of Section 871(h)(3)(B) of the Code, (iv) it is not a controlled foreign corporation related to the Borrower as described in Section 881(c)(3)(C) of the Code and (v) the interest payments in question are not effectively connected with the undersigned’s conduct of a U.S. trade or business.
The undersigned has furnished the Administrative Agent and the Borrower with a certificate of its non-U.S. person status on IRS Form W-8BEN or IRS Form W-8BEN-E, as applicable. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned shall promptly so inform the Borrower and the Administrative Agent and (2) the undersigned shall have at all times furnished the Borrower and the Administrative Agent with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.
Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.
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[NAME OF LENDER]
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By:
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Name:
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Title:
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Date: __________, 20[__]
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EXHIBIT D-2
FORM OF U.S. TAX CERTIFICATE
(For Non-U.S. Lenders That Are Partnerships For U.S. Federal Income Tax Purposes)
Reference is hereby made to the Credit Agreement dated as of April 30, 2021 (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), among ZipRecruiter, Inc. (the “Borrower”), the Lenders from time to time party thereto and JPMorgan Chase Bank, N.A., as administrative agent (in such capacity, the “Administrative Agent”).
Pursuant to the provisions of Section 2.17 of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record owner of the Loan(s) (as well as any Note(s) evidencing such Loan(s)) in respect of which it is providing this certificate, (ii) its direct or indirect partners/members are the sole beneficial owners of such Loan(s) (as well as any Note(s) evidencing such Loan(s)), (iii) with respect to the extension of credit pursuant to this Credit Agreement, neither the undersigned nor any of its direct or indirect partners/members is a bank extending credit pursuant to a loan agreement entered into in the ordinary course of its trade or business within the meaning of Section 881(c)(3)(A) of the Code, (iv) none of its direct or indirect partners/members is a ten percent shareholder of the Borrower within the meaning of Section 871(h)(3)(B) of the Code, (v) none of its direct or indirect partners/members is a controlled foreign corporation related to the Borrower as described in Section 881(c)(3)(C) of the Code, and (vi) the interest payments in question are not effectively connected with the undersigned’s or its direct or indirect partners/members’ conduct of a U.S. trade or business.
The undersigned has furnished the Administrative Agent and the Borrower with IRS Form W-8IMY accompanied by one of the following forms from each of its partners/members that is claiming the portfolio interest exemption: (i) an IRS Form W-8BEN or IRS Form W-8BEN-E, as applicable, or (ii) IRS Form W-8IMY accompanied by an IRS Form W-8BEN or IRS Form W-8BEN-E, as applicable, from each of its partner’s/member’s beneficial owners that is claiming the portfolio interest exemption. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned shall promptly so inform the Borrower and the Administrative Agent and (2) the undersigned shall have at all times furnished the Borrower and the Administrative Agent with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.
Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.
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[NAME OF LENDER]
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By:
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Name:
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Title:
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Date: ________ __, 20[__]
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EXHIBIT D-3
FORM OF U.S. TAX CERTIFICATE
(For Non-U.S. Participants That Are Not Partnerships For U.S. Federal Income Tax Purposes)
Reference is hereby made to the Credit Agreement dated as of April 30, 2021 (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), among ZipRecruiter, Inc. (the “Borrower”), the Lenders from time to time party thereto and JPMorgan Chase Bank, N.A., as administrative agent (in such capacity, the “Administrative Agent”).
Pursuant to the provisions of Section 2.17 of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record and beneficial owner of the participation in respect of which it is providing this certificate, (ii) it is not a bank within the meaning of Section 881(c)(3)(A) of the Code, (iii) it is not a ten percent shareholder of the Borrower within the meaning of Section 871(h)(3)(B) of the Code, (iv) it is not a controlled foreign corporation related to the Borrower as described in Section 881(c)(3)(C) of the Code, and (v) the interest payments in question are not effectively connected with the undersigned’s conduct of a U.S. trade or business.
The undersigned has furnished its participating Lender with a certificate of its non- U.S. person status on IRS Form W-8BEN or IRS Form W-8BEN-E, as applicable. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned shall promptly so inform such Lender in writing and (2) the undersigned shall have at all times furnished such Lender with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.
Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.
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[NAME OF PARTICIPANT]
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By:
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Name:
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Title:
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Date: _________ __, 20[__]
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EXHIBIT D-4
FORM OF U.S. TAX CERTIFICATE
(For Non-U.S. Participants That Are Partnerships For U.S. Federal Income Tax Purposes)
Reference is hereby made to the Credit Agreement dated as of April 30, 2021 (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), among ZipRecruiter, Inc. (the “Borrower”), the Lenders from time to time party thereto and JPMorgan Chase Bank, N.A., as administrative agent (in such capacity, the “Administrative Agent”).
Pursuant to the provisions of Section 2.17 of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record owner of the participation in respect of which it is providing this certificate, (ii) its direct or indirect partners/members are the sole beneficial owners of such participation, (iii) with respect to such participation, neither the undersigned nor any of its direct or indirect partners/members is a bank extending credit pursuant to a loan agreement entered into in the ordinary course of its trade or business within the meaning of Section 881(c)(3)(A) of the Code, (iv) none of its direct or indirect partners/members is a ten percent shareholder of the Borrower within the meaning of Section 871(h)(3)(B) of the Code, (v) none of its direct or indirect partners/members is a controlled foreign corporation related to the Borrower as described in Section 881(c)(3)(C) of the Code, and (vi) the interest payments in question are not effectively connected with the undersigned’s or its direct or indirect partners/members’ conduct of a U.S. trade or business.
The undersigned has furnished its participating Lender with IRS Form W-8IMY accompanied by one of the following forms from each of its partners/members that is claiming the portfolio interest exemption: (i) an IRS Form W-8BEN or IRS Form W-8BEN-E, as applicable, or (ii) IRS Form W-8IMY accompanied by an IRS Form W-8BEN or IRS Form W-8BEN-E, as applicable, from each of its partner’s/member’s beneficial owners that is claiming the portfolio interest exemption. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned shall promptly so inform such Lender and (2) the undersigned shall have at all times furnished such Lender with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.
Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.
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[NAME OF PARTICIPANT]
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By:
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Name:
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Title:
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Date: ________ __, 20[__]
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EXHIBIT E
FORM OF INCREASING LENDER SUPPLEMENT
INCREASING LENDER SUPPLEMENT, dated __________, 20___ (this “Supplement”), by and among each of the signatories hereto, to the Credit Agreement, dated as of January 5, 2021 (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), among ZipRecruiter, Inc. (the “Borrower”), the Lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent (in such capacity, the “Administrative Agent”).
W I T N E S S E T H
WHEREAS, pursuant to Section 2.22 of the Credit Agreement, the Borrower has the right, subject to the terms and conditions thereof, to effectuate from time to time an increase in the aggregate Revolving Commitments and/or one or more tranches of Incremental Term Loans under the Credit Agreement by requesting one or more Lenders to increase the amount of its Commitment and/or to participate in such a tranche;
WHEREAS, the Borrower has given notice to the Administrative Agent of its intention to [increase the aggregate Revolving Commitments] [and] [enter into a tranche of Incremental Term Loans] pursuant to such Section 2.22; and
WHEREAS, pursuant to Section 2.22 of the Credit Agreement, the undersigned Increasing Lender now desires to [increase the amount of its Revolving Commitment] [and] [participate in a tranche of Incremental Term Loans] under the Credit Agreement by executing and delivering to the Borrower and the Administrative Agent this Supplement;
NOW, THEREFORE, each of the parties hereto hereby agrees as follows:
1. The undersigned Increasing Lender agrees, subject to the terms and conditions of the Credit Agreement, that on the date of this Supplement it shall [have its Revolving Commitment increased by $[__________], thereby making the aggregate amount of its total Revolving Commitments equal to $[__________]] [and] [participate in a tranche of Incremental Term Loans with a commitment amount equal to $[_________] with respect thereto].
2. The Borrower hereby represents and warrants that no Default or Event of Default has occurred and is continuing on and as of the date hereof.
3. Terms defined in the Credit Agreement shall have their defined meanings when used herein.
4. This Supplement shall be governed by, and construed in accordance with, the laws of the State of New York.
5. This Supplement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same document.
IN WITNESS WHEREOF, each of the undersigned has caused this Supplement to be executed and delivered by a duly authorized officer on the date first above written.
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[INSERT NAME OF INCREASING LENDER]
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By:
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Name:
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Title:
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Accepted and agreed to as of the date first written above:
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ZIPRECRUITER, INC.
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By:
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Name:
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Title:
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Acknowledged as of the date first written above:
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JPMORGAN CHASE BANK, N.A.
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as Administrative Agent
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By:
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Name:
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Title:
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EXHIBIT F
FORM OF AUGMENTING LENDER SUPPLEMENT
AUGMENTING LENDER SUPPLEMENT, dated __________, 20___ (this “Supplement”), by and among each of the signatories hereto, to the Credit Agreement, dated as of January 5, 2021 (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), among ZipRecruiter, Inc. (the “Borrower”), the Lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent (in such capacity, the “Administrative Agent”).
W I T N E S S E T H
WHEREAS, the Credit Agreement provides in Section 2.22 thereof that any bank, financial institution or other entity may [extend Revolving Commitments] [and] [participate in tranches of Incremental Term Loans] under the Credit Agreement subject to the approval of the Borrower and the Administrative Agent, by executing and delivering to the Borrower and the Administrative Agent a supplement to the Credit Agreement in substantially the form of this Supplement; and
WHEREAS, the undersigned Augmenting Lender was not an original party to the Credit Agreement but now desires to become a party thereto;
NOW, THEREFORE, each of the parties hereto hereby agrees as follows:
1. The undersigned Augmenting Lender agrees to be bound by the provisions of the Credit Agreement and agrees that it shall, on the date of this Supplement, become a Lender for all purposes of the Credit Agreement to the same extent as if originally a party thereto, with a [Revolving Commitment of $[__________]] [and] [a commitment with respect to Incremental Term Loans of $[_______]].
2. The undersigned Augmenting Lender (a) represents and warrants that it is legally authorized to enter into this Supplement; (b) confirms that it has received a copy of the Credit Agreement, together with copies of the most recent financial statements delivered pursuant to Section 5.01 thereof, as applicable, and has reviewed such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Supplement; (c) agrees that it will, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement or any other instrument or document furnished pursuant hereto or thereto; (d) appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers and discretion under the Credit Agreement or any other instrument or document furnished pursuant hereto or thereto as are delegated to the Administrative Agent by the terms thereof, together with such powers as are incidental thereto; and (e) agrees that it will be bound by the provisions of the Credit Agreement and will perform in accordance with its terms all the obligations which by the terms of the Credit Agreement are required to be performed by it as a Lender.
3. The undersigned’s address for notices for the purposes of the Credit Agreement is as follows:
[___________]
4. The Borrower hereby represents and warrants that no Default or Event of Default has occurred and is continuing on and as of the date hereof.
5. Terms defined in the Credit Agreement shall have their defined meanings when used herein.
6. This Supplement shall be governed by, and construed in accordance with, the laws of the State of New York.
7. This Supplement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same document.
[remainder of this page intentionally left blank]
IN WITNESS WHEREOF, each of the undersigned has caused this Supplement to be executed and delivered by a duly authorized officer on the date first above written.
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[INSERT NAME OF AUGMENTING LENDER]
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By:
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Name:
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Title:
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Accepted and agreed to as of the date first written above:
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ZIPRECRUITER, INC.
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By:
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Name:
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Title:
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Acknowledged as of the date first written above:
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JPMORGAN CHASE BANK, N.A.
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as Administrative Agent
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By:
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Name:
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Title:
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EXHIBIT G-1
FORM OF BORROWING REQUEST
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JPMorgan Chase Bank, N.A.,
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as Administrative Agent
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for the Lenders referred to below
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10 South Dearborn
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Floor L2S
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Chicago, Illinois 60603
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Attention: Account Manager
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Facsimile: (844) 490-5663
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Re: ZipRecruiter, Inc.
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[Date]
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Ladies and Gentlemen:
Reference is hereby made to the Credit Agreement dated as of January 5, 2021 (as the same may be amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), among ZipRecruiter, Inc. (the “Borrower”), the Lenders from time to time party thereto and JPMorgan Chase Bank, N.A., as administrative agent (in such capacity, the “Administrative Agent”). Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Credit Agreement. The Borrower hereby gives you notice pursuant to Section 2.03 of the Credit Agreement that it requests a Borrowing under the Credit Agreement, and in that connection the Borrower specifies the following information with respect to such Borrowing requested hereby:
1.The requested Borrowing is in respect of the Revolving Commitment.
2.Aggregate principal amount of Borrowing:1 __________
3.Date of Borrowing (which shall be a Business Day): __________
4.Type of Borrowing (ABR or Eurocurrency): __________
5.Interest Period and the last day thereof (if a Eurocurrency Borrowing):2 __________
6.Location and number of the Borrower’s account or any other account agreed upon by the Administrative Agent and the Borrower to which proceeds of Borrowing are to be disbursed: __________
[Signature Page Follows]
_________________________
1 Not less than applicable amounts specified in Section 2.02(c).
2 Which must comply with the definition of “Interest Period” and end not later than the Maturity Date.
The undersigned hereby represents and warrants that the conditions to lending specified in Section[s] [4.01 and]2 4.02 of the Credit Agreement are satisfied as of the date hereof.
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Very truly yours,
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ZIPRECRUITER, INC.,
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as the Borrower
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By:
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Name:
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Title:
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2 To be included only for Borrowings on the Effective Date.
EXHIBIT G-2
FORM OF INTEREST ELECTION REQUEST
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JPMorgan Chase Bank, N.A.,
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as Administrative Agent
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for the Lenders referred to below
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10 South Dearborn
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Floor L2S
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Chicago, Illinois 60603
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Attention: Account Manager
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Facsimile: (844) 490-5663
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Re: ZipRecruiter, Inc.
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[Date]
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Ladies and Gentlemen:
Reference is hereby made to the Credit Agreement dated as of January 5, 2021 (as the same may be amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), among ZipRecruiter, Inc. (the “Borrower”), the Lenders from time to time party thereto and JPMorgan Chase Bank, N.A., as administrative agent (in such capacity, the “Administrative Agent”). Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Credit Agreement. The Borrower hereby gives you notice pursuant to Section 2.08 of the Credit Agreement that it requests to [convert][continue] an existing Borrowing under the Credit Agreement, and in that connection the Borrower specifies the following information with respect to such [conversion][continuation] requested hereby:
1. List date, Type, Class, principal amount and Interest Period (if applicable) of existing Borrowing: __________
2. Aggregate principal amount of resulting Borrowing: __________
3. Effective date of interest election (which shall be a Business Day): __________
4. Type of Borrowing (ABR or Eurocurrency): __________
5. Interest Period and the last day thereof (if a Eurocurrency Borrowing):3 __________
[Signature Page Follows]
3 Which must comply with the definition of “Interest Period” and end not later than the Maturity Date.
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Very truly yours,
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ZIPRECRUITER, INC.,
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as the Borrower
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By:
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Name:
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Title:
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EXHIBIT H
FORM OF SUBSIDIARY GUARANTY
[see attached]
Exhibit 10.24
CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [*****], HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE COMPETITIVE HARM IF PUBLIC
THIRD AMENDMENT TO OFFICE LEASE
This Third Amendment to Office Lease (this "Third Amendment"), dated January 7, 2019, is made by and between DOUGLAS EMMETT 1995, LLC, a Delaware limited liability company ("Landlord"), with offices at 1299 Ocean Avenue, Suite 1000, Santa Monica, California 90401, and ZIPRECRUITER, INC., a Delaware corporation ("Tenant"), with offices at 401 Wilshire Boulevard, Suite 1100, Santa Monica, California 90401.
WHEREAS,
A. Landlord, pursuant to the provisions of that certain Office Lease dated May I6, 2014 (the "Original Lease"), as amended by that certain option exercise letter dated August 11, 2015 (the "OE Letter"), that certain First Amendment to Office Lease dated May 23, 2017 (the "First Amendment"), and that certain Second Amendment to Office Lease dated May 3, 2018 (the "Second Amendment"), leases to Tenant and Tenant leases from Landlord space in the property located at 401 Wilshire Boulevard, Santa Monica, California 90401 (the "Building"), commonly known as Suite 1100 (the "Premises");
B. Tenant desires to join the City of Santa Monica's fiber optic network, also known as "CityNet", which network is available in the Building. Landlord has consented to Tenant joining CityNet upon the terms and conditions set forth herein; and
C. Landlord and Tenant, for their mutual benefit, wish to revise certain other covenants and provisions of the Original Lease, as amended.
NOW, THEREFORE, in consideration of the covenants and provisions contained herein, and other good and valuable consideration, the sufficiency of which Landlord and Tenant hereby acknowledge, Landlord and Tenant agree:
1. Confirmation of Defined Terms. Unless modified herein, all terms previously defined and capitalized in the Original Lease, as amended, shall hold the same meaning for the purposes of this Third Amendment. The Original Lease, as modified by the OE Letter, the First Amendment, the Second Amendment and this Third Amendment, shall hereinafter be referred to as the "Lease."
2.CityNet Term. Tenant may join CityNet commencing, upon mutual execution of this Third Amendment (the "Effective Date") and expiring co-terminously with the Second Extended Term on October 31, 2023 (the "CityNet Term"), unless Tenant exercises its renewal option or otherwise extends the Second Extended Term, in which case the CityNet Term shall expire co-tenninously with such extended date.
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4.No Obligation of Landlord. Tenant acknowledges and agrees that CityNet is an institutional network and Landlord shall have no obligations whatsoever with respect to CityNet nor shall Landlord be responsible for any damage in connection with Tenant's use of CityNct, except to the extent caused by Landlord's or Landlord's employees' or agents' negligence or willful misconduct.
THIRD AMENDMENT TO OFFICE LEASE
5. [*****]
6.Notices. The address of Landlord for notices shall be the following:
1299 Ocean Avenue, Suite 1000
Santa Monica, California 90401
Attention: Director of Property Management
7.Acceptance of Premises. Tenant acknowledges that it has been in possession of the Premises for over four (4) years, has no claim against Landlord, and therefore releases Landlord from any claim, loss, liability, cost or expense, in connection with the Premises or the Lease. Tenant has made its own inspection of and inquiries regarding the Premises, which is already improved. Therefore, Tenant accepts the Premises in its "as-is'' condition. Tenant further acknowledges that Landlord has made no currently effective representation or warranty, express or implied regarding the condition, suitability or usability of the Premises or the Building for the purposes intended by Tenant.
8.Warranty of Authority. If Landlord or Tenant signs as a corporation, or a limited liability company or a partnership, each of the persons executing this Third Amendment on behalf of Landlord or Tenant hereby covenants and warrants that the applicable entity executing herein below is a duly authorized and existing entity that is qualified to do business in California; that the person(s) signing on behalf of either Landlord or Tenant have full right and authority to enter into this Third Amendment; and that each and every person signing on behalf of either Landlord or Tenant are authorized in writing to do so.
9.Broker Representation. Landlord and Tenant represent to one another that it has dealt with no broker in connection with this Third Amendment other than Douglas Emmett Management, LLC. Landlord and Tenant shall hold one another harmless from and against any and all liability, loss, damage, expense, claim, action, demand, suit or obligation arising out of or relating to a breach by the indemnifying party of such representation. Landlord agrees to pay all commissions due to the brokers listed above created by Tenant's execution of this Third Amendment.
10.Confidentiality. Tenant agrees that the covenants and provisions of this Third Amendment shall not be divulged to anyone not directly involved in the management, administration, ownership, lending against, or subleasing of the Premises, other than Tenant's or Landlord's counsel-of-record or leasing or sub-leasing broker of record.
11.Governing Law. The provisions of this Third Amendment shall be governed by the laws of the State of California.
12.Reaffirmation. Landlord and Tenant acknowledge and agree that the Lease, as amended herein, constitutes the entire agreement by and between Landlord and Tenant relating to the Premises, and supersedes any and all other agreements written or oral between the pa1ties hereto. Furthermore, except as modified herein, all other covenants and provisions of the Lease shall remain unmodified and in full force and effect.
13.Civil Code Section 1938 Disclosure. Pursuant to California Civil Code Section 1938, Landlord hereby discloses that the Premises have not undergone an inspection by a Certified Access Specialist to determine whether the Premises meet all applicable construction-related accessibility standards. A Certified Access Specialist ("CASp") can inspect the Premises and determine whether the Premises comply with all of the applicable construction-related accessibility standards under California law. Although California law does not require a CASp inspection of the Premises, Landlord may not prohibit the Tenant from obtaining a CASp inspection of the Premises for the occupancy or potential occupancy of Tenant, if requested by Tenant. Landlord and Tenant shall mutually agree on the arrangements for the time and manner of the CASp inspection, the payment of the fee for the CASp inspection, and the cost of making any repairs necessary to correct violations of construction-related accessibility standards within the Premises.
14.Submission of Document. The submission of this Third Amendment to Tenant shall he for examination purposes only, and does not constitute a reservation of or an option for Tenant to lease, or otherwise create any interest by Tenant in the Premises or any other offices or space situated in the Building. Regardless of whether or not (a) Landlord has delivered to Tenant an unexecuted draft or final version of this Third Amendment for Tenant's review and/or signature, (b) this Third Amendment has been executed by Tenant only and delivered to Landlord for its review and signature, and/or (c) Tenant has made payments of rent and/or security deposit to Landlord pursuant to this Third Amendment, it is understood and agreed that no contractual or other rights shall exist between Landlord and Tenant with respect to the premises, nor shall this Third Amendment be valid, binding on the parties and/or in effect unless and until this Third Amendment has been fully executed by Landlord and Tenant and such fully-executed Third Amendment has been delivered to Tenant.
15.Digital Counterp1nts. This Third Amendment may be executed in several counterparts, each of which when executed and delivered shall be deemed an original, and all or· which when taken tougher shall constitute one and the same agreement. The parties agree that a digital image of this Third Amendment as fully-executed (such as in a portable document format (.pdf)) when sent to the email address of Tenant , its broker (if any), its attorney (if any), or its authorized agent (if any) shall be deemed delivery of a true and correct original of this Third Amendment, and such digital image of this Third Amendment shall be admissible as best evidence for the purposes of state law, Federal Rule of Evidence 1002, and the like statutes and regulations.
[Signatures Appear on the Following Page]
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THIRD AMENDMENT TO OFFICE LEASE
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IN WITNESS THEREOF, Landlord and Tenant have duly executed this document effective as of the later of the date(s) written below.
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LANDLORD:
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TENANT:
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DOUGLAS EMMETT 1995, LLC, a Delaware corporation, its Manager
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ZIPRECRUITER, INC., a Delaware corporation
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By:
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Douglas Emmett Management, Inc., a Delaware corporation its Manager
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By:
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/s/ David Feldman
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By:
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/s/ Andrew B. Goodman
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Name:
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David Feldman
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Andrew B. Goodman
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Title:
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Chief Business Officer
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Senior Vice President
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Dated:
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1/22/2019
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Date:
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1/10/2019
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CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the use in this Registration Statement on Form S-1 of ZipRecruiter, Inc. of our report dated March 9, 2021 relating to the financial statements of ZipRecruiter, Inc., which appears in this Registration Statement. We also consent to the reference to us under the heading “Experts” in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Los Angeles, California
April 30, 2021
