As filed with the Securities and Exchange Commission on August 24, 2021.
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Warby Parker Inc.
(Exact name of Registrant as specified in its charter)
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Delaware
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5995
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80-0423634
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(State or other jurisdiction of
incorporation or organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification Number)
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233 Spring Street, 6th Floor East
New York, New York 10013
(646) 847-7215
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
Neil Blumenthal, Co-Founder and Co-Chief Executive Officer
Dave Gilboa, Co-Founder and Co-Chief Executive Officer
Warby Parker Inc.
233 Spring Street, 6th Floor East
New York, New York 10013
(646) 847-7215
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
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Marc D. Jaffe
Stelios G. Saffos
Benjamin J. Cohen
Brittany D. Ruiz
Latham & Watkins LLP
1271 Avenue of the Americas
New York, New York 10020
(212) 906-1200
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Steven Miller
Hyung Bak
Lindsay Buxbaum
Warby Parker Inc.
233 Spring Street, 6th Floor East
New York, New York 10013
(646) 847-7215
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Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement is declared effective.
If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☒
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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☒
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Smaller reporting company
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Emerging growth company
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
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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
Fee
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Class A common stock, $0.0001 par value per share
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Not applicable
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$50,000,000
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$5,455
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(1)Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(a) under 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 expects to register, which will be calculated from its unaudited pro forma balance sheet as of June 30, 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).
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
The information in this preliminary prospectus is not complete and may be changed. Securities may not be sold until the preliminary prospectus filed with the Securities and Exchange Commission is effective. This preliminary 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.
Subject to Completion. Dated , 2021.
Shares of Class A Common Stock
This prospectus relates to the registration of the resale of up to shares of our Class A common stock by our 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. Such sales, if any, will be made through brokerage transactions on the New York Stock Exchange, or the NYSE. See the section titled “Plan of Distribution.” We will not receive any proceeds from the sale of shares of Class A common stock by the Registered Stockholders.
On or prior to effectiveness of this registration statement, we will have three classes of authorized common stock, Class A common stock, Class B common stock and Class C common stock. The rights of the holders of Class A common stock, Class B common stock and Class C common stock are identical, except with respect to voting and conversion, or as otherwise provided in our Amended Charter. Each share of Class A common stock is entitled to one vote per share. Each share of Class B common stock shall entitle the holder thereof to ten votes per share and is convertible at any time into one share of Class A common stock. Each holder of Class C common stock shall not be entitled to vote except as otherwise provided by law. Following this offering, Neil Blumenthal and Dave Gilboa, our Co-Founders and Co-Chief Executive Officers, will hold all outstanding shares of our Class B common stock representing approximately % of the voting power of our outstanding capital stock. As a result, Mr. Blumenthal and Mr. Gilboa will be able to control any action requiring the approval of our stockholders, including the election of our board of directors, the adoption of amendments to our Amended Charter and Amended Bylaws and the approval of any merger, consolidation, sale of all or substantially all of our assets or other major corporate transaction.
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.
No public market for our Class A common stock currently exists. There is only a limited history of trading in our capital stock in private transactions. Based on information available to us, the high and low sales price per share of our capital stock for such private transactions during the period from through was $ and $ , respectively. For more information, see the section titled “Sale Price History of our Capital Stock.” Any recent trading prices in private transactions may have little or no relation to the opening trading price of our shares of Class A common stock on the NYSE or the subsequent trading price of our shares of Class A common stock on the NYSE. Further, the listing of our Class A common stock on the NYSE 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 per share 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.
Based on information provided by the NYSE, the opening trading price of our Class A common stock on the NYSE will be determined by buy and sell orders collected by the NYSE from broker-dealers. Based on such orders, the designated market maker will determine an opening price for our Class A common stock in consultation with a financial advisor pursuant to applicable NYSE rules. For more information, see the section titled “Plan of Distribution.”
We intend to apply to list our Class A common stock on the NYSE under the symbol “WRBY.” We expect our Class A common stock to begin trading on the NYSE on or about , 2021.
We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, or the Securities Act, and will be subject to reduced public company reporting requirements. This prospectus complies with the requirements that apply to an issuer that is an emerging growth company. See the section titled “Prospectus Summary—Implications of Being an Emerging Growth Company.”
We elected in June 2021 to be treated as a public benefit corporation under Delaware law. As a public benefit corporation, we are required to balance the financial interests of our stockholders, the the best interests of those stakeholders materially affected by our conduct, and the specific benefit purposes set forth in our Amended Charter. Accordingly, our duty to balance a variety of interests may result in actions that do not maximize stockholder value.
See the section titled “Risk Factors” beginning on page 19 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.
Prospectus dated , 2021.
Table Of Contents
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.
Neither we nor any of the Registered Stockholders have authorized anyone to provide you with any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. Neither we nor any of the Registered Stockholders take any responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. To the extent they sell, the Registered Stockholders are offering to sell, and seeking offers to buy, shares of our Class A common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our Class A common stock. Our business, financial condition, and results of operations may have changed since that date.
For investors outside the United States: Neither we nor any of the Registered Stockholders have done anything that would permit the use of or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside of the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of our Class A common stock 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 Securities and Exchange Commission, or 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 (except that any such additions, updates, or other changes to the section titled “Plan of Distribution” shall only be made pursuant to a post-effective amendment to the extent they are material). 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.
The number of shares of Class A common stock and Class B common stock to be outstanding upon completion of this listing excludes:
•1,925,352 shares of Class A common stock issuable upon exercise of stock options outstanding as of June 30, 2021 pursuant to the Amended and Restated 2011 Stock Plan, or the 2011 Plan, with a weighted average exercise price of $6.11 per share;
•2,834,298 shares of Class B common stock issuable upon exercise of stock options outstanding as of June 30, 2021 pursuant to the 2012 Milestone Plan, or the 2012 Plan, with a weighted average exercise price of $2.28 per share;
•1,064,572 shares of Class A common stock available for issuance pursuant to our 2011 Plan as of June 30, 2021, which will become available for issuance pursuant to the 2021 Incentive Award Plan, or the 2021 Plan, upon such plan’s effectiveness (which includes (i) shares of Class A common stock issuable in connection with the vesting and settlement of restricted stock units, or RSUs, that were granted after June 30, 2021, pursuant to our 2011 Plan, and (ii) shares of Class A common stock issuable upon exercise of stock options granted after June 30, 2021 pursuant to the 2011 Plan);
• shares of Class A common stock and Class B common stock that will become available for future issuance pursuant to the 2021 Plan, which will become effective in connection with our listing (and which excludes any potential annual evergreen increases pursuant to the terms of the 2021 Plan);
• shares of Class A common stock that will become available for future issuance pursuant to our 2021 Employee Stock Purchase Plan, or the ESPP, which will become effective in connection with our listing (and which excludes any potential annual evergreen increases pursuant to the terms of the ESPP); and
•1,250,004 shares of Class A common stock that we plan to donate to the Warby Parker Impact Foundation in roughly equal installments over seven years.
Except as otherwise indicated, all information in this prospectus assumes or gives effect to:
•the conversion of 53,299,362 outstanding shares of all series of our convertible preferred stock into an aggregate of 53,299,362 shares of our Class A common stock which will occur prior to our listing, or the Preferred Stock Conversion;
•the filing and effectiveness of our amended and restated certificate of incorporation in Delaware, or the Amended Charter, which will occur prior to our listing and which will, among other things, effect (x) the reclassification of all outstanding shares of our Series A common stock (i) beneficially owned by Neil Blumenthal and Dave Gilboa and (ii) held by , , and , or collectively, the Co-Founder Shares, into Class B common stock and (y) the reclassification of all other outstanding shares of our Series A common stock and all outstanding shares of Series B common stock, other than the Co-Founder Shares, into Class A common stock, or collectively, the Common Stock Reclassification;
•the adoption of our amended and restated bylaws, or the Amended Bylaws, which will occur prior to our listing;
•1,981,866 shares of Class A common stock issuable in connection with the vesting and settlement of RSUs, outstanding as of June 30, 2021, pursuant to our 2011 Plan;
•2,284,208 and 4,397,688 shares of Class B common stock issuable in connection with the vesting and settlement of RSUs and PSUs, respectively, outstanding as of June 30, 2021, pursuant to our 2019 Plan;
•21,745 shares of Class A common stock issuable upon the net exercise of the warrant held by Comerica outstanding as of June 30, 2021 at an exercise price of $ per share, or the Comerica Warrant; and
•no exercise of the outstanding stock options or settlement of RSUs, described above subsequent to June 30, 2021.
After giving effect to the Preferred Stock Conversion, as of June 30, 2021, we had a total of shares of Class A common stock and shares of Class B common stock outstanding. Between June 30, 2021 and the effective date of the registration statement of which this prospectus forms a part, we have not issued any additional shares of common stock or awards convertible or exercisable for shares of common stock except as noted above.
Following the listing of our Class A common stock on the NYSE, approximately shares of our Class A common stock may be immediately sold either (i) by the Registered Stockholders pursuant to this prospectus or (ii) by our other existing stockholders under Rule 144 under the Securities Act since such shares held by such other stockholders will have been beneficially owned by non-affiliates for at least one year. See also “Shares Eligible For Future Sale.”
In addition, on June 30, 2021, the time-based vesting condition will be satisfied in respect of shares of Class A common stock issuable to non-affiliates upon settlement of RSUs outstanding as of June 30, 2021 (which settlement may be net of withholding for taxes).
Glossary
Active Customer is defined as a unique customer that has made at least one purchase of any product or service in the preceding 12-month period.
Adjusted EBITDA is defined as net loss for the company and its consolidated subsidiaries before interest and other (income) / expense, taxes, and depreciation and amortization as further adjusted for stock-based compensation expense. For a reconciliation to the most directly comparable GAAP measure, see the section titled “Prospectus Summary—Summary Consolidated Financial and Other Data—Key Business Metrics and Certain Non-GAAP Financial Measures.”
Adjusted EBITDA margin is defined as adjusted EBITDA divided by net revenue. For a reconciliation to the most directly comparable GAAP measure, see the section titled “Prospectus Summary—Summary Consolidated Financial and Other Data—Key Business Metrics and Certain Non-GAAP Financial Measures.”
Average Contribution Per Customer is defined as gross profit less acquisition costs and selling and service costs during a given period divided by the number of Active Customers for that same period. For a reconciliation to the most directly comparable GAAP measure, see the section titled “Prospectus Summary—Summary Consolidated Financial and Other Data—Non-GAAP Financial Measures—Average Contribution Per Customer and Contribution Margin.”
Average Order Value, or AOV, is defined as net revenue for a given period divided by the number of Orders during that same period.
Average Revenue Per Customer is defined as net revenue for a given period divided by the number of Active Customers as of the end of that same period.
Average Sales Per Square Foot is a measure that applies to a subset of our retail stores that have been open for 12 months or more and were also open each month during the measurement period (other than for temporary closures in the ordinary course of business, such as for inclement weather). For this subset of retail stores, Average Sales Per Square Foot is an average of each retail store’s sales divided by selling square feet per retail store. Selling square feet refers to the square feet within our retail stores that are used to generate sales and excludes storage space and other non-sales generating square feet.
Buy a Pair, Give a Pair refers to a charitable program whereby for every pair of Warby Parker glasses purchased, a pair of glasses is distributed to someone in need by either (i) working with nonprofit partners to empower people to administer basic eye exams and sell glasses at ultra-affordable prices or (ii) directly giving vision care and glasses to those in need, via cross-sector partnerships.
Contribution Margin is defined as contribution profit for a given period divided by net revenue for a given period. For a reconciliation to the most directly comparable GAAP measure, see the section titled “Prospectus Summary—Summary Consolidated Financial and Other Data—Non-GAAP Financial Measures—Average Contribution Per Customer and Contribution Margin.”
Core Market refers, in the context of our retail footprint, to a Core-Based Statistical Area as defined by the U.S. Census Bureau, which encompasses both Metropolitan and Micropolitan Statistical Areas. Metropolitan Statistical Areas have at least one urbanized area of 50,000 or more population, plus adjacent territory that has a high degree of social and economic integration with the core as measured by commuting ties. Micropolitan Statistical Areas are a new set of statistical areas that have at least one urban cluster of at least 10,000 but less than 50,000 population, plus adjacent territory that has a high degree of social and economic integration with the core as measured by commuting ties.
Customer Acquisition Cost is defined as acquisition costs for a given period divided by number of Active Customers during that same period. Acquisition costs is defined as total media spend plus Home Try-On costs in a given period. Home Try-On costs include customer shipping, consumable, and product fulfillment costs related to the program.
Customer Market Share is defined as the number of unique Warby Parker customers over the trailing three years (to reflect the average repurchase cycle of two to three years for eyeglasses) divided by the number of U.S. adults using some form of vision correction.
Four-Wall Margin is a measure that applies to a subset of our retail stores that have been open for 12 months or more and were also open each month during the measurement period (other than for temporary closures in the ordinary course of business, such as for inclement weather and ordinary course repairs). For this subset of retail stores, Four-Wall Margin is an average of each retail store’s sales less cost of sales including occupancy, store labor and store operating expenses, divided by average sales per retail store.
Home Try-On refers to a program that allows customers to pick five pairs of frames on our website (or get tailored suggestions after taking a quick and simple quiz) and try them at home for five days for free.
NPS refers to Net Promoter Score, which can range from a low of negative 100 to a high of positive 100, and measures the willingness of customers to recommend a company’s products or services to others. NPS benchmarks can vary significantly by industry, but a score greater than zero represents a company that has more promoters than detractors. For Warby Parker, NPS reflects customer responses to the following question—“On a scale of 0-10, how likely are you to recommend Warby Parker to a friend?” Responses of 9 or 10 are considered “promoters,” responses of 7 or 8 are considered neutral or “passives,” and responses of 6 or less are considered “detractors.” We then subtract the number of respondents who are detractors from the number of respondents who are promoters, divide that number by the total number of respondents, and then multiply the resulting figure by 100. Our methodology for calculating NPS reflects responses from our customers who choose to respond to the survey question. NPS gives no weight to customers who decline to answer the survey question. The same survey also contains a question that asks our customers “How did you first learn about Warby Parker?” We conduct a quarterly Brand Tracker consumer survey, in which we poll purchasers of optical products for the NPS of nine retailers from whom consumers most recently purchased eyeglasses. Based on the Brand Tracker consumer surveys from the first and second quarters of 2021, for which over 5,000 total responses were received, we found that we achieved a higher NPS score than all other retailers mentioned in the survey.
Orders is defined as the total number of orders placed by our customers to purchase any products or services in a given period, net of cancellations.
Sales Retention Rate is defined as the sales order value attributable to a given customer cohort as a percentage of the total sales order value attributable to the same customer cohort during the initial measurement period. The initial measurement period represents the initial purchase for each customer in a given customer cohort.
Store Count is defined as the total number of retail stores open at the end of the period indicated.
Unaided Brand Awareness refers to the ability of a consumer to name our brand when asked about prescription eyewear, without being prompted with brand names by the question. We conduct a quarterly survey, through a third party, that asks consumers "thinking about where you can buy prescription eyewear, what places come to mind?" Consumers then write-in responses to this question, without being provided with names of brands to choose from. For the three months ended March 30, 2021, this survey received 2,435 responses, of which 317 responses listed Warby Parker.
Virtual Try-On refers to a feature within our mobile app that uses a proprietary method we call “unique placement” to allow our customers to try on glasses and sunglasses with an iPhone X and above.
Virtual Vision Test refers to a mobile app designed to enable eligible customers to take a series of vision tests from home and renew their existing glasses prescription with an iPhone and a current pair of glasses.
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 read this entire prospectus carefully, including the sections titled “Risk Factors,” “Special Note Regarding Forward-Looking Statements,” “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, before making an investment decision. Unless the context otherwise requires, all references in this prospectus to “we,” “us,” “our,” “our company,” and “Warby Parker” refer to Warby Parker Inc. and its consolidated subsidiaries.
Overview
Our Founding Story
We started Warby Parker 11 years ago to solve our own problems as frustrated consumers and to make a positive impact. We aspired to demonstrate that a business could scale, be profitable, and do good in the world—without charging a premium for it. Since our founding in 2010, we have pioneered ideas, designed products, and developed technologies that help people see. We offer everything our customers need for happier eyes at a price that leaves them with money in their pocket, from designer-quality glasses (starting at $95, including prescription lenses) and contacts, to eye exams and vision tests—and they can meet us online, at our retail stores, or even at home. Wherever and whenever they need it, we’re there to make exceptional vision care simple and accessible. Delightful, too.
We also believe that everyone has the right to see. Glasses enable people to learn, work, and navigate the world with more security and dignity, but 2.5 billion people around the world who need them do not have access. To help address this problem, we partner with nonprofit organizations like VisionSpring to ensure that for every pair of glasses sold, a pair is distributed to someone in need. VisionSpring estimates that, on average, a pair of glasses improves personal productivity by 35% and increases monthly income by up to 20%. Through our Buy a Pair, Give a Pair program, we have helped distribute over eight million pairs of glasses to people in need since inception, increasing earning potential for low-income households by more than an estimated $1 billion.
And we are just getting started.
A Lifestyle Brand Focused on Vision for All
Warby Parker is a mission-driven, lifestyle brand that operates at the intersection of design, technology, healthcare, and social enterprise. We stand for fun, creativity, and doing good in the world. Every day, our team of nearly 3,000 team members is focused on our mission to inspire and impact the world with vision, purpose, and style (without charging a premium for it). Our ultimate objective is to provide vision for all.
Our Customer-Centric Approach
When we launched the business in February of 2010, less than 2.5% of glasses were sold online—yet we believed that if we offered high-quality, uniquely designed glasses for a reasonable price point, with mechanisms to try them on like our Home Try-On program, and outstanding customer service, people would be willing to buy eyewear online for the first time. We reached our first-year sales targets in three weeks, sold out of our top 15 styles in four weeks, and built a waitlist of thousands of customers for our first-of-its-kind Home Try-On. Those first few months were chaotic to say the least, but we learned a lot.
Even without inventory, we were determined to make our early adopters’ experiences as remarkable as possible. Our founders and early employees reached out to every customer on our waitlist, answered calls and emails late into the night, and welcomed customers into our apartments to try on our debut collection. These actions laid the groundwork for how we would not only manage—but work to exceed—customer expectations moving forward.
Since that time, we have worked tirelessly to delight customers and scale our above-and-beyond customer experience, which has led to our NPS being above 80 on average throughout our history and 83 for the three months ended June 30, 2021. Based on a consumer survey as described further in the “Glossary,” we believe our NPS, an indicator of customer satisfaction and loyalty, is the highest in the optical industry, which has an average NPS of less than 30. At Warby Parker, we take pride in generating nothing-short-of-amazing moments, each and every time.
Who We Are Today
A pioneer of the direct-to-consumer model, Warby Parker is one of the fastest-growing brands at scale in the United States. Through our multichannel business, we have unlocked access to affordable, quality eye care for millions, starting with our two-million-and-growing active customer base as of June 30, 2021.
Since day one, Warby Parker’s focus on delighting customers and doing good has created a foundation for continuous innovation:
•We aim to provide customers with the highest-quality product possible by designing glasses at our headquarters in New York City, using custom materials, and selling direct to the customer. By cutting out the middleman, we are able to sell our products at a fraction of the price of many of our competitors and pass the savings on to our customers. In addition to lower prices, we introduced simple, unified pricing (glasses starting at $95, including prescription lenses) to the eyewear market.
•We’ve built a seamless shopping experience that meets customers where and how they want to shop, whether that’s on our website, on our mobile app, or in our more than 145 retail stores.
•We’ve crafted a holistic vision care offering that extends beyond glasses to include contacts, vision tests and eye exams, vision insurance, and beyond. We leverage leading (and in many cases proprietary) technology to enhance our customers’ experiences, whether it’s to help them find a better-fitting frame using our Virtual Try-On tool, or to update their prescription from home using Virtual Vision Test, our telehealth app.
•We recruit and retain highly engaged, motivated team members who are driven by our commitment to scaling a large, growing business while making an impact and are excited to connect their daily work back to our mission. According to data from our biannual Employee Engagement Survey, 91% of our survey respondents agreed that they are proud to work for Warby Parker; 89% think Warby Parker is in a good position to create a more equitable, inclusive and diverse workplace; and 88% would recommend Warby Parker as a great place to work. We believe our employees are more engaged than those at peer companies in the tech and retail sectors.
•We are a public benefit corporation focused on positively impacting all stakeholders, and hope to inspire other entrepreneurs and businesses to think along the same lines. We strive to benefit our employees, customers, communities, partners, and the environment by advancing access to eye care and living our core values. Working closely with our nonprofit partners, we distribute glasses to people in need in more than 50 countries globally and many parts of the United States. Over eight million more people now have the glasses they need to learn, work, and achieve better economic outcomes through our Buy a Pair, Give a Pair program. We also aim to use resources responsibly, reduce waste, and maintain a neutral carbon footprint through offsets and verified emissions reductions we purchase to fully compensate for our carbon footprint.
We expect these investments in our products, our customer experience, and our communities to continue to pay off over time, enabling us to attract and retain passionate and motivated employees, create stronger brand loyalty, increase brand awareness, expand customer lifetime value, lower Customer Acquisition Cost, and more.
For the years ended December 31, 2018 (unaudited), 2019, and 2020:
•we generated net revenue of $272.9 million, $370.5 million, and $393.7 million, respectively;
•we generated gross profit of $164.3 million, $223.1 million, and $231.9 million, respectively, representing a gross profit margin of 60%, 60%, and 59%, respectively;
•we generated net (loss) income of $(22.9) million, $0 million, and $(55.9) million, respectively; and
•we generated adjusted EBITDA of $8.6 million, $21.9 million, and $7.7 million, respectively.
For the six months ended June 30, 2020 and 2021:
•we generated net revenue of $176.8 million and $270.5 million, respectively;
•we generated gross profit of $102.8 million and $161.8 million, respectively, representing a gross profit margin of 58% and 60%, respectively;
•we generated net (loss) of $(10.0) million and $(7.3) million, respectively; and
•we generated adjusted EBITDA of $1.2 million and $20.1 million, respectively.
For a definition of adjusted EBITDA, a non-GAAP measure, and a reconciliation to the most directly comparable GAAP measure, see the section titled “—Summary Consolidated Financial and Other Data—Key Business Metrics and Certain Non-GAAP Financial Measures.”
As of December 31, 2018, 2019, and 2020, and June 30, 2021, the key operational metrics of our business included:
•Store Count of 88, 119, 126, and 145, respectively; and
•Active Customers of 1.45 million, 1.78 million, 1.81 million, and 2.08 million, respectively.
For a definition of Store Count and Active Customers see the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Business Metrics and Certain Non-GAAP Financial Measures.”
We’ve deliberately been doing things differently from the beginning—and 11 years in, we’re still at it: surprising and delighting our customers by anticipating changing needs and technologies, and building rich and lasting customer relationships that enable us to deliver a highly personalized shopping experience for everyone, no matter the platform. All of this is accomplished alongside our efforts to create impact and do good.
Our Stakeholders
Our stakeholder-centric ethos guides us in every decision we make, which we believe leads to sustainable and durable growth, sometimes at the expense of short-term profits, but we expect investments in these areas to pay off over time. We believe our approach reflects the future of doing business and creates the type of impact-driven, authentic brand that customers not only admire, but demand.
•Customers. We treat customers the way they would like to be treated—with kindness, helpfulness, empathy, and incredible service.
•Employees. We create and foster a work environment in which employees can think big, have fun, achieve personal growth, and engage with the community.
•Community. From our Buy a Pair, Give a Pair program to nonprofit collaborations, we believe that social change comes in all forms.
•Environment. We are proud to be a carbon-neutral company and actively work to reduce our environmental impact.
•Partners. We carefully select our partners (plus everyone in between) and strive to hold them to high industry standards. See “Business—Vendor Accountability.”
Our Direct-to-Consumer Model
When we started Warby Parker 11 years ago, there were not many examples of brands that had launched online. Yet we believed that building a digitally native, vertically integrated brand would enable us to circumvent traditional channels, directly build meaningful relationships with consumers, and offer high-quality products at a reasonable price. Since then we have added many additional ways to engage with consumers—from our more than 145 retail stores to our Virtual Vision Test telehealth app—all with the intention of making the shopping process easy and fun for our customers. For the year ended December 31, 2020, we generated 95% of net revenue from the sale of glasses, 2% of net revenue from the sale of contacts, 1% of net revenue from eye exams, and the remaining 2% of net revenue primarily from the sale of eyewear accessories.
As we continuously seek to elevate the seamless customer experience, we leverage multiple components of our business model, including:
•Customer-First, Direct-to-Consumer. Since our founding, we have built a seamless customer experience, both in store and online, through which we believe we have deepened customer relationships and strengthened brand loyalty. Our retail stores provide fun, quirky, and stylized environments in which to shop, and our website and mobile app make it quick and easy for our customers to browse, virtually try on, and purchase glasses. We offer simple, unified pricing and make the purchase process transparent, easy, and affordable. By interacting directly with our customers every day, we gather feedback and quickly apply learnings to improve all aspects of our business from product development to retail design to customer service.
•Sustainable, Predictable Growth. Eye care purchases are predominantly a non-discretionary medical necessity; on average, for customers acquired between 2015 and 2019, we observed an approximately 50% Sales Retention Rate within 24 months of their first purchase and nearly 100% Sales Retention Rate over 48 months. We believe our retention is unique in the optical industry in that our customers come back to the Warby Parker brand repeatedly. By contrast, when customers in the optical industry typically replenish their glasses, we do not believe they are necessarily loyal to any particular brand. Given our brand’s strength and replenishment cycle, we believe we have significant opportunity ahead to grow our wallet share, and delight more and more customers.
•Vertical Integration. We design and sell glasses under our own brand name. Our integrated supply chain consists of owned optical and fulfillment laboratories as well as third-party manufacturing and laboratory partnerships that we have built over the years and gives us control over product quality and fulfillment speed. We do this as we seek to ensure every part of the design, manufacturing, discovery, purchase, and delivery process is consistent with our brand and our commitment to delivering the highest quality products and remarkable customer experiences. In addition, we own data across the entire end-to-end journey that allows us to develop deep customer insights, informing our innovation, and enabling us to create a highly personalized, brand-enhancing experience with each customer.
•Strong Customer Economics. We track our unit economics at the customer level, which we refer to as customer economics, since our customers shop through multiple channels. Our personalized and differentiated digital and retail store experiences are designed to delight the customer, and each customer is profitable on a Contribution Margin basis. For the year ended December 31, 2020 our Average Revenue Per Customer was $218 and our Average
Contribution Per Customer was $45. For a definition of Average Contribution Per Customer, a non-GAAP measure, and a reconciliation to the most directly comparable GAAP measure, see the section titled “—Summary Consolidated Financial and Other Data—Non-GAAP Financial Measures—Average Contribution Per Customer and Contribution Margin.”
The Eyewear Market is Large, Growing, and Ripe for Disruption
Large and Growing Market
The U.S. eyewear market is large and growing. The Vision Council defines the U.S. eyewear market in 2020 as an approximately $35 billion industry that has exhibited consistent, stable growth, and estimates the U.S. glasses market to be approximately $21 billion. Globally, the eyewear market is over $140 billion, according to Statista and internal company estimates. The industry includes optical retailers’ revenue from the sales of products (including glasses, sunglasses, and contact lenses) and eye care services provided by vision care professionals, including eye exams.
The eyewear industry is resilient to economic cycles given its medical and non-discretionary nature and is defined by durable fundamentals and trends including:
•Most people need vision correction: The Vision Council reported that nearly 200 million or 76% of adults in the United States were using some form of vision correction in 2020. In addition, the number of Americans ages 65 and older will more than double over the next 40 years; it is estimated that at least 84% of people aged 65 and older wear corrective lenses.
•Consistent replenishment cycle: On average, glasses wearers replace their glasses every two to two and a half years. Additionally, an estimated 42 million people in the United States wear contact lenses and nearly 70% of contacts wearers purchase contact lenses at least two times per year.
•Increasing screen time usage: The rising usage of smartphones, tablets, computers, and other devices has contributed significantly to increased vision correction needs and consistent new customer growth within the eyewear market.
•Acceleration of e-commerce penetration: E-commerce penetration is largely nascent in the eyewear industry, representing approximately 5% of sales in 2019 and 8% of sales in 2020.
•Increasing prominence of telehealth: DTC telehealth is expected to surpass $16 billion by 2025, reflecting an evolution of consumer preferences from in-person to remote medical care.
We believe these factors contribute to rising vision correction needs and a steady influx of new customers who expect an exceptional vision care experience. According to Statista, the industry is projected to accelerate at a rate above GDP, with an outlook of 9.2% compound annual growth rate, or CAGR, from 2020 to 2025, supported by secular trends.
Industry-wide, a significant portion of customers who use prescription glasses or contacts purchase them from their prescriber. By contrast, the majority of our customers have historically obtained their prescriptions from non-Warby Parker doctors, underscoring the opportunity to expand our own optometric and telehealth services and offer these services to more of our customers. By our calculations, in 2020, we sold glasses and contacts to less than 2% of all adults who use some form of vision correction in the U.S; given our lower price point versus the rest of the industry, our market share by net revenue in the U.S. was only 1%, leaving us with meaningful opportunity to scale in the years and decades ahead.
Ripe for Change
The eye care industry has largely been slow to innovate, despite strong and defensible fundamentals. The process of buying eyewear has lacked an engaging customer experience and has historically been defined by:
•Underinvested Shopping Experience. The legacy customer journey largely entails going in person to an optical retailer, browsing frames stored behind locked cases, and feeling overwhelmed by the assortment. Customers rely heavily on a dominant physical footprint with little to no digital counterparts.
•Confusing, Unstandardized, and Opaque Pricing. Beyond selection of frames, the purchase decision involves complex, multi-step decision-making with an emphasis on upselling lens alternatives and coating options. We believe there is also little connection between pricing and quality.
•Unappealing Value Proposition. Glasses have historically only been offered at a premium price point, leaving millions of customers without access to stylish, affordable eyewear. There is often a significant markup at 10 to 20x from manufacture to sale, as products are often burdened by various licensing, wholesale, and retail fees that support the legacy supply chain. Upon checkout, customers often find their vision insurance (if they have it) only covers a portion of their purchase.
•Limited Ongoing Customer Engagement. The eyewear industry has been built to maximize individual transactions versus optimize the customer journey. In addition, a concentrated number of companies license the vast majority of premium eyewear brands sold and often wholesale their products through retailers, so they lack direct connection to their end customers.
The legacy optical industry is highly concentrated amongst a few industry players that have created an illusion of choice for consumers. While there are over 41,000 optical retail stores in the U.S. as of 2020, consumers are often unaware that power is consolidated among a handful of companies, whose influence spans the full eyewear value chain from design, to manufacturing, distribution, retailing, and insurance.
Eyewear is unique as it’s both a style choice (“I want it”) and a medical necessity (“I need it”). The legacy purchase experience, however, has primarily emphasized eyewear’s medical attributes. At Warby Parker, we believe customers should be able to purchase high-quality eyewear online or in an engaging retail store environment with helpful, friendly associates committed to delivering a fun experience, all at a unified and transparent price.
What Sets Us Apart
The following strengths shape Warby Parker’s unique value proposition, helping the brand inspire and impact the world with vision, purpose, and style while driving continued success and differentiation:
•Transformative Brand. Warby Parker has played a key role in advancing the direct-to-consumer model and has empowered consumers to shop differently, on multiple platforms, across multiple generations. In surveying our customers, we find they consistently cite that our brand stands for mission, value, style, and quality, among other attributes.
•Customer Experience Driving High Consumer Loyalty. Every one of our customer touchpoints seeks to delight the customer about a purchase that influences, and enhances, how they feel, resulting in an average annual NPS over 80 throughout our history.
•Data-Driven Decision Making. Our 100% direct business model, combined with our advanced technology, allow us to collect valuable data and customer feedback, which we use to create personalized experiences and inform strategic decisions.
•Vertical Integration. Our integrated supply chain—from our in-house design team, to owned parts of our supply chain, all the way to direct distribution of our products—gives us the flexibility to react quickly to changes in the market and customer preferences.
•Continuous Innovation. We have launched innovative products like our e-commerce app (2016), our first in-house optical lab (2017), our telehealth app (2017), blue-light-filtering lenses (2018), Virtual Try-On (2019), Scout by Warby Parker private-label contact lenses (2019), Digital PD Tool (2020), and more, which we believe set us apart from our peers in the optical sector and provide us with a strong competitive moat.
•Compelling Customer Economics. Our financial success stems from our strong customer economics. We are profitable on a customer’s first order and our customers become more valuable over time, as evidenced by our Sales Retention Rate of nearly 50% within 24 months of first purchase and nearly 100% within 48 months. Our Average Revenue Per Customer was $218 in 2020, a 16% increase since 2018 and our Customer Acquisition Cost has averaged 15% of Average Revenue Per Customer over that same time period, reflecting the long-term relationship we are able to form with our customer.
•Founder-Led Team with Commitment to Purpose. Our mission, commitment to our core values, and focus on innovation are driven by our Co-Founders and Co-Chief Executive Officers Neil and Dave who have scaled Warby Parker from an idea to a growing, impact-driven brand. While we have grown, our company culture reflects the original founder-vision of providing vision for all.
•Authentic Impact. We believe that our business can scale, be profitable, and do good in the world—without charging a premium for it. We seek vision for all: this is why for every pair of glasses or sunglasses we sell, we distribute a pair of glasses to someone in need through our Buy a Pair, Give a Pair program. As of December 31, 2020, we have supported over 50 countries, including the United States, and have helped distribute over eight million pairs of glasses to people in need, increasing earning potential for low-income households by more than an estimated $1 billion. See “Market, Industry, And Other Data.”
Sustainable Growth Driven by Customer Focus and Innovation
As we aspire towards continued ambitious, sustainable growth, we plan to leverage distinct growth strategies to increase our 1% of market share by net revenue as of December 31, 2020:
•Strengthening Engagement with Our Existing Customers
•Growing Brand Awareness
•Expanding Our Retail Footprint
•Continuing to Invest in Technology and our Digital Experience
•Continuing to Enhance Our Design Capabilities
•Expanding Our Holistic Vision Care Offering
•Evaluating Potential Expansion into New International Markets
Our continued success will also depend on our ability to overcome challenges as we pursue our growth opportunities and implement our business strategies. For example, we currently market our Virtual Vision Test without having obtained 510(k) clearance or other marketing authorization from the U.S. Food and Drug Administration, or FDA. Although the FDA has notified us that it does not intend to object to the continued marketing of our Virtual Vision Test mobile app without 510(k) clearance at this time, the FDA’s position could change and we may be required to cease offering our Virtual Vision Test until we have obtained 510(k) clearance or other marketing authorization from the FDA. We plan to submit a 510(k) premarket notification for the Virtual Vision Test mobile application, and have engaged in pre-submission meetings with the FDA to understand the information that will be required to support the eventual 510(k) submission. In addition, vision insurance, which only contributed 3% to our net revenue for the year ended December 31, 2020, comprises a significant majority of overall purchases made in the vision care market, and we may increasingly need to offer customers the ability to pay through managed vision care, vision insurance and other third-party payors to expand our market share.
We will also need to monitor and comply with the applicable state laws and regulations, which can vary widely across different jurisdictions, regarding the corporate practice of medicine and fee-splitting, as we seek to increase the scope of our services and/or expand into new jurisdictions. Furthermore, the success of our holistic offerings will depend on whether we can hire and retain optometrists, opticians, and other vision care professionals and/or contract with optometrists or independent professional corporations or similar entities that employ optometrists. See "Risk Factors" beginning on page 19 of this prospectus for a discussion of factors you should carefully consider before investing in our Class A common stock.
Risk Factors Summary
Investing in our Class A common stock involves numerous risks, including the risks described in the section titled “Risk Factors” and elsewhere in this prospectus. You should carefully consider these risks before making an investment. Below are some of these risks, any one of which could materially adversely affect our business, financial condition, results of operations, and prospects.
•We have grown rapidly in recent years and have limited experience at our current scale. If we are unable to manage our growth effectively, our brand, company culture, and financial performance may suffer, which may have a material adverse effect on our business, financial condition, and operating results.
•Increases in component costs, shipping costs, long lead times, supply shortages, and supply changes could disrupt our supply chain; factors such as wage rate increases and inflation can have a material adverse effect on our business, financial condition, and operating results.
•The optical industry is highly competitive, and if we do not compete successfully, our business may be adversely impacted.
•If we fail to cost-effectively retain our existing customers or to acquire new customers, our business, financial condition, and results of operations would be harmed.
•Our profitability and cash flows may be negatively affected if we are not successful in managing our inventory balances and inventory shrinkage.
•If we fail to maintain and enhance our brand, our ability to engage or expand our base of customers will be impaired, and our business, financial condition, and results of operations may suffer.
•The COVID-19 pandemic has had, and may in the future continue to have, a material adverse impact on our business.
•We are subject to extensive state, local, and federal vision care and healthcare laws and regulations, and failure to adhere to such laws and regulations would adversely affect our business.
•State corporate practice of medicine and optometry and fee-splitting laws govern at least some of our business operations, and violation of such laws could result in penalties and adversely affect our contractual relationships with optometrists, ophthalmologists, or affiliated professional entities that employ such providers and our financial condition and results of operations.
•We face risks associated with suppliers from whom our products are sourced and are dependent on a limited number of suppliers.
•We rely on a limited number of contract manufacturers and logistics partners for our products. A loss of any of these partners could negatively affect our business.
•We rely on third parties for elements of the payment processing infrastructure underlying our business. If these third-party elements become unavailable or unavailable on favorable terms, our business could be adversely affected.
•Our business relies on Amazon Web Services, and any disruption of, or interference with, our use of Amazon Web Services could adversely affect our business, financial condition, or results of operations.
•We depend on search engines, social media platforms, digital application stores, content-based online advertising, and other online sources to attract consumers to and promote our
website and our mobile applications, which may be affected by third-party interference beyond our control and as we grow our Customer Acquisition Cost may continue to rise.
•As a public benefit corporation, our duty to balance a variety of interests may result in actions that do not maximize stockholder value.
•Our listing differs significantly from an underwritten initial public offering.
•The trading price of our Class A common stock may be volatile and could, upon listing on the NYSE, decline significantly and rapidly.
•The trading price of our Class A common stock, upon listing on the NYSE, 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.
•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.
•After our listing, our Co-Founders and Co-CEOs, Neil Blumenthal and Dave Gilboa, if they choose to act together, will have the ability to control all matters submitted to stockholders for approval, including controlling the outcome of director elections.
•We cannot predict the effect our multi-class structure may have on the trading price of our Class A common stock.
If we are unable to adequately address these and other risks we face, our business may be harmed.
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.warbyparker.com), press releases, public conference calls, and public webcasts.
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.
Our Principal Stockholders
As a result of their collective share ownership, Mr. Blumenthal and Mr. Gilboa, our Co-Founders and Co-Chief Executive Officers, will be able to exercise voting control with respect to an aggregate of shares of our Class B common stock, representing approximately % of the total voting power of our outstanding capital stock as of June 30, 2021. Accordingly, Mr. Blumenthal and Mr. Gilboa will have the ability to control the outcome of matters submitted to our stockholders for approval, including the election of our directors. As a founder-led company, we believe that this voting structure aligns with Warby Parker’s commitment to positively impacting its stakeholders, which includes creating stockholder value.
Corporate Information
We were incorporated as JAND, Inc. in Delaware on May 7, 2009, and, in June 2021, changed our name to Warby Parker Inc. and became a public benefit corporation in Delaware. Our principal executive offices are located at 233 Spring Street, 6th Floor East, New York, New York 10013. Our telephone number is (646) 847-7215. Our website address is www.warbyparker.com. Information contained on, or that can be accessed through, our website is not incorporated by reference into this prospectus, and you should not consider information on our website to be part of this prospectus.
Our design logo, “Warby Parker,” and our other registered or common law trademarks, service marks, or trade names appearing in this prospectus are the property of Warby Parker Inc. or its affiliates. Other trade names, trademarks, and service marks used in this prospectus are the property of their respective owners.
Implications of Being an Emerging Growth Company
We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of certain reduced reporting and other requirements that are otherwise generally applicable to public companies. As a result:
•we are required to have only two years of audited financial statements and only two years of related selected financial data and Management’s Discussion and Analysis of Financial Condition and Results of Operations disclosure;
•we are not required to engage an auditor to report on our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act;
•we are permitted to take advantage of extended transition periods for complying with new or revised accounting standards which allows an emerging growth company to delay the adoption of some accounting standards until those standards would otherwise apply to private companies;
•we are not required to submit certain executive compensation matters to stockholder advisory votes, such as “say-on-pay,” “say-on-frequency,” and “say-on-golden parachutes;” and
•we are not required to comply with certain disclosure requirements related to executive compensation, such as the requirement to disclose the correlation between executive compensation and performance and the requirement to present a comparison of our Co-Chief Executive Officers’ compensation to our median employee compensation.
We may take advantage of these reduced reporting and other requirements until the last day of our fiscal year following the fifth anniversary of the completion of our listing, or such earlier time that we are no longer an emerging growth company. If certain events occur prior to the end of such five-year period, including if we have more than $1.07 billion in annual gross revenue, the date on which we are deemed to be a large accelerated filer under the rules of the SEC, or issue more than $1.0 billion of non-convertible debt over a three-year period, we will cease to be an emerging growth company prior to the end of such five-year period. We may choose to take advantage of some but not all of these reduced requirements. We have elected to adopt the reduced requirements with respect to our financial statements and the related selected financial data and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure. We have also elected to take advantage of the extended transition periods for complying with new or revised accounting standards. As a result, the information that we provide to stockholders may be different from the information you may receive from other public companies in which you hold equity.
Public Benefit Corporation Status
As a demonstration of our long-term commitment to promote vision and eye health and to work towards positively impacting the communities in which we operate, we elected in June 2021 to be treated as a public benefit corporation under Delaware law. As provided in our current certificate of incorporation, the public benefits that we promote, and pursuant to which we manage our company, are to provide access to products and services that promote vision and eye health and to work towards positively impacting the communities in which we operate. Being a public benefit corporation underscores our commitment to our purpose and our stakeholders, including consumers and customers, communities, and stockholders. See the section titled “Business—Public Benefit Corporation” and “Description of Capital Stock—Anti-Takeover Effects of Delaware Law and Our Certificate of Incorporation and Bylaws—Public Benefit Corporation Status” for additional information.
Certified B Corporation
While not required by Delaware law or the terms of our current certificate of incorporation, we have been designated as a Certified B CorpTM and have elected to have our social and environmental performance, accountability, and transparency assessed against the proprietary criteria established by B Lab, an independent nonprofit organization. In order to be designated as a Certified B Corporation, we are required to take a comprehensive and objective assessment of our positive impact on society and the environment. See the sections titled “Business—Certified B Corporation” and “Description of Capital Stock—Anti-Takeover Effects of Delaware Law and Our Certificate of Incorporation and Bylaws—Public Benefit Corporation Status” for additional information.
Summary Consolidated
Financial And Other Data
The summary consolidated statements of operations data for the years ended 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 year ended December 31, 2018 have been derived from our unaudited consolidated financial statements not included in this prospectus. The summary consolidated statements of operations data for the six months ended June 30, 2020 and 2021, and the summary consolidated balance sheet information as of June 30, 2021 have been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. In our opinion, the unaudited consolidated financial statements have been prepared on a basis consistent with our audited consolidated financial statements and contain all adjustments, consisting only of normal and recurring adjustments, necessary for a fair statement of such financial information. You should read the following summary consolidated financial data together with the sections titled “Selected Consolidated Financial and Other Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements and the related notes included elsewhere in this prospectus. The summary consolidated financial and other data in this section are not intended to replace our audited consolidated financial statements and the related notes and are qualified in their entirety by our audited consolidated financial statements and the related notes included elsewhere in this prospectus. Our historical results are not necessarily indicative of our results in any future period, and our results for the six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021 or any other future year or period.
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Year Ended December 31,
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Six Months Ended June 30,
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2018
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2019
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2020
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2020
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2021
|
|
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unaudited
|
|
|
|
|
|
unaudited
|
|
unaudited
|
|
|
(in thousands, except share and per share data)
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|
Consolidated Statements of Operations Data:
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|
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|
|
|
|
|
|
Net revenue
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$
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272,924
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|
|
$
|
370,463
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|
|
$
|
393,719
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|
|
$
|
176,790
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|
|
$
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270,533
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|
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Cost of goods sold
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108,616
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|
|
147,355
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|
|
161,784
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|
|
74,015
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|
|
108,699
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Gross profit
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164,308
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|
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223,108
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|
|
231,935
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|
|
102,775
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|
|
161,834
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Selling, general, and administrative expenses
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188,319
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|
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224,771
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|
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287,567
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|
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111,956
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167,621
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Loss from operations
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(24,011)
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(1,663)
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(55,632)
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(9,181)
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|
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(5,787)
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Interest and other income (loss), net
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1,373
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|
|
1,939
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|
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(97)
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|
|
545
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|
|
306
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|
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(Loss) income before income taxes
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(22,638)
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|
|
276
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|
|
(55,729)
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|
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(9,726)
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|
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(6,093)
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Provision for income taxes
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238
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|
|
276
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|
|
190
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|
|
281
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|
|
1,202
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|
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Net (loss) income
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(22,876)
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|
|
—
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|
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(55,919)
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|
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(10,007)
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|
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(7,295)
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Deemed dividend upon redemption of redeemable convertible preferred stock
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(2,676)
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|
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(57,537)
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|
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—
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|
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—
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|
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(13,137)
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Net loss attributable to common stockholders
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$
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(25,552)
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|
|
$
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(57,537)
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|
|
$
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(55,919)
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|
|
$
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(10,007)
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|
|
$
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(20,432)
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Net loss per share attributable to common stockholders, basic and diluted(1)
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$
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(0.49)
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|
|
$
|
(1.10)
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|
|
$
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(1.05)
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|
|
$
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(0.19)
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|
|
$
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(0.38)
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|
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Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted(1)
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52,383,982
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|
52,424,978
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|
|
53,033,936
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|
|
52,636,215
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|
|
53,986,670
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|
|
Pro forma net loss per share attributable to common stockholders, basic and diluted (unaudited)(1)
|
|
|
|
|
$
|
|
|
|
$
|
|
Weighted-average shares used in computing pro forma net loss per share attributable to common stockholders, basic and diluted (unaudited)(1)
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|
|
|
|
|
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__________________
(1)See Note 10 to our consolidated financial statements included elsewhere in this prospectus for an explanation of the method used to calculate our historical basic and diluted net loss per share and the weighted-average number of shares used in the computation of the per share amounts. Pro forma basic and diluted net loss per share and the weighted-average number of shares used in the computation of the per share amounts reflects (i) the Preferred Stock Conversion, as if such conversion was consummated at the beginning of the earliest period presented, (ii) the filing and effectiveness of our Amended Charter, which will, among other things, effect the Common Stock Reclassification, as if such reclassification was consummated at the beginning of the earliest period presented, (iii) the vesting and settlement of RSUs for which the service-based condition was fully satisfied as of June 30, 2021 and for which we expect the performance vesting condition to be satisfied upon the listing and public trading of our Class A common stock on the NYSE, and (iv) stock-based compensation expense of $ million associated with outstanding RSUs as of June 30, 2021 for which we expect the performance vesting condition to be satisfied upon the listing and public trading of our Class A common stock on the NYSE.
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As of June 30, 2021
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|
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Actual
|
|
Pro Forma(1)
|
|
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|
|
unaudited
|
|
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(in thousands)
|
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Consolidated Balance Sheet Data:
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Cash and cash equivalents
|
$
|
260,672
|
|
|
$
|
|
Total assets
|
411,633
|
|
|
|
|
Total liabilities
|
126,010
|
|
|
|
|
Total redeemable convertible preferred stock and stockholders’ deficit
|
$
|
501,443
|
|
|
$
|
__________________
(1)The unaudited pro forma column in the balance sheet data above reflects (i) the Preferred Stock Conversion, as if such conversion was consummated on June 30, 2021, (ii) the filing and effectiveness of our Amended Charter, which will, among other things, effect the Common Stock Reclassification, as if such reclassification was consummated on June 30, 2021, (iii) the vesting and settlement of RSUs for which the service-based condition was fully satisfied as of June 30, 2021 and for which we expect the performance vesting condition to be satisfied upon the listing and public trading of our Class A common stock on the NYSE, and (iv) stock-based compensation expense of $ million associated with outstanding RSUs as of June 30, 2021 for which we expect the performance vesting condition to be satisfied upon the listing and public trading of our Class A common stock on the NYSE.
Key Business Metrics and Certain Non-GAAP Financial Measures
In addition to the measures presented in our consolidated financial statements, we use the following key business metrics and certain non-GAAP financial measures to evaluate our business, measure our performance, develop financial forecasts, and make strategic decisions. The following table summarizes our key performance indicators and non-GAAP financial measures for each period presented below, which are unaudited.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Six Months Ended June 30,
|
|
|
2018
|
|
2019
|
|
2020
|
|
2020
|
|
2021
|
|
Active Customers(1) (in millions)
|
1.45
|
|
|
1.78
|
|
|
1.81
|
|
|
1.73
|
|
|
2.08
|
|
|
Store Count(1)
|
88
|
|
|
119
|
|
|
126
|
|
|
118
|
|
|
145
|
|
|
Adjusted EBITDA(2) (in thousands)
|
$
|
8,635
|
|
|
$
|
21,867
|
|
|
$
|
7,658
|
|
|
$
|
1,168
|
|
|
$
|
20,075
|
|
|
Adjusted EBITDA margin(2)
|
3.2
|
%
|
|
5.9
|
%
|
|
1.9
|
%
|
|
0.7
|
%
|
|
7.4
|
%
|
__________________
(1)See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Business Metrics and Certain Non-GAAP Financial Measures” included elsewhere in this prospectus for a description of, and additional information about, these key metrics.
(2)Adjusted EBITDA and adjusted EBITDA margin are supplemental measures of our performance that are not required by, or presented in accordance with, GAAP. Adjusted EBITDA and adjusted EBITDA margin are not measurements of our financial performance under GAAP and should not be considered as an alternative to net income (loss) or any other performance measure derived in accordance with GAAP.
We define adjusted EBITDA as net loss before interest and other (income) / expense, taxes, and depreciation and amortization as further adjusted for stock-based compensation expense. We defined adjusted EBITDA margin as adjusted EBITDA divided by net revenue.
We caution investors that amounts presented in accordance with our definitions of adjusted EBITDA and adjusted EBITDA margin may not be comparable to similar measures disclosed by our competitors, because not all companies and analysts calculate adjusted EBITDA and adjusted EBITDA margin in the same manner. We present adjusted EBITDA and adjusted EBITDA margin because we consider these metrics to be important supplemental measures of our performance and believe it is frequently used by securities analysts, investors, and other interested parties in the evaluation of companies in our industry. Management believes that investors’ understanding of our performance is enhanced by including these non-GAAP financial measures as a reasonable basis for comparing our ongoing results of operations.
Management uses adjusted EBITDA and adjusted EBITDA margin:
•as a measurement of operating performance because it assists us in comparing the operating performance of our business on a consistent basis, as it removes the impact of items not directly resulting from our core operations;
•for planning purposes, including the preparation of our internal annual operating budget and financial projections;
•to evaluate the performance and effectiveness of our operational strategies; and
•to evaluate our capacity to expand our business.
By providing these non-GAAP financial measures, together with a reconciliation to the most directly comparable GAAP measure, we believe we are enhancing investors’ understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing our strategic initiatives. Adjusted EBITDA and adjusted EBITDA margin have limitations as analytical tools, and should not be considered in isolation, or as an alternative to, or a substitute for net loss or other financial statement data presented in our consolidated financial statements as indicators of financial performance. Some of the limitations are:
•such measures do not reflect our cash expenditures, or future requirements for capital expenditures, or contractual commitments;
•such measures do not reflect changes in, or cash requirements for, our working capital needs;
•such measures do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments on our debt;
•such measures do not reflect our tax expense or the cash requirements to pay our taxes;
•although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and such measures does not reflect any cash requirements for such replacements; and
•other companies in our industry may calculate such measures differently than we do, limiting their usefulness as comparative measures.
Due to these limitations, adjusted EBITDA and adjusted EBITDA margin should not be considered as measures of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using these non-GAAP measures only supplementally. Each of the adjustments and other adjustments described in this paragraph and in the reconciliation table below help management with a measure of our core operating performance over time by removing items that are not related to day-to-day operations.
The following table reconciles adjusted EBITDA and adjusted EBITDA margin to the most directly comparable GAAP measure, which is net (loss) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Six Months Ended June 30,
|
|
|
2018
|
|
2019
|
|
2020
|
|
2020
|
|
2021
|
|
|
unaudited
|
|
|
|
|
|
unaudited
|
|
unaudited
|
|
|
(in thousands)
|
|
Net (loss) income
|
$
|
(22,876)
|
|
|
$
|
—
|
|
|
$
|
(55,919)
|
|
|
$
|
(10,007)
|
|
|
$
|
(7,295)
|
|
|
Interest and other (income) loss, net
|
(1,373)
|
|
|
(1,939)
|
|
|
97
|
|
|
545
|
|
|
306
|
|
|
Provision for income taxes
|
238
|
|
|
276
|
|
|
190
|
|
|
281
|
|
|
1,202
|
|
|
Depreciation and amortization expense
|
11,746
|
|
|
15,032
|
|
|
18,377
|
|
|
8,976
|
|
|
9,823
|
|
|
Stock-based compensation expense(a)
|
20,900
|
|
|
8,499
|
|
|
44,913
|
|
|
1,373
|
|
|
11,670
|
|
|
Transaction costs(b)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,369
|
|
|
Adjusted EBITDA
|
$
|
8,635
|
|
|
$
|
21,868
|
|
|
$
|
7,658
|
|
|
$
|
1,168
|
|
|
$
|
20,075
|
|
|
Adjusted EBITDA margin
|
3.2
|
%
|
|
5.9
|
%
|
|
1.9
|
%
|
|
0.7
|
%
|
|
7.4
|
%
|
_______________
(a)Represents non-cash expenses related to equity-based compensation programs, which may vary significantly from period to period depending on various factors including the timing, number, and the valuation of awards granted, vesting of awards including the satisfaction of performance conditions, and the impact of repurchases of awards from employees.
(b)Represents (i) costs directly attributable to the preparation for our public listing and (ii) expenses incurred in connection with the Tender Offer completed in June 2021.
Non-GAAP Financial Measures—Average Contribution Per Customer and Contribution Margin
In addition to the measures presented in our consolidated financial statements, we believe that Average Contribution Per Customer, when taken collectively with our GAAP results, including average gross profit per customer, may be helpful to investors in understanding our customer economics. We also believe that Contribution Margin, when taken collectively with our GAAP results, may be helpful to investors in understanding underlying trends that could otherwise be masked by certain expenses that we do not consider indicative of our ongoing performance. We believe that if we are successful in scaling our business pursuant to our strategy, our results will show an increasing Average Contribution Per Customer and Contribution Margin over time. Such results would likely mean that our average customer economics are becoming increasingly attractive and that our investments in scaling our holistic vision care offering are having a positive impact on our average customer economics. Contribution profit, Average Contribution Per Customer and Contribution Margin are presented for supplemental informational purposes only, should not be considered substitutes for financial information presented in accordance with GAAP and may be different from similarly titled non-GAAP measures used by other companies. A reconciliation is provided below to contribution profit and Contribution Margin from gross profit, the most directly comparable GAAP measure. We have also presented average gross profit per customer, which represents gross profit (a GAAP measure) divided by the number of customers for a given period. Investors are encouraged to review our results determined in accordance with GAAP and the reconciliation provided below.
The following table reconciles Average Contribution Per Customer and Contribution Margin to the most directly comparable GAAP measure, which is gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
2018
|
|
2019
|
|
2020
|
|
|
|
|
|
|
(in thousands, other than per customer metrics)
|
|
Gross profit
|
$
|
164,308
|
|
|
$
|
223,108
|
|
|
$
|
231,935
|
|
|
|
|
|
|
Deduct:
|
|
|
|
|
|
|
|
|
|
|
Acquisition costs(1)
|
38,312
|
|
|
48,331
|
|
|
73,073
|
|
|
|
|
|
|
Selling and service costs(2)
|
56,508
|
|
|
79,222
|
|
|
77,290
|
|
|
|
|
|
|
Contribution profit
|
$
|
69,488
|
|
|
$
|
95,555
|
|
|
$
|
81,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
$
|
272,924
|
|
|
$
|
370,463
|
|
|
$
|
393,719
|
|
|
|
|
|
|
Contribution Margin
|
25
|
%
|
|
26
|
%
|
|
21
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active customers
|
1,452
|
|
|
1,780
|
|
|
1,806
|
|
|
|
|
|
|
Average gross profit per customer
|
$
|
113
|
|
|
$
|
125
|
|
|
$
|
128
|
|
|
|
|
|
|
Average contribution per customer
|
$
|
48
|
|
|
$
|
54
|
|
|
$
|
45
|
|
|
|
|
|
__________________
(1)Acquisition costs is defined as total media spend plus Home Try-On costs in a given period. Home Try-On costs includes customer shipping, consumable, and product fulfillment costs related to the program.
(2)Selling and service costs includes store and customer experience employee-related costs, credit card processing fees, and store operating expenses. Store and customer experience employee-related costs includes salaries, benefits, bonuses and stock-based compensation.
Risk Factors
Investing in our Class A common stock involves a high degree of risk. You should consider and read carefully all of the risks and uncertainties described below, as well as other information included in this prospectus, including our consolidated financial statements and related notes appearing elsewhere in this prospectus, before making an investment decision. The risks described below are not the only ones we face. The occurrence of any of the following risks or additional risks and uncertainties not presently known to us or that we currently believe to be immaterial could materially and adversely affect our business, financial condition, or results of operations. In such case, the trading price of our Class A common stock could decline, and you may lose some or all of your original investment.
Risks Related to Our Business and Industry
We have grown rapidly in recent years and have limited experience at our current scale. If we are unable to manage our growth effectively, our brand, company culture, and financial performance may suffer, which may have a material adverse effect on our business, financial condition, and operating results.
We have grown rapidly over the last several years, and therefore, our recent growth rates and financial performance should not necessarily be considered indicative of our future performance. For example, we launched our first “store within a store” retail concept starting in 2010 in cities such as New York, Nashville, and San Francisco, followed by our first permanent retail store in New York in 2013. Since then, we have grown to 145 retail stores across the United States and Canada as of June 30, 2021. Additionally, our net revenue increased 6.3% from $370.5 million for the year ended December 31, 2019 to $393.7 million for the year ended December 31, 2020, and 53.0% from $176.8 million for the six months ended June 30, 2020 to $270.5 million for the six months ended June 30, 2021. To effectively manage and capitalize on our growth, we must continue to strengthen engagement with our existing customers, grow our brand awareness, expand our retail footprint, continue to invest in design and technology, expand our vision care offering, and evaluate potential opportunities to expand into new international markets. Our continued growth has in the past, and could in the future, strain our existing resources, and we could experience ongoing operating difficulties in managing our business across numerous jurisdictions, including difficulties in hiring, training, and managing a diffuse and growing employee base. Failure to scale and preserve our company culture with growth could harm our future success, including our ability to retain and recruit personnel and to effectively focus on and pursue our corporate objectives.
Moreover, the vertically integrated nature of our business, where we design all of our own glasses in our New York headquarters, contract manufacture all of our glass frames, fulfill the glasses we sell at our own optical and fulfillment laboratories as well as at third-party contract laboratories, sell our products exclusively through our own retail stores, e-commerce site and mobile application, and service our products, exposes us to risk and disruption at many points that are critical to successfully operating our business, and may make it more difficult for us to scale our business. If we do not adapt to meet these evolving challenges, or if our management team does not effectively scale with our growth, we may experience erosion to our brand, the quality of our products and services may suffer, and our company culture may be harmed.
Our growth strategy contemplates a significant expansion of our retail store footprint, increase in our advertising and other marketing spending and expansion of our vision care services. As we seek to increase the scope of services that we provide and expand in the types of payments we receive from customers from cash-pay to vision plans and health plans, we will increasingly be subject to a number of federal and state healthcare regulatory laws, including federal and state anti-kickback, false claims, self-referral, and other healthcare fraud and abuse laws. In addition, many of our existing retail stores are relatively new and these retail stores or future retail stores may not generate net revenue and cash flow comparable with those generated by our more mature stores, especially as we move to new or expand in existing geographic markets. For example, approximately 85% of our retail stores have been opened in the last five years. Moreover, certain occurrences outside of our control may result in the closure of our retail stores. For example, as a result of the ongoing COVID-19 pandemic, we temporarily closed all of our retail stores in March 2020, and while we have since reopened all retail stores, it has been under new operating limitations such as shorter operating hours, mask guidelines for employees and customers, and other constraints on our previous retail sales strategies. We have also had to temporarily close certain retail stores due
to employee illness and may need to do so in the future. We are unable to predict whether consumer shopping behaviors will change as we make these changes to adjust to the COVID-19 pandemic. Further, our ability to negotiate favorable terms on an expiring lease or for a lease renewal option may depend on factors that are not within our control. Successful implementation of our growth strategy will require significant expenditures before any substantial associated revenue is generated and we cannot guarantee that these increased investments will result in corresponding and offsetting revenue growth.
The industry for stylish, affordable glasses, as well as for our other optical products and services is rapidly evolving and may not develop as we expect. Even if our net revenue continues to increase, our net revenue growth rates may decline in the future as a result of a variety of factors, including macroeconomic factors, increased competition, and the maturation of our business. As a result, you should not rely on our net revenue growth rate for any prior period as an indication of our future performance. Overall growth of our net revenue will depend on a number of factors, including our ability to:
•price our products and services so that we are able to attract new customers, and expand our relationships with existing customers;
•accurately forecast our net revenue and plan our operating expenses;
•successfully compete with other companies that are currently in, or may in the future enter, the industry or the markets in which we compete, and respond to developments from these competitors such as pricing changes and the introduction of new products and services;
•comply with existing and new laws and regulations applicable to our business;
•successfully expand in existing geographic markets and enter new geographic markets, including international markets;
•successfully expand and gain market adoption on our market share by offering customers the ability to pay through managed vision care, vision insurance, and other third-party payors;
•successfully develop new offerings, including new offerings with higher margins, and innovate and enhance our existing products and services and their features, including in response to new trends, competitive dynamics, or the needs of customers;
•successfully identify and acquire or invest in businesses, products, or technologies that we believe could complement or expand our business;
•avoid interruptions or disruptions in distributing our products and services;
•provide customers with a high-quality experience and customer service and support that meets their needs;
•hire, integrate, and retain talented sales, customer experience, product design, and development and other personnel, including vision care professionals;
•expand vision care services provided by optometrists employed either by us or by independent professional corporations or similar entities or with whom we have contractual arrangements;
•effectively manage growth of our business, personnel, and operations, including new retail store openings;
•effectively manage our costs related to our business and operations; and
•maintain and enhance our reputation and the value of our brand.
Because we have a limited history operating our business at its current scale, it is difficult to evaluate our current business and future prospects, including our ability to plan for and model future growth. Our limited operating experience at this scale, combined with the rapidly evolving nature of the market in which we sell our products and services, substantial uncertainty concerning how these markets may develop, and other economic factors beyond our control, reduces our ability to accurately forecast quarterly or annual revenue. Failure to manage our future growth effectively could have an adverse effect on our business, financial condition, and operating results.
We also expect to continue to expend substantial financial and other resources to grow our business, and we may fail to allocate our resources in a manner that results in increased net revenue growth in our business. Additionally, we may encounter unforeseen operating expenses, difficulties, complications, delays, and other unknown factors that may result in losses in future periods. If our net revenue growth does not meet our expectations in future periods, our business, financial condition, and results of operations may be harmed, and we may not achieve or sustain profitability in the future.
Increases in component costs, shipping costs, long lead times, supply shortages, and supply changes could disrupt our supply chain and factors such as wage rate increases and inflation can have a material adverse effect on our business, financial condition, and operating results.
Meeting customer demand partially depends on our ability to obtain timely and adequate delivery of components for our products and services. All of the components that go into the manufacturing of our products and services are sourced from a limited number of third-party suppliers predominantly in the U.S., China, Italy, Vietnam, and Japan, and, in particular, over half of the cellulose acetate used to produce many of our frames is provided by a single supplier. Aside from the cellulose acetate that we source ourselves, our contract manufacturers purchase many of these components on our behalf, including sun lenses, demo lenses, hinge and core kits, and branded logos, subject to certain approved supplier lists, and we do not have long-term arrangements with most of our component suppliers. We are therefore subject to the risk of shortages and long lead times in the supply of these components and the risk that our suppliers discontinue or modify components used in our products. In addition, the lead times associated with certain components are lengthy and preclude rapid changes in design, quantities, and delivery schedules. Our ability to meet temporary unforeseen increases in demand has been, and may in the future be, impacted by our reliance on the availability of components from these sub-suppliers. We may in the future experience component shortages, and the predictability of the availability of these components may be limited, which may be heightened in light of the ongoing COVID-19 pandemic. In the event of a component shortage or supply interruption from suppliers of these components, we may not be able to develop alternate sources in a timely manner. Developing alternate sources of supply for these components may be time-consuming, difficult, and costly, and we may not be able to source these components on terms that are acceptable to us, or at all, which may undermine our ability to fill our orders in a timely manner. Any interruption or delay in the supply of any of these parts or components, or the inability to obtain these parts or components from alternate sources at acceptable prices and within a reasonable amount of time, would harm our ability to timely ship our products to our customers.
In addition, substantially all of our components are shipped directly from our contract manufacturers to our optical laboratories in the United States or our third-party optical laboratories in the United States and China, where lenses are cut and mounted into frames. These laboratories process most of the glasses ordered by our customers. Once processed at the laboratories, the finished products are then sorted and shipped using third-party carriers to our retail stores for customer pickup or directly to our customers. Our glass frames for our Home Try-On program are shipped directly from our contract manufacturers to our third-party distribution center in the United States for shipment directly to our customers. We depend in large part on the orderly operation of this distribution process, which depends, in turn, on adherence to shipping schedules and effective management of our optical laboratory network and third-party distribution center. Increases in transportation costs (including increases in fuel costs), issues with overseas shipments, supplier-side delays, reductions in the transportation capacity of carriers, labor strikes or shortages in the transportation industry, disruptions to the national and international transportation infrastructure, and unexpected delivery interruptions or delays also have the potential to derail our distribution process.
Moreover, volatile economic conditions may make it more likely that our suppliers and logistics providers may be unable to timely deliver supplies, or at all, and there is no guarantee that we will be able to timely locate alternative suppliers of comparable quality at an acceptable price. In addition, international supply chains may be impacted by events outside of our control, including but not limited to the COVID-19 pandemic, and limit our ability to procure timely delivery of supplies or finished goods and services. We face additional risks related to the optical laboratory we contract with in China and suppliers in China, including port of entry risks such as longshoremen strikes, import restrictions, foreign government regulations, trade restrictions, customs, and duties.
We source components from suppliers located in China. Effective September 1, 2019, the U.S. government implemented a 15% tariff on specified products imported into the U.S. from China and effective February 14, 2020, the 15% tariff was reduced to 7.5%. In June 2020, the U.S. government granted a temporary exclusion for plastic and metal frames with a retroactive effective date of September 1, 2019, and such exclusion expired in September 2020. Given the recent change in the U.S. presidential administration, there is uncertainty whether there will be, and the resulting impacts of, any changes to U.S. government trade policy. While we have implemented mitigation plans and continue to focus on additional mitigation strategies to offset the impact of tariffs, costs with respect to products subject to these tariffs have increased. If we are unable to mitigate the full impact of the enacted tariffs or if there is a further escalation of tariffs, costs on a significant portion of our products may increase further and our
financial results may be negatively affected. While it is too early to predict how the China tariffs will impact our business, our financial results may also be impacted by any resulting economic slowdown.
The inability to fulfill, or any delays in processing, customer orders through our optical laboratory network or any quality issues could result in the loss of customers, issuances of refunds or credits, and may also adversely affect our reputation. The success of our retail stores and e-commerce sales depends on the timely receipt of products by our customers and any repeated, intermittent or long-term disruption in, or failures of, the operations of our distribution center and/or optical laboratories could result in lower sales and profitability, a loss of loyalty to our brands, and excess inventory. The insurance we maintain for business interruption may not cover all risk, or be sufficient to cover all of our potential losses, may not continue to be available to us on acceptable terms, if at all, and any insurance proceeds may not be paid to us in a timely manner.
Furthermore, increases in compensation, wage pressure, and other expenses for our employees, may adversely affect our profitability. Increases in minimum wages and other wage and hour regulations can exacerbate this risk. These cost increases may be the result of inflationary pressures which could further reduce our sales or profitability. Increases in other operating costs, including changes in energy prices and lease and utility costs, may increase our cost of products sold or selling, general, and administrative expenses. Our competitive price model and pricing pressures in the optical retail industry may inhibit our ability to reflect these increased costs in the prices of our products, in which case such increased costs could have a material adverse effect on our business, financial condition, and results of operations.
The optical industry is highly competitive, and if we do not compete successfully, our business may be adversely impacted.
Although we offer a differentiated distribution and service business model, we continue to compete directly with large, integrated optical players that have multiple brands and retail banners, such as EssilorLuxottica and VSP. This competition takes place both in physical retail locations as well as online, for both glasses and contact lenses. In addition to glasses, we sell both our own private label Scout by Warby Parker contact lenses that we contract manufacture as well as many leading third-party contact lens brands. We also compete with independent ophthalmologists, optometrists, and opticians located in our markets as they often provide many goods and services similar to those that we provide. To compete effectively, we must continue to create, invest in, or acquire advanced technology, incorporate this technology into our products and services, obtain regulatory approvals in a timely manner where required, and process and successfully market our products.
Many of our competitors have greater financial and operational resources, longer operating histories, greater brand recognition, and broader geographic presence than we do. As a result, they may be able to engage in extensive and prolonged price promotions or otherwise offer more competitive prices, which may adversely affect our business. They may also be able to spend more than we do for advertising. We may be at a substantial disadvantage to larger competitors with greater economies of scale. If our costs are greater compared to those of our competitors, the pricing of our products and services may not be as attractive, thus depressing sales or the profitability of our products and services. Our competitors may expand into markets in which we currently operate and we remain vulnerable to the marketing power and high level of customer recognition of these larger competitors and to the risk that these competitors or others could attract our customer base. Some of our competitors are vertically integrated and are also engaged in the manufacture and distribution of glasses and contact lenses as well as in managed care, and many of our competitors operate under a variety of brands and price points. These competitors can advantageously leverage this structure to better compete and access the market and certain vertically integrated organizations with significant market power could potentially utilize this power to make it more difficult for us to compete. We purchase some of our product components from suppliers who are affiliates of one or more competitors. In addition, if any of our competitors were to consolidate operations, such consolidation would exacerbate the aforementioned risks.
We may not continue to be able to successfully compete against existing or future competitors. Our inability to respond effectively to competitive pressures, improved performance by our competitors, and changes in the retail markets could result in lost market share and have a material adverse effect on our business, financial condition, and results of operations.
If we fail to cost-effectively retain our existing customers or to acquire new customers, our business, financial condition, and results of operations would be harmed.
The growth of our business is dependent upon our ability to continue to grow by cost-effectively retaining our existing customers and increasing their AOV, and adding new customers. Although we believe that many customers originate from word-of-mouth and other non-paid referrals, we expect to continue to expend resources and run marketing campaigns to acquire additional customers, all of which could impact our overall profitability. If we are not able to continue to expand our customer base, increase their AOV or fail to retain customers, our net revenue may grow slower than expected or decline.
The growth of our e-commerce channel is critical to our continued customer retention and growth. Historically, consumers have been slower to adopt online shopping for glasses and contact lenses than e-commerce offerings in other industries such as consumer electronics and apparel. Improving upon the consumer in-store experience through an online platform is difficult due to broad consumer demands on selection, quality, convenience, and affordability. Changing traditional optical retail habits is difficult, and if consumers and retailers do not embrace online optical retail as we expect, our business and operations could be harmed. Moreover, even if more consumers begin to shop for glasses and contacts online, if we are unable to address their changing needs and anticipate or respond to market trends and new technologies in a timely and cost-efficient manner, we could experience increased customer churn, any of which would adversely affect our business and results of operations.
We have also historically generated a significant portion of our revenue from our retail stores, and our growth strategy will depend, in large part, on acquiring customers through the growth of our retail store base and expansion of our existing retail store operations. Our ability to successfully open and operate new retail stores depends on many factors, including, among others, our ability to address regulatory, competitive, merchandising, marketing, distribution, and other challenges encountered in connection with expansion into new markets where we have limited historical experience; negotiate acceptable lease terms at suitable retail stores; construct and open our retail stores on a timely basis; successfully integrate new retail stores into our existing management structure and operations, including information technology integration; recruit and retain qualified optometrists, opticians, and other vision care professionals for any new retail store; and hire, train, and retain an expanded workforce of retail store managers and other personnel. Our failure to effectively address challenges such as these could adversely affect our ability to successfully open and operate new retail stores in a timely and cost-effective manner. In addition, opening new retail stores in our established markets may result in inadvertent oversaturation, temporarily or permanently divert customers and sales from our existing retail stores and e-commerce channels to new retail stores and reduce comparable store sales, thus adversely affecting our overall financial performance.
Our ability to attract new customers and increase net revenue and AOV from existing customers also depends in large part on our ability to enhance and improve our existing products and to introduce new products and services, in each case, in a timely manner. We also must be able to identify and originate styles and trends as well as to anticipate and react to changing consumer demands in a timely manner. The success of new and/or enhanced products and services depends on several factors, including their timely introduction and completion, sufficient demand, and cost-effectiveness. We are building and improving machine learning models and other technological capabilities to drive improved customer experience, as well as efficiencies in our operations, such as optimized payment processing and customer service, and automated key support workflows. While we expect these technologies to lead to improvements in the performance of our business and operations, including inventory prediction and customer traffic prediction and management, any flaws or failures of such technologies could cause interruptions or delays in our service, which may harm our business.
Our number of customers may decline materially or fluctuate as a result of many factors, including, among other things:
•the quality, consumer appeal, price, and reliability of products and services offered by us;
•intense competition in the optical retail industry;
•negative publicity related to our brand;
•lack of market acceptance of our business model;
•unpredictable nature of the impact of the COVID-19 pandemic or a future outbreak of disease or similar public health concern;
•changes in availability of our historic or current customer acquisition methods; or
•dissatisfaction with changes we make to our products and services.
In addition, if we are unable to provide high-quality support to customers or help resolve issues in a timely and acceptable manner, our ability to attract and retain customers could be adversely affected. If our number of customers declines or fluctuates for any of these reasons among others, our business would suffer.
Our profitability and cash flows may be negatively affected if we are not successful in managing our inventory balances and inventory shrinkage.
Efficient inventory management is a key component of our business success and profitability. To be successful, we must maintain sufficient inventory levels to meet our customers’ demands without allowing those levels to increase to such an extent that the costs to our or our third-party optical laboratories, retail stores and other points of distribution that hold the goods unduly impact our financial results. We must balance the need to maintain inventory levels that are sufficient to ensure competitive lead times against the risk of inventory obsolescence because of changing customer requirements, fluctuating commodity prices, changes to our products, product transfers, or the life cycle of our products. If we fail to adequately forecast demand for any product, or fail to determine the optimal product mix for production purposes, we may face production capacity issues in processing sufficient quantities of a given product. If our buying and distribution decisions do not accurately predict customer trends or spending levels in general or if we inappropriately price products, we may have to record potential write-downs relating to the value of obsolete or excess inventory. Conversely, if we underestimate future demand for a particular product or do not respond quickly enough to replenish our best performing products, we may have a shortfall in inventory of such products, likely leading to unfulfilled orders, reduced net revenue, and customer dissatisfaction. In addition, because we source components from suppliers located in China, our inventory management may be impacted by enactment or further escalation of tariffs, import restrictions, foreign government regulations, trade restrictions, customs, and duties.
Maintaining adequate inventory requires significant attention and monitoring of market trends, local markets, developments with suppliers, and our distribution network, and it is not certain that we will be effective in our inventory management. We are subject to the risk of inventory loss or theft and we may experience higher rates of inventory shrinkage or incur increased security costs to combat inventory theft. In addition, any casualty or disruption to our or our third-party optical laboratories, Home Try-On distribution center, or retail stores may damage or destroy our inventory located there. As we expand our operations, it may be more difficult to effectively manage our inventory. If we are not successful in managing our inventory balances, it could have a material adverse effect on our business, financial condition, and results of operations.
If we fail to maintain and enhance our brand, our ability to engage or expand our base of customers will be impaired, and our business, financial condition, and results of operations may suffer.
Maintaining and enhancing our appeal and reputation as a stylish, innovative, and coveted brand is critical to attracting and expanding our relationships with customers. The successful promotion of our brand and the market’s awareness of our products and services will depend on a number of factors, including our marketing efforts, ability to continue to develop our products and services, and ability to successfully differentiate our offerings from competitive offerings. We expect to invest substantial resources to promote and maintain our brand, but there is no guarantee that our brand development strategies will enhance the recognition of our brand or lead to increased sales. The strength of our brand will depend largely on our ability to provide stylish products and quality services at competitive prices. Brand promotion activities may not yield increased net revenue, and even if they do, the increased net revenue may not offset the expenses we incur in promoting and maintaining our brand and reputation. In order to protect our brand, we also expend substantial resources to register and defend our trademarks and to prevent others from using the same or substantially similar marks. Despite these efforts, we may not always be successful in protecting our trademarks. Our trademarks may be diluted, and we may suffer harm to our reputation, or other harm to our brand. If our efforts to cost-effectively promote and maintain our brand are not successful, our results of operations and our ability to attract and engage customers, partners, and employees may be adversely affected.
Unfavorable publicity regarding our products, customer service, or privacy and security practices could also harm our reputation and diminish confidence in, and the use of, our products and services. In addition, negative publicity related to key brands that we have partnered with may damage our reputation, even if the publicity is not directly related to us. If we fail to maintain, protect, and enhance our brand successfully or to maintain loyalty among customers, or if we incur substantial expenses in unsuccessful attempts to maintain, protect, and enhance our brand, we may fail to attract or increase the engagement of customers, and our business, financial condition, and results of operations may suffer.
We have a history of losses, and we may be unable to achieve or sustain profitability.
We had a net loss of $55.9 million for the year ended December 31, 2020 and $7.3 million for the six months ended June 30, 2021 and have in the past had net losses. As of June 30, 2021, we had an accumulated deficit of $356.3 million. Because we have a short operating history at scale, it is difficult for us to predict our future operating results. We will need to generate and sustain increased revenue and manage our costs to achieve profitability. Even if we do, we may not be able to sustain or increase our profitability.
Our ability to generate profit depends on our ability to grow net revenues and drive operational efficiencies in our business to generate better margins. We expect to incur increased operating costs and may continue to generate net losses in the near term in order to:
•strengthen the engagement of existing customers;
•drive adoption of our products and services through marketing and incentives and grow brand awareness through brand and eyewear collection campaigns;
•invest in our operations to support the growth, including expanding our retail footprint by selectively opening new retail stores;
•enhance our products and services, including our telehealth offerings, with new designs, functionality, and technology, as applicable;
•expand vision care services provided by optometrists employed either by us or by independent professional corporations or similar entities or with whom we have contractual arrangements;
•invest in our product supply chain for further vertical integration, opening new optical laboratories, and establishing partnerships with new frame manufacturers; and
•evaluate potential expansion into new international markets.
We may discover that these initiatives are more expensive than we currently anticipate, and we may not succeed in increasing our net revenue sufficiently to offset these expenses or realize any anticipated. We will also face greater compliance costs associated with the increased scope of our business and being a public company. Any failure to adequately increase net revenue or manage operating costs could prevent us from achieving or sustaining profitability. We may not realize the operating efficiencies we expect to achieve through our efforts to scale the business, reduce friction in the shopping experience, and optimize costs. As such, due to these factors and others, we may not be able to achieve or sustain profitability in the near term or at all. If we are unable to achieve or sustain profitability, the value of our business and the trading price of our Class A common stock may be negatively impacted.
Failure to recruit and retain optometrists, opticians, and other vision care professionals for our retail stores could materially adversely affect our business, financial condition, and results of operations.
Our operations depend on our ability to offer eye exams for glasses and contact lenses. Our ability to hire optometrists, opticians, and other vision care professionals and/or contract with optometrists or independent professional corporations or similar entities that employ optometrists for our retail stores that offer such eye exams is important to our operations as well as our growth strategy, but there is no assurance that we will be successful in recruiting such professionals. Furthermore, our operations are subject to state licensing laws and many states require that opticians be licensed to dispense and fit glasses and contact lenses.
Our ability to attract and retain optometrists, opticians and other vision care professionals and/or contract with optometrists or independent professional corporations or similar entities that employ optometrists depends on several factors. We compete with other optical retail companies, health systems and group practices for vision
care professionals. We, as well as the professional corporations or similar entities that employ optometrists in certain of our retail stores, could face difficulties attracting and retaining qualified professionals if we or such corporations fail to offer competitive compensation and benefits. Increased compensation for vision care professionals could raise our costs and put pressure on our margins.
The loss of or the inability by us or our affiliated professional entities to foster new relationships with such vision care professionals could impair our ability to provide services to our customers and/or cause our customers to go elsewhere for their optical needs. A change to any of the foregoing relationships could have a material adverse effect on our business, financial condition, and results of operations.
We rely heavily on our information technology systems, as well as those of our third-party vendors, business partners, and service providers, for our business to effectively operate and to safeguard confidential information; any significant failure, inadequacy, interruption, or data security incident could adversely affect our business, financial condition, and operations.
We rely heavily on our in-house information technology and enterprise resource planning systems for many functions across our operations, including managing our supply chain and inventory, processing customer transactions in our stores, allocating lens processing jobs to the appropriate laboratories, our financial accounting and reporting, compensating our employees, and operating our website, mobile applications and in-store systems. Our ability to effectively manage our business and coordinate the manufacturing, sourcing, distribution, and sale of our products depends significantly on the reliability and capacity of these systems. We are critically dependent on the integrity, security, and consistent operations of these systems, which are highly reliant on the coordination of our internal business and engineering teams. We also collect, process, and store sensitive and confidential information, including our proprietary business information and that of our customers, employees, suppliers, and business partners. The secure processing, maintenance, and transmission of this information is critical to our operations.
Our systems may be subject to damage or interruption from power outages or damages, telecommunications problems, data corruption, software errors, network failures, acts of war or terrorist attacks, fire, flood, global pandemics, and natural disasters; our existing safety systems, data backup, access protection, user management, and information technology emergency planning may not be sufficient to prevent data loss or long-term network outages. In addition, we may have to upgrade our existing information technology systems or choose to incorporate new technology systems from time to time in order for such systems to support the increasing needs of our expanding business. Costs and potential problems and interruptions associated with the implementation of new or upgraded systems and technology or with maintenance or adequate support of existing systems could disrupt or reduce the efficiency of our operations.
Our systems and those of our third-party service providers and business partners may be vulnerable to security incidents, attacks by hackers, acts of vandalism, computer viruses, misplaced or lost data, human errors or other similar events. If unauthorized parties gain access to our networks or databases, or those of our third-party service providers or business partners, they may be able to steal, publish, delete, use inappropriately, or modify our private and sensitive third-party information including personal health information, credit card information, and personal identification information. In addition, employees may intentionally or inadvertently cause data or security incidents that result in unauthorized release of personal or confidential information. Because the techniques used to circumvent security systems can be highly sophisticated, change frequently, are often not recognized until launched against a target, and may originate from less regulated and remote areas around the world, we may be unable to proactively address all possible techniques or implement adequate preventive measures for all situations.
Security incidents compromising the confidentiality, integrity, and availability of this information and our systems could result from cyber-attacks, computer malware, viruses, social engineering (including spear phishing and ransomware attacks), credential stuffing, supply chain attacks, efforts by individuals or groups of hackers and sophisticated organizations, including state-sponsored organizations, errors or malfeasance of our personnel, and security vulnerabilities in the software or systems on which we rely. We anticipate that these threats will continue to grow in scope and complexity over time and such incidents have occurred in the past, and may occur in the future, resulting in unauthorized, unlawful, or inappropriate access to, inability to access, disclosure of, or loss of the sensitive, proprietary and confidential information that we handle. For example, in 2018, we experienced a
credential stuffing attack in which malicious third parties likely used credentials compromised in data breaches suffered by other, unaffiliated companies to access accounts on our platform. In 2019, we received notice from the Office for Civil Rights, or OCR, of the U.S. Department of Health and Human Services indicating that OCR would begin an investigation regarding the incident and our compliance with the Health Insurance Portability and Accountability Act, or HIPAA, Privacy, Security, and Breach Notification Rules and requesting certain information related to the incident and our compliance with the HIPAA Privacy, Security, and Breach Notification Rules. To resolve the open investigations, OCR may, among other actions, request a monetary settlement and/or a corrective action plan for a period of one to three years, including through a resolution agreement, or impose civil money penalties for non-compliance. We continue to work on a resolution with OCR. While we employ a number of security measures designed to prevent, detect, and mitigate potential for harm to our users from the theft of or misuse of user credentials on our network, these measures may not be effective in every instance. Moreover, while we maintain cyber insurance that may help provide coverage for these types of incidents, we cannot assure you that our insurance will be adequate to cover costs and liabilities related to these incidents. Any such breach, attack, virus, or other event could result in additional costly investigations and litigation exceeding applicable insurance coverage or contractual rights available to us, civil or criminal penalties, operational changes or other response measures, loss of consumer confidence in our security measures, and negative publicity that could adversely affect our business, financial condition, and results of operations.
We also rely on a number of third-party service providers to operate our critical business systems, provide us with software, and process confidential and personal information, such as the payment processors that process customer credit card payments, which expose us to security risks outside of our direct control and our ability to monitor these third-party service providers’ data security is limited. These service providers could experience a security incident that compromises the confidentiality, integrity, or availability of the systems they operate for us or the information they process on our behalf. Cybercrime and hacking techniques are constantly evolving, and we or our third-party service providers may be unable to anticipate attempted security breaches, react in a timely manner, or implement adequate preventative measures, particularly given the increasing use of hacking techniques designed to circumvent controls, avoid detection, and remove or obfuscate forensic artifacts. While we have taken measures designed to protect the security of the confidential and personal information under our control, we cannot assure you that any security measures that we or our third-party service providers have implemented will be effective against current or future security threats. Moreover, we or our third-party service providers may be more vulnerable to such attacks in remote work environments, which have increased in response to the COVID-19 pandemic.
A security breach may also cause us to breach our contractual obligations. Our agreements with certain customers, business partners, or other stakeholders may require us to use industry-standard or reasonable measures to safeguard personal information. We also may be subject to laws that require us to use industry-standard or reasonable security measures to safeguard personal information. A security incident could lead to claims by our customers, business partners, or other relevant stakeholders that we have failed to comply with such legal or contractual obligations. In addition, our inability to comply with data privacy obligations in our contracts or our inability to flow down such obligations to our vendors, collaborators, other contractors, or consultants may cause us to breach our contracts. As a result, we could be subject to legal action or our customers or business partners could end their relationships with us. There can be no assurance that the limitations of liability in our contracts would be enforceable or adequate or would otherwise protect us from liabilities or damages.
In addition, any such access, disclosure or other loss or unauthorized use of information or data, whether actual or perceived, could result in legal claims or proceedings, regulatory investigations or actions, and other types of liability under laws that protect the privacy and security of personal information, including federal, state and foreign data protection and privacy regulations, violations of which could result in significant penalties and fines in the EU and United States. In addition, although we seek to detect and investigate all data security incidents, security breaches, and other incidents of unauthorized access to our information technology systems and data can be difficult to detect and any delay in identifying such breaches or incidents may lead to increased harm and legal exposure of the type described above.
The cost of investigating, mitigating, and responding to potential security breaches and complying with applicable breach notification obligations to individuals, regulators, partners, and others can be significant. Further, defending a suit, regardless of its merit, could be costly, divert management attention, and harm our reputation. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the
occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could adversely affect our reputation, business, financial condition, revenues, results of operations, or cash flows. Any material disruption or slowdown of our systems or those of our third-party service providers and business partners, could have a material adverse effect on our business, financial condition, and results of operations. Our risks are likely to increase as we continue to expand, grow our customer base, and process, store, and transmit increasing amounts of proprietary and sensitive data.
Our e-commerce and multichannel channel business faces distinct risks, and our failure to successfully manage it could have a negative impact on our profitability.
As an e-commerce and multichannel retailer, we encounter risks and difficulties frequently experienced by businesses with significant online sales. The successful operation of our business as well as our ability to provide a positive shopping experience that will generate orders and drive subsequent visits depends on efficient and uninterrupted operation of our e-commerce order-taking and fulfillment operations. If we are unable to allow real-time and accurate visibility to product availability when customers are ready to purchase, quickly and efficiently fulfill our customers’ orders using the fulfillment and payment methods they demand, provide a convenient and consistent experience for our customers regardless of the ultimate sales channel, or effectively manage our online sales, our ability to compete and our results of operations could be adversely affected. Risks associated with our e-commerce and multichannel business include:
•uncertainties associated with our websites, mobile applications and in-store systems including changes in required technology interfaces, website downtime and other technical failures, costs and technical issues as we upgrade our systems software, inadequate system capacity, computer viruses, human error, security breaches, legal claims related to our systems operations, and fulfillment;
•our partnership with select third-party apps, through which we sell a portion of our products, are subject to changes in their technology interfaces, website downtime and other technical failures, costs, and issues;
•disruptions in internet service or power outages;
•reliance on third parties for computer hardware and software, as well as delivery of merchandise to our customers;
•rapid technology changes;
•credit or debit card fraud and other payment processing related issues;
•changes in applicable federal, state and international regulations;
•liability for online content;
•cybersecurity and consumer privacy and HIPAA concerns and regulation; and
•natural disasters or adverse weather conditions.
Our online sales also expose us to broader applicability of regulations, as well as additional regulations, such as the prescription verification and other requirements under the Fairness to Contact Lens Consumers Act, or the FCLCA, rules relating to registration of internet sellers, certain anti-money laundering, trade sanction, anti-corruption, anti-bribery, and international trade laws. Problems in any of these areas could result in a reduction in sales, increased costs, sanctions or penalties, and damage to our reputation and brands.
In addition, we must keep up to date with competitive technology trends, including the use of new or improved technology, creative user interfaces, virtual and augmented reality, and other e-commerce marketing tools such as paid search and mobile application, among others, which may increase our costs and which may not increase sales or attract customers. Our competitors, some of whom have greater resources than we do, may also be able to benefit from changes in e-commerce technologies, which could harm our competitive position.
The COVID-19 pandemic has had, and may in the future continue to have, a material adverse impact on our business.
The COVID-19 pandemic and the travel restrictions, quarantines, other and related public health measures and actions taken by governments and the private sector have adversely affected global economies, financial markets, and the overall environment for our business, and the extent to which it may continue to impact our future results of operations and overall financial performance remains uncertain. The global macroeconomic effects of the
pandemic, including the Delta variant, may persist for an indefinite period of time, even after the pandemic has subsided.
As a result of the pandemic, the recommendations of government and health authorities and our concern for the health and safety of our team members and customers, our retail stores closed to the public beginning on March 14, 2020. We began reopening our retail stores to the public through a phased approach commencing on May 14, 2020 and successfully completed the reopening process by December 31, 2020. We also transitioned our Corporate and Customer Experience teams to remote work and closed our in-house optical lab for 24 hours to implement robust safety and sanitization protocols. While we expect to be able to continue operations for the duration of the pandemic, our retail store operations are subject to change based on market conditions and the continued evolution of the pandemic and we continue to monitor and adjust our health and safety protocols. In addition, since the onset of the COVID-19 pandemic, some of our suppliers and logistics providers have experienced supply constraints or labor shortages due to the pandemic. These impacts resulted in disruptions to our product and delivery supply chain, including increased delivery times for certain products.
COVID-19 and related governmental reactions have had and may continue to have a negative impact on our financial condition, business, and results of operations due to the occurrence of some or all of the following events or circumstances, among others:
•our inability to manage our business effectively due to key employees becoming ill or being unable to travel to our retail stores and other facilities;
•our and our third-party suppliers’, contract manufacturers’, logistics providers’, and other business partners’ inability to operate worksites at full capacity or at all, including manufacturing facilities and shipping and fulfillment centers, due to employee illness or reluctance to appear at work, or “stay-at-home” regulations;
•longer wait times and delayed responses to customer support inquiries and requests;
•our inability to meet consumer demand and delays in the delivery of our products to our customers, resulting in reputational harm and damaged customer relationships;
•increased rates of post-purchase order cancellation as a result of longer delivery lead times and delivery reschedules;
•increased return rates due to a decrease in consumer discretionary spending;
•inventory shortages caused by a combination of increased demand that has been difficult to predict with accuracy, and longer lead-times and component shortages in the manufacturing of our products, due to work restrictions related to COVID-19, shut-down, or disruption of international suppliers, import/export conditions such as port congestion, and local government orders;
•interruptions in manufacturing (including the sourcing of key components), shipment and delivery of our products;
•disruptions of the operations of our third-party suppliers, which could impact our ability to purchase components at efficient prices and in sufficient amounts; and
•incurrence of significant increases to employee health care and benefits costs as well as costs related to regular COVID-19 testing of certain of our employees.
The scope and duration of the pandemic, including the current resurgences as a result of the Delta variant in various regions in the United States and globally and other future resurgences, the pace at which government restrictions are lifted or whether additional actions may be taken to contain the virus, the impact on our customers and suppliers, the speed and extent to which markets fully recover from the disruptions caused by the pandemic, and the impact of these factors on our business, will depend on future developments that are highly uncertain and cannot be predicted with confidence. It is possible that changes in economic conditions and steps taken by the federal government and the Federal Reserve in response to the COVID-19 pandemic could lead to higher inflation than we had anticipated, which could in turn lead to an increase in our costs of products and services and other operating expenses. In addition, to the extent COVID-19 adversely affects our operations and global economic conditions more generally, it may also have the effect of heightening many of the other risks described herein.
While we believe that the long-term fundamentals of our business are largely unchanged, and anticipate that our operating results in future fiscal years will begin to reflect a more normal operating environment, the current economic and public health climate has created a high degree of uncertainty. As such, we continue to closely monitor this global health crisis and will continue to reassess our strategy and operational structure on a regular,
ongoing basis as the situation evolves. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for more details on the potential impact of the COVID-19 pandemic and associated economic disruptions, and the actual operational and financial impacts that we have experienced to date.
Future operational success depends on our ability to develop, maintain and extend relationships with managed vision care companies, vision insurance providers, and other third-party payors, or otherwise continue to attract these members to shop with us.
An increasing percentage of our customers and prospective customers receive vision insurance coverage through third-party payors, including vision insurance companies and managed care payors. We have relationships with only a few vision care insurers in the United States. Our future operational success could depend on our ability to establish relationships with vision care insurers and major carriers and to negotiate contracts with managed vision care companies, vision insurance providers, and other third-party payors, several of whom have significant market share.
Although many customers with vision insurance coverage through third-party payors that we do not have relationships with have been willing to either use their out-of-network benefits or forego using their benefits in order to shop with us or to shop with us for additional purchases once they have exhausted their vision care benefits, these customers may be less willing to take these actions over time as the third-party payors increase their market power/networks, decrease or alter their out-of-network benefits, or otherwise influence customer behavior.
We may be unable to establish or maintain satisfactory relationships with managed care and other third-party payors. In addition, many third-party payors have existing provider structures in place that they may be unable or unwilling to change. Some vertically integrated payors also have their own networks, and these payors may take actions to maintain or protect these networks in ways that negatively affect us, including by increasing costs or not allowing our new or existing stores to participate in their networks. Increasing consolidation in the optical industry may give such payors greater market power which may adversely affect our ability to negotiate reimbursement rates under managed care arrangements. Our inability to enter into arrangements with third-party payors in the future or to maintain existing relationships with third-party payors on commercially reasonable terms could have a material adverse effect on our business, financial condition and results of operations.
For the small portion of our net revenue that is currently derived from third-party coverage and reimbursement, including Medicare Advantage and commercial insurance plans, such as managed vision care plans, we and our employed and affiliated vision care professionals, as applicable, are generally reimbursed for the vision care services and products that we or our affiliated vision care professionals provide through payment systems managed by private insurance companies, managed care organizations, and governmental agencies. Coverage and payment levels are determined at each third-party payor’s discretion, and we have limited control over third-party payor’s decision-making with respect to coverage and payment levels. Coverage restrictions and reductions in reimbursement levels or payment methodologies may negatively impact our sales and profits. We cannot provide any assurances that we will be able to maintain or increase our participation in third-party payor arrangements or that we will be adequately reimbursed by managed care payors, vision insurance providers, and other third-party payors for the services we provide and the products we sell.
Our business is affected by seasonality.
Our business is subject to seasonal fluctuation. We do observe moderately higher seasonal demand during the month of December due in part to customer usage of health and flexible spending benefits in the final week of the year. Consistent with our policy to recognize revenue upon order delivery, any orders placed at the end of December are recognized as revenue upon delivery which may occur in the following year.
Our business has experienced a higher proportion of costs in each subsequent quarter as a year progresses due to the overall growth of the business and operating costs to support that growth, including costs related to the opening of new retail stores and increased marketing and employee-related compensation to support growth. The fourth quarter, in particular, has historically experienced the highest amount of costs in a year to support the business demand in the quarter, even though a portion of the net revenue from that demand is not recognized
until January of the following year. In the future, seasonal trends may cause fluctuations in our quarterly results, which may impact the predictability of our business and operating results.
Furthermore, our rapid growth in recent years may obscure the extent to which seasonality trends have affected our business and may continue to affect our business. Accordingly, yearly or quarterly comparisons of our operating results may not be useful and our results in any particular period will not necessarily be indicative of the results to be expected for any future period. Seasonality in our business can also be affected by introductions of new or enhanced products and services, including the costs associated with such introductions.
Certain technological advances, greater availability of, or increased consumer preferences for, vision correction alternatives to prescription eyeglasses or contact lenses, and future drug development for the correction of vision-related problems may reduce the demand for our products and adversely impact our business and profitability.
Technological advances in vision care, including the development of new or improved products, as well as future drug development for the correction of vision-related problems, could significantly change how vision care may be conducted and make our existing products less attractive or even obsolete. The greater availability and acceptance, or reductions in the cost, of vision correction alternatives to prescription eyeglasses and contact lenses, such as corneal refractive surgery procedures, including radial keratotomy, photorefractive keratotomy, or PRK, and LASIK, may reduce the demand for our products, lower our sales, and thereby adversely impact our business and profitability.
Environmental, social, and governance matters may impact our business and reputation.
Increasingly, in addition to the importance of their financial performance, companies are being judged by their performance on a variety of environmental, social, and governance, or ESG, matters, which are considered to contribute to the long-term sustainability of companies’ performance.
A variety of organizations measure the performance of companies on such ESG topics, and the results of these assessments are widely publicized. In addition, investment in funds that specialize in companies that perform well in such assessments are increasingly popular, and major institutional investors have publicly emphasized the importance of such ESG measures to their investment decisions. Topics taken into account in such assessments include, among others, the company’s efforts and impacts on climate change and human rights, ethics and compliance with law, and the role of the company’s board of directors in supervising various sustainability issues. In addition to the topics typically considered in such assessments, in the healthcare industry, issues of the public’s ability to access our products and solutions are of particular importance.
ESG is embedded in our core value and vision, including but not limited to the administration of our Buy a Pair, Give a Pair program in over 50 countries, and we actively take into consideration their expected impact on the sustainability of our business over time and the potential impact of our business on society and the environment. However, in light of investors’ increased focus on ESG matters, there can be no certainty that we will manage such issues successfully, or that we will successfully meet our customers’ or society’s expectations as to our proper role. If we fail to meet the ESG values, standards and metrics that we set for ourselves, or our articulated public benefit purposes, we may experience negative publicity and a loss of customers as a result, which will adversely affect our business, financial condition, and results of operations. See “—Risks Related to Our Existence as Public Benefit Corporation.”
We depend on highly skilled personnel to grow and operate our business, and if we are unable to hire, retain, and motivate our personnel, we may not be able to grow effectively.
Our success and future growth depend largely upon the continued services of our management team, including our Co-Founders and Co-Chief Executive Officers Neil Blumenthal and Dave Gilboa. From time to time, there may be changes in our executive management team resulting from the hiring or departure of these executives. Our executive officers are employed on an at-will basis, which means they may terminate their employment with us at any time. The loss of one or more of our executive officers, or the failure by our executive team to effectively work with our employees and lead our company, could harm our business. We do not maintain key person life insurance with respect to any member of management or other employee.
In addition, our future success will depend, in part, upon our continued ability to identify and hire skilled employees with the skills and technical knowledge that we require, including software design and programming, eyewear design, marketing, merchandising, retail sales, operations, and other key management skills and knowledge. Such efforts will require significant time, expense, and attention as there is intense competition for such individuals, particularly in the New York City region, and new hires require significant training and time before they achieve full productivity, particularly in retail sales and Customer Experience. In addition to hiring new employees, we must continue to focus on developing, motivating, and retaining our best employees, all of whom are at-will employees in the U.S. If we fail to identify, recruit, and integrate strategic personnel hires, our business, financial condition, and results of operations could be adversely affected. We may need to invest significant amounts of cash and equity to attract and retain new employees, and we may never realize returns on these investments. If we hire employees from competitors or other companies, their former employers may attempt to assert that these employees or we have breached various legal obligations, resulting in a diversion of our time and resources. In addition, prospective 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 awards declines, experiences significant volatility, or increases such that prospective employees believe there is limited upside to the value of our equity awards, it may adversely affect our ability to recruit and retain key employees. If we are not able to effectively add and retain employees, our ability to achieve our strategic objectives will be adversely impacted, and our business and future growth prospects will be harmed.
Our company culture has contributed to our success and if we cannot maintain this culture as we grow, our business could be harmed.
We believe that our company culture has been critical to our success. Our intended status as a Certified B Corp, public benefit corporation status, and commitment to doing good distinguish us from our competitors and promote positive impact and equity among our employees and customers. Our company culture stands for fun, creativity, and doing good in the world. Our ability to continue to cultivate and maintain this culture is essential to our growth and continued success. We face a number of challenges that may affect our ability to sustain our corporate culture, including:
•failure to identify, attract, reward, and retain people in leadership positions in our organization who share and further our culture, values, and mission;
•the increasing size and geographic diversity of our workforce, and our ability to promote a uniform and consistent culture across all our offices and employees;
•the market perception about our charitable contributions and social and political stances;
•competitive pressures to move in directions that may divert us from our mission, vision, and values;
•the continued challenges of a rapidly-evolving industry; and
•the increasing need to develop expertise in new areas of business that affect us.
Our unique culture is one of our core characteristics that helps us to attract and retain key personnel. If we are not able to maintain our culture, we would have to incur additional costs and find alternative methods to recruit key employees, which in turn could cause our business, results of operations, and financial condition to be adversely affected.
We derive most of our revenue from sales of our glasses. A decline in sales of our glasses would negatively affect our business, financial condition, and results of operations.
We derive most of our revenue from the sale of one product, our glasses. Our glasses are sold in highly competitive markets with limited barriers to entry. Introduction by competitors of comparable products at lower price points, a maturing product lifecycle, a decline in consumer spending, or other factors could result in a material decline in our revenue. Because we derive most of our revenue from the sale of our glasses, any material decline in sales of our glasses would have a material adverse impact on our business, financial condition, and operating results.
We could be adversely affected by product liability, product recall or personal injury issues.
We could be adversely impacted by the supply of defective products, including the infiltration of counterfeit products into the supply chain or product mishandling issues. Product liability or personal injury claims may be
asserted against us with respect to any of the products we sell or services we provide. The provision of professional eye care services by the vision care professionals employed by us or by independent professional corporations or similar entities or with whom we have contractual arrangements also increases our exposure to professional liability claims. There is a risk that these claims may exceed, or fall outside the scope of, our insurance coverage. In addition, a government or other regulatory agency could require us or one of our vendors or suppliers to remove a particular product from the market for, among other reasons, failure to adhere to product safety requirements or quality control standards. Product recalls can result in the disposal or write-off of merchandise, harm our reputation, and cause us to lose customers, particularly if those recalls cause consumers to question the performance, quality, safety, or reliability of our products. Any significant returns or warranty claims, as well as the timing of such returns or claims, could result in significant additional costs to us and could adversely affect our results of operations.
For our private label Scout by Warby Parker contact lenses, we rely on our contract manufacturer to control the quality and regulatory compliance of their contact lenses. We are not involved in the manufacture of these contact lenses we purchase from this vendor for sale to our customers. Our ability to seek recourse for liabilities and recover costs from this vendor depends on our contractual rights as well as on the financial condition and integrity of the vendor.
Moreover, we engage in further processing, packaging, and labeling activities at our third-party optical laboratories. If the products that we sell, including those that we process, package, or label, are defective or otherwise result in product liability or personal injury claims against us, our business could be adversely affected and we could be subject to adverse regulatory action. If our products or services do not meet applicable governmental safety standards or our customers’ expectations regarding quality or safety, we could experience lost sales and increased costs, be exposed to legal and reputational risk, and face fines or penalties which could materially adversely affect our financial results.
Refunds, cancellations, and warranty claims could harm our business.
We allow our customers to return our products, subject to our refund policy, which allows any customer to return our products for any reason within the first 30 days of their purchase and receive a full refund. At the time of sale, we establish a reserve for returns, based on historical experience and expected future returns, which is recorded as a reduction of sales. If we experience a substantial increase in refunds, our cancellation reserve levels might not be sufficient and our business, financial condition, and results of operations could be harmed.
In addition, we generally provide a 12-month no scratch guarantee on all of our glass lenses. If a customer has scratched lenses in the first 12 months, we replace the scratched lenses for free. We could incur significant costs to honor this guarantee. Any negative publicity related to the perceived quality and safety of our products could affect our brand image, decrease consumer and customer confidence and demand, and adversely affect our financial condition and operating results.
We expect a number of factors to cause our results of operations and operating cash flows to fluctuate on a quarterly and annual basis, which may make it difficult to predict our future performance.
Our results of operations could vary significantly from quarter to quarter and year to year because of a variety of factors, many of which are outside of our control. As a result, comparing our results of operations on a period-to-period basis may not be meaningful. In addition to other risk factors discussed in this section, factors that may contribute to the variability of our quarterly and annual results include:
•our ability to accurately forecast net revenue and appropriately plan our expenses;
•changes to financial accounting standards and the interpretation of those standards, which may affect the way we recognize and report our financial results;
•changes to our existing product mix and channel mix;
•the effectiveness of our internal controls;
•the seasonality of our business; and
•the impact of the COVID-19 pandemic on our business.
The impact of one or more of the foregoing and other factors may cause our results of operations to vary significantly. As such, quarter-to-quarter and year-over-year comparisons of our results of operations may not be meaningful and should not be relied upon as an indication of future performance. See “—Our business is affected by seasonality.”
We may require additional capital to support the growth of our business, and this capital might not be available on acceptable terms, if at all.
We have funded our operations since inception primarily through net proceeds from the sale of redeemable convertible preferred stock and common stock and cash flows generated from operating activities. We cannot be certain when, or if, our operations will generate sufficient cash to fully fund our ongoing operations or the growth of our business. We intend to continue to make investments to support the development of our products and services and will require additional funds for such development. We may need additional funding for marketing expenses and to develop and expand sales resources, develop new features or enhance our products and services, improve our operating infrastructure, or acquire complementary businesses and technologies. Accordingly, we might need or may want to engage in future equity or debt financings to secure additional funds. Additional financing may not be available on terms favorable to us, if at all. If adequate funds are not available on acceptable terms, we may be unable to invest in future growth opportunities, which could harm our business, financial condition, and results of operations. In particular, the ongoing COVID-19 pandemic has caused disruption in the credit and financial markets in the United States and worldwide, which may reduce our ability to access capital and negatively affect our liquidity in the future. If we are unable to obtain adequate financing or financing on terms satisfactory to us, our ability to develop our products and services, support our business growth, and respond to business challenges could be significantly impaired, and our business may be adversely affected.
If we incur additional debt, the debt holders would have rights senior to holders of common stock to make claims on our assets, and the terms of any additional debt could include restrictive covenants that restrict our operations, including our ability to pay dividends on our common stock. Furthermore, if we issue additional equity securities, stockholders will experience dilution, and the new equity securities could have rights senior to those of our common stock. Because our decision to issue securities in the future will depend on numerous considerations, including factors beyond our control, we cannot predict or estimate the amount, timing, or nature of any future issuances of debt or equity securities. As a result, our stockholders bear the risk of future issuances of debt or equity securities reducing the value of our common stock and diluting their interests.
Acquisitions, strategic investments, partnerships, or alliances could be difficult to identify, pose integration challenges, divert the attention of management, disrupt our business, dilute stockholder value, and adversely affect our business, financial condition, and results of operations.
Our success will depend, in part, on our ability to expand our services and grow our business in response to changing technologies, customer demands, and competitive pressures. In some circumstances going forward, we may choose to expand our services and grow our business through the acquisition of complementary businesses and technologies or by entering into partnerships or alliances with third parties rather than through internal development. The identification of suitable acquisition candidates or alliance partners can be difficult, time-consuming, and costly, and we may not be able to successfully complete identified transactions. In addition, if we pursue and complete an acquisition, we may not be able to successfully integrate the acquired business. The risks we face in connection with acquisitions include:
•an acquisition may negatively affect our financial results because it may require us to incur charges or assume substantial debt or other liabilities, may cause adverse tax consequences or unfavorable accounting treatment, may expose us to claims and disputes by stockholders and third parties, including intellectual property claims and disputes, or may not generate sufficient financial return to offset additional costs and expenses related to the acquisition;
•we may encounter difficulties or unforeseen expenditures in integrating the business, offerings, technologies, personnel, or operations of any company that we acquire, particularly if key personnel of the acquired company decide not to work for us;
•an acquisition may disrupt our ongoing business, divert resources, increase our expenses, and distract our management;
•an acquisition may result in a delay or reduction of customer purchases for both us and the company acquired due to customer uncertainty about continuity and effectiveness of service from either company;
•we may encounter difficulties in, or may be unable to, successfully sell any acquired products;
•our use of cash to pay for an acquisition would limit other potential uses for our cash;
•if we incur debt to fund such acquisition, such debt may subject us to material restrictions on our ability to conduct our business, as well as financial maintenance covenants; and
•if we issue a significant amount of equity securities in connection with future acquisitions, existing stockholders may be diluted and earnings per share may decrease.
The occurrence of any of these foregoing risks could adversely affect our business, financial condition, and results of operations and expose us to unknown risks or liabilities.
Risks Related to Our Legal and Regulatory Environment
We are subject to extensive state, local, and federal vision care and healthcare laws and regulations and failure to adhere to such laws and regulations would adversely affect our business.
Although the majority of our revenues is derived from cash-pay consumers, we have contracts with certain vision plans, including Medicare Advantage health plans, which subject us to a number of federal and state healthcare regulatory laws, including federal and state anti-kickback, false claims, self-referral, and other healthcare fraud and abuse laws, some of which apply to items or services reimbursed by any third-party payor, including self-pay patients. The applicable federal and state healthcare laws that affect our ability to operate include, but are not limited to, the following:
•the federal Anti-Kickback Statute, which prohibits, among other things, persons or entities from knowingly and willfully soliciting, offering, receiving, or providing any remuneration (including any kickback, bribe, or certain rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, lease, order, or recommendation of, any good, facility, item or service, for which payment may be made, in whole or in part, under any U.S. federal healthcare program, such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;
•the federal physician self-referral law, commonly referred to as the Stark Law, that, subject to limited exceptions, prohibits physicians (defined to also include optometrists) from referring Medicare or Medicaid patients to an entity for the provision of certain “designated health services” if the physician or a member of such physician’s immediate family has a direct or indirect financial relationship (including an ownership interest or a compensation arrangement) with the entity, and prohibit the entity from billing Medicare or Medicaid for such designated health services;
•the federal civil and criminal false claims laws, including the civil False Claims Act, which can be enforced by private citizens on behalf of the government through civil whistleblower or qui tam actions, and prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, to the government, claims for payment or approval that are false or fraudulent, knowingly making, using, or causing to be made or used, a false record or statement material to a false or fraudulent claim, or from knowingly making a false statement to avoid, decrease, or conceal an obligation to pay money to the government. In addition, the government may assert that a claim including items and services resulting from a violation of the federal Anti-Kickback Statute or Stark Law constitutes a false or fraudulent claim for purposes of the civil False Claims Act;
•the federal civil monetary penalties laws, including the Civil Monetary Penalties Law, impose civil fines for, among other things, the offering or transfer of remuneration to a Medicare or state healthcare program beneficiary if the person knows or should know it is likely to influence the beneficiary’s selection of a particular provider, practitioner, or supplier of services reimbursable by Medicare or a state healthcare program, unless an exception applies;
•HIPAA, which imposes criminal and civil liability for, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, or knowingly and willfully falsifying, concealing, or covering up a material fact or making any materially false statement, in connection with the delivery of, or payment for, healthcare benefits, items, or services. Similar to the
federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;
•the Physician Payments Sunshine Act and its implementing regulations, which require, among other things, certain manufacturers of drugs, devices, biologics, and medical supplies that are reimbursable under Medicare, Medicaid, or the Children’s Health Insurance Program, with specific exceptions, to report annually to the Centers for Medicare and Medicaid Services, or CMS, information related to certain payments and other transfers of value to physicians (defined to include doctors, dentists, optometrists, podiatrists, and chiropractors), certain other healthcare professionals beginning in 2022, and teaching hospitals, as well as ownership and investment interests held by such physicians and their immediate family members;
•analogous state laws and regulations, including: state anti-kickback and false claims laws, some of which apply to healthcare items or services reimbursed by any third-party payor, including commercial payors and self-pay patients; and
•state licensing and registration laws that apply to our stores and employed and affiliated vision care professionals, including ophthalmologists, optometrists, and opticians. The dispensing of prescription eyeglasses is also regulated in most states in which we do business. In some states, we are required to register our stores as an optical retailer.
Ensuring that our internal operations and future business arrangements with third parties comply with applicable healthcare laws and regulations will involve substantial costs. It is not always possible to identify and deter employee misconduct or business noncompliance, and the precautions we take to detect and prevent inappropriate conduct may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If our operations are found to be in violation of any of the laws described above or any other governmental laws and regulations that may apply to us, we may be subject to significant penalties, including civil, criminal, and administrative penalties, damages, fines, exclusion from government-funded healthcare programs, such as Medicare and Medicaid, integrity oversight, and reporting obligations to resolve allegations of noncompliance, disgorgement, imprisonment, contractual damages, reputational harm, diminished profits, and the curtailment or restructuring of our operations. Further, defending against any such actions can be costly, time-consuming and may require significant personnel resources. Therefore, even if we are successful in defending against any such actions that may be brought against us, our business may be impaired.
Eyeglasses and contact lenses are regulated as medical devices in the United States by the Food and Drug Administration, or FDA, and under the Food, Drug, and Cosmetic Act, or FDCA, such medical devices must meet a number of regulatory requirements. We also engage in certain manufacturing, packaging, and labeling activities that subject us to direct oversight by the FDA under the FDCA and its implementing regulations. The FDA regulates, among other things, with respect to medical devices: design, development and manufacturing, testing, labeling, content, and language of instructions for use and storage; clinical trials; product safety; establishment registration and device listing; marketing, sales and distribution; premarket clearance, classification and approval; recordkeeping procedures; advertising and promotion; recalls and field safety corrective actions; postmarket surveillance, including reporting of deaths or serious injuries and malfunctions that, if they were to recur, could lead to death or serious injury; post-market approval studies; and product import and export. The regulations to which we are subject are complex and have tended to become more stringent over time. Regulatory changes could result in restrictions on our ability to carry on or expand our operations, higher than anticipated costs, or lower than anticipated sales. The FDA enforces its regulatory requirements through, among other means, periodic unannounced inspections. Failure to comply with applicable regulations could jeopardize our or our contract manufacturers’ ability to manufacture and sell our products and result in FDA enforcement actions such as: warning letters; fines; injunctions; civil penalties; termination of distribution; recalls or seizures of products; delays in the introduction of products into the market; total or partial suspension of production; refusal to grant future clearances or approvals; withdrawals or suspensions of clearances or approvals, resulting in prohibitions on sales of our products; and in the most serious cases, criminal penalties.
Our business could be adversely affected by legal challenges to our business model or by actions restricting our ability to provide the full range of our services in certain jurisdictions.
Providing telehealth services such as online vision testing through our Virtual Vision Test mobile app by Warby Parker mobile app are generally governed by state laws and regulations and are subject to extensive regulation
and oversight by state governmental authorities. Our ability to conduct telehealth services in a particular jurisdiction is directly dependent upon the applicable laws and regulations governing remote care, the practice of medicine and healthcare delivery in general in such location, which are subject to changing political, regulatory, and other influences. The extent to which a jurisdiction considers particular actions or relationships to comply with the applicable standard of care is subject to change and to evolving interpretations by states medical boards and state attorneys general, among others, each with broad discretion. Accordingly, we must monitor our compliance with law in every jurisdiction in which we operate, on an ongoing basis, and we cannot provide assurance that our activities and arrangements, if challenged, will be found to be in compliance with the law. Although the COVID-19 pandemic has led to the relaxation of certain Medicare, Medicaid, and state licensure restrictions on the delivery of telehealth services, it is uncertain how long the relaxed policies will remain in effect, and, there can be no guarantee that once the COVID-19 pandemic is over that such restrictions will not be reinstated or changed in a way that adversely affects our business.
Additionally, it is possible that the laws and rules governing the practice of medicine, including remote care, in one or more jurisdictions may change in a manner deleterious to our business. For instance, a few states have imposed different, and, in some cases, additional, standards regarding the provision of services via telehealth. The unpredictability of this regulatory landscape means that sudden changes in policy regarding standards of care and reimbursement are possible. If a successful legal challenge or an adverse change in the relevant laws were to occur, and we were unable to adapt our business model accordingly, our operations in the affected jurisdictions would be disrupted, which could have a material adverse effect on our business, financial condition, and results of operations. We cannot assure you that we will not be subject to reprimands, sanctions, probation, fines, suspension or revocation of licenses, or our ability to offer telehealth services will not be challenged. We may also be the subject of administrative complaints in the future.
State corporate practice of medicine and optometry and fee-splitting laws govern at least some of our business operations, and violation of such laws could result in penalties and adversely affect our contractual relationships with optometrists, ophthalmologists, or affiliated professional entities that employ such providers and our financial condition and results of operations.
In several states where we operate, state corporate practice of medicine and optometry laws prohibit a business corporation from practicing medicine or optometry, directly employing physicians or optometrists to provide professional services, or exercising control over treatment decisions by such professionals. In these states, typically only medical professionals or a professional entity wholly owned by licensed physicians, optometrists, or other licensed medical professionals may provide medical care to patients. Many states also have some form of fee-splitting law, prohibiting certain business arrangements that involve the splitting or sharing of professional fees earned by a physician, optometrist or another medical professional for the delivery of healthcare services. Prohibitions on the practice of medicine or optometry and/or fee-splitting between licensed professionals and lay entities may be statutory or regulatory, or may be imposed through judicial or regulatory interpretation, and vary widely from state to state.
In many of our retail stores, we have contractual relationships with optometrists or professional entities that employ ophthalmologists and/or optometrists to provide medical services to our customers. In addition, we have contractual relationships with several professional corporations or similar entities that employ ophthalmologists who review test results and renew prescriptions, as appropriate, of users of both our Virtual Vision Test mobile app and In-Store Prescription Check service. Although we strive to monitor any changes to applicable state laws that may impact these arrangements, we cannot provide any assurance that governmental authorities may assert that we are engaged in the corporate practice of medicine or optometry, or that our contractual relationships with optometrists, ophthalmologists, or professional entities that employ such providers constitute unlawful fee-splitting. Moreover, we cannot predict whether changes will be made to existing laws, regulations, or interpretations, or whether new ones will be enacted or adopted, which could cause us to be out of compliance with these requirements. If our arrangements are found to violate corporate practice of medicine or optometry and/or fee-splitting laws, our provision of services through our contractual relationships with optometrists, ophthalmologists, or affiliated professional entities that employ such providers could be deemed impermissible, requiring us to do a restructuring or reorganization of our business, and we could be subject to injunctions or civil or, in some cases, criminal penalties, any of which could have a material adverse impact on our financial condition and results of operations.
Failure to adequately maintain and protect our intellectual property and proprietary rights could harm our brand, devalue our proprietary content, and adversely affect our ability to compete effectively.
Our success depends to a significant degree on our ability to obtain, maintain, protect, and enforce our intellectual property rights, including those in our proprietary technologies, know-how, and brand. To protect our rights to our intellectual property, we rely on a combination of patent, trademark, copyright and trade secret laws, domain name registrations, confidentiality agreements, and other contractual arrangements with our employees, affiliates, clients, strategic partners, and others. However, the protective steps we have taken and plan to take may be inadequate to deter misappropriation or other violation of or otherwise protect our intellectual property rights. We may be unable to detect the unauthorized use of, or take appropriate steps to enforce, our intellectual property rights. Effective patent, trademark, copyright, and trade secret protection may not be available to us or available in every jurisdiction in which we offer or intend to offer our services. Failure to adequately protect our intellectual property could harm our brand, devalue our proprietary technology and content, and adversely affect our ability to compete effectively. Further, even if we are successful, defending our intellectual property rights could result in the expenditure of significant financial and managerial resources, which could adversely affect our business, financial condition, and results of operations.
If we fail to protect our intellectual property rights adequately, our competitors may gain access to our intellectual property and proprietary technology and develop and commercialize substantially identical offerings or technologies. Any patents, trademarks, copyrights, or other intellectual property rights that we have or may obtain may be challenged or circumvented by others or invalidated or held unenforceable through administrative process, including re-examination, inter partes review, interference and derivation proceedings, and equivalent proceedings in foreign jurisdictions (e.g., opposition proceedings), or litigation. There can be no assurance that our patent applications will result in issued patents and we may be unable to obtain or maintain patent protection for our technology. In addition, any patents issued from pending or future patent applications or licensed to us in the future may not provide us with claims sufficiently broad to provide meaningful competitive advantages or may be successfully challenged by third parties. There is also no guarantee that our pending trademark applications for any mark will proceed to registration; our pending applications may be opposed by a third party prior to registration; and even those trademarks that are registered could be challenged by a third party, including by way of revocation or invalidity actions. For example, we have registrations in a number of foreign countries in which we are not currently offering goods or services, and those registrations could be subject to invalidation proceedings if we cannot demonstrate use of the marks by the applicable use deadlines in those countries. In addition, because patent applications in the United States are currently maintained in secrecy for a period of time prior to issuance, and patent applications in certain other countries generally are not published until more than 18 months after they are first filed, and because publication of discoveries in scientific or patent literature often lags behind actual discoveries, we cannot be certain that we were the first creator of inventions covered by our pending patent applications or that we were the first to file patent applications on such inventions. To maintain a proprietary market position in foreign countries, we may seek to protect some of our proprietary inventions through foreign counterpart patent applications. Statutory differences in patentable subject matter may limit the protection we can obtain on some of our inventions outside of the United States. The diversity of patent laws may make our expenses associated with the development and maintenance of intellectual property in foreign jurisdictions more expensive than we anticipate. We probably will not be able to obtain the same patent protection in every market in which we may otherwise be able to potentially generate revenue. Further, the laws of some foreign countries may not be as protective of intellectual property rights as those in the United States, and mechanisms for enforcement of intellectual property rights may be inadequate. Moreover, policing unauthorized use of our technologies, trade secrets, and intellectual property may be difficult, expensive, and time-consuming. Despite our precautions, it may be possible for unauthorized third parties to copy our offerings and capabilities and use information that we regard as proprietary to create offerings that compete with ours. Third parties may apply to register our trademarks or other trademarks similar to our trademarks in jurisdictions before us, thereby creating risks relating to our ability to use and register our trademarks in those jurisdictions. In addition, there could be potential trade name or trademark ownership or infringement claims brought by owners of other rights, including registered trademarks, in our marks or marks similar to ours. Any claims of infringement, brand dilution, or consumer confusion related to our brand (including our trademarks) or any failure to renew key license agreements on acceptable terms could damage our reputation and brand identity and substantially harm our business and results of operations. The value of our intellectual property could diminish if others assert rights in or ownership of our trademarks and other intellectual property rights, or trademarks that are similar to our trademarks. We may be unable to successfully
resolve these types of conflicts to our satisfaction. In some cases, litigation or other actions may be necessary to protect or enforce our trademarks and other intellectual property rights.
We generally enter into confidentiality and invention assignment agreements with our employees and consultants, as well as confidentiality agreements with other third parties, including suppliers and other partners. However, we cannot guarantee that we have entered into such agreements with each party that has or may have had access to our proprietary information, know-how, and trade secrets. Moreover, no assurance can be given that these agreements will be effective in controlling access to our proprietary information or the distribution, use, misuse, misappropriation, reverse engineering, or disclosure of our proprietary information, know-how, and trade secrets. Further, these agreements may not prevent our competitors from independently developing technologies that are substantially equivalent or superior to our offerings and capabilities. These agreements may be breached, and we may not have adequate remedies for any such breach.
We may be required to spend significant resources to monitor and protect our intellectual property rights. Litigation may be necessary in the future to enforce our intellectual property rights and to protect our trade secrets. Litigation brought to protect and enforce our intellectual property rights could be costly, time-consuming, and distracting to management, and could result in the impairment or loss of portions of our intellectual property rights. Further, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims, and countersuits attacking the validity and enforceability of our intellectual property rights, and if such defenses, counterclaims, or countersuits are successful, we could lose valuable intellectual property rights. Further, any changes in law or interpretation of any such laws, particularly intellectual property laws, may impact our ability to protect, register, or enforce our intellectual property rights. Our inability to protect our proprietary technology against unauthorized copying or use, as well as any costly litigation or diversion of our management’s attention and resources, could delay further sales or the implementation of our offerings and capabilities, impair the functionality of our offerings and capabilities, delay introductions of new offerings, result in our substituting inferior or more costly technologies into our offerings, or injure our reputation.
Domain names generally are regulated by internet regulatory bodies, and the regulation of domain names is subject to change. Regulatory bodies have and may continue to establish additional top-level domains, appoint additional domain name registrars, or modify the requirements for holding domain names. We may not be able to, or it may not be cost-effective to, acquire or maintain all domain names that utilize the name “Warby Parker” in all of the countries in which we currently conduct or intend to conduct business. If we lose the ability to use a domain name, we could incur significant additional expenses to market our products within that country, including the development of new branding. This could substantially harm our business, results of operations, financial condition and prospects.
We may incur costs to defend against, face liability or for being vulnerable to intellectual property infringement claims brought against us by others.
Third parties may assert claims against us alleging that we infringe upon, misappropriate, dilute or otherwise violate their intellectual property rights, particularly as we expand our business and the number of products we offer. These risks have been amplified by the increase in third parties whose sole or primary business is to assert such claims. We may be particularly vulnerable to such claims, as companies having a substantial online presence are frequently subject to litigation based on allegations of infringement or other violations of intellectual property rights. As we gain an increasingly high public profile, the possibility of intellectual property rights claims against us grows. Our competitors and others may now and in the future have significantly larger and more mature patent portfolios than us. We rely on contracts and releases for ownership of copyrighted materials and the right to use images of individuals on our webpage and marketing material, and we may be subject to claims that we did not properly obtain rights, consent, a release, or permission to use certain content or imagery. Many potential litigants have the ability to dedicate substantial resources to the assertion of their intellectual property rights. Any claim of infringement by a third party, even those without merit, could cause us to incur substantial costs defending against the claim, could distract our management from our business, could require us to cease use of such intellectual property, and could create ongoing obligations if we are subject to agreements or injunctions (stipulated or imposed) preventing us from engaging in certain acts. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, we risk compromising our confidential information during this type of litigation. Our defense of any claim, regardless of its merit, could be expensive and time consuming and could divert management resources. We cannot predict the outcome of lawsuits and cannot
ensure that the results of any such actions will not have an adverse effect on our business, financial condition, or results of operations. Successful infringement claims against us could result in significant monetary liability or prevent us from selling some of our products. In addition, resolution of claims may require us to redesign or rebrand our products, license rights from third parties on potentially unfavorable terms, cease using certain brand names or other intellectual property rights altogether, make substantial payments for royalty or license fees, legal fees, settlement payments or other costs or damages, or admit liability. Such outcomes could encourage others to bring claims against us. To the extent we seek a license to continue offerings or operations found or alleged to infringe third-party intellectual property rights, such a license may be non-exclusive, and therefore our competitors may have access to the same technology licensed to us. In the event we are required to develop alternative, non-infringing technology, this could require significant time (during which we would be unable to continue to offer our affected offerings), effort and expense, and may ultimately not be successful. Any of these events could harm our business and cause our results of operations, liquidity, and financial condition to suffer.
We are subject to rapidly changing and increasingly stringent laws, regulations, contractual obligations, and industry standards relating to privacy, data security, and data protection. The restrictions and costs imposed by these laws and other obligations, or our actual or perceived failure to comply with them, could subject us to liabilities that adversely affect our business, operations, and financial performance.
We collect, process, store, and use a wide variety of data from current and prospective customers, including personal information, such as home addresses and geolocation, and health information related to their ophthalmic prescriptions. These activities are regulated by a variety of federal, state, local, and foreign privacy, data security, and data protection laws and regulations, which have become increasingly stringent in recent years.
Domestic privacy and data security laws are complex and changing rapidly. Many states have enacted laws regulating the online collection, use, and disclosure of personal information and requiring that companies implement reasonable data security measures. Laws in all states and U.S. territories also require businesses to notify affected individuals, governmental entities, and/or credit reporting agencies of certain security incidents affecting personal information. These laws are not consistent, and compliance with them in the event of a widespread data breach is complex and costly.
Further, the CCPA took effect on January 1, 2020. The CCPA gives California residents expanded rights related to their personal information, including the right to access and delete their personal information, and receive detailed information about how their personal information is used and shared. The CCPA also created restrictions on “sales” of personal information that allow California residents to opt-out of certain sharing of their personal information and may restrict the use of cookies and similar technologies for advertising purposes. Our e-commerce platform, including our websites and mobile applications, rely on these technologies and could be adversely affected by the CCPA’s restrictions. The CCPA prohibits discrimination against individuals who exercise their privacy rights, provides for civil penalties for violations, and creates a private right of action for data breaches that is expected to increase data breach litigation. Additionally, a new California ballot initiative, the California Privacy Rights Act, or CPRA, was recently passed in California. The CPRA will restrict use of certain categories of sensitive personal information that we handle; further restrict the use of cross-context behavioral advertising techniques on which our products may rely in the future; establish restrictions on the retention of personal information; expand the types of data breaches subject to the private right of action; and establish the California Privacy Protection Agency to implement and enforce the new law, as well as impose administrative fines. The majority of the CPRA’s provisions will go into effect on January 1, 2023, and additional compliance investment and potential business process changes will likely be required. Similar laws have been proposed in other states and at the federal level, reflecting a trend toward more stringent privacy legislation in the United States. For example, on March 2, 2021, Virginia enacted the Virginia Consumer Data Protection Act, or CDPA, a comprehensive privacy statute that shares similarities with the CCPA, CPRA, and legislation proposed in other states. Some observers have noted that the CCPA, CPRA, and CDPA could mark the beginning of a trend toward more stringent privacy legislation in the United States. To the extent multiple state-level laws are introduced with inconsistent or conflicting standards and there is no federal law to preempt such laws, compliance with such laws could be difficult and costly to achieve and we could be subject to fines and penalties in the event of non-compliance.
Additionally, we are subject to certain health information privacy and security laws as a result of the health information that we receive in connection with our products and services. These laws and regulations include
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and their implementing regulations which establishes privacy, security, and breach notification standards for protected health information processed by health plans, healthcare clearinghouses, and certain healthcare providers, collectively referred to as covered entities, and the business associates with whom such covered entities contract for services, as well as their covered subcontractors. HIPAA requires us to develop and maintain policies and procedures governing PHI that is used or disclosed, and to implement administrative, physical and technical safeguards to protect PHI, including PHI maintained, used, and disclosed in electronic form. These safeguards include employee training, identifying business associates with whom covered entities need to enter into HIPAA-compliant contractual arrangements and various other measures. Ongoing implementation and oversight of these measures involves significant time, effort, and expense and we may have to dedicate additional time and resources to ensure compliance with HIPAA requirements. Additionally, it is not always possible to identify and deter misuse by our employees and other third parties, and the precautions we take to detect and prevent noncompliance may not be effective in preventing all misuse, breaches, or violations. For example, as discussed above, in 2018, we experienced a credential stuffing attack in which malicious third parties used credentials compromised in data breaches suffered by other companies to access accounts on our platform and received notice that OCR would be investigating the incident and our compliance with the Privacy, Security, and Breach Notification Rules and requesting certain information related to the incident and our compliance with the Privacy, Security, and Breach Notification Rules. We continue to work on a resolution with OCR. OCR enforcement activity can result in financial liability and reputational harm, and responses to such enforcement activity can consume significant internal resources.
HIPAA imposes mandatory penalties for certain violations. Penalties for such violations of HIPAA and its implementing regulations include civil monetary penalties of up to $59,522 per violation, not to exceed approximately $1.8 million for violations of the same standard in a single calendar year (subject to periodic adjustments for inflation). However, a single breach incident can result in violations of multiple standards, which could result in significant fines. A person who knowingly obtains or discloses individually identifiable health information in violation of HIPAA may face a criminal penalty of up to $50,000 and up to one year of imprisonment. The criminal penalties increase if the wrongful conduct involves false pretenses or the intent to sell, transfer, or use identifiable health information for commercial advantage, personal gain, or malicious harm. HIPAA also authorizes state attorneys general to file suit on behalf of their residents. While HIPAA does not create a private right of action that would allow individuals to sue in civil court for a HIPAA violation, its standards have been used as the basis for the duty of care in state civil suits, such as those for negligence or recklessness in misusing personal information. Many states in which we operate and in which our customers reside also have laws that protect the privacy and security of health information, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts. Where state laws are more protective, we have to comply with the stricter provisions. In addition to fines and penalties imposed upon violators, some of these state laws also afford private rights of action to individuals who believe their personal information has been misused, such as the CCPA.
In addition, the Telephone Consumer Protection Act, or TCPA, imposes significant restrictions on the ability to make telephone calls or send text messages to mobile telephone numbers without the prior consent of the person being contacted. Claims that we have violated the TCPA could be costly to litigate, and if successful, expose us to substantial statutory damages.
Foreign privacy laws are also rapidly changing, have become more stringent in recent years, and may increase the costs and complexity of offering our offerings in new geographies. In Canada, where we operate, the Personal Information Protection and Electronic Documents Act, or PIPEDA, and various provincial laws require that companies give detailed privacy notices to consumers, obtain consent to use personal information, with limited exceptions, allow individuals to access and correct their personal information, and report certain data breaches. In addition, Canada’s Anti-Spam Legislation, or CASL, prohibits email marketing without the recipient’s consent, with limited exceptions. Failure to comply with PIPEDA, CASL, or provincial privacy or data protection laws could result in significant fines and penalties or possible damage awards. In the European Economic Area, the General Data Protection Regulation, or the GDPR, imposes strict obligations on the ability to collect, analyze, transfer, and otherwise process personal data. This includes requirements with respect to accountability, transparency, obtaining individual consent, international data transfers, security, and confidentiality and personal data breach notifications, which may restrict our processing activities. The GDPR provides for monetary penalties of up to €20 million or 4% of an organization’s annual worldwide revenue, whichever is greater, for violations. Separate, restrictive obligations relating to electronic marketing and the use of cookies which may limit our ability to
advertise. Following Brexit, UK law largely mirrors the obligations and fines under the GDPR, e.g. fines up to the greater of £17.5 million or 4% of global turnover. In addition to the foregoing, a breach of privacy legislation could result in regulatory investigations, reputational damage, orders to cease/ change processing of data, enforcement notices, and/ or assessment notices (for a compulsory audit). Companies may also face civil claims including representative actions and other class action type litigation (where individuals have suffered harm), potentially amounting to significant compensation or damages liabilities, as well as associated costs, diversion of internal resources, and reputational harm. Furthermore, regulatory guidance is evolving and monitoring developments and compliance will lead to increased costs.
In addition, privacy advocates and industry groups have regularly proposed, and may propose in the future, self-regulatory standards by which we are legally or contractually bound. If we fail to comply with these contractual obligations or standards, we may face substantial liability or fines. Consumer resistance to the collection and sharing of the data used to deliver targeted advertising, increased visibility of consent or “do not track” mechanisms as a result of industry regulatory or legal developments, the adoption by consumers of browser settings or “ad-blocking” software, and the development and deployment of new technologies could materially impact our ability to collect data or reduce our ability to deliver relevant promotions or media, which could materially impair the results of our operations.
Further, we are subject to the PCI Data Security Standard, which is a multifaceted security standard that is designed to protect credit card account data as mandated by payment card industry entities. We rely on third-party vendors to handle PCI matters and to ensure PCI compliance. Despite our compliance efforts, we may become subject to claims that we have violated the PCI Data Security Standard, based on past, present, and future business practices, which could have an adverse impact on our business and reputation.
Compliance with these domestic, foreign, and any other applicable privacy and data security laws and regulations is a rigorous and time-intensive process, and we may be required to put in place additional mechanisms to ensure compliance with the new data protection rules. Despite our efforts, we may not be successful in achieving compliance with the rapidly evolving privacy, data security, and data protection requirements discussed above. While we strive to comply with applicable laws and regulations relating to privacy and data protection in all material respects, there is no assurance that we will not be subject to claims that we have violated applicable laws or codes of conduct, that we will be able to successfully defend against such claims or that we will not be subject to significant fines and penalties in the event of non-compliance. Any actual or perceived non-compliance could result in litigation and proceedings against us by governmental entities, customers or others, fines and civil or criminal penalties, limited ability or inability to operate our business, offer services, or market our business in certain jurisdictions, negative publicity and harm to our brand and reputation, and reduced overall demand for our products and services. Such occurrences could adversely affect our business, financial condition, and results of operations. Our general liability insurance may not cover all potential claims to which we are exposed and may not be adequate to indemnify us for the full extent of our potential liabilities.
Government regulation of the internet and e-commerce is evolving, and unfavorable changes or failure by us to comply with these regulations could substantially harm our business and results of operations.
We are subject to general business regulations and laws as well as regulations and laws specifically governing the internet and e-commerce. Existing and future regulations and laws could impede the growth of the internet, e-commerce or mobile commerce. These regulations and laws may involve taxes, tariffs, privacy and data security, anti-spam, content protection, electronic contracts and communications, consumer protection, and internet neutrality. It is not clear how existing laws governing issues such as property ownership, sales and other taxes, and consumer privacy apply to the internet as the vast majority of these laws were adopted prior to the advent of the internet and do not contemplate or address the unique issues raised by the internet or e-commerce. It is possible that general business regulations and laws, or those specifically governing the internet or e-commerce, may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. We cannot be sure that our practices have complied, comply, or will comply fully with all such laws and regulations. Any failure, or perceived failure, by us to comply with any of these laws or regulations could result in damage to our reputation, a loss in business and proceedings, or actions against us by governmental entities or others. Any such proceeding or action could hurt our reputation, force us to spend significant amounts in defense of these proceedings, distract our management, increase our costs of doing
business, decrease the use of our sites by customers and suppliers, and may result in the imposition of monetary liability. We may also be contractually liable to indemnify and hold harmless third parties from the costs or consequences of non-compliance with any such laws or regulations. In addition, it is possible that governments of one or more countries may seek to censor content available on our website or may even attempt to completely block access to our website. Adverse legal or regulatory developments could substantially harm our business. In particular, in the event that we are restricted, in whole or in part, from operating in one or more countries, our ability to retain or increase our customer base may be adversely affected, and we may not be able to maintain or grow our net revenue and expand our business as anticipated.
Our Virtual Vision Test mobile app is subject to ongoing regulation by the FDA, and our failure to comply with FDA requirements or any delay by or failure of the FDA to authorize our Virtual Vision Test mobile app may adversely affect our business, financial condition, and results of operations.
Our Virtual Vision Test mobile app is regulated by the FDA as a medical device. To date, we have registered and marketed the Virtual Vision Test mobile app as a Class I, 510(k)-exempt visual acuity chart, and have not sought or obtained 510(k) clearance or other FDA marketing authorization for this software. Although we believe the Virtual Vision Test mobile app meets the definition of a Class I 510(k)-exempt medical device, the FDA has taken the position that the Virtual Vision Test mobile application’s functionality requires 510(k) clearance in order to be legally marketed in the United States. We appealed the agency’s position, but on April 28, 2021 the FDA notified us that they continue to take the position that a 510(k) premarket notification is required for our Virtual Vision Test mobile application. As a result, we plan to submit a 510(k) premarket notification for the Virtual Vision Test mobile application, and have engaged in pre-submission meetings with the FDA to understand the information that will be required to support the eventual 510(k) submission. However, we plan to continue marketing the Virtual Vision Test mobile app as we work to obtain 510(k) clearance. In its April 28, 2021 letter, the FDA also notified us that it does not intend to object to our continued marketing of the Virtual Vision Test mobile app without 510(k) clearance, so long as the conditions described in the FDA’s guidance “Enforcement Policy for Remote Ophthalmic Assessment and Monitoring Devices During the Coronavirus Disease 2019 (COVID-19) Public Health Emergency,” or the Enforcement Policy Guidance, are met. Among other things the Enforcement Policy Guidance states that for the duration of the COVID-19 public health emergency, the FDA does not intend to object to limited modifications to the indications, functionality, hardware, and/or software of visual acuity charts without compliance with certain regulatory requirements, including 510(k) premarket notification requirements, provided that such devices do not create an undue risk in light of the public health emergency.
If the FDA changes its position with respect to our marketing of the Virtual Vision Test mobile application, or if the Enforcement Policy Guidance is revoked, and we continue to market the Virtual Vision Test mobile app without 510(k) clearance, we could be subject to FDA enforcement action, including a Warning Letter, recalls, market withdrawals, and fines or penalties, and we may be required to cease distribution of the Virtual Vision Test mobile app until we have obtained 510(k) clearance from FDA, if ever, which may adversely affect our business operations, financial condition, and results of operations.
We are also subject to ongoing FDA regulation related to our Virtual Vision Test mobile application, including certain requirements under the Quality System Regulation and postmarket reporting requirements, although some FDA requirements are waived during the COVID-19 public health emergency under the Enforcement Policy Guidance. If we fail to comply with any applicable FDA regulatory requirements we could be subject to FDA enforcement action, including a Warning Letter, recalls, and fines or penalties, which may adversely affect our business operations and financial condition.
Eyeglasses and contact lenses are regulated as medical devices by the FDA, and our failure, or the failure of any third-party manufacturers, to obtain and maintain the necessary marketing authorizations for our products could have a material adverse effect on our business.
Our products, including contact lenses, eyeglasses, sunglasses, and our Virtual Vision Test mobile application, among others, are regulated as medical devices by the FDA. In the United States, before a manufacturer can market a new medical device, or a new use of, or other significant modification to an existing, marketed medical device, the device must first receive either clearance under Section 510(k) of the FDCA, approval of a premarket approval application, or PMA, or grant of a de novo classification request from the FDA, unless an exemption applies. For example, the FDA has required manufacturers of certain disposable and daily-wear contact lenses to
obtain 510(k) clearances prior to marketing these products, while requiring manufacturers of certain extended-wear contact lenses to obtain approval of a PMA.
In the 510(k) clearance process, before a device may be marketed, the FDA must determine that a proposed device is “substantially equivalent” to a legally marketed “predicate” device, which includes a device that has been previously cleared through the 510(k) process, a device that was legally marketed prior to May 28, 1976 (pre-amendments device), a device that was originally on the U.S. market pursuant to an approved PMA and later down-classified, or a 510(k)-exempt device. To be “substantially equivalent,” the proposed device must have the same intended use as the predicate device, and either have the same technological characteristics as the predicate device or have different technological characteristics and not raise different questions of safety or effectiveness than the predicate device. Clinical data are sometimes required to support substantial equivalence. In the process of obtaining PMA approval, the FDA must determine that a proposed device is safe and effective for its intended use based, in part, on extensive data, including, but not limited to, technical, pre-clinical, clinical trial, manufacturing, and labeling data. The PMA process is typically required for devices that are deemed to pose the greatest risk, such as life-sustaining, life-supporting, or implantable devices. In the de novo classification process, a manufacturer whose novel device under the FDCA would otherwise be automatically classified as Class III and require the submission and approval of a PMA prior to marketing is able to request down-classification of the device to Class I or Class II on the basis that the device presents a low or moderate risk. If the FDA grants the de novo classification request, the applicant will receive authorization to market the device. This device type may be used subsequently as a predicate device for future 510(k) submissions. The PMA approval, 510(k) clearance and de novo classification processes can be expensive, lengthy and uncertain. The FDA’s 510(k) clearance process usually takes from three to 12 months, but can take longer. The process of obtaining a PMA is much more costly and uncertain than the 510(k) clearance process and generally takes from one to three years, or even longer, from the time the application is submitted to the FDA. In addition, a PMA generally requires the performance of one or more clinical trials. Clinical data may also be required in connection with an application for 510(k) clearance or a de novo request. Despite the time, effort, and cost, a device may not obtain marketing authorization by the FDA.
The FDA can delay, limit, or deny marketing authorization of a device for many reasons, including: inability to demonstrate to the satisfaction of the FDA or the applicable regulatory entity or notified body that products are substantially equivalent to a predicate device or are safe and effective for their intended uses, serious and unexpected adverse device effects experienced by users, insufficient clinical or other data needed to support marketing authorization, inability to demonstrate that the clinical and other benefits of the device outweigh the risks, failure of the manufacturing process or facilities to meet applicable requirements, and changes in regulatory policies and procedures.
In the United States, any modification to a product that receives FDA marketing authorization may require the manufacturer to submit a new 510(k) premarket notification and obtain clearance or to submit a PMA and obtain FDA approval prior to implementing the change. For example, any modification to a 510(k)-cleared device that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, design or manufacture, generally requires a new 510(k) clearance or other marketing authorization. The FDA requires every manufacturer to make such determinations in the first instance, but the FDA may review any manufacturer’s decision. The FDA may not agree with a manufacturer’s decisions regarding whether new clearances or approvals are necessary. If we obtain any marketing authorizations from the FDA, we may make modifications or add additional features in the future that we believe do not require a new 510(k) clearance or other marketing authorization. If the FDA disagrees with our determination and requires us to seek new marketing authorizations for the modifications for which we have concluded that new marketing authorizations are unnecessary, we may be required to cease marketing or to recall the modified product until we obtain such marketing authorization, and we may be subject to significant regulatory fines or penalties.
To date, we have not obtained authorization from the FDA to market any product in the United States, and we generally intend to rely on our third-party vendors and contract manufacturers, including Menicon, which produces our private label Scout by Warby Parker contact lenses, to have obtained and maintained the necessary marketing authorizations from the FDA for the products we sell. Our failure, or failure by such third parties, to obtain the proper FDA marketing authorizations for our products could lead to FDA enforcement actions, such as market withdrawals, product recalls or civil or criminal penalties that could have a material adverse effect on our business.
Our products must be manufactured and distributed in accordance with applicable laws and regulations, and we or our third-party manufacturers could be forced to recall our products or terminate production if we or they fail to comply with these regulations.
In the United States, the methods used in, and the facilities used for, the manufacture of medical devices must comply with the FDA’s current Good Manufacturing Practices for medical devices, known as the Quality System Regulation, or QSR, which is a complex regulatory scheme that covers the procedures and documentation of the design, testing, production, process controls, quality assurance, labeling, packaging, handling, storage, distribution, installation, servicing, and shipping of medical devices. Furthermore, manufacturers of medical devices are required to verify that their suppliers maintain facilities, procedures, and operations that comply with our quality standards and applicable regulatory requirements. The FDA enforces the QSR through periodic announced or unannounced inspections of medical device manufacturing facilities, which may include the facilities of subcontractors. Our products are also subject to similar state regulations and various laws and regulations of foreign countries governing manufacturing. Our third-party manufacturers may not take the necessary steps to comply with applicable regulations, which could cause delays in the delivery of our products. In addition, we engage in certain relabeling and repackaging activities with respect to our frames and sunglasses products, and these activities require us to comply with the FDA’s Unique Device Identification System Final Rule, or UDI Final Rule. Among other things, the UDI final rule obligates device labelers to include unique device identifiers, or UDIs, on certain medical device labels and packages, and to submit certain data pertaining to device labeling to the FDA’s Global Unique Device Identification Database, unless an exception applies. The UDI Final Rule’s requirements were intended to be phased in over a seven-year period, according to established compliance for certain types of classified devices. The established deadline for labelers of certain Class I and unfinished medical devices to comply with the UDI requirements was originally set for September 24, 2020. However, on July 1, 2020, the FDA published revised final guidance stating that the FDA does not intend to enforce the UDI Final Rule’s requirements with respect to these products before September 24, 2022.
Failure to comply with applicable FDA requirements or later discovery of previously unknown problems with our products or manufacturing processes could result in, among other things: warning letters or untitled letters; fines, injunctions or civil penalties; suspension or withdrawal of approvals; seizures or recalls of our products; total or partial suspension of production or distribution; administrative or judicially imposed sanctions; the FDA’s refusal to grant pending or future clearances or approvals for medical devices; refusal to permit the import or export of our products; and criminal prosecution of us, our suppliers, or our employees. Any of these actions could significantly and negatively affect supply of our products. If any of these events occurs, our reputation could be harmed, we could be exposed to product liability claims and we could lose customers and experience reduced sales and increased costs.
In addition, the FDA and foreign regulatory bodies have the authority to require the recall of commercialized products in the event of material deficiencies or defects in design or manufacture of a product or in the event that a product poses an unacceptable risk to health. The FDA’s authority to require a recall must be based on a finding that there is reasonable probability that the device could cause serious injury or death. Manufacturers may also choose to voluntarily recall a product if any material deficiency is found. A government mandated or voluntary recall by us could occur as a result of an unacceptable risk to health, component failures, malfunctions, manufacturing defects, labeling or design deficiencies, packaging defects or other deficiencies or failures to comply with applicable regulations. Product defects or other errors may occur in the future. Depending on the corrective action the manufacturer takes to redress a product’s deficiencies or defects, the FDA may require the manufacturer to obtain new marketing authorizations prior to resuming marketing or distribution of the corrected device. Seeking such clearances or approvals may delay the ability to replace the recalled devices in a timely manner. Moreover, if we or our third-party manufacturers do not adequately address problems associated with our products, we may face additional regulatory enforcement action.
Moreover, in the United States and some foreign jurisdictions, there have been, and we expect there will continue to be, a number of legislative and regulatory changes to the healthcare system, including cost-containment measures intended to reduce healthcare costs and improve the quality of healthcare. For example, in the U.S., the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, ACA, substantially changed the way healthcare is financed by both governmental and private insurers, and significantly impacted the U.S. medical device industry. Since its enactment, there have been judicial, executive, and congressional challenges to certain aspects of the ACA. On June 17, 2021, the U.S. Supreme Court
dismissed the most recent judicial challenge to the ACA brought by several states without specifically ruling on the constitutionality of the ACA. Prior to the Supreme Court’s decision, President Biden issued an executive order to initiate a special enrollment period from February 15, 2021 through August 15, 2021 for purposes of obtaining health insurance coverage through the ACA marketplace. The executive order also instructed certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA. In addition, the Budget Control Act of 2011, as amended by subsequent legislation, further reduces Medicare payments to providers by two percent through fiscal year 2030, with the exception of a temporary suspension May 1, 2020 through December 31, 2021. Furthermore, new legislation could be adopted in the future that further limits payments for our products from governmental payors. It is possible that additional governmental action will be taken to address the COVID-19 pandemic.
Companies are required to maintain certain records of recalls and corrections, even if they are not reportable to the FDA. We or our third-party manufacturers may initiate voluntary withdrawals or corrections for our products that we or our third-party manufacturers determine do not require notification of the FDA. If the FDA disagrees with such determinations, it could require the relevant manufacturer to report those actions as recalls and levy enforcement action. A future recall announcement could harm our reputation with customers, potentially lead to product liability claims against us and negatively affect our sales. Any corrective action, whether voluntary or involuntary, as well as defending ourselves in a lawsuit, will require the dedication of our time and capital, distract management from operating our business, and may harm our reputation and financial results.
Legislative or regulatory reforms may make it more difficult and costly for us or third-party manufacturers to obtain marketing authorizations for, or to manufacture, market, or distribute our products.
From time to time, legislation is drafted and introduced in Congress that could significantly change the statutory provisions governing the regulation of medical devices. In addition, the FDA may change its policies, adopt additional regulations or revise existing regulations, or take other actions, which may prevent or delay marketing authorization of our products or impact our ability to modify any products for which we or our third-party manufacturers have already obtained marketing authorizations on a timely basis. Over the last several years, the FDA has proposed reforms to its 510(k) clearance process, and such proposals could include increased requirements for clinical data and a longer review period, or could make it more difficult for manufacturers to utilize the 510(k) clearance process for their products. For example, in November 2018, FDA officials announced steps that the FDA intended to take to modernize the premarket notification pathway under Section 510(k) of the FDCA. Among other things, the FDA announced that it planned to develop proposals to drive manufacturers utilizing the 510(k) pathway toward the use of newer predicates. These proposals included plans to potentially sunset certain older devices that were used as predicates under the 510(k) clearance pathway, and to potentially publish a list of devices that have been cleared on the basis of demonstrated substantial equivalence to predicate devices that are more than 10 years old. These proposals have not yet been finalized or adopted, although the FDA may work with Congress to implement such proposals through legislation. Accordingly, it is unclear the extent to which any proposals, if adopted, could impose additional regulatory requirements on us that could delay our ability to obtain 510(k) clearances in the future, increase the costs of compliance, or restrict our ability to maintain any marketing authorizations that we may obtain, or otherwise create competition that may negatively affect our business.
More recently, in September 2019, the FDA issued revised final guidance describing an optional “safety and performance based” premarket review pathway for manufacturers of “certain, well-understood device types” to demonstrate substantial equivalence under the 510(k) clearance pathway by showing that such device meets objective safety and performance criteria established by the FDA, thereby obviating the need for manufacturers to compare the safety and performance of their medical devices to specific predicate devices in the clearance process. The FDA maintains a list device types appropriate for the “safety and performance based” pathway and continues to develop product-specific guidance documents that identify the performance criteria for each such device type, as well as recommended testing methods, where feasible. For example, in March 2020, the FDA issued a draft guidance describing the testing performance criteria that could support a substantial equivalence determination with respect to certain soft (hydrophilic) daily-wear contact lenses, including the contract manufactured lenses we currently resell under our Scout by Warby Parker label. If the draft guidance is finalized,
manufacturers of such contact lenses would have the option to submit a 510(k) under the safety and performance-based pathway, rather than submitting a traditional 510(k) premarket notification.
In addition, FDA regulations and guidance are often revised or reinterpreted by the FDA in ways that may significantly affect our business and our products. Any new statutes, regulations, or revisions or reinterpretations of existing regulations may impose additional costs or lengthen review times of any product candidates or make it more difficult to obtain marketing authorizations for, manufacture, market, or distribute any product candidate we are developing. For example, in April 2020, the FDA published a guidance document entitled “Enforcement Policy for Remote Ophthalmic Assessment and Monitoring Devices During the Coronavirus Disease 2019 (COVID-19) Public Health Emergency,” which among other things, stated FDA’s intention to temporarily exercise enforcement discretion with respect to certain types modifications made to specified ophthalmic assessment and monitoring device types.
We cannot determine what effect changes in regulations, statutes, legal interpretation or policies, when and if promulgated, enacted or adopted may have on our business in the future. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may be subject to enforcement action and we may not achieve or sustain profitability
Changes in funding for, or disruptions caused by global health concerns impacting, the FDA and other government agencies could hinder their ability to hire and retain key leadership and other personnel, or otherwise prevent new medical device products from being developed, authorized, or commercialized in a timely manner, which could negatively impact our business.
The ability of the FDA to review and authorize the sale of new products can be affected by a variety of factors, including government budget and funding levels; its ability to hire and retain key personnel and accept the payment of user fees; statutory, regulatory, and policy changes; and other events that may otherwise affect the FDA’s ability to perform routine functions. Average review times at the FDA have fluctuated in recent years as a result. In addition, government funding of other government agencies that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable. Disruptions at the FDA and other agencies may also slow the time necessary for new devices to be reviewed and/or authorized for marketing by necessary government agencies. For example, over the last several years, including for 35 days beginning on December 22, 2018, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA, have had to furlough critical FDA employees and stop critical activities.
Separately, in response to the COVID-19 pandemic, on March 10, 2020, the FDA announced its intention to postpone inspections of foreign manufacturing facilities and products, and on March 18, 2020, the FDA temporarily postponed routine surveillance inspections of domestic manufacturing facilities. Subsequently, on July 10, 2020, the FDA announced its intention to resume certain on-site inspections of domestic manufacturing facilities subject to a risk-based prioritization system. The FDA intends to use this risk-based assessment system to identify the categories of regulatory activity that can occur within a given geographic area, ranging from mission critical inspections to resumption of all regulatory activities. Other regulatory authorities may adopt similar restrictions or other policy measures in response to the COVID-19 pandemic. If a prolonged government shutdown occurs, or if global health concerns continue to prevent the FDA or other regulatory authorities from conducting business as usual or conducting inspections, reviews, or other regulatory activities, it could significantly impact the ability of the FDA to timely review and process regulatory submissions, which could have a material adverse effect on our business.
Failure to comply with laws, regulations, and enforcement activities or changes in statutory, regulatory, accounting, and other legal requirements could potentially impact our operating and financial results.
In addition to the vision care and healthcare laws and regulations discussed above, we are subject to numerous federal, state, local, and foreign laws and governmental regulations including those relating to environmental protection, personal injury, intellectual property, consumer product safety, building, land use and zoning requirements, workplace regulations, wage and hour, privacy and information security, consumer protection laws, immigration, and employment law matters. If we fail to comply with existing or future laws or regulations, or if these laws or regulations are violated by importers, manufacturers or distributors, we may be subject to governmental or
judicial fines or sanctions, as well as monetary judgment, injunctions, and loss of intellectual property rights in civil litigation, while incurring substantial legal fees and costs. In addition, our capital expenditures could increase due to remediation measures that may be required if we are found to be noncompliant with any existing or future laws or regulations.
Further, the Federal Trade Commission, or FTC, has authority to investigate and prosecute practices that constitute “unfair trade practices,” “deceptive trade practices,” or “unfair methods of competition.” State attorneys general typically have comparable authority, and many states also permit private plaintiffs to bring actions on the basis of these laws. Federal and state consumer protection laws and regulations may apply to our operations and retail offers.
Our transactions with our suppliers and vendors operating in foreign jurisdictions, including China, Italy, Vietnam, and Japan and our quality assurance presence in China may subject us to the U.S. Foreign Corrupt Practices Act, or FCPA, and trade sanction laws, and similar anti-corruption, anti-bribery, and international trade laws, any violation of which could create substantial liability for us and also harm our reputation. Our optical laboratories in the United States subject us to various federal, state, and local laws, regulations and other requirements pertaining to protection of the environment, public health and associate safety, including regulations governing the management of hazardous substances and the maintenance of safe working conditions, such as the Occupational Safety and Health Act of 1970, as amended. These laws also apply generally to all our properties. Our failure to comply with these laws can subject us to criminal and civil liabilities. In connection with our philanthropic endeavors, we must also comply with additional federal, state, and local tax and other laws and regulations.
Additionally, because we accept debit and credit cards for payment, we are subject to the Payment Card Industry, or PCI, Standard issued by the Payment Card Industry Security Standards Council, with respect to payment card information. The PCI Standard contains compliance guidelines with regard to our security surrounding the physical and electronic storage, processing and transmission of cardholder data. Compliance with the PCI Standard and implementing related procedures, technology and information security measures requires significant resources and ongoing attention. Our PCI compliance is largely handled by our third-party payment processor since most of our customer payment information is not stored in our systems. However, we are subject to the risk of changes to or disruption in this provider’s service. Costs and potential problems and interruptions associated with the implementation of new or upgraded systems and technology such as those necessary to achieve compliance with the PCI Standard or with maintenance or adequate support of existing systems could also disrupt or reduce the efficiency of our operations. Any material interruptions or failures in our payment-related systems could have a material adverse effect on our business, financial condition, and results of operations. If there are amendments to the PCI Standard, the cost of re-compliance could also be substantial and we may suffer loss of critical data and interruptions or delays in our operations as a result.
Our use of third-party open-source software could adversely affect our ability to offer our products and offerings and subjects us to possible litigation.
We use third-party open-source software in connection with the development and deployment of our software applications. From time to time, companies that use third-party open-source software have faced claims challenging the use of such open-source software and their compliance with the terms of the applicable open-source license. We may be subject to suits by parties claiming ownership of what we believe to be open-source software or claiming non-compliance with the applicable open-source licensing terms. Some open-source licenses require end-users who distribute or make available across a network software and services that include open-source software to make available all or part of such software, which in some circumstances could include valuable proprietary code. While we employ practices designed to monitor our compliance with the licenses of open-source software and try to ensure that we do not use any of the open-source software in a manner that would require us to disclose our proprietary source code, we cannot guarantee that we will be successful. We cannot guarantee that all open-source software is reviewed prior to use in our platform, or that our developers have not incorporated (and will not in the future incorporate)open-source software into our products without our knowledge. Furthermore, there are an increasing number of open-source software license types, almost none of which have been tested in a court of law, resulting in a dearth of guidance regarding the proper legal interpretation of such licenses. As a result, there is a risk that open-source software licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to market or provide our products and services. If we were to receive a claim of non-compliance with the terms of any of our open-source licenses, we
may be required to publicly release certain portions of our proprietary source code or expend substantial time and resources to re-engineer some or all of our software.
In addition, the use of third-party open-source software typically carries greater technical and legal risks than the use of third-party commercial software because open-source licensors generally do not provide support, warranties, or controls on the functionality or origin of the software. To the extent that our platform depends upon the successful operation of open-source software, any undetected errors or defects could prevent the deployment or impair the functionality of our systems and injure our reputation. Use of open-source software may also present additional security risks because the public availability of such software may make it easier for hackers and other third parties to compromise our platform. Any of the foregoing could be harmful to our business, financial condition, or results of operations, and could help our competitors develop offerings that are similar to or better than ours.
Our business could be adversely impacted by changes in the internet and mobile device accessibility of users. Companies and governmental agencies may restrict access to our products and services, our mobile applications, website, application stores, or the internet generally, which could negatively impact our operations.
Our business depends on customers accessing our products and services via a mobile device or a personal computer, and the internet. We may operate in jurisdictions that provide limited internet connectivity. Internet access and access to a mobile device or personal computer are frequently provided by companies with significant market power that could take actions that degrade, disrupt, or increase the cost of consumers’ ability to access our products and services. In addition, the internet infrastructure that we and our customers rely on in any particular geographic area may be unable to support the demands placed upon it and could interfere with the speed and availability of our products and services. Any such failure in internet or mobile device or computer accessibility, even for a short period of time, could adversely affect our results of operations.
Governmental agencies in any of the countries in which we or our customers are located could block access to or require a license for our mobile applications, website, or the internet generally for a number of reasons, including security, confidentiality, or regulatory concerns. In addition, companies may adopt policies that prohibit their employees from using our products and services. If companies or governmental entities block, limit, or otherwise restrict customers from accessing our products and services, our business could be negatively impacted, the number of customers could decline or grow more slowly, and our results of operations could be adversely affected.
We are subject to anti-corruption, anti-bribery, anti-money laundering, and similar laws, and non-compliance with such laws can subject us to criminal or civil liability and harm our business, financial condition, and results of operations.
We are subject to the FCPA, U.S. domestic bribery laws, and other anti-corruption and anti-money laundering laws in the countries in which we conduct activities. Anti-corruption and anti-bribery laws have been enforced aggressively in recent years and are interpreted broadly to generally prohibit companies, their employees, and their third-party intermediaries from authorizing, offering, or providing, directly or indirectly, improper payments or benefits to recipients in the public or private sector. If we expand our international sales and business, we may engage with business partners and third-party intermediaries to obtain necessary permits, licenses, and other regulatory approvals. In addition, we or our third-party intermediaries may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities. We can be held liable for the corrupt or other illegal activities of these third-party intermediaries, our employees, representatives, contractors, partners, and agents, even if we do not explicitly authorize such activities.
We cannot assure you that all of our third-party intermediaries, employees, representatives, contractors, partners, and agents will not take actions in violation of anti-corruption laws, for which we may be ultimately held responsible. As we expand our international business, our risks under these laws may increase.
Detecting, investigating, and resolving actual or alleged violations of anti-corruption laws can require a significant diversion of time, resources, and attention from senior management. In addition, noncompliance with anti-corruption, anti-bribery, or anti-money laundering laws could subject us to whistleblower complaints,
investigations, sanctions, settlements, prosecution, enforcement actions, fines, damages, other civil or criminal penalties or injunctions, suspension or debarment from contracting with certain persons, reputational harm, adverse media coverage, and other collateral consequences. If any subpoenas or investigations are launched, or governmental or other sanctions are imposed, or if we do not prevail in any possible civil or criminal proceeding, our business, financial condition, and results of operations could be harmed. In addition, responding to any action will likely result in a materially significant diversion of management’s attention and resources and significant defense costs and other professional fees.
We could incur significant liabilities related to, and significant costs in complying with, environmental, health, and safety laws and regulations.
Our operations are subject to various national, state, and local environmental, health, and safety laws and regulations that govern, among other things, the health and safety of our employees and the end-users of our products and the materials used in, and the recycling of, our products and their packaging. Non-compliance with, or liability related to, these laws and regulations, which tend to become more stringent over time, could result in substantial fines or penalties, injunctive relief, civil, or criminal sanctions, and could expose us to costs of investigation or remediation, as well as tort claims for property damage or personal injury.
In addition, a number of governmental authorities, both in the United States and abroad, have considered, and are expected to consider, legislation aimed at reducing the amount of plastic non-recyclable waste. Programs have included banning certain types of products, mandating certain rates of recycling and/or the use of recycled materials, imposing deposits or taxes on single-use plastic bags, paper bags, reusable bags, and packaging materials. Such legislation, as well as voluntary initiatives, aimed at reducing the level of plastic wastes could result in increased cost of packaging for our products or otherwise require us to alter our current packaging and bagging practices. Additional regulatory efforts addressing other environmental or safety concerns in the future could similarly impact our business, financial condition, and results of operations.
From time to time, we may be subject to legal proceedings, regulatory disputes, and governmental inquiries 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, government investigations, and other proceedings involving products liability, competition and antitrust, intellectual property, privacy, false advertising, consumer protection, securities, tax, labor and employment, commercial disputes, and other matters that could adversely affect our business operations and financial condition. As we have grown, we have seen a rise in the number and significance of these disputes and inquiries. Litigation and regulatory proceedings may be protracted and expensive, and the results are difficult to predict. Certain of these matters include speculative claims for substantial or indeterminate amounts of damages and include claims for injunctive relief. Additionally, our litigation costs could be significant. Adverse outcomes with respect to litigation or any of these legal proceedings may result in significant settlement costs or judgments, penalties and fines, or require us to modify our products or services, all of which could negatively affect our revenue growth. The results of litigation, investigations, claims, 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, financial condition, and results of operations.
Risks Related to Our Dependence on Third Parties
We face risks associated with suppliers from whom our products are sourced and are dependent on a limited number of suppliers.
We purchase all of the inputs for our products, including glass frames, cellulose acetate, prescription lenses, sun lenses, demo lenses, hinge and core kits and branded logos, packaging materials and other components, parts, and raw materials, directly or indirectly from domestic and international suppliers. For our business to be successful, our suppliers must be willing and able to provide us with inputs in substantial quantities, in compliance with regulatory requirements, at acceptable costs and on a timely basis. Our ability to obtain a sufficient selection
or volume of inputs on a timely basis at competitive prices could suffer as a result of any deterioration or change in our supplier relationships or events that adversely affect our suppliers.
We typically do not enter into long-term contracts with our suppliers and, as such, we operate without significant contractual assurances of continued supply, pricing or access to inputs. Any of our suppliers could discontinue supplying us with desired inputs in sufficient quantities or offer us less favorable terms on future transactions for a variety of reasons. The benefits we currently experience from our suppliers relationships could be adversely affected if our suppliers:
•discontinue selling inputs to us;
•enter into arrangements with competitors that could impair our ability to source their products, including by giving our competitors exclusivity arrangements or limiting our access to certain inputs;
•raise the prices they charge us;
•change pricing terms to require us to pay on delivery or upfront, including as a result of changes in the credit relationships some of our suppliers have with their various lending institutions; or
•lengthen their lead times.
Events that adversely impact our suppliers could impair our ability to obtain adequate and timely supplies. Such events include, among others, difficulties or problems associated with our suppliers’ business, the financial instability and labor problems of suppliers, inputs quality and safety issues, natural or man-made disasters, inclement weather conditions, war, acts of terrorism and other political instability, economic conditions, shipment issues, the availability of their raw materials, and increased production costs. Our suppliers may be forced to reduce their production, shut down their operations or file for bankruptcy. The occurrence of one or more of these events could impact our ability to get products to our customers, result in disruptions to our operations, increase our costs and decrease our profitability.
We also source inputs directly from suppliers outside of the United States, including China, Italy, Vietnam, and Japan. Global sourcing and foreign trade involve numerous factors and uncertainties beyond our control including increased shipping costs, the imposition of additional import or trade restrictions, including legal or economic restrictions on overseas suppliers’ ability to produce and deliver inputs, increased custom duties and tariffs, unforeseen delays in customs clearance of goods, more restrictive quotas, loss of a most favored nation trading status, currency exchange rates, transportation delays, port of entry issues and foreign government regulations, political instability, and economic uncertainties in the countries from which we or our suppliers source our products. For example, our inputs sourcing could be impacted by current and future travel restrictions and/or the shut-down of certain businesses globally due to the COVID-19 pandemic. Our sourcing operations may also be hurt by health concerns regarding infectious diseases in countries in which our inputs are produced. Moreover, negative press or reports about internationally sourced inputs may sway public opinion, and thus customer confidence, away from the products sold in our stores. These and other issues affecting our international suppliers or internationally sourced inputs could have a material adverse effect on our business, financial condition, and results of operations.
Material changes in the pricing practices of our suppliers could negatively impact our profitability. Our suppliers may also increase their pricing if their raw materials become more expensive. The inputs used to manufacture our products are subject to availability constraints and price volatility. Our suppliers may pass the increase in sourcing costs to us through price increases, thereby impacting our margins.
In addition, some of our suppliers may not have the capacity to supply us with sufficient inputs to keep pace with our growth plans, especially if we plan to manufacture significantly greater amounts of inventory. In such cases, our ability to pursue our growth strategy will depend in part upon our ability to expand capacity with existing suppliers or develop new supplier relationships. One of our lens suppliers as well as a third-party optical laboratory we utilize are owned by a vertically integrated company with retail divisions that compete with us and, as such, we are exposed to the risk that these suppliers may not be willing, or may become unwilling, to sell their products or services to us on acceptable terms, or at all.
We rely on a limited number of suppliers to supply the majority of the inputs to our products and are thus exposed to concentration of supplier risk. For both the years ended December 31, 2019 and 2020, approximately 23% of cost of goods sold were from our top five suppliers. If we were to lose any significant supplier, we may be unable
to establish additional or replacement sources for our products that meet our quality controls and standards in a timely manner or on commercially reasonable terms, if at all. Further, as a few major vendors dominate the contact lenses market, the risks associated with finding alternative sources to the contact lenses we source from them may be exacerbated.
We rely on a limited number of contract manufacturers and logistics partners for our products. A loss of any of these partners could negatively affect our business.
We rely on a limited number of third-party suppliers and contract manufacturers for the components that go into the manufacturing of our products. In particular, over half of the cellulose acetate used to produce our frames is provided by a single supplier. We also assemble and fulfill glasses at our optical laboratories as well as at a limited number of third-party optical laboratories. Further, we rely on a single logistics partner to fulfill orders for our Home Try-On program and a limited number of other logistics partners to transport and deliver our products. Our reliance on a limited number of contract manufacturers and logistics partners for our products increases our risks of being unable to deliver our products in a timely and cost-effective manner. In the event of interruption from any of our contract manufacturers or our own fulfillment capabilities, we may not be able to increase capacity from other sources or develop alternate or secondary sources without incurring material additional costs and substantial delays. Our business could be adversely affected if one or more of our manufacturers is impacted by a natural disaster, an epidemic such as the current COVID-19 outbreak, or other interruption at a particular location. In particular, the current COVID-19 outbreak has caused, and will likely continue to cause, interruptions in the development, manufacturing (including the sourcing of key components), and shipment of our products, which could adversely impact our revenue, gross margins, and operating results. Such interruptions may be due to, among other things, temporary closures of our facilities or those of our contract manufacturers, and other vendors in our supply chain; restrictions on travel or the import/export of goods and services from certain ports that we use; and local quarantines.
If we experience a significant increase in demand for our products that cannot be satisfied adequately through our existing manufacturing channels, or if we need to replace an existing manufacturer, we may be unable to supplement or replace them on terms that are acceptable to us, which may undermine our ability to deliver our products in a timely manner. For example, if we require additional manufacturing support, it may take a significant amount of time to identify a manufacturer that has the capability and resources to build our products to our specifications in sufficient volume. Identifying suitable manufacturers and logistics partners is an extensive process that requires us to become satisfied with their quality control, technical capabilities, responsiveness and service, financial stability, regulatory compliance, and labor and other ethical practices. Accordingly, a loss of any of our contract manufacturers or logistics partners could have an adverse effect on our business, financial condition, and operating results.
We rely on third parties for elements of the payment processing infrastructure underlying our business. If these third-party elements become unavailable or unavailable on favorable terms, our business could be adversely affected.
The convenient payment mechanisms provided by our business are key factors contributing to the development of our business. We rely on third parties, including Stripe, Affirm, Inc., and Moneris Solutions (in Canada), for elements of our payment processing infrastructure to accept payments from customers and Coupa, in connection with our banking partners, to remit payments to suppliers. These third parties may refuse to renew our agreements with them on commercially reasonable terms or at all. If these companies become unwilling or unable to provide these services to us on acceptable terms or at all, our business may be disrupted. For certain payment methods, including credit and debit cards and Apple Pay®, we generally pay interchange fees and other processing and gateway fees, and such fees result in significant costs. In addition, online payment providers are under continued pressure to pay increased fees to banks to process funds, and there is no assurance that such online payment providers will not pass any increased costs on to us. If these fees increase over time, our operating costs will increase, which could adversely affect our business, financial condition, and results of operations.
Future failures of the payment processing infrastructure underlying our business could cause customers to lose trust in our payment operations and could cause them to instead turn to our competitors’ products and services. If the quality or convenience of our payment processing infrastructure declines as a result of these limitations or for any other reason, the attractiveness of our business to customers could be adversely affected. If we are forced to
migrate to other third-party payment service providers for any reason, the transition would require significant time and management resources, and may not be as effective, efficient, or well-received by our customers.
Our business relies on Amazon Web Services, and any disruption of, or interference with, our use of Amazon Web Services could adversely affect our business, financial condition, or results of operations.
Amazon Web Services, or AWS, is a third-party provider of cloud infrastructure services. We outsource substantially all of our core architecture to AWS. AWS provides the cloud computing infrastructure we use to host our website and mobile applications, serve our customers and support our operations and many of the internal tools we use to operate our business. Our website, mobile applications and internal tools use computing, storage, data transfer, and other functions and services provided by AWS. We do not have control over the operations of the facilities of AWS that we use. AWS’ facilities may be vulnerable to damage or interruption from earthquakes, hurricanes, floods, fires, cybersecurity attacks, terrorist attacks, power losses, telecommunications failures, and other events beyond our control. In the event that AWS’ or any other third-party provider’s systems or service abilities are hindered by any of the events discussed above, particularly in a region where our website is mainly hosted, our ability to operate our business may be impaired. A decision to close the facilities without adequate notice or other unanticipated problems or disruptions could result in lengthy interruptions to our business. All of the aforementioned risks may be exacerbated if our business continuity and disaster recovery plans prove to be inadequate.
Additionally, data stored with AWS may experience threats or attacks from computer malware, ransomware, viruses, social engineering (including phishing attacks), denial of service or other attacks, employee theft or misuse, and general hacking. Any of these security incidents could result in unauthorized access to, damage to, disablement or encryption of, use or misuse of, disclosure of, modification of, destruction of, or loss of our data or our customers’ data or disrupt our ability to provide our products and services, including due to any failure by us to properly configure our AWS environment. Our business’ continuing and uninterrupted performance is critical to our success. Customers may become dissatisfied by any system failure that interrupts our ability to provide our products and services to them. We may not be able to easily switch our AWS operations to another cloud or other data center provider if there are disruptions or interference with our use of AWS, and, even if we do switch our operations, other cloud and data center providers are subject to the same risks. Sustained or repeated system failures would reduce the attractiveness of our products and services, thereby reducing net revenue. Moreover, negative publicity arising from these types of disruptions could damage our reputation and may adversely impact our business.
Our customer agreement with AWS remains in effect until (i) terminated for convenience, which we may do for any reason by providing AWS notice and closing our account and which AWS may do for any reason by providing us at least 30 days’ notice or (ii) terminated for cause, which either party may do if the other party has an uncured material breach and which AWS may do immediately upon notice. AWS does not have an obligation to renew its agreements with us on terms acceptable to us. Although alternative data center providers could host our business on a substantially similar basis to AWS, transitioning the cloud infrastructure currently hosted by AWS to alternative providers could potentially be disruptive, and we could incur significant one-time costs. If we are unable to renew our agreement with AWS on commercially acceptable terms, our agreement with AWS is prematurely terminated, or we add additional infrastructure providers, we may experience costs or downtime in connection with the transfer to, or the addition of, new data center providers. If AWS or other infrastructure providers increase the costs of their services, our business, financial condition, or results of operations could be materially and adversely affected.
We depend on search engines, social media platforms, digital application stores, content-based online advertising, and other online sources to attract consumers to and promote our website and our mobile applications, which may be affected by third-party interference beyond our control and as we grow our Customer Acquisition Costs may continue to rise.
Our success depends on our ability to attract consumers to our website, mobile applications, and select application partners and convert them into customers in a cost-effective manner. We depend, in large part, on search engines, social media platforms, digital application stores, content-based online advertising, and other online sources for traffic to our website, mobile applications, and select application partners.
With respect to search engines, we are included in search results as a result of both paid search listings, where we purchase specific search terms that result in the inclusion of our advertisement, and free search listings, which depend on algorithms used by search engines. For paid search listings, if one or more of the search engines or other online sources on which we rely for purchased listings modifies or terminates its relationship with us, our expenses could rise, we could lose consumers and traffic to our website could decrease, any of which could have a material adverse effect on our business, financial condition, and results of operations. Further, our competitors bid on terms like “Warby Parker” as paid keywords, and consumers searching for us could instead by directed to a third-party’s website, which could lead to reduced traffic to our website, which may have a material adverse effect on our business, financial condition, and results of operations. For free search listings, if search engines on which we rely for algorithmic listings modify their algorithms, our websites may appear less prominently or not at all in search results, which could result in reduced traffic to our websites.
Our ability to maintain and increase the number of consumers directed to our products from digital platforms is not entirely within our control. Search engines, social media platforms, and other online sources often revise their algorithms and introduce new advertising products. If one or more of the search engines or other online sources on which we rely for traffic to our website and our mobile app were to modify its general methodology for how it displays our advertisements or keyword search results, resulting in fewer consumers clicking through to our website and our mobile applications, our business and operating results are likely to suffer. For example, Apple recently moved to “opt-in” privacy models, requiring consumers to expressly consent to receiving targeted ads, which may reduce the value of inventory on its iOS mobile application platform. In addition, if our online display advertisements are no longer effective or are not able to reach certain consumers due to consumers’ use of ad-blocking software, our business and operating results could suffer. Furthermore, changes in consumer acceptance or usage of our online sources for traffic could adversely impact the effectiveness of our advertising.
Additionally, changes in regulations could limit the ability of search engines and social media platforms, including, but not limited to, Google and Facebook, to collect data from users and engage in targeted advertising, making them less effective in disseminating our advertisements to our target customers. For example, the proposed Designing Accounting Safeguards to Help Broaden Oversight and Regulations on Data (DASHBOARD) Act would mandate annual disclosure to the SEC of the type and “aggregate value” of user data used by harvesting companies, such as, but not limited to, Facebook, Google and Amazon, including how net revenue is generated by user data and what measures are taken to protect the data. If the costs of advertising on search engines and social media platforms increase, we may incur additional marketing expenses or be required to allocate a larger portion of our marketing spend to other channels and our business and operating results could be adversely affected.
The marketing of our products depends on our ability to cultivate and maintain cost-effective and otherwise satisfactory relationships with digital application stores, in particular, those operated by Apple. As we grow, we may struggle to maintain cost-effective marketing strategies, and our Customer Acquisition Costs could rise substantially, particularly if our customer mix skews towards fewer repeat purchases by existing customers and more new customers that require higher costs to acquire. Furthermore, because many of our customers access our products through our mobile applications, we depend on the Apple App Store to distribute our mobile applications. Apple has broad discretion to change their respective terms and conditions applicable to the distribution of our mobile applications, including those relating to the amount of (and requirement to pay) certain fees associated with purchases facilitated by Apple through our mobile applications, to interpret their respective terms and conditions in ways that may limit, eliminate or otherwise interfere with our ability to distribute mobile app through their stores, the features we provide and the manner in which we market in-application products. We cannot assure you that Apple will not limit, eliminate or otherwise interfere with the distribution of our mobile applications, the features we provide and the manner in which we market our mobile applications. To the extent it does so, our business, financial condition, and results of operations could be adversely affected.
We rely primarily on third-party insurance policies to insure our operations-related risks. If our insurance coverage is insufficient for the needs of our business or our insurance providers are unable to meet their obligations, we may not be able to mitigate the risks facing our business, which could adversely affect our business, financial condition, and results of operations.
We procure third-party insurance policies to cover various operations-related risks including employment practices liability, workers’ compensation, property and business interruptions, cybersecurity and data breaches, crime, directors’ and officers’ liability, and general business liabilities. We rely on a limited number of insurance providers,
and should such providers discontinue or increase the cost of coverage, we cannot guarantee that we would be able to secure replacement coverage on reasonable terms or at all. If our insurance carriers change the terms of our policies in a manner not favorable to us, our insurance costs could increase. Further, if the insurance coverage we maintain is not adequate to cover losses that occur, or if we are required to purchase additional insurance for other aspects of our business, we could be liable for significant additional costs. Additionally, if any of our insurance providers becomes insolvent, it would be unable to pay any operations-related claims that we make.
If the amount of one or more operations-related claims were to exceed our applicable aggregate coverage limits, we would bear the excess, in addition to amounts already incurred in connection with deductibles, self-insured retentions, co-insurance, or otherwise paid by our insurance policy. Insurance providers have raised premiums and deductibles for many businesses and may do so in the future. As a result, our insurance and claims expense could increase, or we may decide to raise our deductibles or self-insured retentions when our policies are renewed or replaced. Our business, financial condition, and results of operations could be adversely affected if the cost per claim, premiums, the severity of claims, or the number of claims significantly exceeds our historical experience and coverage limits; we experience a claim in excess of our coverage limits; our insurance providers fail to pay on our insurance claims; we experience a claim for which coverage is not provided; or the number of claims under our deductibles or self-insured retentions differs from historical averages.
Risks Related to Taxation Matters
Our ability to utilize our net operating loss carryforwards and certain other tax attributes to offset taxable income or taxes may be limited.
As of December 31, 2020, we had a federal net operating loss carryforward of $105.8 million, which will begin to expire in 2031. Furthermore, we had state net operating loss carryforwards of $76.7 million, which will begin to expire in 2031. However $14.5 million of the federal net operating loss is available for indefinite use. Portions of these net operating loss carryforwards could expire unused and be unavailable to offset future income tax liabilities. Under the legislation enacted in 2017, commonly referred to as the Tax Cuts and Jobs Act, or Tax Act, as modified by the Coronavirus Aid, Relief, and Economic Security, or CARES Act, U.S. federal net operating losses incurred in taxable years beginning after December 31, 2017, may be carried forward indefinitely, but the deductibility of such federal net operating losses in taxable years beginning after December 31, 2020, is limited. It is uncertain how various states will respond to the Tax Act and the CARES Act. For state income tax purposes, there may be periods during which the use of net operating loss carryforwards is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed. For example, California recently imposed limits on the usability of California state net operating losses to offset taxable income in tax years beginning on or after January 1, 2020 and before January 1, 2023.
In addition, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, and corresponding provisions of state law, if a corporation undergoes an “ownership change,” (very generally defined as a greater than 50% change, by value, in the corporation’s equity ownership by certain shareholders or groups of shareholders over a rolling three-year period), the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post-change income or taxes may be limited. We completed a Section 382 analysis in February of 2021. We experienced an ownership change in August 2012 and $9.4 million of NOLs were subject to the limitation. However, all of those NOLs were available by the year ended December 31, 2017. We may experience additional ownership changes in the future as a result of subsequent shifts in our stock ownership, including upon completion of this offering, some of which may be outside of our control. If we undergo another ownership change, we may incur additional limitations on our ability to utilize our NOLs existing at the time of the ownership change. Future regulatory changes could also limit our ability to utilize our NOLs. To the extent we are not able to offset future taxable income with our NOLs, our cash flows may be adversely affected. We have recorded a full valuation allowance against our U.S. deferred tax assets, which includes net operating loss carryforwards.
Changes in our effective tax rate or liability may have an adverse effect on our results of operations.
We are subject to income taxes in the United States and Canada. Our effective tax rate could be adversely affected due to several factors, including:
•changes in the relative amounts of income before taxes in the various jurisdictions in which we operate that have differing statutory tax rates;
•changes in the United States or foreign tax laws, tax treaties, and regulations or the interpretation of them;
•changes to our assessment about our ability to realize our deferred tax assets that are based on estimates of our future results, the prudence and feasibility of possible tax planning strategies, and the economic and political environments in which we do business;
•the outcome of current and future tax audits, examinations, or administrative appeals; and
•limitations or adverse findings regarding our ability to do business in some jurisdictions.
As and if we expand the scale of our international business activities, any changes in the United States or foreign taxation of such activities may increase our worldwide effective tax rate and harm our business, financial condition, and results of operations.
In particular, new income or other tax laws or regulations could be enacted at any time, which could adversely affect our business operations and financial performance. Further, existing tax laws and regulations could be interpreted, modified, or applied adversely to us. For example, the Tax Act enacted many significant changes to the U.S. tax laws. Future guidance from the IRS and other tax authorities with respect to the Tax Act may affect us, and certain aspects of the Tax Act could be repealed or modified in future legislation. In addition, the recent presidential and congressional elections in the United States could result in significant changes in, and uncertainty with respect to, tax legislation, regulation and government policy directly affecting our business or indirectly affecting us because of impacts on our customers and suppliers. We are currently unable to predict whether such changes will occur and, if so, the ultimate impact on our business. To the extent that such changes have a negative impact on us, our suppliers or our customers, including as a result of related uncertainty, these changes may materially and adversely impact our business, financial condition, results of operations, and cash flows.
Changes in tax treatment of companies engaged in e-commerce may adversely affect the commercial use of our sites and our financial results.
Due to the global nature of the Internet, it is possible that various states or foreign countries might attempt to impose additional or new regulation on our business or levy additional or new sales, income, or other taxes relating to our activities. Tax authorities at the international, federal, state, and local levels are currently reviewing the appropriate treatment of companies engaged in e-commerce and digital services. New or revised international, federal, state, or local tax regulations or court decisions may subject us or our customers to additional sales, income and other taxes. For example, on June 21, 2018, the U.S. Supreme Court rendered a 5-4 majority decision in South Dakota v. Wayfair Inc., 17-494 where the Court held, among other things, that a state may require an out-of-state seller with no physical presence in the state to collect and remit sales taxes on goods the seller ships to consumers in the state, overturning existing court precedent. Other new or revised taxes and, in particular, digital taxes, sales taxes, VAT, and similar taxes could increase the cost of doing business online and decrease the attractiveness of selling products over the Internet. New taxes and rulings could also create significant increases in internal costs necessary to capture data and collect and remit taxes. Any of these events could have a material adverse effect on our business, financial condition, and operating results.
Risks Related to Our Existence as Public Benefit Corporation
Our status as a public benefit corporation and our intended status as a Certified B Corporation may not result in the benefits that we anticipate.
We have elected to be classified as a public benefit corporation under Delaware law. As a public benefit corporation, we are required to balance the financial interests of our stockholders, the best interests of those materially affected by our conduct, and the specific public benefits set forth in our current certificate of
incorporation. In addition, there is no assurance that the expected positive impact from being a public benefit corporation will be realized. Accordingly, being a public benefit corporation and complying with our related obligations could negatively impact our ability to provide the highest possible return to our stockholders.
As a public benefit corporation, we are required to disclose to stockholders a statement at least biennially as to our promotion of the public benefit identified in our current certificate of incorporation and of the best interests of those materially affected by our conduct and such statement shall include, among other things, our assessment of our success in achieving our specific public benefit purpose. If we are not timely or are unable to provide this statement, or if the report is not viewed favorably by parties doing business with us or regulators or others reviewing our credentials, or we fail to make progress towards our specific public benefit purpose, our reputation and status as a public benefit corporation may be harmed.
While not required by Delaware law or the terms of our current certificate of incorporation, we intend to elect to have our social and environmental performance, accountability and transparency assessed against the proprietary criteria established by an independent nonprofit organization. The designation “Certified B Corporation” refers to companies that are certified as meeting certain levels of social and environmental performance, accountability and transparency. The standards for Certified B Corporation certification are set by an independent organization and may change over time. Companies are required to recertify as a Certified B Corporation once every three years. Our reputation could be harmed if we lose our intended status as a Certified B Corporation, whether by our choice or by our failure to continue to meet the certification requirements, if that failure or change were to create a perception that we are more focused on financial performance and are no longer as committed to the values shared by Certified B Corporations. Likewise, our reputation could be harmed if our publicly reported Certified B Corporation score declines in the future.
As a public benefit corporation, our duty to balance a variety of interests may result in actions that do not maximize stockholder value.
As a public benefit corporation, our board of directors has a duty to balance (i) the pecuniary interest of our stockholders, (ii) the best interests of those materially affected by our conduct, and (iii) specific public benefits identified in our charter documents. While we believe our public benefit designation and obligation will benefit our stockholders, in balancing these interests, our board of directors may take actions that do not maximize stockholder value. Any benefits to stockholders resulting from our public benefit purposes may not materialize within the timeframe we expect or at all and may have negative effects. For example:
•we may choose to revise or implement policies in ways that we believe will be beneficial to our stakeholders, including suppliers, employees, and local communities, even though the changes may be costly;
•we may be influenced to pursue programs and services to demonstrate our commitment to the communities to which we serve even though there is no immediate return to our stockholders; and
•in responding to a possible proposal to acquire the company, our board of directors may be influenced by the interests of our stakeholders, including suppliers, employees, and local communities, whose interests may be different from the interests of our stockholders.
Our directors have a fiduciary duty to consider not only our stockholders’ pecuniary interests, but also our specific public benefit and the best interests of stakeholders materially affected by our actions. If a conflict between such interests arises, there is no guarantee such a conflict would be resolved in favor of our stockholders.
While directors of traditional corporations are required to make decisions they believe to be in the best interests of their stockholders, directors of a public benefit corporation have a fiduciary duty to consider not only the stockholders’ pecuniary interests, but also the company’s specific public benefit and the best interests of stakeholders materially affected by the company’s actions. Under Delaware law, directors are shielded from liability for breach of these obligations if they make informed and disinterested decisions that are not such that no person of ordinary, sound judgment would approve. Thus, unlike traditional corporations which must focus exclusively on stockholder value, our directors are not merely permitted, but obligated, to consider our specific public benefit and the interests of other stakeholders. See “Description of Capital Stock—Public Benefit Corporation Status.” In the event of a conflict between the interests of our stockholders and the interests of our
specific public benefit or our other stakeholders, our directors must only make informed and disinterested decisions that are not such that no person of ordinary, sound judgment would approve; thus, there is no guarantee such a conflict would be resolved in favor of our stockholders, which could have a material adverse effect on our business, financial condition, and results of operations, which in turn could cause our stock price to decline.
As a public benefit corporation, we may be subject to increased derivative litigation concerning our duty to balance stockholder and public benefit interests, the occurrence of which may have an adverse impact on our financial condition and results of operations.
Stockholders of a Delaware public benefit corporation (if they, individually or collectively, own at least 2% of its outstanding capital stock or, upon the completion of our listing, the lesser of such percentage or shares of at least $2 million in market value) are entitled to file a derivative lawsuit claiming that its directors failed to balance stockholder and public benefit interests. This potential liability does not exist for traditional corporations. Therefore, we may be subject to the possibility of increased derivative litigation, which would require the attention of management and, as a result, may adversely impact management’s ability to effectively execute our strategy. Any such derivative litigation may be costly and have an adverse impact on our business operations, financial conditions, and results of operations.
Risks Related to Ownership of Our Class A Common Stock
Our listing differs significantly from an underwritten initial public offering.
This is not an underwritten initial public offering of our Class A common stock. This listing of our Class A common stock on the NYSE differs from an underwritten initial public offering in several significant ways, which include, but are not limited to, the following:
•There is no firm commitment underwriting. Consequently, prior to the opening of trading on the NYSE, there will be no book building process and no price at which underwriters initially sell shares to the public to help inform efficient and sufficient price discovery with respect to the opening trades on the NYSE. Therefore, buy and sell orders submitted prior to and at the opening of trading of our Class A common stock on the NYSE will not have the benefit of being informed by a published price range or a price at which the underwriters initially sell 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 the initial resale of shares of our Class A common stock. Unlike the case in a traditional underwritten offering, this registration statement does not include the registration of additional shares that may be used at the option of the underwriters in connection with overallotment activity. Moreover, we will not engage in, and have not and will not, directly or indirectly, request the financial advisors to engage in, any special selling efforts or stabilization or price support activities in connection with any sales made pursuant to this registration statement. 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 trading price of shares of our Class A common stock. Given that there will be no underwriters’ option to purchase additional shares and no underwriters engaging in stabilizing transactions with respect to the trading of our Class A common stock on the NYSE, there could be greater volatility in the trading price of our Class A common stock during the period immediately following the listing. See also “—The trading price of our Class A common stock may be volatile, and could, upon listing on the NYSE, decline significantly and rapidly.”
•There is not a fixed or determined number of shares of Class A common stock available for sale in connection with the registration and the listing. Therefore, there can be no assurance that any Registered Stockholders or other 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 NYSE. Alternatively, we may have a large number of Registered Stockholders or other existing stockholders
who choose to sell their shares of Class A common stock in the near term, resulting in potential oversupply of our Class A common stock, which could adversely impact the trading price of our Class A common stock once listed on the NYSE and thereafter.
•None of our Registered Stockholders or other existing stockholders have entered into contractual lock-up agreements or other 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 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 and officers who own our Class A or Class B common stock and other significant stockholders, may sell any or all of their shares at any time (subject to any restrictions under applicable law, and in the case of shares of Class B common stock, upon conversion of any shares of Class B common stock into Class A common stock at the time of sale), including immediately upon listing on the NYSE. If such sales were to occur in a significant volume in a short period of time following the listing, it may result in an oversupply of our Class A common stock in the market, which could adversely impact the trading 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, sales of substantial amounts of our Class A common stock in the public markets, or the perception that sales might occur, could cause the trading 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 NYSE. Instead, we will host an investor day and will engage in additional investor education meetings. In advance of making the investor day content available, we will announce the date for such day over financial news outlets in a manner consistent with typical corporate outreach to investors. We will prepare an electronic presentation for this investor day, which content will be similar to a traditional roadshow presentation. We will 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 be as effective a method of 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 trading price of our Class A common stock.
Such differences from an underwritten initial public offering could result in a volatile trading price for our Class A common stock and uncertain trading volume, which may adversely affect your ability to sell any Class A common stock that you may purchase.
The trading price of our Class A common stock may be volatile and could, upon listing on the NYSE, decline significantly and rapidly.
The listing of our Class A common stock and the registration of the Registered Stockholders’ shares of Class A common stock is a novel process that is not an underwritten initial public offering. We have engaged Goldman Sachs & Co. LLC, or Goldman Sachs; Morgan Stanley & Co. LLC, or Morgan Stanley; and Allen & Company LLC, or Allen & Company; to serve as our financial advisors. There will be no book building process and no price at which underwriters initially sell shares to the public to help inform efficient and sufficient price discovery with respect to the opening trades on the NYSE.
While in the past we have completed private capital raises, as there has not been a recent sustained history of trading in our common stock in a private placement market prior to listing, NYSE listing rules require that a designated market maker, or DMM, consult with our financial advisors in order to effect a fair and orderly opening of trading of our Class A common stock without coordination with us, consistent with the federal securities laws in connection with our direct listing. Accordingly, the DMM will consult with Morgan Stanley in order for the DMM to effect a fair and orderly opening of our Class A common stock on the NYSE, without coordination with us, consistent with the federal securities laws in connection with our direct listing. In addition, the DMM may also consult with our other financial advisors, also without coordination with us, in connection with our direct listing. Pursuant to Rule 7.35A(g) of the NYSE Listed Company Manual, and based upon information known to them at the time, Morgan Stanley and our other financial advisors are expected to provide input to the DMM regarding their understanding of the ownership of our outstanding common stock and pre-listing selling and buying interest in our Class A common stock that they become aware of from potential investors and holders of our Class A common
stock, including after consultation with certain investors (which may include certain of the Registered Stockholders). Such investor consultation by the financial advisors would not involve any coordination with or outreach on behalf of the Company. The financial advisors will not engage in a book building process as would typically be undertaken by underwriters in a registered initial public offering. Instead, the input that the financial advisors provide to the DMM will be based on information that they become aware of from potential investors and holders of our Class A common stock (which may include certain of the Registered Stockholders) 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. The DMM, in consultation with our financial advisors, is also expected to consider the information in the section titled “Sale Price History of Our Capital Stock.” Based on information provided to the NYSE, the opening public price of our Class A common stock on the NYSE will be determined by buy and sell orders collected by the NYSE from broker-dealers, and the NYSE is where buy orders can be matched with sell orders at a single price. Based on such orders, the DMM will determine an opening price for our Class A common stock pursuant to NYSE rules. However, because our financial advisors will not have engaged in a book building process, they will not be able to provide input to the DMM that is based on or informed by that process. For more information, see the section titled “Plan of Distribution.”
Moreover, prior to the opening trade, there will not be a price at which underwriters initially sell shares of Class A common stock to the public as there would be in an underwritten initial public offering. The absence of a predetermined initial public offering price could impact the range of buy and sell orders collected by the NYSE from various broker-dealers. Consequently, upon listing on the NYSE, the trading price of our Class A common stock may be more volatile than in an underwritten initial public offering and could decline significantly and rapidly.
Further, because of our listing process, individual investors may have greater influence in setting the opening public trading price and subsequent public trading prices of our Class A common stock on the NYSE and may participate more in our initial and subsequent trading, leading to an increased amount of smaller orders at numerous prices, for example, than is typical for a traditional underwritten initial public offering with more institutional investor influence. These factors could result in more volatility in the public 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 trading 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 trading price of our Class A common stock. There will likely be more ability for such investors to short our Class A common stock in early trading than is typical for a traditional underwritten public offering given increased availability of our Class A common stock on the trading markets in part due to the lack of contractual lock-up agreements or other restrictions on transfer. To the extent that there is a lack of awareness among retail investors, such lack of awareness could reduce the value of our Class A common stock and cause volatility in the public trading price of our Class A common stock.
The trading price of our Class A common stock following the listing also could be subject to wide fluctuations in response to numerous factors in addition to the ones described in the preceding Risk Factors, many of which are beyond our control, including:
•actual or anticipated fluctuations in our results of operations;
•the number of shares of our Class A common stock made available for trading;
•overall performance of the equity markets and the economy as a whole;
•changes in the financial projections we may provide to the public or our failure to meet these projections;
•failure of securities analysts to initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors;
•changes in costs of our inputs;
•actual or anticipated changes in our growth rate relative to that of our competitors;
•changes in the anticipated future size or growth rate of our addressable markets;
•announcements of new products, or of acquisitions, strategic partnerships, joint ventures, or capital-raising activities or commitments, by us or by our competitors;
•additions or departures of board members, management, or key personnel;
•rumors and market speculation involving us or other companies in our industry;
•new laws or regulations or new interpretations of existing laws or regulations applicable to our business, including those related to data privacy and cybersecurity in the United States or globally;
•lawsuits threatened or filed against us;
•other events or factors, including those resulting from war, incidents of terrorism, or responses to these events;
•health epidemics, such as the COVID-19 pandemic, influenza, and other highly communicable diseases or viruses; and
•sales or expectations with respect to sales of shares of our Class A common stock by us or our security holders.
In addition, stock markets with respect to newly public companies, particularly companies in the retail and technology industry, have experienced significant price and volume fluctuations that have affected and continue to affect the stock prices of these companies. Stock prices of many companies, including retail and technology companies, have fluctuated in a manner often unrelated to the operating performance of those companies. 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 NYSE as a result of the supply and demand forces described above. In the past, companies that have experienced volatility in the trading price for their stock have been subject to securities class action litigation. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business, and adversely affect our business, results of operations, and financial condition.
The trading price of our Class A common stock, upon listing on the NYSE, 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 NYSE, there has been no public market for our capital stock. There has been limited trading of our capital stock historically in private transactions. In the section titled “Sale Price History of our Capital Stock,” we have provided the historical sales prices of our non-voting common stock and voting common stock in private transactions. All Co-Founder Shares will be reclassified into Class B common stock and all outstanding shares of our Series A common stock and Series B common stock, other than the Co-Founder Shares, will be reclassified into Class A common stock, immediately following the effectiveness of the registration statement of which this prospectus forms a part. Given the limited history of sales, this information may have little or no relation to broader market demand for our Class A common stock and thus the initial trading price of our Class A common stock on the NYSE once trading begins. As a result, you should not place undue reliance on these historical sales prices as they may differ materially from the opening trading prices and subsequent trading prices of our Class A common stock on the NYSE. For more information about how the initial listing price on the NYSE will be determined, see the section titled “Plan of Distribution.”
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 NYSE. Prior to listing on the NYSE, 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 Registered Stockholders or other 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 on the NYSE by the Registered Stockholders pursuant to this prospectus or by our other existing stockholders in accordance with Rule 144 of the Securities Act, unlike an underwritten initial public offering, there can be no assurance that any Registered Stockholders or other 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, Class A common stock on the NYSE. Conversely, there can be no assurance that the Registered Stockholders and other 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 NYSE. 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 in a sufficient size for their investment objectives 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 in a sufficient amount for their investment objectives, 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 our listing. 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 the trading price of our Class A common stock and/or result in significant volatility, which could affect your ability to sell your shares of Class A common stock.
None of our stockholders are party to any contractual lock-up agreement or other contractual restrictions on transfer. Following our listing, sales of substantial amounts of our Class A common stock in the public markets, or the perception that sales might occur, could cause the trading price of our Class A common stock to decline.
In addition to the supply and demand and volatility factors discussed above, sales of a substantial number of shares of our Class A common stock into the public market, particularly sales by our Co-Founders, directors, executive officers, and principal stockholders, or the perception that these sales might occur in large quantities, could cause the trading price of our Class A common stock to decline. None of our securityholders are subject to any contractual lock-up or other contractual restriction on the transfer or sale of their shares.
In addition to the shares of Class A common stock that may be immediately sold by the Registered Stockholders pursuant to this prospectus, approximately of these shares may be immediately sold by our other existing stockholders under Rule 144 since such shares held by such other 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, (i) non-affiliates who have beneficially owned our common stock for at least six months may rely on Rule 144 to sell their shares of common stock, and (ii) 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.
In addition, we intend to file a registration statement on Form S-8 under the Securities Act to register all shares subject to outstanding stock options or reserved for future issuance under our equity compensation plans. As of June 30, 2021, we had 1,925,352 options outstanding that, if fully exercised, would result in the issuance of 1,925,352 shares of Class A common stock. 1,640,242 of these options were exercisable as of June 30, 2021. As of June 30, 2021, we also had 1,981,866 shares of Class A common stock subject to RSU awards granted prior to June 30, 2021 for which the time-based vesting condition had not been satisfied as of such date. 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.
Following the effectiveness of the registration statement of which this prospectus forms a part, the holders of up to 106,508,717 shares of our Class A common stock (including shares of our Class B common stock that are convertible into shares of our Class A common stock) 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 trading price of our Class A common stock to decline or be volatile.
After our listing, our Co-Founders and Co-CEOs, Neil Blumenthal and Dave Gilboa, if they choose to act together, will have the ability to control all matters submitted to stockholders for approval, including controlling the outcome of director elections.
Our Class A common stock registered in this listing has one vote per share, our Class B common stock has ten votes per share, and our Class C common stock has no voting rights (except as required by law). The multi-class structure of our common stock has the effect of concentrating voting control with our Class B common stockholders, who are our Co-Founders and Co-CEOs. As a result of their collective share ownership, our Co-Founders and Co-CEOs will be able to exercise voting control with respect to an aggregate of shares of our Class B common stock, representing approximately % of the total voting power of our outstanding capital stock as of June 30, 2021. Because of the ten-to-one voting ratio between our Class B and Class A common stock, our Co-Founders and Co-CEOs collectively could continue to control a significant percentage of the combined voting power of our common stock and therefore would be able to control all matters submitted to our stockholders for approval until the date of automatic conversion (described further below), when all outstanding shares of Class B common stock will convert automatically into shares of Class A common stock. This concentration of ownership may limit or preclude your ability to influence corporate matters for the foreseeable future, including the election of directors, amendments of our organizational documents, and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring stockholder approval. In addition, this may prevent or discourage unsolicited acquisition proposals or offers for our capital stock that you may believe are in your best interest as one of our stockholders. The Co-Founders and Co-CEOs also have interests that differ from yours and may vote in a way with which you disagree and which may be adverse to your interests. Corporate action might be taken even if other stockholders, including those who purchase shares from any of the Registered Stockholders, oppose them. If our Co-Founders and CO-CEOs purchase shares in our listing, or if any of our other current investors purchase shares in our listing and become greater than 5% stockholders as a result, the ability of such persons, acting together, to control such matters will increase.
Future transfers by either of our Co-Founders and Co-CEOs of Class B common stock will generally result in those shares converting to Class A common stock, subject to limited exceptions, such as certain transfers effected for estate planning purposes. In addition, each share of Class B common stock will convert automatically into one share of Class A common stock upon the earlier of (i) the transfer of such share to a person not in the same Permitted Ownership Group (as defined in the Amended Charter) as the holder, (ii) October 1, 2031 or (iii) with respect to the shares held by any person in Neil Blumenthal’s Permitted Ownership Group, (A) such time as Neil Blumenthal is removed or resigns from the Board of Directors, or otherwise ceases to serve as a Director on the Board of Directors, (B) such time as Neil Blumenthal ceases to be either an employee, officer or consultant of the Corporation or any of our subsidiaries, or (C) the date that is 12 months after the death or disability of Neil Blumenthal, (2) with respect to any shares held by any person in David Gilboa’s Permitted Ownership Group, (iv) such time as David Gilboa is removed or resigns from the Board of Directors, or otherwise ceases to serve as a Director on the Board of Directors, (B) such time as David Gilboa ceases to be either an employee, officer or consultant of the Corporation or any of our subsidiaries, or (C) the date that is 12 months after the death or disability of David Gilboa. 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 the Co-Founder and Co-CEO who retains their shares over the long term.
Pursuant to our Amended Charter, we will be authorized to issue shares of Class C common stock, none of which will be outstanding following the effectiveness of the registration statement of which this prospectus forms a part. Although we have no current plans to issue any shares of Class C common stock in the future, we may issue shares of Class C common stock for a variety of corporate purposes, including financings, acquisitions, investments, dividends and equity incentives to our employees, consultants and directors. Under our Amended Charter, our board of directors will have the authority, without stockholder approval except as required by the listing standards of the NYSE, to issue additional shares of our capital stock. Because the Class C common stock carries no voting rights, is not convertible into any other capital stock and is not listed for trading on an exchange or registered for sale with the SEC, shares of Class C common stock may be less liquid and less attractive to any future recipients of these shares than shares of Class A common stock, although we may seek to list the Class C common stock for trading and register shares of Class C common stock for sale in the future. In addition, if we issue shares of Class C common stock in the future, such issuances would have a dilutive effect on the economic interests of our Class A common stock and Class B common stock.
We cannot predict the effect our multi-class structure may have on the trading price of our Class A common stock.
We cannot predict whether our multi-class structure will result in a lower or more volatile market price of our Class A common stock, in adverse publicity or other adverse consequences. For example, certain index providers have announced restrictions on including companies with multiple-class share structures in certain of their indexes. S&P, Dow Jones and FTSE Russell have each announced changes to their eligibility criteria for inclusion of shares of public companies on certain indices, including the S&P 500. These changes exclude companies with multiple classes of shares of common stock from being added to these indices. In addition, several stockholder advisory firms have announced their opposition to the use of multiple class structures. As a result, the multi-class structure of our capital stock may prevent the inclusion of our Class A common stock in these indices and 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. Any such exclusion from indices could result in a less active trading market for our Class A common stock. Any actions or publications by stockholder advisory firms critical of our corporate governance practices or capital structure could also adversely affect the trading price of our Class A common stock.
The multi-class structure of our common stock additionally has the effect of concentrating voting control with our Class B common stockholders, who are our Co-Founders and Co-CEOs. This concentrated control could delay, defer, or prevent a change of control, merger, consolidation, takeover, or other business combination involving us that you, as a stockholder, may otherwise support, and could allow us to take actions that some of our stockholders do not view as beneficial, which could reduce the trading price of our Class A common stock. Furthermore, this concentrated control could also discourage a potential investor from acquiring our Class A common stock due to the limited voting power of such stock relative to the Class B common stock and might harm the trading price of our Class A common stock. Any issuance of Class C common stock could also cause the trading price of our Class A common stock to decline.
Our business and financial performance may differ from any projections that we disclose or any information that may be attributed to us by third parties.
From time to time, we may provide guidance via public disclosures regarding our projected business or financial performance. However, any such projections involve risks, assumptions, and uncertainties, and our actual results could differ materially from such projections. Factors that could cause or contribute to such differences include, but are not limited to, those identified in these Risk Factors, some or all of which are not predictable or within our control. Other unknown or unpredictable factors also could adversely impact our performance, and we undertake no obligation to update or revise any projections, whether as a result of new information, future events, or otherwise. In addition, various news sources, bloggers, and other publishers often make statements regarding our historical or projected business or financial performance, and you should not rely on any such information even if it is attributed directly or indirectly to us.
Our trading price and trading volume could decline if securities or industry analysts do not publish research about our business, or if they publish unfavorable research.
Equity research analysts do not currently provide coverage of our Class A common stock, and we cannot assure that any equity research analysts will adequately provide research coverage of our Class A common stock after the listing of our Class A common stock on the NYSE. A lack of adequate research coverage may harm the liquidity and trading price of our Class A common stock. To the extent equity research analysts do provide research coverage of our Class A common stock, we will not have any control over the content and opinions included in their reports. The trading price of our Class A common stock could decline if one or more equity research analysts downgrade our stock or publish other unfavorable commentary or research. If one or more equity research analysts cease coverage of our company, or fail to regularly publish reports on us, the demand for our Class A common stock could decrease, which in turn could cause our trading price or trading volume to decline.
We do not intend to pay dividends for the foreseeable future.
We have never declared or paid any cash dividends on our capital stock, and we do not intend to pay any cash dividends in the foreseeable future. We expect to retain future earnings, if any, to fund the development and growth of our business. Any future determination to pay dividends on our capital stock will be at the discretion of our board of directors. Accordingly, you must rely on the sale of your Class A common stock after price appreciation, which may never occur, as the only way to realize any future gain on your investment.
Additional stock issuances could result in significant dilution to our stockholders.
We may issue our capital stock or securities convertible into our capital stock from time to time in connection with a financing, acquisition, investments, or otherwise. Additional issuances of our stock will result in dilution to existing holders of our stock. In August 2021, our board of directors authorized the issuance of 1,250,004 shares of Series A common stock, or any shares into which the Series A common stock will be reclassified, to the Warby Parker Impact Foundation, in roughly equal installments over seven years starting August 2021, which will result in such dilution. Also, to the extent outstanding stock options to purchase our stock are exercised or RSUs settle, there will be further dilution. The amount of dilution could be substantial depending upon the size of the issuance or exercise. Any such issuances could result in substantial dilution to our existing stockholders and cause the trading price of our Class A common stock to decline.
As a result of being a public company, we are obligated to develop and maintain proper and effective internal control over financial reporting, and any failure to maintain the adequacy of these internal controls may adversely affect investor confidence in our company and, as a result, the value of our Class A common stock.
We will be required, pursuant to Section 404 of the Sarbanes-Oxley Act, or Section 404, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting as of . This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. In addition, our independent registered public accounting firm will be required to attest to the effectiveness of our internal control over financial reporting in our first annual report required to be filed with the SEC following the date we are no longer an “emerging growth company.” Our compliance with Section 404 will require that we incur substantial expenses and expend significant management efforts. We will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge and compile the system and process documentation necessary to perform the evaluation needed to comply with Section 404.
In addition to the material weakness in internal control over financial reporting identified in connection with the audit of our financial statements for the fiscal year ended December 31, 2020, as described in this prospectus, subsequent testing by us or our independent registered public accounting firm, may reveal additional deficiencies in our internal control over financial reporting that are deemed to be material weaknesses. During the evaluation and testing process of our internal controls, if we identify additional material weaknesses in our internal control over financial reporting, we will be unable to certify that our internal control over financial reporting is effective. We cannot assure you that there will not be additional material weaknesses or significant deficiencies in our internal control over financial reporting in the future. Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition or results of operations. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have additional material weakness or significant deficiency in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of our Class A common stock could decline, and we could be subject to sanctions or investigations by the SEC or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets.
We identified material weaknesses in our internal control over financial reporting and we may identify additional material weaknesses in the future that may cause us to fail to meet our reporting obligations or result in material misstatements of our financial statements. If our remediation of such material weaknesses is not effective, or if we fail to develop and maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable laws and regulations could be materially and adversely affected.
We are not currently required to comply with the rules of the SEC implementing Section 404 of the Sarbanes-Oxley Act and are therefore not required to make a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. Upon becoming a public company, we will be required to comply with the SEC’s rules implementing Sections 302 and 404 of the Sarbanes-Oxley Act, which will require management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of control over financial reporting. Though we will be required to disclose changes made in our internal controls and procedures on a quarterly basis, we will not be required to make our first annual assessment of our internal control over financial reporting pursuant to Section 404 until the year following our first annual report required to be filed with the SEC. As an emerging growth company, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 until the later of the year following our first annual report required to be filed with the SEC or the date we are no longer an emerging growth company. If our internal control over financial reporting is not effective, our independent registered public accounting firm may issue an adverse report on the effectiveness of our internal control over financial reporting.
We identified material weaknesses in the design and operation of our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis.
The material weaknesses identified relate to (i) information technology general controls, in the areas of user access and program change management, over our key accounting, reporting, and proprietary systems, and (ii) certain controls within our financial reporting processes to enforce segregation of duties, prevent and detect errors, support timely reconciliation of certain key accounts, and enable review of manual journal entries. We have concluded that these material weaknesses arose because, as a private company, we did not have the necessary business processes, systems, personnel, and related internal controls necessary to satisfy the accounting and financial reporting requirements of a public company.
As part of our plan to remediate these material weaknesses, we have made progress in several actions taken to remediate the material weakness, including development of IT general controls to manage access and program changes across our key systems and the execution of improvements to application controls within our proprietary system; and continued hiring of additional qualified accounting and financial reporting personnel to support division of responsibilities; and we continue to take actions including implementation of additional review controls and processes and requiring timely account reconciliations and analyses; and implementation of processes and controls to better identify and manage segregation of duties.
In light of the control design deficiencies and the resulting material weaknesses that were identified, we believe that it is possible that, had we and our independent registered public accounting firm performed an assessment or audit, respectively, of our internal control over financial reporting in accordance with the provisions of the Sarbanes-Oxley Act, additional material weaknesses may have been identified.
We cannot assure you that the measures that we have taken, and that will be taken, to remediate these material weaknesses will, in fact, remedy the material weaknesses or will be sufficient to prevent future material weaknesses from occurring. We also cannot assure you that we have identified all of our existing material weaknesses.
If we are unable to remediate our existing material weakness or identify additional material weaknesses, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our Class A
common stock could be negatively affected, and we could become subject to investigations by the stock exchange on which our securities are listed, the SEC or other regulatory authorities, which could require additional financial and management resources.
Certain provisions of our Amended Charter, our Amended Bylaws, and Delaware law may prevent or hinder attempts by our stockholders to change our management or to acquire a controlling interest in us, and the trading price of our Class A common stock may be lower as a result.
There are provisions in our Amended Charter and Amended Bylaws, as they will be in effect following the effectiveness of the registration statement of which this prospectus forms a part, and provisions of Delaware law applicable to us as a public benefit corporation, that may make it difficult for a third-party to acquire, or attempt to acquire, control of our company, even if a change in control were considered favorable by our stockholders. These anti-takeover provisions include:
•authorization of the issuance of “blank check” preferred stock that our board of directors could use to implement a stockholder rights plan;
•a staggered board of directors so that not all members of our board of directors are elected at one time;
•a requirement that our directors may only be removed for cause;
•the ability of our board of directors to determine the number of directors and to fill any vacancies and newly created directorships;
•an inability of our stockholders to call special meetings of stockholders;
•a prohibition on stockholder actions by written consent, thereby requiring that all stockholder actions be taken at a meeting of our stockholders;
•the requirement for advance notification of stockholder nominations and proposals;
•a prohibition on cumulative voting for directors;
•the ability of our board of directors to amend our Amended Bylaws without stockholder consent;
•the requirement of the approval of a super-majority to amend some provisions in our restated certificate of incorporation and restated bylaws; and
•a multi-class common stock structure in which holders of our Class B common stock, which has ten votes per share, 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 Class A common stock, Class B common stock and Class C common stock, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or its assets.
Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibit an interested stockholder, defined as, among other things, a person who owns 15% or more of our outstanding voting stock, from entering into a business combination with us for a three-year period following the time such stockholder became an interested stockholder, unless: (1) prior to such time the Board of Directors approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (2) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of our voting stock outstanding at the time the transaction commenced, excluding certain shares for purposes of determining the voting stock outstanding; or (3) at or subsequent to such time the business combination is approved by the Board of Directors 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 which is not owned by the interested stockholder. Any provision in our Amended Charter, our Amended Bylaws, or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our Class A common stock, and could also affect the price that some investors are willing to pay for our Class A common stock.
Also, as a public benefit corporation, our board of directors is required by the Delaware General Corporation Law to manage or direct our business and affairs in a manner that balances the pecuniary interests of our stockholders, the best interests of those materially affected by our conduct, and the specific public benefits identified in our Amended Charter. Any of the foregoing provisions could limit the price that investors might be willing to pay in the future for shares of our Class A common stock, and they could deter potential acquirers of our company, thereby reducing the likelihood that you would receive a premium for your shares of our Class A common stock in an acquisition.
Our Amended Charter will designate the Court of Chancery of the State of Delaware and the federal district courts of the United States of America as the exclusive forums for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees.
Our Amended Charter will provide that, unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware, or the Court of Chancery, is the exclusive forum for the following types of actions, suits or proceedings: any derivative action, suit or proceeding brought on our behalf, any action, suit or proceeding asserting a claim of breach of fiduciary duty owed by a current or former director, officer or other employee or stockholder of the Corporation, any action, suit or proceeding asserting a claim against us arising under the Delaware General Corporation Law, our Amended Charter, or our Amended Bylaws (as either may be amended or restated) or as to which the Delaware General Corporation Law confers exclusive jurisdiction on the Court of Chancery, and any action, suit or proceeding asserting a claim against us that is governed by the internal affairs doctrine. If the Court of Chancery does not have subject matter jurisdiction thereof, such actions, suits or proceedings shall be brought in the federal district court of the District of Delaware or other state courts of the State of Delaware. This provision would not apply to suits brought to enforce a duty or liability created by the Securities Exchange Act of 1934, as amended, or Exchange Act. Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all Securities Act actions. Accordingly, both state and federal courts have jurisdiction to entertain such claims. To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, our Amended Charter will further provide that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act or any other claim for which the federal courts of the United States have exclusive jurisdiction. While the Delaware courts have determined that such choice of forum provisions are facially valid, a stockholder may nevertheless seek to bring a claim in a venue other than those designated in the exclusive forum provisions. In such instance, we would expect to vigorously assert the validity and enforceability of the exclusive forum provisions of our Amended Charter. This may require significant additional costs associated with resolving such action in other jurisdictions and there can be no assurance that the provisions will be enforced by a court in those other jurisdictions.
These exclusive forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees, which may discourage lawsuits against us and our directors, officers, and other employees. If a court were to find either exclusive-forum provision in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur further significant additional costs associated with resolving the dispute in other jurisdictions, all of which could seriously harm our business.
General Risk Factors
An overall decline in the health of the economy and other factors impacting consumer spending, such as recessionary conditions, governmental instability, inclement weather, and natural disasters, may affect consumer purchases, which could reduce demand for our products and harm our business, financial conditions, and results of operations.
Our business depends on consumer demand for our products and, consequently, is sensitive to a number of factors that influence consumer confidence and spending, such as general economic conditions, consumer disposable income, energy and fuel prices, recession and fears of recession, unemployment, minimum wages, availability of consumer credit, consumer debt levels, conditions in the housing market, interest rates, tax rates and policies, inflation, consumer confidence in future economic conditions and political conditions, war and fears of war, inclement weather, natural disasters, terrorism, outbreak of viruses or widespread illness, and consumer perceptions of personal well-being and security. As a result of the COVID-19 pandemic, we temporarily closed all of our retail stores to the public in March 2020, and while we have since reopened all retail stores, our sales and profitability were adversely affected. Unfavorable economic conditions may lead consumers to delay or reduce purchases of our products and services and consumer demand for our products and services may not grow as we expect. Prolonged or pervasive economic downturns could also slow the pace of new retail store openings or cause current locations to close.
The requirements of being a public company may strain our resources, divert management’s attention, and affect our ability to attract and retain executive management and qualified board members.
As a public company, we will be subject to the reporting requirements of the Exchange Act, the listing standards of the NYSE, and other applicable securities rules and regulations. We expect that the requirements of these rules and regulations will continue to increase our legal, accounting, and financial compliance costs, make some activities more difficult, time-consuming and costly, and place significant strain on our personnel, systems, and resources. Furthermore, several members of our management team do not have prior experience in running a public company. For example, the Exchange Act requires, among other things, that we file annual, quarterly, and current reports with respect to our business and results of operations. As a result of the complexity involved in complying with the rules and regulations applicable to public companies, our management’s attention may be diverted from other business concerns, which could harm our business, financial condition, and results of operations. Although we have already hired additional employees to assist us in complying with these requirements, we may need to hire more employees in the future or engage outside consultants, which will increase our operating expenses. In addition, changing laws, regulations, and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs, and making some activities more time-consuming. These laws, regulations, and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest substantial resources to comply with evolving laws, regulations, and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from business operations to compliance activities. If our efforts to comply with new laws, regulations, and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business may be harmed. We also expect that being a public company that is subject to these new rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly members who can serve on our audit committee and compensation committee, and qualified executive officers. As a result of the disclosure obligations required of a public company, our business and financial condition will become more visible, which may result in an increased risk of threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business, financial condition, and results of operations would be harmed, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, would divert the resources of our management and harm our business, financial condition, and results of operations.
We are an “emerging growth company,” and we cannot be certain if the reduced reporting and disclosure requirements applicable to emerging growth companies will make our Class A common stock less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including the auditor attestation requirements of Section 404, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. Pursuant to Section 107 of the JOBS Act, as an emerging growth company, we have elected to use the extended transition period for complying with new or revised accounting standards until those standards would otherwise apply to private companies. As a result, our consolidated financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies, which may make our Class A common stock less attractive to investors. In addition, if we cease to be an emerging growth company, we will no longer be able to use the extended transition period for complying with new or revised accounting standards.
We will remain an emerging growth company until the earliest of: (1) the last day of the fiscal year following the fifth anniversary of our listing; (2) the last day of the first fiscal year in which our annual gross revenue is $1.07 billion or more; (3) the date on which we have, during the previous rolling three-year period, issued more than $1 billion in non-convertible debt securities; and (4) the date on which we are deemed to be a “large accelerated filer” under the rules of the SEC.
We cannot predict if investors will find our Class A common stock less attractive if we choose to rely on these exemptions. For example, if we do not adopt a new or revised accounting standard, our future results of operations may not be comparable to the results of operations of certain other companies in our industry that adopted such standards. If some investors find our Class A common stock less attractive as a result, there may be a less active trading market for our Class A common stock, and our stock price may be more volatile.
Our reported financial results may be adversely affected by changes in accounting principles generally accepted in the United States.
GAAP is subject to interpretation by the Financial Accounting Standards Board, or FASB, the SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. The accounting for our business is complicated, particularly as it relates to accounting for inventory valuation and the related reserves and stock based compensation, and is subject to change based on the evolution of our business model, interpretations of relevant accounting principles, enforcement of existing or new regulations, and changes in SEC or other agency policies, rules, regulations, and interpretations of accounting regulations. We plan to adopt ASC No. 2016-02, Leases (Topic 842) for fiscal periods beginning after December 31, 2021. We are currently evaluating the effect of adoption of these standards on the our consolidated financial statements and related disclosures, but expect to record a material right-of-use asset and liability on the consolidated balance sheet related to our operating leases upon adoption. Changes to our business model and accounting methods, principles, or interpretations could also result in changes to our financial statements, including changes in revenue and expenses in any period, or in certain categories of revenue and expenses moving to different periods, may result in materially different financial results, and may require that we change how we process, analyze, and report financial information and our financial reporting controls.
If our estimates or judgments relating to our critical accounting policies prove to be incorrect, our results of operations 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 our consolidated financial statements and accompanying notes appearing elsewhere in this prospectus. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates.” The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities, and equity, and the amount of revenue and expenses. Significant estimates and judgments involve: revenue recognition, including revenue-related reserves; legal contingencies; valuation of our common stock and equity awards; income taxes; and sales and indirect tax reserves. Our results of operations may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our results of operations to fall below the expectations of securities analysts and investors, resulting in a decline in the market price of our Class A common stock.
Special Note Regarding
Forward-Looking Statements
This prospectus contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this prospectus, including statements regarding our future results of operations or financial condition, business strategy, and plans and objectives of management for future operations are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “toward,” “will,” or “would,” or the negative of these words or other similar terms or expressions. These forward-looking statements include, but are not limited to, statements concerning the following:
•our ability to manage our future growth effectively;
•our expectations regarding cost of goods sold, gross margin, Four-Wall Margin, Average Contribution Per Customer, channel mix, customer mix, and selling, general, and administrative expenses;
•planned new retail stores in 2021 and going forward;
•increases in component and shipping costs and changes in supply chain;
•our ability to compete successfully;
•our ability to manage our inventory balances and shrinkage;
•our ability to engage our existing customers and obtain new customers;
•the growth of our brand awareness;
•the effects of the ongoing COVID-19 pandemic;
•the effects of seasonal trends on our results of operations;
•our ability to stay in compliance with extensive laws and regulations that apply to our business and operations;
•our ability to adequately maintain and protect our intellectual property and proprietary rights;
•our reliance on third parties for our products, operation and infrastructure;
•the increased expenses associated with being a public company;
•the future trading prices of our Class A common stock; and
•our plan to donate 1,250,004 shares of Class A common stock to the Warby Parker Impact Foundation in roughly equal installments over seven years.
We caution you that the foregoing list may not contain all of the forward-looking statements made in this prospectus.
You should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this prospectus primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, and results of operations. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in the section titled “Risk Factors” and elsewhere in this prospectus. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this prospectus. The results, events, and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this prospectus. While we believe such information provides a reasonable basis for these statements, such information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.
The forward-looking statements made in this prospectus relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this
prospectus to reflect events or circumstances after the date of this prospectus or to reflect new information, actual results, revised expectations, or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments.
Markets, Industry, And Other Data
This prospectus contains estimates and information concerning our industry, including market size and growth of the market in which we participate, that are based on industry publications and reports. This information involves a number of assumptions and limitations, and you are cautioned not to give undue weight to these estimates. We have not independently verified the accuracy or completeness of the data contained in these industry publications and reports. Although we are responsible for all of the disclosure contained in this prospectus, and we believe the market position, market opportunity, market size, and other information included in this prospectus is based on reliable sources, such information is inherently imprecise and the industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section titled “Risk Factors.” These and other factors could cause results to differ materially from those expressed in these publications and reports.
The sources of certain statistical data, estimates, and forecasts contained in this prospectus are the following independent industry sources:
•eMarketer, US Ecommerce by Category 2021—April 2021
•Euromonitor International, Eyewear in the US—August 2020
•Jobson Optical Research
•Statista, Eyewear Report 2021—January 2021
•Statista, Smartphone Users Worldwide 2016—2026—June 2021
•The Vision Council, Market Analysis Report Q3—December 2020
•U.S. Bureau of Labor Statistics
•U.S. Census Bureau
Statistics and estimates related to unlocking earnings potential for recipients of our Buy a Pair, Give a Pair program are based on a study that Lancet Global Health, which is a partner of VisionSpring, conducted in 2018 that measured the effect of providing eyeglasses on the productivity among rural Indian tea workers with presbyopia, or the Lancet Global Health Study. The Lancet Global Health Study found that providing eyeglasses to those with presbyopia contributed to a 22% increase in income potential. For those who earn $2.50 in income per day, this program would have the potential of unlocking a daily income increase of $0.55 and yearly income increase of $132 (assuming 240 working days per year). Using the low-end of the estimate of the lifespan of glasses, which is approximately two years, we estimate that each pair donated increases an individual’s income earning potential by $264. We have funded the distribution of over 6.8 million pairs of glasses through VisionSpring to date, and over 8 million in total through our entire Buy a Pair, Give a Pair program partner network. We estimate that the Buy a Pair, Give a Pair program has contributed to approximately $1,795,200,000 in increased income earning potential.
Use Of Proceeds
The 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.”
Dividend Policy
We have never declared or paid cash dividends on our capital stock. We currently intend to retain all available funds and future earnings, if any, to fund the development and expansion of our business, and we do not anticipate paying any cash dividends in the foreseeable future. Any future determination regarding the declaration and payment of dividends, if any, will be at the discretion of our board of directors and will depend on then-existing conditions, including our financial condition, results of operations, contractual restrictions, capital requirements, business prospects, and other factors our board of directors may deem relevant. In addition, our ability to pay dividends may be restricted by any agreements we may enter into in the future.
Capitalization
The following table sets forth our cash and cash equivalents, and our capitalization as of June 30, 2021 as follows:
•on an actual basis; and
•on a pro forma basis to reflect (i) the Preferred Stock Conversion, as if such conversion was consummated on June 30, 2021, (ii) the filing and effectiveness of our Amended Charter, which will, among other things, effect the Common Stock Reclassification, as if such reclassification was consummated on June 30, 2021, (iii) the vesting and settlement of RSUs for which the service-based condition was fully satisfied as of June 30, 2021 and for which we expect the performance vesting condition to be satisfied upon the listing and public trading of our Class A common stock on the NYSE, and (iv) stock-based compensation expense of $ million associated with outstanding RSUs as of June 30, 2021 for which we expect the performance vesting condition to be satisfied upon the listing and public trading of our Class A common stock on the NYSE.
You should read this information together with our consolidated financial statements and the related notes included in this prospectus and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section and other financial information contained in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2021
|
|
|
Actual
|
|
Pro Forma
|
|
|
|
|
unaudited
|
|
|
(in thousands, except share and per share data)
|
|
Cash and cash equivalents
|
$
|
260,672
|
|
|
$
|
|
Redeemable convertible preferred stock, $.0001 par value, 54,507,243 shares authorized at December 31, 2020 and June 30, 2021; 54,041,904 and 53,299,362 shares issued and outstanding as of December 31, 2020 and June 30, 2021, respectively
|
$
|
501,443
|
|
|
$
|
|
Stockholders’ deficit:
|
|
|
|
|
Common stock, $.0001 par value, 150,000,000 shares authorized at December 31, 2020 and June 30, 2021; 53,944,305 and 54,068,908 shares issued and outstanding as of December 31, 2020 and June 30, 2021, respectively
|
5
|
|
|
|
|
Class A common stock, $0.0001 par value per share; no shares authorized, issued or outstanding, actual; shares authorized, shares issued and outstanding, pro forma (unaudited)
|
—
|
|
|
|
|
Class B common stock, $0.0001 par value per share; no shares authorized, issued or outstanding, actual; shares authorized, shares issued and outstanding, pro forma (unaudited)
|
—
|
|
|
|
|
Additional paid-in capital
|
140,262
|
|
|
|
|
Accumulated other comprehensive income
|
179
|
|
|
|
|
Accumulated deficit
|
(356,266)
|
|
|
|
|
Total stockholders’ deficit
|
(215,820)
|
|
|
|
|
Total capitalization
|
$
|
285,623
|
|
|
$
|
The unaudited pro forma column in the table above is based on shares of our Class A common stock and shares of our Class B common stock outstanding as of June 30, 2021 and excludes:
•1,925,352 shares of Class A common stock issuable upon exercise of stock options outstanding as of June 30, 2021 pursuant to the 2011 Plan, with a weighted average exercise price of $6.11 per share;
•2,834,298 shares of Class B common stock issuable upon exercise of stock options outstanding as of June 30, 2021 pursuant to the 2012 Plan, with a weighted average exercise price of $2.28 per share;
•1,064,572 shares of Class A common stock available for issuance pursuant to our 2011 Plan as of June 30, 2021, which will become available for issuance pursuant to the 2021 Incentive Award Plan, or the 2021 Plan, upon such plan’s effectiveness (which includes (i) shares of Class A common stock issuable in connection with the vesting and settlement of RSUs that were granted after June 30, 2021, pursuant to our 2011 Plan, and (ii) shares of Class A common stock issuable upon exercise of stock options granted after June 30, 2021 pursuant to the 2011 Plan);
• shares of Class A common stock and Class B common stock that will become available for future issuance pursuant to the 2021 Plan, which will become effective in connection with our listing (and which excludes any potential annual evergreen increases pursuant to the terms of the 2021 Plan); and
• shares of Class A common stock that will become available for future issuance pursuant to our ESPP, which will become effective in connection with our listing (and which excludes any potential annual evergreen increases pursuant to the terms of the ESPP).
Our 2021 Plan and ESPP provide for annual automatic increases in the number of shares reserved thereunder. See the section titled “Executive Compensation—Employee Benefit and Stock Plans” for additional information.
Selected Consolidated
Financial And Other Data
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 statement of operations data for the year ended December 31, 2018 and the selected consolidated balance sheet data as of December 31, 2018 have been derived from our unaudited consolidated financial statements not included in this prospectus. The summary consolidated statements of operations data for the six months ended June 30, 2020 and 2021, and the summary consolidated balance sheet information as of June 30, 2021 have been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. In our opinion, the unaudited consolidated financial statements have been prepared on a basis consistent with our audited consolidated financial statements and contain all adjustments, consisting only of normal and recurring adjustments, necessary for a fair statement of such financial information. You should read the following selected consolidated financial and other data together with the sections titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements and the related notes included elsewhere in this prospectus. The selected consolidated financial and other data in this section are not intended to replace our audited consolidated financial statements and the related notes and is qualified in their entirety by the audited consolidated financial statements and the related notes included elsewhere in this prospectus. Our historical results are not necessarily indicative of our results in any future period, and our results for the six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021 or any other future year or period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Six Months Ended June 30,
|
|
|
2018
|
|
2019
|
|
2020
|
|
2020
|
|
2021
|
|
|
unaudited
|
|
|
|
|
|
unaudited
|
|
unaudited
|
|
|
(in thousands, except share and per share data)
|
|
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
$
|
272,924
|
|
|
$
|
370,463
|
|
|
$
|
393,719
|
|
|
$
|
176,790
|
|
|
$
|
270,533
|
|
|
Cost of goods sold
|
108,616
|
|
|
147,355
|
|
|
161,784
|
|
|
74,015
|
|
|
108,699
|
|
|
Gross profit
|
164,308
|
|
|
223,108
|
|
|
231,935
|
|
|
102,775
|
|
|
161,834
|
|
|
Selling, general, and administrative expenses
|
188,319
|
|
|
224,771
|
|
|
287,567
|
|
|
111,956
|
|
|
167,621
|
|
|
Loss from operations
|
(24,011)
|
|
|
(1,663)
|
|
|
(55,632)
|
|
|
(9,181)
|
|
|
(5,787)
|
|
|
Interest and other income (loss), net
|
1,373
|
|
|
1,939
|
|
|
(97)
|
|
|
545
|
|
|
306
|
|
|
(Loss) income before income taxes
|
(22,638)
|
|
|
276
|
|
|
(55,729)
|
|
|
(9,726)
|
|
|
(6,093)
|
|
|
Provision for income taxes
|
238
|
|
|
276
|
|
|
190
|
|
|
281
|
|
|
1,202
|
|
|
Net (loss) income
|
(22,876)
|
|
|
—
|
|
|
(55,919)
|
|
|
(10,007)
|
|
|
(7,295)
|
|
|
Deemed dividend upon redemption of redeemable convertible preferred stock
|
(2,676)
|
|
|
(57,537)
|
|
|
—
|
|
|
—
|
|
|
(13,137)
|
|
|
Net loss attributable to common stockholders
|
$
|
(25,552)
|
|
|
$
|
(57,537)
|
|
|
$
|
(55,919)
|
|
|
$
|
(10,007)
|
|
|
$
|
(20,432)
|
|
|
Net loss per share attributable to common stockholders, basic and diluted
|
$
|
(0.49)
|
|
|
$
|
(1.10)
|
|
|
$
|
(1.05)
|
|
|
$
|
(0.19)
|
|
|
$
|
(0.38)
|
|
|
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted
|
52,383,982
|
|
52,424,978
|
|
|
53,033,936
|
|
|
52,636,215
|
|
|
53,986,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
As of June 30
|
|
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
|
unaudited
|
|
|
|
|
|
unaudited
|
|
|
(in thousands)
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
149,787
|
|
|
$
|
55,424
|
|
|
$
|
314,085
|
|
|
$
|
260,672
|
|
|
Total assets
|
235,719
|
|
|
175,856
|
|
|
444,751
|
|
|
$
|
411,633
|
|
|
Total liabilities
|
87,564
|
|
|
102,460
|
|
|
136,338
|
|
|
126,010
|
|
|
Total redeemable convertible preferred stock and stockholders’ deficit
|
$
|
148,155
|
|
|
$
|
73,396
|
|
|
$
|
308,413
|
|
|
$
|
285,623
|
|
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 Other Data” and our consolidated financial statements and related notes included elsewhere in this prospectus. Data as of and for the years ended December 31, 2019 and 2020 has been derived from our audited consolidated financial statements appearing at the end of this prospectus. Data as of and for the six months ended June 30, 2020 and 2021 has been derived from our unaudited condensed consolidated financial statements appearing at the end of this prospectus. Results for any interim period should not be construed as an inference of what our results would be for any full fiscal year or future period. This discussion and other parts of this prospectus contain forward-looking statements, such as those relating to our plans, objectives, expectations, intentions, and beliefs, which involve risks and uncertainties. . Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the sections titled “Special Note Regarding Forward-Looking Statements” and “Risk Factors” included elsewhere in this prospectus.
Overview
A pioneer of the direct-to-consumer model, Warby Parker is one of the fastest-growing brands at scale in the United States. We are a mission-driven, lifestyle brand that operates at the intersection of design, technology, healthcare, and social enterprise.
Since day one, our focus on delighting customers and doing good has created a foundation for continuous innovation:
•We aim to provide customers with the highest-quality product possible by designing glasses at our headquarters in New York City, using custom materials, and selling direct to the customer. By cutting out the middleman, we are able to sell our products at a fraction of the price of many of our competitors and pass the savings on to our customers. In addition to lower prices, we introduced simple, unified pricing (glasses starting at $95, including prescription lenses) to the eyewear market.
•We’ve built a seamless shopping experience that meets customers where and how they want to shop, whether that’s on our website, on our mobile app, or in our more than 145 retail stores.
•We’ve crafted a holistic vision care offering that extends beyond glasses to include contacts, vision tests and eye exams, vision insurance, and beyond. We leverage leading (and in many cases proprietary) technology to enhance our customers’ experiences, whether it’s to help them find a better-fitting frame using our Virtual Try-On tool, or to update their prescription from home using Virtual Vision Test, our telehealth app.
•We recruit and retain highly engaged, motivated team members who are driven by our commitment to scaling a large, growing business while making an impact and are excited to connect their daily work back to our mission. According to data from our biannual Employee Engagement Survey, 91% of our survey respondents agreed that they are proud to work for Warby Parker; 89% think Warby Parker is in a good position to create a more equitable, inclusive and diverse workplace; and 88% would recommend Warby Parker as a great place to work. We believe our employees are more engaged than those at peer companies in the tech and retail sectors.
•We are a public benefit corporation focused on positively impacting all stakeholders, and hope to inspire other entrepreneurs and businesses to think along the same lines. Working closely with our nonprofit partners, we distribute glasses to people in need in more than 50 countries globally and many parts of the United States. Over eight million more people now have the glasses they need to learn, work. and achieve better economic outcomes through our Buy a Pair, Give a Pair program. We also aim to use resources responsibly, reduce waste, and maintain a neutral carbon footprint through offsets and verified emissions reductions we purchase to fully compensate for our carbon footprint.
We generate revenue through selling our wide array of prescription and non-prescription eyewear, including glasses, sunglasses, and contact lenses. We also generate revenue from providing eye exams and vision tests, and selling eyewear accessories. We provide access to convenient and accessible vision services for primary vision care needs including in-person exams at 91 of our retail stores as of June 30, 2021 as well as innovative telehealth services through our Virtual Vision Test mobile app, if available, for those who choose the online experience. For the year ended December 31, 2020, we generated 95% of net revenue from the sale of glasses, 2% of net revenue from the sale of contacts, 1% of net revenue from eye exams, and the remaining 2% of net revenue primarily from the sale of eyewear accessories.
We maintain data across the entire customer journey that allows us to develop deep insights, informing our innovation priorities and enabling us to create a highly personalized, brand-enhancing experience for our customers. We have built an integrated, multichannel presence that we believe deepens our relationship with existing customers while broadening reach and accessibility. And while we have the ability to track where our customers transact, we’re channel agnostic to where the transaction takes place and find that many of our customers engage with us across both digital and physical channels; for example, many customers who check out online visit a store throughout their customer journey, while others choose to browse online before visiting one of our stores.
For the year ended December 31, 2020, we generated 60% of net revenue from e-commerce and the remaining 40% of net revenue from our retail stores. For the six months ended June 30, 2021, we generated 50% of net revenue from e-commerce and the remaining 50% of net revenue from our retail stores. Prior to the COVID-19 pandemic, our channel mix for the year ended December 31, 2019 from our retail stores and e-commerce was 65% and 35%, respectively. Customers can purchase our items in one of our more than 145 retail stores, through our website, or our mobile app. For the year ended December 31, 2020, 97% of our sales were paid directly by our customers, with the remaining 3% of sales fulfilled through vision insurance. Our sales through vision insurance may increase over time as we engage in discussions with vision insurance plans.
Our operating and financial success is powered by our customer economics. We have continued to grow our Active Customers and Orders and had 1.81 million and 2.14 million, respectively, for the year ended December 31, 2020. In 2020, approximately 50% of our surveyed customers reported hearing about us through word of mouth. Our high brand affinity is evidenced by our industry-leading NPS of 83, for the three months ended June 30, 2021, as well as our Sales Retention Rate. On average, for customers acquired between 2015 and 2019, we observed approximately 50% Sales Retention Rate within 24 months of their first purchase and a nearly 100% Sales Retention Rate over 48 months. We believe this loyalty is particularly important in optical given the replenishment of the products and the opportunity for a lifetime relationship with the customer.
We also see long-term unit opportunities for new retail stores in both existing and new markets where we have little to no presence currently. Our retail stores are highly productive and we have historically targeted, and continue to target, Four-Wall Margins of 35% and Average Sales Per Square Foot of $2,900. We expect Average Sales Per Square Foot may fluctuate due to factors including, but not limited to, consumer traffic into our retail stores, the number of orders that we are able to convert from that traffic, and average order value which may be impacted by new product and service introductions. We expect average Four-Wall Margins may fluctuate due to all items listed that may impact Average Sales Per Square Foot, as well as our ability to efficiently manage labor within our stores and the lease terms we negotiate with landlords for our retail stores. Given completed retail stores, signed leases, and retail stores in development, we plan to open over 30 to 35 new retail stores in 2021 and will seek to continue this pace of rollout into the foreseeable future.
For the years ended December 31, 2018 (unaudited), 2019, and 2020:
•we generated net revenue of $272.9 million, $370.5 million, and $393.7 million, respectively;
•we generated gross profit of $164.3 million, $223.1 million, and $231.9 million, respectively, representing a gross profit margin of 60%, 60%, and 59%, respectively;
•we generated net (loss) income of $(22.9) million, $0 million, and $(55.9) million, respectively; and
•we generated adjusted EBITDA of $8.6 million, $21.9 million, and $7.7 million, respectively.
For the six months ended June 30, 2020 and 2021 (unaudited):
•we generated net revenue of $176.8 million and $270.5 million, respectively;
•we generated gross profit of $102.8 million and $161.8 million, respectively, representing a gross profit margin of 58% and 60%, respectively;
•we generated net (loss) of $(10.0) million and $(7.3) million, respectively; and
•we generated adjusted EBITDA of $1.2 million and $20.1 million, respectively.
For a definition of adjusted EBITDA, a non-GAAP measure, and a reconciliation to the most directly comparable GAAP measure, see the section titled “Prospectus Summary—Summary Consolidated Financial and Other Data—Key Business Metrics and Certain Non-GAAP Financial Measures.”
Our Business Model
Our stakeholder-centric business model informs everything that we do. We aim to provide exceptional vision care to our customers, create sustainable long-term careers for our employees, invest in growth, improve operations, and scale performance while driving social change and reducing our environmental impact.
This all starts with our products and services. Our holistic vision care offering provides customers the convenience of shopping for their vision care needs in one place. We generate the majority of our revenue from selling high-quality, good-looking prescription eyewear through our own retail stores, our website, and mobile app. By circumventing traditional channels, designing products in-house, and engaging with customers directly, we’re able to sell a pair of prescription glasses at $95 (including lenses), which is a fraction of the price of many of our competitors. We also sell contact lenses and offer vision services, such as eye exams and vision tests. For every pair of glasses sold, we help distribute a pair to someone in need through our Buy a Pair, Give a Pair program.
Our ability to sell affordable products without compromising on quality is achieved through our integrated supply chain network that is designed to work seamlessly to get the right order to the right place at the right time. All of our frames are designed at our New York City headquarters, and we handpick raw materials and the talented
suppliers who bring them to life. These deliberate decisions help us stay true to our original aesthetic vision, as well as drive operating performance results. We work with raw material vendors on proprietary development, in addition to frame suppliers on their production methods and machinery to achieve high-quality performance.
We believe that by delivering a multichannel personalized shopping experience, we develop a deeper understanding of our customers, driving strong customer economics as we scale our brand. We track this using Average Contribution Per Customer, which captures (i) the costs incurred to produce and fulfill products our customers purchase, (ii) the costs to attract, acquire, and retain customers, and (iii) the costs to service customers before, during, and after they make a purchase.
Our Average Contribution Per Customer for the years ended December 31, 2018, 2019, and 2020 was $48, $54, and $45, respectively, reflecting Contribution Margins of 25%, 26%, and 21%, respectively. In 2020, the decline in Average Contribution Per Customer was impacted by the COVID-19 pandemic, which led to lower overall demand and slower growth in our Active Customers relative to 2018 and 2019. The decrease in Contribution Margin was also driven by an increase in Customer Acquisition Cost, which increased 49% to $40 per customer in 2020 compared to $27 per customer in 2019, while the increase in our Average Revenue Per Customer was 5%, from $208 in 2019 to $218 in 2020 and 16% since 2018 from $188. The 2020 increase in Customer Acquisition Cost was driven by deliberate investment in media spend; we wanted to broaden awareness that our business could support customers throughout the pandemic by offering critical products and services to help people see through our e-commerce channel and telehealth offerings. We also wanted to drive awareness around our newer product lines—contacts, eye exams, and vision tests—that we expect will result in higher Average Revenue Per Customer over time. In 2020, spend for our Home Try-On program also increased, which was a result of heightened demand for our e-commerce channel throughout the COVID-19 pandemic. We believe that our Average Contribution Per Customer will improve in the future as we continue to grow our Average Revenue Per Customer while realizing leverage on our Customer Acquisition Cost and our selling and service cost per customer. We will continue to invest in product development and design, technology, and customer data analytics to further personalize the customer experience, enhance customer economics, and improve our Average Contribution Per Customer. For definitions of Average Contribution Per Customer and Contribution Margin, each a non-GAAP measure, and a reconciliation to the most directly comparable GAAP measure, see the section titled “Prospectus Summary—Summary Consolidated Financial and Other Data—Non-GAAP Financial Measures—Average Contribution Per Customer and Contribution Margin.”
Channel Mix
At Warby Parker, we are customer-first and channel-agnostic. We aim to meet the customer wherever and whenever they want to shop, whether that’s online, in store, or even at home. Glasses are an incredibly personal accessory; as customers look toward purchasing their next pair, we find that there is significant interplay across online and offline channels—browsing online might lead to a visit in one of our more than 145 stores and end with a purchase via our e-commerce app.
A customer journey that starts in store can end with a purchase online and vice versa, with more than 70% of our customers interacting with our website or mobile app before placing an order. While we allocate resources and set priorities to scale all of our channels, we define channel mix within the context of our business as the channel in which the customer places their order. We define our channel mix as the percentage of sales that are completed between our two channels, which are either: (1) e-commerce, either through our website or mobile app (considered “e-commerce channel”) and (2) in our retail stores (considered “retail channel”). Our e-commerce channel serves to complement our retail footprint and offers additional convenience to our customers, which leads to a significant amount of interplay between the channels in a customer’s journey. Prior to the COVID-19 pandemic, our channel mix in 2019 from our retail stores and e-commerce was 65% and 35%, respectively. Net revenue from our e-commerce channel decreased from 38% of net revenue in 2018 to 35% of net revenue in 2019, which was driven by the increase in our Store Count over the same period. Due to temporary retail store closures and limited capacity constraints implemented at our retail stores during 2020 as a result of the COVID-19 pandemic, our e-commerce channel increased in 2020 to 60% of net revenue. Through the first four months of 2021, we have observed a re-balancing of channel mix back towards pre-COVID-19 levels, with e-commerce channel mix for the six months ended June 30, 2021 at 50% of net revenue.
Product Mix
The mix of the products and services that customers purchase in a given time period impacts our revenue and margin profile. For the year ended December 31, 2020, we generated 95% of net revenue from the sale of glasses, 2% of net revenue from the sale of contacts, 1% of net revenue from eye exams, and the remaining 2% primarily from the sale of eyewear accessories. For the six months ended June 30, 2021, we generated 94% of net revenue from the sale of glasses, 3% of net revenue from the sale of contacts, 2% of net revenue from eye exams, and the remaining 1% primarily from the sale of eyewear accessories.
Within our glasses product category, which is our largest category, we sell prescription and non-prescription glasses products for optical and sun. Glasses product types can be broken down by the lens type purchased (e.g., single-vision, progressive, non-prescription) or by the frame material used (e.g., acetate, mixed material, metal only). In addition to lens type and frame material, we also offer a variety of lens treatment options for our customers, including blue-light-filtering and light-responsive lens coatings. Our offering across a range of lens types and frame materials allows us to meet the wide range of customer eyewear needs and preferences. Our different lens type, frame material, and lens treatment offerings have an impact on average selling price per unit and an impact on cost of goods sold based on differences in product fulfillment costs.
As outlined in the chart below, which breaks down our mix of units sold in 2020 based on lens type, single-vision glasses make up the largest share of our glasses category. Progressive lenses made up 14% of total units sold for
the year ended December 31, 2020 and represent a significant area of potential growth for the company as, according to the Vision Council, progressive and multifocal lens unit sales are 45% of the total market based on pairs bought.
Key Business Metrics and Certain Non-GAAP Financial Measures
In addition to the measures presented in our consolidated financial statements, we use the following key business metrics and certain non-GAAP financial measures to evaluate our business, measure our performance, develop financial forecasts, and make strategic decisions. The following table summarizes our key performance indicators and non-GAAP financial measures for each period presented below, which are unaudited.
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Year Ended December 31,
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Six Months Ended June 30,
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2018
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2019
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2020
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2020
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2021
|
|
Active Customers (in millions)
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1.45
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|
|
1.78
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|
|
1.81
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|
|
1.73
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2.08
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Store Count(1)
|
88
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|
|
119
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|
|
126
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|
|
118
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145
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Adjusted EBITDA(2) (in thousands)
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$
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8,635
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$
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21,868
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$
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7,658
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$
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1,168
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$
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20,075
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Adjusted EBITDA margin(2)
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3.2
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%
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5.9
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%
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1.9
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%
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0.7
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%
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7.4
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%
|
__________________
(1)Store Count number at the end of the period indicated.
(2)Adjusted EBITDA and adjusted EBITDA margin are non-GAAP financial measures. For more information regarding our use of these measures and a reconciliation of net loss, the most directly comparable GAAP measure, to adjusted EBITDA and adjusted EBITDA margin, see the section titled “Prospectus Summary—Summary Consolidated Financial and Other Data—Key Business Metric and Certain Non-GAAP Financial Measures.”
Active Customers
The number of Active Customers is a key performance measure that we use to assess the reach of our physical retail stores and digital platform as well as our brand awareness. We define an Active Customers as a unique customer that has made at least one purchase in the preceding 12-month period. We determine our number of Active Customers by counting the total number of customers who have made at least one purchase in the preceding 12-month period, measured from the last date of such period. Given our definition of a customer is a
unique customer that has made at least one purchase, it can include either an individual person or a household of more than one person utilizing a single account.
The number of Active Customers has increased steadily each quarter as we attract new customers and retain existing customers. We have observed consistent and strong growth in our active customer base over time. Additionally, we have more than doubled our Active Customers from the first quarter 2017 through the second quarter 2021 as we increased marketing spend and expanded our retail footprint from 44 retail stores as of December 31, 2016 to 145 retail stores as of June 30, 2021. In 2020, our Active Customer growth was impacted by the consequences of the COVID-19 pandemic, including temporary closure of retail stores for several months during the year and extended stay-at-home orders in several locations.
Store Count
Store Count is a key performance measure that we use to reach consumers and generate incremental demand for our products. We define Store Count as the total number of retail stores open at the end of a given period. We believe our retail stores embody our brand, drive brand awareness, and serve as efficient customer acquisition vehicles. Over time, we believe our retail stores will generate significant cash flows. Our results of operations have been and will continue to be affected by the timing and number of retail stores that we operate.
We have thoughtfully expanded our retail store footprint over the past five years. In 2019, we opened 32 new retail stores between December 31, 2018 and December 31, 2019, and we closed 1 retail store over the same time period. In 2020, we opened fewer retail stores than in years prior due to the COVID-19 pandemic-related operating challenges, including extended retail store closures and heightened safety measures. In total, we opened 10 new retail stores between December 31, 2019 and December 31, 2020, and we relocated two retail stores and closed three retail stores over the same time period. In the six months ended June 30, 2021, we opened 19 new retail stores, and we relocated one retail store over the same time period.
Our retail stores serve as valuable marketing vehicles for introducing new customers to our brand and driving repeat purchases and, in turn, positively impact our Sales Retention Rate. Customers are drawn to the vibrant appeal of our retail storefronts and the distinctive in-store experience. We have designed our stores to be convenient, fun, and inspirational—and pride ourselves on the service our teams provide.
As of June 30, 2021, 91 out of our 145 retail stores offered in-person eye exams.
Adjusted EBITDA and Adjusted EBITDA Margin
We use adjusted EBITDA and adjusted EBITDA margin as important indicators of our operating performance. We believe that adjusted EBITDA, when taken collectively with our GAAP results, may be helpful to investors because it provides consistency and comparability with past financial performance and assists in comparisons with other companies, some of which use similar non-GAAP financial information to supplement their GAAP results. We define adjusted EBITDA as net loss for the company and its consolidated subsidiaries before interest and other (income) / expense, taxes, and depreciation and amortization as further adjusted for stock compensation expense. We defined adjusted EBITDA margin as adjusted EBITDA divided by net revenue. Adjusted EBITDA and adjusted EBITDA margin are non-GAAP financial measures. For more information about how we use these non-GAAP financial measures in our business, the limitations of this measure, and a reconciliation of adjusted EBITDA to net loss, the most directly comparable GAAP measure, please see the section titled “Prospectus Summary—Summary Consolidated Financial and Other Data—Key Business Metrics and Certain Non-GAAP Financial Measures.”
For the year ended December 31, 2020, adjusted EBITDA and adjusted EBITDA margin were $7.7 million and 1.9%, respectively, and for the year ended December 31, 2019, adjusted EBITDA and adjusted EBITDA margin were $21.9 million and 5.9%, respectively. For the year ended December 31, 2019, adjusted EBITDA increased and adjusted EBITDA margin expanded when compared to the same period in 2018 as a result of increased net revenue and gross profit without the same corresponding increase in selling, general, and administrative expenses, primarily achieved through an increase in Orders and higher AOV. In 2020, we experienced an acute decline in adjusted EBITDA due to the COVID-19 pandemic-related operating challenges, including extended retail store closures and heightened safety measures. Adjusted EBITDA and adjusted EBITDA margins have increased since 2016 as we scaled our operations and realized operating efficiencies.
Factors Affecting Our Financial Condition and Results of Operations
We believe that our performance and future success depend on a variety of factors that present significant opportunities for our business but also present risks and challenges that could adversely impact our growth and profitability, including those discussed below and in the section titled “Risk Factors.”
Brand Awareness
Our brand is integral to the growth of our business and to the implementation of our business expansion strategies. Every aspect of our business is oriented around delighting the customer, which we believe enhances customer loyalty and drives a leading NPS score. Our brand awareness stems from a combination of organic, word-of-mouth marketing, and social media, as well as television, digital, podcasts, and radio. Our Unaided Brand Awareness for the three months ended March 31, 2021 was 13%. If we fail to maintain and enhance our brand as expected, our ability to engage our customer base may be impaired, and our business, financial condition, and results of operations may suffer.
Sales Retention Rate and Repeat Purchase
We believe our ability to sustain a consistently increasing Sales Retention Rate within each cohort of customers demonstrates our strong value proposition. We attract new customers each year and track the retention of those customers over time since their initial purchase. On average, for customers acquired between 2015 and 2019, we observed an approximately 50% Sales Retention Rate within 24 months of their first purchase and a nearly 100% Sales Retention Rate over 48 months. Our Sales Retention Rate has been consistent across customer cohorts even as the count of customers in each cohort has increased. In addition, we typically experience higher Sales Retention Rate for customers that purchase contacts and receive an eye exam. These repeat purchases provide the basis for long-term growth as our customer base increases.
Our consistent retention rate is also reflected in the mix of our Active Customers. The proportion of returning customers has steadily increased each year as customers return to purchase. While the returning customer mix has increased over time, we also continue to see growth in our Active Customers who are new to the business. This is part of the underpinning of our growth model. While we continue to acquire new customers, we seek to ensure new customers become repeat customers as they experience our brand and value proposition. The strength of our multichannel business model is reflected in the fact that in 2020, 58% of our Active Customers were first-time customers despite the challenges presented by the COVID-19 pandemic. Over time, we expect an increased mix of returning customers will provide leverage to our Customer Acquisition Cost as we believe the relative cost to acquire a returning customer is lower than a new customer, which would improve our Average
Contribution Per Customer. If however, we fail to cost-effectively retain our existing customers, our net revenue may grow slower than expected or decline and our Customer Acquisition Cost may increase.
Orders
We view Orders as a measure of the overall velocity of our business. We have observed a very consistent relationship between Orders and Active Customers over time, and believe there is significant opportunity to increase Orders as we increase our Active Customer base. The steady increase in both Orders and Average Order Value have propelled historical growth in the business, and we believe the interplay between these metrics will impact future sales performance. Please see the section below for more information on Average Order Value.
The number of Orders has increased each year as we increase our Active Customers. The average number of Orders per customer has been consistent each year, and therefore the change in Orders has been closely linked to the change in Active Customers. Similar to the change in Active Customers, we increased our Orders by 22% from 2018 to 2019 and by 1% from 2019 to 2020. See the section titled “Risk Factors—Risks Related to our Business and Industry—If we fail to cost-effectively retain our existing customers or to acquire new customers, our business, financial condition, and results of operations would be harmed.”
Average Order Value
While the majority of our glasses start at $95 including prescription lenses, just like they did when we launched 11 years ago, our AOV has steadily increased as we have made new products and services available to our customers. We believe that increases in AOV reflects the value proposition we offer to our customers. In particular, as we scale our existing product offering, such as progressive lenses, and as we introduce new offerings, such as blue-light-filtering lenses, we have observed an increase in AOV as these products are adopted by our existing
customers and/or we attract new customers. Our AOV is driven by the number and mix of products purchased per order and the average selling price of each of those products. Our increase in AOV is driven by our ability to introduce and scale new products or service offerings to our customers. From 2018 to 2019, AOV increased by 11% from $158 to $176 primarily driven by a higher unit mix of progressive lens product as well as the scaling of additional lens offerings such as blue-light-filtering lenses, which were launched as an offering in November 2018, and light-responsive lenses. From 2019 to 2020, AOV increased by 5% from $176 to $184 primarily driven by moderately higher unit mix of progressive lens product and continued scaling of additional lens offerings, most notably blue-light-filtering lenses and light-responsive lenses. See the section titled “Risk Factors—Risks Related to our Business and Industry—If we fail to cost-effectively retain our existing customers or to acquire new customers, our business, financial condition, and results of operations would be harmed.”
Customer Acquisition Cost
Our business performance depends in part on our continued ability to acquire customers in a cost effective manner. In 2019, our Customer Acquisition Cost of $27 per customer was in-line with 2018 Customer Acquisition Cost of $26 per customer as we were able to effectively scale acquisition spend in line with Active Customer growth. In 2020, our Customer Acquisition Cost increased due to deliberate investment in media spend: we wanted to broaden awareness that our business could support customers throughout the pandemic while also driving awareness around our newer product lines—contacts, exams, and vision tests—that we expect will result in higher Average Revenue Per Customer over time. In 2020, we also observed a meaningful increase in customer demand for our Home Try-On program, which increased our costs to support that program. The increase in Home Try-On demand was driven by an increase in e-commerce demand as a result of the COVID-19 pandemic and related store closures. If we fail to cost-effectively acquire new customers or retain existing customers through our campaigns and offerings, our overall profitability could be negatively impacted.
Impact of COVID-19
The COVID-19 pandemic caused personal and business disruption worldwide beginning in January 2020. As a result of the pandemic, the recommendations of government and health authorities, and our concern for the health and safety of our team members, customers, and communities, we pivoted operations throughout our entire organization. First, we made the difficult decision to close our 120 retail stores on March 14, 2020. We also transitioned our Corporate and Customer Experience teams to remote work and closed our in-house optical lab for 24 hours to implement robust safety and sanitization protocols. Some of our suppliers and logistics partners experienced supply constraints or labor shortages, as well. These impacts resulted in disruptions to our product and delivery supply chain, including longer delivery times for certain products. Despite these challenges, net revenue grew by 6% from 2019 to 2020 and we generated positive Adjusted EBITDA for the year ended December 31, 2020.
Throughout the pandemic, our team remained committed to ensuring we could get our customers the glasses they needed to see and live their daily lives. We leaned on our e-commerce channel—in particular on existing services like Home Try-On, Virtual Try-On, and Virtual Vision Test—which made us well-equipped to provide customers with a medical necessity during stay-at-home orders.
We also evolved our do-good efforts to maximize impact during the pandemic. To that end, we responded to the immediate needs of our longest-standing partner, VisionSpring, to protect healthcare workers and slow COVID-19 transmission in high risk communities where they work—principally in India, Bangladesh, and sub-Saharan Africa. Starting on April 1, 2020, for a portion of Warby Parker glasses purchased, we worked with VisionSpring to distribute personal protective equipment and prevention supplies to people in need. This temporary pivot continued through the end of 2020 and into 2021. Through our support, VisionSpring provided over two million units of PPE and preventative health supplies in 2020.
After two months of retail store closures, we began reopening using a phased approach and successfully reopened all retail locations by December 31, 2020 following new safety and sanitization protocols such as shorter business hours, mask guidelines for employees and customers, government mandated limited capacity, and more. While our retail stores recovered in the second half of 2020, over the course of the year, we saw 40% of retail store demand shift online, driving a surge in e-commerce year-on-year growth of over 100%, which remained elevated at these levels through the end of the first quarter of 2021.
Business growth was slower than expected in 2020 due to the COVID-19 pandemic. We reduced the number of planned new retail store openings in 2020, which could impact our growth in future periods. Moreover, in 2020, our Customer Acquisition Cost increased as we deliberately invested in media spend. We also observed a meaningful increase in customer demand for our Home Try-On program, which increased our costs to support that program. These challenges, balanced with e-commerce strength, resulted in total revenue growth of 6% in 2020 while revenue for the five largest public optical companies declined 10% on average.
The health and safety of our customers and employees remains our top priority. We continuously monitor developments related to the COVID-19 pandemic in locations where we have offices, optical laboratories, or retail operations, and have developed procedures to enable us to responsibly and efficiently open or close locations and adjust operations as needed. We have onboarded and continue to onboard new suppliers, as well as enhance inventory planning and monitoring capabilities. We expect these actions to mitigate supply chain disruptions in future quarters, although the future trajectory of the COVID-19 pandemic is still unknown. The full extent to which the COVID-19 pandemic, including the Delta variant, will directly or indirectly impact our business, operations, and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted. Given the uncertainty, we cannot estimate the financial impact of the pandemic on our future results of operations, cash flows, or financial condition. For additional details, refer to the section titled “Risk Factors.”
Components of Results of Operations
Net Revenue
We primarily derive revenue from the sales of eyewear products, optical services, and accessories. We sell products and services through our retail stores, website, and mobile apps. Revenue generated from eyewear products includes the sales of prescription and non-prescription optical glasses and sunglasses, contact lenses, eyewear accessories, and expedited shipping charges, which are charged to the customer, associated with these
purchases. Revenue is recognized when the customer takes possession of the product, either at the point of delivery or in-store pickup, and is recorded net of returns and discounts. Revenue generated from services consist of both in-person eye exams in cases where we directly employ the optometrist, and prescriptions issued through the Virtual Vision Test app. Revenue is recognized when the service is rendered and is recorded net of discounts.
Cost of Goods Sold
Cost of goods sold includes the costs incurred to acquire materials, assemble, and sell our finished products. Such costs include (i) product costs held at the lesser of cost and net realizable value and inclusive of inventory reserves, (ii) freight and import costs, (iii) optical laboratory costs, (iv) customer shipping, (v) occupancy and depreciation costs of retail stores, and (vi) employee-related costs associated with our prescription services, which includes salaries, benefits, bonuses, and stock-based compensation. We expect our cost of goods sold to fluctuate as a percentage of net revenue primarily due to product mix, customer preferences and resulting demand, customer shipping costs, and management of our inventory and merchandise mix. Cost of goods sold also may change as we open or close retail stores because of the resulting change in related occupancy and depreciation costs. Over time we expect our cost of goods sold to increase with revenue due to an increased number of Orders and with the opening of new retail stores driven by the resulting occupancy and depreciation costs and employee-related costs associated with prescription services offerings at our retail stores. In connection with this listing, we will recognize stock-based compensation expense related to our RSUs which vest as a result of the satisfaction of the liquidity event-based vesting condition. In addition, we will recognize additional ongoing 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.”
Gross Profit and Gross Margin
We define gross profit as net revenues less cost of goods sold. Gross margin is gross profit expressed as a percentage of net revenues. Our gross margin has remained steady historically, but may fluctuate in the future based on a number of factors, including the cost at which we can obtain, transport, and assemble our inventory, the rate at which we open new retail stores, and how effective we can be at controlling costs, in any given period.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses, or SG&A, primarily consist of employee-related costs including salaries, benefits, bonuses, and stock-based compensation for our corporate and retail employees, marketing, information technology, credit card processing fees, donations in connection with our Buy a Pair, Give a Pair program, facilities, legal, and other administrative costs associated with operating the business. Marketing costs, which consist of both online and offline advertising, include sponsored search, online advertising, marketing and retail events, and other initiatives. Selling, general, and administrative expenses also include administrative costs associated with our Home Try-On program that provides customers the opportunity to sample eyewear at home prior to purchase. We expect our selling, general, and administrative expenses to increase in absolute dollars over time and to fluctuate as a percentage of revenue due to the anticipated growth of our business, increased marketing investments, and additional costs associated with becoming a public company. We also expect to recognize certain non-recurring costs as part of our transition to a publicly-traded company, consisting of professional fees and other expenses. These fees are expensed in the period incurred. Additionally, we will recognize stock-based compensation expense related to our RSUs which vest as a result of the satisfaction of the liquidity event-based vesting condition and will recognize additional ongoing 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.”
Interest and Other Income, Net
Interest and other income, net, consists primarily of interest generated from our cash and cash equivalents balances net of interest incurred on borrowings and unutilized line fees on our line of credit, and are recognized as incurred. We expect our interest and other income costs to fluctuate based on our future bank balances and credit line utilization.
Provision for Income Taxes
Provision for income taxes consists of income taxes related to foreign and domestic federal and state jurisdictions in which we conduct business, adjusted for allowable credits, deductions, and valuation allowance against deferred tax assets.
Results of Operations
The results of operations presented below should be reviewed in conjunction with the consolidated financial statements and notes included elsewhere in the prospectus. The following tables set forth our results of operations for the periods presented in dollars and as a percentage of net revenue:
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Year Ended December 31,
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Six Months Ended June 30,
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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)
|
|
(in thousands)
|
|
Consolidated Statements of Operations Data:
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|
Net revenue
|
$
|
370,463
|
|
|
$
|
393,719
|
|
|
$
|
176,790
|
|
|
$
|
270,533
|
|
|
Cost of goods sold
|
147,355
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|
|
161,784
|
|
|
74,015
|
|
|
108,699
|
|
|
Gross profit
|
223,108
|
|
|
231,935
|
|
|
102,775
|
|
|
161,834
|
|
|
Selling, general, and administrative expenses
|
224,771
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|
|
287,567
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|
|
111,956
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|
|
167,621
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|
Loss from operations
|
(1,663)
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|
|
(55,632)
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|
|
(9,181)
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|
|
(5,787)
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|
Interest and other income (loss), net
|
1,939
|
|
|
(97)
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|
|
545
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|
|
306
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|
|
Income (loss) income before income taxes
|
276
|
|
|
(55,729)
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|
|
(9,726)
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|
|
(6,093)
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|
|
Provision for income taxes
|
276
|
|
|
190
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|
|
281
|
|
|
1,202
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|
|
Net income (loss)
|
—
|
|
|
(55,919)
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|
|
(10,007)
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|
|
(7,295)
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Year Ended December 31,
|
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Six Months Ended June 30,
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|
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2019
|
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2020
|
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2020
|
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2021
|
|
|
% of Net Revenue
|
|
% of Net Revenue
|
|
Consolidated Statements of Operations Data:
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|
|
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Net revenue
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
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%
|
|
100.0
|
%
|
|
Cost of goods sold
|
39.8
|
%
|
|
41.1
|
%
|
|
41.9
|
%
|
|
40.2
|
%
|
|
Gross profit
|
60.2
|
%
|
|
58.9
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%
|
|
58.1
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%
|
|
59.8
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%
|
|
Selling, general, and administrative expenses
|
60.7
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%
|
|
73.0
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%
|
|
63.3
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%
|
|
62.0
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%
|
|
Loss from operations
|
(0.4)
|
%
|
|
(14.1)
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%
|
|
(5.2)
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%
|
|
(2.1)
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%
|
|
Interest and other income (loss), net
|
0.5
|
%
|
|
0.0
|
%
|
|
0.3
|
%
|
|
0.1
|
%
|
|
Income (loss) income before income taxes
|
0.1
|
%
|
|
(14.2)
|
%
|
|
(5.5)
|
%
|
|
(2.3)
|
%
|
|
Provision for income taxes
|
0.1
|
%
|
|
0.0
|
%
|
|
0.2
|
%
|
|
0.4
|
%
|
|
Net income (loss)
|
—
|
|
|
(14.2)
|
%
|
|
(5.7)
|
%
|
|
(2.7)
|
%
|
Comparison of the Six Months Ended June 30, 2020 and 2021
Net Revenue
|
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|
|
|
|
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|
|
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|
|
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Six Months Ended June 30,
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|
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|
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2020
|
|
2021
|
|
$ Change
|
|
% Change
|
|
|
(in thousands)
|
|
|
|
|
|
Net revenue
|
$
|
176,790
|
|
|
$
|
270,533
|
|
|
93,743
|
|
|
53.0
|
%
|
Net revenue increased $93.7 million, or 53.0%, for the six months ended June 30, 2021 compared to the same period in 2020. This increase in net revenue was driven by an increase in Orders as a result of an increase in our Active Customer base and an increase in AOV. The increase in Orders was due to the addition of new stores, strong e-commerce performance, and comparing to a period a year ago when our retail stores were temporarily closed due to COVID-19. AOV increased primarily due to a higher mix of purchases of glasses with progressive lenses and with lens treatments (e.g., blue-light-filtering, light-responsive).
Cost of Goods Sold, Gross Profit, and Gross Margin
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|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
2020
|
|
2021
|
|
$ Change
|
|
% Change
|
|
|
(in thousands)
|
|
|
|
|
|
Cost of goods sold
|
$
|
74,015
|
|
|
$
|
108,699
|
|
|
$
|
34,684
|
|
|
46.9
|
%
|
|
Gross profit
|
$
|
102,775
|
|
|
$
|
161,834
|
|
|
$
|
59,059
|
|
|
57.5
|
%
|
|
Gross margin
|
58.1
|
%
|
|
59.8
|
%
|
|
|
|
1.7
|
%
|
Cost of goods sold increased by $34.7 million, or 46.9%, for the six months ended June 30, 2021 compared to the same period in 2020, and decreased as a percentage of revenue over the same period by 170 basis points, from 41.9% of revenue to 40.2% of revenue. The increase in cost of goods sold was primarily driven by increased product and fulfillment costs associated with the growth in net revenue, as well as an increase in store occupancy and depreciation expense due to new retail stores opened since June 30, 2020, and a full six months of expense from new retail stores opened throughout the first half of 2020.
Gross profit, calculated as net revenue less cost of goods sold, increased by $59.1 million, or 57.5%, for the six months ended June 30, 2021 compared to the same period in 2020, primarily due to the increase in revenue over the same period.
Gross margin, expressed as a percentage and calculated as gross profit divided by net revenue, increased by 170 basis points for the six months ended June 30, 2021 compared to the same period in 2020. Gross margin for the six months ended June 30, 2021 was higher compared to the same period in the prior year primarily because the prior period includes impacts of the temporary closure of our retail stores due to COVID-19. For the six months ended June 30, 2020, we continued to incur retail store occupancy and depreciation costs and employee-related expenses associated with our prescription services while stores were closed which negatively impacted gross margin in the prior year period.
Selling, General, and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
2020
|
|
2021
|
|
$ Change
|
|
% Change
|
|
|
(in thousands)
|
|
|
|
|
|
Selling, general, and administrative expenses
|
$
|
111,956
|
|
|
$
|
167,621
|
|
|
$
|
55,665
|
|
|
49.7
|
%
|
|
As a percentage of net revenue
|
63.3
|
%
|
|
62.0
|
%
|
|
|
|
(1.3)
|
%
|
Selling, general, and administrative expenses increased $55.7 million, or 49.7%, for the six months ended June 30, 2021 compared to the same period in 2020, and as a percentage of net revenue decreased by 130 basis points. The decrease in SG&A as a percentage of net revenue was primarily driven by net revenue growing at a faster rate than our personnel expenses, including employee-related expenses of corporate and store employees, as well as general corporate overhead expenses, while advertising and marketing costs grew in-line with net revenue. The six months ended June 30, 2021 also included $9.2 million of stock compensation expense, or 3.4% of net revenue, incurred in connection with our Tender Offer, mainly representing previously unrecognized compensation costs related to settled and repurchased restricted stock units. Excluding these costs, SG&A expenses increased $46.4 million or 41.5%.
Interest and Other Income (Loss), Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2021,
|
|
|
|
|
|
|
2020
|
|
2021
|
|
$ Change
|
|
% Change
|
|
|
(in thousands)
|
|
|
|
|
|
Interest and other income (loss), net
|
$
|
545
|
|
|
$
|
306
|
|
|
$
|
(239)
|
|
|
(43.9)
|
%
|
|
As a percentage of net revenue
|
0.3
|
%
|
|
0.1
|
%
|
|
|
|
(0.2)
|
%
|
Interest and other income (loss), net decreased by $0.2 million, or 43.9%, for the six months ended June 30, 2021 compared to the same period in 2020. This decrease was primarily driven by lower interest expense due to the repayment of the balance outstanding on our Credit Facility in August 2020.
Comparison of the Years Ended December 31, 2019 and 2020
Net Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2019
|
|
2020
|
|
$ Change
|
|
% Change
|
|
|
(in thousands)
|
|
|
|
|
|
Net revenue
|
$
|
370,463
|
|
|
$
|
393,719
|
|
|
$
|
23,256
|
|
|
6.3
|
%
|
Net revenue increased $23.3 million, or 6.3%, for the year ended December 31, 2020 compared to the same period in 2019. This increase was driven by an increase of 1.5% in Active Customers from 1.78 million in 2019 to 1.81 million along with an increase in AOV as orders per Active Customer remained consistent from 2019 to 2020. The increase in AOV was driven by a higher mix of purchases of glasses with progressive lenses and with lens treatments (e.g., blue-light-filtering, light-responsive) which increased our total average price per unit sold, while our average units per order remained consistent year-over-year. Due to COVID-19, we temporarily closed our retail stores, which impacted our net revenue for the year ended December 31, 2020 and also led to a shift in purchases through our e-commerce channel.
Cost of Goods Sold, Gross Profit, and Gross Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2019
|
|
2020
|
|
$ Change
|
|
% Change
|
|
|
(in thousands)
|
|
|
|
|
|
Cost of goods sold
|
$
|
147,355
|
|
|
$
|
161,784
|
|
|
$
|
14,429
|
|
|
9.8
|
%
|
|
Gross profit
|
223,108
|
|
|
231,935
|
|
|
8,827
|
|
|
4.0
|
%
|
|
Gross margin
|
60.2
|
%
|
|
58.9
|
%
|
|
|
|
(1.3)
|
%
|
Cost of goods sold increased by $14.4 million, or 9.8%, for the year ended December 31, 2020 compared to the same period in 2019, and increased as a percentage of revenue over the same period by 130 basis points, from 39.8% of revenue to 41.1% of revenue. The increase in cost of goods sold was primarily driven by increased product and fulfillment costs associated with the growth in net revenue, as well as an increase in store occupancy and depreciation expense due to new retail stores opened in 2020 and a full-year of expense from new retail stores opened throughout 2019.
Gross profit, calculated as net revenue less cost of goods sold, increased by $8.8 million, or 4.0%, for the year ended December 31, 2020 compared to the same period in 2019, primarily due to the increase in revenue in 2020 as compared to 2019.
Gross margin, expressed as a percentage and calculated as gross profit divided by net revenue, decreased by 130 basis point for the year ended December 31, 2020 compared to the same period in 2019. The decrease in gross margin was primarily a result of an increase in costs that are not directly driven by products sold, including retail store occupancy and depreciation costs and employee-related costs associated with our prescription services.
Selling, General, and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2019
|
|
2020
|
|
$ Change
|
|
% Change
|
|
|
(in thousands)
|
|
|
|
|
|
Selling, general, and administrative expenses
|
$
|
224,771
|
|
|
$
|
287,567
|
|
|
$
|
62,796
|
|
|
27.9
|
%
|
|
As a percentage of net revenue
|
60.7
|
%
|
|
73.0
|
%
|
|
|
|
12.3
|
%
|
Selling, general, and administrative expenses increased $62.8 million, or 27.9%, for the year ended December 31, 2020 compared to the same period in 2019. This increase was primarily driven by a $41.7 million stock-based compensation charge, or 10.8% of net revenue, in connection with shares held by employees that were sold to a third-party investor at the same time as our Series G redeemable convertible preferred stock issuance. Excluding these costs, SG&A expenses increased $21.1 million or 9.4%. The increase in SG&A as a percentage of net revenue was primarily driven by an increase in marketing and Home Try-On costs to support and capitalize on increased demand for at-home shopping due to the impact of the COVID-19 pandemic. This increase as a percentage of net revenue was partially offset by a reduction in general corporate overhead expenses as a percentage of revenue.
Interest and Other Income (Loss), Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2019
|
|
2020
|
|
$ Change
|
|
% Change
|
|
|
(in thousands)
|
|
|
|
|
|
Interest and other income (loss), net
|
$
|
1,939
|
|
|
$
|
(97)
|
|
|
$
|
(2,036)
|
|
|
(105.0)
|
%
|
|
As a percentage of net revenue
|
0.5
|
%
|
|
—
|
%
|
|
|
|
(0.5)
|
%
|
Interest and other income (loss), net decreased by $2.0 million, or 105.0%, for the year ended December 31, 2020 compared to the same period in 2019. This decrease was primarily driven by a reduction in interest income due to a lower interest rate environment, interest expense on borrowings under the Credit Facility, and the timing and amounts of cash balances.
Quarterly Results of Operations
The following table sets forth our unaudited quarterly consolidated statements of operations data by quarter from the third quarter of 2019 to the second quarter of 2021. The unaudited quarterly consolidated results of operations set forth below have been prepared on the same basis as our audited consolidated financial statements and in our opinion contains all adjustments, consisting only of normal and recurring adjustments, necessary for the fair statement of this financial information. You should read the following information in conjunction with our consolidated financial statements and the accompanying notes thereto included elsewhere in this prospectus. The results of historical periods are not necessarily indicative of the results for any future period, and the results for any quarter are not necessarily indicative of results to be expected for a full year or any other period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
(in thousands)
|
September 30, 2019
|
|
December 31, 2019
|
|
March 31, 2020
|
|
June 30, 2020
|
|
September 30, 2020
|
|
December 31, 2020
|
|
March 31, 2021
|
|
June 30, 2021
|
|
Consolidated Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
$
|
94,735
|
|
|
$
|
93,621
|
|
|
$
|
109,657
|
|
|
$
|
67,133
|
|
|
$
|
104,091
|
|
|
$
|
112,837
|
|
|
$
|
138,973
|
|
|
$
|
131,560
|
|
|
Cost of goods sold
|
37,874
|
|
|
40,288
|
|
|
43,067
|
|
|
30,948
|
|
|
40,111
|
|
|
47,659
|
|
|
55,192
|
|
|
53,507
|
|
|
Gross profit
|
56,861
|
|
|
53,333
|
|
|
66,590
|
|
|
36,185
|
|
|
63,980
|
|
|
65,178
|
|
|
83,781
|
|
|
78,053
|
|
|
Selling, general and administrative expenses
|
55,382
|
|
|
66,855
|
|
|
63,574
|
|
|
48,382
|
|
|
105,315
|
|
|
70,295
|
|
|
80,760
|
|
|
86,861
|
|
|
Income (loss) from operations
|
1,479
|
|
|
(13,522)
|
|
|
3,016
|
|
|
(12,197)
|
|
|
(41,335)
|
|
|
(5,117)
|
|
|
3,021
|
|
|
(8,808)
|
|
|
Interest and other (loss) income, net
|
(58)
|
|
|
(379)
|
|
|
49
|
|
|
496
|
|
|
81
|
|
|
(529)
|
|
|
(134)
|
|
|
440
|
|
|
Income (loss) income before income taxes
|
1,537
|
|
|
(13,143)
|
|
|
2,967
|
|
|
(12,693)
|
|
|
(41,416)
|
|
|
(4,588)
|
|
|
3,155
|
|
|
(9,248)
|
|
|
Provision for (benefit from) income taxes
|
154
|
|
|
(1,288)
|
|
|
189
|
|
|
93
|
|
|
196
|
|
|
(287)
|
|
|
144
|
|
|
1,059
|
|
|
Net income (loss)
|
$
|
1,383
|
|
|
$
|
(11,855)
|
|
|
$
|
2,778
|
|
|
$
|
(12,786)
|
|
|
$
|
(41,612)
|
|
|
$
|
(4,301)
|
|
|
$
|
3,011
|
|
|
$
|
(10,307)
|
|
|
Certain Non-GAAP Financial Measures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA(1)
|
$
|
6,356
|
|
|
$
|
(5,061)
|
|
|
$
|
8,083
|
|
|
$
|
(6,916)
|
|
|
$
|
5,437
|
|
|
$
|
1,054
|
|
|
$
|
9,264
|
|
|
$
|
10,810
|
|
|
Adjusted EBITDA Margin(1)
|
6.7
|
%
|
|
(5.4
|
%)
|
|
7.4
|
%
|
|
(10.3
|
%)
|
|
5.2
|
%
|
|
0.9
|
%
|
|
6.7
|
%
|
|
8.2
|
%
|
__________________
(1)We define adjusted EBITDA as net income (loss) before interest and other income (loss), taxes, and depreciation and amortization as further adjusted for stock-based compensation expense. We define adjusted EBITDA margin as adjusted EBITDA divided by net revenue. We caution investors that amounts presented in accordance with our definitions of adjusted EBITDA and adjusted EBITDA margin may not be comparable to similar measures disclosed by our competitors, because not all companies and analysts calculate adjusted EBITDA and adjusted EBITDA margin in the same manner. We present adjusted EBITDA and adjusted EBITDA margin because we consider these metrics to be important supplemental measures of our performance and believe it is frequently used by securities analysts, investors, and other interested parties in the evaluation of companies in our industry. Management believes that investors’ understanding of our performance is enhanced by including these non-GAAP financial measures as a reasonable basis for comparing our ongoing results of operations.
The following table reconciles adjusted EBITDA and adjusted EBITDA margin to the most directly comparable GAAP measure, which is net (loss) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
(in thousands)
|
|
September 30, 2019
|
|
December 31, 2019
|
|
March 31, 2020
|
|
June 30, 2020
|
|
September 30, 2020
|
|
December 31, 2020
|
|
March 31, 2021
|
|
June 30, 2021
|
|
Net income (loss)
|
|
$
|
1,383
|
|
|
$
|
(11,855)
|
|
|
$
|
2,778
|
|
|
$
|
(12,786)
|
|
|
$
|
(41,612)
|
|
|
$
|
(4,301)
|
|
|
$
|
3,011
|
|
|
$
|
(10,307)
|
|
|
Interest and other (income) loss, net
|
|
(58)
|
|
|
(379)
|
|
|
49
|
|
|
496
|
|
|
81
|
|
|
(529)
|
|
|
(134)
|
|
|
440
|
|
|
Provision for (benefit from) income taxes
|
|
154
|
|
|
(1,288)
|
|
|
189
|
|
|
93
|
|
|
196
|
|
|
(287)
|
|
|
144
|
|
|
1,059
|
|
|
Depreciation and amortization expense
|
|
4,262
|
|
|
4,043
|
|
|
4,418
|
|
|
4,558
|
|
|
4,395
|
|
|
5,007
|
|
|
4,704
|
|
|
5,118
|
|
|
Stock-based compensation expense(1)
|
|
615
|
|
|
4,418
|
|
|
649
|
|
|
723
|
|
|
42,377
|
|
|
1,164
|
|
|
1,261
|
|
|
10,409
|
|
|
Transaction Costs(2)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
278
|
|
|
4,091
|
|
|
Adjusted EBITDA
|
|
$
|
6,356
|
|
|
$
|
(5,061)
|
|
|
$
|
8,083
|
|
|
$
|
(6,916)
|
|
|
$
|
5,437
|
|
|
$
|
1,054
|
|
|
$
|
9,264
|
|
|
$
|
10,810
|
|
|
Adjusted EBITDA margin
|
|
6.7
|
%
|
|
(5.4
|
%)
|
|
7.4
|
%
|
|
(10.3
|
%)
|
|
5.2
|
%
|
|
0.9
|
%
|
|
6.7
|
%
|
|
8.2
|
%
|
__________________
(1)Represents non-cash expenses related to equity-based compensation programs, which may vary significantly from period to period depending on various factors including the timing, number, and the valuation of awards granted, vesting of awards including the satisfaction of performance conditions, and the impact of repurchases of awards from employees.
(2)Represents (i) costs directly attributable to the preparation for our public listing and (ii) expenses incurred in connection with the Tender Offer completed in June 2021.
For more information about how we use these non-GAAP financial measures in our business and the limitations of these measures, please see the section titled “Prospectus Summary—Summary Consolidated Financial and Other Data—Key Business Metrics and Certain Non-GAAP Financial Measures.”
Quarterly Revenue Trends
Revenue remained flat between the third and fourth quarter of 2019 and increased in the first quarter of 2020 as the last week of the year has historically been the strongest due to holiday shopping and customers using their flexible spending account dollars before they expire on December 31st of March 15th, depending on the individual’s underlying health care plan. As revenue is recognized upon delivery of product to the customer, the revenue associated with sales in the end of the fourth quarter is generally deferred and recognized in the first quarter of the following year.
Revenue decreased in the second quarter of 2020 due to the impact of COVID-19, as most of our stores were closed for the entirety of the period resulting in a decline in Active Customers and Orders. Revenue increased sequentially in the third quarter of 2020 through the first quarter of 2021 as all of our stores reopened, with limited capacity, by August 2020, resulting in an increase in Active Customers, and Orders. Consistent with the typical seasonality of our business, revenue decreased on a sequential basis from the first quarter of 2021 to the second quarter of 2021. First quarter revenue typically benefits from the deferral of revenue associated with orders placed in final week of December as well as from the expiration of flexible spending dollars, which customers seek to use before expiration on December 31st or March 15th.
Quarterly Expense Trends
Cost of goods sold generally fluctuates in-line with revenue trends as our product costs, freight and fulfillment, optical laboratory costs, and customer shipping are recognized when an order is received by the customer. We have experienced increases in COGS primarily resulting from increases in product costs related to fulfilling Orders which have increased as net revenue increases, as well as moderate increases in retail occupancy costs as we expand our retail footprint and holistic vision care offerings in support of our growth. Over the quarterly periods shown, cost of goods as a percentage of revenue has remained relatively consistent.
Selling, general, and administrative expenses increased sequentially between the third and fourth quarter of 2019 primarily due to increased employee-related costs, advertising and marketing costs, and professional fees to support the overall growth of our business and customer demand in the period.
During the second quarter of 2020, SG&A sequentially decreased due to the impact of COVID-19 as we experienced a reduction in employee-related and variable costs associated with the closure of our retail stores. Despite the impacts of COVID-19 on our business, we deployed spend to grow our Home Try-On program and capitalize on increased demand for at-home shopping which is partially offsetting the reduced costs noted above. Our third quarter 2020 SG&A includes a $41.7 million stock-based compensation charge in connection with shares held by employees that were sold to a third-party investor at the same time as our Series G redeemable convertible preferred stock issuance.
SG&A has increased each quarter since the fourth quarter of 2020 to support the overall growth in the business as well as to prepare to meet our obligations as a public company following the completion of this offering. Our second quarter 2021 included a $9.2 million of stock compensation expense incurred in connection with our Tender Offer, mainly representing previously unrecognized compensation costs related to settled and repurchased restricted stock units.
Seasonality
Historically, our business has not experienced material seasonal fluctuations in net revenue. We do observe moderately higher seasonal demand during the month of December due in part to customer usage of health and flexible spending benefits in the final week of the year. Consistent with our policy to recognize revenue upon order delivery, any orders placed at the end of December are recognized as revenue upon delivery which may occur in the following year, and as such we typically see revenue decrease sequentially from the first quarter to the second quarter.
Our business has experienced a higher proportion of costs in each subsequent quarter as a year progresses due to the overall growth of the business and operating costs to support that growth, including costs related to the opening of new retail stores and increased marketing and employee-related compensation to support growth. The fourth quarter, in particular, has historically experienced the highest amount of costs in a year to support the business demand in the quarter, even though a portion of the net revenue from that demand is not recognized until January of the following year (see above for more details). In the future, seasonal trends may cause fluctuations in our quarterly results, which may impact the predictability of our business and operating results.
Liquidity and Capital Resources
Since inception, we have financed our operations primarily from net proceeds from the sale of redeemable convertible preferred stock and cash flows from operating activities. As of December 31, 2020, we had cash and cash equivalents of $314.1 million, which was primarily held for working capital purposes, and an accumulated deficit of $325.4 million. As of June 30, 2021, we had cash and cash equivalents of $260.7 million, which was primarily held for working capital purposes, and an accumulated deficit of $356.3 million.
We expect that operating losses could continue in the foreseeable future as we continue to invest in the expansion of our business and sales and marketing activities. We believe our existing cash and cash equivalents, funds available under our existing credit facility, and cash flows from operating activities will be sufficient to fund our operations for at least the next 12 months.
However, our future capital requirements will depend on many factors, including, but not limited to, growth in the number of retail stores, the needs of our optical laboratories and distribution network, expansion of our product offerings or service capabilities, and the timing of investments in technology and personnel to support the overall growth in our business. To the extent that current and anticipated future sources of liquidity are insufficient to fund our future business activities and requirements, we may be required to seek additional equity or debt financing. The sale of additional equity would result in additional dilution to our stockholders. The incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations. There can be no assurances that we will be able to raise additional capital. In the event that additional financing is required from outside sources, we may not be able to negotiate terms acceptable to us or at all. In particular, the recent COVID-19 pandemic has caused
disruption in the global financial markets, which could reduce our ability to access capital and negatively affect our liquidity in the future. If we are unable to raise additional capital when required, or if we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, results of operations, financial condition, and cash flows would be adversely affected.
Credit Facility
In August 2013, we, Warby Parker Retail, Inc., a wholly owned subsidiary, and the other co-borrowers party thereto from time to time, entered into the Loan and Security Agreement with Comerica Bank, or the Credit Facility, as amended, that consists of a revolving credit line of up to $50.0 million. The revolving credit line has a sub-limit of up to $15.0 million for the issuance of letters of credit. Borrowings under the revolving credit line bear interest on the principal amount outstanding at a variable interest rate based on either LIBOR or the bank’s prime rate (as defined in the credit agreement), with no additional margin. We are charged fees on the uncommitted portion of the credit line of approximately 0.2% as long as total borrowings remain less than $15.0 million.
In February and March 2020, we borrowed a total of $30.9 million under the Credit Facility, which was fully repaid in August 2020.
Other than letters of credit of $5.4 million and $3.7 million as of December 31, 2019 and 2020, respectively, there were no other borrowings outstanding under the Credit Facility as of December 31, 2019 and 2020.
Cash Flows
The following table summarizes our cash flows for the years ended December 31, 2019 and 2020, and the six months ended June 30, 2020 and 2021:
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Year Ended December 31,
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Six Months Ended June 30,
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2019
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2020
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2020
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2021
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(in thousands)
|
|
Net cash provided by (used in) operating activities
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$
|
21,394
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|
|
$
|
32,758
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|
|
$
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(4,688)
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|
$
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(5,095)
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|
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Net cash used in investing activities
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(32,632)
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|
|
(20,070)
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|
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(11,080)
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|
|
(21,215)
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Net cash (used in) provided by financing activities
|
(83,362)
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|
|
245,936
|
|
|
155,745
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|
|
(27,235)
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|
|
Effect of exchange rates on cash
|
237
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|
|
37
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|
|
(360)
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|
|
132
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|
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Net (decrease) increase in cash and cash equivalents
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$
|
(94,363)
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|
|
$
|
258,661
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|
|
$
|
139,617
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|
|
$
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(53,413)
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|
Cash Flows from Operating Activities
Net cash provided by operating activities was $21.4 million for the year ended December 31, 2019, consisting of break-even net income, adjusted for $23.0 million of non-cash expenses and $1.6 million of net cash used as a result of changes in operating assets and liabilities. The non-cash charges included $14.5 million of depreciation and amortization and $8.5 million of stock-based compensation. The changes in operating assets and liabilities were primarily driven by an increase in accounts payable, deferred rent, deferred revenue, and accrued expenses, partially offset by an increase in net inventory to support the growth of our business.
Net cash provided by operating activities was $32.8 million for the year ended December 31, 2020, consisting of a net loss of $55.9 million, adjusted for $63.3 million of non-cash expenses and $25.4 million of net cash provided as a result of changes in operating assets and liabilities. The non-cash charges included $44.9 million of stock-based compensation and $18.4 million of depreciation and amortization. The changes in operating assets and liabilities were primarily driven by an increase in accrued expenses, accounts payable, deferred revenue, and deferred rent, partially offset by an increase in net inventory to support the growth of our business.
Net cash used in operating activities was $4.7 million for the six months ended June 30, 2020, consisting of a net loss of $10.0 million, adjusted for $10.3 million of non-cash expenses and $5.0 million of net cash used as a result of changes in operating assets and liabilities. The non-cash charges included $9.0 million of depreciation and
amortization and $1.3 million of stock-based compensation. The changes in operating assets and liabilities were primarily driven by an increase in net inventory to support the growth of our business and a decrease in deferred revenue, partially offset by increases in accounts payable and accrued expenses and a decrease in prepaid expenses and other assets.
Net cash used in operating activities was $5.1 million for the six months ended June 30, 2021, consisting of a net loss of $7.3 million, adjusted for $21.5 million of non-cash expenses and $19.3 million of net cash used as a result of changes in operating assets and liabilities. The non-cash charges included $11.7 million of stock-based compensation and $9.8 million of depreciation and amortization. The changes in operating assets and liabilities were primarily driven by decreases in deferred revenue, accounts payable and accrued expenses, and an increase in inventory, partially offset by an increase in deferred rent.
Cash Flows from Investing Activities
For the year ended December 31, 2019, net cash used in investing activities was $32.6 million related to purchases of property and equipment to support our growth, primarily related to the build-out of new retail stores, as well as investments in capitalized software development costs.
For the year ended December 31, 2020, net cash used in investing activities was $20.1 million related to purchases of property and equipment to support our growth, primarily related to the build-out of new retail stores, as well as investments in our corporate facilities and capitalized software development costs.
For the six months ended June 30, 2020, net cash used in investing activities was $11.1 million related to purchases of property and equipment to support our growth, primarily related to the build-out of new retail stores, as well as investments in our corporate facilities and capitalized software development costs.
For the six months ended June 30, 2021, net cash used in investing activities of $21.2 million related to purchases of property and equipment to support our growth, primarily related to the build-out of new retail stores, as well as investments in our supply chain infrastructure and capitalized software development costs.
Cash Flows from Financing Activities
For the year ended December 31, 2019, net cash used in financing activities was $83.4 million, which was primarily related to $79.5 million of stock repurchases made during the year.
For the year ended December 31, 2020, net cash provided by financing activities was $245.9 million, which was primarily related to $243.6 million of net proceeds from our Series F and Series G redeemable convertible preferred stock issuances.
For the six months ended June 30, 2020, net cash provided by financing activities was $155.7 million, which was primarily related to $124.7 million of net proceeds from our Series F redeemable convertible preferred stock issuance and $30.9 million of a drawdown on our line of credit.
For the six months ended June 30, 2021, net cash used in financing activities was $27.2 million, which was primarily related to repurchases of stock during the period, including shares repurchased in connection with our Tender Offer.
Contractual Obligations and Commitments
The following table summarizes our contractual obligations and commitments as of December 31, 2020:
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Payments Due by Period
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Total
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Less than 1 year
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1 to 3 years
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3 to 5 years
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More than 5 years
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(in thousands)
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Operating leases
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$
|
168,072
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|
|
$
|
28,599
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|
|
$
|
52,212
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|
|
$
|
43,732
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|
|
$
|
43,529
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Total
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$
|
168,072
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|
|
$
|
28,599
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|
|
$
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52,212
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|
|
$
|
43,732
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|
|
$
|
43,529
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|
For additional discussion on our operating lease obligations, see Note 9 to our audited consolidated financial statements included elsewhere in this prospectus. Subsequent to December 31, 2020, we entered into 20 operating lease agreements and extended the terms of three existing operating lease agreements for retail and laboratory space in the U.S. Total commitments under the new agreements are approximately $22.5 million.
Off-Balance Sheet Arrangements
We enter into standby letters of credit to secure certain leases in lieu of a cash security deposit. We had issued letters of credit of $3.7 million and $3.6 million as of December 31, 2020 and June 30, 2021, respectively, under our Credit Facility. We did not have any other off-balance sheet arrangements as of December 31, 2020 and June 30, 2021.
Quantitative and Qualitative Disclosures About Market Risk
Market risk represents the risk of loss that may impact our financial position because of adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of exposure resulting from potential changes in currency rates, interest rates, or inflation.
Foreign Exchange Risk
We are exposed to changes in foreign currency rates as a result of our foreign operations and international suppliers from whom we purchase in Japanese yen and euros. Revenue and income generated by our operations in Canada and our cost of goods sold will increase or decrease compared to prior periods as a result of changes in foreign currency exchange rates. We do not believe that foreign exchange rates have a material effect on our business, financial condition or results of operations.
Interest Rate Risk
Our cash and cash equivalents as of June 30, 2021 consisted of $260.7 million in cash and money-market funds. Such interest-earning instruments carry a degree of interest rate risk. The goals of our investment policy are liquidity and capital preservation. We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate exposure. We believe that we do not have any material exposure to changes in the fair value of these assets as a result of changes in interest rates due to the short-term nature of our cash and cash equivalents.
Inflation Risk
We do not believe that inflation has had a material effect on our business, financial condition, or results of operations. If our costs become subject to significant inflationary pressures, we may not be able to fully offset such higher costs with increased revenue. Our inability or failure to do so could harm our business, financial condition, and results of operations.
Critical Accounting Policies and Estimates
Management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods, as well as related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying value of assets and liabilities and the amount of revenue and expenses that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, and any such differences may be material. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.
Inventory
Inventory is stated at the lower of cost or estimated realizable value, with cost determined on a weighted average cost basis. The company continuously evaluates the composition of its inventory and makes adjustments when the cost of inventory is not expected to be fully recoverable. The estimated net realizable value of inventory is determined based on an analysis of historical sales trends, the impact of market trends and economic conditions, and a forecast of future demand. Adjustments for damaged inventory are recorded primarily based on actual damaged inventory. Adjustments for inventory shrink, representing the physical loss of inventory, are estimated based on historical experience and are adjusted based upon physical inventory counts. Actual results may differ from estimates due to the quantity and mix of products in inventory, consumer preferences, and economic and market conditions. Our historical estimates of these costs and the related provisions have not differed materially from actual results. However, unforeseen adverse future economic and market conditions, such as those resulting from disease pandemics and other catastrophic events, could result in our actual results differing materially from our estimates.
Stock-Based Compensation
We recognize compensation expense for stock-based awards based on the grant date fair value, on a straight-line basis over the requisite service period of the awards, which is generally the vesting term of the outstanding stock awards. Compensation expense for performance awards is recognized when it is determined that it is probable that the vesting conditions will be satisfied.
We estimate the fair value of options on the date of grant using the Black-Scholes option-pricing model, which utilizes assumptions subject to management estimate. These assumptions include estimating the expected term, or the length of time employees will retain their vested stock options before exercising them, the estimated volatility of our common stock price over the expected term, the fair value of our stock, the risk-free interest rate, and the expected dividend yield. Changes in these assumptions can materially affect the estimate of fair value of stock-based compensation. We account for forfeitures as they occur.
The following range of assumptions was used for options granted during the year ended December 31, 2019 (no options were granted in 2020) and the six months ended June 30, 2021:
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|
|
For the year ended December 31, 2019
|
For the six months ended June 30, 2021
|
|
Risk-free interest rates
|
2.3% - 2.6%
|
0.6
|
%
|
|
Expected dividend yield
|
—
|
|
—
|
|
|
Expected term
|
6.25 years
|
6.25 years
|
|
Volatility
|
40
|
%
|
60
|
%
|
Risk-free interest rates: The risk-free interest rates were estimated based on the yield curve in effect at the time of grant for zero-coupon U.S. Treasury notes with terms consistent with the expected term of the option awards.
Expected dividend yield: The expected dividend yield is zero as we have never declared or paid cash dividends and do not have plans to do so in the foreseeable future.
Expected term: The expected term is calculated using the simplified method using the vesting term of four years and the contractual term of ten years, resulting in a holding period of 6.25 years. Stock options expire ten years from the date of the grant.
Volatility: As we do not have a trading history of our common stock, the volatility rates for the year ended December 31, 2019 and 2020 and the six months ended June 30, 2021 were determined based on an analysis of comparable public company historical volatilities adjusted based on our stage of development. We intend to continue utilizing similar comparable companies to estimate volatility until sufficient historical information as to the volatility of our Class A common stock is available.
Restricted stock units, or RSUs, issued by us vest upon the satisfaction of both a service-based and a liquidity-event performance-based requirement. The service-based vesting conditions are satisfied so long as the participant remains in service and employed by us as of each of the vesting dates, which is generally over four years. The liquidity-based vesting condition is satisfied upon (i) an initial public offering or (ii) change in control of the company as defined in our equity incentive plans. The RSUs vest on the first date upon which both the service-based and liquidity-event performance-based requirements are satisfied. If the RSUs vest, we will deliver one share of common stock for each vested RSU on the settlement date. Unvested RSUs expire in seven years from the date of grant.
We have concluded that as of December 31, 2019 and 2020 and June 30, 2021, it is not probable that the liquidity-event performance-based vesting condition will occur, and therefore did not record any stock-based compensation expense to date for any RSUs. In the period in which the liquidity-event performance-based condition becomes probable, we will record a cumulative catch-up expense for the service period completed to such date and will begin recording stock-based compensation expense using the accelerated attribution method, net of forfeitures, based on the grant-date fair value of the RSUs for awards where the service period is not complete.
Common Stock Valuations
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 based on several objective and subjective factors. In determining the fair value of our common stock, our board of directors considered 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; our stage of development and current business conditions and projections affecting our business. Such conditions and projections include 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 a qualified 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 addition, we also considered any secondary transactions involving our common stock. In our evaluation of those transactions, we considered the facts and circumstances of each transaction to determine the extent to which they represented a fair value exchange. Factors considered include transaction volume, timing, whether the transactions occurred among willing and unrelated parties, and whether the transactions involved investors with access to our financial information.
In valuing our common stock, we first determined the equity value using both the income and market approach valuation methods. In addition, we also considered values implied by sales of redeemable convertible preferred and common stock, if applicable. We then allocated the equity value to our classes of stock using an option-pricing model, or OPM, or Probability Weighted Expected Return Method, or PWERM.
The income approach estimates equity value based on the expectation of future cash flows that a company will generate. These future cash flows, and an assumed terminal value, are discounted to their present values using a discount rate based on a weighted-average cost of capital that reflects the risks inherent in the cash flows. The market approach estimates equity value based on a comparison of the subject company to comparable public companies in a similar line of business. From the comparable companies, a representative market value multiple is determined and then applied to the subject company’s financial forecasts to estimate the value of the subject company.
Once we determined an equity value, we used a combination of approaches to allocate the equity value to each of our classes of stock. We have historically used the OPM, and more recently used the OPM in combination with the 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. Using the PWERM, the value of our common stock is estimated based upon a probability-weighted analysis of varying values for our common stock assuming possible future events, which include an initial public offering, merger or sale, dissolution, or continued operation as a private company. In determining the estimated fair value of our common stock, we considered the fact that our stockholders could not freely trade our common stock in the public markets. Accordingly, we also applied a lack of marketability discount to the equity value.
Following this offering, it will not be necessary to estimate the fair value of our common stock, as the shares will be traded in the public market, and the fair value of our common stock will be based on the closing price as reported by the NYSE.
Income Taxes
Management makes estimates, assumptions, and judgments to determine our provision for income taxes, deferred tax assets and liabilities, and any valuation allowance recorded against deferred tax assets. We utilize the asset and liability method of accounting for income taxes. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, as well as operating loss, capital loss, and tax credit carryforwards. Valuation allowances are established against deferred tax assets if it is more likely than not that they will not be realized.
Our policy is to recognize interest and penalties expense, if any, related to unrecognized tax benefits as a component of income tax expense.
Internal Control Over Financial Reporting
In the preparation of the consolidated financial statements that are included in this prospectus, our management has determined that we have material weaknesses in our internal control over financial reporting. The material weaknesses identified relate to (i) information technology general controls, in the areas of user access and program change management, over our key accounting, reporting, and proprietary systems and (ii) certain process and application controls within our financial reporting processes to enforce segregation of duties, prevent and detect errors, support timely reconciliation and analysis of certain key accounts, and enable the review of manual journal entries. We have concluded that these material weaknesses arose because, as a private company, we did not have the necessary business processes, systems, personnel, and related internal controls necessary to satisfy the accounting and financial reporting requirements of a public company.
In order to remediate these material weaknesses, we have made progress in the following actions, among others:
•development of IT general controls to manage access and program changes across our key systems and the execution of improvements to application controls within our proprietary system;
•continued hiring of additional qualified accounting and financial reporting personnel to support division of responsibilities; and we plan to continue to take the following actions, among others:
•implementation of additional review controls and processes and requiring timely account reconciliations and analyses; and
•implementation of processes and controls to better identify and manage segregation of duties.
We will not be able to fully remediate these material weaknesses until these steps have been completed and have been operating effectively for a sufficient period of time.
Furthermore, we cannot assure you that the measures we have taken to date, and actions we may take in the future, will be sufficient to remediate the control deficiencies that led to our material weaknesses in our internal control over financial reporting or that they will prevent or avoid potential future material weaknesses. Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business. Further, weaknesses in our disclosure controls and internal control over financial reporting may be discovered in the future. Any failure to develop or maintain effective controls or any difficulties encountered in their implementation or improvement could harm our operating results or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods.
In accordance with the provisions of the JOBS Act, we and our independent registered public accounting firm were not required to, and did not, perform an evaluation of our internal control over financial reporting as of December 31, 2020 nor any period subsequent in accordance with the provisions of the Sarbanes-Oxley Act. Therefore, we cannot assure you that we have identified all, or that we will not in the future have additional, material weaknesses. Material weaknesses may still exist when we report on the effectiveness of our internal control over financial reporting as required under Section 404 of the Sarbanes-Oxley Act after the completion of this listing. See the section titled “Risk Factors—Risks Related to Ownership of Our Class A Common Stock—We identified material weaknesses in our internal control over financial reporting and we may identify additional material weaknesses in the future that may cause us to fail to meet our reporting obligations or result in material misstatements of our financial statements. If our remediation of such material weaknesses is not effective, or if we fail to develop and maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable laws and regulations could be materially and adversely affected.”
Recent Accounting Pronouncements
See Note 2 to our consolidated financial statements included elsewhere in this prospectus for a description of recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted.
JOBS Act
We currently qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Accordingly, we are provided the option to adopt new or revised accounting guidance either (i) within the same periods as those otherwise applicable to non-emerging growth companies or (ii) within the same time periods as private companies. We have elected to adopt new or revised accounting guidance within the same time period as private companies, unless management determines it is preferable to take advantage of early adoption provisions offered within the applicable guidance. Our utilization of these transition periods may make it difficult to compare our financial statements to those of non-emerging growth companies and other emerging growth companies that have opted out of the transition periods afforded under the JOBS Act.
Business
Our Founding Story
We started Warby Parker 11 years ago to solve our own problems as frustrated consumers and to make a positive impact. We aspired to demonstrate that a business could scale, be profitable, and do good in the world—without charging a premium for it. Since our founding in 2010, we have pioneered ideas, designed products, and developed technologies that help people see. We offer everything our customers need for happier eyes at a price that leaves them with money in their pocket, from designer-quality glasses (starting at $95, including prescription lenses) and contacts, to eye exams and vision tests—and they can meet us online, at our retail stores, or even at home. Wherever and whenever they need it, we’re there to make exceptional vision care simple and accessible. Delightful, too.
We also believe that everyone has the right to see. Glasses enable people to learn, work, and navigate the world with more security and dignity, but 2.5 billion people around the world who need them do not have access. To help address this problem, we partner with nonprofit organizations like VisionSpring to ensure that for every pair of glasses sold, a pair is distributed to someone in need. VisionSpring estimates that, on average, a pair of glasses improves personal productivity by 35% and increases monthly income by up to 20%. Through our Buy a Pair, Give a Pair program, we have helped distribute over eight million pairs of glasses to people in need since inception, increasing earning potential for low-income households by more than an estimated $1 billion.
And we are just getting started.
A Lifestyle Brand Focused on Vision for All
Warby Parker is a mission-driven, lifestyle brand that operates at the intersection of design, technology, healthcare, and social enterprise. We stand for fun, creativity, and doing good in the world. Every day, our team of nearly 3,000 team members is focused on our mission to inspire and impact the world with vision, purpose, and style (without charging a premium for it). Our ultimate objective is to provide vision for all.
Our Customer-Centric Approach
When we launched the business in February of 2010, less than 2.5% of glasses were sold online—yet we believed that if we offered high-quality, uniquely designed glasses for a reasonable price point, with mechanisms to try them on like our Home Try-On program, and outstanding customer service, people would be willing to buy eyewear online for the first time. We reached our first-year sales targets in three weeks, sold out of our top 15 styles in four weeks, and built a waitlist of thousands of customers for our first-of-its-kind Home Try-On. Those first few months were chaotic to say the least, but we learned a lot.
Even without inventory, we were determined to make our early adopters’ experiences as remarkable as possible. Our founders and early employees reached out to every customer on our waitlist, answered calls and emails late into the night, and welcomed customers into our apartments to try on our debut collection. These actions laid the groundwork for how we would not only manage—but work to exceed—customer expectations moving forward.
Since that time, we have worked tirelessly to delight customers and scale our above-and-beyond customer experience, which has led to our NPS being above 80 on average throughout our history and 83 for the three months ended June 30, 2021. Based on a consumer survey as described further in the “Glossary,” we believe our NPS, an indicator of customer satisfaction and loyalty, is the highest in the optical industry, which has an average NPS of less than 30. At Warby Parker, we take pride in generating nothing-short-of-amazing moments, each and every time.
(1)If you're having trouble reading this footnote, give us a call. You might need some Warby Parker glasses : )
Who We Are Today
A pioneer of the direct-to-consumer model, Warby Parker is one of the fastest-growing brands at scale in the United States. Through our multichannel business, we have unlocked access to affordable, quality eye care for millions, starting with our two-million-and-growing active customer base as of June 30, 2021.
Since day one, Warby Parker’s focus on delighting customers and doing good has created a foundation for continuous innovation:
•We aim to provide customers with the highest-quality product possible by designing glasses at our headquarters in New York City, using custom materials, and selling direct to the customer. By cutting out the middleman, we are able to sell our products at a fraction of the price of many of our competitors and pass the savings on to our customers. In addition to lower prices, we introduced simple, unified pricing (glasses starting at $95, including prescription lenses) to the eyewear market.
•We’ve built a seamless shopping experience that meets customers where and how they want to shop, whether that’s on our website, on our mobile app, or in our more than 145 retail stores.
•We’ve crafted a holistic vision care offering that extends beyond glasses to include contacts, vision tests and eye exams, vision insurance, and beyond. We leverage leading (and in many cases proprietary) technology to enhance our customers’ experiences, whether it’s to help them find a better-fitting frame using our Virtual Try-On tool, or to update their prescription from home using Virtual Vision Test, our telehealth app.
•We recruit and retain highly engaged, motivated team members who are driven by our commitment to scaling a large, growing business while making an impact and are excited to connect their daily work back to our mission. According to data from our biannual Employee Engagement Survey, 91% of our survey respondents agreed that they are proud to work for Warby Parker; 89% think Warby Parker is in a good position to create a more equitable, inclusive and diverse workplace; and 88% would recommend Warby Parker as a great place to work. We believe our employees are more engaged than those at peer companies in the tech and retail sectors.
•We are a public benefit corporation focused on positively impacting all stakeholders, and hope to inspire other entrepreneurs and businesses to think along the same lines. We strive to benefit our employees, customers, communities, partners, and the environment by advancing access to eye care and living our core values. Working closely with our nonprofit partners, we distribute glasses to people in need in more than 50 countries globally and many parts of the United States. Over eight million more people now have the glasses they need to learn, work, and achieve better economic outcomes through our Buy a Pair, Give a Pair program. We also aim to use resources responsibly, reduce waste, and maintain a neutral carbon footprint, through offsets and verified emissions reductions we purchase to fully compensate for our carbon footprint.
We expect these investments in our products, our customer experience, and our communities to continue to pay off over time, enabling us to attract and retain passionate and motivated employees, create stronger brand loyalty, increase brand awareness, expand customer lifetime value, lower Customer Acquisition Cost, and more.
For the years ended December 31, 2018 (unaudited), 2019, and 2020:
•we generated net revenue of $272.9 million, $370.5 million, and $393.7 million, respectively;
•we generated gross profit of $164.3 million, $223.1 million, and $231.9 million, respectively, representing a gross profit margin of 60%, 60%, and 59%, respectively;
•we generated net (loss) income of $(22.9) million, $0 million, and $(55.9) million, respectively; and
•we generated adjusted EBITDA of $8.6 million, $21.9 million, and $7.7 million, respectively.
For the six months ended June 30, 2020 and 2021:
•we generated net revenue of $176.8 million and $270.5 million, respectively;
•we generated gross profit of $102.8 million and $161.8 million, respectively, representing a gross profit margin of 58% and 60%, respectively;
•we generated net (loss) of $(10.0) million and $(7.3) million, respectively; and
•we generated adjusted EBITDA of $1.2 million and $20.1 million, respectively.
For a definition of adjusted EBITDA, a non-GAAP measure, and a reconciliation to the most directly comparable GAAP measure, see the section titled “Prospectus Summary—Summary Consolidated Financial and Other Data—Key Business Metrics and Certain Non-GAAP Financial Measures.”
As of December 31, 2018, 2019, and 2020, and June 30, 2021, the key operational metrics of our business included:
•Store Count of 88, 119, 126, and 145, respectively; and
•Active Customers of 1.45 million, 1.78 million, 1.81 million, and 2.08 million, respectively.
For a definition of Store Count and Active Customers see the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Business Metrics and Certain Non-GAAP Financial Measures.”
We’ve deliberately been doing things differently from the beginning—and 11 years in, we’re still at it: surprising and delighting our customers by anticipating changing needs and technologies, and building rich and lasting customer relationships that enable us to deliver a highly personalized shopping experience for everyone, no matter the platform. All of this is accomplished alongside our efforts to create impact and do good.
Our Stakeholders
Our stakeholder-centric ethos guides us in every decision we make, which we believe leads to sustainable and durable growth, sometimes at the expense of short-term profits, but we expect investments in these areas to pay off over time. We believe our approach reflects the future of doing business and creates the type of impact-driven, authentic brand that customers not only admire, but demand.
Our Direct-to-Consumer Model
When we started Warby Parker 11 years ago, there were not many examples of brands that had launched online. Yet we believed that building a digitally native, vertically integrated brand would enable us to circumvent traditional channels, directly build meaningful relationships with consumers, and offer high-quality products at a reasonable price. Since then we have added many additional ways to engage with consumers—from our more than 145 retail stores to our Virtual Vision Test telehealth app—all with the intention of making the shopping process easy and fun for our customers. For the year ended December 31, 2020, we generated 95% of net revenue from the sale of glasses, 2% of net revenue from the sale of contacts, 1% of net revenue from eye exams, and the remaining 2% of net revenue primarily from the sale of eyewear accessories.
As we continuously seek to elevate the seamless customer experience, we leverage multiple components of our business model, including:
•Customer-First, Direct-to-Consumer. Since our founding, we have built a seamless customer experience, both in store and online, through which we believe we have deepened customer relationships and strengthened brand loyalty. We offer simple, unified pricing often at a fraction of the price of many of our competitors, making the purchase process transparent, easy, and affordable. Our retail stores provide fun, quirky, and stylized environments in which to shop alongside style and fit experts. Our website and mobile app make it quick and easy for our customers to browse, virtually try on, and purchase glasses. All of our infrastructure and customer service support our own brand, enabling us to optimize the look and feel of the user experience from browsing and trying on to purchase. Across all of our channels, we have Customer Experience and Retail team members ready to help at a moment’s notice. And whenever we have room to improve, our teams are the first to know; our direct-to-consumer approach helps us to gather real-time customer feedback and act on it more quickly than our non-DTC competitors.
•Sustainable, Predictable Growth. Eye care purchases are predominantly a non-discretionary medical necessity. 66% of glasses purchases and 71% of contacts purchases occur at the same location where consumers get their eye exams. Prescription eyewear consumers typically replace their glasses every two to two and a half years, while contact lens customers typically reorder every six to 12 months. On average, for customers acquired between 2015 and 2019, we observed an approximately 50% Sales Retention Rate within 24 months of their first purchase and nearly 100% Sales Retention Rate over 48 months. We believe our retention is unique in the optical industry in that our customers come back to the Warby Parker brand repeatedly. By contrast, when customers in the optical industry typically replenish their glasses, we do not believe they are necessarily loyal to any particular brand. Given our brand’s strength and replenishment cycle, we believe we have significant opportunity ahead to grow our wallet share, and delight more and more customers.
•Vertical Integration. We design and sell glasses under our own brand name. Our integrated supply chain consists of owned optical and fulfillment laboratories as well as third-party manufacturing and laboratory partnerships that we have built over the years and gives us control over product quality and fulfillment speed. We do this as we seek to ensure every part of the design, manufacturing, discovery, purchase, and delivery process is consistent with our brand and our commitment to delivering the highest quality products and remarkable customer experiences. In addition, we own data across the entire end-to-end journey that allows us to develop deep customer insights, informing our innovation, and enabling us to create a highly personalized, brand-enhancing experience with each customer.
•Strong Customer Economics. We track our unit economics at the customer level, which we refer to as customer economics, since our customers shop through multiple channels. Our personalized and differentiated digital and retail store experiences are designed to delight the customer, and each customer is profitable on a Contribution Margin basis. For the year ended December 31, 2020 our Average Revenue Per Customer was $218 and our Average Contribution Per Customer was $45. For a definition of Average Contribution Per Customer, a non-GAAP measure, and a reconciliation to the most directly comparable GAAP measure, see the section titled “Prospectus Summary—Summary Consolidated Financial and Other Data—Non-GAAP Financial Measures—Average Contribution Per Customer and Contribution Margin.”
The Eyewear Market is Large, Growing, and Ripe for Disruption
Large and Growing Market
The U.S. eyewear market is large and growing. The Vision Council defines the U.S. eyewear market in 2020 as an approximately $35 billion industry that has exhibited consistent, stable growth across multiple economic cycles, and estimates the U.S. glasses market to be approximately $21 billion. Independent optical retailers made up approximately 51% of all optical retail sales in 2020, while the remainder of optical retail sales came from optical retail chains. Globally, the eyewear market is over $140 billion, according to Statista and internal company estimates. The industry includes optical retailers’ revenue from the sales of products (including glasses, sunglasses, and contact lenses) and eye care services provided by vision care professionals, including eye exams.
The eyewear industry is resilient to economic cycles given its medical and non-discretionary nature and is defined by durable fundamentals and trends including:
•Most people need vision correction: The Vision Council reported that nearly 200 million or 76% of adults in the United States were using some form of vision correction in 2020. In addition, the number of Americans ages 65 and older will more than double over the next 40 years, reaching 80 million in 2040, according to the U.S. Census Bureau. It is estimated that at least 84% of people aged 65 and older wear corrective lenses, as older adults require more vision correction.
•Consistent replenishment cycle: On average, glasses wearers replace their glasses every two to two and a half years, according to the Vision Council. Additionally, an estimated 42 million people in the United States wear contact lenses that are typically disposable, replaced on a daily, weekly, or monthly basis, driving frequent repurchase. Nearly 70% of contacts wearers purchase contact lenses at least two times per year.
•Increasing screen time usage: With the rising usage of smartphones, tablets, computers, and other devices, over 79% of surveyed Americans have reported an increase in screen time in the past five years, contributing significantly to increased vision correction needs and a steady influx of new customers within the eyewear market.
•Acceleration of e-commerce penetration: While e-commerce penetration is at an all-time high in the U.S. and abroad, it is largely nascent in the eyewear industry, representing approximately 5% of sales in 2019 and 8% of sales in 2020. In comparison, e-commerce penetration in 2019 and 2020 for consumer electronics was 46% and 53%, respectively, and for apparel and accessories was 32% and 38%, respectively, according to eMarketer.
•Increasing prominence of telehealth: According to Statista, 6.4 billion people in the world have a smartphone, accounting for almost 50% of the global population. DTC telehealth is expected to surpass $16 billion by 2025, reflecting an evolution of consumer preferences from in-person to remote medical care.
We believe these factors contribute to rising vision correction needs and a steady influx of new customers who expect an exceptional vision care experience. Industry-wide, a significant portion of customers who use prescription glasses or contacts purchase them from their prescriber. By contrast, the majority of our customers have historically obtained their prescriptions from non-Warby Parker doctors, underscoring the opportunity to expand our own optometric and telehealth services and offer these services to more of our customers. By our calculations, in 2020, we sold glasses and contacts to less than 2% of all adults who use some form of vision correction in the U.S. Additionally, of the nearly 200 million adults in the United States who were using some form of vision correction in 2020, 61% were age 45 or older while for our business only 41% of customers were age 45 or older, up from 19% of customers in 2015. According to Statista, the industry is projected to accelerate at a rate above GDP, with an outlook of 9.2% CAGR from 2020 to 2025, supported by secular trends. Given our lower price point versus the rest of the industry, our market share by net revenue in the U.S. was only 1%, leaving us with meaningful opportunity to scale in the years and decades ahead.
Ripe for Change
The eye care industry has largely been slow to innovate, despite strong and defensible fundamentals. Many customers wear their glasses every day; it’s not only a medical device, but a fashion accessory that is core to one’s identity. Yet, the legacy journey to purchasing these products is far from the delight-inducing experience customers desire—especially when incurring a significant out-of-pocket expense. The process of buying eyewear has lacked an engaging customer experience and has historically been defined by:
•Underinvested Shopping Experience. The legacy customer journey to buy glasses largely entails going in person to an optical retailer—an experience that has remained relatively stagnant. Getting your new glasses means browsing frames stored behind locked cases, and feeling overwhelmed by the assortment. Customers rely heavily on a dominant physical footprint with little to no digital counterparts.
•Confusing, Unstandardized, and Opaque Pricing. Beyond selection of frames, the purchase decision involves complex, multi-step decision-making with an emphasis on upselling lens alternatives and coating options. This confusing model includes pricey add-ons customers aren’t aware of until they go to check out and feel forced to purchase the glasses after investing so much time into making all of their choices. We believe there is also little connection between pricing and quality.
•Unappealing Value Proposition. Glasses have historically only been offered at a premium price point, leaving millions of customers without access to stylish, affordable eyewear. There is often a significant markup at 10 to 20x from manufacture to sale, as products are often burdened by various licensing, wholesale, and retail fees that support the legacy supply chain. Upon finally reaching the point of checkout, customers often find their vision insurance (if they have it) only covers a portion of their purchase, and they are left with a significant out-of-pocket expense.
•Limited Ongoing Customer Engagement. The eyewear industry has been built to maximize individual transactions versus optimize the customer journey. In addition, a concentrated number of companies license the vast majority of premium eyewear brands sold and often wholesale their products through retailers, so they lack direct connection to their end customers.
The legacy optical industry is highly concentrated amongst a few industry players that have created an illusion of choice, as consumers are often unaware that power is consolidated among a handful of companies, whose influence spans the full eyewear value chain, from design, to manufacturing, distribution, retailing, and insurance. While there are over 41,000 optical retail stores in the U.S. as of 2020, both eyewear brands sold and insurance used remain highly concentrated. Vision insurance plans function like prepaid spending accounts, reducing the out-of-pocket cost of routine eye exams and glasses or contact lenses, in exchange for a monthly premium. Vision insurance providers are not neutral to the optical ecosystem. “In-network” often serves as a means to impact the channels through which consumers shop and, in turn, influence pricing.
Eyewear is unique as it’s both a style choice (“I want it”) and a medical necessity (“I need it”). The legacy purchase experience, however, has primarily emphasized eyewear’s medical attributes. At Warby Parker, we believe customers should be able to purchase high-quality eyewear online or in an engaging retail store environment with helpful, friendly associates committed to delivering a fun experience, all at a unified and transparent price.
What Sets Us Apart
The following strengths shape Warby Parker’s unique value proposition, helping the brand inspire and impact the world with vision, purpose, and style while driving continued success and differentiation:
•Transformative Brand. Warby Parker has played a key role in advancing the direct-to-consumer model and has empowered consumers to shop differently. Now, 11 years since our founding, we are a tech-enabled, mission-driven lifestyle brand that sits at the intersection of technology, healthcare, design, and social enterprise. In surveying our customers, we find they consistently cite that our brand stands for mission, value, style, and quality, among other attributes. We are focused on bringing all aspects of our brand to life, on multiple platforms, across multiple generations.
•Customer Experience Driving High Consumer Loyalty. We treat customers the way they’d like to be treated—with kindness, helpfulness, empathy, and incredible service. Every one of our customer touchpoints seeks to delight the customer about a purchase that influences, and enhances, how they feel. Our customer focus has resulted in an average annual NPS over 80 throughout our history. As a result, our customers have become our best brand ambassadors, with approximately 50% reporting hearing about Warby Parker through word of mouth.
•Data-Driven Decision Making. Our 100% direct business model, combined with our advanced technology, allow us to collect valuable data and customer feedback. For example, we gather data about our customers’ shopping preferences, which we use to create personalized experiences and inform strategic decisions, including our retail store rollout strategy and consumer SKU preferences.
•Vertical Integration. We are able to guide our customers’ experience, our brand identity, and our affordable prices through our integrated supply chain—from our in-house design team, to owned parts of our supply chain, all the way to direct distribution of our products via our e-commerce channel and retail stores. Our vertical structure and agile culture also give us the flexibility to react quickly to changes in the market and customer preferences.
•Continuous Innovation. Since our first order in 2010, we have continuously strived to create new products and services that anticipate customer needs. Five years after launch, we were named Fast Company’s “Most Innovative Company,” which largely reflected our success in bringing a direct-to-consumer solution to the optical industry. We have launched innovative products like our e-commerce app (2016), our first in-house optical lab (2017), our telehealth app (2017), blue-light-filtering lenses (2018), Virtual Try-On (2019), Scout by Warby Parker private-label contact lenses (2019), Digital PD Tool (2020), and more. We believe our investments and focus on innovation set us apart from our peers in the optical sector and provide us with a strong competitive moat.
•Compelling Customer Economics. Our financial success stems from our strong customer economics. We are profitable on a customer’s first order and our customers become more valuable over time, as evidenced by our Sales Retention Rate of nearly 50% within 24 months of first purchase and nearly 100% within 48 months. Our Average Revenue Per Customer was $218 in 2020, a 16% increase since 2018 and our Customer Acquisition Cost has averaged 15% of Average Revenue Per Customer over that same time period, reflecting the long-term relationship we are able to form with our customer. On average, all customers are profitable as reflected in our Average Contribution Per Customer, which was $48, $54, and $45 in 2018, 2019, and 2020, respectively, which equals a Contribution Margin of 25%, 26%, and 21%, respectively. See “Prospectus Summary—Summary Consolidated Financial and Other Data—Non-GAAP Financial Measures—Average Contribution Per Customer and Contribution Margin” for definitions of Average Contribution Per Customer and Contribution Margin and a reconciliation to the most directly comparable GAAP measure, which is gross profit. Our high brand affinity drives organic marketing, which we believe allows our marketing spend to be lower than many e-commerce peers.
•Founder-Led Team with Commitment to Purpose. Our mission, commitment to our core values, and focus on innovation are driven by our Co-Founders and Co-Chief Executive Officers, Neil and Dave. Having met as classmates in business school, Neil and Dave have scaled Warby Parker from an idea to a growing, impact-driven brand. While we have grown, our company culture reflects the original founder-vision of providing vision for all. We believe the outstanding talent that has joined Warby Parker reflects and enhances the founding vision and long-term commitment to growth and purpose. In comparison to the data provided by the U.S. Bureau of Labor Statistics, we have consistently recorded competitive employee retention rates across industries of over 65% since 2016, which we attribute to the power of our shared vision.
•Authentic Impact. We believe that our business can scale, be profitable, and do good in the world—without charging a premium for it. We seek vision for all: this is why for every pair of glasses or sunglasses we sell, we distribute a pair of glasses to someone in need through our Buy a Pair, Give a Pair
program. As of December 31, 2020, we have supported over 50 countries, including the United States, and have helped distribute over eight million pairs of glasses to people in need, increasing earning potential for low-income households by more than an estimated $1 billion. See “Market, Industry, And Other Data.” We’ve also formed Pupils Project, our program that helps provide free vision screenings, eye exams, and glasses to kids in New York City, Baltimore, Philadelphia, and beyond. Our Co-Founder Neil brings direct experience from the nonprofit sector; before founding Warby Parker, Neil served as Director of VisionSpring, a nonprofit social enterprise (and Warby Parker’s primary Buy a Pair, Give a Pair partner) that trains low-income men and women to start their own businesses selling affordable glasses to individuals living on less than $4 per day. Over 50% of VisionSpring customers are getting glasses for the first time. To continue to attract world-class optometric talent, we have built meaningful relationships with optometry schools, including the New England College of Optometry. We have also committed $700,000 in scholarships to increase Black representation in the field, making it possible for four optometry students to complete the school's four-year program. This genuine focus on impact is foundational to our business, and we also believe it resonates with consumers.
Sustainable Growth Driven by Customer Focus and Innovation
As we aspire towards continued ambitious, sustainable growth, we plan to leverage distinct growth strategies to increase our 1% of market share by net revenue as of December 31, 2020:
•Strengthening Engagement with Our Existing Customers. As we further expand our products and services, we see a significant opportunity to deepen relationships with our existing customers. Customers who shop our holistic vision offering across product lines and channels tend to convert to highly loyal, returning customers, contributing to consistent growth in lifetime value.
•Growing Brand Awareness. Our Unaided Brand Awareness for the three months ended March 31, 2021 was 13%, suggesting a significant opportunity for us to introduce Warby Parker to new customers. While leading with organic, word-of-mouth marketing, we also build brand awareness among new customers through television, digital, radio, and social media. Given approximately 50% of our customers report buying our products based on word-of-mouth recommendation, based on customer surveys we conducted from 2019 to 2021, we believe our marketing spend is efficient. We believe our long-term relationship with the customer through multiple transactions over time highlights the opportunity for our business.
•Expanding Our Retail Footprint. Our brand comes to life as soon as you step into a Warby Parker retail store; each store showcases our latest product and service offerings while driving brand awareness and total market growth. Our current retail footprint is national and operates across urban and suburban communities with street, lifestyle, and mall locations. Our U.S. retail footprint has a long runway for expansion. Based on analysis we conducted with a third-party research firm, our retail footprint has room to expand in the U.S. to 900+ retail stores, which is still a fraction of the over 41,000 optical retail stores in the United States as of 2020. We are highly selective and discerning about each retail store we open; we seek new retail store payback of under 20 months and Four-Wall Margins of 35%. We believe our retail stores embody the brand, are efficient customer acquisition vehicles, and will generate significant free cash flow over time.
•Continuing to Invest in Technology and our Digital Experience. We plan to continue to make strategic investments to enhance our digital offering and capabilities, enabling us to provide a more convenient and seamless customer experience. Our team of strategists and technologists prioritizes innovation while developing proprietary tools in-house, whether it’s our Virtual Try-On, Digital PD Tool, custom point of sale system, or our Virtual Vision Test telehealth app.
•Continuing to Enhance Our Design Capabilities. Our in-house eyewear design team regularly prototypes and develops proprietary eyewear designs that aim to differentiate and elevate our brand within the market. This includes working with our partners to develop custom acetates and deliver first-to-market frame constructions. As we continue to enhance our design capabilities, we believe this will be a competitive advantage moving forward.
•Expanding Our Holistic Vision Care Offering. We plan to continue to build upon our existing products, while selectively introducing new offerings that aim to surprise and delight both new and existing customers. This includes strengthening our offering and position within:
•Glasses. On average, we release over 20 eyewear collections each year; we will continue to scale our core glasses offering by introducing new sizes, shapes, widths, lens offerings, and more to ensure as many people as possible can find a frame that fits, functions, and looks great.
•Contact Lenses. The contact lens market is estimated at $5.1 billion as of December 31, 2020 and contributes only 2% to Warby Parker net revenue for the year ended December 31, 2020.
•Eye Exams and Vision Care. The eye exams and vision care market is estimated at $5.1 billion as of December 31, 2020 and contributes only 1% to Warby Parker net revenue for the year ended December 31, 2020.
•Vision Insurance. Vision insurance comprises approximately 65% of purchases made in the vision care market as of December 31, 2020 and contributes only 3% to Warby Parker net revenue for the year ended December 31, 2020.
For each of these opportunities, we have established businesses that are growing rapidly and can scale over time.
•Evaluating Potential Expansion into New International Markets. With 4.7 billion people globally in need of vision correction, we recognize there is a significant opportunity to introduce customers across the globe to our brand. Expanding internationally would add over $100 billion to our total addressable market and currently only 2% of our business is international. As we grow, we will continue our strategy of evaluating opportunities to open distinctive retail stores in select locations and providing our customers with an engaging online experience.
Our Holistic Vision Care Offering
An amazing customer experience at Warby Parker is no accident—it happens when every possible path to our product is as delightful and thoughtful as the next.
Since our launch, we have expanded our product offering, creating a seamless and convenient shopping experience for customers interested in not only buying eyeglasses but also sunglasses (with or without prescription lenses), light-responsive lenses, blue-light-filtering lenses, contact lenses, and more. We’ve also introduced services like comprehensive eye exams and groundbreaking in-house technologies like Virtual Vision Test and Virtual Try-On that enhance the overall customer experience. This ongoing innovation is driven by our team’s commitment to solving real consumer problems while building a holistic vision care offering that is unparalleled within the market.
Our holistic vision care offering leads to higher, “stickier” customer value over time. Customers who purchase our holistic offering (glasses, contacts, and exams) have a cumulative average value that is 2.2x higher after one year than customers who just purchase glasses (and 1.5x higher at initial purchase). These holistic vision care customers accounted for less than 1% of customers in 2020. Further, customers who purchase contact lenses with another product have a cumulative average value that is 2x higher than the average value of their initial purchase.
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(1)Source: Company data. Average value per customer represents sales including refunds; equal to cumulative customer sales order value divided by total unique customers in each product and service grouping.
Eyeglasses and Sunglasses
Every pair of Warby Parker glasses and sunglasses is dreamed up in-house, where our team gathers inspiration, sketches designs, and maps out product details for prototyping. We launch more than 20 new collections each year, often incorporating patented designs and extended sizing to offer our customers products that not only fit well but look great. As for frame materials, we’re selecting premium—from custom-designed cellulose acetate to ultra-lightweight titanium. Our frames come standard with impact-resistant polycarbonate lenses that block 100% of UVA and UVB rays, plus all our glasses lenses are equipped, at no extra cost, with scratch-resistant and anti-reflective coatings.
Customers can customize their prescription lenses with a variety of lens options, including single-vision, progressive, light-responsive, blue-light-filtering, and non-prescription. We custom-cut and polish the edges of our lenses, and individually inspect and bench-align each pair before it’s packaged up and sent on its way to the customer.
Even before a frame becomes a frame, we’re choosing vendors, selecting materials (we’re known for developing specialty acetates with the help of incredibly skilled partners), and performing rigorous product testing with the assistance of third-party agencies, all in the name of the highest quality and safety standards. Our eyewear is considered a medical device by the FDA and regulated as such, and we are subject to the requirements set by the Consumer Product Safety Commission, or CPSC.
Contacts
Warby Parker sells its own brand of contacts, Scout by Warby Parker, as well as third-party contact lenses; this allows us to provide customers a truly comprehensive vision care offering.
Launched in 2019, Scout by Warby Parker contact lenses are made from a super-moist material that resists drying for lasting hydration and comfort—and they incorporate Centraform technology, which results in a smooth edge design that potentially reduces the likelihood you’ll feel the lens in your eye. For an added touch of convenience, each Scout lens comes in an innovative, space-saving flat pack that’s easier to transport and store than a traditional contact blister pack, and uses almost 80% less packaging than traditional daily contact packs. The flat pack design is designed to improve hygiene in that it presents the outer surface of the lens facing up, reducing the need to touch the inner surface, which can transfer bacteria and debris into your eye.
Eye Exams and Vision Tests
We offer multiple ways for customers to get prescriptions and keep their vision in tip-top shape. From friendly and knowledgeable in-person exams at 91 of our retail stores to innovative telehealth services like our Virtual Vision Test app, we provide access to convenient and accessible vision services for primary vision care needs through optometrists employed either by us or by independent professional corporations or similar entities with whom we have contractual arrangements. Throughout their shopping experience, our patients’ health and happiness is our top priority. In several states where we operate, state laws that relate to the corporate practice of medicine require only medical professionals or a professional entity wholly owned by licensed physicians, optometrists, or other licensed medical professionals to provide medical care to patients, and many states have some form of fee-splitting law. In many of our retail stores, we have contractual relationships with optometrists or professional entities that employ ophthalmologists and/or optometrists to provide medical services to our customers. See “—Government Regulation—Corporate Practice of Medicine/Optometry and Similar Laws.”
Our Seamless Experience
We offer our customers a seamless customer experience—whether shopping in-person or online—that’s unparalleled within the market. For the year ended December 31, 2020, we generated 60% of net revenue from e-commerce and the remaining 40% of net revenue from our retail stores. Prior to the COVID-19 pandemic, our channel mix in 2019 from our retail stores and e-commerce was 65% and 35%, respectively.
E-commerce & Mobile App
Shopping online at Warby Parker is just as seamless an experience as visiting us in person. Our website and mobile app make quick perusing a cinch, and our online quiz helps customers find frames to fill their Home Try-On box based on style, color, and shape preferences, which is ideal for when there’s not a retail store nearby or if you’d prefer to stay home. Customers can even try on glasses virtually using our proprietary Virtual Try-On tool. Plus, our Customer Experience advisors and Social Media team are on standby online via phone, chat, or email to iron out any styling predicaments and answer any questions.
Home Try-On
We started out selling our frames exclusively online—which was a novel concept in 2010. Our Home Try-On program was designed to make it extremely easy and fun for anyone to find the perfect frame, with all the convenience and none of the stress or uncertainty of other online shopping experiences. Customers can pick five of their favorites on our site (or get tailored suggestions after taking a quick quiz) and try them at home for five full days. Oh, and it’s free!
The Home Try-On program is very unique to our business. It is a viral brand awareness program that pays for itself as we maintain an exceptionally high conversion rate from Home Try-On purchases.
Retail Stores
As of June 30, 2021, our retail footprint included 145 retail stores, including 142 locations in the U.S. and 3 locations in Canada. We are located in 35 states or provinces, 99 cities, and 55 Core Markets, and our retail stores are in 45 of the 50 most populous markets in the U.S. All of our retail stores are corporate-owned, and we have no franchise retail stores, which allows us complete control over the customer experience. We have a variety of location types ranging from, as of June 30, 2021, street (44%), outdoor centers (31%), and indoor centers (25%), meeting our consumers at their shopping destination of choice.
Our retail stores introduce the brand to new consumers, strengthen relationships with existing customers, and create environments that celebrate the breadth of our vision care offerings, from glasses to contact lenses and eye exams. On average, we have observed total market sales increase over 250% in the first year after opening the first retail store in that market. During the first year of opening, e-commerce sales growth slows as the market rebalances between online and store sales. After this initial period, we see e-commerce growth rates normalize to the same level as our purely e-commerce markets that have no store presence. For example, our total sales in Atlanta grew over 295% in the year following our first store opening in September 2014, while e-commerce sales declined by 3% over the same period. In the following two years, e-commerce sales growth normalized to 32% and 33%, respectively. As of June 30, 2021, we now have three stores in the Atlanta market, with continued opportunity to grow as our Customer Market Share in Atlanta remains at less than 2%. We observed a similar trend in Dallas. After the first store opening, we achieved total sales growth of 194% in the year following our first store opening in June 2014. Over the same period, e-commerce sales declined by 10%, but normalized to over 34% growth in year two and three. As of June 30, 2021, we operate seven stores in Dallas, yet our Customer Market Share remains low at 2.8%. As we open additional retail stores in existing markets, we continue to build on the initial momentum and observe consistent growth in our e-commerce channel within these markets.
Distinctive Store Experience
Buying eyewear is not an activity historically associated with goosebump-inducing delight, but we are committed to reinventing the experience. Each of our retail stores is uniquely designed with the customer in mind and we invest in the consumer journey to best meet each individual customer’s needs.
We’ve always thought that shopping for eyewear should feel a little like browsing at a library—leisurely, filled with pleasant surprises, and especially fun to do with a friend in tow—so our retail stores are designed with those readers’ retreats in mind. Terrazzo-tiled floors, brass detailing, custom walnut shelving, and books aplenty (we’ve even published some of our own!) welcome our customers inside, where they can get one-on-one styling advice from our super friendly retail advisors and consult opticians for technical expertise. For many locations, we work with local artists on custom pieces to animate the space and amuse the eye.
In 2014, we built our own proprietary retail point of sale system called Point of Everything (P.O.E. for short) that has nine applications covering every part of the customer journey, making it easier for our advisors to help customers and in turn improving the overall in-store experience.
We also offer in-person eye exams in our retail stores. We currently operate two different models for offering in-person eye exams: (1) where we directly employ the optometrist and collect revenue from the eye exam, and (2) where we license exam space to an independent optometrist and do not collect any revenue from the eye exam or independent practice. The decision about which exam model to offer at a retail store is largely driven by state regulations related to the corporate practice of medicine and optometry, which are intended to prevent unlicensed persons from interfering with or influencing the physician’s or optometrist’s professional judgment and prohibit the sharing of professional service fees with non-professional or business interests. See “—Government Regulation—Corporate Practice of Medicine/Optometry and Similar Laws.”
We endeavor to attract, recruit, and hire retail store employees with diverse perspectives and experiences so that people feel included, engaged, and valued. We want this to resonate with customers to further enhance the in-store experience.
Store Economics
We believe our retail footprint and customer experience contribute to our highly productive store economics. We have historically targeted, and continue to target, Four-Wall Margins of 35% and Average Sales Per Square Foot of $2,900. On average, our retail stores achieve profitability shortly after they open and seek payback of invested capital on average in under 20 months. Furthermore, we have found that our retail store productivity generally improves over time as it builds its loyal local customer base while continuously attracting new customers.
Retail Store Expansion and Site Selection
Our U.S. retail footprint has a long runway for expansion. Based on analysis we conducted with a third-party research firm, our retail footprint has room to expand in the U.S. to 900+ retail stores. The analysis was conducted based on existing store characteristics, customer demographics, and product offerings, and did not take into account scaling future product or service offerings. In 2021, we are on track to open 30 to 35 retail stores given retail stores already opened, in development, or with leases signed. We are highly selective and discerning about each retail store we open; we seek new retail store payback of under 20 months and Four-Wall Margins of 35%. We believe our retail stores embody the brand, are efficient customer acquisition vehicles, and will generate significant free cash flow over time.
Warby Parker’s e-commerce performance has been the underpinning of our early retail strategy—opening retail stores in locations with rich consumer demand and strong demographic alignment to our target consumer profile. Since those early retail store openings in 2013, Warby Parker has enriched our site-selection approach, blending e-commerce data with our data-driven institutional knowledge about what has produced our highest-performing retail stores; we also keep a pulse on market data and complementary retailers. The keystone to our strategy is ensuring each retail store location—whether on proven, retail-oriented streets or in high-performing shopping centers—communicates the brand in a consistent and engaging manner to all customers, past, current, and potential.
Our retail strategy is thoughtful and data-driven, creative and colorful, and consistent with the Warby Parker brand. This blend has worked for us to date and will continue to guide our site selection for the next hundreds of retail stores and beyond.
As we grow, we will continue our strategy of selectively opening distinctive stores in select locations in the U.S. and Canada. We may look to expand into international markets where the regulatory and insurance market structures are similar to the United States and Canada.
Innovating to Shape the Future of Vision
It’s critically important that Warby Parker’s continued growth reflects why we launched the business 11 years ago: to solve real customer problems while incorporating style, convenience, quality, impact, and innovation. The following projects provide a glimpse into how our team of in-house technologists and strategists tackles opportunities using proprietary technology and creative design solutions.
•Telehealth
•Virtual Vision Test: We believe in making existing technologies available to as many people as possible; this drives us to get more glasses to those who need them, and it’s the philosophy behind investing in tools like our Virtual Vision Test telehealth app. Eligible customers can use the mobile app to take a series of vision tests from home and renew their existing glasses prescription with just an iPhone and current pair of glasses, and the process is designed to take around 10 minutes. To make Virtual Vision Test possible, our team developed a proprietary distance estimation algorithm; the mobile app uses that new algorithm alongside Apple’s Vision framework to measure how far a user is from their phone in real time, in an effort to ensure the accuracy of their test results. This custom-built technology allows the mobile app to use their phone and offer a straightforward, streamlined user experience. Our Virtual Vision Test mobile app is regulated by the FDA as a medical device and we have not obtained 510(k) clearance or other FDA marketing authorization for this app. However, the FDA has notified us that, at this time, it does not intend to object to our continued marketing of the Virtual Vision Test without 510(k) clearance, so long as we satisfy the conditions described in the FDA’s guidance document entitled “Enforcement Policy for Remote Ophthalmic Assessment and Monitoring Devices During the Coronavirus Disease 2019 (COVID-19) Public Health Emergency.” See “Risk Factors—Risks Related to Our Legal and Regulatory Environment.” We plan to submit a 510(k) premarket notification for the Virtual Vision Test mobile application, and have engaged in pre-submission meetings with the FDA to understand the information that will be required to support the eventual 510(k) submission.
•Augmented Reality
•Digital PD Tool: Piloted in retail stores in 2019—and officially launched in May 2020—this technology aids customers who are missing a PD on their prescription. A PD (pupillary distance) measurement is necessary to fulfill a glasses order, but it is often missing from a prescription. Leveraging a proprietary algorithm, the Digital PD Tool measures a customer’s PD with an iPhone X and above. As a fully automated vision-powered process, it’s a quick solution for customers looking to measure their PD from home.
•Extended Sizing: It’s not only important that your glasses look great, but they need to feel great, too—and some of our customers let us know that they couldn’t find frames that fit them perfectly. To address this, our Research and Development, Data Science, and Product Strategy teams worked together to develop custom software that analyzes fit and tested it with volunteers across various demographics. Our data scientists then used the findings to explore how Warby Parker could be more thoughtful and inclusive of various face sizes in frame design and assortment. In 2019, after two years of researching, designing, and testing new widths, we developed a series of extended sizes (extra narrow, narrow, medium, wide, and extra wide) and applied them to our bestselling frames. Although our work isn’t finished yet—there are always more customers to better serve in the future—this is a positive step in the right direction.
•Virtual Try-On: Our Virtual Try-On tool allows you to try on glasses and sunglasses—seeing the realistic color, texture, and size of each style—with an iPhone X and above. Unlike other eyewear applications that rely on two-dimensional photos or let you arbitrarily resize frames, our Virtual Try-On tool is designed to determine how glasses truly fit on your three-dimensional face. Using accurate measurements and a proprietary method we call “unique placement,” the tool mimics the real-life process of placing a pair of frames on your face, taking into account how your unique facial features interact with the frame. When you couple that with each frame’s vibrant color and vivid detail, the result is an experience so lifelike you’ll think you’re actually wearing them.
•Patented Designs
•As of June 30, 2021, on a worldwide basis, we have been issued 28 utility patents; 57 design patents or registrations; and had 44 utility patent and 28 design patent or registration applications pending.
•Innovative New Products
•Scout by Warby Parker: As we expand our holistic vision care offering and overall business, it’s critically important to us that we do so in a way that incorporates Warby Parker’s commitment to style, innovation, convenience, quality, and impact. The strategy behind Scout by Warby Parker considered all of those tenets while solving a clear customer need; our customers frequently ask to order contact lenses while purchasing glasses and/or following an eye exam. Scout by Warby Parker is a convenient and affordable, daily contact lens option that prioritizes comfort by incorporating Centraform technology, which results in a smooth edge design that potentially reduces the likelihood you’ll feel the lens in the eye. Each lens also comes in an innovative, space saving flat pack that is designed to improve hygiene, and uses almost 80% less packaging than traditional contact packs.
Manufacturing and Supply Chain
The Warby Parker supply chain is an agile and integrated network that works to get the right order to the right place at the right time. We partner with a large network of more than 30 partners for frame factories, lens and case/kit suppliers, distribution centers, optical labs, and freight-forwarding and logistics companies all over the globe. We also leverage our retail locations and in-house optical lab in Sloatsburg, New York. Additionally, we intend to further expand our network by opening a second in-house optical lab in Las Vegas, Nevada in September 2021.
In addition to fulfilling prescription eyewear orders, our supply chain also supports the Warby Parker Home Try-On program, contacts, sunglasses, gift cards, accessories, and returns fulfillment, as well as the distribution of all goods. These operations are handled out of multiple fulfillment centers in the U.S.
All of our frames are designed at our New York City headquarters, and we handpick raw materials and the suppliers who have the expertise and skill to bring them to life. These deliberate decisions help us stay true to our original aesthetic vision as well as regulatory and performance results. We work with raw material vendors on
proprietary development, in addition to frame suppliers on their production methods and machinery to achieve best-in-class performance standards.
Transparency is a crucial element in our vendor relationships. We work directly with manufacturers and raw material suppliers, most notably in China, Japan, Vietnam, and Italy, so we know exactly where and how our products are being manufactured. We regularly bring Warby Parker liaisons to our partner facilities to help us better support and inspect our vendors in following our manufacturing specifications. Monthly material forecasts allow vendors to prepare for any constraints created by peak business needs and check that they will be able to accommodate demand. In addition, our Vendor Compliance Manual details volume and financial penalties incurred if our preferred material or component suppliers are not used, and quarterly reviews ensure there are no surprises.
Product Quality
Before a frame becomes a frame, we’re choosing vendors, selecting materials (we’ve been known to develop specialty acetates with the help of incredibly skilled partners), and performing rigorous product testing with the assistance of third-party agencies, all in the name of the highest quality and safety standards. Our eyewear is considered a medical device by the FDA and regulated as such—so, where applicable, we follow the requirements set by the Consumer Product Safety Commission. We also comply with standards set by the American National Standards Institute for prescription eyewear and sunglasses (both prescription and non-prescription). All our vendors are compliant with the European CE standard, and Warby Parker frames are stamped with the certification mark that indicates conformity with health, safety, and environmental protection standards for products sold within the European Economic Area.
Vendors may only use raw materials and suppliers recommended by Warby Parker to ensure expected results in final third-party testing; these suppliers must submit either internal or third-party test results for both regulatory and performance parameters well before the product reaches the customer. We partner with international third-party testing agencies to verify the results and to also create additional product performance testing protocols, to make sure our frames are built to last and that they perform beautifully for as long as they are worn. These additional protocols range from exposing our eyeglasses and sunglasses to salt water or air (to see if the metal plating fades or rusts) to checking that components of frames constructed with mixed materials are not shrinking at different rates in extreme temperatures and humidity; this means they’re less susceptible to coming apart. If a frame safety issue is ever suspected, our Product Strategy team will investigate the lot number, time of shipment, and vendor to identify and, if necessary, correct the problem.
Our Brand
Our Marketing Strategy
The Warby Parker brand is optimistic, friendly, and impactful. Our marketing strategies bring this to life in engaging, multi-faceted ways that reinforce our unique positioning and value proposition.
Brand Management functions as an integrated and aligned team that focuses on creating and promoting the images, stories, and experiences that drive, elevate, inspire, and expand the Warby Parker brand and business. Our in-house Brand Design team ideates and crafts medium-agnostic creative concepts, enabling us to produce impactful, multi-channel campaigns (across print, digital, and TV ads) in compelling yet cost efficient ways.
As we bring those concepts to life, we focus on acquiring new users via organic and paid channels, retaining and engaging existing users through our own communication channels (e.g., email, push, and SMS), and celebrating the brand through in-person events and experiences. Our approach to integrated brand management drives a strong connection to, and advocacy of, the Warby Parker brand, which in turn drives brand awareness and growth.
We generate organic marketing through word-of-mouth and non-paid referrals, campaigns, and partnerships, as well as social media engagement via Instagram, Twitter, Facebook, and TikTok, dimensionalizing the brand in ways that drive user activity and engagement.
Over the years, we’ve brought the brand to life in numerous ways, from cross-country activations to intimate gatherings; from unexpected collaborations to surprise parades; from engaging social media interactions to multimedia campaigns. Here is a sampling of some of our brand-defining moments:
Buy a Pair, Give a Pair Program
Glasses enable people to learn, work, and navigate the world with more security and dignity, but 2.5 billion people around the world who need them don’t have access; of these, 624 million are considered to be visually impaired.
We work with a handful of organizations worldwide to ensure that for every pair of Warby Parker glasses sold, we help distribute a pair to someone in need. Our partners prioritize countries and communities where the need is greatest, as measured against existing limitations of access to vision care and glasses. We are often providing these to communities that have no other options. There are two distribution models we employ:
•Social entrepreneurship: Empowering people to administer basic eye exams and sell glasses at ultra-affordable prices. This accounts for the majority of our distribution.
•Direct donation: Via cross-sector partnerships, directly giving vision care and glasses to those in need. For example, in 2015, we created Pupils Project, our program with organizations and local government agencies in New York, Baltimore, Philadelphia, and beyond, which provides free vision screenings, eye exams, and glasses to schoolchildren, for many of whom this is their first pair. This model eliminates barriers to access by providing free prescription glasses and meeting children at school, where teachers are often the first to spot vision issues.
Through our Buy a Pair, Give a Pair program, over eight million pairs of glasses have been distributed—which means over eight million more people now have the glasses they need to learn, work, and achieve better economic outcomes.
Our Competition
Competition in the eyewear industry is principally on the basis of brand image and recognition, as well as product quality, price, innovation, and style. We believe that we successfully compete on the basis of our highly compelling price point combined with uncompromising quality, differentiated consumer experience, and an authentic brand promise. In addition, we believe our vertically integrated supply chain allows us more effective control over our product and brand. We are also differentiated by our cross-platform, multi-generational creative and marketing strategies that increases brand-awareness and strengthens consumer loyalty. Half the market is fragmented and eyewear is sold through independent optical shops who drive the majority of their revenue through eyewear sales. This is unique in the medical world as it’s one of the only places where a prescribing doctor can sell you the product they prescribe.
The eyewear market consists of a fragmented retail channel with an imbalance of asset concentration and significant markups. We are in direct competition with large, integrated optical players that have multiple brands and retail banners, such as EssilorLuxottica and VSP. This competition takes place both in physical retail locations as well as online.
Government Regulation
We are subject to a wide variety of complex laws and regulations in the United States and other jurisdictions in which we operate. The laws and regulations govern many issues related to our business practices, including those regarding vision care, state optical and optometry regulations, licensing, healthcare, fraud and abuse, corporate practice of medicine, contact lens prescriptions, medical device labeling and registration, worker classification, wage and hour, sick pay and leaves of absence, anti-discrimination and harassment, whistleblower protections, background checks, privacy, data security, intellectual property, health and safety, competition, advertising, consumer protection, fees and payments, pricing, product liability and disclosures, personal injury, property damage, communications, unemployment benefits, taxation, unionization and collective bargaining, contracts, arbitration agreements, class action waivers, terms of service, and accessibility of our mobile app or website.
These laws and regulations are constantly evolving and may be interpreted, applied, created, superseded, or amended in a manner that could harm our business. These changes may occur immediately or develop over time through judicial decisions or as new guidance or interpretations are provided by regulatory and governing bodies, such as federal, state, and local administrative agencies. As we expand our business into new markets or introduce new products, features, or offerings into existing markets, regulatory bodies or courts may claim that we are subject to additional requirements, or that we are prohibited from conducting business in certain jurisdictions.
Professional Licensure and Regulation
Our operations are subject to state licensing laws. All states license the practice of ophthalmology and optometry and many states license opticians. The dispensing of prescription eyewear is also regulated in most states in which we do business. In some states, we are required to register our retail stores. A determination of non-compliance against us could lead to adverse judicial or administrative action, civil or criminal penalties, receipt of cease and desist orders from state regulators, suspension or loss of provider licenses, and/or restructuring of our arrangements with ophthalmologists and optometrists.
Healthcare Fraud and Abuse Laws
Although the majority of our revenue is derived from cash-pay consumers, we have contracts with certain vision plans, including Medicare Advantage health plans, which subject us to a number of federal and state healthcare regulatory laws, including federal and state anti-kickback, false claims, self-referral and other healthcare fraud and abuse laws, some of which apply to items or services reimbursed by any third-party payor, including self-pay patients.
The federal Anti-Kickback Statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, paying, receiving, or providing remuneration, directly or indirectly, to induce, or in exchange for, the referral of an individual or purchasing, furnishing, recommending or arranging for a good or service for which payment may be made under a federal healthcare program, such as Medicare or Medicaid. The definition of “remuneration” has been broadly interpreted to include anything of value, including, for example, gifts, certain discounts, the furnishing of free supplies, equipment or services, credit arrangements, payment of cash and waivers of payments. Several courts have found a violation of the statute’s intent requirement if a single purpose of an arrangement involving remuneration is to induce referrals of federal healthcare covered businesses. There
are also a number of healthcare fraud statutes that impose criminal and civil liability for, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, or knowingly and willfully falsifying, concealing or covering up a material fact, or making any materially false statement, in connection with the delivery of, or payment for, healthcare benefits, items or services. A person or entity does not need to have actual knowledge of the Anti-Kickback Statute or healthcare fraud statutes, or specific intent to violate them in order to have committed a violation.
The federal Physician Self-Referral Law, or the Stark Law, generally prohibits physicians (which the Stark Law defines to also include optometrists) from referring, for certain services, Medicare or Medicaid beneficiaries to any entity with which the physician or an immediate family member of the physician has a financial relationship. This law further prohibits the entity receiving a prohibited referral from presenting a claim for reimbursement by Medicare or Medicaid for services furnished pursuant to the prohibited referral. Unlike the federal Anti-Kickback Statute, the Stark Law is violated if the financial arrangement does not meet an applicable exception, regardless of any intent by the parties to induce or reward referrals or the reasons for the financial relationship and the referral.
The federal False Claims Act, or the FCA, prohibits a person from knowingly presenting, or cause to be presented, a false or fraudulent request for payment from the federal government, or from making a false statement or using a false record to have a claim approved. The FCA further provides that a lawsuit thereunder may be initiated in the name of the United States by an individual, a “whistleblower,” who is an original source of the allegations. Moreover, the government may assert that a claim including items and services resulting from a violation of the U.S. federal Anti-Kickback Statute or the Stark Law constitutes a false or fraudulent claim for purposes of the civil False Claims Act. Penalties for a violation of the FCA include fines for each false claim, plus up to three times the amount of damages caused by each false claim.
Further, the Civil Monetary Penalties Law authorizes the imposition of civil monetary penalties, assessments, and exclusion against an individual or entity based on a variety of prohibited conduct, including, but not limited to offering remuneration to a federal health care program beneficiary that the individual or entity knows or should know is likely to influence the beneficiary to order or receive health care items or services from a particular provider.
The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal and civil liability for, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, or knowingly and willfully falsifying, concealing, or covering up a material fact or making any materially false statement, in connection with the delivery of, or payment for, healthcare benefits, items, or services. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.
The Physician Payments Sunshine Act and its implementing regulations, require, among other things, certain manufacturers of drugs, devices, biologics, and medical supplies that are reimbursable under Medicare, Medicaid, or the Children’s Health Insurance Program, with specific exceptions, to report annually to the Centers for Medicare and Medicaid Services, or CMS, information related to certain payments and other transfers of value to physicians (defined to include doctors, dentists, optometrists, podiatrists, and chiropractors), certain other healthcare professionals beginning in 2022, and teaching hospitals, as well as ownership and investment interests held by such physicians and their immediate family members.
Several states in which we operate have also adopted similar fraud and abuse laws as described above. The scope of these laws and the interpretations of them vary from state to state and are enforced by state courts and regulatory authorities, each with broad discretion. Some state fraud and abuse laws apply to items or services reimbursed by any payor, including self-pay patients and commercial insurers, not just those reimbursed by a federally funded healthcare program.
Violation of any of these laws or any other governmental regulations that apply may result in significant penalties, including, without limitation, administrative civil and criminal penalties, damages, disgorgement, fines, additional reporting requirements and compliance oversight obligations, contractual damages, the curtailment or restructuring of operations, exclusion from participation in government healthcare programs, and/or imprisonment.
Corporate Practice of Medicine/Optometry and Similar Laws
Certain state laws, commonly referred to as corporate practice of medicine or optometry, as applicable, and fee-splitting laws are intended to prevent unlicensed persons from interfering with or influencing the physician’s or optometrist’s professional judgment and prohibit the sharing of professional service fees with non-professional or business interests. Many states interpret the corporate practice of medicine/optometry rules broadly to prohibit employment of eye care practitioners by corporations like us and to prohibit various financial arrangements, such as fee-splitting, between eye care practitioners and other entities. Many states also regulate certain business practices as well as landlord-tenant arrangements between optical companies and optometrists. For example, some states prohibit a common entrance to a retail optical location and an optometric office. These laws and regulations can vary significantly by state, requiring us to tailor our operations in each state to the particular laws of such state. Many of these laws and regulations are vague and are subject to the interpretation of regulators and enforcement authorities, which may change over time. States periodically revisit these laws and regulations and we are subject to the ongoing risk that the regulatory scheme in any state can change in ways adverse to us. We have contractual relationships with optometrists or professional entities that employ ophthalmologists and/or optometrists to provide medical services to our customers. In addition, we have contractual relationships with several professional corporations or similar entities that employ ophthalmologists who review test results and renew prescriptions, as appropriate, of users of both our Virtual Vision Test mobile app and In-Store Prescription Check service. Although we strive to monitor any changes to applicable state laws that may impact these arrangements, a determination of non-compliance against us could lead to adverse judicial or administrative action, civil or criminal penalties, receipt of cease and desist orders from state regulators, suspension or loss of provider licenses, and/or restructuring of these arrangements.
Healthcare Reform
From time to time, legislation is drafted and introduced in Congress that could significantly change the statutory provisions governing the regulatory approval, manufacture and marketing of regulated products or the reimbursement thereof. For example, in the U.S, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, ACA, substantially changed the way healthcare is financed by both governmental and private insurers, and significantly impacted the U.S. medical device industry. Since its enactment, there have been executive, judicial, and congressional challenges to certain aspects of the ACA. On June 17, 2021, the U.S. Supreme Court dismissed the most recent judicial challenge to the ACA brought by several states without specifically ruling on the constitutionality of the ACA. In addition, the Budget Control Act of 2011, as amended by subsequent legislation, further reduces Medicare payments to providers by two percent through fiscal year 2030, with the exception of a temporary suspension from May 1, 2020 through December 31, 2021. Furthermore, the healthcare industry in the U.S. has experienced a trend toward cost containment as government and private insurers seek to control healthcare costs by imposing lower payment rates and negotiating reduced contract rates with service providers. Legislation could be adopted in the future that limits payments for our products from governmental payors. It is possible that additional governmental action will be taken to address the COVID-19 pandemic.
Data Privacy and Security
Additionally, because we receive, use, store, transmit, and disclose personal data, PHI and PII relating to customers on our platform, we are subject to numerous laws and regulations in the United States and other countries where we do business, as well as industry standards, relating to privacy, data security and data protection, direct marketing, and online advertising. Such laws, regulations, and industry standards include, but are not limited to, Section 5(a) of the Federal Trade Commission Act, the Telephone Consumer Protection Act of 1991 and all regulations promulgated thereunder, Children’s Online Privacy Protection Act of 1998, the Controlling the Assault of Non-Solicited Pornography And Marketing Act of 2003, the California Consumer Privacy Act of 2018, the California Online Privacy Protection Act, the Canadian Personal Information Protection and Electronic Documents Act, Canada’s Anti-Spam Legislation, the GDPR, the Payment Card Industry Data Security Standard, and HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and its implementing regulations, that impose requirements on covered entities, including certain healthcare providers, health plans, and healthcare clearinghouses, and their respective business associates that create, receive, maintain, or transmit individually identifiable health information for or on behalf of a covered entity as well as their covered subcontractors relating to the privacy, security, and transmission of individually identifiable health information. In 2018, we experienced a credential stuffing attack in which malicious third parties used credentials compromised in data breaches suffered by other companies to access accounts on our platform and received notice that the Office for Civil Rights, or OCR, of the U.S. Department of Health and Human Services would be investigating the incident and our compliance with the Privacy, Security, and Breach Notification Rules and
requesting certain information related to the incident and our compliance with the Privacy, Security, and Breach Notification Rules. We continue to work on a resolution with OCR. OCR enforcement activity can result in financial liability and reputational harm, and responses to such enforcement activity can consume significant internal resources.
FDA Regulation
Our products and our operations are subject to regulation by the U.S. Food and Drug Administration, or FDA, and other federal and state authorities in the United States, as well as comparable authorities in foreign jurisdictions. Our products, including eyeglasses, sunglasses, contact lenses, visual acuity software, and other ophthalmic products, are subject to regulation as medical devices in the United States under the Federal Food, Drug, and Cosmetic Act, or FDCA, as implemented and enforced by the FDA. The FDA regulates the development, design, non-clinical and clinical research, manufacturing, safety, efficacy, labeling, packaging, storage, installation, servicing, recordkeeping, premarket clearance or approval, adverse event reporting, advertising, promotion, marketing and distribution, and import and export of medical devices to ensure that medical devices distributed domestically are safe and effective for their intended uses and otherwise meet the requirements of the FDCA.
FDA Premarket Clearance and Approval Requirements
Unless an exemption applies, each medical device commercially distributed in the United States requires either FDA clearance of a 510(k) premarket notification, or approval of a premarket approval, or PMA, application. Under the FDCA, medical devices are classified into one of three classes—Class I, Class II, or Class III—depending on the degree of risk associated with each medical device and the extent of manufacturer and regulatory control needed to ensure its safety and effectiveness. Class I includes devices with the lowest risk to the patient and are those for which safety and effectiveness can be assured by adherence to the FDA’s General Controls for medical devices, which include compliance with the applicable portions of the Quality System Regulation, or QSR, facility registration and product listing, reporting of adverse medical events, and truthful and non-misleading labeling, advertising, and promotional materials. Class II devices are subject to the FDA’s General Controls, and special controls as deemed necessary by the FDA to ensure the safety and effectiveness of the device. These special controls can include performance standards, post-market surveillance, patient registries, and FDA guidance documents.
While most Class I devices are exempt from the 510(k) premarket notification requirement, manufacturers of most Class II devices are required to submit to the FDA a premarket notification under Section 510(k) of the FDCA requesting permission to commercially distribute the device. The FDA’s permission to commercially distribute a device subject to a 510(k) premarket notification is generally known as 510(k) clearance. Devices deemed by the FDA to pose the greatest risks, such as life-sustaining, life-supporting or some implantable devices, or devices that have a new intended use, or use advanced technology that is not substantially equivalent to that of a legally marketed device, are placed in Class III, requiring approval of a PMA. Some preamendment devices are unclassified, but are subject to FDA’s premarket notification and clearance process in order to be commercially distributed.
To obtain 510(k) clearance, a manufacturer must submit to the FDA a premarket notification demonstrating that the proposed device is “substantially equivalent” to a predicate device already on the market. A predicate device is a legally marketed device that is not subject to premarket approval, i.e., a device that was legally marketed prior to May 28, 1976 (pre-amendments device) and for which a PMA is not required, a device that has been reclassified from Class III to Class II or I, or a device that was found substantially equivalent through the 510(k) process. The FDA’s 510(k) clearance process usually takes from three to twelve months, but may take longer. The FDA may require additional information, including clinical data, to make a determination regarding substantial equivalence. In addition, FDA collects user fees for certain medical device submissions and annual fees for medical device establishments.
If the FDA agrees that the device is substantially equivalent to a predicate device currently on the market, it will grant 510(k) clearance to commercially market the device. If the FDA determines that the device is “not substantially equivalent” to a previously cleared device, the device is automatically designated as a Class III device. The device sponsor must then fulfill more rigorous PMA requirements, or can request a risk based classification determination for the device in accordance with the “de novo” process, which is a route to market for novel medical devices that are low to moderate risk and are not substantially equivalent to a predicate device.
After a device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute a major change or modification in its intended use, will require a new 510(k) clearance or, depending on the modification, PMA approval. The FDA requires each manufacturer to determine whether the proposed change requires submission of a new 510(k) in the first instance, but the FDA can review any such decision and disagree with a manufacturer’s determination. If the FDA disagrees with a manufacturer’s determination, the FDA can require the manufacturer to cease marketing and/or request the recall of the modified device until the requisite marketing authorization is obtained. Also, in these circumstances, the manufacturer may be subject to significant regulatory fines or penalties.
Over the last several years, the FDA has proposed reforms to its 510(k) clearance process, and such proposals could include increased requirements for clinical data and a longer review period, or could make it more difficult for manufacturers to utilize the 510(k) clearance process for their products. For example, in September 2019, the FDA issued revised final guidance describing an optional “safety and performance based” premarket review pathway for manufacturers of “certain, well-understood device types” to demonstrate substantial equivalence under the 510(k) clearance pathway by showing that such device meets objective safety and performance criteria established by the FDA, thereby obviating the need for manufacturers to compare the safety and performance of their medical devices to specific predicate devices in the clearance process. The FDA has developed and maintains a list of device types appropriate for the “safety and performance based” pathway and continues to develop product-specific guidance documents that identify the performance criteria for each such device type, as well as recommended testing methods, where feasible. For example, in March 2020, the FDA issued a draft guidance describing the testing performance criteria that could support a substantial equivalence determination respect to certain soft (hydrophilic) daily-wear contact lenses. If the draft guidance is finalized, manufacturers of such contact lenses would have the option to submit a 510(k) under the safety and performance based pathway, rather than submitting a traditional 510(k) premarket notification.
The PMA process is more demanding than the 510(k) premarket notification process. In a PMA, the manufacturer must demonstrate that the device is safe and effective, and the PMA must be supported by extensive data, including data from preclinical studies and human clinical trials. All clinical investigations of devices to determine safety and effectiveness must be conducted in accordance with the FDA’s investigational device exemption, or IDE, regulations which govern investigational device labeling, prohibit promotion of the investigational device, and specify an array of recordkeeping, reporting and monitoring responsibilities of study sponsors and study investigators. In addition to clinical and preclinical data, PMA must contain a full description of the device and its components, a full description of the methods, facilities, and controls used for manufacturing, and proposed labeling. Submissions of a PMA also requires payment of a substantial user fee. Following receipt of a PMA, the FDA determines whether the application is sufficiently complete to permit a substantive review. If the FDA accepts the application for review, it has 180 days under the FDCA to complete its review of a PMA, although in practice, the FDA’s review often takes significantly longer, and can take up to several years. An advisory panel of experts from outside the FDA may be convened to review and evaluate the application and provide recommendations to the FDA as to the approvability of the device. The FDA may or may not accept the panel’s recommendation. In addition, the FDA will generally conduct a pre-approval inspection of the applicant or its third-party manufacturers’ or suppliers’ facilities to ensure compliance with the QSR. The FDA will approve the new device for commercial distribution if it determines that the data and information in the PMA constitute valid scientific evidence and that there is reasonable assurance that the device is safe and effective for its intended use(s). The FDA may approve a PMA with post-approval conditions intended to ensure the safety and effectiveness of the device, including, among other things, restrictions on labeling, promotion, sale and distribution, and collection of long-term follow-up data from patients in the clinical study that supported PMA approval or requirements to conduct additional clinical studies post-approval. Certain changes to an approved device, such as changes in manufacturing facilities, methods, or quality control procedures, or changes in the design performance specifications, which affect the safety or effectiveness of the device, require submission of a PMA supplement, or in some cases a new PMA.
Post-Market Regulation
After a device is cleared, approved, or otherwise authorized for marketing, numerous and pervasive regulatory requirements continue to apply. These include:
•establishment registration and device listing with the FDA;
•QSR requirements, which require manufacturers, including third-party manufacturers, to follow stringent design, testing, control, documentation, and other quality assurance procedures during all aspects of the design and manufacturing process;
•labeling regulations and FDA prohibitions against the promotion of investigational products, or the promotion of “off-label” uses of cleared or approved products;
•requirements related to promotional activities;
•clearance or approval of product modifications to cleared devices or devices authorized through the de novo classification process that could significantly affect safety or effectiveness, or that would constitute a major change in intended use of such devices, or approval of certain modifications to PMA-approved devices;
•medical device reporting regulations, which require that a manufacturer report to the FDA if a device it markets may have caused or contributed to a death or serious injury, or has malfunctioned and the device or a similar device that it markets would be likely to cause or contribute to a death or serious injury, if the malfunction were to recur;
•correction, removal and recall reporting regulations, which require that manufacturers report to the FDA field corrections and product recalls or removals if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FDCA that may present a risk to health;
•complying with requirements governing Unique Device Identifiers, or UDI, on devices and also requiring the submission of certain information about each device to the FDA’s Global Unique Device Identification Database;
•the FDA’s recall authority, whereby the agency can order device manufacturers to recall from the market a product that is in violation of governing laws and regulations; and
•post-market surveillance activities and regulations, which apply when deemed by the FDA to be necessary to protect the public health or to provide additional safety and effectiveness data for the device.
Manufacturing processes for medical devices are required to comply with the applicable portions of the QSR, which cover the methods and the facilities and controls for the design, manufacture, testing, production, processes, controls, quality assurance, labeling, packaging, distribution, installation, and servicing of finished devices intended for human use. The QSR also requires, among other things, maintenance of a device master file, device history file, and complaint files. Manufacturers of medical devices are subject to periodic scheduled or unscheduled inspections by the FDA. Failure to maintain compliance with the QSR requirements could result in the shutdown of, or restrictions on, manufacturing operations and the recall or seizure of marketed products. The discovery of previously unknown problems with marketed medical devices, including unanticipated adverse events or adverse events of increasing severity or frequency, whether resulting from the use of the device within the scope of its clearance or off-label by a physician in the practice of medicine, could result in restrictions on the device, including the removal of the product from the market or voluntary or mandatory device recalls.
The FDA has broad regulatory compliance and enforcement powers. If the FDA determines that a manufacturer has failed to comply with applicable regulatory requirements, it can take a variety of compliance or enforcement actions, which may result in any of the following sanctions:
•warning letters, untitled letters, fines, injunctions, consent decrees, and civil penalties;
•recalls, withdrawals, or administrative detention or product seizures;
•operating restrictions or partial suspension or total shutdown of production;
•refusing or delaying requests for 510(k) marketing clearance or PMA approvals of new products or modified products;
•withdrawing 510(k) clearances or PMA approvals that have already been granted;
•refusal to grant export approvals; or
•criminal prosecution.
Coverage and Reimbursement
Certain of our customers receive vision insurance coverage through third-party payors, such as vision care insurers and managed care payors. We currently have relationships with only a few vision care insurers in the United States. Availability of third-party reimbursement could depend on our ability to establish relationships with vision care insurers and major carriers and to negotiate contracts with third-party payors, several of whom have significant market share. Many third-party payors have existing provider structures in place that they may be
unable or unwilling to change. Some vertically integrated payors also have their own networks, and these payors may take actions to maintain or protect these networks, including by increasing costs or not allowing new or existing stores to participate in their networks. Increasing consolidation in the optical industry may give such payors greater market power which may make it more difficult to negotiate reimbursement rates under in-network payor arrangements Third-party payors, including Medicare Advantage and commercial insurance plans, generally reimburse for the vision care services and products through payment systems managed by private insurance companies, managed care organizations, and governmental agencies. Coverage and payment levels are determined at each third-party payor’s discretion. Coverage restrictions and reductions in reimbursement levels or payment methodologies may negatively impact our sales and profits.
Impact Reporting
Since 2018, Warby Parker has published an annual Impact Report to evaluate and communicate the economic, environmental, and social impacts of our everyday business activities. Completing a yearly report, as benchmarked by the universally recognized GRI (Global Reporting Initiative) and SASB (Sustainability Accounting Standards Board) frameworks, gives us the opportunity to examine how we’re aligning with our core values, assess if we’re growing responsibly, and manage change more effectively. While the reporting is not required by law, we believe this is a critical strategic exercise as we scale our impact and our business.
Vendor Accountability
Alongside the independent fair-labor monitoring group Verité, we piloted the Warby Parker Social Compliance Program in 2012 and formalized it for our direct and key indirect suppliers in 2013. All new direct and key indirect suppliers since have been screened using our social compliance criteria. One hundred percent of our active direct suppliers in China and Japan are audited to ensure compliance with our program, as well as our major suppliers in Italy. After each auditor visit, our auditors calculate an audit performance score and produce a report that outlines all open concerns, and we work with the relevant supplier on an appropriate action plan—including clear deliverables, timelines, and metrics for success—to remediate issues. All Warby Parker direct and key indirect suppliers must maintain a score of “Good” or higher. To calculate the score, we assess three categories—Management System, Labor, and Environmental Health and Safety—and within each, Policy and Procedure, Implementation, and Performance. Because of the COVID-19 pandemic and its early outbreak in China, where a number of our suppliers are located, our routine social compliance in-person visits were suspended for the first half of 2020, but resumed once we believed it was safe to do so in the second half of 2020.
We are committed to making sure that working conditions throughout our supplier network are safe and that employees are treated with dignity. Our Vendor Code of Conduct outlines our requirements for the fair treatment and compensation of all workers—with which we require all direct suppliers to comply—the intention of which is to ensure that our suppliers adhere to our standards on subjects such as child labor, forced labor, discrimination, harassment and abuse, wages and benefits, overtime, housing, freedom of association, subcontracting, local laws, employee feedback, health and safety, environment, and bribery.
Public Benefit Corporation Status
As a demonstration of our long-term commitment to promote vision and eye health and to work towards positively impacting the communities in which we operate, we elected in June 2021 to be treated as a public benefit corporation under Delaware law.
Under Delaware law, a public benefit corporation is required to identify in its certificate of incorporation the public benefit or benefits it will promote and its directors have a duty to manage the affairs of the corporation in a manner that balances the pecuniary interests of the corporation’s stockholders, the best interests of those materially affected by the corporation’s conduct, and the specific public benefit or public benefits identified in the public benefit corporation’s certificate of incorporation. Public benefit corporations organized in Delaware are also required to assess their benefit performance internally and to disclose to stockholders at least biennially a report detailing their success in meeting their benefit objectives.
As provided in our current certificate of incorporation, the public benefits that we promote, and pursuant to which we manage our company, are to provide access to products and services that promote vision and eye health and to work towards positively impacting the communities in which we operate. See the section titled “Description of
Capital Stock—Anti-Takeover Effects of Delaware Law and Our Certificate of Incorporation and Bylaws—Public Benefit Corporation Status” for additional information.
Certified B Corporation
While not required by Delaware law or the terms of our current certificate of incorporation, we have been designated as a Certified B CorpTM and have elected to have our social and environmental performance, accountability, and transparency assessed against the proprietary criteria established by B Lab, an independent nonprofit organization.
In order to be designated as a Certified B Corporation, we are required to take a comprehensive and objective assessment of our positive impact on society and the environment. The assessment evaluates how a company’s operations and business model impacts its workers, customers, suppliers, community, and the environment using a 200-point scale. While the assessment varies depending on a company’s size (number of employees), sector, and location, representative indicators in the assessment include payment above a living wage, employee benefits, stakeholder engagement, supporting underserved suppliers, and environmental benefits from a company’s products or services. After completing the assessment, B Lab will verify the company’s score to determine if it meets the 80-point minimum bar for certification. The review process includes a phone review, a random selection of indicators for verifying documentation, and a random selection of company locations for onsite reviews, including employee interviews and facility tours. Once certified, every Certified B Corporation must make its assessment score transparent on B Lab’s website.
Acceptance as a Certified B Corporation and continued certification is at the sole discretion of B Lab. To maintain such certification, we are required to update our assessment and verify our updated score with B Lab every three years.
Intellectual Property
Our intellectual property is an important component of our business. We rely on a combination of patent, trademark, copyright, trade secret, and other intellectual property laws, as well as confidentiality procedures, non-disclosure agreements, employee non-disclosure and invention assignment agreements, and other contractual restrictions to establish and protect our intellectual property rights.
As of June 30, 2021, we held 11 issued utility patents in the United States and 17 issued utility patents outside of the United States; four design patents in the United States and 53 issued design registrations outside of the United States; and 44 utility patent applications (including active PCT applications) pending in the United States and other countries, five design patent applications pending in the United States and 23 applications for design registrations pending in other countries. While we believe our patents and patent applications in the aggregate are important to our competitive position, no single patent or patent application is material to our business as a whole.
We have trademark rights in our name and other brand indicia and have 42 trademark registrations and eight active applications for select marks in the United States as well as 107 trademark registrations and active applications in 35 other jurisdictions around the world. As of June 30, 2021, we have also registered ten copyrights in the United States. We also register domain names for certain websites that we use in our business, such as www.warbyparker.com, as well as similar variations to protect our brands and marks from cybersquatters. We continually review our development efforts to assess the existence and registrability of new intellectual property and determine whether to seek patent protection or trademark or copyright registrations.
We seek to control access to and use of our proprietary technology and other confidential information through the use of internal and external controls, including contractual protections with employees, contractors, customers, and partners. It is our practice to enter into confidentiality and invention assignment agreements (or similar agreements) with our employees, consultants, and contractors involved in the development of intellectual property on our behalf. We also enter into confidentiality agreements with other third parties in order to limit access to, and disclosure and use of, our confidential information and proprietary information. We further control the use of our proprietary technology and intellectual property through provisions in our terms of service. We also monitor the activities of third parties with respect to potential infringing uses of our intellectual property.
From time to time, we have faced, and we expect to face in the future, allegations by third parties, including our competitors and non-practicing entities, that we have infringed their trademarks, copyrights, patents, and other intellectual property rights, or challenging the validity or enforceability of our intellectual property rights. We are not presently a party to any such legal proceedings that, in the opinion of our management, would individually or taken together have a material adverse effect on our business, financial condition, results of operations, or cash flows.
See the section titled “Risk Factors—Risks Related to Our Legal and Regulatory Environment—Failure to adequately maintain and protect our intellectual property and proprietary rights could harm our brand, devalue our proprietary content, and adversely affect our ability to compete effectively.”
Our Facilities
Our corporate headquarters is located in New York, New York, where we lease approximately 79,474 square feet of space under a lease that expires in January 2025. We also maintain other offices in Nashville, Tennessee, principally for our customer experience employees, where we lease approximately 21,867 square feet of space under a lease that expires in August 2026, as well an additional 11,074 square feet of space in an adjoining building under a lease that expires in 2027. We operate an optical laboratory in Sloatsburg, New York, where we lease approximately 51,803 square feet of space under a lease that expires in June 2026, and have entered into a lease for the build-out of a new optical laboratory in Las Vegas, Nevada, where we lease approximately 69,580 square feet of space under a lease that expires in August 2031.
As of June 30, 2021, we operate 142 retail stores across the United States and three retail stores in Canada. All of our retail properties are leased or licensed from third parties under agreements expiring at various dates from 2021 to 2035, and the average size of our retail stores is approximately 1,590 square feet as of the date of this prospectus. The following table summarizes our domestic retail store locations by state, as of June 30, 2021:
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State
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Retail
Store Count
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State
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Retail
Store Count
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Alabama
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1
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Nevada
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1
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Arizona
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2
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New Jersey
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4
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California
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21
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New York
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12
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Colorado
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4
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North Carolina
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3
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Connecticut
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3
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Ohio
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5
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District of Columbia
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3
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Oklahoma
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2
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Florida
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12
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Oregon
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1
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Georgia
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3
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Pennsylvania
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5
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Illinois
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8
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Rhode Island
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1
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Indiana
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1
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South Carolina
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1
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Kentucky
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2
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Tennessee
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2
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Louisiana
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1
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Texas
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13
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Maryland
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4
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Utah
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1
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Massachusetts
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9
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Virginia
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3
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Michigan
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3
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Washington
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3
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Minnesota
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3
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Wisconsin
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2
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Missouri
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3
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We believe our facilities are adequate and suitable for our current needs, and that should it be needed, suitable additional or alternative space will be available to accommodate our operations.
Employees and Human Capital Resources
As of June 30, 2021, we had a total of 1,746 full-time employees and 1,013 part-time employees, across 145 retail stores in the United States and Canada and one in-house optical laboratory and two offices in the United States. We also engage contractors and consultants. We have invested substantial time and resources in building our team. We are highly dependent on our management, highly skilled software engineers, Customer Experience and Retail teams, laboratory personnel, and other professionals, and it is crucial that we continue to attract and retain valuable employees. To facilitate attraction and retention, we strive to make Warby Parker a diverse, inclusive, and safe workplace, with opportunities for our employees to grow and develop in their careers, supported by strong compensation and benefits programs. We believe that our employee relations are strong.
Legal Proceedings
We are regularly subject to claims, lawsuits, arbitration proceedings, administrative actions, government investigations, and other legal and regulatory proceedings involving personal injury, intellectual property, including patent infringement, property damage, labor and employment, commercial and contract disputes, unfair competition, consumer protection, data protection and privacy, environmental, health and safety, taxes, pricing and fees, weights and measures, compliance with regulatory requirements, and other matters. We believe that there is no pending or threatened legal proceeding that has arisen from these matters that individually is likely to have a material impact on our business, financial condition, results of operations, or cash flows. However, management’s views and estimates related to these matters may change in the future, as new events and circumstances arise and the matters continue to develop. Moreover, results of litigation and claims are inherently unpredictable, and legal proceedings related to such accidents or incidents could, in the aggregate, have a material impact on our business, financial condition, results of operations, and cash flows.
Management
The following table sets forth information for our executive officers and directors as of the date of this August 24, 2021:
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Name
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Age
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Position
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Executive Officers
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Neil Blumenthal
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41
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Co-Founder; Co-Chief Executive Officer; Co-Chair
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Dave Gilboa
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40
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Co-Founder; Co-Chief Executive Officer; Co-Chair
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Steven Miller
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48
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Chief Financial Officer
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Non-Employee Directors
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Andrew Hunt
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40
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Co-Founder; Director
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Jeffrey Raider
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40
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Co-Founder; Director
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Teresa Briggs
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61
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Director
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Joel Cutler
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63
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Director
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Youngme Moon
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57
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Director
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Gabrielle Sulzberger
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61
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Director
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Ronald A. Williams
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71
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Director
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Executive Officers
The following is a brief summary of the business experience of our executive officers.
Neil Blumenthal has served as our Co-Founder and Co-Chief Executive Officer since 2010, as a member of our board of directors since May 2009, and as the Co-Chair of our board of directors since June 2021. Prior to co-founding Warby Parker in 2010, Mr. Blumenthal served as director of VisionSpring, a nonprofit social enterprise that trains low-income men and women to start their own business selling affordable eyewear to individuals living in developing countries. Mr. Blumenthal currently serves on the board of directors of Allbirds, Inc., a footwear and apparel company, Sweetgreen, Inc., a mission-driven food brand, and the nonprofit organizations Warby Parker Impact Foundation, RxArt, the Mayor’s Fund to Advance New York City, and the Partnership Fund for New York City. Mr. Blumenthal also sits on the leadership councils of Robin Hood and Tech:NYC. Mr. Blumenthal has also served as a General Partner of Good Friends, LLC, a venture capital firm, since September 2019. Blumenthal holds a Bachelor of Arts degree from Tufts University and a Master of Business Administration degree from The Wharton School of the University of Pennsylvania. We believe that Mr. Blumenthal’s perspective from serving as a Warby Parker Co-Founder and Co-Chief Executive Officer, as well as his experience and success in the eyewear industry, make him well-qualified to serve on our board of directors.
David (“Dave”) Gilboa has served as our Co-Founder and Co-Chief Executive Officer since 2010, as a member of our board of directors since May 2009, and as the Co-Chair of our board of directors since June 2021. Prior to co-founding Warby Parker, Mr. Gilboa worked at Bain & Company, Inc., a strategy consulting firm, from September 2003 to October 2006, and at Allen & Company LLC, a merchant bank, from October 2006 to May 2008. Mr. Gilboa currently serves on the board of directors of the nonprofit organization Warby Parker Impact Foundation. Mr. Gilboa has also served as a General Partner of Good Friends, LLC, a venture capital firm, since September 2019. Mr. Gilboa holds a Bachelor of Science degree in Bioengineering from University of California, Berkeley and a Master of Business Administration degree from The Wharton School of the University of Pennsylvania. Mr. Gilboa is a member of the Aspen Institute’s 2016 Henry Crown Fellowship class and the Aspen Global Leadership Network. We believe that Mr. Gilboa’s contributions as a Warby Parker Co-Founder and Co-Chief Executive Officer, as well as his experience and success in both the eyewear and financial services industries, make him well-qualified to serve on our board of directors.
Steven (“Steve”) Miller has served as our Chief Financial Officer since 2011. Prior to joining Warby Parker, Mr. Miller served as Chief Financial Officer and Senior Vice President of Corporate Development for Majestic
Research, a pioneering data-driven research firm where he led the successful sale of the company to ITG (now part of Virtu Financial). Previously, Mr. Miller served as a Vice President of Comerica Bank’s Technology and Life Sciences Division, where he opened the Bank’s New York office. Mr. Miller began his career at Monitor Company, a strategy consulting firm, and served as an Urban Fellow. Mr. Miller is on the board of Ubuntu Education Fund, a nonprofit health and education provider in South Africa.Mr. Miller holds a Bachelor of Arts degree in Political Science from Columbia University.
Non-Employee Directors
The following is a brief summary of the business experience of our non-employee board members.
Andrew (“Andy”) Hunt has served as our Co-Founder and a member of our board of directors since May 2009. In addition to co-founding Warby Parker, Mr. Hunt also co-founded Elephant Partners, a venture capital firm, and has served as its general partner since May 2015. Mr. Hunt also serves as a member of the boards of directors for Tecovas, Inc., Cometeer, Inc., and RealSelf, Inc., an online healthcare marketplace. From 2011 to 2015, Mr. Hunt was a principal and partner at Highland Capital Partners. Mr. Hunt holds a Bachelor of Arts in Economics and History from Brown University and a Master of Business Administration degree from The Wharton School of the University of Pennsylvania. We believe that Mr. Hunt’s contributions to Warby Parker as a Co-Founder, his success growing businesses as a venture capitalist, and his experience as a board member make him well-qualified to serve on our board of directors.
Jeffrey (“Jeff”) Raider has served as our Co-Founder and a member of our board of directors since May 2009. In addition to co-founding Warby Parker, Mr. Raider also co-founded Harry’s, Inc., a company aimed to create a family of disruptive omnichannel CPG brands, where he has served as co-Chief Executive Officer and a member of the board of directors since September 2012. Mr. Raider has also served as a General Partner of Good Friends, LLC, a venture capital firm, since September 2019. Mr. Raider holds a Bachelor of Arts and a Master’s degree in International Studies from The Johns Hopkins University and a Master of Business Administration degree from The Wharton School of the University of Pennsylvania. We believe that Mr. Raider’s experience and success as a Co-Founder of Warby Parker and Harry’s, Inc. make him well-qualified to serve on our board of directors.
Teresa Briggs has served as a member of our board of directors since June 2019. In 2019, Ms. Briggs served as a Distinguished Careers Fellow at Stanford University. Prior to that, she spent 37 years at Deloitte LLP, a financial advisory services firm, where she most recently served as Vice Chair and San Francisco Managing Partner from June 2011 until January 2019. Ms. Briggs currently serves on the boards of directors and audit committees of Snowflake Inc., DocuSign, Inc., and ServiceNow, Inc., each a computer software company. Ms. Briggs holds a Bachelor of Science degree in Accounting from the University of Arizona, Eller College of Management, and is a Certified Public Accountant. We believe that Ms. Briggs’ accounting expertise, as well as her extensive public and private company board and senior management experience, makes her well-qualified to serve on our board of directors.
Joel Cutler has served as a member of our board of directors since 2012. Since January 2000, Mr. Cutler has served as a Co-Founder and Managing Director at General Catalyst Partners, a venture capital firm. Mr. Cutler serves on the board of directors of Oscar Health, Inc. and Lemonade, Inc., and on the board of private companies Lola Travel Company, Inc., Zego Inc., Multiverse Group Ltd, Well Dot, Inc., SESAME, Inc., Empathy.co, and Bloomscape, Inc. Mr. Cutler also serves on several nonprofit organizations’ board of directors, including Warby Parker Impact Foundation, Boston Children’s Hospital Trust, and Beth Israel Deaconess Medical Center. Mr. Cutler holds a Bachelor of Arts degree from Colby College and a Juris Doctor degree from Boston College Law School. We believe that Mr. Cutler’s extensive private and public company board experience and success as a venture capitalist make him well-qualified to serve on our board of directors.
Youngme Moon has served as a member of our board of directors since March 2018. Professor Moon currently serves as the Donald K. David Professor of Business at Harvard Business School, where she has taught since June 1998. Professor Moon currently serves as a member of the board of directors of Mastercard Inc. and Unilever PLC, and on the boards of private companies Sweetgreen, Inc., Whoop, Inc., and Bloom & Wild Limited. Professor Moon serves on the corporate responsibility committee of the board of directors of Unilever PLC, the human resources and compensation committee of the board of directors of Mastercard, Inc., and the compensation committee of the board of directors of Sweetgreen, Inc. Professor Moon holds a Bachelor of Arts degree from Yale University, as well as a Master’s degree and Ph.D. from Stanford University. We believe that Professor Moon’s depth of
knowledge in the intersection of strategy, branding innovation, and culture, as well as her extensive public and private company board experience, makes her well-qualified to serve on our board of directors.
Gabrielle Sulzberger has served as a member of our board of directors since August 2021. Before joining us, Ms. Sulzberger served as a Co-Founder and General Partner of Fontis Partners from 2009 to 2019, which specializes in late venture and buyouts investments, and currently serves a senior adviser to Centerbridge Partners and Two Sigma Impact. Ms. Sulzberger also currently serves on the board of directors and audit committee of Mastercard Inc., Eli Lilly and Company, Cerevel Therapeutics, and Teva Pharmaceutical Industries Ltd., as well as on the boards of private companies Acorns Growth Inc., Brixmor Property Group, and Whole Foods Market, Inc. Additionally, Ms. Sulzberger serves on the nonprofit board of directors of Ford Foundation, Metropolitan Museum of Art, Sesame Street, and TimesUp. Ms. Sulzberger holds a Bachelor of Arts degree from Princeton University, a Juris Doctor from Harvard Law School, and a Master of Business Administration degree from Harvard Business School. We believe that Ms. Sulzberger’s extensive private and public company board experience, as well as her investment and management expertise as a venture capitalist, makes her well-qualified to serve on our board of directors.
Ronald A. Williams has served as a member of our board of directors since August 2021. Before joining us, Mr. Williams served as the Chairman and CEO of Aetna Inc. from 2006 to 2010 and currently serves as the Chairman and CEO of RW2 Enterprises, through which he counsels C-Suite corporate executives. Mr. Williams also currently serves on the board of directors of American Express Co., The Boeing Company, Johnson & Johnson, Inc., and agilon health, as well as on the board of private companies Envision Healthcare, Millennium Physician Group, Vera Whole Health Inc., and naviHealth, Inc. Mr. Williams is a Chairman of the Conference Board and a member of the President’s Circle of the National Academies, and was elected to the American Academy of Arts and Sciences. Mr. Williams also served on President Obama’s President’s Management Advisory Board from 2011 to 2017. Mr. Williams holds a Bachelor of Arts degree from Roosevelt University and a Master of Business Administration degree from the Sloan School of Business at the Massachusetts Institute of Technology. We believe that Mr. Williams’s extensive private and public company board experience, as well as his expertise in leading a global public company, makes him well-qualified to serve on our board of directors.
Family Relationships
There are no family relationships among any of our executive officers or directors.
Composition of Our Board of Directors
In accordance with our Amended Charter that will be in effect immediately 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. At each annual meeting of stockholders, the successors to directors whose terms then expire will be elected to serve from the time of election and qualification until the third annual meeting following election. Our directors will be divided among the three classes as follows:
•the Class I directors will be Joel Cutler, Teresa Briggs, and Jeffrey Raider, and their terms will expire at our first annual meeting of stockholders following the effectiveness of the Amended Charter;
•the Class II directors will be Dave Gilboa, Ronald Williams, and Youngme Moon, and their terms will expire at our second annual meeting of stockholders following the effectiveness of the Amended Charter; and
•the Class III directors will be Neil Blumenthal, Gabrielle Sulzberger, and Andrew Hunt, and their terms will expire at our third annual meeting of stockholders following the effectiveness of the Amended Charter.
Each director is to hold office until his or her successor is duly elected and qualified or until his or her earlier death, resignation or removal. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so as to maintain the number of directors in each class as nearly equal as possible. The division of our board of directors into three classes with staggered three-year terms may delay or prevent a change of our management or a change in control.
Director Independence
Our board of directors has undertaken a review of the independence of each director. Based on information provided by each director concerning his or her background, employment, and affiliations, our board of directors
has determined that Andrew Hunt, Jeffrey Raider, Teresa Briggs, Joel Cutler, Youngme Moon, Gabrielle Sulzberger, and Ronald Williams do not have relationships that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is “independent” as that term is defined under the listing standards of the NYSE. In making these determinations, our board of directors considered the current and prior relationships that each non-employee director has with our company and all other facts and circumstances our board of directors deemed relevant in determining their independence, including the beneficial ownership of our shares held by each non-employee director and the transactions described in the section titled “Certain Relationships and Related Party Transactions.”
Committees of Our Board of Directors
Our board of directors has established an audit committee, a compensation committee, and a nominating and corporate governance committee. The composition and responsibilities of each of the committees of our board of directors are described below. Our board of directors may establish other committees as it deems necessary or appropriate from time to time.
Audit Committee
Our audit committee consists of Teresa Briggs, Ronald Williams, and Andrew Hunt. Our board of directors has determined that each member of our audit committee satisfies the independence requirements under the listing standards of the NYSE and Rule 10A-3(b)(1) of the Exchange Act. The chair of our audit committee is Teresa Briggs. Our board of directors has determined that Teresa Briggs, Ronald Williams, and Andrew Hunt are each an “audit committee financial expert” within the meaning of SEC regulations and that each member of our audit committee is financially literate accordance with applicable requirements. In arriving at these determinations, our board of directors has examined each audit committee member’s scope of experience and the nature of their employment.
The primary purpose of our audit committee is to discharge the responsibilities of our board of directors with respect to our corporate accounting and financial reporting processes, systems of internal control, and financial statement audits and to oversee our independent registered public accounting firm. Specific responsibilities of our audit committee include:
•appointing, compensating, retaining, evaluating, terminating, and overseeing our independent registered public accounting firm;
•discussing with our independent registered public accounting firm their independence from management;
•reviewing with our independent registered public accounting firm the scope and results of their audit;
•approving all audit and permissible non-audit services to be performed by our independent registered public accounting firm;
•overseeing the financial reporting process and discussing with management and our independent registered public accounting firm the quarterly and annual financial statements that we file with the SEC;
•overseeing our financial and accounting controls and compliance with legal and regulatory requirements;
•reviewing our policies on risk assessment and risk management;
•reviewing related person transactions; and
•establishing procedures for the confidential anonymous submission of concerns regarding questionable accounting, internal controls, or auditing matters.
Our audit committee will operate under a written charter, to be effective prior to the effectiveness of the registration statement of which this prospectus forms a part, that satisfies the applicable listing standards of the NYSE.
Compensation Committee
Our compensation committee consists of Joel Cutler, Youngme Moon, and Gabrielle Sulzberger. The chair of our compensation committee is Joel Cutler. Our board of directors has determined that each member of our compensation committee is independent under the listing standards of the NYSE and a “non-employee director” as defined in Rule 16b-3 promulgated under the Exchange Act.
The primary purpose of our compensation committee is to discharge the responsibilities of our board of directors in overseeing our compensation policies, plans, and programs, and to review and determine the compensation to
be paid to our executive officers, directors, and other senior management, as appropriate. Specific responsibilities of our compensation committee include:
•reviewing and approving the corporate goals and objectives, evaluating the performance of and reviewing and approving (either alone, or if directed by the board of directors, in connection with a majority of the independent members of the board of directors) the compensation of our Co-Chief Executive Officers;
•reviewing and setting or making recommendations to our board of directors regarding the compensation of our other executive officers;
•reviewing and approving or making recommendations to our board of directors regarding our incentive compensation and equity-based plans and arrangements;
•making recommendations to our board of directors regarding the compensation of our directors; and
•appointing and overseeing any compensation consultants.
Our compensation committee will operate under a written charter, to be effective prior to the effectiveness of the registration statement of which this prospectus forms a part, that satisfies the applicable listing standards of the NYSE.
Nominating and Corporate Governance Committee
Our nominating and corporate governance committee consists of Gabrielle Sulzberger and Jeffrey Raider. The chair of our nominating and corporate governance committee is Gabrielle Sulzberger. Our board of directors has determined that each member of our nominating and corporate governance committee is independent under the listing standards of the NYSE.
Specific responsibilities of our nominating and corporate governance committee include:
•identifying individuals qualified to become members of our board of directors, consistent with criteria approved by our board of directors;
•periodically reviewing our board of directors’ leadership structure and recommending any proposed changes to our board of directors, including recommending to our board of directors the nominees for election to our board of directors at annual meetings of our stockholders;
•overseeing an annual evaluation of the effectiveness of our board of directors and its committees; and
•developing and recommending to our board of directors a set of corporate governance guidelines.
Our nominating and corporate governance committee will operate under a written charter, to be effective prior to the effectiveness of the registration statement of which this prospectus forms a part, that satisfies the applicable listing standards of the NYSE.
Code of Business Conduct and Ethics
We have adopted a code of business conduct and ethics that applies to our directors, officers, and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions. Immediately following the effectiveness of the registration statement of which this prospectus forms a part, our code of business conduct and ethics will be available under the Corporate Governance section of our website at www.warbyparker.com. In addition, we intend to post on our website all disclosures that are required by law or the listing standards of the NYSE concerning any amendments to, or waivers from, any provision of the code. The reference to our website address does not constitute incorporation by reference of the information contained at or available through our website, and you should not consider it to be a part of this prospectus.
Compensation Committee Interlocks and Insider Participation
None of the members of our compensation committee is currently or has been at any time one of our officers or employees. None of our executive officers currently serves, or has served during the last year, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our board of directors or compensation committee.
Risk Oversight
Our board of directors is responsible for overseeing our risk management process. Our board of directors focuses on our general risk management strategy, the most significant risks facing us, and oversees the implementation of risk mitigation strategies by management. Our audit committee is also responsible for discussing our policies with respect to risk assessment and risk management. Our board of directors does not believe that its role in the oversight of our risks affects the board of directors’ leadership structure.
Board Diversity
Our nominating and corporate governance committee will be responsible for reviewing with the board of directors, on an annual basis, the appropriate characteristics, skills, and experience required for the board of directors as a whole and its individual members. Although our board of directors does not have a formal written diversity policy with respect to the evaluation of director candidates, in its evaluation of director candidates, our nominating and corporate governance committee will consider factors including, without limitation, issues of character, integrity, judgment, potential conflicts of interest, other commitments, and diversity, and with respect to diversity, such factors as gender, race, ethnicity, experience, and area of expertise, as well as other individual qualities and attributes that contribute to the total diversity of viewpoints and experience represented on the board of directors.
Executive Compensation
The following is a discussion and analysis of compensation arrangements of our named executive officers, or NEOs. This discussion contains forward looking statements that are based on our current plans, considerations, expectations and determinations regarding future compensation programs. Actual compensation programs that we adopt may differ materially from currently planned programs as summarized in this discussion.
As an “emerging growth company” as defined in the JOBS Act, we are not required to include a Compensation Discussion and Analysis section and have elected to comply with the scaled disclosure requirements applicable to emerging growth companies. Nonetheless, we have included some additional information regarding our compensation setting process and our compensation program beyond what the JOBS Act requires of emerging growth companies.
Our NEOs for fiscal year 2020 were as follows:
•Neil Blumenthal, our Co-Chief Executive Officer and Director;
•Dave Gilboa, our Co-Chief Executive Officer and Director; and
•Steven Miller, our Chief Financial Officer.
Executive Compensation Philosophy and Objectives
Our executive compensation program is designed to drive performance by aligning compensation with business performance and the long-term success of our company, in part, by compensating executives and key employees on the attainment of operating goals that positively impact our stakeholders, including our stockholders, while avoiding the promotion of excessive risk-taking. Although base salary and an annual performance-based cash bonus opportunity incentivize the achievement of shorter-term goals, our long-term equity awards represent a longer-term compensation structure that promotes retention and continuous commitment to the operating results of our company. We further believe that this compensation mix motivates and rewards each of our executives and key employees, for their individual contributions to our company, both present and future, and enables us to attract and retain high-caliber leaders.
At this phase in the global growth of our business, a majority of the total direct compensation of our NEOs is directly tied, through the use of equity awards, to the growth in the value of our common stock.
We have formalized a set of principles to guide our compensation committee and board of directors in their decisions regarding our executive compensation program. To summarize these principles.
•Base salaries should be consistent with those in similar positions in similar companies.
•Annual bonuses should be directly connected to company performance and achievement of individual objectives.
•Equity compensation should be used to align the interests of our executives with those of our shareholders.
•Benefits provided to our executives should be generally the same as those provided to our other employees.
•Total direct compensation should attract, motivate, and retain talented executives in a competitive environment.
Determination of Executive Compensation
Role of board of directors and compensation committee
Our compensation committee oversees our executive compensation program, including executive salaries, payouts under our annual bonus program, and the size and structure of equity awards. Our compensation committee also administers our various equity plans and benefit programs and approves or makes recommendations regarding the compensation of our NEOs to our board of directors. Our compensation committee reviews the performance of each NEO from time to time to determine whether to make any changes to
their compensation and approves such changes or presents its recommendations to our board of directors for review and final approval.
Role of management
In setting compensation, our Co-Chief Executive Officers work closely with our compensation committee in managing our executive compensation program and attend compensation committee meetings if so requested. Our Co-Chief Executive Officers may make recommendations to our compensation committee regarding the salary, annual cash bonus opportunity, and equity awards for our executives and key employees, other than themselves, because of their day-to-day involvement with our executive and senior leadership team. Our compensation committee generally exercises its discretion in modifying the recommended compensation of our executives and key employees, and no executive or employee participates directly in the final deliberations or determinations regarding his or her own compensation package.
Role of compensation consultant
In 2021, we engaged Semler Brossy to provide guidance and market-based data to our board of directors and our compensation committee and to advise regarding the amount and types of compensation that we provide to our executives and key employees, how our compensation practices compare to those of other companies, including with respect to a peer group of companies developed in consultation with Semler Brossy, and other compensation-related matters. Semler Brossy reports directly to our compensation committee and does not provide any services to us other than the services provided to or at the request of our compensation committee.
Use of comparative market data
While our compensation committee does not establish compensation levels based solely on a review of competitive market data, it believes that such data is a useful tool in its deliberations as it recognizes that our compensation policies and practices must be competitive in the marketplace for us to be able to attract, motivate, and retain qualified executives and key employees. Our compensation committee also considers a number of other factors, including company performance relative to our stakeholder priorities, each executive’s and key employee’s current and future impact on our strategy and mission, relative nature, and scope of responsibility, individual performance, and demonstrated leadership and internal pay equity considerations.
Multi-Year Founder Grants
In connection with our Class A common stock becoming publicly traded, our compensation committee and our board of directors worked closely with its compensation consultant, Semler Brossy, to design a one-time equity incentive for Messrs. Blumenthal and Gilboa that significantly aligns their compensation with the long-term interests of our stockholders by requiring, among other things, the achievement of sustained stock price targets.
In designing the equity incentive for Messrs. Blumenthal and Gilboa, our compensation committee and board of directors considered Messrs. Blumenthal’s and Gilboa’s significant stockholdings, strong history of leadership since the founding of our company, and their vision for the future of our company. For each of Messrs. Blumenthal and Gilboa, the equity incentive is comprised of 2,198,844 performance-based restricted stock units, or PSUs, and 942,362 time-based RSUs, that were granted under our 2019 Plan. Each RSU and each PSU represents the right to receive one share of our Class B common stock after vesting. The PSUs will only vest, if at all, in the event the price of our Class A common stock reaches stock price hurdles that are significantly in excess of the fair market value of our Class A common stock as of the date of grant over a period of ten years. Commencing on July 1, 2021, the RSUs will vest in equal monthly installments over a period of five years, which is subject to Messrs. Blumenthal’s and Gilboa’s continued employment with us through the applicable vesting date and conditioned upon the effectiveness of the registration statement of which this prospectus forms a part. The size of the award was determined after consideration of similar equity awards to founders of privately held and publicly traded companies that are serving in executive positions and is intended to replace annual grants that would otherwise be made to Messrs. Blumenthal and Gilboa over the next several years.
Each award of the PSUs is divided into eight substantially equal tranches, with each tranche vesting on the date the 90-day trailing volume weighted average trading price of our Class A common stock exceeds the stock price
hurdle, as set forth for each award in the table below, provided that no PSUs may vest prior to the six month anniversary of the effectiveness of the registration statement of which this prospectus forms a part:
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Tranche
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Number of PSUs Under Each Award
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Stock Price Hurdle
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1
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274,856
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$
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47.75
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2
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274,855
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$
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55.71
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3
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274,856
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$
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63.67
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4
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274,855
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$
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71.63
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5
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274,856
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$
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79.59
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6
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274,855
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$
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87.55
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7
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274,856
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$
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95.50
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8
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274,855
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$
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103.46
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Shares underlying vested RSUs and PSUs will be issued to Messrs. Blumenthal and Gilboa on a specified quarterly date following the second anniversary of the vesting date, except for an amount necessary to cover any taxes due in connection with the vesting, which will be withheld or sold to cover, or issued to offset, such taxes, in the company’s discretion. Any RSUs or PSUs subject to the award that have not vested by the tenth anniversary of the grant date will be forfeited.
The number of RSUs and PSUs and each stock price hurdle for the PSUs will be equitably adjusted to reflect any stock splits, stock dividends or other restructurings impacting our common stock.
In the event of Messrs. Blumenthal’s or Gilboa’s termination of employment affected by us without “cause,” by him for “good reason” or due to his death or disability, (i) all unvested RSUs will accelerate and vest in full and (ii) all unvested PSUs will remain outstanding and eligible to vest until the earlier of 18 months following the date of termination and the end of the 10-year term of the PSUs. In the event of Messrs. Blumenthal’s or Gilboa’s termination of employment affected by us for cause or due to his voluntary resignation, all unvested RSUs and PSUs will be forfeited, and in the case of a termination for cause, any vested RSUs or PSUs may be clawed back to the extent determined appropriate by our board of directors.
In addition, in the event of a change in control, achievement of stock price hurdles for purposes of the PSUs will be measured based on the price per share to be received by stockholders in connection with such change in control, and any tranches for which the stock price hurdle has been met as well as 25% of the then-remaining PSUs will vest and be settled. In the event of Messrs. Blumenthal’s or Gilboa’s termination of employment without cause or resignation for good reason within 18 months following the change in control, all unvested RSUs will accelerate and vest in full.
2020 Summary Compensation Table
The following table sets forth total compensation paid to our named executive officers for the fiscal year ending on December 31, 2020.
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Name and Principal Position
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Year
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Salary
($)
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Bonus ($)
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Stock Awards ($)
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Option Awards ($)
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Non-Equity Incentive Plan Compensation (1) ($)
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Earnings
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All Other Compensation (2) ($)
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Total ($)
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Neil Blumenthal
Co-Chief Executive Officer and Director.
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2020
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425,000
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299,625
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11,400
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736,025
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Dave Gilboa
Co-Chief Executive Officer and Director.
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2020
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425,000
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299,625
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11,400
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736,025
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Steven Miller
Chief Financial Officer
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2020
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400,000
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195,000
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11,400
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606,400
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__________________
(1)Amounts reported represent payments made pursuant to our performance-based cash bonus program.
(2)Amounts reported represent matching contributions made under our 401(k) plan.
Narrative to Summary Compensation Table
2020 Salaries
Our NEOs each receive a base salary to compensate them for services rendered to our company. The base salary payable to each NEO is intended to provide a fixed component of compensation reflecting the executive’s skill set, experience, role, and responsibilities.
For fiscal year 2020, Messrs. Blumenthal, Gilboa, and Miller had an annual base salary of $425,000, $425,000, and $400,000, respectively.
In April 2020, Messrs. Blumenthal and Gilboa voluntarily reduced their base salaries by 50% to $212,500 in response to business conditions spurred by the emergence of the COVID-19 pandemic. Once the full impact of the COVID-19 pandemic on our business was known, in December 2020, the compensation committee restored Messrs. Blumenthal’s and Gilboa’s base salaries and provided each Co-Chief Executive Officer a one-time lump sum salary payment equivalent to the base salary voluntarily waived between April and December 2020.
Effective January 1, 2021, our compensation committee increased the annual base salary of Messrs. Blumenthal, Gilboa, and Miller to $450,000, $450,000, and $430,000, respectively.
Our board of directors and compensation committee may adjust base salaries from time to time at their discretion.
2020 Bonuses
We maintain an annual performance-based cash bonus program in which each of our NEOs participated in fiscal year 2020. Each NEO’s target bonus is expressed as a percentage of base salary which can be achieved by meeting certain performance objectives at target level. The 2020 annual bonus for Messrs. Blumenthal, Gilboa, and Miller were targeted at 60%, 60%, and 50% of the executive’s base salary, respectively. For fiscal year 2020, our NEOs were eligible to earn annual cash bonuses based on the achievement of certain corporate objectives approved by our board of directors. The goals under our 2020 bonus program were set with respect to both company and individual performance. Significant overachievement of all goals could result in a payout of up to 180% of the target.
In December, 2020, our compensation committee reviewed and approved overall achievement of our 2020 corporate goals at 75% of target. Based on this determination, our compensation committee approved the 2020 annual bonuses set forth above in the Summary Compensation Table in the column titled “Non-Equity Incentive Plan Compensation.”
Effective January 1, 2021, our board of directors approved increasing the target bonus percentage for each of our Co-Chief Executive Officers to 75% of the Co-Chief Executive Officers’ annual base salary for fiscal 2021, while Mr. Miller’s target remained at 50% of his annual base salary.
Equity-Based Compensation
We have granted stock options and RSUs to our employees, including our NEOs, in order to attract and retain them, as well as to align their interests with the interests of our stockholders. In order to provide a long-term incentive, our stock options and RSUs generally vest over four years subject to continued service to the company. Shares underlying our RSUs will not be issued until a period of time following the earliest of the initial public offering of our common stock, a direct listing of our common stock, or a change in control, and if such an event does not occur prior to the seventh anniversary of the date of grant, the RSUs will automatically be forfeited.
None of our NEOs were granted stock options, RSUs, or any other equity incentive awards in 2020.
In January 2021, we granted each of Messrs. Blumenthal and Gilboa an option to purchase 275,081 shares of our Class B common stock and 69,303 RSUs covering our Class B common stock under our 2019 Plan. The options and RSUs vest monthly over four years, subject to continued service through the applicable vesting date. The options were granted at an exercise price of $18.35 per share, which our board of directors determined was equal to the fair market value of a share of our Class B common stock on the date of grant. In March 2021, each of Messrs. Blumenthal and Gilboa exercised the option held by him in full. The shares acquired prior to vesting remain subject to repurchase by us for the original exercise price upon any termination of the executive’s employment with us, or, if less, fair market value at the time of repurchase. Our repurchase right lapses in accordance with the vesting schedule of the related option.
Also in January 2021, we granted Mr. Miller an option to purchase 117,270 shares of our Class A common stock and 31,696 RSUs covering our Class A common stock under our 2011 Plan. The options and RSUs vest monthly over four years, subject to continued service through the applicable vesting date. The options were granted with an exercise price of $17.90 per share, which our board of directors determined was equal to the fair market value of a share of our Class A common stock on the date of grant. In March 2021, Mr. Miller exercised the option to acquire 29,318 shares. The shares acquired prior to vesting remain subject to repurchase by us for the original exercise price upon any termination of Mr. Miller’s employment with us. Our repurchase right lapses in accordance with the vesting schedule of the related option.
In order to encourage additional alignment of interests with our stockholders, in August 2021, we granted each of our named executive officers the right to purchase up to 20,383 fully vested shares of our common stock for a purchase price of $24.53, which was the price per share paid for our Series G redeemable convertible preferred stock. Each named executive officer exercised his stock purchase right in full shortly after the grant, with Messrs. Blumenthal and Gilboa purchasing Class B common stock and Mr. Miller purchasing Class A common stock.
2021 Incentive Award Plan
We intend to adopt a 2021 Incentive Award Plan, referred to below as the 2021 Plan, in order to facilitate the grant of cash and equity incentives to directors, employees (including our NEOs), and consultants of our company and certain of its affiliates and to enable us to obtain and retain services of these individuals, which is essential to our long-term success. We expect that the 2021 Plan will be effective on the day prior to the first public trading date of our Class A common stock, subject to approval of such plan by our stockholders. For additional information about the 2021 Plan, please see the section titled “Equity Compensation Plans” below.
Other Elements of Compensation
Retirement Savings and Health and Welfare Benefits
We maintain a 401(k) retirement savings plan for our employees, including our NEOs, who satisfy certain eligibility requirements. Our NEOs are eligible to participate in the 401(k) plan on the same terms as other part-time and full-time employees. The Code allows eligible employees to defer a portion of their compensation, within prescribed limits, on a pre-tax basis through contributions to the 401(k) plan. Currently, we match contributions made by participants in the 401(k) plan up to 4% of the employee contributions, and these matching contributions are fully vested as of the date on which the contribution is made. We believe that providing a vehicle for tax-deferred retirement savings through our 401(k) plan and making fully vested matching contributions adds to the overall desirability of our executive compensation package and further incentivizes our employees, including our named executive officers, in accordance with our compensation policies.
All of our full-time employees, including our NEOs, are eligible to participate in our health and welfare plans, including medical, dental, and vision benefits; medical and dependent care flexible spending accounts; short-term and long-term disability insurance; and life and accidental death and dismemberment insurance. We believe the perquisites described above are necessary and appropriate to provide a competitive compensation package to our NEOs.
Perquisites and Other Personal Benefits
We did not provide any perquisites to our NEOs in fiscal year 2020; however, we may pay the filing fees incurred by our executive officers under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 from time to time. Our compensation committee may from time to time approve additional perquisites in the future when our compensation committee determines that such perquisites are necessary or advisable to fairly compensate or incentivize our employees.
No Tax Gross-Ups
We do not make gross-up payments to cover our NEOs’ personal income taxes that may pertain to any of the compensation or perquisites paid or provided by our company.
Outstanding Equity Awards at 2020 Fiscal Year End
The following table lists all outstanding equity awards held by our NEOs as of December 31, 2020.
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Option Awards
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Stock Awards
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Name(1)
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Grant Date
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Vesting Commencement Date
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Number of Securities Underlying Unexercised Options Exercisable(2)
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Equity Incentive Plan Awards: Number of Securities Underlying Unexercised, Unearned Options(3)
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Option Exercise Price
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Option Expiration Date
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|
Number of Shares of Units That Have Not Vested(4)
|
|
Market Value of Shares or Units That Have Not Vested(5)
|
|
Equity Incentive Awards: Number of Unearned Shares, Units, or Other Rights That Have Not Vested(6)
|
|
Equity Incentive Awards: Market or Payout Value of Unearned Shares, Units, or Other Rights That Have Not Vested(7)
|
|
Neil Blumenthal
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|
7/27/2012
|
|
7/20/2012
|
|
706,390
|
|
|
|
|
$0.72
|
|
|
7/26/2022
|
|
|
|
|
|
|
|
|
|
|
|
2/22/2017
|
|
2/22/2017
|
|
355,381
|
|
|
355,378
|
|
|
$3.83
|
|
|
2/21/2027
|
|
|
|
|
|
|
|
|
|
|
|
5/2/2019
|
|
1/1/2019
|
|
|
|
|
|
$12.63
|
|
|
|
|
152,943
|
|
|
874,834
|
|
|
57,721
|
|
|
$1,059,180
|
|
|
|
|
11/20/2019
|
|
1/1/2020
|
|
|
|
|
|
$14.19
|
|
|
|
|
237,857
|
|
|
989,485
|
|
|
72,718
|
|
|
$1,334,375
|
|
|
Dave Gilboa
|
|
7/27/2012
|
|
7/20/2012
|
|
706,390
|
|
|
|
|
$0.72
|
|
|
7/27/2022
|
|
|
|
|
|
|
|
|
|
|
|
2/22/2017
|
|
2/22/2017
|
|
355,181
|
|
|
355,378
|
|
|
$3.83
|
|
|
2/22/2027
|
|
|
|
|
|
|
|
|
|
|
|
5/2/2019
|
|
1/1/2019
|
|
|
|
|
|
$12.63
|
|
|
|
|
152,943
|
|
|
874,834
|
|
|
57,721
|
|
|
$1,059,180
|
|
|
|
|
11/20/2019
|
|
1/1/2020
|
|
|
|
|
|
$14.19
|
|
|
|
|
237,857
|
|
|
989,485
|
|
|
72,718
|
|
|
$1,334,375
|
|
|
Steven Miller
|
|
2/21/2014
|
|
1/1/2014
|
|
85,141
|
|
|
|
|
$2.77
|
|
|
2/20/2024
|
|
|
|
|
|
|
|
|
|
|
|
6/14/2016
|
|
1/1/2016
|
|
48,821
|
|
|
|
|
$4.46
|
|
|
6/13/2026
|
|
|
|
|
|
|
|
|
|
|
|
11/3/2017
|
|
11/1/2017
|
|
|
|
|
|
$3.69
|
|
|
|
|
28,677
|
|
|
407,500
|
|
|
|
|
|
|
|
|
10/16/2018
|
|
1/1/2018
|
|
189,609
|
|
|
|
|
$13.08
|
|
|
10/15/2028
|
|
|
|
|
|
31,813
|
|
|
$569,453
|
|
|
|
|
3/29/2019
|
|
1/1/2019
|
|
177,132
|
|
|
|
|
$12.35
|
|
|
3/28/2029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/29/2019
|
|
1/1/2022
|
|
12,038
|
|
|
|
|
$12.35
|
|
|
3/28/2029
|
|
|
|
|
|
40,554
|
|
|
$725,917
|
|
|
|
|
11/20/2019
|
|
1/1/2020
|
|
143,816
|
|
|
|
|
$13.35
|
|
|
11/19/2029
|
|
|
|
|
|
40,399
|
|
|
$723,142
|
|
_________________
(1)Option awards and stock awards held by Messrs. Blumenthal and Gilboa cover shares of our Class B common stock and option awards and stock awards held by Mr. Miller cover shares of our Class A common stock.
(2)Except as otherwise provided, each option is fully exercisable but vests in equal monthly installments over four years following the vesting commencement date subject to the holder continuing to provide services to the company through the applicable vesting date. Any shares acquired on exercise prior to vesting are subject to repurchase at the original exercise price upon a termination of service.
(3)Option vests based on the achievement of certain performance goals. In December 2020, our compensation committee deemed the performance goals achieved.
(4)Represents shares of common stock acquired upon exercise of stock options prior to vesting. Unvested shares vest in substantially equal monthly installments through the fourth anniversary of the vesting commencement date. Unvested shares are subject to a right of repurchase at the lower of fair market value or the original exercise price per share upon a termination of service with us or upon a Sale Event (as defined in the applicable stock plan).
(5)Amounts are calculated by multiplying the number of shares shown in the table by $17.90 per share of Class A Common Stock or $18.35 per share of Class B Common Stock, which constitutes the fair market value per share as of December 31, 2020, as determined by the board of directors, less the applicable repurchase price.
(6)Represents RSUs that vest in 48 substantially equal monthly installments from the vesting commencement date, provided, that shares underlying the RSU will not be issued, and the risk of forfeiture thereon will not lapse, until following the earliest of an initial public offering of our common stock, the direct listing of our common stock or a change in control. If such an event does not occur prior to the seventh anniversary of the date of grant, the RSUs will be forfeited.
(7)Amounts are calculated by multiplying the number of shares shown in the table by $17.90 per share of Class A Common Stock or $18.35 per share of Class B Common Stock underlying the RSUs, which constitutes the fair market value per share as of December 31, 2020, as determined by the board of directors.
Executive Compensation Arrangements
We have not entered into an employment agreement or offer letter for either Messrs. Blumenthal and Gilboa. In 2011, we entered into an offer letter with Mr. Miller. The offer letter sets forth the title, base salary, target bonus opportunity, and initial equity award for the executive and summarizes the other terms and conditions applicable to the executive’s employment with the company.
Under Mr. Miller’s offer letter, in the event we terminate Mr. Miller’s employment for other than cause or Mr. Miller resigns for good reason, each as defined below, then subject to Mr. Miller returning all company property in his possession and providing a general release in our favor, he is entitled to continued payment of his base salary for a period of six months and a lump sum payment in an amount equal to six months’ of the company’s contribution under our health insurance plans in which Mr. Miller participates on the date of termination.
For the purposes of Mr. Miller’s offer letter, “cause” means (a) his unauthorized use or disclosure of our confidential information or trade secrets, which use or disclosure causes material harm to us, (b) his material breach of any agreement between Mr. Miller and us that continues for a period of 30 days after receiving written notification of such breach from our board of directors, (c) his material failure to comply with our written policies or rules that continues for a period of 30 days after receiving written notification of such failure from our board of directors, (d) his conviction of, or Mr. Miller’s plea of “guilty” or “no contest” to, a felony under the laws of the United States or any state, (e) his gross negligence or willful misconduct that continues for a period of 30 days after receiving written notification of such negligence or misconduct from our board of directors, (f) his failure to perform assigned duties that continues for a period of 30 days after receiving written notification of the failure from our board of directors, or (g) his failure to cooperate in good faith with a governmental or internal investigation of the company or its directors, officers or employees, if we have requested Mr. Miller’s cooperation.
For the purposes of Mr. Miller’s offer letter, he will have “good reason” to resign if he resigns within twelve months after (a) a reduction in his base salary by more than 10% (other than an across-the-board reduction applicable to all of our senior management team that does not disproportionately affect Mr. Miller), (b) a material diminution of his authority, duties or responsibilities, or (c) a relocation of his principal workplace to a location that is outside of the New York City metropolitan area. Notwithstanding the foregoing, Mr. Miller will not have good reason to resign unless he provides written notice to us within 90 days after the initial occurrence of the condition giving rise to good reason and we fail to cure the condition within 30 days after receiving Mr. Miller’s written notice.
Equity Compensation Plans
The following summarizes the material terms of the long-term incentive compensation plan in which our NEOs will be eligible to participate following the effectiveness of the registration statement of which this prospectus forms a part and our existing equity plans, under which we have previously made periodic grants of equity and equity-based awards to our NEOs and other key employees.
2021 Incentive Award Plan
We intend to adopt the 2021 Plan, which will be effective on the day prior to the first public trading date of our Class A common stock. The principal purpose of the 2021 Plan is to attract, retain, and motivate selected
employees, consultants, and directors through the granting of stock-based compensation awards and cash-based performance bonus awards. The material terms of the 2021 Plan, as it is currently contemplated, are summarized below.
Share Reserve.
Under the 2021 Plan, shares of our common stock will be initially reserved for issuance pursuant to a variety of stock-based compensation awards, including stock options, stock appreciation rights, or SARs, restricted stock awards, restricted stock unit awards, and other stock-based awards. The number of shares initially reserved for issuance or transfer pursuant to awards under the 2021 Plan will be increased by (i) the number of shares represented by awards outstanding under our existing equity plans, or Prior Plan Awards, that become available for issuance under the counting provisions described below following the effective date and (ii) an annual increase on the first day of each fiscal year beginning in 2022 and ending in 2031, equal to the lesser of (A) % of the shares of our common stock outstanding (on an as converted basis) on the last day of the immediately preceding fiscal year and (B) such smaller number of shares of stock as determined by our board of directors; provided, however, that no more than shares of stock may be issued upon the exercise of incentive stock options.
The following counting provisions will be in effect for the share reserve under the 2021 Plan:
•to the extent that an award (including a Prior Plan Award) terminates, expires, or lapses for any reason or an award is settled in cash without the delivery of shares, any shares subject to the award at such time will be available for future grants under the 2021 Plan;
•to the extent shares are tendered or withheld to satisfy the grant, exercise price, or tax withholding obligation with respect to any award under the 2021 Plan or Prior Plan Award, such tendered or withheld shares will be available for future grants under the 2021 Plan;
•to the extent shares subject to stock appreciation rights are not issued in connection with the stock settlement of stock appreciation rights on exercise thereof, such shares will be available for future grants under the 2021 Plan;
•to the extent that shares of our common stock are repurchased by us prior to vesting so that shares are returned to us, such shares will be available for future grants under the 2021 Plan;
•the payment of dividend equivalents in cash in conjunction with any outstanding awards or Prior Plan Awards will not be counted against the shares available for issuance under the 2021 Plan; and
•to the extent that is permitted by applicable law or any exchange rule, shares issued in assumption of, or in substitution for, any outstanding awards of any entity acquired in any form of combination by us or any of our subsidiaries will not be counted against the shares available for issuance under the 2021 Plan.
In addition, the sum of the grant date fair value of all equity-based awards and the maximum that may become payable pursuant to all cash-based awards to any individual for services as a non-employee director during any calendar year may not exceed $ .
Administration
The compensation committee of our board of directors is expected to administer the 2021 Plan unless our board of directors assumes authority for administration. The compensation committee must consist of at least three members of our board of directors, each of whom is intended to qualify as a “non-employee director” for purposes of Rule 16b-3 under the Exchange Act and an “independent director” within the meaning of the rules of the applicable stock exchange, or other principal securities market on which shares of our Class A common stock are traded. The 2021 Plan provides that the board or compensation committee may delegate its authority to grant awards to employees other than executive officers and certain senior executives of the company to a committee consisting of one or more members of our board of directors or one or more of our officers, other than awards made to our non-employee directors, which must be approved by our full board of directors.
Subject to the terms and conditions of the 2021 Plan, the administrator has the authority to select the persons to whom awards are to be made, to determine the number of shares to be subject to awards and the terms and conditions of awards, and to make all other determinations and to take all other actions necessary or advisable for the administration of the 2021 Plan. The administrator is also authorized to adopt, amend, or rescind rules relating to administration of the 2021 Plan. Our board of directors may at any time remove the compensation committee as the administrator and revest in itself the authority to administer the 2021 Plan. The full board of directors will administer the 2021 Plan with respect to awards to non-employee directors.
Eligibility
Options, SARs, restricted stock, and all other stock-based and cash-based awards under the 2021 Plan may be granted to individuals who are then our officers, employees, or consultants or are the officers, employees, or consultants of certain of our subsidiaries. Such awards also may be granted to our directors. Only employees of our company or certain of our subsidiaries may be granted incentive stock options, or ISOs.
Awards
The 2021 Plan provides that the administrator may grant or issue stock options, SARs, restricted stock, restricted stock units, other stock- or cash-based awards and dividend equivalents, or any combination thereof. Each award will be set forth in a separate agreement with the person receiving the award and will indicate the type, terms, and conditions of the award.
•Nonstatutory Stock Options, or NSOs, will provide for the right to purchase shares of our common stock at a specified price which may not be less than fair market value on the date of grant, and usually will become exercisable (at the discretion of the administrator) in one or more installments after the grant date, subject to the participant’s continued employment or service with us and/or subject to the satisfaction of corporate performance targets and individual performance targets established by the administrator. NSOs may be granted for any term specified by the administrator that does not exceed ten years.
•Incentive Stock Options, or ISOs, will be designed in a manner intended to comply with the provisions of Section 422 of the Code, and will be subject to specified restrictions contained in the Code. Among such restrictions, ISOs must have an exercise price of not less than the fair market value of a share of common stock on the date of grant, may only be granted to employees, and must not be exercisable after a period of ten years measured from the date of grant. In the case of an ISO granted to an individual who owns (or is deemed to own) at least 10% of the total combined voting power of all classes of our capital stock, the 2021 Plan provides that the exercise price must be at least 110% of the fair market value of a share of common stock on the date of grant and the ISO must not be exercisable after a period of five years measured from the date of grant.
•Restricted Stock may be granted to any eligible individual and made subject to such restrictions as may be determined by the administrator. Restricted stock, typically, may be forfeited for no consideration or repurchased by us at the original purchase price if the conditions or restrictions on vesting are not met. In general, restricted stock may not be sold or otherwise transferred until restrictions are removed or expire. Purchasers of restricted stock, unlike recipients of options, will have voting rights and will have the right to receive dividends, if any, prior to the time when the restrictions lapse, however, extraordinary dividends will generally be placed in escrow, and will not be released until restrictions are removed or expire.
•Restricted Stock Units may be awarded to any eligible individual, typically without payment of consideration, but subject to vesting conditions based on continued employment or service or on performance criteria established by the administrator. Like restricted stock, RSUs may not be sold, or otherwise transferred or hypothecated, until vesting conditions are removed or expire. Unlike restricted stock, stock underlying RSUs will not be issued until the RSUs have vested, and recipients of RSUs generally will have no voting or dividend rights prior to the time when vesting conditions are satisfied.
•Stock Appreciation Rights, or SARs, may be granted in connection with stock options or other awards, or separately. SARs granted in connection with stock options or other awards typically will provide for payments to the holder based upon increases in the price of our common stock over a set exercise price. The exercise price of any SAR granted under the 2021 Plan must be at least 100% of the fair market value of a share of our common stock on the date of grant. SARs under the 2021 Plan will be settled in cash or shares of our common stock, or in a combination of both, at the election of the administrator.
•Other Stock or Cash Based Awards are awards of cash, fully vested shares of our common stock and other awards valued wholly or partially by referring to, or otherwise based on, shares of our common stock. Other stock- or cash-based awards may be granted to participants and may also be available as a payment form in the settlement of other awards, as standalone payments and as payment in lieu of base salary, bonus, fees, or other cash compensation otherwise payable to any individual who is eligible to receive awards. The plan administrator will determine the terms and conditions of other stock or cash based awards, which may include vesting conditions based on continued service, performance, and/or other conditions.
•Dividend Equivalents represent the right to receive the equivalent value of dividends paid on shares of our common stock and may be granted alone or in tandem with awards other than stock options or SARs.
Dividend equivalents are credited as of dividend payment dates during the period between a specified date and the date such award terminates or expires, as determined by the plan administrator. In addition, dividend equivalents with respect to shares covered by a performance award will only be paid to the participant at the same time or times and to the same extent that the vesting conditions, if any, are subsequently satisfied and the performance award vests with respect to such shares.
Any award may be granted as a performance award, meaning that the award will be subject to vesting and/or payment based on the attainment of specified performance goals.
Change in Control
In the event of a change in control, unless the plan administrator elects to terminate an award in exchange for cash, rights, or other property, or cause an award to accelerate in full prior to the change in control, such award will continue in effect or be assumed or substituted by the acquirer, provided that any performance-based portion of the award will be subject to the terms and conditions of the applicable award agreement. In the event the acquirer refuses to assume or replace awards granted, prior to the consummation of such transaction, awards issued under the 2021 Plan will be subject to accelerated vesting such that 100% of such awards will become vested and exercisable or payable, as applicable. The administrator may also make appropriate adjustments to awards under the 2021 Plan and is authorized to provide for the acceleration, cash-out, termination, assumption, substitution, or conversion of such awards in the event of a change in control or certain other unusual or nonrecurring events or transactions.
Adjustments of Awards
In the event of any stock dividend or other distribution, stock split, reverse stock split, reorganization, combination or exchange of shares, merger, consolidation, split-up, spin-off, recapitalization, repurchase, or any other corporate event affecting the number of outstanding shares of our common stock or the share price of our common stock that would require adjustments to the 2021 Plan or any awards under the 2021 Plan in order to prevent the dilution or enlargement of the potential benefits intended to be made available thereunder, the administrator will make appropriate, proportionate adjustments to: (i) the aggregate number and type of shares subject to the 2021 Plan; (ii) the number and kind of shares subject to outstanding awards and terms and conditions of outstanding awards (including, without limitation, any applicable performance targets or criteria with respect to such awards); and (iii) the grant or exercise price per share of any outstanding awards under the 2021 Plan.
Amendment and Termination
The administrator may terminate, amend, or modify the 2021 Plan at any time and from time to time. However, we must generally obtain stockholder approval to the extent required by applicable law, rule, or regulation (including any applicable stock exchange rule). Notwithstanding the foregoing, an option may be amended to reduce the per share exercise price below the per share exercise price of such option on the grant date and options may be granted in exchange for, or in connection with, the cancellation or surrender of options having a higher per share exercise price without receiving additional stockholder approval.
No incentive stock options may be granted pursuant to the 2021 Plan after the tenth anniversary of the effective date of the 2021 Plan, and no additional annual share increases to the 2021 Plan’s aggregate share limit will occur from and after such anniversary. Any award that is outstanding on the termination date of the 2021 Plan will remain in force according to the terms of the 2021 Plan and the applicable award agreement.
2011 Stock Plan
We currently maintain the 2011 Plan, which became effective on May 17, 2011, was amended and restated on May 31, 2018, and was last amended on May 2, 2019. The primary purpose of the 2011 Plan is to offer persons selected by the company an opportunity to acquire a proprietary interest in the success of the company, or to increase such interest, by acquiring shares of the company’s common stock. For purposes of clarity, the amendment and restatement of the 2011 Plan only applies to awards granted under the 2011 Plan on or after the date the 2011 Plan was restated by our board of directors.
Following the effectiveness of the registration statement of which this prospectus forms a part, we will not make any further grants under the 2011 Plan. However, the 2011 Plan will continue to govern the terms and conditions of the outstanding awards granted under the 2011 Plan.
Types of Awards
The 2011 Plan provides for the grant of NSOs, stock purchase rights and RSUs to employees, non-employee members of our board of directors, and consultants. The 2011 Plan provides for the grant of ISOs to employees.
Share Reserve
We have reserved an aggregate of shares of our Class A common stock for issuance under the 2011 Plan. As of , 2021, options to purchase a total of shares of our Class A common stock and RSUs covering shares of Class A common stock were outstanding and shares remained available for future grants.
Administration
Our board of directors or a committee appointed by our board of directors administers the 2011 Plan and is referred to as the administrator herein. The administrator has the authority to select the persons to whom awards will be granted under the 2011 Plan, determine the number of shares to be subject to those awards under the 2011 Plan, and establish the terms and conditions of the awards granted. In addition, the administrator has the authority to interpret the 2011 Plan and to adopt rules for the administration, interpretation, and application of the 2011 Plan that are consistent with the terms of the 2011 Plan.
Payment
The exercise price of options or purchase price of stock purchase rights granted under the 2011 Plan may be paid in such form as determined by the administrator, including, without limitation, cash or cash equivalents, consideration as services rendered to the company, promissory note, surrender of shares that are already owned by the participant, irrevocable direction to a securities broker or other party approved by the company to sell shares, “net exercise” arrangement, or any other form of consideration determined to be appropriate.
Transfer
The 2011 Plan generally does not allow for the transfer of awards other than by a beneficiary designation, will or the laws of descent and distribution. If the applicable stock option agreement provides, an NSO will also be transferable by gift or domestic relations order to a family member of the participant.
Certain Events
In the event of a subdivision, dividend, combination, consolidation, reclassification, or any other increase or decrease in the number of issued shares of the company’s common stock without receipt of consideration by the company, proportionate adjustments will automatically be made to the number of shares available for issuance under the 2011 Plan, the number of shares covered by each outstanding option, stock purchase right and RSUs, the exercise or purchase price under each outstanding option or stock purchase right and any repurchase price that applies to shares granted under the 2011 Plan pursuant to the terms of a company repurchase right under the applicable award agreement. In the event of certain corporate transactions, all shares acquired under the 2011 Plan and all outstanding awards will be treated in the manner described in the definitive transaction agreement or, if no such agreement, in the manner determined by our board of directors, which treatment may include assumption or substitution of awards by the surviving corporation or its parent. Our board of directors may accelerate the vesting, exercisability, and settlement of an award in connection with a corporate transaction.
Amendment; Termination
Our board of directors may amend, suspend, or terminate the 2011 Plan at any time; an amendment of the 2011 Plan shall be subject to the approval of our stockholders only to the extent required by applicable laws. No awards may be granted under our 2011 Plan after it is terminated.
2012 Milestone Stock Plan
We currently maintain the 2012 Plan, which became effective on July 20, 2012. The purpose of the 2012 Plan is to offer persons selected by the company an opportunity to acquire a proprietary interest in the success of the company, or to increase such interest, by acquiring shares of the company’s common stock and to motivate the company’s employees and consultants to increase the value of the company.
Following the effectiveness of the registration statement of which this prospectus forms a part, we will not make any further grants under the 2012 Plan. However, the 2012 Plan will continue to govern the terms and conditions of the outstanding awards granted under the 2012 Plan.
Types of Awards
The 2012 Plan provides for the grant of NSOs to employees and consultants and the grant of ISOs to employees only.
Share Reserve
We have reserved an aggregate of shares of our Class B common stock for issuance under the 2012 Plan. As of , 2021, options to purchase a total of shares of our Class B common stock were outstanding and were outstanding, and shares of Class B common stock remained available for future grants.
Administration
Our board of directors or a committee appointed by our board of directors administers the 2012 Plan and is referred to as the administrator herein. The administrator has the authority to select the persons to whom options will be granted under the 2012 Plan, determine the number of shares to be subject to those options under the 2012 Plan, and establish the terms and conditions of the options granted. In addition, the administrator has the authority to interpret the 2012 Plan and to adopt rules for the administration, interpretation, and application of the 2012 Plan that are consistent with the terms of the 2012 Plan.
Payment
The exercise price of options granted under the 2012 Plan may be paid in such form as determined by the administrator, including, without limitation, cash or cash equivalents, full-recourse promissory note, surrender of shares that are already owned by the participant, irrevocable direction to a securities broker approved by the company to sell shares if the common stock is publicly traded, “net exercise” arrangement, or, to the extent that the applicable stock option agreement provides, any other form of consideration permitted by the Delaware General Corporation Law, as amended.
Transfer
The 2012 Plan generally does not allow for the transfer of options other than by a beneficiary designation, will, or the laws of descent and distribution. If the applicable stock option agreement provides, an NSO will also be transferable by gift or domestic relations order to a family member of the participant.
Certain Events
In the event of a subdivision, dividend, combination, consolidation, reclassification, or any other increase or decrease in the number of issued shares of the company’s common stock without receipt of consideration by the company, proportionate adjustments will automatically be made to the number of shares available for issuance under the 2012 Plan, the number of shares covered by each outstanding option, the exercise under each outstanding option, any repurchase price that applies to shares granted under the 2012 Plan pursuant to the terms of a company repurchase right under the applicable stock option agreement and, if our board of directors deems it necessary, any performance measures applicable to any outstanding option. In the event that we are a party to a merger or consolidation, or in the event of a sale of all or substantially all of the company’s stock or assets, all shares acquired under the 2012 Plan and all options outstanding will be treated in the manner described in the definitive transaction agreement or, if no such agreement, in the manner determined by our board of directors, which treatment may include assumption or substitution of options by the surviving corporation or its parent. Our board of directors may accelerate the vesting and exercisability of an option in connection with a corporate transaction.
Amendment; Termination
Our board of directors may amend, suspend, or terminate the 2012 Plan at any time; an amendment of the 2012 Plan shall be subject to the approval of our stockholders only to the extent required by applicable laws. No options may be granted under our 2012 Plan after it is terminated.
2019 Founder Stock Plan
We currently maintain the 2019 Plan, which became effective on May 2, 2019. The primary purpose of the 2019 Plan is to offer persons selected by the company an opportunity to acquire a proprietary interest in the success of the company, or to increase such interest, by acquiring shares of the company’s common stock.
Following the effectiveness of the registration statement, we will not make any further grants under the 2019 Plan. However, the 2019 Plan will continue to govern the terms and conditions of the outstanding awards granted under the 2019 Plan.
Types of Awards
The 2019 Plan provides for the grant of NSOs, stock purchase rights, and RSUs to employees, non-employee members of our board of directors, and consultants. The 2019 Plan provides for the grant of ISOs to employees.
Share Reserve
We have reserved an aggregate of shares of our Class B common stock for issuance under the 2019 Plan. As of 2021, options to purchase a total of shares of our Class B common stock and RSUs covering shares of our Class B common stock outstanding and shares of Class B common stock remained available for future grants.
Administration
Our board of directors or a committee appointed by our board of directors administers the 2019 Plan and is referred to as the administrator herein. The administrator has the authority to select the persons to whom awards will be granted under the 2019 Plan, determine the number of shares to be subject to those awards under the 2019 Plan, and establish the terms and conditions of the awards granted. In addition, the administrator has the authority to interpret the 2019 Plan and to adopt rules for the administration, interpretation, and application of the 2019 Plan that are consistent with the terms of the 2019 Plan.
Payment
The exercise price of options or purchase price of stock purchase rights granted under the 2019 Plan may be paid in such form as determined by the administrator, including, without limitation, cash or cash equivalents, consideration as services rendered to the company, promissory note, surrender of shares of company stock that are already owned by the participant, irrevocable direction to a securities broker or other party approved by the company to sell shares, “net exercise” arrangement, or any other form of consideration determined to be appropriate.
Transfer
The 2019 Plan generally does not allow for the transfer of awards other than by a beneficiary designation, will, or the laws of descent and distribution. If the applicable stock option agreement provides, an NSO will also be transferable by gift or domestic relations order to a family member of the participant.
Certain Events
In the event of a subdivision, dividend, combination, consolidation, reclassification, or any other increase or decrease in the number of issued shares of the company’s common stock without receipt of consideration by the company, proportionate adjustments will automatically be made to the number of shares available for issuance under the 2019 Plan, the number of shares covered by each outstanding option, stock purchase right, and restricted stock unit, the exercise or purchase price under each outstanding option or stock purchase right and any repurchase price that applies to shares granted under the 2019 Plan pursuant to the terms of a company repurchase right under the applicable award agreement. In the event of certain corporate transactions, all shares acquired under the 2019 Plan and all outstanding awards will be treated in the manner described in the definitive transaction agreement or, if no such agreement, in the manner determined by our board of directors, which treatment may include assumption or substitution of awards by the surviving corporation or its parent. Our board of directors may accelerate the vesting, exercisability, and settlement of an award in connection with a corporate transaction.
Amendment; Termination
Our board of directors may amend, suspend, or terminate the 2019 Plan at any time; an amendment of the 2019 Plan shall be subject to the approval of our stockholders only to the extent required by applicable laws. No awards may be granted under our 2019 Plan after it is terminated.
2021 Employee Stock Purchase Plan
We intend to adopt and ask our stockholders to approve the 2021 Employee Stock Purchase Plan, which we refer to as our ESPP, which will be effective upon the day prior to the effectiveness of the registration statement of
which this prospectus forms a part. The ESPP is designed to allow our eligible employees to purchase shares of our common stock, at semi-annual intervals, with their accumulated payroll deductions. The ESPP is intended to qualify under Section 423 of the Code. The material terms of the ESPP, as it is currently contemplated, are summarized below.
Administration
Subject to the terms and conditions of the ESPP, our compensation committee will administer the ESPP. Our compensation committee can delegate administrative tasks under the ESPP to the services of an agent and/or employees to assist in the administration of the ESPP. The administrator will have the discretionary authority to administer and interpret the ESPP. Interpretations and constructions of the administrator of any provision of the ESPP or of any rights thereunder will be conclusive and binding on all persons. We will bear all expenses and liabilities incurred by the ESPP administrator.
Share Reserve
The maximum number of shares of our common stock which will be authorized for sale under the ESPP is equal to the sum of (a) shares of common stock and (b) an annual increase on the first day of each fiscal year beginning in 2022 and ending in 2031, equal to the lesser of (i) % of the shares of our common stock outstanding (on an as converted basis) on the last day of the immediately preceding fiscal year and (ii) such number of shares of common stock as determined by our board of directors; provided, however, no more than shares of our common stock may be issued under the ESPP. The shares reserved for issuance under the ESPP may be authorized but unissued shares or reacquired shares.
Eligibility
Employees eligible to participate in the ESPP for a given offering period generally include employees who are employed by us or one of our subsidiaries on the first day of the offering period, or the enrollment date. Our employees (and, if applicable, any employees of our subsidiaries) who customarily work less than five months in a calendar year or are customarily scheduled to work less than 20 hours per week will not be eligible to participate in the ESPP. Finally, an employee who owns (or is deemed to own through attribution) 5% or more of the combined voting power or value of all our classes of stock or of one of our subsidiaries will not be allowed to participate in the ESPP.
Participation
Employees will enroll under the ESPP by completing a payroll deduction form permitting the deduction from their compensation of at least 1% of their compensation but not more than the lesser of % of their compensation or $ . Such payroll deductions may be expressed as either a whole number percentage or a fixed dollar amount, and the accumulated deductions will be applied to the purchase of shares on each purchase date. However, a participant may not purchase more than shares in each offering period and may not subscribe for more than $ in fair market value of shares of our common stock (determined at the time the option is granted) during any calendar year. The ESPP administrator has the authority to change these limitations for any subsequent offering period.
Offering
Under the ESPP, participants are offered the option to purchase shares of our common stock at a discount during a series of successive offering periods, the duration and timing of which will be determined by the ESPP administrator. However, in no event may an offering period be longer than 27 months in length.
The option purchase price will be the lower of 85% of the closing trading price per share of our Class A common stock on the first trading date of an offering period in which a participant is enrolled or 85% of the closing trading price per share on the purchase date, which will occur on the last trading day of each offering period.
Unless a participant has previously canceled his or her participation in the ESPP before the purchase date, the participant will be deemed to have exercised his or her option in full as of each purchase date. Upon exercise, the participant will purchase the number of whole shares that his or her accumulated payroll deductions will buy at the option purchase price, subject to the participation limitations listed above.
A participant may cancel his or her payroll deduction authorization at any time prior to the end of the offering period. Upon cancellation, the participant will have the option to either (i) receive a refund of the participant’s
account balance in cash without interest or (ii) exercise the participant’s option for the current offering period for the maximum number of shares of common stock on the applicable purchase date, with the remaining account balance refunded in cash without interest. Following at least one payroll deduction, a participant may also decrease (but not increase) his or her payroll deduction authorization once during any offering period. If a participant wants to increase or decrease the rate of payroll withholding, he or she may do so effective for the next offering period by submitting a new form before the offering period for which such change is to be effective.
A participant may not assign, transfer, pledge, or otherwise dispose of (other than by will or the laws of descent and distribution) payroll deductions credited to a participant’s account or any rights to exercise an option or to receive shares of our common stock under the ESPP, and during a participant’s lifetime, options in the ESPP shall be exercisable only by such participant. Any such attempt at assignment, transfer, pledge, or other disposition will not be given effect.
Adjustments upon Changes in Recapitalization, Dissolution, Liquidation, Merger, or Asset Sale
In the event of any increase or decrease in the number of issued shares of our common stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the common stock, or any other increase or decrease in the number of shares of common stock effected without receipt of consideration by us, we will proportionately adjust the aggregate number of shares of our common stock offered under the ESPP, the number and price of shares which any participant has elected to purchase under the ESPP, and the maximum number of shares which a participant may elect to purchase in any single offering period. If there is a proposal to dissolve or liquidate us, then the ESPP will terminate immediately prior to the consummation of such proposed dissolution or liquidation, and any offering period then in progress will be shortened by setting a new purchase date to take place before the date of our dissolution or liquidation. We will notify each participant of such change in writing at least ten business days prior to the new exercise date. If we undergo a merger with or into another corporation or sell all or substantially all of our assets, each outstanding option will be assumed or an equivalent option substituted by the successor corporation or the parent or subsidiary of the successor corporation. If the successor corporation refuses to assume the outstanding options or substitute equivalent options, then any offering period then in progress will be shortened by setting a new purchase date to take place before the date of our proposed sale or merger. We will notify each participant of such change in writing at least ten business days prior to the new exercise date.
Amendment and Termination
Our board of directors may amend, suspend, or terminate the ESPP at any time. However, the board of directors may not amend the ESPP without obtaining stockholder approval within 12 months before or after such amendment to the extent required by applicable laws.
Director Compensation
In 2020, we did not pay our non-employee directors any compensation.
As of December 31, 2020, Ms. Briggs held 34,358 RSUs and Ms. Moon held 31,131 RSUs, in each case, covering shares of our Class B common stock. As of December 31, 2020, Millard Drexler, a member of our board of directors from 2013 to July 2021, held an option to purchase 400,000 shares of our Class B common stock in connection to a grant made in 2012 as part of our Series B financing. None of our other non-employee directors held option awards or stock awards as of December 31, 2020.
In order to encourage additional alignment of interests with our stockholders, in August 2021, we granted each of our continuing non-employee directors the right to purchase up to 20,383 fully vested shares of our Class A common stock for a purchase price per share of $24.53, which was the price per share paid for our Series G redeemable convertible preferred stock. In addition, our board of directors approved the grant of the same stock purchase right to each non-employee director appointed to our board of directors prior to the first public trading date of our Class A common stock, such stock purchase right to be granted automatically on the date of such director's appointment. Each of Messrs. Hunt, Raider and Williams and Ms. Briggs exercised his or her stock purchase right in full shortly after grant.
Our board of directors has approved a new non-employee director compensation program, or the Director Compensation Program, that will become effective upon the effectiveness of the registration statement of which
this prospectus forms a part. Pursuant to the Director Compensation Program, our non-employee directors will receive cash compensation as follows:
•Each non-employee director will receive an annual cash retainer in the amount of $75,000 per year.
•Any lead non-employee director will receive an additional cash retainer in the amount of $15,000 per year.
•The chair of the audit committee will receive an additional annual cash retainer in the amount of $20,000 per year for such chair’s service on the audit committee.
•The chair of the compensation committee will receive an additional annual cash retainer in the amount of $15,000 per year for such chair’s service on the compensation committee.
•The chair of the nominating and corporate governance committee will receive an additional annual cash retainer in the amount of $10,000 per year for such chair’s service on the nominating and corporate governance committee.
Under the Director Compensation Program, each non-employee director who will continue to serve as a non-employee director following an annual stockholders meeting will automatically be granted fully vested RSUs covering a number of shares of our Class A common stock calculated by dividing (a) $225,000 by (b) the average closing trading price of our Class A common stock over the 30-day period ending the day prior to the date of such annual meeting. Newly appointed non-employee directors are automatically granted a pro-rated fully-vested RSU award based on the anticipated date of our next annual stockholders meeting. Any equity awards held by our non-employee directors that are unvested automatically accelerate in the event of a change in control.
In August 2021, we approved the payment of an initial cash retainer in the amount of $75,000 and a grant of an initial award of 9,173 fully vested RSUs covering our Class A common stock under our 2011 Plan to each of Messrs. Hunt and Raider and Mses. Briggs and Moon consistent with the Director Compensation Program. In addition, as the chair of our audit committee, Ms. Briggs was awarded an additional initial cash retainer in the amount of $20,000.
Also in August 2021, we approved a one-time cash fee of $250,000 to each of Mses. Briggs and Moon based on each director's significant efforts in support of the company leading up to the public trading of our securities while serving as a member of our board of directors.
Certain Relationships And
Related Party Transactions
Other than compensation arrangements for our directors and executive officers, which are described elsewhere in this prospectus, the following are certain transactions, arrangements, and relationships with our directors, executive officers, or holders of more than 5% or more of our outstanding capital stock.
We believe that the terms of such arrangements are as favorable as those we could have obtained from parties not related to us.
Executive Officer Promissory Notes
From time to time, we have entered into secured promissory notes with certain of our executive officers, collateralized by the stock purchased through exercise of their employee stock options.
The following table summarizes each such promissory note entered into since January 1, 2018 having a principal amount in excess of $120,000, including the date it was issued; its principal amount; the largest principal amount of indebtedness outstanding thereunder after such date; the aggregate principal amount of indebtedness outstanding thereunder as of December 31, 2020; principal and interest payments made on such indebtedness during the years ended December 31, 2018, 2019, and 2020; and the applicable interest rate. 50% of each promissory note issued is recourse and 50% is non-recourse. The non-recourse portion of the promissory note is secured by the underlying shares the executive officer purchased with the loan, or the Purchased Shares, pursuant to a Security Agreement entered into between the executive officer and the company. The recourse portion of the promissory note is unconditionally secured by all of the executive officer’s assets, including all shares of common stock owned by the executive officer; however, we agree to first proceed against the Purchased Shares before proceeding against any other assets of the executive officer.
All outstanding promissory notes shown in the table below have been repaid in full prior to the first public filing of the registration statement of which this prospectus forms a part.
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Executive Officer
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Issue Date
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Principal Amount(1)
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Principal Amount Outstanding as of December 31, 2020
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Principal Payments
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Interest Rate (per annum)
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Interest Payments
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Neil Blumenthal
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May 24, 2019
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$
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3.7
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million
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$
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3.7
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million
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(2)
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2.37
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%
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(2)
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Neil Blumenthal
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December 4, 2019
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$
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4.4
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million
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$
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4.4
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million
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(2)
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1.69
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%
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(2)
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Neil Blumenthal
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March 23, 2021
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$
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5.0
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million
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$
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5.0
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million
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(3)
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(2)
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0.11
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%
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(2)
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Dave Gilboa
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May 28, 2019
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$
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3.7
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million
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$
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3.7
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million
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(2)
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2.37
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%
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(2)
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Dave Gilboa
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December 4, 2019
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$
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4.4
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million
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$
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4.4
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million
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(2)
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1.69
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%
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(2)
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Dave Gilboa
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March 23, 2021
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$
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5.0
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million
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$
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5.0
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million
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(3)
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(2)
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0.11
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%
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(2)
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Steven Miller
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March 24, 2021
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$
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0.5
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million
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$
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0.5
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million
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(3)
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(2)
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0.11
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%
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(2)
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Steven Miller
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March 28, 2021
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$
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0.1
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million
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$
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0.1
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million
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(3)
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(2)
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0.11
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%
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(2)
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__________________
(1)Also represents the largest principal amount of indebtedness outstanding after the applicable issue date.
(2)No principal or interest payments were made during the years ended December 31, 2019 and 2020.
(3)The promissory notes were incurred after December 31, 2020. Therefore, the principal amount represents the original principal amount incurred on the issue date.
2021 Tender Offer
In April 2021, we entered into a letter agreement with our Co-Founders and Co-Chief Executive Officers, Neil Blumenthal and Dave Gilboa; our director and Co-Founder Jeffrey Raider; entities affiliated with Tiger Global, a holder of greater than 5% of our outstanding capital stock; entities affiliated with T. Rowe Price, a holder of greater than 5% of our outstanding capital stock; entities affiliated with General Catalyst, a holder of greater than 5% of our outstanding capital stock and affiliate of our director, Joel Cutler; Durable Capital Master Fund LP, a holder of greater than 5% of our outstanding capital stock; D1 Master Holdco I LLC, a holder of greater than 5% of our
outstanding capital stock; and other stockholders, pursuant to which they agreed to waive certain transfer restrictions in connection with a Tender Offer by us and a third-party entity to purchase shares of our capital stock from certain of our stockholders at a price of $24.5306 per share, pursuant to an offer to purchase.
An aggregate of 1,676,534 shares of our capital stock were tendered for an aggregate purchase price of approximately $41.1 million.
Series E Preferred Stock Financing
In March 2018, we sold an aggregate of 4,771,902 shares of our Series E redeemable convertible preferred stock at a purchase price of $15.7170 per share, for an aggregate purchase price of approximately $75.0 million. The following table summarizes purchases of our Series E redeemable convertible preferred stock by related persons:
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Stockholder
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Shares of Series E Redeemable Convertible Preferred Stock
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Total Series E Redeemable Convertible Preferred Stock Purchase Price
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Entities affiliated with T. Rowe Price(1)
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4,041,081
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$
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63,513,670
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__________________
(1)Entities affiliated with T. Rowe Price holding our securities are aggregated for purposes of reporting share ownership information. These entities beneficially own more than 5% of our outstanding capital stock in the aggregate.
Series F Preferred Stock Financing
In April 2020, we sold an aggregate of 6,412,542 shares of our Series F redeemable convertible preferred stock at a purchase price of $19.4931 per share, for an aggregate purchase price of approximately $125.0 million. The following table summarizes purchases of our Series F redeemable convertible preferred stock by related persons:
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Stockholder
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Shares of Series F Redeemable Convertible Preferred Stock
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Total Series F Redeemable Convertible Preferred Stock Purchase Price
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Durable Capital Master Fund LP
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2,565,010
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$
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49,999,996.40
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Entities affiliated with T. Rowe Price(1)
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3,334,512
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$
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64,999,975.90
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__________________
(1)Entities affiliated with T. Rowe Price holding our securities are aggregated for purposes of reporting share ownership information. These entities beneficially own more than 5% of our outstanding capital stock in the aggregate.
Series G Preferred Stock Financing
In August 2020, we sold an aggregate of 4,860,132 shares of our Series G redeemable convertible preferred stock at a purchase price of $24.5306 per share, for an aggregate purchase price of approximately $119.2 million. The following table summarizes purchases of our Series G redeemable convertible preferred stock by related persons:
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Stockholder
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Shares of Series G Redeemable Convertible Preferred Stock
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Total Series G Redeemable Convertible Preferred Stock Purchase Price
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D1 Master Holdco I LLC
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4,860,132
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$
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119,221,954.04
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Investors’ Rights Agreement
We are party to an amended and restated investors’ rights agreement, or the Investors’ Rights Agreement, with certain holders of our capital stock, including our Co-Founders and Co-Chief Executive Officers, Neil Blumenthal and Dave Gilboa; our directors and Co-Founders, Jeffrey Raider and Andrew Hunt; entities affiliated with Tiger Global, a holder of greater than 5% of our outstanding capital stock; entities affiliated with T. Rowe Price, a holder of greater than 5% of our outstanding capital stock; entities affiliated with General Catalyst, a holder of greater than 5% of our outstanding capital stock and affiliate of our director, Joel Cutler; Durable Capital Master Fund LP, a holder of greater than 5% of our outstanding capital stock; and D1 Master Holdco I LLC, a holder of greater than 5% of our outstanding capital stock. The Investors’ Rights Agreement provides certain holders of our capital stock with certain registration rights, including the right to demand that we file a registration statement or request that their shares be covered by a registration statement that we are otherwise filing. The Investors’ Rights Agreement also provides certain of these stockholders with information and inspection rights, which will terminate upon the
effectiveness of the registration statement of which this prospectus forms a part, and a right of first refusal with regard to certain issuances of our capital stock, which will terminate upon the effectiveness of the registration statement of which this prospectus forms a part. For a description of the registration rights, see the section titled “Description of Capital Stock—Registration Rights.”
Indemnification Agreements
Our Amended Charter will contain provisions limiting the liability of directors to the fullest extent permitted by Delaware law, and our Amended Bylaws will provide that we will indemnify each of our directors and officers to the fullest extent permitted under Delaware law. Our Amended Charter and Amended Bylaws will also provide our board of directors with discretion to indemnify our employees and other agents when determined appropriate by the board. In addition, we have entered or will enter into an indemnification agreement with each of our directors and executive officers, which requires us to indemnify them in certain circumstances.
Warby Parker Foundation Donation
In August 2021, our board of directors authorized the issuance of 1,250,004 shares of Series A common stock, or any shares into which the Series A common stock will be reclassified, or the Donated Stock, to the Warby Parker Impact Foundation, a Delaware exempt corporation. The Donated Stock will be issued and donated in roughly equal installments over seven years, with the first installment issued in August 2021. Three of our directors serve on the board of directors of the Warby Parker Impact Foundation.
Policies and Procedures for Related Person Transactions
Our Board has adopted a written Related Person Transaction Policy and Procedures, setting forth the policies and procedures for the review and approval or ratification of related person transactions. This policy covers, with certain exceptions set forth in Item 404 of Regulation S-K, any transaction, arrangement, or relationship, or any series of similar transactions, arrangements, or relationships, in which we (including any of our subsidiaries) are, were, or will be a participant and a related person has, had, or will have a direct or indirect material interest.
Under the policy, the company’s legal staff is primarily responsible for developing and implementing processes and procedures to obtain information regarding related persons with respect to potential related person transactions and then determining, based on the facts and circumstances, whether such potential related person transactions do, in fact, constitute related person transactions requiring compliance with the policy. If the company’s legal staff determines that a transaction or relationship is a related person transaction requiring compliance with the policy, the General Counsel is required to present to the audit committee all relevant facts and circumstances relating to the related person transaction. The audit committee must review the relevant facts and circumstances of each related person transaction, including if the transaction is on terms comparable to those that could be obtained in arm’s length dealings with an unrelated third party, whether the transaction is inconsistent with the interests of the company and its stockholders and the extent of the related person’s interest in the transaction, take into account the conflicts of interest and corporate opportunity provisions of the company’s Code of Business Conduct and Ethics, and either approve or disapprove the related person transaction. If advance audit committee approval of a related person transaction requiring the audit committee’s approval is not feasible, then the transaction may be preliminarily entered into by management upon prior approval of the transaction by the Chair of the audit committee subject to ratification of the transaction by the audit committee at the audit committee’s next regularly scheduled meeting; provided, that if ratification is not forthcoming, management will make all reasonable efforts to cancel or annul the transaction. If a transaction was not initially recognized as a related person, then upon such recognition the transaction will be presented to the audit committee for ratification at the audit committee’s next regularly scheduled meeting; provided, that if ratification is not forthcoming, management will make all reasonable efforts to cancel or annul the transaction. Management will update the audit committee as to any material changes to any approved or ratified related person transaction and will provide a status report at least annually of all then current related person transactions. No director may participate in approval of a related person transaction for which he or she is a related person.
Principal And Registered Stockholders
The following table sets forth certain information with respect to the beneficial ownership of our capital stock as of August 2, 2021 for:
•each of our named executive officers;
•each of our directors;
•all of our executive officers and directors as a group;
•each person or group of affiliated persons known by us to beneficially own more than 5% of any class of our voting securities; and
•the number of shares of Class A common stock and Class B common stock held by and registered for resale by means of this prospectus for the Registered Stockholders.
The Registered Stockholders include (i) our affiliates and certain other stockholders with “restricted securities” (as defined in Rule 144 under the Securities Act) and their pledgees, donees, transferees, assignees, or other successors-in-interest who, because of their status as affiliates pursuant to Rule 144 or because they acquired their shares of 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 (ii) our non-executive officer service providers and their pledgees, donees, transferees, assignees, or other successors-in-interest who acquired shares 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 and their pledgees, donees, transferees, assignees, or other successors-in-interest 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. Such sales, if any, will be made through brokerage transactions on the NYSE 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.”
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 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 do not have, 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 NYSE, certain of the Registered Stockholders are entitled to registration rights with respect to their shares of our capital stock, as described in the section titled “Description of Capital Stock—Registration Rights.”
We currently 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 currently held by Registered Stockholders, as well as shares of Class A common stock of 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 NYSE. See the section titled “Plan of Distribution.”
We have determined beneficial ownership in accordance with the rules and regulations of the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. Except as indicated by the footnotes below, we believe, based on information furnished to us, that the persons and entities named in the table below have sole voting and sole investment power with respect to all shares that they beneficially own, subject to applicable community property laws.
Applicable percentage ownership is based on shares of Class A common stock and shares of Class B common stock outstanding as of August 2, 2021, assuming (i) Preferred Stock Conversion, (ii) (x) the reclassification of all outstanding shares of the Co-Founder Shares, into Class B common stock and (y) the reclassification of all outstanding shares of our Series A common stock and Series B common stock, other than the Co-Founder Shares, into Class A common stock, each upon the effectiveness of the registration statement of which this prospectus forms a part. In computing the number of shares beneficially owned by a person and the percentage ownership of such person, we deemed to be outstanding all shares subject to options held by the person that are currently exercisable, or exercisable within 60 days of August 2, 2021 or issuable pursuant to RSUs that vest within 60 days of August 2, 2021. However, except as described above, we did not deem such shares outstanding for the purpose of computing the percentage ownership of any other person.
Unless otherwise indicated, the address of each beneficial owner listed below is c/o Warby Parker Inc., 233 Spring Street, 6th Floor East, New York, New York 10013.
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Shares Beneficially Owned
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Percent of Total Voting Power (1)
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Shares of Class A Common Stock Being Registered
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Class A Common Stock
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Class B Common Stock
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Name of Beneficial Owner
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Shares
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%
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Shares
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%
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5% Stockholders
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Entities affiliated with Tiger Global(2)
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Entities affiliated with T. Rowe Price(3)
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Entities affiliated with General Catalyst(4)
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Entities affiliated with D1 Capital Partners(5)
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Entities affiliated with Durable Capital(6)
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Named Executive Officers and Directors
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Neil Blumenthal(7)
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Dave Gilboa(8)
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Steven Miller(9)
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Andrew Hunt(10)
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Jeffrey Raider(11)
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Teresa Briggs(12)
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Joel Cutler(13)
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Youngme Moon(14)
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Gabrielle Sulzberger(15)
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Ronald A.ald Williams(16)
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All directors and executive officers as a group (10 persons)(17)
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Other Registered Stockholders
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Non-Executive Officer and Non-Director Current and Former Service Providers(18)
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All Other Registered Stockholders
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__________________
*Represents beneficial ownership of less than 1%.
(1)Percentage of voting power represents voting power with respect to all shares of our Class A common stock and Class B common stock, held beneficially as a single class. The holders of our Class B common stock will be entitled to ten votes per share, and holders of our Class A common stock will be entitled to one vote per share.
(2)Consists of shares of Class A common stock held by Tiger Global PIP 6 Holdings, L.P., or TGPIP Holdings 6, and other entities or persons affiliated with Tiger Global Management, LLC. Tiger Global Management, LLC is controlled by Chase Coleman and Scott Shleifer. The principal business address of the foregoing entities and persons is c/o Tiger Global Management, LLC, 9 West 57th Street, 35th Floor, New York, New York 10019.
(3)Consists of shares of Class A common stock held by various funds, or the T. Rowe funds. T. Rowe Price Associates, Inc., or TRPA, serves as investment adviser or subadviser with power to direct investments and sole power to vote the securities owned by the T. Rowe funds, as well as securities owned by certain other individual and institutional investors. TRPA may be deemed to be the beneficial owner of all of the shares listed above; however, TRPA expressly disclaims that it is, in fact, the beneficial owner of such securities. The address of each of the foregoing entities is c/o T. Rowe Price Associates, Inc., 100 East Pratt Street Baltimore, MD 21202.
(4)Consists of: (i) shares of Class A common stock held by General Catalyst Group V, L.P., or GCGV; (ii) shares of Class A common stock held by General Catalyst Group V Supplemental, L.P., or GCGVS; (iii) shares of Class A common stock held by GC Entrepreneurs Fund V, L.P., or GCEV; (iv) shares of Class A common stock held by GC Venture V, LLC, or GCVV; and (v) shares of Class A common stock held by GC Venture V-B, LLC, or GCVVB. General Catalyst GP V, LLC, or GCGPV, is the general partner of General Catalyst Partners V, L.P., which is the general partner of GCGV, GCGVS, and GCEV. General Catalyst Group Management Holdings GP, LLC, or GCGMH LLC, is the general partner of General Catalyst Group Management Holdings, L.P., or GCGMH, which is the manager of General Catalyst Group Management, LLC, or GCGM, which is the manager of GC Venture V Manager, LLC, or GCVV Manager, which is the manager of GCVV and GCVVB. Joel Cutler, who is a member of our board of directors, and David Fialkow are managing directors of GCGPV, and, as a result, may be deemed to share voting and investment power with respect to the shares held by GCGV, GCGVS, and GCEV. Kenneth Chenault, Joel Cutler, who is a member of our board of directors, David Fialkow and Hemant Taneja are managing members of GCGMH, LLC, and, as a result, may be deemed to share voting and investment power with respect to the shares held by GCVV and GCVVB. Each party named above disclaims beneficial ownership of such shares. The principal business address of the foregoing entities and persons is 20 University Road, Suite 450, Cambridge, MA 02138.
(5)Consists of shares of Class A common stock held by D1 Master Holdco I LLC. D1 Capital Partners L.P. is a registered investment adviser and serves as the manager of private investment vehicles and accounts, including D1 Capital Partners Master LP, the sole and managing member of D1 Master Holdco I LLC, and may be deemed to beneficially own the shares of Class A common stock held by D1 Master Holdco I LLC. Daniel Sundheim indirectly controls D1 Capital Partners L.P. and may be deemed to beneficially own the shares of Class A common stock held by D1 Master Holdco I LLC. The principal business address of the foregoing entity and person is 9 West 57th Street, New York, NY 10119.
(6)Consists of shares of Class A common stock held by Durable Capital Master Fund LP, or Durable Master Fund. Durable Capital Partners LP, or Durable Capital Partners, is the investment adviser to Durable Master Fund. Durable Capital Partners GP LLC, or Durable GP, is the general partner of Durable Capital Partners, and Henry Ellenbogen is the chief investment officer of Durable Capital Partners and the managing member of Durable GP. The principal business address of the foregoing entities and person is c/o Durable Capital Partners, 5425 Wisconsin Avenue, Suite 802, Chevy Chase, MD 20815.
(7) .
(8) .
(9)Consists of: (i) shares of Class A common stock held by Mr. Miller; and (ii) shares of Class A common stock issuable pursuant to outstanding stock options, stock purchase rights and restricted stock units held by Mr. Miller that are exercisable or vested and settled within 60 days of August 2, 2021.
(10) .
(11) .
(12)Consists of: (i) shares of Class A common stock subject to stock purchase rights and restricted stock units held by Teresa Briggs that are exercisable within 60 days of August 2, 2021; and (ii) shares of Class A common stock held pursuant to restricted stock units held by The Teresa Briggs Trust that are vested and settled within 60 days of August 2, 2021. Ms. Briggs may be deemed to have voting power and dispositive power over the shares held by The Teresa Briggs Trust.
(13)Consists of: (i) the shares held by the entities affiliated with General Catalyst Partners identified in footnote 4; and (ii) shares of Class A common stock issuable pursuant to stock purchase rights held by Mr. Cutler that are exercisable within 60 days of August 2, 2021.
(14)Consists of shares of Class A common stock issuable pursuant to stock purchase rights and restricted stock units held by Ms. Moon that are exercisable within 60 days of August 2, 2021.
(15)Consists of shares of Class A common stock issuable pursuant to stock purchase rights and restricted stock units held by Ms. Sulzberger that are exercisable within 60 days of August 2, 2021.
(16)Consists of shares of Class A common stock issuable pursuant to stock purchase rights and restricted stock units held by Mr. Williams that are exercisable within 60 days of August 2, 2021.
(17)Consists of: (i) shares of Class A common stock; (ii) shares of Class B common stock; (iii) shares of Class A common stock issuable pursuant to outstanding stock options that are exercisable within 60 days of August 2, 2021; (iv) shares of Class B common stock issuable pursuant to outstanding stock options that are exercisable within 60 days of August 2, 2021.
(18)Consists of: (i) shares of Class A common stock; (ii) shares of Class B common stock; (iii) shares of Class A common stock issuable pursuant to outstanding stock options that are exercisable within 60 days of August 2, 2021; and (iv) shares of Class B common stock issuable pursuant to outstanding stock options that are exercisable within 60 days of August 2, 2021.
Description Of Capital Stock
General
The following is a summary of the rights of our capital stock and some of the provisions of our amended and restated certificate of incorporation, or Amended Charter, and amended and restated bylaws, or Amended Bylaws, which will each become effective immediately following the effectiveness of the registration statement of which this prospectus forms a part, the Investors’ Rights Agreement, and relevant provisions of Delaware General Corporation Law. The descriptions herein are qualified in their entirety by our Amended Charter, Amended Bylaws, and Investors’ Rights Agreement, copies of which have been filed as exhibits to the registration statement of which this prospectus is a part, as well as the relevant provisions of Delaware General Corporation Law.
Immediately following the effectiveness of the registration statement of which this prospectus forms a part, our authorized capital stock will consist of shares, all with a par value of $0.0001 per share, of which:
• shares are designated as Class A common stock;
• shares are designated as Class B common stock;
• shares are designated as Class C common stock; and
• shares are designated as preferred stock.
As of June 30, 2021, after giving effect to (i) the Preferred Stock Conversion, which will occur prior to our listing and (ii) the filing and effectiveness of the Amended Charter, which will occur prior to our listing and which will, among other things, effect the Common Stock Reclassification, there were shares of our Class A common stock outstanding held by stockholders of record, shares of our Class B common stock outstanding held by stockholders of record, and no shares of our Class C common stock outstanding. Pursuant to our Amended Charter, our board of directors will have the authority, without stockholder approval, except as required by the listing standards of the NYSE, to issue additional shares of our Class A common stock.
Common Stock
All issued and outstanding shares of our Class A common stock, Class B common stock and Class C common stock will be duly authorized, validly issued, fully paid, and non-assessable. All authorized but unissued shares of our Class A common stock, Class B common stock and Class C common stock will be available for issuance by our board of directors without any further stockholder action, except as required by the listing standards of the NYSE. Our Amended Charter will provide that, except with respect to voting rights and conversion rights, the Class A common stock, Class B common stock and Class C common stock are treated equally and identically.
The rights, preferences, and privileges of holders of common stock are subject to and may be adversely affected by the rights of the holders of shares of any series of preferred stock that we may designate and issue in the future.
Voting Rights
Holders of our Class A common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders, holders of our Class B common stock are entitled to ten votes for each share held on all matters submitted to a vote of stockholders, and holders of our Class C common stock are not entitled to vote on any matter submitted to a vote of the stockholders of the Company, except as expressly required by applicable law or regulation. The holders of our Class B common stock must maintain % of the total outstanding shares of Class B common stock to continue to control the outcome of matters submitted to stockholders for approval. The holders of our Class A common stock and Class B common stock will generally vote together as a single class on all matters submitted to a vote of our stockholders, unless otherwise required by Delaware law or our Amended Charter. Delaware law would permit holders of Class A common stock to vote separately, as a single class, if we were to change the par value of the Class A common stock or amend our certificate of incorporation to alter the powers, preferences, or special rights of the Class A common stock in a way that would adversely affect the holders of our Class A common stock.
As a result, in these limited instances, the holders of a majority of the Class A common stock could defeat any amendment to our Amended Charter. For example, if a proposed amendment of our Amended Charter provided for the Class A common stock to rank junior to the Class B common stock with respect to (i) any dividend or
distribution, (ii) the distribution of proceeds were we to be acquired, or (iii) any other right, Delaware law would require the vote of the Class A common stock. In this instance, the holders of a majority of Class A common stock could defeat that amendment to our Amended Charter.
Our Amended Charter will provide that the number of authorized shares of preferred stock, Class A common stock, Class B common stock and Class C common stock, may be increased or decreased (but not below the number of shares of preferred stock, Class A common stock, Class B common stock and Class C common stock then outstanding) by the affirmative vote of the holders of a majority of the outstanding voting power of all of our outstanding common stock, voting together as a single class without a separate vote of the holders of shares of preferred stock, Class A common stock, Class B common stock or Class C common stock. As a result, the holders of a majority of the outstanding Class B common stock can approve an increase or decrease in the number of authorized shares of Class A common stock without a separate vote of the holders of Class A common stock. This could allow us to increase and issue additional shares of Class A common stock beyond what will be authorized in our Amended Charter without the consent of the holders of our Class A common stock.
Our Amended Charter will not provide for cumulative voting for the election of directors.
Dividend Rights
Subject to preferences that may be applicable to any then-outstanding preferred stock, holders of Class A common stock, Class B common stock and Class C common stock are entitled to receive ratably those dividends, if any, as may be declared by the board of directors out of legally available funds. Under Delaware law, we can only pay dividends either out of “surplus” or out of the current or the immediately preceding year’s net profits. Surplus is defined as the excess, if any, at any given time, of the net assets of a corporation over its total liabilities and statutory capital. The value of a corporation’s assets can be measured in a number of ways and may not necessarily equal their book value.
Right to Receive Liquidation Distributions
In the event of our liquidation, dissolution, or winding up, the holders of Class A common stock, Class B common stock and Class C common stock will be entitled to share ratably in the assets legally available for distribution to stockholders after the payment of or provision for all of our debts and other liabilities, subject to the prior rights of any preferred stock then-outstanding.
Subdivisions and Combinations
If we subdivide or combine in any manner outstanding shares of Class A common stock, Class B common stock or Class C common stock, the outstanding shares of the other class will be subdivided or combined in the same manner.
Conversion
Each outstanding share of our Class B common stock will be convertible at any time at the option of the holder into one share of our Class A common stock. Each share of our Class B common stock will convert automatically into one share of our Class A common stock upon any transfer, except for certain permitted transfers described in our Amended Charter, including transfers to (i) affiliates of a Co-Founder (i.e., persons or entities directly or indirectly controlling, controlled by or under common control with such Co-Founder), (ii) trusts controlled directly or indirectly by a Co-Founder that are solely for the benefit of a Co-Founder or their family members or a corporation, partnership or limited liability company directly or indirectly controlled by a Co-Founder and exclusively owned by such Co-Founder or his family members, which trusts or other entities were established for bona fide estate planning purposes and (iii) a private foundation or similar entity established by a Co-Founder or such Co-Founder’s family members and controlled directly or indirectly by him (collectively with respect to each Co-Founder, a “Permitted Ownership Group”).
All outstanding shares of our Class B common stock will automatically convert into shares of Class A common stock on a one-for-one basis upon the date that is the earlier of (i) transfer of Class B common stock to a person or entity that is not in the transferor’s Permitted Ownership Group, (ii) October 1, 2031, (iii) with respect to any Class B common stock held by any person or entity in Neil Blumenthal’s Permitted Ownership Group, (A) such time as Neil Blumenthal is removed or resigns from the board of directors, or otherwise ceases to serve as a director, (B) such time as Neil Blumenthal ceases to be either an employee, officer or consultant of the Company or any of its subsidiaries, or (C) the date that is 12 months after the death or disability of Neil Blumenthal, and (iv) with respect to
any Class B common stock held by any person or entity in Dave Gilboa’s Permitted Ownership Group, (A) such time as Dave Gilboa is removed or resigns from the board of directors, or otherwise ceases to serve as a director, (B) such time as Dave Gilboa ceases to be either an employee, officer or consultant of the Company or any of its subsidiaries, or (C) the date that is 12 months after the death or disability of Dave Gilboa.
Other Matters
The Class A and Class B common stock will have no preemptive rights pursuant to the terms of our Amended Charter and our Amended Bylaws. There will be no redemption or sinking fund provisions applicable to the Class A and Class B common stock.
Class C Common Stock
No shares of our Class C common stock will be issued or outstanding immediately after the offering contemplated by this prospectus. Unless required by law or any stock exchange, the authorized shares of Class C common stock will be available for issuance without further action by the holders of our Class A common stock and Class B common stock. We have no current plans to issue any shares of Class C common stock in the future. However, we may issue shares of Class C common stock for a variety of corporate purposes, including financings, acquisitions, investments, dividends and equity incentives to our employees, consultants and directors, and the Class C common stock provides us with the flexibility to do so without diluting the existing voting power of our outstanding Class A common stock and Class B common stock. Because the Class C common stock carries no voting rights, is not convertible into any other capital stock, and is not listed for trading on an exchange or registered for sale with the SEC, shares of Class C common stock may be less liquid and less attractive to any future recipients of these shares than shares of Class A common stock, although we may seek to list the Class C common stock for trading and register shares of Class C common stock for sale in the future. In addition, because our Class C common stock carries no voting rights, if we issue shares of Class C common stock in the future, the holders of our Class B common stock may be able to elect all of our directors and to determine the outcome of most matters submitted to a vote of our stockholders for a longer period of time than would be the case if we issued Class A common stock rather than Class C common stock in such transactions.
Preferred Stock
No shares of preferred stock will be issued or outstanding immediately after the offering contemplated by this prospectus. Our Amended Charter will authorize our board of directors to establish one or more series of preferred stock. Unless required by law or any stock exchange, the authorized shares of preferred stock will be available for issuance without further action by the holders of our common stock. Our board of directors will have the discretion to determine, without stockholder approval and with respect to any series of preferred stock, the powers (including voting powers), preferences, and relative, participating, optional, or other special rights, and the qualifications, limitations, or restrictions thereof, including, without limitation: the number of shares to be included in each such series and to fix the powers, designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, including, without limitation, the authority to fix or alter the dividend rights, dividend rates, conversion rights, exchange rights, voting powers, rights and terms of redemption, the redemption price or prices, restrictions on the issuance of shares of such series, the dissolution preferences and the rights in respect of any distribution of assets of any wholly unissued series of Preferred Stock and the number of shares constituting any such series, and the designation thereof.
We could issue a series of preferred stock that could, depending on the terms of the series, impede or discourage an acquisition attempt or other transaction that some, or a majority, of the holders of our common stock might believe to be in their best interests or in which the holders of our common stock might receive a premium over the market price of the shares of our common stock. Additionally, the issuance of preferred stock may adversely affect the rights of holders of our common stock by restricting dividends on our common stock, diluting the voting power of our common stock or subordinating the liquidation rights of our common stock. As a result of these or other factors, the issuance of preferred stock could have an adverse impact on the market price of our common stock. We have no current plan for the issuance of any shares of preferred stock.
Options
As of June 30, 2021, we had outstanding options under our equity compensation plans to purchase an aggregate of shares of our Class A common stock, with a weighted-average exercise price of $ per share.
Restricted Stock Units
As of June 30, 2021, we had shares of our Class A common stock subject to outstanding RSUs under our 2011 Plan and 2019 Plan.
Warrants
As of June 30, 2021, we had an outstanding warrant to purchase an aggregate of up to 21,745 shares of our Series B preferred stock with an exercise price of $3.4491 per share, which shares will be converted then reclassified into Class A common stock immediately following the effectiveness of the registration statement of which this prospectus forms a part. Unless earlier exercised or extended, this warrant will expire on August 12, 2023.
Registration Rights
The Investors’ Rights Agreement to which we are party provides that certain holders of our capital stock have certain registration rights as set forth below. The registration of shares of our capital stock by the exercise of registration rights described below would enable the holders to sell these shares without restriction under the Securities Act when the applicable registration statement is declared effective. We will pay the registration expenses, other than underwriting discounts and commissions, of the shares registered by the demand, piggyback, and Form S-3 registrations described below.
The demand, piggyback, and Form S-3 registration rights described below will expire five years after the listing of our Class A common stock on the NYSE, or with respect to any particular stockholder, such time after the effectiveness of the registration statement of which this prospectus forms a part that such stockholder can sell all of its shares entitled to registration rights under Rule 144 of the Securities Act during any 90-day period.
Demand Registration Rights
Subject to certain exceptions, upon election by the requisite holders, the holders of an aggregate of 42,283,140 shares of our Class A common stock and 10,971,219 shares of our Class B common stock, based on our shares outstanding as of June 30, 2021, will be entitled to certain demand registration rights. At any time beginning 180 days after the effective date of the registration statement of which this prospectus forms a part, certain holders of these shares may request that we register all or a portion of the registrable shares. We are obligated to effect only two such registrations. Such request for registration must cover at least 20% of such shares or such lesser amount as would have an anticipated aggregate offering price, net of selling expenses, in excess of $15 million.
Piggyback Registration Rights
After the effectiveness of the registration statement of which this prospectus forms a part, in the event that we propose to register any of our securities under the Securities Act, either for our own account or for the account of other security holders, the holders of an aggregate of 84,566,280 shares of our Class A common stock and 21,942,437 shares of our Class B common stock, based on our shares outstanding as of June 30, 2021, will be entitled to certain piggyback registration rights allowing the holder 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 a registration relating to (i) a demand registration, (ii) the issuance of securities by us or by a subsidiary pursuant to a stock option, stock purchase, or similar plan, (iii) an SEC Rule 145 transaction, (iv) a registration on any form that does not include substantially the same information as would be required to be included in a piggyback registration, or (v) a registration in which the only stock being registered is stock issuable upon 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 to include their shares in the registration, subject to limitations that the underwriters may impose on the number of shares included in the offering.
Form S-3 Registration Rights
Based on our shares outstanding as of June 30, 2021, the holders of an aggregate of 16,913,256 shares of our Class A common stock and 4,388,487 shares of our Class B common stock will be entitled to certain Form S-3 registration rights. At any time beginning 90 days after the effectiveness of the registration statement of which this prospectus forms a part, the holders of these shares can make a request that we register their shares on Form S-3 if we are qualified to file a registration statement on Form S-3 and if the anticipated aggregate price of the shares offered, net of any underwriters’ discounts or commissions, would equal or exceed $1.0 million. We will not be required to effect more than two registrations on Form S-3 within any 12-month period.
Anti-Takeover Effects of Delaware Law and Our Amended Charter and Bylaws
Some provisions of Delaware law and our Amended Charter and our Amended Bylaws contain provisions that could make the following transactions more difficult: an acquisition of us by means of a tender offer; an acquisition of us by means of a proxy contest or otherwise; or the removal of our incumbent officers and directors. It is possible that these provisions could make it more difficult to accomplish or could deter transactions that stockholders may otherwise consider to be in their best interest or in our best interests, including transactions which provide for payment of a premium over the market price for our shares.
These provisions, summarized below, are intended to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with our board of directors. We believe that the benefits of the increased protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us outweigh the disadvantages of discouraging these proposals because negotiation of these proposals could result in an improvement of their terms.
Preferred Stock
Our board of directors will have the authority, without further action by our stockholders, to issue up to shares of unissued 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.
Staggered Board
Our board of directors will be divided into three classes. The directors in each class will serve for a three-year term, one class being elected each year by our stockholders. For more information on the classified board, see the section titled “Management—Composition of Our Board of Directors.” This system of electing and removing directors may tend to discourage a third party from making a tender offer or otherwise attempting to obtain control of us, because it generally makes it more difficult for stockholders to replace a majority of the directors.
Removal of Directors
Our Amended Charter will provide that members of our board of directors may be removed from office only for cause by an affirmative vote of the holders of at least two-thirds of the voting power of all of our outstanding stock entitled to vote generally in the election of directors.
Board Vacancies and Board Size
Our Amended Charter and Amended Bylaws will provide that any vacant directorships, including newly created directorships, may only be filled by a majority of the directors then in office, though less than a quorum, or by the sole remaining director and the number of directors constituting the full board of directors will be permitted to be set only by a resolution of the board of directors.
Special Stockholder Meetings
Our Amended Bylaws will further provide that special meetings of our stockholders may be called only by a chairperson or co-chairperson of the board of directors or pursuant to a resolution adopted by a majority of the total number of authorized directors.
Elimination of Stockholder Action by Consent
Our Amended Charter will eliminate the right of stockholders to act by consent without a meeting.
Requirements for Advance Notification of Stockholder Nominations and Proposals
Our Amended Bylaws will establish advance notice procedures with respect to stockholder proposals to be brought before a stockholder meeting and the nomination of candidates for election as directors, other than nominations made by or at the direction of the board of directors or a committee of the board of directors.
Stockholders Not Entitled to Cumulative Voting
The Delaware General Corporation Law provides that stockholders are not entitled to cumulate votes in the election of directors unless a corporation’s certificate of incorporation provides otherwise. Our Amended Charter will not provide for cumulative voting.
Amendment of Bylaws Provisions
Our Amended Bylaws will permit the board of directors to amend our Amended Bylaws without stockholder consent.
Delaware Anti-Takeover Statute
We are subject to Section 203 of the Delaware General Corporation Law, which prohibits a person deemed to be an “interested stockholder” from engaging in a “business combination” with a publicly held Delaware corporation for three years following the date such person become an interested stockholder unless: (1) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (2) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding certain for purposes of determining the voting stock outstanding (but not the outstanding voting stock owned by the interested stockholder); or (3) at or subsequent to such time the business combination is approved by the board of directors 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 which is not owned by the interested stockholder. Generally, an “interested stockholder” is a person who, together with affiliates and associates, owns 15% or more of a corporation’s voting stock. Generally, a “business combination” includes a merger, asset, or stock sale or other transaction resulting in a financial benefit to the interested stockholder. The existence of this provision may have an anti-takeover effect with respect to transactions not approved in advance by the board of directors.
Public Benefit Corporation Status
We are a public benefit corporation under subchapter XV of the Delaware General Corporation Law.
As a public benefit corporation, our board of directors is required by the Delaware General Corporation Law to manage or direct our business and affairs in a manner that balances the pecuniary interests of our stockholders, the best interests of those materially affected by our conduct, and the specific public benefits identified in our Amended Charter. We are also required to assess our benefit performance internally and to disclose to stockholders at least biennially a report that details our promotion of the public benefits identified in our Amended Charter and of the best interests of those materially affected by our conduct. We expect that our board of directors will measure our benefit performance against the objectives and standards proposed by the Company and approved by the board of directors. When determining the objectives and standards by which our board of directors will measure our public benefit performance, our board of directors will consider, among other factors, whether the objectives and standards are (i) comprehensive in that they assess the positive impact of our business on the communities in which we operate, and society and the environment, taken as a whole, (ii) credible in that they are comparable to the objectives and standards created by independent third parties that evaluate the corporate ethics, sustainability and governance practices of other public benefit corporations, and (iii) transparent in that the criteria considered for measuring such objectives and standards be made publicly available, including disclosing the process by which revisions to the objectives and standards are made and whether such objectives and standards present real or potential conflicts of interests.
Under the Delaware General Corporation Law, our stockholders may bring a derivative suit to enforce this requirement only if they own (individually or collectively), at least 2% of our outstanding shares or, upon our listing, the lesser of such percentage or shares of at least $2 million in market value.
Exclusive Venue
Our Amended Charter will provide that, unless we consent to the selection of an alternative forum, the Court of Chancery is the sole and exclusive forum for: (a) any derivative action, suit, or proceeding brought on our behalf; (b) any action, suit, or proceeding asserting a claim of breach of fiduciary duty owed by any of our current or former directors, officers or other employees or stockholder to us or to our stockholders, creditors or other constituents; (c) any action, suit, or proceeding asserting a claim arising pursuant to the Delaware General Corporation Law, our Amended Charter or Amended Bylaws, or as to which the Delaware General Corporation
Law confers exclusive jurisdiction on the Court of Chancery of the State of Delaware; or (d) any action, suit, or proceeding asserting a claim governed by the internal affairs doctrine, unless the Court of Chancery does not have subject matter jurisdiction thereof, the federal district court of the District of Delaware or other state courts of the State of Delaware; provided that the exclusive forum provisions will not apply to suits brought to enforce any liability or duty created by the Exchange Act, or to any claim for which the federal courts have exclusive jurisdiction.
Our Amended Charter will further provide that, unless we consent in writing to the selection of an alternative forum, the federal district courts are the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. We note that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. Although we believe the provision benefits us by providing increased consistency in the application of Delaware law in the types of lawsuits to which it applies, the provision may have the effect of discouraging lawsuits against our directors and officers.
Amendment of Amended Charter or Amended Bylaws
Our Amended Charter will require the approval of the holders of at least two-thirds in the voting power of the outstanding shares of our capital stock, voting together as a single class, in order to amend certain provisions, including those relating to removal of directors, our authorized capital stock, voting rights, exculpation, exclusive forum, and the prohibition on stockholder action by written consent. Our Amended Bylaws will provide that the approval of the holders of at least two-thirds in the voting power of the outstanding shares of our capital stock entitled to vote generally in the election of directors, voting together as a single class, is required for stockholders to amend or adopt any provision of our Amended Bylaws.
The provisions of Delaware law, our Amended Charter, and our Amended Bylaws could have the effect of discouraging others from attempting hostile takeovers and, as a consequence, they may also inhibit temporary fluctuations in the market price of our Class A common stock that often result from actual or rumored hostile takeover attempts. These provisions may also have the effect of preventing changes in the composition of our board and management. It is possible that these provisions could make it more difficult to accomplish transactions that stockholders may otherwise deem to be in their best interests.
Transfer Agent and Registrar
The transfer agent and registrar for our Class A common stock will be American Stock Transfer & Trust Company. The transfer agent and registrar’s address is .
Exchange Listing
Our Class A common stock is currently not listed on any securities exchange. We intend to apply to have our Class A common stock listed on the NYSE under the symbol “WRBY.”
Shares Eligible For Future Sale
Prior to the listing of our Class A common stock on the NYSE, there had been no public market for our Class A common stock. 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 substantial amounts of our Class A common stock in the public market, or the perception that such sales may occur, could adversely affect the market price of our Class A common stock. Although we intend to apply to list our Class A common stock listed on the NYSE, we cannot assure you that there will be an active public market for our Class A common stock.
Shares of our Class A common stock and Class B common stock will be deemed “restricted securities” as defined in Rule 144. These restricted securities are eligible for public sale only if they are registered under the Securities Act or if they qualify for an exemption from registration under Rule 144 or 701 under the Securities Act, each of which is summarized below. Following the listing of our Class A common stock on the NYSE, 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.
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 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 shares of common stock immediately after our registration.
After giving effect to the Preferred Stock Conversion, as of June 30, 2021, we had a total of shares of Class A common stock and shares of Class B common outstanding. Between June 30, 2021 and the effective date of the registration statement of which this prospectus forms a part, we have not issued any additional shares of common stock or awards convertible or exercisable for shares of common stock.
Following the listing of our Class A common stock on the NYSE, approximately shares of our Class A common stock may be immediately sold either (i) by the Registered Stockholders pursuant to this prospectus or (ii) by our other existing stockholders under Rule 144 under the Securities Act since such shares held by such other stockholders will have been beneficially owned by non-affiliates for at least one year. See also “Shares Eligible For Future Sale.”
In addition, on June 30, 2021, the time-based vesting condition will be satisfied in respect of shares of Class A common stock issuable to non-affiliates upon settlement of RSUs outstanding as of June 30, 2021 (which settlement may be net of withholding for taxes).
Rule 144
Affiliate Resales of Restricted Securities
In general, 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 an affiliate of ours, or who was an affiliate at any time during the 90 days before a sale, who has beneficially owned shares of our capital stock for at least six months would be entitled to sell in “broker’s transactions” or certain “riskless principal transactions” or to market makers, a number of shares within any three-month period that does not exceed the greater of:
•1% of the number of shares of our Class A common stock then outstanding, which will equal approximately shares upon the effectiveness of the registration statement of which this prospectus forms a part; or
•the average weekly trading volume in our Class A common stock on the the NYSE during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale.
Affiliate resales under Rule 144 are also subject to the availability of current public information about us. In addition, if the number of shares being sold under Rule 144 by an affiliate during any three-month period exceeds 5,000 shares or has an aggregate sale price in excess of $50,000, the seller must file a notice on Form 144 with
the SEC concurrently with either the placing of a sale order with the broker or the execution of a sale directly with a market maker.
Non-Affiliate Resales of Restricted Securities
In general, 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 an affiliate of ours at the time of sale, has not been an affiliate at any time during the three months preceding a sale, and has beneficially owned shares of our capital stock for at least six months but less than a year, is entitled to sell such shares subject only to the availability of current public information about us. If such person has held our shares for at least one year, such person can resell under Rule 144(b)(1) without regard to any Rule 144 restrictions, including the 90-day public company requirement and the current public information requirement.
Non-affiliate resales are not subject to the manner of sale, volume limitation, or notice filing provisions of Rule 144.
Rule 701
In general, under Rule 701, any of our employees, directors, officers, consultants, or advisors who purchases shares from us in connection with a compensatory stock or option plan or other written agreement before the effective date of a registration statement under the Securities Act is entitled to sell such shares 90 days after such effective date in reliance on Rule 144. Securities issued in reliance on Rule 701 are restricted securities and, subject to the contractual restrictions described above, beginning 90 days after the date of this prospectus, may be sold by persons other than “affiliates,” as defined in Rule 144, subject only to the manner of sale provisions of Rule 144 and by “affiliates” under Rule 144 without compliance with its one-year minimum holding period requirement.
Form S-8 Registration Statement
We intend to file one or more registration statements on Form S-8 under the Securities Act to register all shares of our Class B common stock subject to outstanding stock options under our 2021 Plan, all shares of our Class A common stock subject to outstanding stock options and RSUs under our 2021 Plan, and all shares of our Class A common stock issued or issuable under our 2021 Plan and our ESPP, as applicable. We expect to file the registration statement covering shares offered pursuant to these stock plans shortly after the date of this prospectus, permitting the resale of such shares by non-affiliates in the public market without restriction under the Securities Act and the sale by affiliates in the public market subject to compliance with the resale provisions of Rule 144.
Registration Rights
As of June 30, 2021, holders of up to 84,566,280 shares of our Class A common stock and 21,942,437 shares of our Class B common stock will be entitled to various rights with respect to the registration of these shares under the Securities Act upon the effectiveness of the registration statement of which this prospectus forms a part. Registration of these shares under the Securities Act would result in these shares becoming fully 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.
Sale Price History Of Our Capital Stock
We intend to apply to list our Class A common stock on the NYSE. Prior to the initial listing, no public market existed for our Class A common stock. However, our Series A common stock and Series B common stock have a history of trading in private transactions, although such history is limited. The table below shows the high and low sales prices for our Series A common stock and Series 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. While the DMM, in consultation with Morgan Stanley and our other financial advisors, is expected to consider this information in connection with setting the opening public price of our Class A common stock, this information may, however, have little or no relation to the broader market demand for our Class A common stock and thus the opening trading price and subsequent trading price of our Class A common stock on the the NYSE. As a result, you should not place reliance on these historical private sales prices as they may differ materially from the opening trading price and subsequent trading price of our Class A common stock on the NYSE. 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 NYSE, 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
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2020
|
$
|
24.53
|
|
|
$
|
14.15
|
|
|
15,799,128
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|
|
$
|
22.28
|
|
|
110,591,457
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|
|
Year Ending December 31, 2021 (through July 31)
|
$
|
24.53
|
|
|
$
|
24.53
|
|
|
2,006,135
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|
|
$
|
24.53
|
|
|
110,770,699
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|
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Quarterly
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|
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|
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Year Ended December 31, 2020
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|
|
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|
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First Quarter
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$
|
18.56
|
|
|
$
|
14.15
|
|
|
419,610
|
|
|
$
|
16.90
|
|
|
98,375,724
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|
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Second Quarter
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$
|
19.49
|
|
|
$
|
19.49
|
|
|
6,412,524
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|
|
$
|
19.49
|
|
|
104,787,518
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|
|
Third Quarter
|
$
|
24.53
|
|
|
$
|
24.53
|
|
|
8,153,082
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|
|
$
|
24.53
|
|
|
110,246,397
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|
|
Fourth Quarter
|
$
|
24.53
|
|
|
$
|
24.53
|
|
|
813,912
|
|
|
$
|
24.53
|
|
|
110,591,457
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|
|
Year Ending December 31, 2021
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|
|
|
|
|
|
|
|
|
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First Quarter
|
$
|
24.53
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|
|
$
|
24.53
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|
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247,204
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|
|
$
|
24.53
|
|
|
111,208,713
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|
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Second Quarter
|
$
|
24.53
|
|
|
$
|
24.53
|
|
|
1,758,931
|
|
|
$
|
24.53
|
|
|
110,762,149
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|
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Third Quarter (through July 31)
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$
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
110,770,699
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|
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Monthly
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|
|
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|
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Year Ended December 31, 2020
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|
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January
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$
|
—
|
|
|
$
|
—
|
|
|
—
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|
|
$
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—
|
|
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98,366,838
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|
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February
|
$
|
18.56
|
|
|
$
|
14.15
|
|
|
419,610
|
|
|
$
|
16.90
|
|
|
98,368,324
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|
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March
|
$
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
98,375,724
|
|
|
April
|
$
|
19.49
|
|
|
$
|
19.49
|
|
|
6,412,524
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|
|
$
|
19.49
|
|
|
104,788,248
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|
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May
|
$
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
104,788,248
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|
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June
|
$
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
104,787,518
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|
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July
|
$
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
105,043,183
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|
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August
|
$
|
24.53
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|
|
$
|
24.53
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|
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8,153,082
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|
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$
|
24.53
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|
|
110,226,219
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|
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September
|
$
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
110,246,397
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|
|
October
|
$
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
110,303,349
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|
|
November
|
$
|
24.53
|
|
|
$
|
24.53
|
|
|
813,912
|
|
|
$
|
24.53
|
|
|
110,346,176
|
|
|
December
|
$
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
110,591,457
|
|
|
Year Ending December 31, 2021
|
|
|
|
|
|
|
|
|
|
|
January
|
$
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
110,594,987
|
|
|
February
|
$
|
24.53
|
|
|
$
|
24.53
|
|
|
247,204
|
|
|
$
|
24.53
|
|
|
110,528,009
|
|
|
March
|
$
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
111,208,713
|
|
|
April
|
$
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
111,241,790
|
|
|
May
|
$
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
111,262,471
|
|
|
June
|
$
|
24.53
|
|
|
$
|
24.53
|
|
|
1,758,931
|
|
|
$
|
24.53
|
|
|
110,762,149
|
|
|
July
|
$
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
110,770,699
|
|
Material U.S. Federal Income Tax Consequences To Non-U.S. Holders Of Our Class A Common Stock
The following discussion is a summary of the material U.S. federal income tax consequences to Non-U.S. Holders (as defined below) of the purchase, ownership, and disposition of our Class A common stock issued pursuant to this offering, but does not purport to be a complete analysis of all potential tax effects. The effects of other U.S. federal tax laws, such as estate and gift tax laws, and any applicable state, local, or non-U.S. tax laws are not discussed. This discussion is based on the U.S. Internal Revenue Code of 1986, as amended, or the Code, Treasury Regulations promulgated thereunder, judicial decisions, and published rulings and administrative pronouncements of the U.S. Internal Revenue Service, or the IRS, in each case in effect as of the date hereof. These authorities may change or be subject to differing interpretations. Any such change or differing interpretation may be applied retroactively in a manner that could adversely affect a Non-U.S. Holder. We have not sought and will not seek any rulings from the IRS regarding the matters discussed below. There can be no assurance the IRS or a court will not take a contrary position to that discussed below regarding the tax consequences of the purchase, ownership, and disposition of our Class A common stock.
This discussion is limited to Non-U.S. Holders that hold our Class A common stock as a “capital asset” within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address all U.S. federal income tax consequences relevant to a Non-U.S. Holder’s particular circumstances, including the impact of the Medicare contribution tax on net investment income, the application of special accounting rules under Section 451(b) of the Code, and the alternative minimum tax. In addition, it does not address consequences relevant to Non-U.S. Holders subject to special rules, including, without limitation:
•U.S. expatriates and former citizens or long-term residents of the United States;
•persons holding our Class A common stock as part of a hedge, straddle, or other risk reduction strategy or as part of a conversion transaction or other integrated investment;
•banks, insurance companies, and other financial institutions;
•brokers, dealers, or traders in securities;
•“controlled foreign corporations,” “passive foreign investment companies,” and corporations that accumulate earnings to avoid U.S. federal income tax;
•partnerships or other entities or arrangements treated as partnerships for U.S. federal income tax purposes (and investors therein);
•tax-exempt organizations or governmental organizations;
•persons deemed to sell our Class A common stock under the constructive sale provisions of the Code;
•persons who hold or receive our Class A common stock pursuant to the exercise of any employee stock option or otherwise as compensation;
•tax-qualified retirement plans; and
•“qualified foreign pension funds” as defined in Section 897(l)(2) of the Code and entities all of the interests of which are held by qualified foreign pension funds.
If an entity treated as a partnership for U.S. federal income tax purposes holds our Class A common stock, the tax treatment of a partner in the partnership will depend on the status of the partner, the activities of the partnership, and certain determinations made at the partner level. Accordingly, partnerships holding our Class A common stock and the partners in such partnerships should consult their tax advisors regarding the U.S. federal income tax consequences to them.
THIS DISCUSSION IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT TAX ADVICE. INVESTORS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP, AND DISPOSITION OF OUR CLASS A COMMON STOCK ARISING UNDER THE U.S. FEDERAL ESTATE OR GIFT TAX LAWS OR UNDER THE LAWS OF ANY STATE, LOCAL, OR NON-U.S. TAXING JURISDICTION OR UNDER ANY APPLICABLE INCOME TAX TREATY.
Definition of a Non-U.S. Holder
For purposes of this discussion, a “Non-U.S. Holder” is any beneficial owner of our Class A common stock that is neither a “U.S. person” nor an entity treated as a partnership for U.S. federal income tax purposes. A U.S. person is any person that, for U.S. federal income tax purposes, is or is treated as any of the following:
•an individual who is a citizen or resident of the United States;
•a corporation created or organized under the laws of the United States, any state thereof, or the District of Columbia;
•an estate, the income of which is subject to U.S. federal income tax regardless of its source; or
•a trust that (1) is subject to the primary supervision of a U.S. court and the control of one or more “United States persons” (within the meaning of Section 7701(a)(30) of the Code), or (2) has a valid election in effect to be treated as a United States person for U.S. federal income tax purposes.
Distributions
As described in the section titled “Dividend Policy,” we do not anticipate declaring or paying dividends to holders of our Class A common stock in the foreseeable future. However, if we do make distributions of cash or property on our Class A common stock, such distributions will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Amounts not treated as dividends for U.S. federal income tax purposes will constitute a return of capital and first be applied against and reduce a Non-U.S. Holder’s adjusted tax basis in its Class A common stock, but not below zero. Any excess will be treated as capital gain and will be treated as described below under “—Sale or Other Taxable Disposition.”
Subject to the discussion below on effectively connected income, dividends paid to a Non-U.S. Holder will be subject to U.S. federal withholding tax at a rate of 30% of the gross amount of the dividends (or such lower rate specified by an applicable income tax treaty, provided the Non-U.S. Holder furnishes a valid IRS Form W-8BEN or W-8BEN-E (or other applicable documentation) certifying qualification for the lower treaty rate). A Non-U.S. Holder that does not timely furnish the required documentation, but that qualifies for a reduced treaty rate, may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS. Non-U.S. Holders should consult their tax advisors regarding their entitlement to benefits under any applicable income tax treaty.
If dividends paid to a Non-U.S. Holder are effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, the Non-U.S. Holder maintains a permanent establishment in the United States to which such dividends are attributable), the Non-U.S. Holder will be exempt from the U.S. federal withholding tax described above. To claim the exemption, the Non-U.S. Holder must furnish to the applicable withholding agent a valid IRS Form W-8ECI, certifying that the dividends are effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States.
Any such effectively connected dividends will be subject to U.S. federal income tax on a net income basis at the regular rates applicable to U.S. persons. A Non-U.S. Holder that is a corporation also may be subject to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on such effectively connected dividends, as adjusted for certain items. Non-U.S. Holders should consult their tax advisors regarding any applicable tax treaties that may provide for different rules.
Sale or Other Taxable Disposition
Subject to the discussion below regarding backup withholding and foreign accounts, a Non-U.S. Holder generally will not be subject to U.S. federal income tax on any gain realized upon the sale or other taxable disposition of our Class A common stock unless:
•the gain is effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, the Non-U.S. Holder maintains a permanent establishment in the United States to which such gain is attributable);
•the Non-U.S. Holder is a nonresident alien individual present in the United States for 183 days or more during the taxable year of the disposition and certain other requirements are met; or
•our Class A common stock constitutes a U.S. real property interest, or USRPI, by reason of our status as a U.S. real property holding corporation, or USRPHC, for U.S. federal income tax purposes at any time within the shorter of the five-year period preceding such disposition or such holder’s holding period.
Gain described in the first bullet point above generally will be subject to U.S. federal income tax on a net income basis at the regular rates applicable to U.S. persons. A Non-U.S. Holder that is a corporation also may be subject to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on such effectively connected gain, as adjusted for certain items.
A Non-U.S. Holder described in the second bullet point above will be subject to U.S. federal income tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on gain realized upon the sale or other taxable disposition of our Class A common stock, which may be offset by U.S. source capital losses of the Non-U.S. Holder (even though the individual is not considered a resident of the United States), provided the Non-U.S. Holder has timely filed U.S. federal income tax returns with respect to such losses.
With respect to the third bullet point above, we believe we currently are not, and do not anticipate becoming, a USRPHC. Because the determination of whether we are a USRPHC depends, however, on the fair market value of our USRPIs relative to the fair market value of our worldwide real property interests and our other business assets, there can be no assurance we currently are not a USRPHC or will not become one in the future. Even if we are or were to become a USRPHC, gain arising from the sale or other taxable disposition of our Class A common stock by a Non-U.S. Holder will not be subject to U.S. federal income tax if our Class A common stock is “regularly traded,” as defined by applicable Treasury Regulations, on an established securities market and such Non-U.S. Holder owned, actually and constructively, 5% or less of our Class A common stock throughout the shorter of the five-year period ending on the date of the sale or other taxable disposition or the Non-U.S. Holder’s holding period.
Non-U.S. Holders should consult their tax advisors regarding potentially applicable income tax treaties that may provide for different rules.
Information Reporting and Backup Withholding
Payments of dividends on our Class A common stock will not be subject to backup withholding, provided the applicable withholding agent does not have actual knowledge or reason to know the holder is a United States person and the holder either certifies its non-U.S. status, such as by furnishing a valid IRS Form W-8BEN, W-8BEN-E, or W-8ECI, or otherwise establishes an exemption. However, information returns are required to be filed with the IRS in connection with any distributions on our Class A common stock paid to the Non-U.S. Holder, regardless of whether such distributions constitute dividends or whether any tax was actually withheld. In addition, proceeds of the sale or other taxable disposition of our Class A common stock within the United States or conducted through certain U.S.-related brokers generally will not be subject to backup withholding or information reporting if the applicable withholding agent receives the certification described above and does not have actual knowledge or reason to know that such holder is a United States person or the holder otherwise establishes an exemption. Proceeds of a disposition of our Class A common stock conducted through a non-U.S. office of a non-U.S. broker that does not have certain enumerated relationships with the United States generally will not be subject to backup withholding or information reporting.
Copies of information returns that are filed with the IRS may also be made available under the provisions of an applicable treaty or agreement to the tax authorities of the country in which the Non-U.S. Holder resides or is established.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a Non-U.S. Holder’s U.S. federal income tax liability, provided the required information is timely furnished to the IRS.
Additional Withholding Tax on Payments Made to Foreign Accounts
Withholding taxes may be imposed under Sections 1471 to 1474 of the Code (such Sections commonly referred to as the Foreign Account Tax Compliance Act, or FATCA, on certain types of payments made to non-U.S. financial institutions and certain other non-U.S. entities. Specifically, a 30% withholding tax may be imposed on dividends on, or (subject to the proposed Treasury Regulations discussed below) gross proceeds from the sale or other
disposition of, our Class A common stock paid to a “foreign financial institution” or a “non-financial foreign entity” (each as defined in the Code), unless (1) the foreign financial institution undertakes certain diligence and reporting obligations, (2) the non-financial foreign entity either certifies it does not have any “substantial United States owners” (as defined in the Code) or furnishes identifying information regarding each substantial United States owner, or (3) the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from these rules. If the payee is a foreign financial institution and is subject to the diligence and reporting requirements in (1) above, it must enter into an agreement with the U.S. Department of the Treasury requiring, among other things, that it undertake to identify accounts held by certain “specified United States persons” or “United States owned foreign entities” (each as defined in the Code), annually report certain information about such accounts, and withhold 30% on certain payments to non-compliant foreign financial institutions and certain other account holders. Foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the United States governing FATCA may be subject to different rules.
Under the applicable Treasury Regulations and administrative guidance, withholding under FATCA generally applies to payments of dividends on our Class A common stock. While withholding under FATCA would have applied also to payments of gross proceeds from the sale or other disposition of stock on or after January 1, 2019, proposed Treasury Regulations eliminate FATCA withholding on payments of gross proceeds entirely. Taxpayers generally may rely on these proposed Treasury Regulations until final Treasury Regulations are issued.
Prospective investors should consult their tax advisors regarding the potential application of withholding under FATCA to their investment in our Class A common stock.
Plan Of Distribution
The Registered Stockholders, and their pledgees, donees, transferees, assignees, or other successors-in-interest may sell their shares of Class A common stock covered hereby pursuant to brokerage transactions on the NYSE, 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 of shares of our Class A common stock and listing of our Class A common stock, as further described below. As such, we do not anticipate receiving notice as to 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 will recognize costs related to this direct listing and our transition to a publicly traded company, consisting of professional fees and other expenses. We will expense these amounts in the period incurred and not deduct these costs from net proceeds to the issuer as they would be in an initial public offering.
We have engaged Goldman Sachs, Morgan Stanley, and Allen & Company as our financial advisors to advise and assist us with respect to certain matters relating to the registration of our Class A common stock and our listing, 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 NYSE, 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. We have engaged Morgan Stanley, Goldman Sachs, and Allen & Company to be available to consult with the DMM who will be setting the opening public price of our Class A common stock on the NYSE. However, Goldman Sachs, Morgan Stanley, and Allen & Company 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, except as will be described herein with respect to consultation with the DMM on the opening public price in accordance with NYSE rules.
The DMM, acting pursuant to its obligations under the rules of the NYSE, is responsible for facilitating an orderly market for our Class A common stock. Based on information provided to the NYSE, the opening public price of our Class A common stock on the NYSE 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 NYSE, 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 Rule 7.35A(g) of the NYSE Listed Company Manual, 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 DMM will consult with Morgan Stanley in order for the DMM to effect a fair and orderly opening of our Class A common stock on the NYSE, without coordination with us, consistent with the applicable securities laws in connection with our direct listing. In addition, the DMM may also consult with our other financial advisors, also without coordination with us, in connection with our direct listing. Pursuant to Rule 7.35A(g) of the NYSE Listed Company Manual, and based upon information known to it at that time, Morgan Stanley and our other financial advisors are expected to provide input to the DMM regarding their understanding of the ownership of our outstanding Class A common stock and pre-listing selling and buying interest in our Class A common stock that they become aware of from potential investors and holders of our Class A common stock, including after consultation with certain investors (which may include certain of the Registered Stockholders). Such investor consultation by the financial advisors would not involve any coordination with or outreach on behalf of the Company. The financial advisors will not engage in a book building process as would typically be undertaken by underwriters in a registered initial public offering. Instead, the input that the financial advisors provide to the DMM will be based on information that the financial advisors become aware of from potential investors and holders of our Class A common stock (which may include certain of the Registered Stockholders) 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. Additionally, the DMM, in consultation with Morgan Stanley and our other financial advisors, is also expected to consider the information in the section titled “Sale Price History of Our Capital Stock” in establishing the opening public price. 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 specifically in compliance with Regulation M (to the extent that Regulation M applies to such activities). The Registered Stockholders will not be involved in the DMM’s process to establish the opening public price, including any decision regarding the timing of the opening trade.
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 on the first day of trading, 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 NYSE. The pre-opening indications will be available on the consolidated tape and NYSE market data feeds on the first day of trading. 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 our financial advisors are not acting as underwriters, they 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 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 NYSE 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 NYSE, decline significantly and rapidly. See the section titled “Risk Factors—Risks Related to Ownership of Our Class A Common Stock.”
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, private transactions exempt from the registration requirements of the Securities Act, and the Registered Stockholders may distribute the shares of Class A common stock covered by this prospectus to affiliates, managers, members, partners, equity holders, and/or other interest holders of such Registered Stockholders.
Under the securities laws of some states, shares of Class A common stock may be sold in such states only through registered or licensed brokers or dealers.
Each Registered Stockholder may from time to time transfer, pledge, assign, or grant a security interest in some or all of the shares of Class A common stock owned by it and, if it defaults in the performance of its secured obligations, the transferees, pledgees, assignees, or secured parties may offer and sell the shares of Class A common stock from time to time under this prospectus, under an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending the list of the Registered Stockholders to include the transferee, pledgee, assignee or other successors in interest as Registered Stockholders under this prospectus. The Registered Stockholders also may transfer the shares of Class A common stock in other circumstances, in which case the transferees, pledgees, or other successors in interest will be the registered beneficial owners for purposes of this prospectus.
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
Our principal legal advisor is Latham & Watkins LLP, New York, New York. Cooley LLP, New York, New York, is legal advisor to the financial advisors.
Experts
The consolidated financial statements at December 31, 2019 and 2020, and for each of the two years in the period ended December 31, 2020 included in this Prospectus and Registration Statement, have been audited by Ernst & Young LLP, an independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such 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, including exhibits and schedules, under the Securities Act, with respect to the shares of Class A common stock being offered by this prospectus. This prospectus, which constitutes part of the registration statement, does not contain all of the information in the registration statement and its exhibits. For further information with respect to us and the Class A common stock offered by this prospectus, we refer you to the registration statement and its exhibits. Statements contained in this prospectus as to the contents of any contract or any other document referred to are not necessarily complete, and in each instance, we refer you to the copy of the contract or other document filed as an exhibit to the registration statement. Each of these statements is qualified in all respects by this reference.
You can read our SEC filings, including the registration statement, over the internet at the SEC’s website at www.sec.gov.
Upon the effectiveness of the registration statement of which this prospectus forms a part, we will be subject to the information reporting requirements of the Exchange Act and we will file reports, proxy statements, and other information with the SEC. These 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.warbyparker.com, at which, following 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. Information contained on or accessible through our website is not a part of this prospectus, and the inclusion of our website address in this prospectus is an inactive textual reference only.
Warby Parker Inc. and Subsidiaries
Consolidated Financial Statements
Table of Contents
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Page
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Audited Consolidated Financial Statements
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Consolidated Financial Statements
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Unaudited Condensed Consolidated Financial Statements
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Condensed Consolidated Financial Statements
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Report of Independent Registered
Public Accounting Firm
To the Shareholders and the Board of Directors of Warby Parker Inc., and subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Warby Parker Inc., and subsidiaries (the “Company”) as of December 31, 2019 and 2020, the related consolidated statements of operations and comprehensive income (loss), changes in redeemable convertible preferred stock and stockholders’ deficit, and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young, LLP
We have served as the Company’s auditor since 2014.
New York, New York
June 21, 2021
Warby Parker Inc. And Subsidiaries
Consolidated Balance Sheets
(Amounts in thousands, except share data)
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December 31, 2019
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December 31, 2020
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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55,424
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$
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314,085
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Accounts receivable, net
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1,118
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601
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Inventory
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28,437
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38,468
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Prepaid expenses and other current assets
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6,705
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6,779
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Total current assets
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91,684
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359,933
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Property and equipment, net
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83,890
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84,534
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Other assets
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282
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284
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Total assets
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$
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175,856
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$
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444,751
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LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS’ DEFICIT
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Current liabilities:
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Accounts payable
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$
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37,306
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$
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40,788
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Accrued expenses
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16,354
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34,270
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Deferred revenue
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19,249
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26,550
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Other current liabilities
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2,958
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3,722
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Total current liabilities
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75,867
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105,330
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Deferred rent
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25,837
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27,997
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Other liabilities
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756
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3,011
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Total liabilities
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102,460
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136,338
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Commitments and contingencies (see Note 9)
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Redeemable convertible preferred stock, $.0001 par value, 49,034,455 and 54,507,243 shares authorized; 42,769,248 and 54,041,904 shares issued and outstanding as of December 31, 2019 and 2020, respectively
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262,849
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506,510
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Stockholders’ deficit:
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Common stock, $.0001 par value, 139,000,000 and 150,000,000 shares authorized; 52,626,235 and 53,944,305 shares issued and outstanding as of December 31, 2019 and 2020, respectively
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5
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5
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Additional paid-in capital
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79,991
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127,179
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Accumulated deficit
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(269,471)
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(325,390)
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Accumulated other comprehensive income
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22
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109
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Total stockholders’ deficit
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(189,453)
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(198,097)
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Total liabilities, redeemable convertible preferred stock, and stockholders’ deficit
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$
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175,856
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$
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444,751
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The accompanying notes are an integral part of these consolidated financial statements.
Warby Parker Inc. and Subsidiaries
Consolidated Statements of Operations and Comprehensive Income (Loss)
(Amounts in thousands, except share and per share data)
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Year Ended December 31,
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2019
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2020
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Net revenue
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$
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370,463
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$
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393,719
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Cost of goods sold
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147,355
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161,784
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Gross profit
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223,108
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231,935
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Selling, general, and administrative expenses
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224,771
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287,567
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Loss from operations
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(1,663)
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(55,632)
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Interest and other income (loss), net
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1,939
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(97)
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Income (loss) before income taxes
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276
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(55,729)
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Provision for income taxes
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276
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190
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Net income (loss)
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$
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—
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$
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(55,919)
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Deemed dividend upon redemption of redeemable convertible preferred stock
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$
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(57,537)
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$
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—
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Net loss attributable to common stockholders
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$
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(57,537)
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$
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(55,919)
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Net loss per share attributable to common stockholders, basic and diluted
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$
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(1.10)
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$
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(1.05)
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Weighted average shares used in computing net loss per share attributable to common stockholders, basic and diluted
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52,424,978
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53,033,936
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Other comprehensive income
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Foreign currency translation adjustment
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$
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104
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$
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87
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Total comprehensive income (loss)
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$
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104
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$
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(55,832)
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The accompanying notes are an integral part of these consolidated financial statements.
Warby Parker Inc. and Subsidiaries
Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders’ Deficit
(Amounts in thousands)
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Redeemable Convertible Preferred Stock
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Common Stock
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Additional
Paid-In
Capital
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Accumulated
Other
Comprehensive
Income (Loss)
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Accumulated
Deficit
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Total Stockholders’ Deficit
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Shares
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Amount
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Shares
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Amount
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Balance as of December 31, 2018
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47,633
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|
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$
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281,750
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|
|
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52,333
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|
|
$
|
5
|
|
|
$
|
71,986
|
|
|
$
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(82)
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|
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$
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(205,504)
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$
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(133,595)
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|
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Stock option exercises
|
—
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|
|
—
|
|
|
|
321
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|
|
—
|
|
|
297
|
|
|
—
|
|
|
—
|
|
|
297
|
|
|
Cancellation of options for consideration
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
(1,375)
|
|
|
—
|
|
|
(3,400)
|
|
|
(4,775)
|
|
|
Stock repurchases and retirement
|
(4,864)
|
|
|
(18,901)
|
|
|
|
(229)
|
|
|
—
|
|
|
(6)
|
|
|
—
|
|
|
(60,567)
|
|
|
(60,573)
|
|
|
Repayment of related party loans
|
—
|
|
|
—
|
|
|
|
202
|
|
|
—
|
|
|
590
|
|
|
—
|
|
|
—
|
|
|
590
|
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
8,499
|
|
|
—
|
|
|
—
|
|
|
8,499
|
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
104
|
|
|
—
|
|
|
104
|
|
|
Net income
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Balance as of December 31, 2019
|
42,769
|
|
|
$
|
262,849
|
|
|
|
52,627
|
|
|
$
|
5
|
|
|
$
|
79,991
|
|
|
$
|
22
|
|
|
$
|
(269,471)
|
|
|
$
|
(189,453)
|
|
|
Stock option exercises
|
—
|
|
|
—
|
|
|
|
975
|
|
|
—
|
|
|
1,330
|
|
|
—
|
|
|
—
|
|
|
1,330
|
|
|
Issuance of Series F redeemable convertible preferred stock, net of issuance costs of $300
|
6,413
|
|
|
124,717
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Issuance of Series G redeemable convertible preferred stock, net of issuance costs of $300
|
4,860
|
|
|
118,944
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Repayment of related party loans
|
—
|
|
|
—
|
|
|
|
342
|
|
|
—
|
|
|
945
|
|
|
—
|
|
|
—
|
|
|
945
|
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
44,913
|
|
|
—
|
|
|
—
|
|
|
44,913
|
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
87
|
|
|
—
|
|
|
87
|
|
|
Net loss
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(55,919)
|
|
|
(55,919)
|
|
|
Balance as of December 31, 2020
|
54,042
|
|
|
$
|
506,510
|
|
|
|
53,944
|
|
|
$
|
5
|
|
|
$
|
127,179
|
|
|
$
|
109
|
|
|
$
|
(325,390)
|
|
|
$
|
(198,097)
|
|
The accompanying notes are an integral part of these consolidated financial statements.
Warby Parker Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2019
|
|
2020
|
|
Cash flows from operating activities
|
|
|
|
|
Net income (loss)
|
$
|
—
|
|
|
$
|
(55,919)
|
|
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
|
|
|
|
|
Depreciation and amortization
|
14,516
|
|
|
18,377
|
|
|
Stock-based compensation
|
8,499
|
|
|
44,913
|
|
|
Change in operating assets and liabilities:
|
|
|
|
|
Accounts receivable, net
|
(644)
|
|
|
517
|
|
|
Inventory
|
(12,610)
|
|
|
(10,020)
|
|
|
Prepaid expenses and other assets
|
(940)
|
|
|
(67)
|
|
|
Accounts payable
|
5,525
|
|
|
5,898
|
|
|
Accrued expenses
|
1,364
|
|
|
16,604
|
|
|
Deferred revenue
|
2,099
|
|
|
7,288
|
|
|
Other current liabilities
|
47
|
|
|
763
|
|
|
Deferred rent
|
3,570
|
|
|
2,149
|
|
|
Other liabilities
|
(32)
|
|
|
2,255
|
|
|
Net cash provided by operating activities
|
21,394
|
|
|
32,758
|
|
|
Cash flows from investing activities
|
|
|
|
|
Purchases of property and equipment
|
(32,632)
|
|
|
(20,070)
|
|
|
Net cash used in investing activities
|
(32,632)
|
|
|
(20,070)
|
|
|
Cash flows from financing activities
|
|
|
|
|
Proceeds from stock option exercise
|
297
|
|
|
1,330
|
|
|
Cancellation of options for consideration
|
(4,775)
|
|
|
—
|
|
|
Proceeds from repayment of related party loans
|
590
|
|
|
945
|
|
|
Repurchase of stock
|
(79,474)
|
|
|
—
|
|
|
Issuance of Series F redeemable convertible preferred stock, net of issuance costs
|
—
|
|
|
124,717
|
|
|
Issuance of Series G redeemable convertible preferred stock, net of issuance costs
|
—
|
|
|
118,944
|
|
|
Borrowings from Credit Facility
|
—
|
|
|
30,900
|
|
|
Repayment of Credit Facility
|
—
|
|
|
(30,900)
|
|
|
Net cash (used in) provided by financing activities
|
(83,362)
|
|
|
245,936
|
|
|
Effect of exchange rates on cash
|
237
|
|
|
37
|
|
|
Net (decrease) increase in cash and cash equivalents
|
(94,363)
|
|
|
258,661
|
|
|
Cash and cash equivalents
|
|
|
|
|
Beginning of year
|
149,787
|
|
|
55,424
|
|
|
End of year
|
$
|
55,424
|
|
|
$
|
314,085
|
|
|
Supplemental disclosures
|
|
|
|
|
Cash paid for income taxes
|
$
|
369
|
|
|
$
|
230
|
|
|
Cash paid for interest
|
88
|
|
|
466
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
Purchases of property and equipment included in accounts payable and accrued expenses
|
4,231
|
|
|
3,150
|
|
|
Related party loans issued in connection with stock option exercises
|
$
|
16,175
|
|
|
$
|
—
|
|
The accompanying notes are an integral part of these consolidated financial statements.
Warby Parker Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts in thousands, except share data)
1. Description of Business
Warby Parker Inc., a public benefit corporation founded in 2010 and its wholly owned subsidiaries, (the “Company”) is a founder-led, mission-driven lifestyle brand that sits at the intersection of technology, design, healthcare, and social enterprise. The Company offers holistic vision care by selling eyewear products and providing optical services directly to consumers through its retail stores and e-commerce platform. For every pair of glasses or sunglasses sold, the Company helps distribute a pair of glasses to someone in need through its Buy a Pair, Give a Pair program. The Company is headquartered in New York, New York.
2. Summary of Significant Accounting Policies
Basis of Presentation
The Company’s consolidated financial statements have been prepared and are presented in accordance with United States generally accepted accounting principles (“U.S. GAAP”).
Principles of Consolidation
The consolidated financial statements include the financial statements of Warby Parker Inc., and its wholly owned subsidiaries. The Company has consolidated certain entities meeting the definition of a variable interest entity (“VIE”) as the Company concluded that it is the primary beneficiary of the entities. The inclusion of these entities does not have a material impact on its consolidated financial statements. Intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The Company prepares its consolidated financial statements in conformity with U.S. GAAP. These principles require management to make certain estimates and assumptions during the preparation of its consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Management’s estimates are based on historical experience and on various other market-specific and relevant assumptions that management believes to be reasonable under the circumstances. Significant estimates underlying the accompanying consolidated financial statements include, but are not limited to (i) the valuation of inventory, including the determination of the net realizable value, (ii) reserves for sales returns, (iii) the useful lives and recoverability of long-lived assets, (iv) shipment times included in the calculation of deferred revenue, (v) the determination of deferred income taxes, including related valuation allowances, (vi) allowances for doubtful accounts, and (vii) assumptions related to the valuation of common stock and determination of stock-based compensation.
Emerging Growth Company Status
The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act, until such time as those standards apply to private companies.
The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies. As a result, the Company’s consolidated financial statements may not be comparable to financial statements of issuers who are required to comply with the effective dates for new or revised accounting standards based on public company effective dates.
Segment Information
Operating segments are defined as components of an enterprise for which separate financial information is evaluated regularly by the chief operating decision maker (“CODM”), who makes decisions about allocating resources and assessing performance. The Company defines its CODM as its co-Chief Executive Officers. The Company has identified one operating segment. When evaluating the Company’s performance and allocating resources, the CODM relies on financial information prepared on a consolidated basis.
Concentration of Credit Risk and Major Suppliers
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents. The Company maintains its cash and cash equivalents in various
Warby Parker Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts in thousands, except share data)
accounts, which, at times, may exceed the limits insured by the Federal Deposit Insurance Corporation of $250 per institution and the Canada Deposit Insurance Corporation of $100 Canadian dollars. At December 31, 2019 and 2020, uninsured cash balances were approximately $54.1 million and $312.8 million, respectively. The Company has not experienced any concentration losses related to its cash and cash equivalents to date. The Company seeks to minimize its credit risk by maintaining its cash and cash equivalents with high-quality financial institutions and monitoring the credit standing of such institutions.
The Company’s top five inventory suppliers accounted for approximately 23% of cost of goods sold for both the years ended December 31, 2019 and 2020.
Interest Rate and Foreign Currency Risk
The Company’s cash and cash equivalents as of December 31, 2020 consisted of cash and money-market funds. Such interest-earning instruments carry a degree of interest rate risk. The goals of the Company’s investment policy are liquidity and capital preservation. The Company does not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage its interest rate exposure.
The Company is exposed to changes in foreign currency rates as a result of its foreign operations and international suppliers from whom it purchases in Japanese Yen and Euros. Revenue and income generated by the Company’s operations in Canada and its cost of goods sold will increase or decrease compared to prior periods as a result of changes in foreign currency exchange rates.
Cash and Cash Equivalents
The Company considers all highly liquid short-term investments with an original maturity of three months or less to be a cash equivalent. Cash and cash equivalents include both deposits with banks and financial institutions and receivables from credit card issuers, which are typically converted into cash within two to four days of capture. As such, these receivables are recorded as a deposit in transit as a component of cash and cash equivalents on the consolidated balance sheets. At December 31, 2019 and 2020, the balance of cash and cash equivalents for these items was $8.5 million and $7.1 million, respectively.
Accounts Receivable, Net
The Company primarily sells directly to U.S. and Canadian consumers where payment is processed upon order approval or product shipment. In some instances, customers can utilize vision insurance benefits to cover the cost of their purchase. For these orders, the Company submits claims directly to the vision insurance carrier and receives reimbursement directly from the carrier. Accounts receivable primarily represents amounts due from insurance carriers. Receivables from customers and insurance carriers are typically collected within 30 days of the transaction and have been reflected in the balance of accounts receivable, net on the consolidated balance sheets at December 31, 2019 and 2020. The accounts receivable are net of an allowance for doubtful accounts, which is established based on management’s best estimate of probable credit losses. The Company’s allowance for doubtful accounts was $0.2 million and $0.5 million at December 31, 2019 and 2020, respectively.
Inventory
Inventory consists of approximately $6.9 million and $8.9 million of finished goods, including ready-to-wear sun frames, contact lenses, and eyeglass cases, as of December 31, 2019 and 2020, respectively, and approximately $21.5 million and $29.6 million of component parts, including optical frames and prescription optical lenses, as of December 31, 2019 and 2020, respectively. Inventory is stated at the lower of cost or estimated realizable value, with cost determined on a weighted average cost basis.
The Company continuously evaluates the composition of its inventory and makes adjustments when the cost of inventory is not expected to be fully recoverable. The estimated net realizable value of inventory is determined based on an analysis of historical sales trends, the impact of market trends and economic conditions, and a forecast of future demand. Adjustments for damaged inventory are recorded primarily based on actual damaged inventory. Adjustments for inventory shrink, representing the physical loss of inventory, are estimated based on historical experience, and are adjusted based upon physical inventory counts. However, unforeseen adverse future economic and market conditions, such as those resulting from disease pandemics and other catastrophic events, could result in actual results differing materially from estimates.
Warby Parker Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts in thousands, except share data)
Property and Equipment, Net
Property and equipment, net is stated at cost less accumulated depreciation. Repairs and maintenance and any gains or losses on dispositions are recognized as incurred. When assets are sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and a gain or loss on disposition is reflected in current operations. Depreciation is recorded on a straight-line basis over the following estimated useful lives:
|
|
|
|
|
|
|
|
|
|
|
Asset Category
|
|
Depreciation Period
|
|
Computer equipment and capitalized software
|
|
3 years
|
|
Leasehold improvements
|
|
2-10 years (lesser of lease term and useful life of the asset)
|
|
Furniture and fixtures
|
|
7 years
|
|
Internal-use software
|
|
1 - 3 years
|
|
Equipment
|
|
5-7 years
|
Internal-Use Software
The Company capitalizes as property and equipment certain qualified costs incurred in connection with the development of internal-use software. Capitalization of internal-use software begins when the preliminary project stage is completed, management with relevant authority authorizes and commits to funding the software project, and it is probable that the project will be completed and software will be used to perform the function intended. Capitalized internal-use software is amortized on a straight-line basis over the estimated useful life of the software, not to exceed three years. Capitalized software costs, net of accumulated amortization, totaled $3.7 million and $3.6 million as of December 31, 2019 and 2020, respectively.
Impairment of Long-Lived Assets
Long-lived assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recoverability of assets or asset groups to be held and used is evaluated by a comparison of the carrying amount of an asset or asset group to estimated undiscounted future cash flows expected to be generated by the asset or asset group. If the carrying amount of an asset or asset group exceeds its estimated undiscounted future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset or asset group exceeds the fair value of the asset or asset group.
Leases and Deferred Rent
The Company categorizes leases at their inception as either operating or capital leases. At December 31, 2019 and 2020, the Company had only entered into operating leases.
The Company leases retail, office, and laboratory space under operating leases from third parties. The leases generally contain renewal options and escalation clauses, and from time to time include contingent rent provisions and tenant improvement allowances. Tenant improvement allowances are capitalized within deferred rent and amortized as a reduction of rent expense over the term of the lease. The Company records retail and laboratory rent expense as a component of cost of goods sold and all other rent expense as a component of selling, general, and administrative expenses.
The recognition of rent expense for an operating lease commences on the date at which control and possession of the property is obtained. Rent expense is calculated by recognizing total minimum rental payments, net of any rental abatement, tenant improvement allowances, and other rental concessions, on a straight-line basis over the lease term. The difference between straight-line rent expense and rent paid is recorded as deferred rent, which is classified within short-term and long-term liabilities on the consolidated balance sheets. The short-term portion of deferred rent of $1.8 million and $1.9 million as of December 31, 2019 and 2020, respectively, is included in other current liabilities on the consolidated balance sheets. Contingent rent based on sales volume is recorded as incurred or when the specific target has been achieved.
Warby Parker Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts in thousands, except share data)
Income Taxes
The Company utilizes the asset and liability method of accounting for income taxes. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, as well as operating loss, capital loss, and tax credit carryforwards. Valuation allowances are established against deferred tax assets if it is more likely than not that they will not be realized.
The Company assess its income tax positions and records tax benefits for all years subject to examination based upon its evaluation of the facts, circumstances, and information available at the reporting date. For those tax positions where it is more likely than not that a tax benefit will be sustained, the Company records the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where it is not more likely than not that a tax benefit will be sustained, no tax benefit has been recognized in the financial statements. The Company’s policy is to recognize interest and penalties expense, if any, related to unrecognized tax benefits as a component of income tax expense.
The Company has elected to treat taxes due on future U.S. inclusions in taxable income related to Global Intangible Low Taxed Income (“GILTI”) as a current period expense when incurred using the period cost method.
Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability, or the exit price, in an orderly transaction between market participants at the measurement date. Inputs used to measure fair value are classified in the following hierarchy:
•Level 1: Quoted prices in active markets for identical instruments.
•Level 2: Quoted prices in active markets for similar instruments or quoted prices for identical or similar instruments in markets that are not active or inputs other than quoted prices that are observable for the instrument.
•Level 3: Unobservable inputs for the instrument.
The Company endeavors to utilize the best available information in measuring fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
The Company’s material financial instruments consists primarily of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses, which are measured at fair value using Level 1 inputs. The fair values of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are approximately equal to their carrying values based on the short-term nature of these items.
Commitments and Contingencies
Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties, and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.
Foreign Currency
The Company’s foreign operations in Canada have a functional currency of Canadian dollars. Assets and liabilities are translated into U.S. dollars using the current exchange rates in effect at the balance sheet date, while revenues and expenses are translated at the average exchange rates during the period. The resulting translation adjustments are recorded as a component of accumulated other comprehensive income on the consolidated balance sheets. Foreign currency impact on the consolidated statements of cash flows is translated to U.S. dollars using average exchange rates for the period, which approximates the timing of cash flows. Monetary assets and liabilities denominated in currencies other than the functional currency are remeasured at period end using the period-end exchange rate. Gains and losses resulting from remeasurement are recorded in interest and other income (loss), net on the consolidated statements of operations and comprehensive income (loss).
Warby Parker Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts in thousands, except share data)
Risks and Uncertainties
The Company’s business is subject to certain risks and concentrations including dependence on third-party technology providers and hosting services, exposure to risks associated with online commerce security, consumer credit risk and credit card fraud, as well as the interpretation of state and local laws and regulations in regards to the collection and remittance of sales and use taxes and occupancy taxes. In addition, the Company depends on third-party providers for processing the majority of its fulfillment services.
In December 2019, a novel strain of coronavirus (“COVID-19”) was identified in Wuhan, China, and has subsequently spread to other regions of the world. On March 11, 2020, the World Health Organization officially declared the outbreak of the COVID-19 virus a “pandemic.” This contagious disease outbreak has continued to spread across the globe and is impacting worldwide economic activity and financial markets. In light of the uncertain and rapidly evolving situation relating to the spread of COVID-19, the Company took precautionary measures intended to minimize the risk of the virus to its employees, its customers, and the communities in which the Company operates, including, without limitation, the temporary closure of all of the Company’s retail stores and subsequent reopening with limited capacity and mandated work from home for all office personnel, in each case, for an indefinite period of time. Although the Company continues to monitor the situation and may adjust its current policies as more information and public health guidance become available, precautionary measures that have been adopted have and will negatively affect the Company’s ability to sell its products and fulfill customer orders and the operations of its suppliers and fulfillment partners. More generally, the outbreak of COVID-19 could adversely affect economies and financial markets globally, potentially leading to an economic downturn, which could decrease consumer spending and adversely affect demand for the Company’s products and services. It is not possible at this time to estimate the impact that COVID-19 could have on the Company’s business, as the impact will depend on future developments, which are highly uncertain and cannot be predicted.
Revenue Recognition
The Company primarily derives revenue from the sales of eyewear products, optical services and accessories. The Company sells products and services through its stores, website, and mobile apps. Revenue generated from eyewear products includes the sales of prescription and non-prescription optical glasses and sunglasses, contact lenses, eyewear accessories, and expedited shipping charges, which are charged to the customer, associated with these purchases. All revenue is reported net of sales taxes collected from customers on behalf of taxing authorities and variable consideration, including returns and discounts.
Revenue is recognized when performance obligations are satisfied through either the transfer of control of promised goods or the rendering of services to the Company's customers. Control transfers once a customer has the ability to direct the use of, and obtain substantially all of the benefits from, the product, generally determined to be the point of delivery or upon rendering of the service in the case of eye exams. This includes the transfer of legal title, physical possession, the risks and rewards of ownership, and customer acceptance. In the normal course of business, payment may be collected from the customer prior to recognizing revenue and such cash receipts are included in deferred revenue until the order is delivered to the customer.
The Company’s sales policy allows customers to return merchandise for any reason within 30 days of receipt, generally for an exchange or refund. An allowance is recorded within other current liabilities on the consolidated balance sheets for expected future customer returns which the Company estimates using historical return patterns and its expectation of future returns. Any difference between the actual return costs and previous estimates is adjusted in the period in which such returns occur. Historical return estimates have not materially differed from actual returns in any of the periods presented. The allowance for returns was $1.1 million and $1.9 million at December 31, 2019 and 2020, respectively, and is included in other current liabilities on the consolidated balance sheets.
The Company offers non-expiring gift cards to its customers. Proceeds from the sale of gift cards are initially deferred and recognized within deferred revenue on the consolidated balance sheets, and are recognized as revenue when the product is received by the customer after the gift card has been tendered for payment. Based on historical experience, and to the extent there is no requirement to remit unclaimed card balances to government agencies under unclaimed property laws, an estimate of the gift card balances that will never be redeemed is recognized as revenue in proportion to gift cards which have been redeemed. While the Company will continue to honor all gift cards presented for payment, management may determine the likelihood of
Warby Parker Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts in thousands, except share data)
redemption to be remote for certain card balances due to, among other things, long periods of inactivity. Gift card breakage revenue was $0.3 million and $0.4 million for the years ended December 31, 2019 and 2020, respectively.
The following table disaggregates the Company’s revenue by product for the years ended December 31, 2019 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2019
|
|
2020
|
|
Eyewear Products
|
$
|
358,917
|
|
|
$
|
381,855
|
|
|
Services and Other
|
11,546
|
|
|
11,864
|
|
|
Total Revenue
|
$
|
370,463
|
|
|
$
|
393,719
|
|
The following table disaggregates the Company’s revenue by channel for the years ended December 31, 2019 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2019
|
|
2020
|
|
E-commerce
|
$
|
129,812
|
|
|
$
|
237,377
|
|
|
Retail
|
240,651
|
|
|
156,342
|
|
|
Total Revenue
|
$
|
370,463
|
|
|
$
|
393,719
|
|
Shipping and Handling Fees and Costs
The Company pays for shipping and handling costs which are generally not charged to the customer. These costs associated with shipping goods to customers are recorded as cost of goods sold. Only expedited shipments, upon customers’ requests, are charged to customers. Shipping and handling fees billed to customers related to expedited shipments are recorded as revenue. Shipping and handling fees included in revenue were $2.0 million and $2.1 million in the years ended December 31, 2019 and 2020, respectively, while shipping and handling costs included in cost of goods sold were $14.7 million in both the years ended December 31, 2019 and 2020.
Cost of Goods Sold
Cost of goods sold includes the costs incurred to acquire materials, assemble and sell finished products. Such costs include (i) product costs held at the lesser of cost and net realizable value and inclusive of inventory reserves, (ii) freight and import costs, (iii) optical laboratory costs, (iv) customer shipping, (v) occupancy and depreciation costs of retail stores, and (vi) employee-related costs associated with prescription services, which includes salaries, benefits, bonuses and stock-based compensation.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses primarily consists of employee-related costs including salaries, benefits, bonuses and stock-based compensation for corporate and retail employees, marketing, information technology, credit card processing fees, donations in connection with the Company’s Buy A Pair, Give A Pair program, facilities, legal, and other administrative costs associated with operating the business. Marketing costs, which consist of both online and offline advertising, include sponsored search, online advertising, marketing and retail events, and other initiatives. Selling, general, and administrative expenses also include costs associated with the Company’s Home Try-On program that provides customers the opportunity to sample eyewear at home prior to purchase.
Advertising costs are expensed as incurred, and were approximately $43.3 million and $58.5 million in the years ended December 31, 2019 and 2020, respectively.
Stock-Based Compensation
Stock-based compensation is included in both cost of goods sold and selling, general, and administrative expenses and follows the classification of the related employee. The Company recognizes compensation expense
Warby Parker Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts in thousands, except share data)
for stock-based awards based on the grant date fair value, on either (i) a straight-line basis for awards with only a service condition, or (ii) an accelerated attribution basis for awards with a performance condition, over the requisite service period of the awards, which is generally the vesting term of the outstanding stock awards. Compensation expense for awards with a performance condition is recognized when it is determined that it is probable that the vesting conditions will be satisfied.
The Company estimates the fair value of options on the date of grant using the Black-Scholes option-pricing model, which utilizes assumptions subject to management estimate. These assumptions include estimating the expected term, or the length of time employees will retain their vested stock options before exercising them, the estimated volatility of the Company’s common stock price over the expected term, the fair value of the Company’s stock, the risk-free interest rate, and the expected dividend yield. Changes in these assumptions can materially affect the estimate of fair value of stock-based awards. The Company accounts for forfeitures as they occur.
Stock Repurchase
The Company may repurchase shares of common stock related to stock options early exercised by employees who have unvested shares upon employment termination. These shares are repurchased at the lesser of the strike price of the original option or the current fair market valuation and these shares are added back to the authorized number of options or restricted stock units (“RSUs”) available for grant at time of repurchase. The Company may also repurchase common stock or redeemable convertible preferred stock which may be retired or constructively retired at the time of repurchase. The terms and conditions of these repurchase agreements are subject to approval by the Company’s board of directors. See Note 6, Redeemable Convertible Preferred Stock and Stockholders’ Deficit, for a discussion of stock repurchase activity.
Net Loss Per Share Attributable to Common Stockholders
Basic and diluted net loss per share attributable to common stockholders is presented in conformity with the two-class method required for participating securities. Under the two-class method, net income (loss) is attributed to common stockholders and participating securities based on their participation rights. The holders of the redeemable convertible preferred stock do not have a contractual obligation to share in the losses of the Company. As such, the Company’s net losses attributable to common stockholders for the years ended December 31, 2019 and 2020 were not allocated to these participating securities.
Payment in excess of the carrying value upon the redemption of redeemable convertible preferred stock is accounted for as a deemed dividend to the redeemable convertible preferred stockholder whereby the difference between the amount paid upon redemption and the carrying value of the redeemable convertible preferred stock is deducted from net income (loss) to arrive at net loss available to common stockholders.
Basic net loss per share is computed by dividing net loss attributable to common stockholders by the weighted-average number of shares of the Company’s common stock outstanding during a given period.
The diluted net loss attributable to common stockholders is computed by giving effect to all dilutive securities. Diluted net loss per share attributable to common stockholders is computed by dividing the resulting net loss attributable to common stockholders by the weighted-average number of fully diluted common shares outstanding. The Company uses the if-converted method for its redeemable convertible preferred stock which requires assuming that the conversion occurred as of the later of the beginning of the period or the original date of issuance. During periods when there is a net loss attributable to common stockholders, potentially dilutive common stock equivalents are excluded as their effect is anti-dilutive. The Company uses the treasury stock method for its employee equity awards to determine if any incremental shares should be included in diluted net (loss) income attributable to common stockholders. If the effect of a conversion of an instrument is neutral to earnings per share, the Company considers the security to be dilutive. The Company excludes contingently exercisable instruments and unvested employee awards when the vesting is contingent on a performance or market condition that is not met as of the evaluation date.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASC No. 2016-02, Leases (Topic 842) (“ASC 842”). ASC 842 was issued to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Under the new guidance, lessees are required to recognize a lease liability, which represents the discounted obligation to make future minimum
Warby Parker Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts in thousands, except share data)
lease payments, and a corresponding right-of-use asset on the balance sheet. The Company elected the extended transition period available to emerging growth companies and as such, the guidance is effective for fiscal periods beginning after December 15, 2021. In July 2018, the FASB issued ASU 2018-10, Leases (Topic 842): Codification Improvements (“ASU 2018-10”) and ASU 2018-11, Leases (Topic 842): Targeted Improvements (“ASU 2018-11”), to provide additional guidance for the adoption of ASC 842. ASU 2018-10 clarifies certain provisions and corrects unintended applications of the guidance. ASU 2018-11 provides an alternative transition method which allows entities the option to present all prior periods under previous lease accounting guidance while recognizing the cumulative effect of applying the new standard as an adjustment to the opening balance of retained earnings in the year of adoption. The Company is currently evaluating the effect of adoption of these standards on the Company’s consolidated financial statements and related disclosures, but expects to record a material right-of-use asset and liability on the consolidated balance sheet related to its operating leases upon adoption.
In January 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses, and additional changes, modifications, clarifications or interpretations related to this guidance thereafter, which require a reporting entity to estimate credit losses on certain types of financial instruments, and present assets held at amortized cost and available for-sale debt securities at the amount expected to be collected. The guidance is effective for non-public companies for fiscal years beginning after December 15, 2022. The Company elected the extended transition period available to emerging growth companies and is currently evaluating the effect of adoption of the standard on the Company’s consolidated financial statements and related disclosures.
3. Property and Equipment, Net
Property and equipment, net consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2019
|
|
2020
|
|
Leasehold improvements
|
$
|
86,038
|
|
|
$
|
88,923
|
|
|
Computers and equipment
|
15,723
|
|
|
15,694
|
|
|
Furniture and fixtures
|
9,028
|
|
|
12,156
|
|
|
Capitalized software
|
5,482
|
|
|
6,054
|
|
|
Construction in process
|
1,121
|
|
|
7,198
|
|
|
|
117,392
|
|
|
130,025
|
|
|
Less: accumulated depreciation and amortization
|
(33,502)
|
|
|
(45,491)
|
|
|
Property and equipment, net
|
$
|
83,890
|
|
|
$
|
84,534
|
|
Depreciation and amortization expense was approximately $14.5 million, consisting of $10.4 million in cost of goods sold and $4.1 million in selling, general, and administrative expenses, for the year ended December 31, 2019. Depreciation and amortization expense was approximately $17.8 million, consisting of $12.9 million in cost of goods sold and $4.9 million in selling, general, and administrative expenses, for the year ended December 31, 2020.
4. Accrued Expenses
Accrued expenses consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2019
|
|
2020
|
|
Charitable contribution
|
$
|
5,691
|
|
|
$
|
5,182
|
|
|
Payroll related costs
|
3,718
|
|
|
7,903
|
|
|
Marketing expenses
|
3,099
|
|
|
9,585
|
|
|
Other accrued expenses
|
3,846
|
|
|
11,600
|
|
|
Total accrued expenses
|
$
|
16,354
|
|
|
$
|
34,270
|
|
Warby Parker Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts in thousands, except share data)
5. Income Taxes
Income (loss) before income taxes consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2019
|
|
2020
|
|
United States
|
$
|
(61)
|
|
|
$
|
(56,016)
|
|
|
Foreign
|
337
|
|
|
287
|
|
|
Income (loss) before income taxes
|
$
|
276
|
|
|
$
|
(55,729)
|
|
The provision for income taxes consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2019
|
|
2020
|
|
Current
|
|
|
|
|
Federal
|
$
|
12
|
|
|
$
|
4
|
|
|
State
|
173
|
|
|
107
|
|
|
Foreign
|
89
|
|
|
117
|
|
|
Deferred
|
|
|
|
|
Federal
|
1
|
|
|
—
|
|
|
|
|
|
|
|
Foreign
|
1
|
|
|
(38)
|
|
|
Total provision for income taxes
|
$
|
276
|
|
|
$
|
190
|
|
The Company recorded a total provision for income taxes of $0.3 million and $0.2 million for the years ended December 31, 2019 and 2020, respectively.
A summary reconciliation of the effective tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2019
|
|
2020
|
|
U.S. federal statutory rate
|
21
|
%
|
|
21
|
%
|
|
Non-deductible stock compensation
|
(147)
|
|
|
(12)
|
|
|
Change in valuation allowance
|
(126)
|
|
|
(7)
|
|
|
Deferred tax and other adjustments
|
96
|
|
|
(2)
|
|
|
Non-deductible meals, transportation, and entertainment
|
192
|
|
|
—
|
|
|
State tax, net of federal benefit
|
48
|
|
|
—
|
|
|
GILTI
|
9
|
|
|
—
|
|
|
Foreign rate differential
|
7
|
|
|
—
|
|
|
Effective tax rate
|
100
|
%
|
|
—
|
%
|
Deferred income taxes, included in other assets on the consolidated balance sheets, reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The approximate tax effect of the significant components of the Company’s deferred tax assets and liabilities as of December 31, 2019 and 2020, are as follows:
Warby Parker Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2019
|
|
2020
|
|
Deferred tax assets:
|
|
|
|
|
Inventory reserves
|
$
|
4,558
|
|
|
$
|
5,051
|
|
|
Deferred rent
|
7,368
|
|
|
8,676
|
|
|
Charitable contribution carryforward
|
3,510
|
|
|
4,304
|
|
|
Stock compensation
|
3,709
|
|
|
4,068
|
|
|
Net operating loss carryforward
|
25,044
|
|
|
27,072
|
|
|
Other
|
3,665
|
|
|
5,439
|
|
|
Total deferred tax assets
|
47,854
|
|
|
54,610
|
|
|
|
|
|
|
|
Valuation allowance
|
(40,765)
|
|
|
(44,303)
|
|
|
Net deferred tax assets
|
7,089
|
|
|
10,307
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
Property and equipment
|
(2,863)
|
|
|
(5,478)
|
|
|
Lease incentives
|
(4,167)
|
|
|
(4,727)
|
|
|
Total deferred tax liabilities
|
(7,030)
|
|
|
(10,205)
|
|
|
Deferred tax, net
|
$
|
59
|
|
|
$
|
102
|
|
As of December 31, 2020, the Company had a net operating loss carryforward (“NOL”) of $182.5 million which represents the impact of current and historic operating losses available to reduce future income taxes. The NOL for federal income tax purposes of $105.8 million and state income tax purposes of $76.7 million will begin to expire at various points beginning in 2031, however, $14.5 million of the federal NOL is available for indefinite use.
As of December 31, 2019 and 2020, the Company recorded a valuation allowance of $40.8 million and $44.3 million, respectively, against its domestic net deferred tax assets because it cannot be reasonably assured that deductible temporary differences and NOLs can be realized through future taxable income due to the Company’s history of losses. Additionally, the Company has completed its assessment of any “ownership change” under Section 382 of the Internal Revenue Code of 1986, as amended, to determine if any limitations exist on its ability to utilize its NOLs to offset future taxable income. There were no NOLs subject to a limitation under Section 382 as of December 31, 2019 and 2020. The Company will continue to assess the realizability of the deferred tax assets in each of the applicable jurisdictions going forward and assess the valuation allowance accordingly.
As of December 31, 2019 and 2020, there were no uncertain tax positions. As of December 31, 2019 and 2020, the Company was subject to federal, state, and provincial income taxes in the United States and Canada. The Company’s open tax years as a corporate taxpayer extend back to 2012. It is the Company’s policy to record interest and penalties as a component of income tax expense. No interest or penalties were recognized in the consolidated financial statements for the years ended December 31, 2019 or 2020.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted. The CARES Act provides relief to U.S. Corporations through financial assistance programs and modifications to certain income tax provisions. In connection with the CARES Act, the Company deferred $4.4 million of employer social security payroll taxes to be repaid equally in 2021 and 2022, claimed $3.3 million in employee retention tax credits, which is recorded as a reduction of selling, general, and administrative expenses on its consolidated statement of operations and comprehensive loss, and an increase in the Company’s deferred tax asset for NOLs of $3.2 million due to the technical correction for tax depreciation for qualified improvement property.
Warby Parker Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts in thousands, except share data)
6. Redeemable Convertible Preferred Stock and Stockholders’ Deficit
Common Stock
As of December 31, 2019, the Company’s Eighth Amended and Restated Certificate of Incorporation authorized the issuance of up to 139,000,000 shares of common stock, par value of $0.0001 per share, of which 124,000,000 shares were designated Series A common stock, and 15,000,000 shares were designated Series B common stock. Both Series A and Series B common stock are not redeemable at the option of the holder.
As of December 31, 2020, the Company’s Tenth Amended and Restated Certificate of Incorporation authorizes the issuance of up to 150,000,000 shares of common stock, par value of $0.0001 per share, of which 135,000,000 shares are designated Series A common stock, and 15,000,000 shares are designated Series B common stock. Both Series A and Series B common stock are not redeemable at the option of the holder.
Voting Rights
The holders of Series A common stock are entitled to one vote for each share of Series A common stock held at all meetings of stockholders. The holders of Series B common stock are not entitled to vote at stockholder meetings except as required by Delaware law. The number of authorized shares of Series A or Series B common stock may be increased or decreased (but not below the number of shares then outstanding) by the affirmative vote of the holders of a majority of the stock of the Company entitled to vote.
Conversion
Each share of Series B common stock shall be automatically converted into one share of Series A common stock following any of the following events: a liquidation, dissolution, or winding-up of the Company; a merger or consolidation that would result in outstanding voting securities to represent less than 50% of the combined voting power of the surviving or parent entity; transfer of such share to a holder of Series A common stock or redeemable convertible preferred stock; or a qualified pubic offering. The Company shall reserve and keep available a balance of unissued shares of Series A common stock sufficient to convert all shares of Series B common stock and take necessary corporate actions to ensure availability of such Series A common stock for conversions. Any converted shares of Series B common stock shall be canceled and shall not be re-issuable by the Company.
Dividends
The holders of Series A and B common stock shall be entitled to receive dividends in any fiscal year, when, as, and if declared by the board of directors, out of any assets at the time legally available therefore, with the holders of common stock and redeemable convertible preferred stock (assuming full conversion of all such redeemable convertible preferred stock to common stock as described below) sharing on a pari passu basis in such dividends. Through December 31, 2020, no dividends have been declared.
Liquidation
Upon the dissolution or liquidation of the Company, whether voluntary or involuntary, holders of common stock will be entitled to receive assets of the Company available for distribution to its stockholders ratably in proportion to the number of shares held by them, subject to the preferential rights of any then outstanding redeemable convertible preferred stock described below.
Warby Parker Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts in thousands, except share data)
As of December 31, 2020, outstanding shares of common stock as well as shares of common stock attributable to stock options are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A
|
|
Series B
|
|
Common stock outstanding
|
52,895,029
|
|
|
1,049,276
|
|
|
Employee stock options – outstanding
|
5,298,660
|
|
|
2,496,380
|
|
|
Restricted stock units – outstanding
|
260,878
|
|
|
1,232,244
|
|
|
Employee stock plans – available
|
734,682
|
|
|
972,450
|
|
|
Shares of Series A common stock issuable upon conversion of all redeemable convertible preferred stock, exercise of all warrants for redeemable convertible preferred stock, outstanding Series B common stock, options, and RSUs
|
59,813,999
|
|
|
—
|
|
|
Total common stock – outstanding or issuable on exercise of options
|
119,003,248
|
|
|
5,750,350
|
|
|
Authorized
|
135,000,000
|
|
|
15,000,000
|
|
|
Common stock available for future issuance
|
15,996,752
|
|
|
9,249,650
|
|
Redeemable Convertible Preferred Stock
In 2013, the Company issued a total of 21,745 warrants to purchase Series B redeemable convertible preferred stock at approximately $3.45 per share with a par value of $0.0001 per share. The warrants have a 10 year term and expire in 2023. The Company uses Level 3 inputs to determine the fair value of the warrants. At both December 31, 2019 and 2020, the value of the redeemable convertible preferred stock warrants was $0.2 million.
In April of 2020, the Company issued a total of 6,412,524 shares of Series F redeemable convertible preferred stock at approximately $19.49 per share for total gross proceeds of $125.0 million. Total issue costs of $0.3 million were recorded as a reduction of Series F redeemable convertible preferred stock proceeds received.
In August of 2020, the Company issued a total of 4,860,132 shares of Series G redeemable convertible preferred stock at approximately $24.53 per share for total gross proceeds of $119.2 million. Total issue costs of $0.3 million were recorded as a reduction of Series G redeemable convertible preferred stock proceeds received.
All classes of redeemable convertible preferred stock are optionally convertible by the holder into shares of Series A common stock at the then applicable conversion price. See below for further discussion of conversion. In the event of liquidation of the Company (including certain events outside of the Company’s control such as a change in control), the holders of redeemable convertible preferred stock are entitled to a liquidation preference equal to the respective original issue price plus declared and unpaid dividends ahead of the classes of common stock described above. The aggregate preferential amount for all classes of redeemable convertible preferred stock was $294.0 million and $510.5 million as of December 31, 2019 and 2020, respectively.
Warby Parker Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts in thousands, except share data)
Outstanding shares and proceeds from issuances of redeemable convertible preferred stock under the Company’s Eighth Amended and Restated Certificate of Incorporation as of December 31, 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares authorized to issue
|
|
Original issuance price
|
|
|
Shares issued
|
|
Shares authorized not issued
|
|
Net carrying value
|
|
Liquidation preference
|
|
Series AA
|
5,246,061
|
|
|
$
|
0.62
|
|
*
|
|
5,070,694
|
|
|
175,367
|
|
|
$
|
2,356
|
|
|
$
|
3,253
|
|
|
Series A
|
6,839,714
|
|
|
1.84
|
|
|
|
4,203,284
|
|
|
2,636,430
|
|
|
7,715
|
|
|
12,585
|
|
|
Series B
|
12,062,567
|
|
|
3.45
|
|
**
|
|
11,597,228
|
|
|
465,339
|
|
|
39,825
|
|
|
41,616
|
|
|
Series B-1
|
434,896
|
|
|
3.45
|
|
**
|
|
434,896
|
|
|
—
|
|
|
1,465
|
|
|
1,500
|
|
|
Series C
|
10,972,532
|
|
|
5.47
|
|
**
|
|
9,058,794
|
|
|
1,913,738
|
|
|
49,402
|
|
|
60,020
|
|
|
Series D
|
8,706,783
|
|
|
11.49
|
|
**
|
|
7,632,450
|
|
|
1,074,333
|
|
|
87,414
|
|
|
100,041
|
|
|
Series E
|
4,771,902
|
|
|
15.72
|
|
**
|
|
4,771,902
|
|
|
—
|
|
|
74,672
|
|
|
75,014
|
|
|
Total
|
49,034,455
|
|
|
|
|
|
42,769,248
|
|
|
6,265,207
|
|
|
$
|
262,849
|
|
|
$
|
294,029
|
|
_________________
*2,203,476 shares were converted at a discounted price per share of approximately $0.27, while the remaining shares were purchased at a price per share of approximately $0.62.
** Series B, Series B-1, Series C, Series D, and Series E original issue price per share was approximately $3.45, $3.45, $5.47, $11.49, and $15.72 respectively; the per share value was reduced due to issuance costs to $3.30, $3.37, $5.46, $11.46, and $15.65, respectively.
Outstanding shares and proceeds from issuances of redeemable convertible preferred stock under the Company’s Tenth Amended and Restated Certificate of Incorporation as of December 31, 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares authorized to issue
|
|
Original issuance price
|
|
Shares issued
|
|
Shares authorized not issued
|
|
Net carrying value
|
|
Liquidation preference
|
|
Series AA
|
5,070,694
|
|
|
$
|
0.62
|
|
*
|
5,070,694
|
|
|
—
|
|
|
$
|
2,356
|
|
|
$
|
3,144
|
|
|
Series A
|
4,203,284
|
|
|
1.84
|
|
|
4,203,284
|
|
|
—
|
|
|
7,715
|
|
|
7,734
|
|
|
Series B
|
12,062,567
|
|
|
3.45
|
|
**
|
11,597,228
|
|
|
465,339
|
|
|
39,825
|
|
|
41,616
|
|
|
Series B-1
|
434,896
|
|
|
3.45
|
|
**
|
434,896
|
|
|
—
|
|
|
1,465
|
|
|
1,500
|
|
|
Series C
|
9,058,794
|
|
|
5.47
|
|
**
|
9,058,794
|
|
|
—
|
|
|
49,402
|
|
|
49,552
|
|
|
Series D
|
7,632,450
|
|
|
11.49
|
|
**
|
7,632,450
|
|
|
—
|
|
|
87,414
|
|
|
87,697
|
|
|
Series E
|
4,771,902
|
|
|
15.72
|
|
**
|
4,771,902
|
|
|
—
|
|
|
74,672
|
|
|
75,014
|
|
|
Series F
|
6,412,524
|
|
|
19.49
|
|
**
|
6,412,524
|
|
|
—
|
|
|
124,717
|
|
|
124,980
|
|
|
Series G
|
4,860,132
|
|
|
24.53
|
|
**
|
4,860,132
|
|
|
—
|
|
|
118,944
|
|
|
119,219
|
|
|
Total
|
54,507,243
|
|
|
|
|
54,041,904
|
|
|
465,339
|
|
|
$
|
506,510
|
|
|
$
|
510,456
|
|
__________________
*2,203,476 shares were converted at a discounted price per share of approximately $0.27, while the remaining shares were purchased at a price per share of approximately $0.62.
** Series B, Series B-1, Series C, Series D, Series E, Series F, and Series G original issue price per share was approximately $3.45, $3.45, $5.47, $11.49, $15.72, $19.49, and $24.53 respectively; the per share value was reduced due to issuance costs to $3.30, $3.37, $5.46, $11.46, $15.65, $19.45 and $24.47, respectively.
During 2020, the Tenth Amended and Restated Certificate of Incorporation reduced the amount of shares authorized for Series AA, Series A, Series C, and Series D redeemable convertible preferred stock by an aggregate of 5.8 million shares.
Voting Rights
The holder of each share of redeemable convertible preferred stock has the right to one vote for each share of Series A common stock into which such redeemable convertible preferred stock could be converted.
Conversion
Each share of redeemable convertible preferred stock shall be convertible, at the option of the holder, at any time after the date of issuance of such share, into such number of fully paid and non-assessable shares of Series A
Warby Parker Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts in thousands, except share data)
common stock as determined by dividing the applicable original issue price for such series by the applicable conversion price. Upon a qualified public offering, all preferred shares will automatically be converted to shares of Series A common stock. At December 31, 2020 the applicable conversion price for each series of redeemable convertible preferred stock was equal to its original issue price resulting in a one-for-one conversion ratio.
Dividends
No dividend may be declared or paid on the common stock, other than dividends payable in shares of common stock, unless any and all such dividends are distributed among all holders of common stock and redeemable convertible preferred stock in proportion to the number of shares of common stock that would be held by each holder if all shares of redeemable convertible preferred stock were converted to common stock, as described below, at the then effective applicable conversion price, as defined in the Tenth Amendment and Restated Certificate of Incorporation.
Liquidation
In the event of liquidation event, including the dissolution or winding up of the business, holders of each series of redeemable convertible preferred stock are entitled to receive, prior and in preference to any distribution to the holders of common stock, an amount per share equal to the sum of the applicable original issue price, plus declared but unpaid dividends on such share (or the if-converted value, if greater) which is currently equal to the respective carrying values. If upon liquidation, the proceeds distributed are insufficient to permit the full payment of such amounts, the proceeds legally available should be paid to each holder in proportion to the full preferential payment that would have been paid if there were sufficient proceeds. All remaining proceeds available after payments are made to redeemable convertible preferred stockholders are to be distributed among holders of common stock pro rata based on the number of shares of common stock held by each holder. A liquidation event also includes deemed liquidation events, which may include certain transactions that result in a change in the control of the outstanding voting shares. As this represents a potential requirement to transfer assets upon an event outside of the Company’s control, the redeemable convertible preferred stock is presented within mezzanine equity. Upon issuance, there was no difference between the carrying values of the redeemable convertible preferred stock and the in-substance redemption price. The redeemable convertible preferred stock is not considered currently redeemable as the events that could cause a transfer of assets are not considered probable of occurring. If the events become probable, the Company will immediately accrete any difference between the carrying value of the redeemable convertible preferred stock and the redemption value at that point in time, if any.
Redemption
The preferred stock is not mandatorily redeemable, however is contingently redeemable upon certain deemed liquidation events that are outside the Company's control including, but not limited to, a merger or sale of substantially all the assets of the Company.
Stock Repurchases
In June and October of 2019, the Company repurchased shares of common stock and redeemable convertible preferred stock directly from investors as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares Repurchased
|
|
Amount Paid
|
|
Series A common stock
|
|
|
|
|
|
|
|
|
99,368
|
|
|
$
|
1,562
|
|
|
Series B common stock
|
|
|
|
|
|
|
|
|
130,209
|
|
|
1,475
|
|
|
Series A redeemable convertible preferred stock
|
|
|
|
|
|
|
|
|
2,636,430
|
|
|
41,437
|
|
|
Series C redeemable convertible preferred stock
|
|
|
|
|
|
|
|
|
1,913,738
|
|
|
30,078
|
|
|
Series D redeemable convertible preferred stock
|
|
|
|
|
|
|
|
|
313,241
|
|
|
4,922
|
|
|
Total shares repurchased
|
|
|
|
|
|
|
|
|
5,092,986
|
|
|
$
|
79,474
|
|
The stock was considered constructively retired when repurchased. For the redeemable convertible preferred stock, the excess of repurchase price over initial value of $57.5 million was recorded to accumulated deficit on the consolidated balance sheets. For the common stock, the excess of repurchase price over par value of $3.0 million
Warby Parker Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts in thousands, except share data)
was recorded to accumulated deficit on the consolidated balance sheet. During the year ended December 31, 2020, the Company did not repurchase common stock or redeemable convertible preferred stock.
7. Stock-Based Compensation
Plans and Awards
The Company’s eligible employees participate in various stock-based compensation plans, which are provided by the Company directly.
On May 17, 2011, the Company’s stockholders approved the adoption of the 2011 Stock Plan, as amended and restated on May 31, 2018, and further amended on May 2, 2019 (the “2011 Plan”). The 2019 amendment increased the Series B common stock by 1,100,000 shares to a new aggregate total of 7,632,239 shares reserved for issuance under the plan. The 2011 Plan provides for awards of Series B Common Stock in the form of stock options and RSUs to employees, directors, officers, and consultants of the Company.
On May 2, 2019, the 2010 Equity Incentive Plan (the “2010 Plan”) was amended to decrease the total number of Series A common stock available for issuance by 300,000 to a new aggregate total of 829,689. The awards granted under the 2010 Plan remain outstanding and continue to vest under their original conditions. No further awards will be granted under the 2010 Plan.
On July 20, 2012, the Company adopted the 2012 Milestone Stock Plan (the “2012 Plan”) which provides for milestone and performance-based option awards for the co-CEOs to purchase Series A common stock. All options available under the plan were granted in 2012 and 2017. The 2,107,224 options granted in 2012 were considered fully vested during the year ended December 31, 2015. The 2,132,268 options granted in 2017 (the “2017 Options”) vest in three equal tranches upon the achievement of certain financial performance targets. At both December 31, 2019 and 2020 a total of 4,239,492 options were granted under the 2012 Plan.
On May 2, 2019, the board of directors approved the adoption of the 2019 Founder Stock Plan (the “2019 Plan”). The 2019 Plan reserves 2,200,000 shares of the Company’s Series A common stock for issuance to the co-CEOs.
Under the 2010 Plan, 2011 Plan, 2012 Plan, and 2019 Plan (together “the Plans”), the Company may grant stock options or RSUs for up to 14,901,474 shares of common stock, made up of 6,439,492 shares of Series A common stock and 8,461,982 shares of Series B common stock. Awards issued under the Plans generally vest over 4 years, with the first 25% of the award vesting 12 months after the vesting commencement date, and the remaining 75% of the award vesting monthly in equal installments over the remaining 36 months. Generally, the Company’s stock option plans permit early exercise.
RSUs issued by the Company vest upon the satisfaction of both a service and a performance condition. The service-based vesting condition is satisfied so long as the participant remains in service and employed by the Company as of each of the vesting dates, which is generally over four years. The performance condition is satisfied upon (i) a qualified public offering or (ii) change in control of the Company as defined in the Company’s equity incentive plans. The RSUs vest on the first date upon which both the service and performance conditions are satisfied. If the RSUs vest, the Company will deliver one share of either Series A or Series B common stock, depending on the terms of the grant, for each vested RSU on the settlement date. Unvested RSUs expire in seven years from the date of grant.
Stock-based compensation expense for the years ended December 31, 2019 and 2020 was $8.5 million and $44.9 million, respectively.
Warby Parker Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts in thousands, except share data)
Stock Options
The fair value for options and share awards granted under the Plans are estimated at the date of grant using the Black-Scholes option-pricing model. No options were granted during the year ended December 31, 2020. The following range of assumptions was used for options granted during the year ended December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
Risk-free interest rates
|
|
2.3% - 2.6%
|
|
Expected dividend yield
|
|
—
|
|
|
Expected term
|
|
6.25 years
|
|
Volatility
|
|
40
|
%
|
The risk-free interest rates were estimated based on the yield curve in effect at the time of grant for zero-coupon U.S. Treasury notes with terms consistent with the expected term of the option awards. The expected dividend yield is zero as the Company has never declared or paid cash dividends and do not have plans to do so in the foreseeable future. The expected term is calculated using the simplified method using the vesting term of four years and the contractual term of ten years, resulting in a holding period of 6.25 years. Stock options expire ten years from the date of the grant. The volatility rate is determined based on an analysis of comparable public company historical volatilities adjusted based on the Company’s stage of development.
Because the Company’s common stock is not yet publicly traded, the Company must estimate the fair value of common stock. The board of directors considers numerous objective and subjective factors to determine the fair value of the Company’s common stock at each meeting in which awards are approved. The factors considered include, but are not limited to: (i) the results of contemporaneous independent third-party valuations of the Company’s common stock; (ii) the prices, rights, preferences, and privileges of the Company’s redeemable convertible preferred stock relative to those of its common stock; (iii) the lack of marketability of the Company’s common stock; (iv) actual operating and financial results; (v) current business conditions and projections; (vi) the likelihood of achieving a liquidity event, such as a qualified public offering or sale of the Company, given prevailing market conditions; and (vii) contemporaneous transactions involving the Company’s common shares. The board of directors utilized third-party valuations which were performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants’ Accounting and Valuation Guide, Valuation of Privately Held Company Equity Securities Issued as Compensation.
A summary of stock option activity for the year ended December 31, 2020 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Stock
Options
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
average
contractual
term
|
|
Aggregate
intrinsic
value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019
|
9,119,561
|
|
|
$
|
4.42
|
|
|
5.6
|
|
|
$
|
91,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Options exercised
|
(1,317,499)
|
|
|
1.68
|
|
|
—
|
|
|
17,835
|
|
|
Options forfeited
|
(7,022)
|
|
|
6.18
|
|
|
—
|
|
|
—
|
|
|
Balance at December 31, 2020
|
7,795,040
|
|
|
$
|
4.88
|
|
|
4.9
|
|
|
$
|
103,821
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of December 31, 2020
|
7,795,040
|
|
|
4.88
|
|
|
4.9
|
|
|
—
|
|
Vested as of December 31, 2020
|
6,751,450
|
|
|
3.60
|
|
|
4.4
|
|
|
—
|
|
Unvested as of December 31, 2020
|
1,043,590
|
|
|
13.10
|
|
|
1.3
|
|
|
—
|
The total value of unrecognized stock compensation expense related to unvested options granted under the Plans was $8.5 million and $6.0 million as of December 31, 2019 and 2020, respectively, and is expected to vest over 1.3 years.
Warby Parker Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts in thousands, except share data)
The Company determined that the financial performance targets proscribed in the 2017 Options were satisfied in 2018, 2019 and 2020. During the years ended December 31, 2019 and 2020, the Company recognized stock-based compensation expense of $1.2 million and $0.7 million, respectively, related to the 2017 Options which is included in selling, general, and administrative expenses on the consolidated statements of operations and comprehensive income (loss). At December 31, 2020, there was no unrecognized compensation expense related to these awards.
In 2019, the Company entered into agreements with a former employee and a former service provider to cancel previously issued stock options in exchange for cash. The Company cancelled 427,551 options for $4.8 million of consideration. As a result of the transaction, the Company recorded stock-based compensation expense of $3.3 million, which is included in selling, general, and administrative expenses on the consolidated statements of operations and comprehensive income (loss).
Restricted Stock Units
A summary of RSU activity for the years ended December 31, 2019 and 2020 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Restricted Stock Units
|
|
Weighted Average Grant Date Fair Value
|
|
Unvested as of December 31, 2018
|
472,435
|
|
$
|
13.08
|
|
|
Granted
|
1,105,201
|
|
13.06
|
|
|
Forfeited
|
(104,725)
|
|
12.95
|
|
|
Unvested as of December 31, 2019
|
1,472,911
|
|
|
13.07
|
|
|
Granted
|
93,114
|
|
14.15
|
|
|
Forfeited
|
(72,903)
|
|
13.10
|
|
|
Unvested as of December 31, 2020
|
1,493,122
|
|
|
$
|
13.14
|
|
All RSUs vest upon the satisfaction of both a service and a performance condition. The Company has concluded that as of December 31, 2019 and 2020, it is not probable that the performance condition will be satisfied as the closing of a qualified public offering or change in control is not deemed probable until consummated. Accordingly, to date, the Company has not recorded any stock-based compensation expense for any RSUs. Upon the consummation of either a qualified public offering or a change in control, the Company will record a cumulative catch-up expense for the service condition satisfied through such date and will begin recording stock-based compensation expense using the accelerated attribution method where the service period is not complete. The total value of unrecognized stock compensation expense related to outstanding RSUs granted under the Plans was $19.3 million and $19.7 million as of December 31, 2019 and 2020, respectively, which represents the fair value of the RSUs on the respective grant dates.
Secondary Transaction
In August 2020, certain employees sold 3,292,950 common shares, some of which were issued in connection with contemporaneous option exercises, comprised of 2,711,958 Series A common shares and 580,992 Series B common shares, to a new investor. The Company recognized $41.7 million of stock-based compensation in connection with this transaction, which is included in selling, general, and administrative expenses on the consolidated statements of operations and comprehensive income (loss).
8. Defined Contribution Retirement Plan
The Company maintains a defined contribution retirement plan covering substantially all employees based on plan defined age and service requirements. The Company provides discretionary employer-provided matching contributions based on a percentage of employee contributions. Costs are accrued and funded on a current basis. Total expense charged to the consolidated statements of operations and comprehensive income (loss) for the plan was $2.1 million and $2.4 million for the years ended December 31, 2019 and 2020, respectively.
Warby Parker Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts in thousands, except share data)
9. Commitments and Contingencies
Rent expense for the Company’s operating leases consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2019
|
|
2020
|
|
Minimum rent
|
$
|
18,472
|
|
|
$
|
21,340
|
|
|
Contingent rent
|
512
|
|
|
557
|
|
|
Total rent expense
|
$
|
18,984
|
|
|
$
|
21,897
|
|
On December 8, 2017, the Company entered into an operating sublease related to a portion of its headquarters. The lease term was eighteen months under which the Company was contracted to receive total rental payment of $3.0 million. The Company recorded the rent received as an offset to rent expense in the accompanying consolidated financial statements. The Company included $1.2 million as a reduction to rent expense under the sublease for the year ended December 31, 2019. The sublease terminated on July 31, 2019.
Future minimum annual rental payments under operating leases are as follows:
|
|
|
|
|
|
|
|
|
Operating
Leases
|
|
Years ending December 31:
|
|
|
2021
|
$
|
28,599
|
|
|
2022
|
$
|
26,033
|
|
|
2023
|
$
|
26,179
|
|
|
2024
|
$
|
25,650
|
|
|
2025
|
$
|
18,082
|
|
|
Thereafter
|
$
|
43,529
|
|
|
Total minimum lease payments
|
$
|
168,072
|
|
Credit Facility
In August 2013, the Company entered into the Loan and Security Agreement with Comerica Bank (the “Credit Facility”), as amended, consisting of a revolving credit line of up to $15.0 million. The revolving credit line has a sub-limit of up to $15.0 million for the issuance of letters of credit. Borrowings under the revolving credit line bear interest on the principal amount outstanding at a variable interest rate based on either LIBOR or the bank's prime rate (as defined in the credit agreement), with no additional margin. The Company is charged fees on the uncommitted portion of the credit line of 0.2% as long as total borrowings remain less than $15.0 million.
On March 29, 2019, the Company entered into the fifth amendment to the Credit Facility to increase the revolving credit line to $20.0 million and amend certain financial covenants. The maturity of the Credit Facility is on March 31, 2022.
On June 18, 2019 and October 22, 2019, the Company entered into the sixth and seventh amendment to the Credit Facility to amend certain financial and reporting covenants.
On December 23, 2019, the Company entered into the eighth amendment to the Credit Facility to increase the revolving credit line to $50.0 million and amend certain financial covenants. The amendment set a minimum EBITDA requirement if the aggregate outstanding amount of the obligations exceeds $35 million.
In February and March 2020, the Company borrowed a total of $30.9 million under the Credit Facility, which was fully repaid in August 2020.
Warby Parker Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts in thousands, except share data)
Other than letters of credit used to secure certain leases in lieu of a cash security deposit of $5.4 million and $3.7 million as of December 31, 2019 and 2020, respectively, there were no other borrowings outstanding under the Credit Facility as of December 31, 2019 and 2020.
Litigation
During the normal course of business, the Company may become subject to legal proceedings, claims and litigation. Such matters are subject to many uncertainties and outcomes are not predictable with assurance. Accruals for loss contingencies are recorded when a loss is probable, and the amount of such loss can be reasonably estimated.
As of December 31, 2019 and 2020, the Company is not subject to any currently pending legal matters or claims that could have a material adverse effect on its financial position, results of operations, or cash flows should such litigation be resolved unfavorably.
10. Net Loss Per Share Attributable to Common Stockholders
The computation of net loss per share attributable to common stockholders for the years ended December 31, 2019 and 2020 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2019
|
|
2020
|
|
Numerator
|
|
|
|
|
Net income (loss)
|
$
|
—
|
|
|
$
|
(55,919)
|
|
|
Less: deemed dividend upon redemption of Series A, C, and D redeemable convertible preferred stock
|
(57,537)
|
|
|
—
|
|
|
Net loss attributable to common stockholders - basic and diluted
|
$
|
(57,537)
|
|
|
$
|
(55,919)
|
|
|
Denominator
|
|
|
|
|
Weighted average shares, basic and diluted
|
52,424,978
|
|
|
53,033,936
|
|
|
Earnings Per Share
|
|
|
|
|
Net loss per share attributable to common stockholders, basic and diluted
|
$
|
(1.10)
|
|
|
$
|
(1.05)
|
|
The following potentially dilutive shares were excluded from the computation of diluted net loss per share for the years ended December 31, 2019 and 2020 because including them would have been antidilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2019
|
|
2020
|
|
Redeemable convertible preferred stock
|
42,769,248
|
|
|
54,041,904
|
|
|
Stock options to purchase common stock
|
9,119,561
|
|
|
7,795,040
|
|
|
Unvested restricted stock units
|
1,472,911
|
|
|
1,493,122
|
|
|
Warrants to purchase Series B redeemable convertible preferred stock
|
21,745
|
|
|
21,745
|
|
11. Related-Party Transactions
The Company issues secured promissory notes collateralized by the stock purchased by certain Company executives in relation to the exercise of employee stock options. As the promissory notes are secured by the underlying shares they have been treated as non-recourse notes in the consolidated financial statements. The promissory notes are issued with a term of 8.5 years and an interest rate equal to the minimum applicable federal mid-term rate in the month the loan was issued. The secured promissory notes were recorded as a reduction to equity offsetting the amount in additional paid-in-capital related to the exercised options funded by the notes. During the year ended December 31, 2019, $0.6 million of employee loans were repaid and the outstanding loan balance increased by $0.2 million due to interest. The Company extended loans of $16.2 million to executives during the year ended December 31, 2019. During the year ended December 31, 2020, $0.9 million of employee loans were repaid and the outstanding loan balance increased by $0.4 million due to
Warby Parker Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts in thousands, except share data)
interest. The Company did not extend any loans to executives during the year ended December 31, 2020. The loans had a balance of $21.1 million and $20.6 million at December 31, 2019 and 2020, respectively.
Certain related party employees were parties to secondary transactions executed in August 2020, see Note 7, Stock-Based Compensation, for further discussion.
12. Subsequent Events
The Company has assessed subsequent events through June 21, 2021, the date the consolidated financial statements were issued, and has determined that no additional subsequent events occurred that would require recognition or disclosure in these consolidated financial statements, except as described below.
Lease Obligations
Subsequent to December 31, 2020, the Company entered into 15 operating lease agreements for retail and laboratory space in the U.S., with terms ranging from 3 to 10 years. Total commitments under the new agreements are approximately $16.4 million, payable over the terms of the related agreements.
Tender Offer
In May 2021, the Company and Addition Partners, a related party investor, commenced a cash tender offer which was completed in June 2021. The Company authorized the repurchase up to $100 million in shares of common stock, including those issuable upon exercise of stock options, and redeemable convertible preferred stock for a price of $24.5306 per share from equity holders. This was the first widely available tender offer made to employees, former employees, and investors since the Company’s inception. The Company and Addition Partners committed to each purchase half of the shares tendered. Shareholders tendered a total of 1,676,534 shares, comprised of 335,847 Series A common shares, 387,163 Series B common shares, and 953,524 redeemable convertible preferred stock shares, for a total consideration of $41.1 million. The Company recorded approximately $9.5 million as stock-based compensation expense related to the tender offer.
Addition Partners purchased 838,267 of the shares tendered for $20.6 million. The Company purchased 838,267 of the shares tendered for $20.6 million and the board of directors approved the immediate retirement of all shares purchased by the Company.
Equity
Employee Grants
In January and February 2021, the board of directors approved the granting of 688,768 stock options and RSUs for Series A common stock and 538,813 stock options and RSUs for Series B common stock to employees, subject to the provisions of the Plans. In connection with these equity award grants, in February and March 2021, the Company extended loans of $13.7 million to certain executives which were used to early exercise a total of 751,048 options. See Note 11, Related-Party Transactions, for further discussion of the nature of these employee loans. In June 2021, the board of directors approved the grant of 652,999 RSUs for Series B common stock to employees under the 2011 Stock Plan.
Co-CEO Grants
On June 15, 2021, the board of directors approved the grant to the Company’s co-CEOs of 4,397,688 performance-based restricted stock units (“PSUs”) and 1,884,724 service-based RSUs under our 2019 Plan.
The PSUs will only vest, if at all, in the event of (i) a qualified public offering and (ii) the price of the Company’s Class A common stock reaches stock price hurdles over a period of ten years. The PSUs are divided into eight substantially equal tranches, each one vesting on the date the 90-day trailing volume-weighted average trading
Warby Parker Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts in thousands, except share data)
price of our Class A common stock exceeds the stock price hurdle, as set forth in the table below, provided that no PSUs may vest prior to the six month anniversary of the closing of a qualified public offering.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tranche
|
|
Number of PSUs
|
|
Stock Price Hurdle
|
|
1
|
|
549,712
|
|
|
$
|
47.75
|
|
|
2
|
|
549,710
|
|
|
$
|
55.71
|
|
|
3
|
|
549,712
|
|
|
$
|
63.67
|
|
|
4
|
|
549,710
|
|
|
$
|
71.63
|
|
|
5
|
|
549,712
|
|
|
$
|
79.59
|
|
|
6
|
|
549,710
|
|
|
$
|
87.55
|
|
|
7
|
|
549,712
|
|
|
$
|
95.50
|
|
|
8
|
|
549,710
|
|
|
$
|
103.46
|
|
The Company is in the process of estimating the fair value of its Series A common stock, which will be used as an input to the Monte Carlo simulation used to estimate the fair value of the PSUs. The Company expects that the stock-based compensation expense related to the PSUs will be at least $90.0 million. The stock-based compensation expense will be recognized using the accelerated attribution method over the period of time the market condition for each tranche is expected to be met (i.e., the derived service period).
Commencing on July 1, 2021, the RSUs will vest in equal monthly installments over a period of five years, subject to the co-CEOs continued employment with the Company through the applicable vesting date and conditioned upon the completion of a qualified public offering. The Company is in the process of estimating the fair value of its Series A common stock, and therefore, the RSUs. The Company expects that the stock based compensation expense related to the RSUs will be at least $30.0 million. Since the RSUs contain a performance condition, stock-based compensation expense will be recognized using the accelerated attribution method when it becomes probable that the performance condition will be met.
Shares underlying vested PSUs and RSUs and will be issued to the CEOs on a specified quarterly date following the second anniversary of the vesting date, except for an amount necessary to cover any taxes due in connection with the vesting, which will be withheld or sold to cover, or issued to offset, such taxes. Any RSUs or PSUs subject to the award that have not vested by the tenth anniversary of the grant date will be forfeited.
Stock Repurchase
In February 2021, the Company repurchased 26,931 shares of Series A common stock and 220,273 shares of redeemable convertible preferred stock from an investor at a price per share of $24.53. The total cash paid was $6.1 million and the stock was considered constructively retired when repurchased.
Warby Parker Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Amounts in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
June 30, 2021
|
|
ASSETS
|
|
|
(unaudited)
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
$
|
314,085
|
|
|
$
|
260,672
|
|
|
Accounts receivable, net
|
601
|
|
|
713
|
|
|
Inventory
|
38,468
|
|
|
46,236
|
|
|
Prepaid expenses and other current assets
|
6,779
|
|
|
6,653
|
|
|
Total current assets
|
359,933
|
|
|
314,274
|
|
|
|
|
|
|
|
Property and equipment, net
|
84,534
|
|
|
97,066
|
|
|
Other assets
|
284
|
|
|
293
|
|
|
Total assets
|
$
|
444,751
|
|
|
$
|
411,633
|
|
|
|
|
|
|
|
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
Current liabilities:
|
|
|
|
|
Accounts payable
|
$
|
40,788
|
|
|
$
|
39,176
|
|
|
Accrued expenses
|
34,270
|
|
|
31,271
|
|
|
Deferred revenue
|
26,550
|
|
|
18,223
|
|
|
Other current liabilities
|
3,722
|
|
|
5,582
|
|
|
Total current liabilities
|
105,330
|
|
|
94,252
|
|
|
|
|
|
|
|
Deferred rent
|
27,997
|
|
|
28,289
|
|
|
Other liabilities
|
3,011
|
|
|
3,469
|
|
|
Total liabilities
|
136,338
|
|
|
126,010
|
|
|
Commitments and contingencies (see Note 8)
|
|
|
|
|
Redeemable convertible preferred stock, $.0001 par value, 54,507,243 shares authorized at December 31, 2020 and June 30, 2021; 54,041,904 and 53,299,362 shares issued and outstanding as of December 31, 2020 and June 30, 2021, respectively
|
506,510
|
|
|
501,443
|
|
|
Stockholders’ deficit:
|
|
|
|
|
Common stock, $.0001 par value, 150,000,000 shares authorized at December 31, 2020 and June 30, 2021; 53,944,305 and 54,068,908 shares issued and outstanding as of December 31, 2020 and June 30, 2021, respectively
|
5
|
|
|
5
|
|
|
Additional paid-in capital
|
127,179
|
|
|
140,262
|
|
|
Accumulated deficit
|
(325,390)
|
|
|
(356,266)
|
|
|
Accumulated other comprehensive income
|
109
|
|
|
179
|
|
|
Total stockholders’ deficit
|
(198,097)
|
|
|
(215,820)
|
|
|
Total liabilities, redeemable convertible preferred stock, and stockholders’ deficit
|
$
|
444,751
|
|
|
$
|
411,633
|
|
The accompanying notes are an integral part of these consolidated financial statements.
Warby Parker Inc. and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)
(Amounts in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
2020
|
|
2021
|
|
|
|
|
|
|
Net revenue
|
$
|
176,790
|
|
|
$
|
270,533
|
|
|
Cost of goods sold
|
74,015
|
|
|
108,699
|
|
|
Gross profit
|
102,775
|
|
|
161,834
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative expenses
|
111,956
|
|
|
167,621
|
|
|
Loss from operations
|
(9,181)
|
|
|
(5,787)
|
|
|
|
|
|
|
|
Interest and other income, net
|
545
|
|
|
306
|
|
|
|
|
|
|
|
Loss before income taxes
|
(9,726)
|
|
|
(6,093)
|
|
|
Provision for income taxes
|
281
|
|
|
1,202
|
|
|
Net loss
|
$
|
(10,007)
|
|
|
$
|
(7,295)
|
|
|
|
|
|
|
|
Deemed dividend upon redemption of redeemable convertible preferred stock
|
$
|
—
|
|
|
$
|
(13,137)
|
|
|
Net loss attributable to common stockholders
|
$
|
(10,007)
|
|
|
$
|
(20,432)
|
|
|
|
|
|
|
|
Net loss per share attributable to common stockholders, basic and diluted
|
$
|
(0.19)
|
|
|
$
|
(0.38)
|
|
|
Weighted average shares used in computing net loss per share attributable to common stockholders, basic and diluted
|
52,636,215
|
|
|
53,986,670
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
|
|
Foreign currency translation adjustment
|
$
|
(145)
|
|
|
$
|
70
|
|
|
Total comprehensive loss
|
$
|
(10,152)
|
|
|
$
|
(7,225)
|
|
The accompanying notes are an integral part of these consolidated financial statements.
Warby Parker Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders’ Deficit (Unaudited)
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable Convertible Preferred Stock
|
|
|
Common Stock
|
|
Additional
Paid-In
Capital
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Accumulated
Deficit
|
|
Total Stockholders’ Deficit
|
|
|
Shares
|
|
Amount
|
|
|
Shares
|
|
Amount
|
|
|
Balance as of December 31, 2019
|
42,769
|
|
|
$
|
262,849
|
|
|
|
52,627
|
|
|
$
|
5
|
|
|
$
|
79,991
|
|
|
$
|
22
|
|
|
$
|
(269,471)
|
|
|
$
|
(189,453)
|
|
|
Stock option exercises
|
—
|
|
|
—
|
|
|
|
30
|
|
|
—
|
|
|
128
|
|
|
—
|
|
|
—
|
|
|
128
|
|
|
Stock repurchases and retirement
|
—
|
|
|
—
|
|
|
|
(1)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
1,373
|
|
|
—
|
|
|
—
|
|
|
1,373
|
|
|
Other comprehensive loss
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(145)
|
|
|
—
|
|
|
(145)
|
|
|
Issuance of Series F Preferred Stock, net of issuance costs of $0.3M
|
6,413
|
|
|
124,717
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Net loss
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(10,007)
|
|
|
(10,007)
|
|
|
Balance as of June 30, 2020
|
49,182
|
|
|
$
|
387,566
|
|
|
|
52,656
|
|
|
$
|
5
|
|
|
$
|
81,492
|
|
|
$
|
(123)
|
|
|
$
|
(279,478)
|
|
|
$
|
(198,104)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2020
|
54,042
|
|
|
506,510
|
|
|
|
53,944
|
|
|
5
|
|
|
127,179
|
|
|
109
|
|
|
(325,390)
|
|
|
(198,097)
|
|
|
Stock option exercises
|
—
|
|
|
—
|
|
|
|
466
|
|
|
—
|
|
|
1,369
|
|
|
—
|
|
|
—
|
|
|
1,369
|
|
|
RSU settlements
|
—
|
|
|
—
|
|
|
|
73
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Stock repurchases
|
(266)
|
|
|
(1,506)
|
|
|
|
(64)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,579)
|
|
|
(6,579)
|
|
|
Proceeds from repayment of related party loans
|
—
|
|
|
—
|
|
|
|
12
|
|
|
—
|
|
|
44
|
|
|
—
|
|
|
—
|
|
|
44
|
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
11,670
|
|
|
—
|
|
|
—
|
|
|
11,670
|
|
|
Tender offer repurchase and share retirement
|
(477)
|
|
|
(3,561)
|
|
|
|
(362)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(17,002)
|
|
|
(17,002)
|
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
70
|
|
|
—
|
|
|
70
|
|
|
Net loss
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7,295)
|
|
|
(7,295)
|
|
|
Balance as of June 30, 2021
|
53,299
|
|
|
$
|
501,443
|
|
|
|
54,069
|
|
|
$
|
5
|
|
|
$
|
140,262
|
|
|
$
|
179
|
|
|
$
|
(356,266)
|
|
|
$
|
(215,820)
|
|
The accompanying notes are an integral part of these consolidated financial statements.
Warby Parker Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
2020
|
|
2021
|
|
Cash flows from operating activities
|
|
|
|
|
Net loss
|
$
|
(10,007)
|
|
|
$
|
(7,295)
|
|
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
|
|
|
|
Depreciation and amortization
|
8,976
|
|
|
9,823
|
|
|
Stock-based compensation
|
1,373
|
|
|
11,670
|
|
|
Change in operating assets and liabilities:
|
|
|
|
|
Accounts receivable, net
|
810
|
|
|
(112)
|
|
|
Inventory
|
(5,403)
|
|
|
(7,759)
|
|
|
Prepaid expenses and other assets
|
1,741
|
|
|
126
|
|
|
Accounts payable
|
1,027
|
|
|
(3,118)
|
|
|
Accrued expenses
|
1,169
|
|
|
(2,689)
|
|
|
Deferred revenue
|
(5,863)
|
|
|
(8,339)
|
|
|
Other current liabilities
|
(251)
|
|
|
1,859
|
|
|
Deferred rent
|
342
|
|
|
282
|
|
|
Other liabilities
|
1,398
|
|
|
457
|
|
|
Net cash used in operating activities
|
(4,688)
|
|
|
(5,095)
|
|
|
Cash flows from investing activities
|
|
|
|
|
Purchases of property and equipment
|
(11,080)
|
|
|
(21,215)
|
|
|
Net cash used in investing activities
|
(11,080)
|
|
|
(21,215)
|
|
|
Cash flows from financing activities
|
|
|
|
|
Proceeds from stock option exercise
|
128
|
|
|
1,369
|
|
|
Employee tax withholding remitted in connection with exercise or settlement of equity awards
|
—
|
|
|
(2,532)
|
|
|
Proceeds from repayment of related party loans
|
—
|
|
|
44
|
|
|
Stock repurchases
|
—
|
|
|
(8,085)
|
|
|
Issuance of Series F redeemable convertible preferred stock, net of issuance costs
|
124,717
|
|
|
—
|
|
|
Payment for Tender Offer
|
—
|
|
|
(18,031)
|
|
|
Borrowings from Credit Facility
|
30,900
|
|
|
—
|
|
|
Net cash provided by (used in) financing activities
|
155,745
|
|
|
(27,235)
|
|
|
Effect of exchange rates on cash
|
(360)
|
|
|
132
|
|
|
Net increase (decrease) in cash and cash equivalents
|
139,617
|
|
|
(53,413)
|
|
|
Cash and cash equivalents
|
|
|
|
|
Beginning of year
|
55,424
|
|
|
314,085
|
|
|
End of year
|
$
|
195,041
|
|
|
$
|
260,672
|
|
|
Supplemental disclosures
|
|
|
|
|
Cash paid for income taxes
|
$
|
33
|
|
|
$
|
265
|
|
|
Cash paid for interest
|
253
|
|
|
68
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
Purchases of property and equipment included in accounts payable and accrued expenses
|
$
|
2,882
|
|
|
$
|
4,168
|
|
|
Related party loans issued in connection with stock option exercises
|
—
|
|
|
13,827
|
|
The accompanying notes are an integral part of these consolidated financial statements.
Warby Parker Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share data)
1. Description of Business
Warby Parker Inc., a public benefit corporation founded in 2010 and its wholly owned subsidiaries, (the “Company”) is a founder-led, mission-driven lifestyle brand that sits at the intersection of technology, design, healthcare, and social enterprise. The Company offers holistic vision care by selling eyewear products and providing optical services directly to consumers through its retail stores and e-commerce platform. For every pair of glasses or sunglasses sold, the Company helps distribute a pair of glasses to someone in need through its Buy a Pair, Give a Pair program. The Company is headquartered in New York, New York.
2. Summary of Significant Accounting Policies
Basis of Presentation
The Company’s unaudited condensed consolidated financial statements have been prepared and are presented in accordance with United States generally accepted accounting principles (“U.S. GAAP”). Certain information and disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the applicable rules and regulations of the Securities and Exchange Commission. Accordingly, these condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements for the year ended December 31, 2020 and the related notes. The December 31, 2020 condensed consolidated balance sheet was derived from our audited consolidated financial statements as of that date. Our unaudited interim condensed consolidated financial statements include, in the opinion of management, all adjustments, consisting of normal and recurring items, necessary for the fair presentation of the condensed consolidated financial statements. There have been no significant changes in accounting policies during the six months ended June 30, 2021 from those disclosed in the annual consolidated financial statements for the year ended December 31, 2020 and the related notes.
Principles of Consolidation
The condensed consolidated financial statements include the financial statements of Warby Parker Inc., and its wholly owned subsidiaries. The Company has consolidated certain entities meeting the definition of a variable interest entity (“VIE”) as the Company concluded that it is the primary beneficiary of the entities. The inclusion of these entities does not have a material impact on its condensed consolidated financial statements. Intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The Company prepares its condensed consolidated financial statements in conformity with U.S. GAAP. These principles require management to make certain estimates and assumptions during the preparation of its condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Management’s estimates are based on historical experience and on various other market-specific and relevant assumptions that management believes to be reasonable under the circumstances. Significant estimates underlying the accompanying condensed consolidated financial statements include, but are not limited to (i) the valuation of inventory, including the determination of the net realizable value, (ii) reserves for sales returns, (iii) the useful lives and recoverability of long-lived assets, (iv) shipment times included in the calculation of deferred revenue, (v) the determination of deferred income taxes, including related valuation allowances, (vi) allowances for doubtful accounts, and (vii) assumptions related to the valuation of common stock and determination of stock-based compensation.
Emerging Growth Company Status
The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act, until such time as those standards apply to private companies.
The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies. As a result, the Company’s condensed consolidated financial statements may not be comparable to financial statements of issuers who are
Warby Parker Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share data)
required to comply with the effective dates for new or revised accounting standards based on public company effective dates.
Segment Information
Operating segments are defined as components of an enterprise for which separate financial information is evaluated regularly by the chief operating decision maker (“CODM”), who makes decisions about allocating resources and assessing performance. The Company defines its CODM as its co-Chief Executive Officers. The Company has identified one operating segment. When evaluating the Company’s performance and allocating resources, the CODM relies on financial information prepared on a consolidated basis.
Concentration of Credit Risk and Major Suppliers
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents. The Company maintains its cash and cash equivalents in various accounts, which, at times, may exceed the federally insured limits. The Company has not experienced any concentration losses related to its cash and cash equivalents to date. The Company seeks to minimize its credit risk by maintaining its cash and cash equivalents with high-quality financial institutions and monitoring the credit standing of such institutions.
The Company’s top five inventory suppliers accounted for approximately 21% and 19% of cost of goods sold for the six months ended June 30, 2020 and 2021, respectively.
Cash and Cash Equivalents
The Company considers all highly liquid short-term investments with an original maturity of three months or less to be a cash equivalent. Cash and cash equivalents include both deposits with banks and financial institutions and receivables from credit card issuers, which are typically converted into cash within two to four days of capture. As such, these receivables are recorded as a deposit in transit as a component of cash and cash equivalents on the consolidated balance sheets. At December 31, 2020 and June 30, 2021, the balance of receivables from credit card issuers included within cash and cash equivalents was $7.1 million and $3.7 million, respectively.
Inventory
Inventory consists of approximately $8.9 million and $11.0 million of finished goods, including ready-to-wear sun frames, contact lenses, and eyeglass cases, as of December 31, 2020 and June 30, 2021, respectively, and approximately $29.6 million and $35.2 million of component parts, including optical frames and prescription optical lenses, as of December 31, 2020 and June 30, 2021, respectively. Inventory is stated at the lower of cost or estimated realizable value, with cost determined on a weighted average cost basis.
The Company continuously evaluates the composition of its inventory and makes adjustments when the cost of inventory is not expected to be fully recoverable. The estimated net realizable value of inventory is determined based on an analysis of historical sales trends, the impact of market trends and economic conditions, and a forecast of future demand. Adjustments for damaged inventory are recorded primarily based on actual damaged inventory. Adjustments for inventory shrink, representing the physical loss of inventory, are estimated based on historical experience, and are adjusted based upon physical inventory counts. However, unforeseen adverse future economic and market conditions, such as those resulting from disease pandemics and other catastrophic events, could result in actual results differing materially from estimates.
Revenue Recognition
The Company primarily derives revenue from the sales of eyewear products, optical services and accessories. The Company sells products and services through its stores, website, and mobile apps. Revenue generated from eyewear products includes the sales of prescription and non-prescription optical glasses and sunglasses, contact lenses, eyewear accessories, and expedited shipping charges, which are charged to the customer, associated with these purchases. All revenue is reported net of sales taxes collected from customers on behalf of taxing authorities and variable consideration, including returns and discounts.
Revenue is recognized when performance obligations are satisfied through either the transfer of control of promised goods or the rendering of services to the Company's customers. Control transfers once a customer has the ability to direct the use of, and obtain substantially all of the benefits from the product, generally determined to be when the product is received by the customer or upon rendering of the service in the case of eye exams. This
Warby Parker Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share data)
includes the transfer of legal title, physical possession, the risks and rewards of ownership, and customer acceptance. In the normal course of business, payment may be collected from the customer prior to recognizing revenue and such cash receipts are included in deferred revenue until the order is delivered to the customer. Substantially all of the deferred revenue included in the balance sheet at December 31, 2020 was recognized as revenue during 2021 and the Company expects substantially all of the deferred revenue at June 30, 2021 to be recognized as revenue in the second half of the year.
The Company’s sales policy allows customers to return merchandise for any reason within 30 days of receipt, generally for an exchange or refund. An allowance is recorded within other current liabilities on the consolidated balance sheets for expected future customer returns which the Company estimates using historical return patterns and its expectation of future returns. Any difference between the actual return and previous estimates is adjusted in the period in which such returns occur. Historical return estimates have not materially differed from actual returns in any of the periods presented. The allowance for returns was $1.9 million and $2.8 million at December 31, 2020 and June 30, 2021, respectively, and is included in other current liabilities on the condensed consolidated balance sheets.
The Company offers non-expiring gift cards to its customers. Proceeds from the sale of gift cards are initially deferred and recognized within deferred revenue on the consolidated balance sheets, and are recognized as revenue when the product is received by the customer after the gift card has been tendered for payment. Based on historical experience, and to the extent there is no requirement to remit unclaimed card balances to government agencies under unclaimed property laws, an estimate of the gift card balance that will never be redeemed is recognized as revenue in proportion to gift cards which have been redeemed. While the Company will continue to honor all gift cards presented for payment, management may determine the likelihood of redemption to be remote for certain card balances due to, among other things, long periods of inactivity.
The following table disaggregates the Company’s revenue by product for the six months ended June 30, 2020 and 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
2020
|
|
2021
|
|
Eyewear Products
|
$
|
171,740
|
|
|
$
|
262,292
|
|
|
Services and Other
|
5,050
|
|
|
8,241
|
|
|
Total Revenue
|
$
|
176,790
|
|
|
$
|
270,533
|
|
The following table disaggregates the Company’s revenue by channel for the six months ended June 30, 2020 and 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
2020
|
|
2021
|
|
E-commerce
|
$
|
108,813
|
|
|
$
|
136,660
|
|
|
Retail
|
67,977
|
|
|
133,873
|
|
|
Total Revenue
|
$
|
176,790
|
|
|
$
|
270,533
|
|
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASC No. 2016-02, Leases (Topic 842) (“ASC 842”). ASC 842 was issued to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Under the new guidance, lessees are required to recognize a lease liability, which represents the discounted obligation to make future minimum lease payments, and a corresponding right-of-use asset on the balance sheet. The Company elected the extended transition period available to emerging growth companies and as such, the guidance is effective for fiscal periods beginning after December 15, 2021. In July 2018, the FASB issued ASU 2018-10, Leases (Topic 842): Codification Improvements (“ASU 2018-10”) and ASU 2018-11, Leases (Topic 842): Targeted Improvements (“ASU 2018-11”), to provide additional guidance for the adoption of ASC 842. ASU 2018-10 clarifies certain provisions and corrects
Warby Parker Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share data)
unintended applications of the guidance. ASU 2018-11 provides an alternative transition method which allows entities the option to present all prior periods under previous lease accounting guidance while recognizing the cumulative effect of applying the new standard as an adjustment to the opening balance of retained earnings in the year of adoption. The Company is currently evaluating the effect of adoption of these standards on the Company’s condensed consolidated financial statements and related disclosures, but expects to record a material right-of-use asset and liability on the condensed consolidated balance sheet related to its operating leases upon adoption.
In January 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses, and additional changes, modifications, clarifications or interpretations related to this guidance thereafter, which require a reporting entity to estimate credit losses on certain types of financial instruments, and present assets held at amortized cost and available for-sale debt securities at the amount expected to be collected. The guidance is effective for non-public companies for fiscal years beginning after December 15, 2022. The Company elected the extended transition period available to emerging growth companies and is currently evaluating the effect of adoption of the standard on the Company’s condensed consolidated financial statements and related disclosures.
3. Property and Equipment, Net
Property and equipment, net consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
June 30, 2021
|
|
Leasehold improvements
|
$
|
88,923
|
|
|
$
|
98,611
|
|
|
Computers and equipment
|
15,694
|
|
|
16,785
|
|
|
Furniture and fixtures
|
12,156
|
|
|
14,508
|
|
|
Capitalized software
|
6,054
|
|
|
7,908
|
|
|
Construction in process
|
7,198
|
|
|
13,511
|
|
|
|
130,025
|
|
|
151,323
|
|
|
Less: accumulated depreciation and amortization
|
(45,491)
|
|
|
(54,257)
|
|
|
Property and equipment, net
|
$
|
84,534
|
|
|
$
|
97,066
|
|
Depreciation and amortization expense was approximately $9.0 million, which includes $6.3 million in cost of goods sold and $2.7 million in selling, general, and administrative expenses, for the six months ended June 30, 2020. Depreciation and amortization expense was approximately $9.8 million, which includes $7.1 million in cost of goods sold and $2.7 million in selling, general, and administrative expenses, for the six months ended June 30, 2021.
4. Accrued Expenses
Accrued expenses consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
June 30, 2021
|
|
Charitable contribution
|
$
|
5,182
|
|
|
$
|
4,556
|
|
|
Payroll related costs
|
7,903
|
|
|
10,108
|
|
|
Marketing expenses
|
9,585
|
|
|
2,981
|
|
|
Other accrued expenses
|
11,600
|
|
|
13,626
|
|
|
Total accrued expenses
|
$
|
34,270
|
|
|
$
|
31,271
|
|
5. Income Taxes
For the six months ended June 30, 2020 and 2021 the Company used the estimated annual effective tax rate approach to determine the provision for income taxes. The estimated annual effective tax rate is based on
Warby Parker Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share data)
forecasted annual results and may fluctuate due to differences between the forecasted and actual results, changes in valuation allowances, and any other transactions that result in differing tax treatment.
The Company’s estimated annual effective income tax rate for the six months ended June 30, 2020 and 2021 differed from the statutory rate primarily due to the valuation allowance, non-deductible stock-based compensation, differences in tax rates in state and foreign jurisdictions and other permanent items.
6. Redeemable Convertible Preferred Stock and Stockholders’ Deficit
Common Stock
As of December 31, 2020 and June 30, 2021, the Company’s Tenth and Eleventh Amended and Restated Certificate of Incorporation authorizes the issuance of up to 150,000,000 shares of common stock, par value of $0.0001 per share, of which 135,000,000 shares are designated Series A common stock, and 15,000,000 shares are designated Series B common stock. Both Series A and Series B common stock are not redeemable at the option of the holder.
As of December 31, 2020, outstanding shares of common stock as well as shares of common stock attributable to stock options are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A
|
|
Series B
|
|
Common stock outstanding
|
52,895,029
|
|
|
1,049,276
|
|
|
Employee stock options – outstanding
|
5,298,660
|
|
|
2,496,380
|
|
|
Restricted stock units – outstanding
|
260,878
|
|
|
1,232,244
|
|
|
Employee stock plans – available
|
734,682
|
|
|
972,450
|
|
|
Shares of Series A common stock issuable upon conversion of all redeemable convertible preferred stock, exercise of all warrants for redeemable convertible preferred stock, outstanding Series B common stock, options, and RSUs
|
59,813,999
|
|
|
—
|
|
|
Total common stock – outstanding or issuable on exercise of options
|
119,003,248
|
|
|
5,750,350
|
|
|
Authorized
|
135,000,000
|
|
|
15,000,000
|
|
|
Common stock available for future issuance
|
15,996,752
|
|
|
9,249,650
|
|
As of June 30, 2021, outstanding shares of common stock as well as shares of common stock attributable to stock options are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A
|
|
Series B
|
|
Common stock outstanding
|
52,663,284
|
|
|
1,405,624
|
|
|
Employee stock options – outstanding
|
5,848,822
|
|
|
2,304,707
|
|
|
Restricted stock units – outstanding
|
6,681,896
|
|
|
1,982,193
|
|
|
Employee stock plans – available
|
263,502
|
|
|
1,064,245
|
|
|
Shares of Series A common stock issuable upon conversion of all redeemable convertible preferred stock, exercise of all warrants for redeemable convertible preferred stock, outstanding Series B common stock, options, and RSUs
|
60,077,876
|
|
|
—
|
|
|
Total common stock – outstanding or issuable on exercise of options
|
125,535,380
|
|
|
6,756,769
|
|
|
Authorized
|
135,000,000
|
|
|
15,000,000
|
|
|
Common stock available for future issuance
|
9,464,620
|
|
|
8,243,231
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable Convertible Preferred Stock
All classes of redeemable convertible preferred stock are optionally convertible by the holder into shares of Series A common stock at the then applicable conversion price. In the event of liquidation of the Company (including certain events outside of the Company’s control such as a change in control), the holders of redeemable convertible preferred stock are entitled to a liquidation preference equal to the respective original issue price plus
Warby Parker Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share data)
declared and unpaid dividends ahead of the classes of common stock described above. The aggregate preferential amount for all classes of redeemable convertible preferred stock was $510.5 million and $503.7 million as of December 31, 2020 and June 30, 2021, respectively.
Outstanding shares and proceeds from issuances of redeemable convertible preferred stock under the Company’s Tenth Amended and Restated Certificate of Incorporation as of December 31, 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares authorized to issue
|
|
Original issuance price
|
|
Shares issued
|
|
Shares authorized not issued
|
|
Net carrying value
|
|
Liquidation preference
|
|
Series AA
|
5,070,694
|
|
|
$
|
0.62
|
|
*
|
5,070,694
|
|
|
—
|
|
|
$
|
2,356
|
|
|
$
|
3,144
|
|
|
Series A
|
4,203,284
|
|
|
1.84
|
|
|
4,203,284
|
|
|
—
|
|
|
7,715
|
|
|
7,734
|
|
|
Series B
|
12,062,567
|
|
|
3.45
|
|
**
|
11,597,228
|
|
|
465,339
|
|
|
39,825
|
|
|
41,616
|
|
|
Series B-1
|
434,896
|
|
|
3.45
|
|
**
|
434,896
|
|
|
—
|
|
|
1,465
|
|
|
1,500
|
|
|
Series C
|
9,058,794
|
|
|
5.47
|
|
**
|
9,058,794
|
|
|
—
|
|
|
49,402
|
|
|
49,552
|
|
|
Series D
|
7,632,450
|
|
|
11.49
|
|
**
|
7,632,450
|
|
|
—
|
|
|
87,414
|
|
|
87,697
|
|
|
Series E
|
4,771,902
|
|
|
15.72
|
|
**
|
4,771,902
|
|
|
—
|
|
|
74,672
|
|
|
75,014
|
|
|
Series F
|
6,412,524
|
|
|
19.49
|
|
**
|
6,412,524
|
|
|
—
|
|
|
124,717
|
|
|
124,980
|
|
|
Series G
|
4,860,132
|
|
|
24.53
|
|
**
|
4,860,132
|
|
|
—
|
|
|
118,944
|
|
|
119,219
|
|
|
Total
|
54,507,243
|
|
|
|
|
54,041,904
|
|
|
465,339
|
|
|
$
|
506,510
|
|
|
$
|
510,456
|
|
__________________
*2,203,476 shares were converted at a discounted price per share of approximately $0.27, while the remaining shares were purchased at a price per share of approximately $0.62.
** Series B, Series B-1, Series C, Series D, Series E, Series F, and Series G original issue price per share was approximately $3.45, $3.45, $5.47, $11.49, $15.72, $19.49, and $24.53 respectively; the per share value was reduced due to issuance costs to $3.30, $3.37, $5.46, $11.46, $15.65, $19.45 and $24.47, respectively.
Outstanding shares and proceeds from issuances of redeemable convertible preferred stock under the Company’s Eleventh Amended and Restated Certificate of Incorporation as of June 30, 2021 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares authorized to issue
|
|
Original issuance price
|
|
Shares issued
|
|
Shares authorized not issued
|
|
Net carrying value
|
|
Liquidation preference
|
|
Series AA
|
5,070,694
|
|
|
$
|
0.62
|
|
*
|
4,763,598
|
|
|
307,096
|
|
|
$
|
2,205
|
|
|
$
|
2,953
|
|
|
Series A
|
4,203,284
|
|
|
1.84
|
|
|
4,176,042
|
|
|
27,242
|
|
|
7,665
|
|
|
7,684
|
|
|
Series B
|
12,062,567
|
|
|
3.45
|
|
**
|
11,595,352
|
|
|
467,215
|
|
|
39,819
|
|
|
40,004
|
|
|
Series B-1
|
434,896
|
|
|
3.45
|
|
**
|
434,896
|
|
|
—
|
|
|
1,465
|
|
|
1,500
|
|
|
Series C
|
9,058,794
|
|
|
5.47
|
|
**
|
9,058,794
|
|
|
—
|
|
|
49,402
|
|
|
49,552
|
|
|
Series D
|
7,632,450
|
|
|
11.49
|
|
**
|
7,271,629
|
|
|
360,821
|
|
|
83,269
|
|
|
83,551
|
|
|
Series E
|
4,771,902
|
|
|
15.72
|
|
**
|
4,726,395
|
|
|
45,507
|
|
|
73,957
|
|
|
74,299
|
|
|
Series F
|
6,412,524
|
|
|
19.49
|
|
**
|
6,412,524
|
|
|
—
|
|
|
124,717
|
|
|
124,980
|
|
|
Series G
|
4,860,132
|
|
|
24.53
|
|
**
|
4,860,132
|
|
|
—
|
|
|
118,944
|
|
|
119,219
|
|
|
Total
|
54,507,243
|
|
|
|
|
53,299,362
|
|
|
1,207,881
|
|
|
$
|
501,443
|
|
|
$
|
503,742
|
|
_________________
*2,203,476 shares were converted at a discounted price per share of approximately $0.27, while the remaining shares were purchased at a price per share of approximately $0.62.
** Series B, Series B-1, Series C, Series D, Series E, Series F, and Series G original issue price per share was approximately $3.45, $3.45, $5.47, $11.49, $15.72, $19.49, and $24.53 respectively; the per share value was reduced due to issuance costs to $3.30, $3.37, $5.46, $11.46, $15.65, $19.45 and $24.47, respectively.
Warby Parker Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share data)
Stock Repurchases
In February and June of 2021, the Company repurchased shares of common stock and redeemable convertible preferred stock directly from investors as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares Repurchased
|
|
Amount Paid
|
|
Series A common stock
|
|
|
|
|
|
|
|
|
63,821
|
|
|
$
|
1,566
|
|
|
Series AA redeemable convertible preferred stock
|
|
|
|
|
|
|
|
|
160,136
|
|
|
3,928
|
|
|
Series D redeemable convertible preferred stock
|
|
|
|
|
|
|
|
|
60,137
|
|
|
1,475
|
|
|
Series E redeemable convertible preferred stock
|
|
|
|
|
|
|
|
|
45,507
|
|
|
1,116
|
|
|
Total shares repurchased
|
|
|
|
|
|
|
|
|
329,601
|
|
|
$
|
8,085
|
|
The stock was considered constructively retired when repurchased. For the redeemable convertible preferred stock, the $5.0 million excess of repurchase price over carrying value was recorded to accumulated deficit on the condensed consolidated balance sheets. For the common stock, the excess of repurchase price over par value of $1.6 million was recorded to accumulated deficit on the condensed consolidated balance sheet.
In May 2021, the Company and Addition Partners, a related party investor, commenced a cash tender offer (the “Tender Offer”) which was completed in June 2021. The Company authorized the repurchase up to $100 million in shares of common stock, including those issuable upon exercise of stock options, the vesting and settlement of RSUs, and redeemable convertible preferred stock, for a price of $24.5306 per share. The Company waived the performance based vesting condition for current and former employees who elected to tender RSUs for which the service-based vesting condition was satisfied. This was the first widely available tender offer made to employees, former employees, and investors since the Company’s inception. The Company and Addition Partners committed to each purchase half of the shares tendered.
Shareholders tendered a total of 1,676,534 shares, comprised of 335,847 Series A common shares, 387,163 Series B common shares, 54,484 Series A redeemable convertible preferred stock shares, 293,920 Series AA redeemable convertible preferred stock shares, 3,752 Series B redeemable convertible preferred stock shares, and 601,368 Series D redeemable convertible preferred stock shares, for total consideration of $41.1 million. The Company recorded $9.2 million as stock-based compensation expense related to the Tender Offer.
Addition Partners purchased 838,267 of the shares tendered for $20.6 million. The Company purchased 838,267 of the shares tendered for $20.6 million and the board of directors approved the immediate retirement of all shares purchased by the Company. The Company received $0.7 million related to the cost to exercise options tendered and $2.5 million related to income taxes withheld from employees and remitted to tax authorities. These items were included within the Tender Offer repurchase and share retirement line on the statement of changes in redeemable convertible preferred stock and stockholders’ deficit.
During the six months ended June 30, 2020, the Company did not repurchase common stock or redeemable convertible preferred stock.
7. Stock-Based Compensation
Plans and Awards
The Company’s eligible employees participate in various stock-based compensation plans, which are provided by the Company directly.
At December 31, 2020, under the 2010 Plan, 2011 Plan, 2012 Plan, and 2019 Plan (together “the Plans”), the Company may grant stock options or RSUs for up to 14,901,474 shares of common stock, made up of 6,439,492 shares of Series A common stock and 8,461,982 shares of Series B common stock.
Warby Parker Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share data)
In June 2021, the Company’s board of directors approved an increase of 6,500,000 shares of Series A common stock authorized for issuance under the 2019 Founder Stock Plan and an increase of 1,200,000 shares of Series B common stock authorized for issuance under the 2011 Plan.
At June 30, 2021, under the Plans, the Company may grant stock options or RSUs for up to 22,601,474 shares of common stock, comprised of 12,939,492 shares of Series A common stock and 9,661,982 shares of Series B common stock. Awards issued under the Plans generally vest over 4 years, with the first 25% of the award vesting 12 months after the vesting commencement date, and the remaining 75% of the award vesting monthly in equal installments over the remaining 36 months. Generally, the Company’s stock option plans permit early exercise.
The majority of RSUs issued by the Company vest upon the satisfaction of both a service and a performance condition. The service-based vesting condition is satisfied so long as the participant remains in service and employed by the Company as of each of the vesting dates, which is generally over four years. The performance condition is satisfied upon (i) a qualified public offering or (ii) change in control of the Company as defined in the Company’s equity incentive plans. The RSUs vest on the first date upon which both the service and performance conditions are satisfied. If the RSUs vest, the Company will deliver one share of either Series A or Series B common stock, depending on the terms of the grant, for each vested RSU on the settlement date. Unvested RSUs expire in seven years from the date of grant.
In June 2021, the Company issued performance stock units (“PSUs”) to the co-CEOs which vest upon two performance conditions, (i) a qualified public offering, and (ii) the price of the Company’s Class A common stock reaching stock price hurdles over a period of ten years, as defined by the terms of the award. If the PSUs vest, the Company will deliver one share of Class B common stock on the settlement date. Unvested PSUs expire in ten years from the date of grant. The terms of the PSUs granted are described further below.
Stock Options
The fair value for options and share awards granted under the Plans are estimated at the date of grant using the Black-Scholes option-pricing model. No options were granted during the six months ended June 30, 2020. The following range of assumptions was used for options granted during the six months ended June 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
Risk-free interest rates
|
|
0.6
|
%
|
|
Expected dividend yield
|
|
—
|
|
|
Expected term
|
|
6.25 years
|
|
Volatility
|
|
60
|
%
|
The risk-free interest rates were estimated based on the yield curve in effect at the time of grant for zero-coupon U.S. Treasury notes with terms consistent with the expected term of the option awards. The expected dividend yield is zero as the Company has never declared or paid cash dividends and has no plans to do so in the foreseeable future. The expected term is calculated using the simplified method using the vesting term of four years and the contractual term of ten years, resulting in a holding period of 6.25 years. Stock options expire ten years from the date of the grant. The volatility rate is determined based on an analysis of comparable public company historical volatilities adjusted based on the Company’s stage of development.
Because the Company’s common stock is not yet publicly traded, the Company must estimate the fair value of common stock. The board of directors considers numerous objective and subjective factors to determine the fair value of the Company’s common stock at each meeting in which awards are approved. The factors considered include, but are not limited to: (i) the results of contemporaneous independent third-party valuations of the Company’s common stock; (ii) the prices, rights, preferences, and privileges of the Company’s redeemable convertible preferred stock relative to those of its common stock; (iii) the lack of marketability of the Company’s common stock; (iv) actual operating and financial results; (v) current business conditions and projections; (vi) the likelihood of achieving a liquidity event, such as a qualified public offering or sale of the Company, given prevailing market conditions; and (vii) contemporaneous transactions involving the Company’s common shares. The board of directors utilized third-party valuations which were performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants’ Accounting and Valuation Guide, Valuation of Privately Held Company Equity Securities Issued as Compensation.
Warby Parker Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share data)
A summary of stock option activity for the six months ended June 30, 2021 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Stock
Options
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
average
contractual
term
|
|
Aggregate
intrinsic
value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2020
|
7,795,040
|
|
|
$
|
4.88
|
|
|
4.9
|
|
|
$
|
103,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted
|
839,000
|
|
|
18.20
|
|
|
9.6
|
|
|
17.474
|
|
|
Options exercised
|
(476,755)
|
|
|
2.96
|
|
|
—
|
|
|
(5,200)
|
|
|
Options forfeited
|
(3,714)
|
|
|
4.77
|
|
|
—
|
|
|
—
|
|
|
Balance at June 30, 2021
|
8,153,571
|
|
|
$
|
6.36
|
|
|
5.0
|
|
|
$
|
266,313
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of June 30, 2021
|
8,153,571
|
|
|
6.36
|
|
|
5.0
|
|
|
—
|
|
Vested as of June 30, 2021
|
6,517,545
|
|
|
4.12
|
|
|
4.1
|
|
|
—
|
|
Unvested as of June 30, 2021
|
1,636,026
|
|
|
15.28
|
|
|
|
|
—
|
The total value of unrecognized stock compensation expense related to unvested options granted under the Plans was $11.8 million as of June 30, 2021, and is expected to be recognized over 1.4 years.
Restricted Stock and Performance Stock Units
A summary of RSU activity for the six months ended June 30, 2021 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Restricted Stock Units
|
|
Weighted Average Grant Date Fair Value
|
|
Unvested as of December 31, 2020
|
1,493,122
|
|
|
$
|
13.14
|
|
|
Granted
|
2,926,304
|
|
33.34
|
|
|
Forfeited
|
(79,503)
|
|
14.58
|
|
|
Vested and settled
|
(73,174)
|
|
12.93
|
|
|
Unvested as of June 30, 2021
|
4,266,749
|
|
|
$
|
26.97
|
|
On June 15, 2021, the board of directors approved a grant to the Company’s co-CEOs of 4,397,688 PSUs and 1,884,724 RSUs under our 2019 Plan (the “Founders Grant”).
The PSUs will only vest, if at all, in the event of (i) a qualified public offering and (ii) the price of the Company’s Class A common stock reaches stock price hurdles over a period of ten years. The PSUs are subject to the co-CEOs continued employment with the Company through the applicable vesting date. The PSUs are divided into eight substantially equal tranches, each one vesting on the date the 90-day trailing volume-weighted average
Warby Parker Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share data)
trading price of our Class A common stock exceeds the stock price hurdle, as set forth in the table below, provided that no PSUs may vest prior to the six month anniversary of the closing of a qualified public offering.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tranche
|
|
Number of PSUs
|
|
Stock Price Hurdle
|
|
1
|
|
549,712
|
|
|
$
|
47.75
|
|
|
2
|
|
549,710
|
|
|
$
|
55.71
|
|
|
3
|
|
549,712
|
|
|
$
|
63.67
|
|
|
4
|
|
549,710
|
|
|
$
|
71.63
|
|
|
5
|
|
549,712
|
|
|
$
|
79.59
|
|
|
6
|
|
549,710
|
|
|
$
|
87.55
|
|
|
7
|
|
549,712
|
|
|
$
|
95.50
|
|
|
8
|
|
549,710
|
|
|
$
|
103.46
|
|
The Company used a Monte Carlo simulation to calculate the grant-date fair value of the PSUs of $128.8 million. Since the PSUs contain a performance and market condition, the stock-based compensation expense will be recognized when it becomes probable that the performance condition will be met using the accelerated attribution method. Stock-based compensation will be recognized over the period of time the market condition for each tranche is expected to be met (i.e., the derived service period). The Company has concluded that as of June 30, 2021, it is not probable that the performance condition will be satisfied as the closing of a qualified public offering or change in control is not deemed probable until consummated.
The Founders Grant RSUs will vest in equal monthly installments over a period of five years, subject to the co-CEOs continued employment with the Company through the applicable vesting date and conditioned upon the completion of a qualified public offering. The grant-date fair value of the RSUs is $66.9 million. Since the RSUs contain a performance condition, stock-based compensation expense will be recognized using the accelerated attribution method when it becomes probable that the performance condition will be met. The Company has concluded that as of June 30, 2021, it is not probable that the performance condition will be satisfied as the closing of a qualified public offering or change in control is not deemed probable until consummated.
Shares underlying vested PSUs and RSUs and will be issued to the CEOs on a specified quarterly date following the second anniversary of the vesting date, except for an amount necessary to cover any taxes due in connection with the vesting, which will be withheld or sold to cover, or issued to offset, such taxes. Any RSUs or PSUs subject to the award that have not vested by the tenth anniversary of the grant date will be forfeited.
Other than the Founders Grant, all RSUs granted as of June 30, 2021 vest upon the satisfaction of both a service and a performance condition. The Company has concluded that as of June 30, 2021, it is not probable that the performance condition will be satisfied as the closing of a qualified public offering or change in control is not deemed probable until consummated. Accordingly, to date, the Company has not recorded any stock-based compensation expense for any RSUs with the exception of $1.8 million associated with RSUs that were repurchased in connection with the Tender Offer, which was recognized in June 2021 for the selling price of the shares tendered. Upon the consummation of either a qualified public offering or a change in control, the Company will record stock-based compensation expense for the service condition satisfied through such date and will begin recording stock-based compensation expense using the accelerated attribution method as the service conditions are met. The total value of unrecognized stock compensation expense related to outstanding RSUs granted under the Plans was $48.1 million as of June 30, 2021 which represents the fair value of the RSUs on the respective grant dates.
8. Commitments and Contingencies
Credit Facility
In August 2013, the Company entered into the Loan and Security Agreement with Comerica Bank, or the Credit Facility, as amended, that consists of a revolving credit line of up to $50.0 million. The revolving credit line has a sub-limit of up to $15.0 million for the issuance of letters of credit. Borrowings under the revolving credit line
Warby Parker Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share data)
bear interest on the principal amount outstanding at a variable interest rate based on either LIBOR or the bank’s prime rate (as defined in the credit agreement), with no additional margin. The Company is charged fees on the uncommitted portion of the credit line of approximately 0.2% as long as total borrowings remain less than $15.0 million.
In February and March 2020, the Company borrowed a total of $30.9 million under the Credit Facility, which was fully repaid in August 2020.
Other than letters of credit used to secure certain leases in lieu of a cash security deposit of $3.7 million and $3.6 million as of December 31, 2020 and June 30, 2021, respectively, there were no other borrowings outstanding under the Credit Facility as of December 31, 2020 and June 30, 2021.
Litigation
During the normal course of business, the Company may become subject to legal proceedings, claims and litigation. Such matters are subject to many uncertainties and outcomes are not predictable with assurance. Accruals for loss contingencies are recorded when a loss is probable, and the amount of such loss can be reasonably estimated.
As of December 31, 2020 and June 30, 2021, the Company is not subject to any currently pending legal matters or claims that could have a material adverse effect on its financial position, results of operations, or cash flows should such litigation be resolved unfavorably.
9. Net Loss Per Share Attributable to Common Stockholders
The computation of net loss per share attributable to common stockholders for the six months ended June 30, 2020 and 2021 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
2020
|
|
2021
|
|
Numerator
|
|
|
|
|
Net income (loss)
|
$
|
(10,007)
|
|
|
$
|
(7,295)
|
|
|
Less: deemed dividend upon redemption of redeemable convertible preferred stock
|
—
|
|
|
(13,137)
|
|
|
Net loss attributable to common stockholders - basic and diluted
|
$
|
(10,007)
|
|
|
$
|
(20,432)
|
|
|
Denominator
|
|
|
|
|
Weighted average shares, basic and diluted
|
52,636,215
|
|
|
53,986,670
|
|
|
Earnings Per Share
|
|
|
|
|
Net loss per share attributable to common stockholders, basic and diluted
|
$
|
(0.19)
|
|
|
$
|
(0.38)
|
|
The following potentially dilutive shares were excluded from the computation of diluted net loss per share for the six months ended June 30, 2020 and 2021 because including them would have been antidilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
2020
|
|
2021
|
|
Redeemable convertible preferred stock
|
49,181,772
|
|
|
53,299,362
|
|
|
Stock options to purchase common stock
|
8,866,377
|
|
|
8,153,571
|
|
|
Unvested restricted stock units
|
1,478,861
|
|
|
4,266,749
|
|
|
Unvested performance stock units
|
—
|
|
|
4,397,688
|
|
|
Warrants to purchase Series B redeemable convertible preferred stock
|
21,745
|
|
|
21,745
|
|
Warby Parker Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share data)
10. Related-Party Transactions
The Company issues secured promissory notes collateralized by the stock purchased by certain Company executives in relation to the exercise of employee stock options. As the promissory notes are secured by the underlying shares they have been treated as non-recourse notes in the condensed consolidated financial statements. The promissory notes are issued with a term of 8.5 years and an interest rate equal to the minimum applicable federal mid-term rate in the month the loan was issued. The secured promissory notes were recorded as a reduction to equity offsetting the amount in additional paid-in-capital related to the exercised options funded by the notes. During the six months ended June 30, 2021, an immaterial amount of employee loans were repaid and the outstanding loan balance increased by $0.2 million due to interest. The Company extended loans of $13.8 million to executives during the six months ended June 30, 2021. The loans had a balance of $34.6 million at June 30, 2021.
In May 2021, the Company and Addition Partners, a related party investor, commenced a cash tender offer which was completed in June 2021. See Note 4, Redeemable Convertible Preferred Stock and Stockholders’ Deficit, for further discussion of the nature of the tender offer.
11. Subsequent Events
The Company has assessed subsequent events through August 24, 2021, the date the unaudited condensed consolidated financial statements were issued, and has determined that no additional subsequent events occurred that would require recognition or disclosure in these condensed consolidated financial statements, except as described below.
Lease Obligations
Subsequent to June 30, 2021, the Company entered into 4 operating lease agreements and extended the terms of 3 existing operating lease agreements for retail space in the U.S., with terms ranging from 5 to 7 years. Total commitments under the new agreements are approximately $5.6 million, payable over the terms of the related agreements.
Equity
RSU Grants
In August 2021, the board of directors approved grants of 107,765 RSUs for Series B common stock to employees under the 2011 Stock Plan. The RSUs vest monthly over a four year service period and are subject to a performance condition which is satisfied upon the grantee’s employment on the date of the completion of a qualified public offering or a change in control as defined in the RSU agreement for shares that have met the service based condition through that date. The grant date fair value of these awards was $4.5 million and any stock-based compensation expense related to these grants will be recognized using the accelerated attribution method.
In August 2021, the board of directors approved grants of 55,038 fully vested RSUs for Series B common stock under the 2011 Stock Plan. Stock-based compensation expense of $2.3 million will be recorded in full on the date of grant.
Stock Purchase Rights
In August 2021, the board of directors approved a grant of 387,277 fully vested short term options to purchase 40,766 of Series A common stock and 346,511 of Series B common stock, to certain directors and employees. The options have an exercise price of $24.53 per share and expire 90 days after the grant date. The Company will recognize approximately $6.8 million of stock-based compensation on the date of grant which represents the grant date fair value, as measured by the Black-Scholes model.
Loan Repayments
In August 2021, $31.1 million of outstanding related party loans and accrued interest related to the exercise of 3,135,897 shares were repaid to the Company. Following the repayment, the Company’s balance of related party loans outstanding was approximately $3.6 million.
Item 13. Other Expenses of Issuance and Distribution.
The following table indicates the expenses to be incurred in connection with this registration statement and the listing of our Class A common stock, all of which will be paid by us. All amounts are estimated except the SEC registration fee and the exchange listing fee.
|
|
|
|
|
|
|
|
|
Amount
|
|
SEC registration fee
|
$
|
5,455
|
|
|
Exchange listing fee
|
295,000
|
|
|
Printing fees and expenses
|
250,000
|
|
|
Legal fees and expenses
|
3,500,000
|
|
|
Accounting fees and expenses
|
1,300,000
|
|
|
Custodian, transfer agent, and registrar fees
|
3,500
|
|
|
Other advisors’ fees
|
20,385,000
|
|
|
Miscellaneous fees and expenses
|
261,045
|
|
|
Total
|
$
|
26,000,000
|
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Item 14. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law authorizes a court to award, or a corporation’s board of directors to grant, indemnity to directors and officers in terms sufficiently broad to permit such indemnification under certain circumstances for liabilities, including reimbursement for expenses incurred, arising under the Securities Act. Our amended and restated certificate of incorporation that will be in effect immediately following the effectiveness of the registration statement of which this prospectus forms a part permits indemnification of our directors, officers, employees, and other agents to the maximum extent permitted by the Delaware General Corporation Law, and our Amended Bylaws that will be in effect immediately following the effectiveness of the registration statement of which this prospectus forms a part provide that we will indemnify our directors and officers and permit us to indemnify our employees and other agents, in each case to the maximum extent permitted by the Delaware General Corporation Law.
We have entered into indemnification agreements with our directors and officers, whereby we have agreed to indemnify our directors and officers to the fullest extent permitted by law, including indemnification against expenses and liabilities incurred in legal proceedings to which the director or officer was, or is threatened to be made, a party by reason of the fact that such director or officer is or was a director, officer, employee or agent of ours, provided that such director or officer acted in good faith and in a manner that the director or officer reasonably believed to be in, or not opposed to, our best interest.
The indemnification provisions in our amended and restated certificate of incorporation, Amended Bylaws, and the indemnification agreements that we have entered into or will enter into with our directors and executive officers may discourage stockholders from bringing a lawsuit against our directors and executive officers for breach of their fiduciary duties. They may also reduce the likelihood of derivative litigation against our directors and executive officers, even though an action, if successful, might benefit us and other stockholders. Further, a stockholder’s investment may be adversely affected to the extent that we pay the costs of settlement and damage awards against directors and executive officers as required by these indemnification provisions. At present, there is no pending litigation or proceeding involving a director or officer of ours regarding which indemnification is sought, nor is the registrant aware of any threatened litigation that may result in claims for indemnification.
We maintain insurance policies that indemnify our directors and officers against various liabilities arising under the Securities Act and the Exchange Act that might be incurred by any director or officer in his or her capacity as such.
Certain of our non-employee directors may, through their relationships with their employers, be insured and/or indemnified against certain liabilities incurred in their capacity as members of our board of directors.
Item 15. Recent Sales of Unregistered Securities.
Since December 1, 2018, we have issued and sold the following unregistered securities:
Preferred Stock Issuances
In March 2018, we issued an aggregate of 4,771,902 shares of our Series E redeemable convertible preferred stock to 32 accredited investors at a purchase price of $15.7170 per share, for an aggregate purchase price of $75.0 million.
In April 2020, we issued an aggregate of 6,412,542 shares of our Series F redeemable convertible preferred stock to 24 accredited investors at a purchase price of $19.4931 per share, for an aggregate purchase price of $125.0 million.
In August 2020, we issued an aggregate of 4,860,132 shares of our Series G redeemable convertible preferred stock to one accredited investor at a purchase price of $24.5306 per share, for an aggregate purchase price of $119.2 million.
Plan-Related Issuances
From June 1, 2018 through the date of this prospectus, we granted to certain directors, officers, employees, consultants, and other service providers options to purchase and restricted stock units covering an aggregate of 3,547,448 shares of our Series A Common Stock under our 2011 Plan, for options at exercise prices ranging from $12.35 to $24.53 per share.
From June 1, 2018 through the date of this prospectus, we granted to certain directors and employees options to purchase and restricted stock units covering an aggregate of 2,194,852 shares of our Series B Common Stock under our 2019 Plan, for options at exercise prices ranging from $12.63 to $24.53 per share.
None of the foregoing transactions involved any underwriters, underwriting discounts or commissions, or any public offering. Unless otherwise stated, the sales of the above securities were deemed to be exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act (and 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 on the share certificates issued in these transactions. All recipients had adequate access, through their relationships with us, to information about us. The sales of these securities were made without any general solicitation or advertising.
Item 16. Exhibits and Financial Statement Schedules.
(a)Exhibits.
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Exhibit Number
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Description of Exhibit
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3.1
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3.2
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3.3*
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Form of Amended and Restated Certificate of Incorporation of the Registrant, to be effective following the effectiveness of this registration statement.
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3.4*
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Form of Amended and Restated Bylaws of the Registrant, to be effective following the effectiveness of this registration statement.
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4.1
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4.2
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5.1*
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Opinion of Latham & Watkins LLP.
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10.1
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Loan and Security Agreement by and between Comerica Bank, Registrant and Warby Parker Retail, Inc., dated August 13, 2013, as amended by that certain First Amendment to Loan and Security Agreement dated as of November 13, 2014, that certain Second Amendment to Loan and Security Agreement dated as of March 31, 2016, that certain Third Amendment to Loan and Security Agreement dated as of August 10, 2017, that certain Fourth Amendment to Loan and Security Agreement dated as of September 10, 2018, that certain Fifth Amendment and Waiver to Loan and Security Agreement dated as of March 29, 2019, that certain Sixth Amendment to Loan and Security Agreement dated as of June 18, 2019, that certain Seventh Amendment to Loan and Security Agreement dated as of October 22, 2019, that certain Eight Amendment to Loan and Security Agreement, dated as of December 23, 2019 and that certain Ninth Amendment to Loan and Security Agreement, dated as of March 1, 2021.
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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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Warby Parker Inc. 2021 Incentive Award Plan and related form agreements.
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10.7*+
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Warby Parker Inc. 2021 Employee Stock Purchase Plan.
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10.8*+
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Warby Parker Inc. Non-Employee Director Compensation Policy.
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10.9*+
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Employment Agreement, by and between the registrant and Neil Blumenthal, dated , 2021.
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10.10*+
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Employment Agreement, by and between the Registrant and Dave Gilboa, dated , 2021.
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10.12*+
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Employment Agreement, by and between the Registrant and Steven Miller, dated , 2021.
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10.13
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21.1
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23.1
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23.2*
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Consent of Latham & Watkins LLP (included in Exhibit 5.1).
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24.1
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__________________
*To be filed by amendment.
+ Indicates management contract or compensatory plan.
(b)Financial Statement Schedules.
All financial statement schedules are omitted because the information required to be set forth therein is not applicable or is shown in the consolidated financial statements or the notes thereto.
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:
(i)To include any prospectus required by Section 10(a)(3) of the Securities Act, as amended, or the Securities Act.
(ii)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;
(iii)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 of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on August 24, 2021.
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WARBY PARKER INC.
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By:
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/s/ Neil Blumenthal
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Neil Blumenthal
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Co-Chief Executive Officer
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By:
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/s/ Dave Gilboa
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Dave Gilboa
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Co-Chief Executive Officer
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Power Of Attorney
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Neil Blumenthal, Dave Gilboa, and Steven Miller, and each one of them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in their name, place, and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, and to sign any registration statement for the same offering covered by this registration statement that is to be effective on filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and all post-effective amendments thereto, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
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Signature
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Title
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Date
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/s/ Neil Blumenthal
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Co-Chief Executive Officer and Director (Co-Principal Executive Officer)
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August 24, 2021
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Neil Blumenthal
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/s/ Dave Gilboa
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Co-Chief Executive Officer and Director (Co-Principal Executive Officer)
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August 24, 2021
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Dave Gilboa
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/s/ Steven Miller
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Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)
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August 24, 2021
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Steven Miller
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/s/ Andrew Hunt
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Director
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August 24, 2021
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Andrew Hunt
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/s/ Jeffrey Raider
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Director
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August 24, 2021
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Jeffrey Raider
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/s/ Teresa Briggs
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Director
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August 24, 2021
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Teresa Briggs
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/s/ Joel Cutler
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Director
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August 24, 2021
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Joel Cutler
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/s/ Youngme Moon
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Director
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August 24, 2021
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Youngme Moon
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/s/ Gabrielle Sulzberger
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Director
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August 24, 2021
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Gabrielle Sulzberger
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/s/ Ronald A. Williams
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Director
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August 24, 2021
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Ronald A. Williams
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ELEVENTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
JAND, INC.
(Pursuant to Sections 242 and 245 of the
General Corporation Law of the State of Delaware)
JAND, Inc., a corporation organized and existing under and by virtue of the provisions of the General Corporation Law of the State of Delaware (the “General Corporation Law”),
DOES HEREBY CERTIFY:
FIRST: That the name of this corporation is JAND, Inc. and that this corporation was originally incorporated pursuant to the General Corporation Law on May 7, 2009 under the name JAND, Inc.
SECOND: That the Board of Directors of this corporation (the “Board of Directors”) duly adopted resolutions proposing to amend and restate the Tenth Amended and Restated Certificate of Incorporation of this corporation, declaring said amendment and restatement to be advisable and in the best interests of this corporation and its stockholders, and authorizing the appropriate officers of this corporation to solicit the consent of the stockholders therefor, which resolution setting forth the proposed amendment and restatement is as follows:
RESOLVED, that the Tenth Amended and Restated Certificate of Incorporation of this corporation be amended and restated in its entirety as follows:
WARBY PARKER INC., A PUBLIC BENEFIT CORPORATION
ARTICLE I.
The name of this corporation is Warby Parker Inc.
ARTICLE II.
The address of the registered office of this corporation in the State of Delaware is 251 Little Falls Drive, in the City of Wilmington, County of New Castle, Zip Code 19808. The name of its registered agent at such address is Corporation Service Company.
ARTICLE III.
A. Purposes. The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law.
B. Benefit Corporation. This corporation shall be a public benefit corporation, as contemplated by subchapter XV of the General Corporation Law, or any successor provisions, that it is intended to operate in a responsible and sustainable manner and to produce a public benefit or benefits, and is to be managed in a manner that balances the stockholders’ pecuniary interests, the best interests of those materially affected by this corporation’s conduct and the public benefit or benefits identified in this Eleventh Amended and Restated Certificate of
Incorporation (the “Certificate of Incorporation”). Accordingly, it is intended that the business and operations of this corporation create a material positive impact on society and the environment, taken as a whole. If the General Corporation Law is amended to alter or further define the management and operation of public benefit corporations, then this corporation shall be managed and operated in accordance with the General Corporation Law, as so amended.
C. Public Benefit Purpose. The specific public benefits to be promoted by the corporation are to provide access to products and services that promote vision and eye health and to work towards positively impacting the communities in which the corporation operates.
ARTICLE IV.
A. Authorization of Stock. This corporation is authorized to issue two classes of stock to be designated, respectively, common stock and preferred stock. The total number of shares that this corporation is authorized to issue is two hundred four million five hundred seven thousand two hundred forty-three (204,507,243). The total number of shares of common stock authorized to be issued is one hundred fifty million (150,000,000), par value $0.0001 per share (the “Common Stock”), one hundred thirty-five million (135,000,000) of which are designated as “Series A Common Stock” and fifteen million (15,000,000) of which are designated as “Series B Common Stock.” The total number of shares of preferred stock authorized to be issued is fifty-four million five hundred seven thousand two hundred forty-three (54,507,243), par value $0.0001 per share (the “Preferred Stock”), five million seventy thousand six hundred ninety-four (5,070,694) of which are designated as “Series AA Preferred Stock”, four million two hundred three thousand two hundred eighty-four (4,203,284) of which are designated as “Series, A Preferred Stock”, twelve million sixty-two thousand five hundred sixty-seven (12,062,567) of which are designated as “Series B Preferred Stock”, four hundred thirty-four thousand eight hundred ninety-six (434,896) of which are designated as “Series B-1 Preferred Stock”, nine million fifty-eight thousand seven hundred ninety-four (9,058,794) of which are designated as “Series C Preferred Stock”, seven million six hundred thirty-two thousand four hundred fifty (7,632,450) of which are designated as “Series D Preferred Stock”, four million seven hundred seventy-one thousand nine hundred two (4,771,902) of which are designated “Series E Preferred Stock”, six million four hundred twelve thousand five hundred twenty-four (6,412,524) of which are designated “Series F Preferred Stock” and four million eight hundred sixty thousand one hundred thirty-two (4,860,132) of which are designated “Series G Preferred Stock.”
B. Rights, Preferences and Restrictions of Preferred Stock. The rights, preferences, privileges and restrictions granted to and imposed on the Preferred Stock are as set forth below in this Article IV(B). Unless otherwise indicated, references to “Sections” or “Subsections” in this Article IV(B) refer to sections and subsections of this Article IV(B).
1. Dividend Provisions. The holders of shares of Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors, out of any assets of this corporation legally available therefor, any dividends as may be declared from time to time by the Board of Directors. No dividend may be declared or paid on the Common Stock (other than dividends payable in shares of Common Stock) unless any and all such dividends or distributions are distributed among all holders of Common Stock and Preferred Stock in proportion to the number of shares of Common Stock that would be held by each such holder if all shares of
Preferred Stock were converted to Common Stock at the then effective applicable Conversion Price (as defined below) (with the Series B-1 Preferred Stock treated as being convertible (without actual conversion) into shares of Common Stock at the then applicable conversion rate of the Series B Preferred Stock).
2. Liquidation Preference.
(a) In the event of any Liquidation Event (as defined below), either voluntary or involuntary, the holders of each series of Preferred Stock shall be entitled to receive, prior and in preference to any distribution of the proceeds of such Liquidation Event (the “Proceeds”) to the holders of Common Stock by reason of their ownership thereof, an amount per share equal to the sum of the applicable Original Issue Price (as defined below) for such series of Preferred Stock, plus declared but unpaid dividends on such share. If, upon the occurrence of such event, the Proceeds thus distributed among the holders of the Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then the entire Proceeds legally available for distribution shall be distributed ratably among the holders of the Preferred Stock in proportion to the full preferential amount that each such holder is otherwise entitled to receive under this subsection (a). For purposes of this Certificate of Incorporation, “Original Issue Price” shall mean $0.62447 per share for each share of the Series AA Preferred Stock, $1.83542 per share for each share of the Series A Preferred Stock, $3.4491 per share for each share of the Series B Preferred Stock, $3.4491 per share for each share of the Series B-1 Preferred Stock, $5.4682 per share for each share of the Series C Preferred Stock, $11.4853 per share for each share of the Series D Preferred Stock, $15.717 per share for each share of the Series E Preferred Stock, for each share of Series F Preferred Stock (the “Series F Original Issue Price”), the per share purchase price set forth on Schedule B of that certain Series F Preferred Stock Agreement, dated April 3, 2020, by and among the corporation and the other parties thereto, a copy of such schedule will be maintained by the secretary of the corporation and provided without cost to any stockholder upon written request of the secretary of the corporation and for each share of Series G Preferred Stock (the “Series G Original Issue Price”), the per share purchase price set forth on Schedule B of that certain Series G Preferred Stock Agreement, dated on or about the Filing Date (as hereinafter defined), by and among the corporation and the other parties thereto, a copy of such schedule will be maintained by the secretary of the corporation and provided without cost to any stockholder upon written request of the secretary of the corporation (in each case subject to adjustment from time to time for any stock splits, stock dividends, combinations, subdivisions, recapitalizations or the like with respect to such series of Preferred Stock as set forth elsewhere herein).
(b) Upon completion of the distribution required by subsection (a) of this Section 2, all of the remaining Proceeds available for distribution to stockholders shall be distributed among the holders of Common Stock pro rata based on the number of shares of Common Stock held by each.
(c) Notwithstanding the above, for purposes of determining the amount each holder of shares of Preferred Stock is entitled to receive with respect to a Liquidation Event, each such holder of shares of a series of Preferred Stock shall be deemed to have converted (regardless of whether such holder actually converted) such holder’s shares of
such series into shares of Common Stock immediately prior to the Liquidation Event if, as a result of an actual conversion, such holder would receive, in the aggregate, an amount equal to or greater than the amount that would be distributed to such holder if such holder did not convert such series of Preferred Stock into shares of Common Stock. For the avoidance of doubt, the preceding sentence shall not require the actual conversion of any shares of Preferred Stock in order to receive the amounts specified in such sentence and each share of Preferred Stock shall be treated as being then convertible into Common Stock as provided below, with the Series B-1 Preferred Stock being deemed to be not subject to the Regulatory Conversion Restriction (as defined below) for purposes of determining these rights. If any such holder shall be deemed to have converted shares of Preferred Stock into Common Stock pursuant to this paragraph, then such holder shall not be entitled to receive any distribution that would otherwise be made to holders of Preferred Stock that have not converted (or have not been deemed to have converted) into shares of Common Stock.
(d) For purposes of this Section 2, a “Liquidation Event” shall include (A) the closing of the sale, lease, transfer or other disposition of all or substantially all of this corporation’s assets in one transaction or a series of related transactions, (B) the consummation of the merger or consolidation of this corporation with or into another entity (except a merger or consolidation in which the holders of capital stock of this corporation immediately prior to such merger or consolidation continue to hold at least 50% of the voting power of the capital stock of this corporation or the surviving or acquiring entity), (C) the closing of the transfer (whether by merger, consolidation or otherwise), in one transaction or a series of related transactions, to a person or group of affiliated persons (other than an underwriter of this corporation’s securities), of this corporation’s securities if, after such closing, such person or group of affiliated persons would hold 50% or more of the outstanding voting stock of this corporation (or the surviving or acquiring entity), (D) the grant to a single entity (or group of affiliated entities) of an exclusive, irrevocable license to all or substantially all of this corporation’s intellectual property that is used to generate all or substantially all of this corporation’s revenues, or (E) a liquidation, dissolution or winding up of this corporation; provided, however, that a transaction shall not constitute a Liquidation Event if its sole purpose is to change the state of this corporation’s incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who held this corporation’s securities immediately prior to such transaction. Notwithstanding the prior sentence, the sale of shares of Series G Preferred Stock in a financing transaction shall not be deemed a “Liquidation Event.” The treatment of any particular transaction or series of related transactions as a Liquidation Event may be waived by the vote or written consent of the holders of a majority of the outstanding Preferred Stock (voting together as a single class and not as separate series, and on an as-converted basis, and including the holders of Series B-1 Preferred Stock, which shall not be subject to the Regulatory Voting Restriction (as defined below) for purposes of this specific vote).
(i) The corporation shall not have the power to effect a Liquidation Event referred to in subsection 2(d)(i)(B) or (C) unless the agreement or plan of merger or consolidation (the “Merger Agreement”) for such transaction provides that the consideration payable to the stockholders of the corporation be allocated among the holders of capital stock of the corporation in accordance with subsections 2(a), (b) and (c). The terms of this
subsection 2(d)(ii) may be waived by the vote or written consent of the holders of a majority of the outstanding Preferred Stock (voting together as a single class and not as separate series, and on an as-converted basis, and including the holders of Series B-1 Preferred Stock, which shall not be subject to the Regulatory Voting Restriction for purposes of this specific vote).
(ii) In the event of a Liquidation Event, if any portion of the consideration payable to the stockholders of the corporation is placed into escrow and/or is payable to the stockholders of the corporation subject to contingencies, the Merger Agreement shall provide that (A) the portion of such consideration that is not placed in escrow and not subject to any contingencies (the “Initial Consideration”) shall be allocated among the holders of capital stock of the corporation in accordance with subsections 2(a), (b) and (c) as if the Initial Consideration were the only consideration payable in connection with such Liquidation Event and (B) any additional consideration which becomes payable to the stockholders of the corporation upon release from escrow or satisfaction of contingencies shall be allocated among the holders of capital stock of the corporation in accordance with subsections 2(a), (b) and (c) after taking into account the previous payment of the Initial Consideration as part of the same transaction.
(iii) In any Liquidation Event, if Proceeds received by this corporation or its stockholders are other than cash, their value will be deemed their fair market value. Any securities shall be valued as follows:
(A) Securities not subject to investment letter or other similar restrictions on free marketability covered by (B) below:
(1) If traded on a securities exchange, the value shall be deemed to be the average of the closing prices of the securities on such exchange or system over the twenty (20) trading-day period ending three (3) trading days prior to the closing of the Liquidation Event;
(2) If actively traded over-the-counter, the value shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the twenty (20) trading-day period ending three (3) trading days prior to the closing of the Liquidation Event; and
(3) If there is no active public market, the value shall be the fair market value thereof, as mutually determined by this corporation and the holders of a majority of the voting power of all then outstanding shares of Preferred Stock (including the holders of Series B-1 Preferred Stock, which shall not be subject to the Regulatory Voting Restriction for purposes of this specific vote).
(B) The method of valuation of securities subject to investment letter or other restrictions on free marketability (other than restrictions arising solely by virtue of a stockholder’s status as an affiliate or former affiliate) shall be to make an appropriate discount from the market value determined as above in (A) (1), (2) or (3) to reflect the approximate fair market value thereof, as mutually determined by this corporation and the holders of a majority of the voting power of all then outstanding shares of such Preferred Stock
(including the holders of Series B-1 Preferred Stock, which shall not be subject to the Regulatory Voting Restriction for purposes of this specific vote).
(C) The foregoing methods for valuing non-cash consideration to be distributed in connection with a Liquidation Event shall, upon approval of the definitive agreements governing such Liquidation Event by the stockholders under the General Corporation Law, be superseded by any determination of such value set forth in the definitive agreements governing such Liquidation Event.
(iv) In the event the requirements of this Section 2 are not complied with, this corporation shall forthwith either:
(A) cause the closing of such Liquidation Event to be postponed until such time as the requirements of this Section 2 have been complied with; or
(B) cancel such transaction, in which event the rights, preferences and privileges of the holders of the Preferred Stock shall revert to and be the same as such rights, preferences and privileges existing immediately prior to the date of the first notice referred to in subsection 2(d)(vi) hereof.
(v) This corporation shall give each holder of record of Preferred Stock written notice of such impending Liquidation Event not later than twenty (20) days prior to the stockholders’ meeting called to approve such transaction, or twenty (20) days prior to the closing of such transaction, whichever is earlier, and shall also notify such holders in writing of the final approval of such transaction. The first of such notices shall describe the material terms and conditions of the impending transaction and the provisions of this Section 2, and this corporation shall thereafter give such holders prompt notice of any material changes. The transaction shall in no event take place sooner than twenty (20) days after this corporation has given the first notice provided for herein or sooner than ten (10) days after this corporation has given notice of any material changes provided for herein; provided, however, that subject to compliance with the General Corporation Law such periods may be shortened or waived upon the written consent of the holders of Preferred Stock that represent a majority of the voting power of all then outstanding shares of Preferred Stock (voting together as a single class and not as separate series, and on an as-converted basis, and including the holders of Series B-1 Preferred Stock, which shall not be subject to the Regulatory Voting Restriction for purposes of this specific vote).
3. Redemption. The Preferred Stock is not redeemable at the option of the holder.
4. Conversion. The holders of the Preferred Stock shall have conversion rights as follows (the “Conversion Rights”):
(a) Right to Convert.
(i) Non-Regulated Preferred Stock. Each share of Series AA Preferred Stock, Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F Preferred Stock and Series G
Preferred Stock (collectively, the “Non-Regulated Preferred Stock”) shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of this corporation or any transfer agent for such stock, into such number of fully paid and nonassessable shares of Series A Common Stock as is determined by dividing the applicable Original Issue Price for such series by the applicable Conversion Price for such series (the conversion price for a series of Non-Regulated Preferred Stock into Series A Common Stock is referred to herein as the “Conversion Price” for such series, in each case as adjusted for any stock splits, stock dividends, combinations, subdivisions, recapitalizations or the like with respect to such series of Non-Regulated Preferred Stock), determined as hereafter provided, in effect on the date the certificate is surrendered for conversion or in the case of uncertificated securities, the date the notice of conversion is received by the corporation. The initial Conversion Price per share for the Series AA Preferred Stock shall be $0.62447, the initial Conversion Price per share for the Series A Preferred Stock shall be $1.83542, the initial Conversion Price per share for the Series B Preferred Stock shall be $3.4491 (the “Series B Conversion Price”), the initial Conversion Price per share for the Series C Preferred Stock shall be $5.4682, the initial Conversion Price per share for the Series D Preferred Stock shall be $11.4853, the initial Conversion Price per share for the Series E Preferred Stock shall be $15.717, the initial Conversion Price per share for the Series F Preferred Stock shall be the Series F Original Issue Price and the initial Conversion Price per share for the Series G Preferred Stock shall be the Series G Original Issue Price; provided, however, that each such Conversion Price shall be subject to adjustment as set forth in subsection 4(d).
(ii) Series B-1 Preferred Stock. Shares of Series B-1 Preferred Stock shall not be convertible into Series A Common Stock pursuant to this Section 4 or otherwise in the hands of a Regulated Holder (as defined below) or its Transferees (as defined below) (unless such conversion is in connection with a Permitted Regulatory Transfer (as defined below)) (such restriction, the “Regulatory Conversion Restriction”). Instead, upon notice to the corporation from the holder of Series B-1 Preferred Stock that it intends to exercise the rights granted pursuant to the remainder of this sentence (a “Deemed Conversion Notice”), (x) the Series B-1 Preferred Stock shall no longer be entitled to any rights that are not also applicable to shares of Series A Common Stock, including without limitation the right to receive the amounts payable to holders of Series B-1 Preferred Section pursuant to Section 1 and 2 above, and such holder of Series B-1 Preferred Stock shall be deemed to have forever and finally waived all such rights; provided, however, that the rights set forth in Section 5(c) and Article XIII, as well as the Regulatory Voting Restriction, shall continue to apply to shares of Series B-1 Preferred Stock, and (y) such holder of Series B-1 Preferred Stock thereafter shall be entitled to receive, in lieu of any amounts otherwise payable on the Series B-1 Preferred Stock hereunder (including any amounts payable pursuant to Section 2(a) above), only an amount per share equal to the amounts that may become payable to holders of Series A Common Stock hereunder as if such Series B-1 Preferred Stock had been converted (but without actually converting) into shares of Series A Common Stock, at the then-effective Series B Conversion Price, at the same time that the Deemed Conversion Notice was given (a “Deemed Optional Conversion”), as adjusted for any stock splits, stock dividends, combinations, subdivisions, recapitalizations or the like with respect to the Series A Common Stock occurring after such Deemed Optional Conversion.
(b) Automatic Conversion.
(i) Non-Regulated Preferred Stock. Each share of each series of Non-Regulated Preferred Stock shall automatically be converted into shares of Series A Common Stock at the applicable Conversion Price at the time in effect for the Non-Regulated Preferred Stock immediately upon the earlier of (A) either (i) the closing of this corporation’s sale of its Common Stock in a firm commitment underwritten public offering pursuant to a registration statement on Form S-1 or Form SB-2 under the Securities Act of 1933, as amended, the proceeds of which were not less than $50,000,000 in the aggregate or (ii) the date of listing of this corporation’s Common Stock on a national securities exchange pursuant to a registration statement on Form S-1 under the Securities Act of 1933, as amended without a firm commitment underwriting (each, a “Qualified Public Offering”) and (B) the date, or the occurrence of an event, specified by vote or written consent or agreement of the holders of a majority of the then outstanding shares of Non-Regulated Preferred Stock (voting together as a single class and not as separate series, and on an as-converted basis).
(ii) Series B-1 Preferred Stock.
(A) Notwithstanding anything to the contrary contained herein, no shares of Series B-1 Preferred Stock shall be convertible into shares of Series A Common Stock pursuant to this Section 4(b) (unless such conversion is in connection with a Permitted Regulatory Transfer), but instead, upon the occurrence of any of the events described in Section 4(b)(i)(A) or (B) above, (x) the Series B-1 Preferred Stock shall no longer be entitled to any rights that are not also applicable to shares of Series A Common Stock, including without limitation the right to receive the amounts payable to holders of Series B-1 Preferred Stock pursuant to Section 1 and Section 2 above, and such holder of Series B-1 Preferred Stock shall be deemed to have forever and finally waived all such rights; provided, however, that the rights set forth in Section 5(c) and Article XIII, as well as the Regulatory Voting Restriction, shall continue to apply to shares of Series B-1 Preferred Stock, and (y) each holder of Series B-1 Preferred Stock thereafter shall be entitled to receive, in lieu of any amounts otherwise payable on the Series B-1 Preferred Stock hereunder (including any amounts payable pursuant to Section 2(a) above), only an amount per share equal to the amounts that may become payable to holders of Series A Common Stock hereunder as if such Series B-1 Preferred Stock had been converted (but without actually converting) into shares of Series A Common Stock, at the then-effective Series B Conversion Price, at the same time that all shares of Non-Regulated Preferred Stock have been automatically converted pursuant to Section 4(b)(i) (a “Deemed Automatic Conversion”), as adjusted for any stock splits, stock dividends, combinations, subdivisions, recapitalizations or the like with respect to the Series A Common Stock occurring after such Deemed Automatic Conversion.
(B) In addition, upon consummation of a Permitted Regulatory Transfer, each share of Series B-1 Preferred Stock so transferred in such a Permitted Regulatory Transfer shall automatically be converted into (i) one (1) fully paid and nonassessable share of Series B Preferred Stock, as adjusted for any stock splits, stock dividends, combinations, subdivisions, recapitalizations or the like with respect to the Series B Preferred Stock, if such Permitted Regulatory Transfer occurs prior to a Deemed Automatic Conversion,
and (ii) fully paid and nonassessable shares of Series A Common Stock, if such Permitted Regulatory Transfer occurs on or subsequent to a Deemed Automatic Conversion. Any shares of Series B-1 Preferred Stock that are convertible into Series A Common Stock pursuant to this Section 4(b)(ii) shall be convertible into such number of fully paid and nonassessable shares of Series A Common Stock as is determined by dividing the Original Issue Price of the Series B-1 Preferred Stock by the then effective Series B Conversion Price.
(c) Mechanics of Conversion. Before any holder of Non-regulated Preferred Stock shall be entitled to voluntarily convert the same into shares of Series A Common Stock, he or she shall surrender the certificate or certificates therefor, duly endorsed, at the office of this corporation or of any transfer agent for the Non-Regulated Preferred Stock, and shall give written notice to this corporation at its principal corporate office, of the election to convert the same and shall state therein the name or names in which the certificate or certificates or, upon request in the case of uncertificated securities, a notice of issuance, for shares of Series A Common Stock are to be issued. This corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Non-Regulated Preferred Stock, or to the nominee or nominees of such holder, a certificate or certificates or, upon request in the case of uncertificated securities, a notice of issuance, for the number of shares of Series A Common Stock to which such holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Non-Regulated Preferred Stock to be converted, and the person or persons entitled to receive the shares of Series A Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Series A Common Stock as of such date. If the conversion is in connection with an offering and/or listing of securities registered pursuant to the Securities Act of 1933, as amended, the conversion may, at the option of any holder tendering Preferred Stock for conversion, be conditioned upon (x) the closing with the underwriters of the sale of securities pursuant to such offering or (y) the listing of the securities on a national securities exchange, in which event the persons entitled to receive the Series A Common Stock upon conversion of the Preferred Stock shall not be deemed to have converted such Preferred Stock until immediately prior to the closing of such sale or listing of securities. If the conversion is in connection with Automatic Conversion provisions of subsection 4(b)(i)(B) above, such conversion shall be deemed to have been made on the conversion date described in the stockholder consent approving such conversion, and the persons entitled to receive shares of Series A Common Stock issuable upon such conversion shall be treated for all purposes as the record holders of such shares of Series A Common Stock as of such date. Automatic conversion of the Series B-1 Preferred Stock pursuant to Section 4(b)(ii)(B) above shall be effective without any further action on the part of the holders of such shares and shall be effective whether or not the certificates for such shares are surrendered to the corporation or its transfer agent.
(d) Conversion Price Adjustments of Preferred Stock for Certain Dilutive Issuances Splits and Combinations. The Conversion Price of the Preferred Stock shall be subject to adjustment from time to time as follows:
(i) If this corporation shall issue, on or after the date upon which this Certificate of Incorporation is accepted for filing by the Secretary of State of the State of Delaware (the “Filing Date”), any Additional Stock (as defined below) without consideration
or for a consideration per share less than the Conversion Price applicable to a series of Preferred Stock in effect immediately prior to the issuance of such Additional Stock, the Conversion Price for such series in effect immediately prior to each such issuance shall forthwith (except as otherwise provided in this clause (i)) be adjusted to a price determined by multiplying such Conversion Price by a fraction, the numerator of which shall be the number of shares of Common Stock Outstanding (as defined below) immediately prior to such issuance plus the number of shares of Common Stock that the aggregate consideration received by this corporation for such issuance would purchase at such Conversion Price; and the denominator of which shall be the number of shares of Common Stock Outstanding (as defined below) immediately prior to such issuance plus the number of shares of such Additional Stock. For purposes of this Section 4(d)(i)(A), the term “Common Stock Outstanding” shall mean and include the following: (1) outstanding Common Stock, (2) Common Stock issuable upon conversion of outstanding Preferred Stock (with the Series B-1 Preferred Stock treated as being convertible (without actual conversion) into shares of Common Stock at the then effective Series B Conversion Price), (3) Common Stock issuable upon exercise of outstanding stock options and (4) Common Stock issuable upon exercise (and, in the case of warrants to purchase Preferred Stock, conversion) of outstanding warrants. Shares described in (1) through (4) above shall be included whether vested or unvested, whether contingent or non-contingent and whether exercisable or not yet exercisable. In the event that, after the Filing Date, this corporation issues or sells, or is deemed to have issued or sold, shares of Additional Stock that results in an adjustment to a Conversion Price pursuant to the provisions of this Section 4(d) (the “First Dilutive Issuance”), and this corporation then issues or sells, or is deemed to have issued or sold, shares of Additional Stock in a subsequent issuance other than the First Dilutive Issuance that would result in further adjustment to a Conversion Price (a “Subsequent Dilutive Issuance”) pursuant to the same instruments as the First Dilutive Issuance, then and in each such case upon a Subsequent Dilutive Issuance the applicable Conversion Price for each series of Preferred Stock shall be reduced to the applicable Conversion Price that would have been in effect had the First Dilutive Issuance and each Subsequent Dilutive Issuance all occurred on the closing date of the First Dilutive Issuance.
(A) No adjustment of the Conversion Price for the Preferred Stock shall be made in an amount less than one tenth of one cent per share. Except to the limited extent provided for in subsections (E)(3) and (E)(4), no adjustment of such Conversion Price pursuant to this subsection 4(d)(i) shall have the effect of increasing the Conversion Price above the Conversion Price in effect immediately prior to such adjustment.
(B) In the case of the issuance of Additional Stock for cash, the consideration shall be deemed to be the amount of cash paid therefor before deducting any reasonable discounts, commissions or other expenses allowed, paid or incurred by this corporation for any underwriting or otherwise in connection with the issuance and sale thereof.
(C) In the case of the issuance of the Additional Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair market value thereof as determined by the Board of Directors irrespective of any accounting treatment.
(D) In the case of the issuance of options to purchase or rights to subscribe for Common Stock, securities by their terms convertible into or exchangeable for Common Stock or options to purchase or rights to subscribe for such convertible or exchangeable securities, the following provisions shall apply for purposes of determining the number of shares of Additional Stock issued and the consideration paid therefor:
(1) The aggregate maximum number of shares of Common Stock deliverable upon exercise (assuming the satisfaction of any conditions to exercisability, including without limitation, the passage of time, but without taking into account potential antidilution adjustments) of such options to purchase or rights to subscribe for Common Stock shall be deemed to have been issued at the time such options or rights were issued and for a consideration equal to the consideration (determined in the manner provided in subsections 4(d)(i)(C) and (d)(i)(D)), if any, received by this corporation upon the issuance of such options or rights plus the minimum exercise price provided in such options or rights (without taking into account potential antidilution adjustments) for the Common Stock covered thereby.
(2) The aggregate maximum number of shares of Common Stock deliverable upon conversion of, or in exchange (assuming the satisfaction of any conditions to convertibility or exchangeability, including, without limitation, the passage of time, but without taking into account potential antidilution adjustments) for, any such convertible or exchangeable securities or upon the exercise of options to purchase or rights to subscribe for such convertible or exchangeable securities and subsequent conversion or exchange thereof shall be deemed to have been issued at the time such securities were issued or such options or rights were issued and for a consideration equal to the consideration, if any, received by this corporation for any such securities and related options or rights (excluding any cash received on account of accrued interest or accrued dividends), plus the minimum additional consideration, if any, to be received by this corporation (without taking into account potential antidilution adjustments) upon the conversion or exchange of such securities or the exercise of any related options or rights (the consideration in each case to be determined in the manner provided in subsections 4(d)(i)(C) and (d)(i)(D)).
(3) In the event of any change in the number of shares of Common Stock deliverable or in the consideration payable to this corporation upon exercise of such options or rights or upon conversion of or in exchange for such convertible or exchangeable securities, the Conversion Price of the Preferred Stock, to the extent in any way affected by or computed using such options, rights or securities, shall be recomputed to reflect such change, but no farther adjustment shall be made for the actual issuance of Common Stock or any payment of such consideration upon the exercise of any such options or rights or the conversion or exchange of such securities.
(4) Upon the expiration of any such options or rights, the termination of any such rights to convert or exchange or the expiration of any options or rights related to such convertible or exchangeable securities, the Conversion Price of the Preferred Stock, to the extent in any way affected by or computed using such options, rights or securities or options or rights related to such securities, shall be recomputed to reflect the issuance of only the number of shares of Common Stock (and convertible or exchangeable
securities that remain in effect) actually issued upon the exercise of such options or rights, upon the conversion or exchange of such securities or upon the exercise of the options or rights related to such securities.
(5) The number of shares of Additional Stock deemed issued and the consideration deemed paid therefor pursuant to subsections 4(d)(i)(E)(l) and (2) shall be appropriately adjusted to reflect any change, termination or expiration of the type described in either subsection 4(d)(i)(E)(3) or (4).
(ii) “Additional Stock” shall mean any shares of Common Stock issued (or deemed to have been issued pursuant to subsection 4(d)(i)(E)) by this corporation on or after the Filing Date other than:
(A) Common Stock issued pursuant to a transaction described in subsection 4(d)(iii) hereof;
(B) Common Stock issued to employees, directors, consultants and other service providers for the primary purpose of soliciting or retaining their services pursuant to plans or agreements approved by the Board of Directors;
(C) Common Stock issued pursuant to a Qualified Public Offering or a firm commitment underwritten public offering;
(D) Common Stock issued pursuant to the conversion or exercise of convertible or exercisable securities outstanding on the Filing Date;
(E) Common Stock issued in connection with a bona fide business acquisition of or by this corporation, whether by merger, consolidation, sale of assets, sale or exchange of stock or otherwise, provided that such transaction is approved by the Board of Directors;
(F) Common Stock issued or deemed issued pursuant to subsection 4(d)(i)(E) as a result of a decrease in the Conversion Price of any series of Preferred Stock resulting from the operation of Section 4(d);
(G) Common Stock issued upon conversion of the Preferred Stock (with the Series B-1 Preferred Stock treated as being convertible into shares of Common Stock at the then applicable conversion rate of the Series B Preferred Stock);
(H) Series A Common Stock issued upon conversion of the Series B Common Stock;
(I) Common Stock issued with the unanimous consent of the Board of Directors;
(J) Common Stock issued to persons or entities with which this corporation has business relationships, provided such issuances are for other than primarily equity financing purposes and have been approved by the Board of Directors;
(K) Common Stock issued pursuant to any equipment leasing arrangement or debt financing from a bank or similar institution approved by the Board of Directors, provided such financing is primarily for non-equity purposes; or
(L) Series B Preferred Stock issued upon conversion of the Series B-1 Preferred Stock.
(iii) In the event this corporation should at any time or from time to time after the Filing Date fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock or the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock (hereinafter referred to as “Common Stock Equivalents”) without payment of any consideration by such holder for the additional shares of Common Stock or the Common Stock Equivalents (including the additional shares of Common Stock issuable upon conversion or exercise thereof), then, as of such record date (or the date of such dividend distribution, split or subdivision if no record date is fixed), the Conversion Price of the Preferred Stock shall be appropriately decreased so that the number of shares of Series A Common Stock issuable on conversion of each share of such series of Preferred Stock shall be increased in proportion to such increase of the aggregate of shares of Common Stock outstanding and those issuable with respect to such Common Stock Equivalents with the number of shares issuable with respect to Common Stock Equivalents determined from time to time in the manner provided for deemed issuances in subsection 4(d)(i)(E); provided, however, that if such record date is fixed and such dividend is not paid or if such distribution is not fully made on the date fixed therefor, the Conversion Price for such series of Preferred Stock will be re-computed accordingly as of the close of business on such record date and thereafter each such Conversion Price will be adjusted pursuant to this Section 4(d)(iii) to reflect the actual payment of such dividend or distribution.
(iv) If the number of shares of Common Stock outstanding at any time after the Filing Date is decreased by a combination of the outstanding shares of Common Stock, then, following the record date of such combination, the Conversion Price for the Preferred Stock shall be appropriately increased so that the number of shares of Series A Common Stock issuable on conversion of each share of such series shall be decreased in proportion to such decrease in outstanding shares.
(e) Other Distributions. Subject to any applicable BHCA Regulatory Restrictions set forth in Article XIII, in the event this corporation shall declare a distribution payable in securities of other persons, evidences of indebtedness issued by this corporation or other persons, assets (excluding cash dividends) or options or rights not referred to in subsection 4(d)(iii), then, in each such case for the purpose of this subsection 4(e), the holders of the Preferred Stock shall be entitled to a proportionate share of any such distribution as though they were the holders of the number of shares of Common Stock of this corporation into which their shares of Preferred Stock are convertible as of the record date fixed for the determination of the holders of Common Stock of this corporation entitled to receive such distribution (with the
Series B-1 Preferred Stock treated as being convertible (without actual conversion) into shares of Common Stock at the then effective Series B Conversion Price).
(f) Recapitalizations. If at any time or from time to time there shall be a recapitalization of the Common Stock (other than a subdivision, combination or merger or sale of assets transaction provided for elsewhere in this Section 4 or in Section 2) provision shall be made so that the holders of the Preferred Stock shall thereafter be entitled to receive upon conversion of the Preferred Stock the number of shares of stock or other securities or property of this corporation or otherwise, to which a holder of Common Stock deliverable upon conversion would have been entitled on such recapitalization (with the Series B-1 Preferred Stock treated as being convertible (without actual conversion) into shares of Common Stock at the then effective Series B Conversion Price). In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 4 with respect to the rights of the holders of the Preferred Stock after the recapitalization to the end that the provisions of this Section 4 (including adjustment of the Conversion Price then in effect and the number of shares purchasable upon conversion of the Preferred Stock) shall be applicable after that event as nearly equivalently as may be practicable.
(g) No Fractional Shares and Certificate as to Adjustments.
(i) No fractional shares shall be issued upon the conversion of any share or shares of the Preferred Stock and the aggregate number of shares of Common Stock to be issued to particular stockholders, shall be rounded down to the nearest whole share and the corporation shall pay in cash the fair market value of any fractional shares as of the time when entitlement to receive such fractions is determined. Whether or not fractional shares would be issuable upon such conversion shall be determined on the basis of the total number of shares of Preferred Stock the holder is at the time converting into Common Stock and the number of shares of Common Stock issuable upon such conversion.
(ii) Upon the occurrence of each adjustment or readjustment of the Conversion Price of Preferred Stock pursuant to this Section 4 (with the Series B-1 Preferred Stock treated as being convertible (without actual conversion) into shares of Common Stock at the then effective Series B Conversion Price), this corporation, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. This corporation shall, upon the written request at any time of any holder of Preferred Stock, famish or cause to be famished to such holder a like certificate setting forth (A) such adjustment and readjustment, (B) the Conversion Price for such series of Preferred Stock at the time in effect, and (C) the number of shares of Common Stock and the amount, if any, of other property that at the time would be received upon the conversion of a share of Preferred Stock.
(h) Notices of Record Date. In the event of any taking by this corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, this corporation shall mail to each holder of Preferred Stock, at least ten (10) days prior to the date specified therein, a notice specifying the date on which any such record is to be
taken for the purpose of such dividend or distribution, and the amount and character of such dividend or distribution.
(i) Reservation of Stock Issuable Upon Conversion. This corporation shall at all times reserve and keep available out of its authorized but unissued shares of Series A Common Stock, solely for the purpose of effecting the conversion of the shares of the Preferred Stock, such number of its shares of Series A Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Preferred Stock; and if at any time the number of authorized but unissued shares of Series A Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Preferred Stock, in addition to such other remedies as shall be available to the holder of such Preferred Stock, this corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Series A Common Stock to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to this Certificate of Incorporation.
(j) Waiver of Adjustment to Conversion Price. Notwithstanding anything herein to the contrary, any downward adjustment of the Conversion Price of any series of Preferred Stock may be waived, either prospectively or retroactively and either generally or in a particular instance, only by the consent or vote of the holders of a majority of the outstanding shares of such series of Preferred Stock. Any such waiver shall bind all future holders of shares of such series of Preferred Stock.
5. Voting Rights.
(a) General Voting Rights. Subject to the Regulatory Voting Restriction, the holder of each share of Preferred Stock shall have the right to one vote for each share of Series A Common Stock into which such Preferred Stock could then be converted (with the Series B-1 Preferred Stock treated as being convertible (without actual conversion) into shares of Common Stock at the then effective Series B Conversion Price), and with respect to such vote, such holder shall have full voting rights and powers equal to the voting rights and powers of the holders of Series A Common Stock, and shall be entitled, notwithstanding any provision hereof, to notice of any stockholders’ meeting in accordance with the Bylaws of this corporation, and except as provided by law or in subsection 5(b) below with respect to the election of directors by the separate class vote of the holders of Common Stock, shall be entitled to vote, together with holders of Series A Common Stock, with respect to any question upon which holders of Series A Common Stock have the right to vote. Fractional votes shall not, however, be permitted and any fractional voting rights available on an as-converted basis (after aggregating all shares into which shares of Preferred Stock held by each holder could be converted) shall be rounded to the nearest whole number (with one-half being rounded upward). Where the shares of Series B-1 Preferred Stock are permitted to vote herein, the shares of Series B-1 Preferred Stock shall be treated as being then convertible (without actual conversion) into shares of Series A Common Stock at the then applicable conversion rate of the Series B Preferred Stock.
(b) Voting for the Election of Directors. As long as a majority of the shares of Series B Preferred Stock originally issued remain outstanding, the holders of such shares of Series B Preferred Stock (voting exclusively and as a single class) shall be entitled to elect one (1) director of this corporation at any election of directors (the “Series B Director”). The holders of at least fifty percent (50%) of the outstanding Series A Common Stock, voting as a separate class, shall be entitled to elect nine (9) directors of this corporation at any election of directors. The holders of Preferred Stock and Series A Common Stock (voting together as a single class and not as separate series, and on an as-converted basis, with the Series B-1 Preferred Stock being subject to the Regulatory Voting Restriction for purposes of this specific vote) shall be entitled to elect any remaining directors of this corporation.
Notwithstanding the provisions of Section 223(a)(1) and 223(a)(2) of the General Corporation Law, any vacancy, including newly created directorships resulting from any increase in the authorized number of directors or amendment of this Certificate of Incorporation, and vacancies created by removal or resignation of a director, may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and shall qualify, unless sooner displaced; provided, however, that where such vacancy occurs among the directors elected by the holders of a class or series of stock, the holders of shares of such class or series may override the Board of Director’s action to fill such vacancy by (i) voting for their own designee to fill such vacancy at a meeting of this corporation’s stockholders or (ii) written consent, if the consenting stockholders hold a sufficient number of shares to elect their designee at a meeting of the stockholders. Any director may be removed during his or her term of office, either with or without cause, by, and only by, the affirmative vote of the holders of the shares of the class or series of stock entitled to elect such director or directors, given either at a special meeting of such stockholders duly called for that purpose or pursuant to a written consent of stockholders, and any vacancy thereby created may be filled by the holders of that class or series of stock represented at the meeting or pursuant to written consent.
(c) Separate Vote of the Series B-1 Preferred Stock. So long as any shares of any series of Series B-1 Preferred Stock remain outstanding, in addition to any other vote or consent required herein or by law, the corporation shall not, without the approval of the holders of a majority of the outstanding shares of the Series B-1 Preferred Stock, voting or consenting as a single class (with the Series B-1 Preferred Stock not subject to the Regulatory Voting Restriction for purposes of such vote or written consent) take any action (whether by amendment, merger, consolidation, recapitalization or otherwise) that:
(i) alters or changes the powers, preferences, or special rights of the shares of Series B-1 Preferred Stock so as to affect them adversely without similarly affecting the Series B Preferred Stock;
(ii) amends, modifies or waives any of the terms set forth in Article XIII below, the protective provisions set forth in this Section 5(c), any of the terms set forth in Section 5(d) below, or any other provision intended to address the regulatory status of the initial or any subsequent holder of shares of Series B-1 Preferred Stock; or
(iii) increases or decreases the number of authorized shares of Series B-1 Preferred Stock.
In no event shall the Series B-1 Preferred Stock be entitled to vote, or act by written consent, on any matter as a single “class” of “voting securities” as such terms are interpreted under the BHCA (as defined below). For the avoidance of doubt, the foregoing provisions in this Section 5(b) shall apply with respect to the Series B-1 Preferred Stock after a Deemed Optional Conversion or Deemed Automatic Conversion.
(d) Regulatory Voting Restriction. Notwithstanding the stated or statutory voting rights of holders of shares of Series B-1 Preferred Stock, in no event shall a Regulated Holder and its Transferees, collectively, be entitled to vote shares representing more than 4.99% of the voting power of all shares entitled to vote on any matter (including matters with respect to which such holders are entitled to provide their consent), including matters with respect to which:
(i) the Series B Preferred Stock and the Series B-1 Preferred Stock vote together as a single class;
(ii) the Preferred Stock votes together as a single class; or
(iii) the Preferred Stock votes with shares of Series A Common Stock as a single class on an as-converted basis;
(such voting rights to be allocated pro rata among the Regulated Holder and its Transferees based on the number of shares of Series B-1 Preferred Stock held by each such holder); provided however, that, if there are no shares of Series B Preferred Stock outstanding, the ownership of shares of Series B-1 Preferred Stock will not convey to the holder thereof any right to vote for matters on which shares of Series B Preferred Stock are entitled to vote as a single class, and in the event there are no shares of Preferred Stock outstanding other than the Series B-1 Preferred Stock, the ownership of shares of Series B-1 Preferred Stock will not convey to the holder thereof any right to vote for matters on which shares of Preferred Stock are entitled to vote as a single class; provided, further, that the Regulatory Voting Restriction shall not apply to matters requiring approval of the holders of shares of Series B-1 Preferred Stock pursuant to Section 5(c) above or as otherwise provided expressly herein. The restrictions described in this Section 5(d) are referred to herein as the “Regulatory Voting Restrictions.”
6. Protective Provisions. So long as at least 27,253,622 shares in the aggregate of Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F Preferred Stock and Series G Preferred Stock remain outstanding (as adjusted for any stock splits, stock dividends, combinations, subdivisions, recapitalizations or the like effected after the Filing Date), this corporation shall not (by amendment, merger, consolidation or otherwise) without (in addition to any other vote required by law or this Certificate of Incorporation) first obtaining the approval by vote or written consent, as provided by law, of the holders of a majority of the then outstanding shares of Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F
Preferred Stock and Series G Preferred Stock (voting together as a single class and not as separate series, and on an as-converted basis, with the Series B-1 Preferred Stock subject to the Regulatory Voting Restriction for purposes of this specific vote):
(a) enter into any transaction or agreement with any officer or director of this corporation or any of their respective affiliates (other than transactions or agreements (i) applicable to officers and/or directors generally, (ii) approved by the Series B Director, or (iii) in the ordinary course of business);
(b) amend, alter or repeal any provision of this Certificate of Incorporation or Bylaws so as to adversely alter or change the powers, preferences or special rights of the shares of Preferred Stock;
(c) authorize or issue any equity security (including any other security convertible into or exercisable for any such equity security) having a preference over, or being on a parity with, any series of Preferred Stock with respect to dividends, liquidation or redemption, other than the issuance of any authorized but unissued shares of Series G Preferred Stock designated in this Certificate of Incorporation (including any security convertible into or exercisable for such shares of Preferred Stock);
(d) redeem, purchase or otherwise acquire (or pay into or set aside for a sinking fund for such purpose) any share or shares of Preferred Stock or Common Stock; provided, however, that this restriction shall not apply to the repurchase of shares of Common Stock from employees, officers, directors, consultants or other persons performing services for this corporation or any subsidiary pursuant to agreements under which this corporation has the option to repurchase such shares upon the occurrence of certain events, such as the termination of employment or service, or pursuant to a right of first refusal;
(e) cause or permit any of its subsidiaries to sell, issue, sponsor, create or distribute any digital tokens, cryptocurrency or other blockchain-based assets (collectively, “Tokens”), including through a pre-sale, initial coin offering, token distribution event or crowdfunding, or through the issuance of any instrument convertible into or exchangeable for Tokens, provided, however, this provision shall in no way restrict or apply to the corporation’s ability to receive or use Tokens as a method or form of payment in the ordinary course of business; and
(f) permit any direct or indirect subsidiary of this corporation to effect or validate any action (whether by amendment, merger, consolidation, or otherwise) that is similar to any of the actions listed in subsections 6(a) - 6(e) above.
7. Series F Preferred Stock Protective Provisions. So long as at least 3,847,515 shares of Series F Preferred Stock remain outstanding (as adjusted for any stock splits, stock dividends, combinations, subdivisions, recapitalizations or the like effected after the Filing Date), this corporation shall not (by amendment, merger, consolidation or otherwise) without (in addition to any other vote required by law or this Certificate of Incorporation) first obtaining the
approval by vote or written consent, as provided by law, of the holders of a majority of the then outstanding shares of Series F Preferred Stock (voting as a separate series):
(a) following the Filing Date, create or authorize the creation of, or issue, or authorize the issuance of any debt security or create any lien or security interest (except for purchase money liens or statutory liens of landlords, mechanics, materialmen, workmen, warehousemen and other similar persons arising or incurred in the ordinary course of business) or incur other indebtedness for borrowed money, including but not limited to obligations and contingent obligations under guarantees, or permit any subsidiary to take any such action with respect to any debt security lien, security interest or other indebtedness for borrowed money, in excess of $150,000,000 in the aggregate; and
(b) amend, alter or repeal Section 7(a) of this Certificate of Incorporation so as to adversely alter or change the powers, preferences or special rights of the shares of Series Preferred F Stock.
8. Status of Converted Stock. In the event any shares of Preferred Stock shall be converted pursuant to Section 4, the shares so converted shall be cancelled and shall not be issuable by this corporation. The Certificate of Incorporation shall be appropriately amended to effect the corresponding reduction in this corporation’s authorized capital stock.
9. Notices. Any notice required by the provisions of this Article IV(B) to be given to the holders of shares of Preferred Stock shall be deemed given (a) if deposited in the United States mail, postage prepaid, and addressed to each holder of record at his, her or its address appearing on the books of this corporation, (b) if such notice is provided by electronic transmission in a manner permitted by Section 232 of the General Corporation Law, or if such notice is provided in another manner then permitted by the General Corporation Law.
C. Common Stock. The rights, preferences, privileges and restrictions granted to and imposed on the Common Stock are as set forth below in this Article IV(C).
1. Dividend Rights. Subject to the prior rights of holders of all classes of stock at the time outstanding having prior rights as to dividends, the holders of the Common Stock shall be entitled to receive, when, as and if declared by the Board of Directors, out of any assets of this corporation legally available therefor, any dividends as may be declared from time to time by the Board of Directors.
2. Liquidation Rights. Upon the liquidation, dissolution or winding up of this corporation, the assets of this corporation shall be distributed as provided in Section 2 of Article IV(B) hereof.
3. Redemption. The Common Stock is not redeemable at the option of the holder.
4. Voting Rights. Each holder of Series A Common Stock shall have the right to one vote for each share of Series A Common Stock, and shall be entitled to notice of any stockholders’ meeting in accordance with the Bylaws of this corporation, and shall be entitled to vote upon such matters and in such manner as may be provided by law. Shares of Series B
Common Stock shall have no voting rights, except as otherwise required by law, including without limitation Section 242(b)(2) of the General Corporation Law. Notwithstanding the foregoing, the number of authorized shares of Common Stock, Series A Common Stock or Series B Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the stock of this corporation entitled to vote, irrespective of the provisions of Section 242(b)(2) of the General Corporation Law.
5. Conversion of Series B Common Stock. Each share of Series B Common Stock shall be automatically converted into one (1) share of Series A Common Stock immediately upon (i) a Qualified Public Offering, (ii) any transfer of such share to a holder of Series A Common Stock, which transfer has been approved by the Board of Directors, in its sole discretion, (iii) any transfer of such share to a holder of Preferred Stock, and (iv) a merger or consolidation of this corporation with or into another entity other than a merger or consolidation (x) that would result in the voting securities outstanding immediately prior thereto continuing to represent over fifty percent (50%) of the combined voting power of the voting securities of this corporation or the surviving entity or its parent corporation outstanding immediately after such merger or consolidation or (y) effected to implement a recapitalization of this corporation in which no person or entity acquires more than fifty percent (50%) of the combined voting power of this corporation’s then outstanding securities, which person or entity did not possess such voting power prior to such recapitalization; such conversion shall be deemed to have been made immediately prior to the closing date of the public offering described in clause (i), upon the transfer described in clause (ii) and immediately prior to a merger or consolidation of the kind described in clause (iv). The persons entitled to shares of Series A Common Stock upon conversion shall be treated for all purposes as the record holders of such shares of Series A Common Stock as of the date of conversion. This corporation shall at all times reserve and keep available out of its authorized but unissued shares of Series A Common Stock, solely for the purpose of effecting the conversion of the shares of the Series B Common Stock, such number of its shares of Series A Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Series B Common Stock; and if at any time the number of authorized but unissued shares of Series A Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of Series B Common Stock, in addition to such other remedies as shall be available to the holder of Series B Common Stock, this corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Series A Common Stock to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to this Certificate of Incorporation.
6. Status of Converted Stock. In the event any shares of Series B Common Stock shall be converted pursuant to subsection (C)(5) hereof, the shares so converted shall be cancelled and shall not be issuable by this corporation. The Certificate of Incorporation shall be appropriately amended to effect the corresponding reduction in this corporation’s authorized capital stock.
ARTICLE V.
Except as otherwise provided in this Certificate of Incorporation, in furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, repeal, alter, amend and rescind any or all of the Bylaws of this corporation.
ARTICLE VI.
The number of directors of this corporation shall be determined in the manner set forth in the Bylaws of this corporation.
ARTICLE VII.
Elections of directors need not be by written ballot unless the Bylaws of this corporation shall so provide.
ARTICLE VIII.
Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws of this corporation may provide. The books of this corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of this corporation.
ARTICLE IX.
A director of this corporation shall not be personally liable to this corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director’s duty of loyalty to this corporation or its stockholders, (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General Corporation Law, or (iv) for any transaction from which the director derived any improper personal benefit. If the General Corporation Law is amended after approval by the stockholders of this Article IX to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of this corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law as so amended.
Any disinterested failure to satisfy Section 365 of the General Corporation Law shall not, for the purposes of Sections 102(b)(7) or 145 of the General Corporation Law, or for purposes of any use of the term “good faith” in this Certificate of Incorporation or the Bylaws in regard to the indemnification or advancement of expenses of officers, directors, employees or agents, constitute an act or omission not in good faith, or a breach of the duty of loyalty.
Any amendment, repeal or modification of the foregoing provisions of this Article IX by the stockholders of this corporation shall not adversely affect any right or protection of a director of this corporation existing at the time of, or increase the liability of any director of this corporation with respect to any acts or omissions of such director occurring prior to, such amendment, repeal or modification.
ARTICLE X.
This corporation renounces, to the fullest extent permitted by law, any interest or expectancy of the corporation in, or in being offered an opportunity to participate in, any Excluded Opportunity. An “Excluded Opportunity” is any matter, transaction or interest that is presented to, or acquired, created or developed by, or which otherwise comes into the possession of, (i) any director of the corporation who is not an employee of the corporation or any of its subsidiaries, or (ii) any holder of Preferred Stock or any partner, member, director, stockholder, employee or agent of any such holder, other than someone who is an employee of the corporation or any of its subsidiaries (collectively, “Covered Persons”), unless such matter, transaction or interest is presented to, or acquired, created or developed by, or otherwise comes into the possession of, a Covered Person expressly and solely in such Covered Person’s capacity as a director of the corporation.
ARTICLE XI.
This corporation reserves the right to amend, alter, change or repeal any provision in violation of the General Corporation Law and solely to the extent required by the General Corporation Law, and all rights conferred upon stockholders herein are granted subject to this reservation.
ARTICLE XII.
To the fullest extent permitted by applicable law, this corporation is authorized to provide indemnification of (and advancement of expenses to) directors, officers, employees and agents of this corporation (and any other persons to which General Corporation Law permits this corporation to provide indemnification) through Bylaw provisions, agreements with such agents or other persons, vote of stockholders or disinterested directors or otherwise, in excess of the indemnification and advancement otherwise permitted by Section 145 of the General Corporation Law, subject only to limits created by applicable General Corporation Law (statutory or non-statutory), with respect to actions for breach of duty to this corporation, its stockholders, and others.
Any amendment, repeal or modification of the foregoing provisions of this Article XII shall not adversely affect any right or protection of a director, officer, employee, agent or other person existing at the time of, or increase the liability of any such person with respect to any acts or omissions of such person occurring prior to, such amendment, repeal or modification.
ARTICLE XIII.
A. Definitions. As used herein, the following terms will have the meanings set forth below.
1. A “Regulated Holder” means a bank holding company subject to the provisions of the Bank Holding Company Act of 1956, as amended, and as implemented by the Board of Governors of the Federal Reserve System, whether pursuant to regulation or interpretation (the “BHCA”), together with its affiliates (as defined in Regulation Y (12 C.F.R. Part 225)).
2. A “Transferee” means a party to whom a Regulated Holder transfers shares of Series B-1 Preferred Stock and the transferees of such party (in each case, other than Permitted Regulatory Transferees).
3. A “Permitted Regulatory Transferee” shall mean a person or entity who acquires shares of Series B-I Preferred Stock from a Regulated Holder or its Transferees in any of the following transfers (each a “Permitted Regulatory Transfer”):
(a) a widespread public distribution;
(b) a private placement in which no one party acquires the right to purchase 2% or more of any class of voting securities (as such term is used for purposes of the BHCA), of the corporation;
(c) an assignment to a single party (e.g., a broker or investment banker) for the purpose of conducting a widespread public distribution on behalf of a Regulated Holder and its Transferees; or
(d) to a party who would control more than 50% of the voting securities (as such term is used for purposes of the BHCA) of the corporation without giving effect to the shares of Series B-1 Preferred Stock transferred by a Regulated Holder and its Transferees.
B. This corporation shall be bound by the following restrictions (each, a “BHCA Regulatory Restriction”):
1. This corporation shall not directly or indirectly, repurchase, redeem, retire or otherwise acquire any of this corporation’s capital securities, or take any other action (including effecting a public offering in which any of outstanding shares of Preferred Stock are converted into Common Stock), if, as a result, the Regulated Holder and its Transferees would own or control, or be deemed to own or control, collectively, greater than (i) 4.99% of the voting power of any class of voting securities of this corporation or (ii) 9.99% of the total equity of this corporation (in each case, as such terms used in the preceding sentence are defined and used, and as such percentages are calculated, under the BHCA).
2. If this corporation declares a distribution payable in any form of property other than in cash, each holder of a share of Series B-1 Preferred Stock shall be entitled to receive, at its election, in lieu of such property, a cash payment equal to the fair market value of the property that such holder would have been entitled to receive upon such distribution, as reasonably determined by the Board of Directors in good faith.
C. In the event of a breach of any BHCA Regulatory Restriction or Article XIII(D) or if a Regulated Holder is unable to transfer pursuant to Article XIII(D) all or any part of the shares of this corporation’s stock then-held by it because such transfer is not permitted pursuant to applicable securities laws, the Regulated Holder may exercise any remedies available to it against this corporation, including requiring this corporation to repurchase the relevant portion of the shares held by the Regulated Holder necessary to give effect to Article XIII(B) or (D), as applicable, at a per share price equal to the then current fair market value of (i) if shares of Series
B Preferred Stock are then-outstanding, a share of Series B Preferred Stock (and not the fair market value of a share of Series B-1 Preferred Stock), as reasonably determined by the Board of Directors in good faith, or (ii) if no shares of Series B Preferred Stock are then-outstanding, a share of Series B-1 Preferred Stock, as reasonably determined by the Board of Directors in good faith with such determination being made assuming that the rights, preferences and privileges applicable to the Series B Preferred Stock (and not the Series B-1 Preferred Stock) that are set forth herein, as in effect as of the Filing Date for the Series B Preferred Stock, are the rights, preferences and privileges of the Series B-1 Preferred Stock.
D. If (w) a Regulated Holder is deemed to be in control of this corporation (as “control” is used for purposes of the BHCA), (x) a Regulated Holder believes in good faith that it may be deemed to be in control of this corporation (as “control” is used for purposes of the BHCA) or that it is not permitted to hold all or part of its shares of this corporation’s stock or, if applicable, its other securities of this corporation under the relevant banking laws, regulations and agency interpretations and guidance, (y) all of the shares of Non-Regulated Preferred have been converted into Common Stock pursuant to Section 4(b)(i) of Part B of Article IV of the Certificate of Incorporation and the Major Investors (as defined in that certain Second Amended and Restated Investors’ Rights Agreement, dated on or around the original issue date for the Series B Preferred Stock (as amended, the “Rights Agreement”)), other than such Regulated Holder, collectively hold less than 70% of the Registrable Securities (as defined in the Rights Agreement) that such Major Investors held on the effective date of the Rights Agreement (as adjusted for any stock splits or combinations, stock dividends, reclassifications, exchanges, recapitalizations or the like) or (z) the Regulated Holder learns of any activities directly or indirectly by or on behalf of this corporation, its affiliates or any of their respective officers, directors or employees, or anyone for whose acts or defaults any of the foregoing may be liable, that may constitute or give rise to a violation of applicable anti-bribery or anti-corruption laws by this corporation, then (i) this corporation will cooperate in good faith to provide the Regulated Holder with information relevant to its determination under clause (w), (x), (y) or (z), (ii) the Regulated Holder shall be permitted to sell or otherwise transfer its shares of Series B-1 Preferred Stock or any other securities of this corporation then-held by the Regulated Holder (subject to applicable securities laws) and (iii) this corporation will use its commercially reasonable efforts to facilitate such sale or transfer in good faith (which shall include, at a minimum, making management available to prospective buyers and providing customary due diligence material, subject to a customary confidentiality agreement).
E. To the extent further required, this corporation will (i) cooperate in good faith with a Regulated Holder in order to avoid the Regulated Holder being deemed to be in control of this corporation or any successor or acquiring corporation or entity (as “control” is used for purposes of the BHCA) as a result of any arrangements with any Regulated Holder, (ii) avoid any circumstances under which the Regulated Holder would not be permitted to hold all or a portion of its shares of Series B-1 Preferred Stock, any shares of capital stock of this corporation issuable upon conversion thereof, or any security of (w) this corporation, (x) any successor thereto, (y) any acquiring corporation or (z) any entity the securities of which have been issued in respect of or exchange for any such shares of Series B-1 Preferred Stock or such capital stock, then-held by the Regulated Holder under the relevant banking laws, regulations and agency
interpretations and guidance and (iii) take commercially reasonable efforts to provide that any security of this corporation or of any successor or acquiring corporation or entity issued to a Regulated Holder in any transaction to which this corporation is a party contains terms and characteristics that comply with any regulatory requirements applicable to the Regulated Holder.
F. In the event of any conflict with any provision of this Certificate of Incorporation, the terms of this Article XIII shall prevail.
ARTICLE XIV.
Unless the corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (A) any derivative action or proceeding asserting a claim on behalf of the corporation, (B) any action or proceeding asserting a claim of breach of a fiduciary duty owed by any current or former director, officer, employee or agent of the corporation to the corporation or the corporation’s stockholders. (C) any action or proceeding asserting a claim against the corporation arising pursuant to any provision of the General Corporation Law or the Certificate of Incorporation or Bylaws, (D) any action or proceeding asserting a claim as to which the General Corporation Law confers jurisdiction upon the Court of Chancery of the State of Delaware, or (E) any action or proceeding asserting a claim governed by the internal affairs doctrine, in each case subject to said Court of Chancery having personal jurisdiction over the indispensable parties named as defendants therein.
THIRD: The foregoing amendment and restatement was approved by the holders of the requisite number of shares of said corporation in accordance with Section 228 of the General Corporation Law.
FOURTH: That said Eleventh Amended and Restated Certificate of Incorporation, which restates and integrates and further amends the provisions of this corporation’s Tenth Amended and Restated Certificate of Incorporation, has been duly adopted in accordance with Sections 242 and 245 of the General Corporation Law.
IN WITNESS WHEREOF, this Eleventh Amended and Restated Certificate of Incorporation has been executed by a duly authorized officer of this corporation on this 14th day of June, 2021.
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JAND, INC.
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/s/ Neil Blumenthal
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Neil Blumenthal, President
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SIGNATURE PAGE TO ELEVENTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
WARBY PARKER INC.
(A DELAWARE PUBLIC BENEFIT CORPORATION)
AMENDED AND RESTATED BYLAWS
ARTICLE I
OFFICES
Section 1.1 The registered office of Warby Parker Inc. (the “Corporation”) shall be in the City of Wilmington, County of New Castle, State of Delaware.
Section 1.2 The Corporation may also have offices at such other places both within and without the State of Delaware as the Corporation’s Board of Directors (the “Board of Directors”) may from time to time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 2.1 All meetings of the Corporation’s stockholders shall be held at such time and place, within the United States and within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof.
Section 2.2 A meeting of the Corporation’s stockholders shall be held in each year for the election of directors at such time and place as the Board of Directors shall determine. Any other proper business, notice of which was given in the notice of the meeting or in a duly executed waiver of notice thereof, may be transacted at the annual meeting.
Section 2.3 The officer of the Corporation who has charge of the stock ledger of the Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the Corporation’s stockholders entitled to vote thereat, arranged in alphabetical order, showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder of the Corporation, for a period of at least ten (10) days prior to the meeting, either (i) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of meeting or (ii) during ordinary business hours at the principal place of business of the Corporation. If the meeting is to be held at a place, then the list shall be produced and kept at the time and place of meeting during the whole time thereof, and may be examined by any stockholder who may be present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting. Except as otherwise provided by law, the stock ledger shall be the only evidence as to who are the stockholders entitled to examine the list of stockholders required by this Section 2.3 or to vote in person or by proxy at any meeting of stockholders.
Section 2.4 Special meetings of the Corporation’s stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the Corporation’s Certificate of Incorporation, may be called by the Corporation’s President and Chief Executive Officer and
shall be called by the Corporation’s President and Chief Executive Officer or the Secretary at the request in writing of stockholders owning a majority in amount of the entire capital stock of the Corporation issued and outstanding and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting.
Section 2.5 Unless otherwise provided by law, the Certificate of Incorporation or these bylaws, notice of a meeting of the Corporation’s stockholders, stating the date, time, place, if any, the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting, the record date for determining the stockholders entitled to vote at the meeting (if such date is different from the record date for stockholders entitled to notice of the meeting) and, in the case of a special meeting, the purpose or purposes thereof, shall be given to each stockholder entitled to vote thereat as of the record date for determining stockholders entitled to notice not less than ten (10) nor more than sixty (60) days before the date fixed for the meeting.
Section 2.6 Business transacted at any special meeting of the Corporation’s stockholders shall be limited to the purposes stated in the notice.
Section 2.7 The holders of a majority of the capital stock of the Corporation issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the Certificate of Incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement of the time and place at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty (30) days, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. If after the adjournment a new record date for determination of stockholders entitled to vote is fixed for the adjourned meeting, the Board of Directors shall fix as the record date for determining stockholders entitled to notice of such adjourned meeting the same or an earlier date as that fixed for determination of stockholders entitled to vote at the adjourned meeting, and shall give notice of the adjourned meeting to each stockholder of record as of the record date so fixed for notice of such adjourned meeting.
Section 2.8 When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of the statutes or of the Corporation’s Certificate of Incorporation, a different vote is required in which case such express provision shall govern and control the decision of such question.
Section 2.9 Each stockholder of the Corporation shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share of the capital stock having voting power held by such stockholder, but no proxy shall be voted on after three years from its date, unless the proxy provides for a longer period. The authorization of a person to act
as proxy may be documented, signed and delivered in accordance with Section 116 of the General Corporation Law of the State of Delaware (the “General Corporation Law”) provided that such authorization shall set forth, or be delivered with, information enabling the Corporation to determine the identity of the stockholder granting such authorization. A proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by delivering to the Secretary of the Corporation a revocation of the proxy or a new proxy bearing a later date. Voting at meetings of stockholders need not be by written ballot. Except where the transfer books of the Corporation have been closed or a date has been fixed as a record date for the determination of its stockholders entitled to vote, no share of stock shall be voted on at any election for directors which has been transferred on the books of the Corporation within twenty days next preceding such election of directors.
Section 2.10 Any action required to be taken at any annual or special meeting of stockholders, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing or by electronic transmission, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the Corporation by delivery to its registered office in the State of Delaware, its principal place of business, an officer or agent of the Corporation having custody of the book in which minutes of proceedings of stockholders are recorded, or to an information processing system designated by the Corporation for receiving such consents. Delivery made to the Corporation’s registered office shall be by hand or by certified or registered mail, return receipt requested. Any such consent delivered to an information processing system designated by the Corporation for receiving such consents must set forth or be delivered with information that enables the Corporation to determine the date of delivery of such consent and the identity of the person giving such consent, and, if such consent is given by a person authorized to act for a stockholder as proxy, such consent must comply with the applicable provisions of Section 212 of the General Corporation Law. Prompt notice of the taking of the corporate action without a meeting by less than unanimous consent shall, to the extent required by law, be given to those stockholders who have not consented and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for notice of such meeting had been the date that consents signed by a sufficient number of holders to take the action were delivered to the Corporation.
ARTICLE III
DIRECTORS
Section 3.1 Unless otherwise restricted by the Corporation’s Certificate of Incorporation, the number of directors which shall constitute the whole Board of Directors shall be fixed from time to time by the Board of Directors. Except as hereinafter provided in Section 3.2 of this Article, the directors, other than those constituting the first Board of Directors, shall be elected by the stockholders, and each director shall hold office until his successor is elected and qualified or until his earlier resignation or removal. Directors need not be stockholders.
Section 3.2 Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director. Any director may resign at any time upon notice to the Corporation.
Section 3.3 The property and business of the Corporation shall be managed by or under the direction of the Board of Directors, which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Corporation’s Certificate of Incorporation or by these bylaws directed or required to be exercised or done by the stockholders.
Section 3.4 The Board of Directors may hold meetings, both regular and special, within the United States and either within or without the State of Delaware. Any action taken at a meeting of the Board of Directors held outside the United States shall be void.
Section 3.5 The first meeting of each newly elected Board of Directors shall be held immediately after and at the same place as the meeting of the stockholders at which it was elected and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present.
Section 3.6 Regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the Board of Directors.
Section 3.7 Special meetings of the Board of Directors may be called by the President and Chief Executive Officer on at least twenty-four (24) hours notice to each director, either personally or by mail, facsimile, electronic mail or other similar means of electronic transmission; special meetings shall be called by the President and Chief Executive Officer or Secretary in like manner and on like notice on the written request of a majority of the directors.
Section 3.8 At all meetings of the Board of Directors a majority of directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the Certificate of Incorporation. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present.
Section 3.9 Unless otherwise restricted by the Corporation’s Certificate of Incorporation or these bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all members of the Board of Directors or of such committee, as the case may be, consent thereto in writing, or by electronic transmission and any consent may be documented, signed and delivered in any manner permitted by Section 116 of the General Corporation Law. After an action is taken, the writing or writings or electronic transmission or transmissions shall be filed with the minutes of proceedings of the Board of Directors or committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.
Section 3.10 The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to (a) approving or adopting, or recommending to the stockholders, any action or matter expressly required by law to be submitted to the stockholders for approval or (b) adopting, amending or repealing any bylaw of the Corporation.
Section 3.11 Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required.
Section 3.12 The Board of Directors shall have the authority to fix the compensation of directors.
Section 3.13 Members of the Board of Directors or any committee designated by such Board of Directors may participate in a meeting of the Board of Directors or of a committee of the Board of Directors by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this subsection shall constitute presence in person at such meeting.
ARTICLE IV
NOTICES AND WAIVER OF NOTICE
Section 4.1 Without limiting the manner by which notice otherwise may be given effectively to directors and stockholders, notices to directors and stockholders given by the Corporation under any provision of the General Corporation Law, the Certificate of Incorporation or these bylaws may be given in writing and delivered personally or mailed to the directors or stockholders at their mailing addresses (or by electronic transmission directed to each such stockholder’s or director’s electronic mail address, as applicable) appearing on the books of the Corporation. Notice by mail shall be deemed to be given at the time when the same shall be deposited in the United Stated mail, postage prepaid. Notice to stockholders and directors may also be given by facsimile, telegram, telephone or other means of electronic transmission, or any other means permitted by law. Notice shall be deemed given (i) if delivered by courier service, the earlier of when the notice is received or left at the stockholder’s address, or (ii) if given by electronic mail, when directed to such stockholder’s electronic mail address (unless the stockholder has notified the Corporation in writing or by electronic transmission of an objection to receiving notice by electronic mail or such notice is prohibited by the General Corporation Law to be given by electronic transmission). A notice to stockholders by electronic mail must include a prominent legend that the communication is an important notice regarding the Corporation. A notice by electronic mail will include any files attached thereto and any information hyperlinked to a website if such electronic mail includes the contact information of
an officer or agent of the Corporation who is available to assist with accessing such files or information. Any notice to stockholders given by the Corporation under any provision of the General Corporation Law, the Certificate of Incorporation or these bylaws provided by means of electronic transmission (other than any such notice given by electronic mail) may only be given in a form consented to by such stockholder, and any such notice by such means of electronic transmission shall be deemed to be given as provided by the General Corporation Law. The terms “electronic mail,” “electronic mail address,” “electronic signature” and “electronic transmission” as used herein shall have the meanings ascribed thereto in the General Corporation Law.
Section 4.2 Whenever any notice is required to be given under the provisions of the statutes or of the Corporation’s Certificate of Incorporation or by these bylaws, a written waiver, signed by the person or persons entitled to said notice, or a waiver by electronic transmission by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular, or special meeting of the stockholders, directors, or members of a committee of directors need be specified in any written waiver of notice.
ARTICLE V
OFFICERS
Section 5.1 The officers of the Corporation shall be chosen by the Board of Directors, and shall include a President and Chief Executive Officer, a Secretary and a Treasurer, and may include one or more Vice Presidents. Any number of offices may be held by the same person.
Section 5.2 The Board of Directors at its first meeting after each annual meeting of stockholders shall choose a President and Chief Executive Officer, a Secretary and a Treasurer, and may choose one or more Vice Presidents.
Section 5.3 The Board of Directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board.
Section 5.4 The salaries of all officers and agents of the Corporation shall be fixed by the Board of Directors.
Section 5.5 The officers of the Corporation shall hold office until their successors are chosen and qualified. Any officer elected or appointed by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors.
Section 5.6 The President and Chief Executive Officer shall be the chief executive officer of the Corporation, and shall supervise and direct all business and affairs of the Corporation, shall see that all orders and resolutions of the Board of Directors are carried into effect, and shall have general and active management responsibility of the Corporation’s
business, and shall also perform such other duties as the Board of Directors may from time to time assign to him or her. In addition, the President and Chief Executive Officer shall preside at all meetings of the Corporation’s stockholders and directors and shall represent the Corporation in all matters involving the Corporation’s stockholders. The President and Chief Executive Officer shall have authority to execute stock certificates, contracts, bonds, mortgages and other documents requiring a seal, under the Corporation’s seal, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation.
Section 5.7 The Vice President, or if there shall be more than one, the Vice Presidents, in the order determined by the Board of Directors, shall, in the absence or disability of the President and Chief Executive Officer, perform the duties and exercise the powers of the President and Chief Executive Officer and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe.
Section 5.8 The Secretary shall attend all meetings of the Board of Directors and all meetings of the stockholders and record all the proceedings of the meetings of the Corporation and of the Board of Directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or the President and Chief Executive Officer, under whose supervision the Secretary shall be. The Secretary shall have custody of the corporate seal of the Corporation and shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his or her signature. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his or her signature.
Section 5.9 The Assistant Secretary, or if there be more than one, the Assistant Secretaries in the order determined by the Board of Directors, shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe.
Section 5.10 The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors.
Section 5.11 The Treasurer shall keep an account of stock registered and transferred in such manner and subject to such regulations as the Board of Directors may prescribe.
Section 5.12 The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the Board of Directors at its regular meetings or when the Board of Directors so requires, an account of all his or her transactions as Treasurer and of the financial condition of the Corporation.
Section 5.13 If required by the Board of Directors, the Treasurer shall give the Corporation a bond (which shall be renewed every six years) in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his or her office and for the restoration to the Corporation, in case of his or her death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his or her control belonging to the Corporation.
Section 5.14 The Assistant Treasurer, or if there shall be more than one, the Assistant Treasurers in the order determined by the Board of Directors, shall, in the absence or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe.
ARTICLE VI
STOCK CERTIFICATES
Section 6.1 The shares of the Corporation may be certificated or uncertificated, as provided under Delaware law, and shall be entered in the books of the Corporation and recorded as they are issued. Certificates for the shares of stock, if any, shall be in such form as is consistent with the Certificate of Incorporation and applicable law. Certificates for shares of stock shall note conspicuously that that the Corporation is a public benefit corporation formed pursuant to Subchapter XV of the General Corporation Law. Any notice given by the Corporation pursuant to Section 151(f) of the General Corporation Law upon the issuance or transfer of uncertificated shares shall state conspicuously that the Corporation is a public benefit corporation formed pursuant to Subchapter XV of the General Corporation Law. Any duly appointed officer of the Corporation is authorized to sign share certificates. Any or all of the signatures on any certificate may be a facsimile or electronic signature. In case any officer, transfer agent or registrar who has signed or whose facsimile or electronic signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue.
Within a reasonable time after the issuance or transfer of uncertificated stock and upon the request of a stockholder, the Corporation shall send to the record owner thereof a written notice that shall set forth the name of the Corporation, that the Corporation is organized under the laws of Delaware, the name of the stockholder, the number and class (and the designation of the series, if any) of the shares, and any restrictions on the transfer or registration of such shares of stock imposed by the Corporation’s Certificate of Incorporation, these bylaws, any agreement among stockholders or any agreement between stockholders and the Corporation.
Section 6.2 If the Corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the Corporation shall issue to represent such class or series of stock or the notice of issuance to the record owner of
uncertificated stock; provided, however, that, except as otherwise provided in Section 202 of the General Corporation Law, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the Corporation shall issue to represent such class or series of stock or the notice of issuance to the record owner of uncertificated stock, or the purchase agreement for such stock a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.
Section 6.3 The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost or destroyed certificate or certificates, or his or her legal representative, to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost or destroyed upon the issuance of such new certificate.
Section 6.4 Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, or of proper transfer instructions from the record holder of uncertificated shares, it shall be the duty of the Corporation to issue a new certificate, or, in the case of uncertificated securities and upon request, a notice of issuance of shares, to the person entitled thereto, cancel the old certificate (if any) and record the transactions upon its books, unless the Corporation has a duty to inquire as to adverse claims with respect to such transfer which has not been discharged. The Corporation shall have no duty to inquire into adverse claims with respect to such transfer unless (a) the Corporation has received a written notification of an adverse claim at a time and manner which affords the Corporation a reasonable opportunity to act on it prior to the issuance of a new, reissued or re-registered share certificate, or, in the case of uncertificated securities, a notice of issuance of shares, and the notification identifies the claimant, the registered owner and the issue of which the share or shares is a part and provides an address for communications delivered to the claimant; or (b) the Corporation has required and obtained, with respect to a fiduciary, a copy of a will, trust, indenture, articles of co-partnership, bylaws or other controlling instruments, for a purpose other than to obtain appropriate evidence of the appointment or incumbency of the fiduciary, and such documents indicate, upon reasonable inspection, the existence of an adverse claim.
Section 6.5 The Corporation may discharge any duty of inquiry by any reasonable means, including notifying an adverse claimant by registered or certified mail at the address furnished by him or, if there be no such address, at his residence or regular place of business that the security has been presented for registration of transfer by a named person, and that the transfer will be registered unless within thirty days from the date of mailing the notification, either (a) an appropriate restraining order, injunction or other process issues from a court of competent jurisdiction; or (b) an indemnity bond sufficient in the Corporation’s judgment to protect the Corporation and any transfer agent, registrar or other agent of the Corporation
involved from any loss which it or they may suffer by complying with the adverse claim, is filed with the Corporation.
Section 6.6
(a) In order that the Corporation may determine the stockholders entitled to notice or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which date shall not precede the date upon which the Board of Directors adopted the resolution fixing such record date and which (i) in the case of any meeting, shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, (ii) in the case of a consent without a meeting, shall not be more than ten (10) days thereafter, and (iii) in the case of any other lawful action, shall not be more than sixty (60) days prior to such action.
(b) If no record date is fixed:
(1) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the Board of Directors adopts the resolution relating thereto.
(2) The record date for determining stockholders entitled to express consent to corporate action without a meeting (i) when no prior action by the Board of Directors is required by law, shall be the day on which the first signed consent setting forth the action taken or proposed to be taken is delivered to the Corporation in accordance with applicable law, and (ii) when prior action by the Board of Directors is required by law, the record date for such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action.
(3) The record date for determining stockholders for any other lawful action shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
(c) A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.
Section 6.7 Prior to due presentment for transfer of any share or shares, the Corporation shall treat the registered owner thereof as the person exclusively entitled to vote, to receive notifications and to all other benefits of ownership with respect to such share or shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VII
GENERAL PROVISIONS
Section 7.1 All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other persons as the Board of Directors may from time to time designate.
Section 7.2 The fiscal year of the Corporation shall be the calendar year.
Section 7.3 The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words “Corporate Seal, Delaware.” The seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any manner reproduced.
Section 7.4 The books, records and accounts of the Corporation except as otherwise required by the laws of the State of Delaware, may be kept within or without the State of Delaware, at such place or places as may from time to time be designated by the By-Laws or by resolution of the directors.
ARTICLE VIII
INDEMNIFICATION
Section 8.1 Each person who was or is a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (“Proceeding”), including without limitation Proceedings by or in the right of the Corporation to procure a judgment in its favor, by reason of the fact that he or she or a person for whom he or she is the legal representative is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director or officer, of another corporation, or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such Proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment) against all expenses, liability and loss (including attorneys’ fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith. Such right shall be a contract right and shall include the right to be paid by the Corporation for expenses incurred in defending any such Proceeding in advance of its final disposition; provided, however, that the payment of such expenses incurred by a director or officer of the Corporation in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of such Proceeding, shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it should be determined
ultimately that such director or officer is not entitled to be indemnified under this section or otherwise.
Section 8.2 If a claim under Section 8.1 is not paid in full by the Corporation within ninety (90) days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim, and if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any Proceeding in advance of its final disposition where the required undertaking has been tendered to the Corporation) that the claimant has not met the standards of conduct which make it permissible under the General Corporation Law for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the General Corporation Law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant had not met such applicable standard of conduct, shall create a presumption that claimant had not met the applicable standard of conduct.
Section 8.3 The rights conferred by Sections 8.1 and 8.2 shall not be exclusive of any other right which such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, bylaw, agreement, vote of stockholders or disinterested directors or otherwise.
Section 8.4 The Corporation may maintain insurance, at its expense, to protect itself and any such director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the General Corporation Law of the State of Delaware.
ARTICLE IX
AMENDMENTS
Section 9.1 These bylaws may be amended or repealed, and new bylaws made, at any regular meeting of the Corporation’s stockholders or of the Board of Directors or at any special meeting of the Corporation’s stockholders or of the Board of Directors if notice of such amendment or repeal be contained in the notice of such special meeting; however, a bylaw amendment adopted by the stockholders which specifies the votes that shall be necessary for the election of directors shall not be further amended or repealed by the board of directors.
ARTICLE X
STOCK TRANSFERS
Section 10.1 Stock Transfer Agreements. The Corporation shall have the power to enter into and perform any agreement with any number of stockholders of any one or more classes of
stock of the Corporation to restrict the transfer of shares of stock of the Corporation of any one or more classes owned by such stockholders in any manner, not prohibited by the General Corporation Law.
Section 10.2 Restrictions on Transfer.
(a) Restrictions on Transfer. No stockholder of the Corporation (a “Stockholder”) may sell, assign, transfer, pledge, encumber or in any manner dispose of (“Transfer”) any share of stock of the Corporation (a “Share”), whether voluntarily or by operation of law, or by gift or otherwise, other than by means of a Permitted Transfer (as defined below). If any provision(s) of any agreement(s) currently in effect by and between the Corporation and any Stockholder (the “Stockholder Agreement(s)”) conflicts with this Section 10.2 of the Bylaws, this Section 10.2 shall govern, and the remaining provision(s) of the Stockholder Agreement(s) that do not conflict with this Section 10.2 shall continue in full force and effect.
(b) Permitted Transfers. For purposes of this Section 10.2, a “Permitted Transfer” shall mean any of the following:
(i) any Transfer by a Stockholder of any or all of such Stockholder’s Shares to the Corporation;
(ii) any Transfer by a Stockholder of any or all of such Stockholder’s Shares to such Stockholder’s Immediate Family (as defined below) or a trust for the benefit of such Stockholder or such Stockholder’s Immediate Family;
(iii) any Transfer by a Stockholder of any or all of such Stockholder’s Shares effected pursuant to such Stockholder’s will or the laws of intestate succession;
(iv) if a Stockholder is a partnership, limited liability company, or corporation, any Transfer by such Stockholder of any or all of such Stockholder’s Shares to the partners, members, retired partners, retired members, stockholders, and/or Affiliates (as defined below) of such Stockholder; provided that no Stockholder may Transfer any of such Stockholder’s Shares to a Special Purpose Entity (as defined below) pursuant to this subsection (iv);
(v) any Transfer of Shares approved by the Board of Directors; and/or
(vi) if a Stockholder is an Advised Holder, (i) any Transfer of Shares to an entity managed by a registered investment advisor that is required pursuant to applicable regulation, law or internal policy or (ii) any Transfer of Equity Securities pursuant to the merger or reorganization of a U.S. registered mutual fund.
Notwithstanding the foregoing, if a Permitted Transfer is approved pursuant to subsection (v) of this Section 10.2(b) and the Shares of the transferring party are subject to co-sale rights pursuant to a Stockholder Agreement (the “Co-Sale Rights”), the persons and/or entities entitled to the Co-Sale Rights shall be permitted to exercise their respective Co-Sale Rights in conjunction with that specific Permitted Transfer without any additional approval of the Board of Directors.
(c) Certain Definitions. For purposes of this Section 10.2:
(i) “Advised Holder” shall mean an entity managed by a person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, or who, for compensation and as part of a regular business, issues or promulgates analyses or reports concerning securities; but does not include a bank, or any bank holding company as defined in the Bank Holding Company Act of 1956 (12 U.S.C.1841 et seq.) which is not an investment company, except that the term “investment adviser” includes any bank or bank holding company to the extent that such bank or bank holding company serves or acts as an investment adviser to a registered investment company, but if, in the case of a bank, such services or actions are performed through a separately identifiable department or division, the department or division, and not the bank itself, shall be deemed to be the investment adviser; any lawyer, accountant, engineer, or teacher whose performance of such services is solely incidental to the practice of his profession; any broker or dealer whose performance of such services is solely incidental to the conduct of his business as a broker or dealer and who receives no special compensation therefor; the publisher of any bona fide newspaper, news magazine or business or financial publication of general and regular circulation; any person whose advice, analyses or reports relate to no securities other than securities which are direct obligations of or obligations guaranteed as to principal or interest by the United States, or securities issued or guaranteed by corporations in which the United States has a direct or indirect interest which shall have been designated by the Secretary of the Treasury, pursuant to section 3(a)(12) of the Securities Exchange Act of 1934 (15 U.S.C. 78c (a)(12)), as exempted securities for the purposes of that Act (15 U.S.C. 78a et seq.); any nationally recognized statistical rating organization, as that term is defined in section 3(a)(62) of the Securities Exchange Act of 1934 (15 U.S.C. 78c (a)(62)), unless such organization engages in issuing recommendations as to purchasing, selling, or holding securities or in managing assets, consisting in whole or in part of securities, on behalf of others; any family office, as defined by rule, regulation, or order of the Commission, in accordance with the purposes of this subchapter; or such other persons not within the intent of this paragraph, as the Commission may designate by rules and regulations or order. For the sake of clarity, each of the Advised Holders (as defined in the Company’s Fifth Amended and Restated Investors’ Rights Agreement, dated as of April 23, 2015 (the “Investors’ Rights Agreement”)) shall be considered an “Advised Holder” hereunder.
(ii) “Affiliate” shall have the meaning assigned thereto in the Investors’ Rights Agreement.
(iii) “Immediate Family” shall mean any child, stepchild, grandchild or other lineal descendant, any parent, stepparent, grandparent or other ancestor, any spouse, former spouse, sibling, niece, nephew, uncle, aunt, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law, including adoptive relationships, or any Spousal Equivalent.
(iv) “Special Purpose Entity” shall mean an entity that holds or would hold only Shares or has or would have a class or series of security holders with beneficial
interests primarily in Shares (including for such purpose an entity that holds cash and/or cash equivalents intended to purchase Shares); provided that no entity holding Shares as of May 1, 2012 shall be deemed a Special Purpose Entity.
(v) “Spousal Equivalent” shall mean an individual who: (A) is in an exclusive, continuous, committed relationship with the relevant Stockholder, has been in that relationship for the twelve (12) months prior to the relevant date and intends to be in that relationship indefinitely; (B) has no such relationship with any other person and is not married to any other person; (C) shares a principal residence with the relevant Stockholder; (D) is at least 18 years of age and legally and mentally competent to consent to contract; (E) is not related by blood to the relevant stockholder to a degree of kinship that would prevent marriage from being recognized under the law of the state in which the individual and the relevant Stockholder reside; and (F) is jointly responsible with the relevant Stockholder for each other’s common welfare and financial obligations; provided that any Stockholder who wishes to Transfer stock to a Spousal Equivalent under Section 10.2(b)(ii) above must provide proof of (i) a joint mortgage, (ii) a joint lease or (iii) a joint bank account, in each case held by both the Stockholder and their Spousal Equivalent.
(d) Void Transfers. Any Transfer of Shares shall be null and void unless the terms, conditions and provisions of this Section 10.2 are strictly observed and followed.
(e) Termination of Restriction on Transfer. The foregoing restriction on transfer shall lapse upon the earlier of (i) immediately prior to the consummation of a Liquidation Event (as such term is defined in the Certificate of Incorporation, as it may be amended and/or restated from time to time), or (ii) immediately prior to the Corporation’s (x) first firm commitment underwritten public offering of its securities pursuant to a registration statement under the Securities Act of 1933, as amended (the “Securities Act”) or (y) the date of listing of its securities on a national securities exchange pursuant to a registration statement on Form S-1 under the Securities Act without a firm commitment underwriting.
(f) Legends. The certificates representing, and in the case of uncertificated securities, notices of issuance with respect to, shares of stock of the Corporation shall have impressed on, printed on, written on or otherwise affixed to them the following legend as long as the foregoing restriction on transfer remains in effect:
“THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN COMPLIANCE WITH THE BYLAWS OF THE CORPORATION. COPIES OF THE BYLAWS OF THE CORPORATION MAY BE OBTAIN UPON WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION.”
ARTICLE XI
PUBLIC BENEFIT CORPORATION PROVISIONS
Section 11.1 Required Statement in Stockholder Meeting Notice. The Corporation shall include in every notice of a meeting of stockholders a statement that it is a public benefit corporation formed pursuant to Subsection XV of the General Corporation Law.
Section 11.2 Periodic Statements. The Corporation shall no less than biennially provide the stockholders with a statement as to the Corporation’s promotion of the public benefit or public benefits identified in the Certificate of Incorporation and of the best interests of those materially affected by the Corporation’s conduct. The statement shall include: (i) the objectives the Board of Directors has established to promote such public benefit or public benefits and interests; (ii) the standards the Board of Directors has adopted to measure the Corporation’s progress in promoting such public benefit or public benefits and interests; (iii) objective factual information based on those standards regarding the Corporation’s success in meeting the objectives for promoting such public benefit or public benefits and interests; and (iv) an assessment of the Corporation’s success in meeting the objectives and promoting such public benefit or public benefits and interests.
Dated as of June 14, 2021
D E L AW A R E SEAL W ARBY PARKER INC.CORPORATE May 7, 2009 This certifies that is the record holder of FULLY PAID AND NONASSESSABLE SHARES OF CLASS A COMMON STOCK, $0.0001 PAR VALUE PER SHARE, OF Warby Parker Inc. a public benefit corporation transferable on the books of the corporation in person or by duly authorized attorney upon surrender of this Certificate properly endorsed. This Certificate is not valid until countersigned by the Transfer Agent and registered by the Registrar. WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. Dated: CUSIP 93403J 10 6 INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE SEE REVERSE FOR CERTAIN DEFINITIONS AND LEGENDS Co-Chief Executive Officer, President Co-Chief Executive Officer WP COUNTERSIGNED AND REGISTERED: AMERICAN STOCK TRANSFER & TRUST COMPANY, LLC (BROOKLYN, NY) TRANSFER AGENT AND REGISTRAR BY: AUTHORIZED SIGNATURE SPECIMEN
The Corporation shall furnish without charge to each stockholder who so requests a statem
ent of the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock of the Corporation or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Such requests shall be made to the Corporation’s Secretary at the principal office of the Corporation. KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, OR DESTROYED THE CORPORATION WILL REQUIRE A BOND INDEMNITY AS A CONDITION TO THE ISSUANCE OF A REPLACEMENT CERTIFICATE. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: Additional abbreviations may also be used though not in the above list. TEN COM – as tenants in common TEN ENT – as tenants by the entireties JT TEN – as joint tenants with right of survivorship and not as tenants in common COM PROP – as community property UNIF GIFT MIN ACT – ......................... Custodian ......................... (Cust) (Minor) under Uniform Gifts to Minors Act.............................................................................. (State) UNIF TRF MIN ACT – ................. Custodian (until age ..................) (Cust) ..................................... under Uniform Transfers (Minor) to Minors Act............................................................ (State) FOR VALUE RECEIVED, _____________________________________________________ hereby sell(s), assign(s) and transfer(s) unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE shares of the capital stock represented by within Certificate, and do hereby irrevocably constitute and appoint attorney-in-fact to transfer the said stock on the books of the within named Corporation with full power of the substitution in the premises. Dated NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER. By THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION, (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15. GUARANTEES BY A NOTARY PUBLIC ARE NOT ACCEPTABLE. SIGNATURE GUARANTEES MUST NOT BE DATED. Signature(s) Guaranteed: (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) X X
EIGHTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT
THIS EIGHTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT (the “Agreement”) is made as of August 12, 2020, by and among JAND, Inc. (d/b/a Warby Parker), a Delaware corporation (the “Company”), the investors listed on Schedule A hereto, each of which is herein referred to as an “Investor” and the holders of Common Stock (as defined below) listed on Schedule B hereto, each of which is herein referred to as a “Common Holder” and collectively as the “Common Holders.”
RECITALS
WHEREAS, certain of the Investors (the “Existing Investors”) hold shares of the Company’s Series AA Preferred Stock, par value $0.0001 per share (the “Series AA Preferred Stock”), shares of the Company’s Series A Preferred Stock, par value $0.0001 per share (the “Series A Preferred Stock”), shares of the Company’s Series B Preferred Stock, par value $0.0001 per share (the “Series B Preferred Stock”), shares of the Company’s Series B-1 Preferred Stock, par value $0.0001 per share (the “Series B-1 Preferred Stock”), shares of the Company’s Series C Preferred Stock, par value $0.0001 per share (the “Series C Preferred Stock”), shares of the Company’s Series D Preferred Stock, par value $0.0001 per share (the “Series D Preferred Stock”), shares of the Company’s Series E Preferred Stock, par value $0.0001 per share (the “Series E Preferred Stock”), shares of the Company’s Series F Preferred Stock, par value $0.0001 per share (the “Series F Preferred Stock”) and/or shares of Common Stock issued upon conversion thereof and possess information rights, rights of first offer and other rights pursuant to that certain Seventh Amended and Restated Investors’ Rights Agreement dated as of April 3, 2020 by and among the Company, certain holders (the “Existing Common Holders”) of Common Stock (as defined below), par value $0.0001 per share, and such Existing Investors (as amended to date, the “Prior Agreement”);
WHEREAS, the Prior Agreement may be amended, and any provision therein waived, with the consent of the Company, the holders of a majority of the outstanding Registrable Securities (as such term is defined in the Prior Agreement) held by the Investors (as such term is defined in the Prior Agreement) and the holders of at least sixty percent (60%) of the outstanding Registrable Securities (as such term is defined in the Prior Agreement) held by the Key Common Holders (as such term is defined in the Prior Agreement) and all Key Common Holders’ Related Entities (as such term is defined in the Prior Agreement);
WHEREAS, the undersigned Existing Investors, as holders of a majority of the outstanding Registrable Securities (as such term is defined in the Prior Agreement) of the Company held by Investors (as such term is defined in the Prior Agreement), and the undersigned Existing Common Holders, as holders of at least sixty percent (60%) of the outstanding Registrable Securities (as such term is defined in the Prior Agreement) held by the Key Common Holders (as such term is defined in the Prior Agreement) and all Key Common Holders’ Related Entities (as such term is defined in the Prior Agreement), desire to terminate the Prior Agreement and to accept the rights created pursuant hereto in lieu of the rights granted to them under the Prior Agreement;
WHEREAS, certain Investors are parties to that certain Series G Preferred Stock Purchase Agreement, of even date herewith, by and among the Company and certain of the Investors (as may be amended from time to time, the “Series G Agreement”), which provides that as a condition to the Initial Closing (as defined in the Series G Agreement) of the sale of the Company’s Series G Preferred Stock, par value $0.0001 per share (the “Series G Preferred Stock” and collectively with the Series AA Preferred Stock, the Series A Preferred Stock, the Series B Preferred Stock, the Series B-1 Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock, the Series E Preferred Stock and the Series F Preferred Stock, the “Preferred Stock”), this Agreement must be executed and delivered by such Investors, Existing Investors holding a majority of the outstanding Registrable Securities (as such term is defined in the Prior Agreement) of the Company and a majority of the outstanding Registrable Securities (as such term is defined in the Prior Agreement) of the Company held by Major Investors (as such term is defined in the Prior Agreement), Key Common Holders (as such term is defined in the Prior Agreement) holding at least sixty percent (60%) of the outstanding Registrable Securities (as such term is defined in the Prior Agreement) held by the Key Common Holders (as such term is defined in the Prior Agreement) and such Key Common Holders’ Related Entities (as such term is defined in the Prior Agreement), and the Company; and
WHEREAS, as set forth in Section 4.14 below, unless otherwise set forth herein, for all purposes of this Agreement, the Series B-1 Preferred Stock shall be treated as being convertible (without actual conversion) into shares of Series A Common Stock (as defined below) at the then applicable conversion rate of the Series B Preferred Stock.
NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein, the Company, the Existing Investors and the Key Common Holders hereby agree that the Prior Agreement shall be superseded and replaced in its entirety by this Agreement, and the parties hereto further agree as follows:
1. Definitions. For purposes of this Agreement:
(a) The term “Act” shall mean the Securities Act of 1933, as amended.
(b) The term “Advisory Entity” shall mean T. Rowe Price as to the T. Rowe Price Investors, Wellington as to the Wellington Investors, and Baillie Gifford as to the Baillie Gifford Investors.
(c) The term “Advised Holder” shall mean each of the T. Rowe Price Investors, each of the Wellington Investors, and each of the Baillie Gifford Investors.
(d) The term “Affiliate” shall mean, with respect to any specified person, any other person who or which, directly or indirectly, controls, is controlled by, or is under common control with such specified person, including, without limitation, any general partner, partner, member, officer, director or manager of such person and any venture capital fund or other investment fund now or hereafter existing that is controlled by one or more general partners or managing members of, or is under common investment management with, such person; provided, however, that (i) “Affiliate” with respect to any Advised Holder (other than any Wellington Investor) shall include any Person that receives, directly or indirectly, investment
management or investment advisory services from an Advisory Entity or any of its Affiliates or other funds and accounts managed by the same Advisory Entity, (ii) each Wellington Investor shall be deemed to be an “Affiliate” of each other Wellington Investor, and (iii) an entity that is an “Affiliate” of a Wellington Investor shall not be deemed to be an “Affiliate” of any other Wellington Investor unless such entity is a Wellington Investor (and, for the avoidance of doubt, an “Affiliate” of such entity shall not be deemed an “Affiliate” of any Wellington Investor solely by virtue of being an “Affiliate” of such entity).
(e) The term “Baillie Gifford” shall mean Baillie Gifford & Co., Baillie Gifford Overseas Limited and any successor or affiliated investment advisor or subadvisor thereof to the Baillie Gifford Investors.
(f) The term “Baillie Gifford Investors” shall mean the Investors that are advisory or sub-advisory clients of Baillie Gifford with respect to holding shares of the Company. For the sake of clarity, as of the date hereof, the Baillie Gifford Investors are indicated on Schedule A hereto.
(g) The term “Board” shall mean the Company’s Board of Directors, as constituted from time to time.
(h) The term “Common Stock” shall mean the Series A Common Stock and the Series B Common Stock.
(i) The term “D1” shall mean D1 Capital Partners Master LP and its Affiliates.
(j) The term “Durable” shall mean Durable Capital Master Fund LP and its Affiliates.
(k) The term “Form S-3” shall mean such form under the Act as in effect on the date hereof or any registration form under the Act subsequently adopted by the SEC that permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC.
(l) The term “Free Writing Prospectus” shall mean a free-writing prospectus, as defined in Rule 405.
(m) The term “Holder” shall mean any Person owning or having the right to acquire Registrable Securities or any assignee thereof in accordance with Section 2.10 of this Agreement.
(n) The term “Initial Offering” shall mean the Company’s first firm commitment underwritten public offering of its capital stock under the Act.
(o) The term “Key Common Holder” shall mean each of Neil Blumenthal, David Gilboa, Andrew Hunt and Jeffrey Raider, but, in each case, only for so long as he continues to be the “beneficial owner” (as defined in Rule 13d-3(a) and (b) of the Rules and Regulations to the Securities Exchange Act of 1934, as amended) of at least two million five hundred thousand (2,500,000) shares of Common Stock (as adjusted for any stock splits, stock
dividends, combinations, subdivisions, recapitalizations or the like with respect to the Common Stock).
(p) The term “Major Investor” shall mean each Investor (or transferee of an Investor) that holds (together with any Affiliates of such Investor) at least 1,000,000 Registrable Securities (as adjusted for any stock splits, stock dividends, combinations, subdivisions, recapitalizations or the like); provided that for purposes of Section 3.4 only, the term “Major Investor” shall mean any Investor (or transferee of an Investor) that holds (together with any Affiliates of such Investor) at least 225,000 Registrable Securities (as adjusted for any stock splits, stock dividends, combinations, subdivisions, recapitalizations or the like). Notwithstanding the foregoing, each Advised Holder, Durable and D1 shall be considered “Major Investors” for all purposes of this Agreement.
(q) The term “1934 Act” shall mean the Securities Exchange Act of 1934, as amended.
(r) The term “Permitted Regulatory Transfer” shall have the meaning ascribed to such term in the Restated Certificate (as defined below).
(s) The term “Person” shall mean any individual, corporation, partnership, trust, limited liability company, association or other entity.
(t) The terms “register,” “registered,” and “registration” refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Act, and the declaration or ordering of effectiveness of such registration statement or document.
(u) The term “Registrable Securities” shall mean (i) shares of the Common Stock issuable or issued upon conversion of the Preferred Stock (with the Series B-1 Preferred Stock being treated as not subject to the Regulatory Conversion Restriction (as defined below), except as otherwise set forth herein), (ii) the 6,538,012 shares of Series A Common Stock purchased by any of Tiger, Lee Fixel, Thrive Capital Partners LLC, Thrive Capital WP, LLC or Thrive Capital Partners II, L.P. pursuant to that certain Series A Preferred Stock and Common Stock Purchase Agreement by and among the Company and certain Purchasers (as defined therein), dated September 7, 2011, (iii) any shares of Common Stock held by a Key Common Holder, (iv) any shares of Series A Common Stock and/or Series B Common Stock purchased by any Investor pursuant to that certain Series B Preferred Stock and Common Stock Purchase Agreement, dated as of August 24, 2012, (v) any shares of Series A Common Stock and/or Series B Common Stock purchased by any Investor pursuant to that certain Series C Preferred Stock and Common Stock Purchase Agreement, dated as of December 17, 2013, (vi) any shares of Series A Common Stock and/or Series B Common Stock purchased by any Investor pursuant to that certain Series D Preferred Stock and Common Stock Purchase Agreement, dated as of April 23, 2015, (vii) any shares of Series A Common Stock and/or Series B Common Stock purchased by any Investor from a stockholder of the Company on the date of, or within 60 days following, the Closing (as defined in the Series E Preferred Stock Purchase Agreement, dated as of March 9, 2018 (the “Series E Agreement”)) of the Company’s sale of Series E Preferred Stock pursuant to the Series E Agreement, (viii) shares of Common Stock held by D1, (ix) shares of
Common Stock held by Durable and (x) any shares of Common Stock issued as (or issuable upon the conversion or exercise of any warrant, right or other security that is issued as) a dividend or other distribution with respect to, or in exchange for, or in replacement of, the shares referenced in (i), (ii), (iii), (iv), (v), (vi), (vii), (viii) or (ix) above, excluding in all cases, however, any Registrable Securities sold by a Person in a transaction in which the applicable rights under Section 2 of this Agreement are not assigned. In addition, the number of Registrable Securities outstanding shall equal the aggregate of the number of outstanding shares of Common Stock that are, and the number of shares of Common Stock issuable pursuant to then exercisable or convertible securities that are, Registrable Securities.
(v) The term “Regulated Holder” means a bank holding company subject to the provisions of the Bank Holding Company Act of 1956, as amended, and as implemented by the Board of Governors of the Federal Reserve System, whether pursuant to regulation or interpretation (the “BHCA”), together with its affiliates (as defined in Regulation Y (12 C.F.R. Part 225)).
(w) The term “Regulatory Conversion Restriction” shall have the meaning ascribed to such term in the Restated Certificate.
(x) The term “Regulatory Voting Restriction” shall have the meaning ascribed to such term in the Restated Certificate.
(y) The term “Related Entity” shall mean any spouse or member of a Key Common Holder’s immediate family, or a custodian, trustee (including a trustee of a voting trust), executor, or other fiduciary for the account of such Key Common Holder’s spouse or members of such Key Common Holder’s immediate family, or a trust for such Key Common Holder’s self, or a charitable remainder trust, or a limited liability company wholly owned by such a trust.
(z) The term “Restated Certificate” shall mean the Company’s Tenth Amended and Restated Certificate of Incorporation, as amended and/or restated from time to time.
(aa) The term “Rule 144” shall mean Rule 144 under the Act.
(bb) The term “Rule 144(b)(1)(i)” shall mean subsection (b)(1)(i) of Rule 144 under the Act as it applies to Persons who have held shares for more than one (1) year.
(cc) The term “Rule 405” shall mean Rule 405 under the Act.
(dd) The term “SEC” shall mean the Securities and Exchange Commission.
(ee) The term “Series A Common Stock” shall mean the Series A Common Stock of the Company, par value $0.0001 per share.
(ff) The term “Series B Common Stock” shall mean the Series B Common Stock of the Company, par value $0.0001 per share.
(gg) The term “Tiger” shall mean Tiger Global Private Investment Partners VI, L.P., and its affiliates.
(hh) The term “Transferee” means a party to whom a Regulated Holder transfers shares of Series B-1 Preferred Stock and the transferees of such party (in each case, other than Permitted Regulatory Transferees (as defined in the Restated Certificate)).
(ii) The term “T. Rowe Price” shall mean T. Rowe Price Associates, Inc. and any successor or affiliated registered investment advisor to the T. Rowe Price Investors.
(jj) The term “T. Rowe Price Investors” shall mean the Investors that are advisory or sub-advisory clients of T. Rowe Price with respect to holding shares of the Company. For the sake of clarity, as of the date hereof, the T. Rowe Price Investors are indicated on Schedule A hereto.
(kk) The term “Wellington” shall mean Wellington Management Company LLP and any successor or affiliated investment advisor or subadvisor thereof to the Wellington Investors.
(ll) The term “Wellington Investors” shall mean Investors, or permitted transferees of shares of the Company held by Wellington Investors, that are advisory or subadvisory clients of Wellington. For the sake of clarity, as of the date hereof, the Wellington Investors are indicated on Schedule A attached hereto.
2. Registration Rights. The Company covenants and agrees as follows:
2.1 Request for Registration.
(a) Subject to the conditions of this Section 2.1, if the Company shall receive at any time after six (6) months after the effective date of the Initial Offering, a written request from the Holders of either (x) at least fifty percent (50%) of the Registrable Securities (subject to the Regulatory Voting Restriction) then outstanding or (y) at least fifty percent (50%) of the shares of Common Stock issued or issuable on conversion of the Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock (subject to the Regulatory Voting Restriction), Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F Preferred Stock, or Series G Preferred Stock, as applicable (for purposes of this Section 2.1, the “Initiating Holders”) that the Company file a registration statement under the Act covering the registration of Registrable Securities with an anticipated aggregate offering price of at least $15,000,000, then the Company shall, within twenty (20) days of the receipt thereof, give written notice of such request to all Holders, and subject to the limitations of this Section 2.1, use its commercially reasonable efforts to effect, as soon as practicable, the registration under the Act of all Registrable Securities that the Holders request to be registered in a written request received by the Company within twenty (20) days of the mailing of the Company’s notice pursuant to this Section 2.1(a); provided that such request must provide for the registration of at least twenty percent (20%) of the Common Stock issued or issuable upon conversion of the Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F Preferred Stock, or Series G Preferred Stock, as applicable.
(b) If the Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to this Section 2.1, and the Company shall include such information in the written notice referred to in Section 2.1(a). In such event the right of any Holder to include its Registrable Securities in such registration shall be conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Company (which underwriter or underwriters shall be reasonably acceptable to those Initiating Holders holding a majority of the Registrable Securities then held by all Initiating Holders). Notwithstanding any other provision of this Section 2.1, if the underwriter advises the Company that marketing factors require a limitation on the number of securities underwritten (including Registrable Securities), then the Company shall so advise all Holders of Registrable Securities that would otherwise be underwritten pursuant hereto, and the number of shares that may be included in the underwriting shall be allocated to the Holders of such Registrable Securities pro rata based on the number of Registrable Securities held by all such Holders (including the Initiating Holders). In no event shall any Registrable Securities be excluded from such underwriting unless all other securities are first excluded. Any Registrable Securities excluded or withdrawn from such underwriting shall be withdrawn from the registration.
(c) Notwithstanding the foregoing, the Company shall not be required to effect a registration pursuant to this Section 2.1:
(i) in any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, unless the Company is already subject to service in such jurisdiction and except as may be required under the Act; or
(ii) after the Company has effected two (2) registrations pursuant to this Section 2.1, and such registrations have been declared or ordered effective; or
(iii) during the period starting with the date sixty (60) days prior to the Company’s good faith estimate of the date of the filing of and ending on a date one hundred twenty (120) days following the effective date of a Company-initiated registration subject to Section 2.2 below, provided that the Company is actively employing in good faith its commercially reasonable efforts to cause such registration statement to become effective; or
(iv) if the Initiating Holders propose to dispose of Registrable Securities that may be registered on Form S-3 pursuant to Section 2.3 hereof; or
(v) if the Company shall furnish to Holders requesting a registration statement pursuant to this Section 2.1 a certificate signed by the Company’s Chief Executive Officer, President or Chairman of the Board stating that in the good faith judgment of the Board, it would be seriously detrimental to the Company and its stockholders for such registration statement to be effected at such time, in which event the Company shall have the
right to defer such filing for a period of not more than one hundred twenty (120) days after receipt of the request of the Initiating Holders; provided that such right shall be exercised by the Company not more than once in any twelve (12) month period.
2.2 Company Registration.
(a) If (but without any obligation to do so) the Company proposes to register (including for this purpose a registration effected by the Company for stockholders other than the Holders) any of its stock or other securities under the Act in connection with the public offering of such securities (other than (i) a registration relating to a demand pursuant to Section 2.1 of this Agreement or (ii) a registration relating solely to the sale of securities of participants in a Company stock plan, a registration relating to a corporate reorganization or transaction under Rule 145 of the Act, a registration on any form that does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities, or a registration in which the only Common Stock being registered is Common Stock issuable upon conversion of debt securities that are also being registered), the Company shall, at such time, promptly give each Holder written notice of such registration. Upon the written request of each Holder given within twenty (20) days after mailing of such notice by the Company in accordance with Section 4.5 of this Agreement, the Company shall, subject to the provisions of Section 2.2(c) of this Agreement, use its commercially reasonable efforts to cause to be registered under the Act all of the Registrable Securities that each such Holder requests to be registered.
(b) Right to Terminate Registration. The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 2.2 prior to the effectiveness of such registration whether or not any Holder has elected to include securities in such registration. The expenses of such withdrawn registration shall be borne by the Company in accordance with Section 2.6 hereof.
(c) Underwriting Requirements. In connection with any offering involving an underwriting of shares of the Company’s capital stock, the Company shall not be required under this Section 2.2 to include any of the Holders’ securities in such underwriting unless they accept the terms of the underwriting as agreed upon between the Company and the underwriters selected by the Company (or by other Persons entitled to select the underwriters) and enter into an underwriting agreement in customary form with such underwriters, and then only in such quantity as the underwriters determine in their sole discretion will not jeopardize the success of the offering by the Company. If the total amount of securities, including Registrable Securities, requested by stockholders to be included in such offering exceeds the amount of securities sold other than by the Company that the underwriters determine in their sole discretion is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, that the underwriters determine in their sole discretion will not jeopardize the success of the offering. In the event that the underwriters determine that less than all of the Registrable Securities requested to be registered can be included in such offering, then the Registrable Securities that are included in such offering shall be apportioned pro rata among the selling Holders based on the number of Registrable Securities held by all selling Holders or in such other proportions as shall mutually
be agreed to by all such selling Holders. Notwithstanding the foregoing, in no event shall (i) any Registrable Securities be excluded from such offering unless all other stockholders’ securities have been first excluded from the offering and (ii) the amount of securities of the selling Holders included in the offering be reduced below twenty percent (20%) of the total amount of securities included in such offering, unless such offering is the Initial Offering, in which case the selling Holders may be excluded if the underwriters make the determination described above and no other stockholder’s securities are included in such offering. For purposes of the preceding sentence concerning apportionment, for any selling stockholder that is a Holder of Registrable Securities and that is a venture capital fund, partnership or corporation, the affiliated venture capital funds, partners, members, retired partners and stockholders of such Holder, or the estates and family members of any such partners, members and retired partners and any trusts for the benefit of any of the foregoing Persons shall be deemed to be a single “selling Holder,” and any pro rata reduction with respect to such “selling Holder” shall be based upon the aggregate amount of Registrable Securities owned by all such related entities and individuals.
2.3 Form S-3 Registration. In case the Company shall receive from the Holders of at least twenty percent (20%) (subject to the Regulatory Voting Restriction) of the Registrable Securities (for purposes of this Section 2.3, the “S-3 Initiating Holders”) a written request or requests that the Company effect a registration on Form S-3 and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders, the Company shall:
(a) promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders; and
(b) use its commercially reasonable efforts to effect, as soon as practicable, such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holders’ Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holders joining in such request as are specified in a written request given within fifteen (15) days after receipt of such written notice from the Company; provided, however, that the Company shall not be obligated to effect any such registration, qualification or compliance, pursuant to this Section 2.3:
(i) if Form S-3 is not available for such offering by the Holders;
(ii) if the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public (net of any underwriters’ discounts or commissions) of less than $1,000,000;
(iii) if the Company shall furnish to all Holders requesting a registration statement pursuant to this Section 2.3 a certificate signed by the Company’s Chief Executive Officer or Chairman of the Board stating that in the good faith judgment of the Board, it would be seriously detrimental to the Company and its stockholders for such registration statement to be effected at such time, in which event the Company shall have the right to defer
such filing for a period of not more than ninety (90) days after receipt of the request of the S-3 Initiating Holders; provided that such right shall be exercised by the Company not more than once in any twelve (12) month period;
(iv) if the Company has, within the twelve (12) month period preceding the date of such request, already effected two (2) registrations on Form S-3 pursuant to this Section 2.3;
(v) in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance;
(vi) if the Company, within thirty (30) days of receipt of the request of such S-3 Initiating Holders, gives notice of its bona fide intention to effect the filing of a registration statement with the SEC within ninety (90) days of receipt of such request (other than a registration effected solely to qualify an employee benefit plan or to effect a business combination pursuant to Rule 145), provided that the Company is actively employing in good faith its commercially reasonable efforts to cause such registration statement to become effective; or
(vii) during the period starting with the date thirty (30) days prior to the Company’s good faith estimate of the date of the filing of and ending on a date ninety (90) days following the effective date of a Company-initiated registration subject to Section 2.2 of this Agreement, provided that the Company is actively employing in good faith its commercially reasonable efforts to cause such registration statement to become effective.
(c) If the S-3 Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to this Section 2.3 and the Company shall include such information in the written notice referred to in Section 2.3(a). The provisions of Section 2.1(b) of this Agreement shall be applicable to such request (with the substitution of Section 2.3 for references to Section 2.1).
(d) Subject to the foregoing, the Company shall file a registration statement covering the Registrable Securities and other securities so requested to be registered as soon as practicable after receipt of the request or requests of the S-3 Initiating Holders. Registrations effected pursuant to this Section 2.3 shall not be counted as requests for registration effected pursuant to Section 2.1 of this Agreement.
2.4 Obligations of the Company. Whenever required under this Section 2 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible:
(a) prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its commercially reasonable efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for a
period of up to one hundred twenty (120) days or, if earlier, until the distribution contemplated in the registration statement has been completed;
(b) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement;
(c) furnish to the Holders such number of copies of a prospectus, including a preliminary prospectus and any Free Writing Prospectus, in conformity with the requirements of the Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them;
(d) use its commercially reasonable efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions;
(e) in the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering;
(f) notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus or Free Writing Prospectus (to the extent prepared by or on behalf of the Company) relating thereto is required to be delivered under the Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, and, at the request of any such Holder, the Company will, as soon as reasonably practicable, file and furnish to all such Holders a supplement or amendment to such prospectus or Free Writing Prospectus (to the extent prepared by or on behalf of the Company) so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus will not contain an untrue statement of a material fact or omit to state any fact necessary to make the statements therein not misleading in light of the circumstances under which they were made;
(g) cause all such Registrable Securities registered pursuant to this Section 2 to be listed on a national exchange or trading system and on each securities exchange and trading system on which similar securities issued by the Company are then listed; and
(h) provide a transfer agent and registrar for all Registrable Securities registered pursuant to this Agreement and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration.
Notwithstanding the provisions of this Section 2, the Company shall be entitled to postpone or suspend, upon written notice to the participating Holders and for a reasonable period of time not to exceed one hundred twenty (120) days thereafter, the filing, effectiveness or use
of, or trading under, any registration statement if the Company shall determine that any such filing or the sale of any securities pursuant to such registration statement would in the good faith judgment of the Board:
(i) materially impede, delay or interfere with any material pending or proposed financing, acquisition, corporate reorganization or other similar transaction involving the Company for which the Board has authorized negotiations;
(ii) materially and adversely impair the consummation of any pending or proposed material offering or sale of any class of securities by the Company; or
(iii) require disclosure of material nonpublic information that, if disclosed at such time, would be materially harmful to the interests of the Company and its stockholders; provided, however, that during any such period all executive officers and directors of the Company are also prohibited from selling securities of the Company (or any security of any of the Company’s subsidiaries or affiliates).
In the event of the suspension of effectiveness of any registration statement pursuant to this Section 2.4, the applicable time period during which such registration statement is to remain effective shall be extended by that number of days equal to the number of days the effectiveness of such registration statement was suspended.
2.5 Information from Holder. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 2 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be reasonably required to effect the registration of such Holder’s Registrable Securities.
2.6 Expenses of Registration. All expenses (other than underwriting discounts and commissions) incurred in connection with registrations, filings or qualifications pursuant to Sections 2.1, 2.2 and 2.3 of this Agreement, including, without limitation, all registration, filing and qualification fees, printers’ and accounting fees, fees and disbursements of counsel for the Company and the reasonable fees and disbursements of one counsel for the selling Holders shall be borne by the Company. Notwithstanding the foregoing, the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 2.1 or Section 2.3 of this Agreement if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered (in which case all participating Holders shall bear such expenses pro rata based upon the number of Registrable Securities that were to be included in the withdrawn registration) unless, in the case of a registration requested under Section 2.1 of this Agreement, the Holders of a majority of the Registrable Securities agree to forfeit their right to one demand registration pursuant to Section 2.1 of this Agreement and; provided, however, that if at the time of such withdrawal, the Holders have learned of a material adverse change in the condition, business or prospects of the Company from that known to the Holders at the time of their request and have withdrawn the request with reasonable promptness following disclosure by the Company of such material
adverse change, then the Holders shall not be required to pay any of such expenses and shall retain their rights pursuant to Sections 2.1 and 2.3 of this Agreement.
2.7 Delay of Registration. No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 2.
2.8 Indemnification. In the event any Registrable Securities are included in a registration statement under this Section 2:
(a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder, the partners, members, officers, directors and stockholders of each Holder, legal counsel and accountants for each Holder, any underwriter (as defined in the Act) for such Holder, each Person, if any, who controls such Holder or underwriter within the meaning of the Act or the 1934 Act and, with respect to each Advised Holder, such Advised Holder’s applicable Advisory Entity, against any losses, claims, damages or liabilities (joint or several) to which they may become subject under the Act, the 1934 Act, any state securities laws or any rule or regulation promulgated under the Act, the 1934 Act or any state securities laws, insofar as such losses, claims, damages, or liabilities (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively, a “Violation”): (i) any untrue or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus, final prospectus, or Free Writing Prospectus contained therein or any amendments or supplements thereto, any issuer information (as defined in Rule 433 of the Act) filed or required to be filed pursuant to Rule 433(d) under the Act or any other document incident to such registration prepared by or on behalf of the Company or used or referred to by the Company, (ii) the omission or alleged omission of a material fact required to be stated in such registration statement, or necessary to make the statements therein not misleading or (iii) any violation or alleged violation by the Company of the Act, the 1934 Act, any state securities laws or any rule or regulation promulgated under the Act, the 1934 Act or any state securities laws, and the Company will reimburse, as incurred, each such Holder, underwriter, controlling Person or other aforementioned Person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, action or proceeding as such expenses are incurred; provided, however, that the indemnity agreement contained in this Section 2.8(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, action or proceeding if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability, action or proceeding to the extent that it arises out of or is based upon a Violation that occurs in reliance upon, and in conformity with, written information furnished expressly for use in connection with such registration by any such Holder, underwriter, controlling Person or other aforementioned Person.
(b) To the extent permitted by law, each selling Holder, severally and not jointly, will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each Person, if any, who controls the Company within the meaning of the Act, legal counsel and accountants for the Company, any
underwriter, any other Holder selling securities in such registration statement and any controlling Person of any such underwriter or other Holder, against any losses, claims, damages or liabilities (joint or several) to which any of the foregoing Persons may become subject, under the Act, the 1934 Act, any state securities laws or any rule or regulation promulgated under the Act, the 1934 Act or any state securities laws, insofar as such losses, claims, damages or liabilities (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will reimburse any Person intended to be indemnified pursuant to this Section 2.8(b) for any legal or other expenses reasonably incurred by such Person in connection with investigating or defending any such loss, claim, damage, liability, action or proceeding as such expenses are incurred; provided, however, that the indemnity agreement contained in this Section 2.8(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, action or proceeding if such settlement is effected without the consent of the Holder (which consent shall not be unreasonably withheld), and provided that in no event shall any indemnity under this Section 2.8(b), when combined with any amounts contributed under Section 2.8(d) by such Holder, exceed the net proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this Section 2.8 of notice of the commencement of any action or proceeding (including any governmental action or proceeding) for which a party may be entitled to indemnification, such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 2.8, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties that may be represented without conflict by one counsel) shall have the right to retain one (1) separate counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action or proceeding, if prejudicial to its ability to defend such action or proceeding, shall relieve such indemnifying party of liability to the indemnified party under this Section 2.8 to the extent of such prejudice, but the omission to so deliver written notice to the indemnifying party will not relieve such indemnifying party of any liability that it may have to any indemnified party otherwise than under this Section 2.8.
(d) If the indemnification provided for in this Section 2.8 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage or expense referred to herein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand
and the indemnified party on the other hand in connection with the statements or omissions that resulted in such loss, liability, claim, damage or expense, as well as any other relevant equitable considerations; provided, however, that (i) no contribution by any Holder, when combined with any amounts paid by such Holder pursuant to Section 2.8(b), shall exceed the net proceeds from the offering received by such Holder and (ii) no Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) will be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation; and provided further that in no event shall a Holder’s liability pursuant to this Section 2.8(d), when combined with the amounts paid or payable by such Holder pursuant to Section 2.8(b), exceed the proceeds from the offering received by such Holder (net of any expenses paid by such Holder). The relative fault of the indemnifying party and the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control.
(f) The obligations of the Company and Holders under this Section 2.8 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 2 and otherwise.
2.9 Reports Under the 1934 Act. With a view to making available to the Holders the benefits of Rule 144 and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms are understood and defined in Rule 144, at all times after the effective date of the Initial Offering;
(b) file with the SEC in a timely manner all reports and other documents required of the Company under the Act and the 1934 Act; and
(c) furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144 (at any time after ninety (90) days after the effective date of the first registration statement filed by the Company), the Act and the 1934 Act (at any time after it has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company and (iii) such other information as may be reasonably requested to avail any Holder of any rule or regulation of the SEC that permits the selling of any such securities without registration or pursuant to such form.
2.10 Assignment of Registration Rights. The rights to cause the Company to register Registrable Securities pursuant to this Section 2 may be assigned (but only with all related obligations) by a Holder to a transferee or assignee of such securities that (a) is an Affiliate, subsidiary, parent, partner, limited partner, retired partner, member or stockholder of a Holder, (b) is a Holder’s family member or trust for the benefit of an individual Holder or any of such Holder’s family members, (c) after such assignment or transfer, holds at least ten percent (10%) of the Registrable Securities initially purchased by the transferring Holder (appropriately adjusted for any stock split, dividend, combination or other recapitalization) or (d) pursuant to a merger or reorganization of a U.S. registered mutual fund or (e) pursuant to a transfer by an Advised Holder to any other entity managed by a registered investment advisor, provided: (i) the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned; (ii) such transferee or assignee agrees in writing to be bound by and subject to the terms and conditions of this Agreement, including, without limitation, the provisions of Section 2.12 of this Agreement; and (iii) such assignment shall be effective only if immediately following such transfer the further disposition of such securities by the transferee or assignee is restricted under the Act.
2.11 Limitations on Subsequent Registration Rights. From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders holding a majority of the Registrable Securities then held by all Holders, enter into any agreement with any holder or prospective holder of any securities of the Company that would allow such holder or prospective holder (a) to include any of such securities in any registration filed under Section 2.1, Section 2.2 or Section 2.3 of this Agreement, unless under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of such securities will not reduce the amount of the Registrable Securities of the Holders that are included or (b) to demand registration of their securities.
2.12 “Market Stand-Off” Agreement.
(a) Each Holder hereby agrees that it will not, without the prior written consent of the managing underwriter, during the period commencing on the date of the final prospectus relating to the Initial Offering and ending on the date specified by the Company and the managing underwriter (such period not to exceed one hundred eighty (180) days), or such other period as may be requested by the Company or an underwriter to accommodate regulatory restrictions on (1) the publication or other distribution of research reports, or (2) analyst recommendations and opinions, including, but not limited to, the restrictions contained in FIRNA 2241, or any successor provisions or amendments thereto) (i) lend, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock held immediately prior to the effectiveness of the registration statement for such offering, or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Common Stock, whether any such transaction described in clause (i) or (ii) above is to be settled by
delivery of Common Stock or other securities, in cash or otherwise. The foregoing provisions of this Section 2.12 shall apply only to the Initial Offering, shall not apply to the sale of any shares to an underwriter pursuant to an underwriting agreement or to any shares purchased in the Initial Offering or in the secondary market following effectiveness of the registration statement relating to the Initial Offering, and shall only be applicable to the Holders if all officers, directors and greater than one percent (1%) stockholders of the Company enter into similar agreements. The underwriters in connection with the Initial Offering are intended third-party beneficiaries of this Section 2.12 and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto. Each Holder further agrees to execute such agreements as may be reasonably requested by the underwriters in the Initial Offering that are consistent with this Section 2.12 or that are necessary to give further effect thereto. Any discretionary waiver or termination of the restrictions of any or all of such agreements by the Company or the underwriters shall apply to all Holders subject to such agreements pro rata based on the number of shares subject to such agreements.
In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the Registrable Securities of each Holder (and the shares or securities of every other Person subject to the foregoing restriction) until the end of such period.
(b) Each Holder agrees that a legend reading substantially as follows shall be placed on all certificates, instruments or book entries representing all Registrable Securities of each Holder (and the shares or securities of every other Person subject to the restriction contained in this Section 2.12):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A LOCK-UP PERIOD AFTER THE EFFECTIVE DATE OF THE ISSUER’S REGISTRATION STATEMENT FILED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AS SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE ORIGINAL HOLDER OF THESE SECURITIES, A COPY OF WHICH MAY BE OBTAINED AT THE ISSUER’S PRINCIPAL OFFICE. SUCH LOCK-UP PERIOD IS BINDING ON TRANSFEREES OF THESE SHARES.
(c) The Company shall be obligated to reissue promptly unlegended certificates, instruments or book entries at the request of any Holder thereof if the Company has completed its Initial Offering or in connection with a sale of Registrable Securities by a Holder pursuant to Rule 144 and the Holder shall have obtained an opinion of counsel (which counsel may be counsel to the Company) reasonably acceptable to the Company (it being understood that internal securities counsel of any Advised Holder, Durable or D1 shall be deemed acceptable for transfers by any Investors who are advisory clients of such Advised Holder, Durable or D1, as applicable, with respect their holdings in the Company) to the effect that the securities proposed to be disposed of may lawfully be so disposed of without registration, qualification and legend.
(d) If requested by the Advised Holders, the Company shall keep its securities held by the Advised Holders in certificated physical form at least through the expiration or early release of the lock-up period as set forth in Section 2.12(a) above. For the sake of clarity, the securities of the Company held by the T. Rowe Price Investors shall be kept
in certificated physical form at least through the expiration or early release of the lock-up period as set forth in Section 2.12(a) above unless T. Rowe Price notifies the Company otherwise in writing.
2.13 Termination of Registration Rights. No Holder shall be entitled to exercise any right provided for in this Section 2: (a) after five (5) years following the consummation of a Qualified Public Offering (as defined below); (b) as to any Holder, such earlier time after the Initial Offering at which such Holder (i) can sell all shares held by it in compliance with Rule 144(b)(1)(i) or (ii) holds one percent (1%) or less of the Company’s outstanding Common Stock and all Registrable Securities held by such Holder (together with any Affiliate of the Holder with whom such Holder must aggregate its sales under Rule 144) can be sold without limitation in any three (3) month period without registration in compliance with Rule 144; or (c) after the consummation of a Liquidation Event, as that term is defined in the Restated Certificate.
3. Covenants of the Company.
3.1 Delivery of Financial Statements. The Company shall, upon request, deliver to each Major Investor:
(a) as soon as practicable, but in any event within one hundred and fifty (150) days after the end of each fiscal year of the Company, an audited income statement for such fiscal year, a balance sheet of the Company and statement of stockholders’ equity as of the end of such year, and a statement of cash flows for such year, such year-end financial reports to be in reasonable detail, prepared in accordance with generally accepted accounting principles (“GAAP”);
(b) as soon as practicable, but in any event within forty five (45) days after the end of each of the four (4) quarters of each fiscal year of the Company, an unaudited income statement, statement of cash flows for such fiscal quarter and an unaudited balance sheet as of the end of such fiscal quarter, all prepared in accordance with GAAP (except that such financial statements may (i) be subject to normal year-end audit adjustments and (ii) not contain all notes thereto that may be required in accordance with GAAP);
(c) within thirty (30) days of the end of each month, an unaudited income statement and statement of cash flows for such month, and an unaudited balance sheet for and as of the end of such month, all prepared in reasonable detail (including, comparisons to the prior years and budget for that period and on a trended basis) and in accordance with GAAP (except that such financial statements may (i) be subject to normal year-end audit adjustments and (ii) not contain all notes thereto that may be required in accordance with GAAP);
(d) as soon as practicable, but in any event at least thirty (30) days prior to the end of each fiscal year, a budget and business plan for the next fiscal year, prepared on a monthly basis, including balance sheets, income statements and statements of cash flows for such months and, as soon as prepared, any other budgets or revised budgets prepared by the Company;
(e) as soon as practicable, but in any event within ninety (90) days after the end of each fiscal year of the Company, a statement showing the number of shares of each class and series of capital stock and securities convertible into or exercisable for shares of capital stock outstanding at the end of the period, the Common Stock issuable upon conversion or exercise of any outstanding securities convertible or exercisable for Common Stock, and the number of shares of issued stock options and stock options not yet issued but reserved for issuance, if any, all in sufficient detail as to permit each Major Investor to calculate their respective percentage equity ownership in the Company; and
(f) such other information relating to the financial condition, business or corporate affairs of the Company as the Major Investor may from time to time reasonably request, provided, however, that the Company shall not be obligated under this subsection (f) or any other subsection of Section 3.1 to provide information that (i) it deems in good faith to be a trade secret or similar confidential information or (ii) the disclosure of which would adversely affect the attorney-client privilege between the Company and its counsel.
(g) The Company shall promptly and accurately respond, and shall use commercially reasonable efforts to cause its transfer agent to promptly respond, to requests for information made on behalf of any Advised Holder, Durable or D1 relating to (a) accounting or securities law matters required in connection with its audit or (b) the actual holdings of the Advised Holder, Durable or D1, as applicable, including in relation to the total outstanding shares; provided, however, that the Company shall not be obligated to provide any such information that could reasonably result in a violation of applicable law or conflict with the Company’s insider trading policy or a confidentiality obligation of the Company. For the avoidance of doubt, each Advised Holder, Durable and D1 will receive a current capitalization table upon reasonable request. Additionally, each Advised Holder, Durable and D1 shall receive the financial information set forth in subsections (a) through (e) above without the requirement of a request to the Company.
(h) Notwithstanding anything else in this Section 3.1 to the contrary, the Company may cease providing the information set forth in this Section 3.1 during the period starting with the date thirty (30) days before the Company’s good-faith estimate of the date of filing of a registration statement if it reasonably concludes it must do so to comply with the SEC rules applicable to such registration statement and related offering; provided that the Company’s covenants under this Section 3.1 shall be reinstated at such time as the Company is no longer actively employing its commercially reasonable efforts to cause such registration statement to become effective.
(i) If, for any period, the Company has any subsidiary whose accounts are consolidated with those of the Company, then in respect of such period the financial statements delivered pursuant to the foregoing sections shall be the consolidated and consolidating financial statements of the Company and all such consolidated subsidiaries.
3.2 Inspection. The Company shall permit each Major Investor, at such Major Investor’s expense, to visit and inspect the properties of the Company and its subsidiaries, to examine the books of account and records of the Company and its subsidiaries and to discuss the affairs, finances and accounts of the Company and its subsidiaries with their respective officers
and its independent auditors (without the presence of their respective representatives), all during normal business hours following reasonable notice from such Major Investor; provided, however, that the Company and its subsidiaries shall not be obligated pursuant to this Section 3.2 to provide access to attorney/client privileged communications or any information that it reasonably considers to be a trade secret or similar confidential information.
3.3 Termination of Information and Inspection Covenants. The covenants set forth in Sections 3.1 and 3.2 shall terminate and be of no further force or effect upon the earlier to occur of (i) the consummation of the Initial Offering, (ii) when the Company first becomes subject to the periodic reporting requirements of Sections 12(g) or 15(d) of the 1934 Act, whichever event shall first occur or (iii) the consummation of a Liquidation Event, as that term is defined in the Restated Certificate.
3.4 Right of First Offer. Subject to the terms and conditions specified in this Section 3.4, the Company hereby grants to each Major Investor and Key Common Holder a right of first offer with respect to future sales by the Company of its Shares (as hereinafter defined). Each Major Investor shall be entitled to apportion the right of first offer hereby granted it among itself and its Affiliates in such proportions as it deems appropriate.
Each time the Company proposes to offer any shares of equity securities, whether or not currently authorized, securities convertible into or exchangeable or exercisable for any shares of its capital stock, or securities of any type whatsoever that are, or may become, convertible or exchangeable into or exercisable for such equity securities (including, without limitation, any such shares or securities issued in connection with debt securities) (“Shares”), the Company shall first make an offering of such Shares to each Major Investor and Key Common Holder in accordance with the following provisions:
(a) The Company shall deliver a notice in accordance with Section 4.5 (“Notice”) to the Major Investors and Key Common Holders stating (i) its bona fide intention to offer such Shares, (ii) the number of such Shares to be offered and (iii) the price and terms upon which it proposes to offer such Shares.
(b) By written notification received by the Company within twenty (20) calendar days after the giving of Notice, each Major Investor and Key Common Holder may elect to purchase, at the price and on the terms specified in the Notice, up to that portion of such Shares that equals the proportion that the number of shares of Common Stock that are Registrable Securities issued and held by such Major Investor or Key Common Holder (assuming full conversion and exercise of all convertible and exercisable securities held by such Major Investor or Key Common Holder) bears to the total number of shares of Common Stock of the Company then outstanding (assuming full conversion and exercise of all convertible and exercisable securities then outstanding) (the “Initial Pro Rata Share”). The Company shall promptly, in writing, inform each Major Investor that elects to purchase all the shares available to it (a “Fully-Exercising Investor”) of any other Major Investor’s failure to purchase all the Shares available to him, her or it. During the ten (10) day period commencing after such information is given, each Fully-Exercising Investor may elect to purchase that portion of the Shares for which Major Investors were entitled to subscribe, but which were not subscribed for by the Major Investors, that is equal to the proportion that the Initial Pro Rata Share of such
Fully-Exercising Investor bears to the aggregate Initial Pro Rata Share of all Fully-Exercising Investors.
(c) If all Shares that Major Investors or Key Common Holders are entitled to obtain pursuant to subsection 3.4(b) are not elected to be obtained as provided in subsection 3.4(b) hereof, the Company may, during the ninety (90) day period following the expiration of the period provided in subsection 3.4(b) hereof, offer the remaining unsubscribed portion of such Shares to any person or persons at a price not less than that, and upon terms no more favorable to the offeree than those, specified in the Notice. If the Company does not enter into an agreement for the sale of the Shares within such period, or if such agreement is not consummated within sixty (60) days of the execution thereof, the right provided hereunder shall be deemed to be revived and such Shares shall not be offered unless first reoffered to the Major Investors or Key Common holders in accordance herewith.
(d) The right of first offer in this Section 3.4 shall not be applicable to (i) the issuance of Series G Preferred Stock pursuant to the Series G Agreement, (ii) the issuance of securities pursuant to a stock split, stock dividend or similar reorganization, (iii) the issuance or sale of shares of Series A Common Stock or Series B Common Stock (or options therefor) to employees, directors, consultants and other service providers for the primary purpose of soliciting or retaining their services pursuant to plans or agreements approved by the Board, (iv) the issuance of securities pursuant to the Initial Offering, (v) the issuance of securities pursuant to the conversion or exercise of convertible or exercisable securities (with the Series B-1 Preferred Stock treated as being convertible into shares of Common Stock at the then applicable conversion rate of the Series B Preferred Stock), (vi) the issuance of securities in connection with a bona fide business acquisition of or by the Company, whether by merger, consolidation, sale of assets, sale or exchange of stock or otherwise, provided that such transaction is approved by the Board, (vii) the issuance or stock, warrants or other securities or rights to persons or entities with which the Company has business relationships, provided such issuances are for other than primarily equity financing purposes and have been approved by the Board, (viii) the issuance of stock, warrants, or other securities or rights pursuant to any equipment loan or leasing arrangement or debt financing from a bank or similar institution, provided such issuances are primarily for other than equity financing purposes and have been approved by the Board and (ix) Common Stock issued or deemed issued pursuant to subsection 4(d)(i)(E) of the Restated Certificate as a result of a decrease in the conversion price of any series of Preferred Stock. In addition to the foregoing, the right of first offer in this Section 3.4 shall not be applicable with respect to any Major Investor or Key Common Holder in any subsequent offering of Shares if (i) at the time of such offering, the Major Investor or Key Common Holder is not an “accredited investor,” as that term is then defined in Rule 501(a) of the Act and (ii) such offering of Shares is otherwise being offered only to accredited investors.
(e) The rights provided in this Section 3.4 may not be assigned or transferred by any Major Investor or Key Common Holder; provided, however, that (i) an Investor that is an institutional investor, venture capital fund or a corporation may assign or transfer such rights to its Affiliate and (ii) a Key Common Holder may assign or transfer such rights to a Major Investor or other Key Common Holder.
(f) The covenants set forth in this Section 3.4 shall terminate and be of no further force or effect upon the consummation of (i) the Company’s sale of its Common Stock or other securities pursuant to a registration statement under the Act resulting in proceeds to the Company of at least $50,000,000 in the aggregate (other than a registration statement relating either to the sale of securities to employees of the Company pursuant to its stock option, stock purchase or similar plan or a SEC Rule 145 transaction) (a “Qualified Public Offering”) or (ii) a Liquidation Event, as that term is defined in the Restated Certificate.
(g) The Company, the Common Holders and each other holder of Registrable Securities agree to use commercially reasonable efforts to cooperate with a Regulated Holder and its Transferees so that, in the event the Regulated Holder or its Transferees exercises its right of first offer pursuant to this Section 3.4, the terms and characteristics of the Shares acquired by such Regulated Holder or its Transferees shall comply with any regulatory requirements applicable to the Regulated Holder.
3.5 Reimbursement for Costs. The Company shall reimburse each nonemployee director for all reasonable and documented out-of-pocket expenses incurred in connection with attending meetings of the Board.
3.6 Proprietary Information and Inventions Agreements. The Company shall require all employees and consultants with access to confidential information to execute and deliver a Proprietary Information and Inventions Agreement and Consulting Agreement, respectively, in substantially the forms made available to the Investors.
3.7 Employee Agreements. Unless approved by the Board, all future employees of the Company who shall purchase, or receive options to purchase, shares of Series B Common Stock following the date hereof shall be required to execute stock purchase or option agreements providing for (a) vesting of shares over a four (4) year period with the first twenty-five percent (25%) of such shares vesting following twelve (12) months of continued employment or services, and the remaining shares vesting in equal monthly installments over the following thirty six (36) months thereafter and (b) a one hundred eighty (180) day lockup period (plus an additional period of up to eighteen (18) days) in connection with the Initial Offering. The Company shall retain a right of first refusal on transfers until the Initial Offering and the right to repurchase unvested shares at cost.
3.8 Key Common Holder Approval. So long as there are any Key Common Holders, the Company shall not (by amendment, merger, consolidation or otherwise) without first obtaining the approval (by vote or written consent, as provided by law) of the Key Common Holders holding, together with such Key Common Holders’ Related Entities, at least sixty percent (60%) of the then outstanding shares of Common Stock directly or beneficially held by all Key Common Holders and all Key Common Holders’ Related Entities:
(i) amend the Restated Certificate or Bylaws of the Company;
(ii) increase or decrease (other than by redemption or conversion) the total number of authorized shares of Series A Common Stock or Series B Common Stock or Preferred Stock or designated shares of any series of Preferred Stock;
(iii) authorize or issue any equity security (including any other security convertible into or exercisable for any such equity security), other than equity securities set forth in Section 3.4(d) of this Agreement;
(iv) increase the number of shares of Series B Common Stock or Series A Common Stock reserved for issuance under the Company’s 2010 Equity Incentive Plan, 2011 Stock Plan, 2012 Milestone Plan or 2019 Founder Stock Plan (collectively, the “Plans”), amend or modify the Plans or adopt, amend or modify any other stock incentive, restricted stock, stock repurchase or other equity incentive plan, bonus plan, agreement or arrangement;
(v) enter into any agreement restricting or adversely affecting the development of the Company’s business or the distribution of the Company’s products;
(vi) authorize or create any direct or indirect subsidiaries, joint ventures, partnerships or similar arrangements or sell or issue any equity securities of any subsidiary, joint ventures, partnerships or similar arrangements;
(vii) effect any disposition of assets or properties by the Company or its subsidiaries with a value that, individually or in the aggregate, exceeds $500,000, other than in the ordinary course of business;
(viii) acquire any other entity or all or substantially all of the assets of another entity (whether by merger, equity purchase, license, lease or otherwise);
(ix) change the authorized number of directors of the Company, or make any change to the composition of the Board;
(x) confer upon one or more directors voting powers greater than or less than those of other directors; or
(xi) pay or declare any dividend on any shares of capital stock of the Company.
3.9 Board of Director Approval. So long as any there are any Key Common Holders, the Company shall not (by amendment, merger, consolidation or otherwise) without first obtaining the approval (by vote or written consent, as provided by law) of the Board:
(i) directly or indirectly assume, guarantee or incur debt exceeding $1,000,000 in the principal amount or cause or permit any lien or other encumbrance to be placed on assets with an aggregate value of $1,000,000 or more, except for real estate leases contemplated by the Company’s or any subsidiary’s annual budget;
(ii) enter into any agreement or other obligation in excess of $1,000,000, except for real estate leases contemplated by the Company’s or any subsidiary’s annual budget;
(iii) hire or terminate any executive officer of the Company or amend any material employment terms with respect to any such officer;
(iv) enter into any transaction (including but not limited to loans, advances and management fees) with any stockholder, officer, director or other Affiliate of the Company; or
(v) approve an annual budget of the Company or any subsidiary (or materially alter the same).
3.10 Further Actions. After the Initial Closing, the Company shall use commercially reasonable efforts to take all actions necessary to obtain, maintain, preserve and renew all licenses, certifications and registrations on behalf of itself, its subsidiaries and its third party partners (including the optical laboratories used by the Company) which are necessary to operate the Company’s business as currently being conducted and so as to comply with the requirements of all applicable foreign, federal, state and local laws and regulations (including those related to ophthalmological and optometry services). After the Initial Closing, the Company shall establish implement, update and maintain policies, programs, procedures and systems with respect to the collection, use, storage, transfer, retention, disclosure and processing of “protected health information” (as such term is defined by HIPAA) so as to comply with all applicable laws, rules and regulations relating to privacy and data protection, including, but not limited to, the Health Insurance Portability and Accountability Act of 1996, as amended by the American Recovery and Reinvestment Act of 2009, and any regulations promulgated thereunder, including the Privacy Standards (45 C.F.R. Parts 160 and 164) and Security Standards (45 C.F.R. Parts 160 and 164), (collectively, “HIPAA”).
3.11 Confidentiality. Each Investor agrees, severally and not jointly, to use the same degree of care as such Investor uses to protect its own confidential information of a similar nature for any information obtained from the Company which the Company identifies as being proprietary or confidential or which by its nature a reasonable person would conclude is proprietary or confidential and such Investor acknowledges that it will not, unless otherwise required by law or the rules of any national securities exchange, association or marketplace, disclose such information without the prior written consent of the Company except such information that (a) was in the public domain prior to the time it was furnished to such Investor, (b) is or becomes (through no willful improper action or inaction by such Investor) generally available to the public, (c) was in its possession or known by such Investor without restriction prior to receipt from the Company, (d) was rightfully disclosed to such Investor by a third party without restriction or (e) was independently developed without any use of the Company’s confidential information. Notwithstanding the foregoing, each Investor that is a limited partnership or limited liability company may disclose such proprietary or confidential information to any former partners or members who retained an economic interest in such Investor, current or prospective partner of the partnership or any subsequent partnership under common investment management, limited partner, general partner, member or management company of such Investor (or any partner, employee or representative of any of the foregoing) (each of the foregoing persons, a “Permitted Disclosee”) or legal counsel, accountants, or representatives for such Investor. Notwithstanding the foregoing, each Advised Holder, Durable and D1 may also disclose such proprietary or confidential information to, in the case of each Advised Holder, its applicable Advisory Entity and, in the case of, Durable or D1, its Affiliate advisor(s) and funds and, in each such case, their respective partners, employees and
representatives (including legal counsel and accountants) (each of the foregoing persons, a “Permitted Disclosee”). Furthermore, nothing contained herein shall prevent any Investor or any Permitted Disclosee from (i) entering into any business, entering into any agreement with a third party, or investing in or engaging in investment discussions with any other company (whether or not competitive with the Company), provided that such Investor or Permitted Disclosee does not, except as permitted in accordance with this Section 3.11, disclose or otherwise make use of any proprietary or confidential information of the Company in connection with such activities, or (ii) making any disclosures required by law, rule, regulation or court or other governmental order. For the sake of clarity, nothing contained in this Section 3.11 shall in any way restrict or impair the obligations of (i) any Advisory Entity to report the investment of its advisory clients (as Investors) in the Company in accordance with applicable laws and regulations, without any requirement of prior notice to the Company, (ii) Durable from responding to routine examinations, demands, requests or reporting requirements of a regulator without prior notice to or consent from the Company or (iii) D1 from responding to routine examinations, demands, requests or reporting requirements of a regulator without prior notice to or consent from the Company.
3.12 Board Observer and Information Rights. As long as (a) the T. Rowe Price Investors own at least 2,176,696 shares (appropriately adjusted for any stock split, dividend, combination or other recapitalization) of capital stock of the Company, the Company shall invite a representative of T. Rowe Price to attend all meetings of the Board in a nonvoting observer capacity and, in this respect, shall give such representative copies of all notices, minutes, consents and other materials that it provides to its directors other than materials provided in a non-management (other than members of the Board who are management) “executive session” of the Board to the extent the Board determines in good faith and upon the advice of counsel that the disclosure of such materials would not be in the best interests of the Company; provided, however, that such representative shall agree to hold in confidence all information so provided in accordance with the last sentence of this Section 3.12; and, provided further, that the Company reserves the right to withhold any information and to exclude such representative from any meeting or portion thereof if access to such information or attendance at such meeting (i) could adversely affect the attorney-client privilege between the Company and its counsel, (ii) would result in disclosure of trade secrets to such representative or (iii) occurs during a time at which such representative is employed by, a consultant of, otherwise actively engaged in a similar capacity with any company that directly competes, or is reasonably likely to directly compete with, any business that the Company conducts, proposes to conduct or demonstrably anticipates conducting (a “Competing Business”), provided that owning less than two percent (2%) of a publicly traded Competing Business shall not trigger this clause (iii) and provided, further; that neither T. Rowe Price, the T. Rowe Price Investors nor any portfolio company of any T. Rowe Price Investor or other entity advised by T. Rowe Price shall be deemed a Competing Business if T. Rowe Price and the T. Rowe Price Investors are merely passive investors in such company or business; provided that all other observers are similarly excluded, (b) Durable owns at least 641,252 shares (appropriately adjusted for any stock split, dividend, combination or other recapitalization) of Series F Preferred Stock of the Company, the Company shall invite a representative of Durable, who shall be a then current employee or partner of Durable, to attend all meetings of the Board in a nonvoting observer capacity and, in this respect, shall give such
representative copies of all notices, minutes, consents and other materials that it provides to its directors other than materials provided in a non-management (other than members of the Board who are management) “executive session” of the Board to the extent the Board determines in good faith and upon the advice of counsel that the disclosure of such materials would not be in the best interests of the Company; provided, however, that the representative selected by Durable to attend such meetings and receive such materials shall be subject to the reasonable approval of a majority of the Board (to the extent such representative is not Henry Ellenbogen or Corey Shull) and such representative shall agree to hold in confidence all information so provided in accordance with the last sentence of this Section 3.12; and, provided further, that the Company reserves the right to withhold any information and to exclude such representative from any meeting or portion thereof if access to such information or attendance at such meeting (i) could adversely affect the attorney-client privilege between the Company and its counsel, (ii) would result in disclosure of trade secrets to such representative or (iii) occurs during a time at which such representative is employed by, a consultant of or otherwise actively engaged in a similar capacity with any Competing Business, provided that owning less than two percent (2%) of a publicly traded Competing Business shall not trigger this clause (iii) and provided, further; that Durable shall not be deemed a Competing Business if Durable is merely a passive investor in such company or business; provided that all other observers are similarly excluded and (c) D1 owns at least 2,430,066 shares (appropriately adjusted for any stock split, dividend, combination or other recapitalization) of Series G Preferred Stock (or shares of Common Stock issued upon conversion thereof), the Company shall give D1 copies of all notices, minutes, consents and other materials that it provides to its directors other than materials provided in a non-management (other than members of the Board who are management) “executive session” of the Board to the extent the Board determines in good faith and upon the advice of counsel that the disclosure of such materials would not be in the best interests of the Company; provided, however, that D1 shall agree to hold in confidence all information so provided in accordance with the last sentence of this Section 3.12; and, provided further, that the Company reserves the right to withhold any information if access to such information (i) could adversely affect the attorney-client privilege between the Company and its counsel or (ii) would result in disclosure of trade secrets to D1. Any observer shall be required to enter into a confidentiality agreement containing substantially similar terms as those set forth in Section 3.11 of this Agreement with the Company prior to the exercise of the rights contained in this Section 3.12.
3.13 Publicity. The Company shall not use the name or trademarks of any Advisory Entity or its Advised Holders and their Affiliates, Durable or D1, including the issuance of any press release relating to the sale of the Series G Preferred Stock that identifies such Advisory Entity or its Advised Holders and their Affiliates, Durable or D1, without the prior review and written consent of such Advisory Entity, Durable or D1, as applicable.
3.14 Termination of Certain Covenants. The covenants set forth in Sections 3.5, 3.6, 3.7, 3.8, 3.9 and 3.12 shall terminate and be of no further force or effect upon the consummation of (i) a Qualified Public Offering or (ii) a Liquidation Event, as that term is defined in the Restated Certificate.
4. Miscellaneous.
4.1 Successors and Assigns. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including transferees of any Registrable Securities). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.
4.2 Governing Law. This Agreement shall be governed by and construed under the laws of the State of New York as applied to agreements among New York residents entered into and to be performed entirely within New York, without regard to its principles of conflicts of laws. THE PARTIES TO THIS AGREEMENT HEREBY WAIVE THEIR RIGHT TO A TRIAL BY JURY WITH RESPECT TO DISPUTES ARISING UNDER THIS AGREEMENT AND THE RELATED AGREEMENTS AND CONSENT TO A BENCH TRIAL WITH THE APPROPRIATE JUDGE ACTING AS THE FINDER OF FACT.
4.3 Counterparts. This Agreement may be executed and delivered by facsimile or electronic signature in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
4.4 Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.
4.5 Notices. All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed effectively given: (i) upon personal delivery to the party to be notified, (ii) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient; if not, then on the next business day, (iii) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (iv) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the respective parties at the addresses set forth on the signature pages attached hereto (or at such other addresses as shall be specified by notice given in accordance with this Section 4.5).
4.6 Expenses. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled.
4.7 Entire Agreement; Amendments and Waivers. This Agreement (including the Exhibits hereto, if any) constitutes the full and entire understanding and agreement among the parties with regard to the subjects hereof and thereof. Any term of this Agreement (other than Section 3.1, Section 3.2, Section 3.3 and Section 3.4) may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of (i) the Company, (ii) holders of a majority of the Registrable Securities that are held by the Investors (with the Series B-1 Preferred
Stock being treated as not subject to the Regulatory Voting Restriction for this purpose) and (iii) the Key Common Holders holding, together with such Key Common Holders’ Related Entities, at least sixty percent (60%) of the Registrable Securities that are directly or beneficially held by all Key Common Holders and all Key Common Holders’ Related Entities; provided that, (a) Section 3.1(g), Section 3.12(b) and Section 3.13 shall not be amended, waived or terminated without written consent of Durable, (b) Durable shall not be removed as a “Major Investor” without its written consent, (c) Section 3.1(g), Section 3.12(a) and Section 3.13 shall not be amended, waived or terminated without written consent of the T. Rowe Price Investors, (d) the T. Rowe Price Investors shall not be removed as “Major Investors” without their written consent, (e) the definition of “T. Rowe Price” and “T. Rowe Price Investor”, and this clause (e), shall not be amended, waived or terminated as to T. Rowe Price or a T. Rowe Price Investor without consent of such party, (f) the Baillie Gifford Investors shall not be removed as “Major Investors” without their written consent, (g) the definition of “Baillie Gifford” and “Baillie Gifford Investors”, and this clause (g), shall not be amended, waived or terminated as to Baillie Gifford or a Baillie Gifford Investor without consent of such party, (h) the Wellington Investors shall not be removed as “Major Investors” without their written consent, (i) the definition of “Wellington” and “Wellington Investor”, and this clause (i), shall not be amended, waived or terminated as to Wellington or a Wellington Investor without consent of such party, (j) Section 3.1(g), Section 3.12(c), Section 3.13 and clauses (j), (k) and (l) of this proviso shall not be amended without the written consent of D1, (k) D1 shall not be removed as a “Major Investor” without its written consent and (l) the definition of “D1” shall not be amended without the written consent of D1. The provisions of Section 3.1, Section 3.2, Section 3.3 and Section 3.4 may be amended or waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and the Major Investors holding a majority of the Registrable Securities that are held by all of the Major Investors (with the Series B-1 Preferred Stock being treated as not subject to the Regulatory Voting Restriction for this purpose); provided, however, that Sections 1(r), 1(v), 1(w), 1(x) 1(hh), 4.14, this Section 4.7 (with respect to this sentence or any reference to shares of Series B-1 Preferred Stock) and any specific reference in this Agreement to Series B-1 Preferred Stock or the treatment thereof may be amended or waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of (x) American Express Travel Related Services Company, Inc. (“American Express”) in order to be enforceable against American Express and its affiliates (as defined in Regulation Y (12 C.F.R. Part 225)) and (y) for so long as any Regulated Holder or its Transferee holds any shares of Series B-1 Preferred Stock, the holders of a majority of the then-outstanding shares of Series B-1 Preferred Stock in order to be enforceable against any Regulated Holder or any Transferee. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any Registrable Securities, each future holder of all such Registrable Securities, and the Company. Notwithstanding the foregoing, in the event that any amendment or waiver adversely affects the obligations or rights under this Agreement of an Investor (an “Affected Investor”) in a different manner from any other Investor, such amendment or waiver shall also require the written consent of the Affected Investor. The Company shall give prompt notice of any amendment or termination hereof or waiver hereunder to any party hereto that did not consent in writing to such amendment, termination, or waiver.
4.8 Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.
4.9 Aggregation of Stock. All Registrable Securities held or acquired by Affiliates or other affiliated entities (including affiliated venture capital funds or venture capital funds under common investment management) or persons shall be aggregated together for the purpose of determining the availability of any rights under this Agreement.
4.10 Stock Split. All references to numbers of shares in this Agreement shall be appropriately adjusted to reflect any stock dividend, split, combination or other recapitalization affecting the capital stock of the Company occurring after the date of this Agreement.
4.11 Additional Investors. Notwithstanding Section 4.7, no consent shall be necessary to add additional Investors or their permitted transferees as signatories to this Agreement, provided, however, such Investor or permitted transferee has signed a counterpart signature page hereto, and, provided further, that in the case of an additional Investor, such Investor has purchased Series G Preferred Stock pursuant to the subsequent closing provisions of Section 1.3 of the Series G Agreement, as may be amended from time to time. Schedule A to this Agreement shall be updated without any action of the Investors to reflect such additional Investors or permitted transferees.
4.12 Waiver of Right of First Offer and Notice. The Company and the undersigned holders of Preferred Stock, as holders of a majority of the Registrable Securities (as such term is defined in the Prior Agreement) held by all of the Major Investors (as such term is defined in the Prior Agreement), on behalf of themselves and all of the Major Investors (as such term is defined in the Prior Agreement), hereby waive any and all rights of first offer and notice that each may have under Section 3.4 of the Prior Agreement with respect to the issuance and sale of the shares of Series G Preferred Stock (and the Common Stock issuable upon conversion thereof) pursuant to the Series G Agreement.
4.13 Effect on Prior Agreement. Upon the effectiveness of this Agreement, the Prior Agreement shall be superseded and replaced in its entirety by this Agreement and shall be of no further force or effect.
4.14 Treatment of Series B-1 Preferred Stock. Unless otherwise set forth in this Agreement, for all purposes of this Agreement, the Series B-1 Preferred Stock of the Company shall be treated as being convertible (without actual conversion) into shares of Series A Common Stock at the then applicable conversion rate of the Series B Preferred Stock.
4.15 Specific Performance. In addition to any and all other remedies that may be available at law in the event of any breach of this Agreement, each Investor shall be entitled to specific performance of the agreements and obligations of the Company hereunder and to such other injunction or other equitable relief as may be granted by a court of competent jurisdiction.
[Remainder of Page Intentionally Left Blank.]
IN WITNESS WHEREOF, the parties have executed this Eighth Amended and Restated Investors’ Rights Agreement as of the date first above written.
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COMPANY
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JAND, INC.
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By:
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/s/ Neil Blumenthal
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Name:
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Neil Blumenthal
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Title:
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President
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Address:
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233 Spring Street, 6th Floor East
New York, NY 10013
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SIGNATURE PAGE TO EIGHTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT
OF JAND, INC.
IN WITNESS WHEREOF, the parties have executed this Eighth Amended and Restated Investors’ Rights Agreement as of the date first above written.
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COMMON HOLDERS:
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/s/ Neil Blumenthal
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Neil Blumenthal
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Title:
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President
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/s/ David Gilboa
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David Gilboa
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/s/ Andrew Hunt
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Andrew Hunt
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/s/ Jeffrey Raider
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Jeffrey Raider
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SIGNATURE PAGE TO EIGHTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT
OF JAND, INC.
IN WITNESS WHEREOF, the parties have executed this Eighth Amended and Restated Investors’ Rights Agreement as of the date first above written.
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COMMON HOLDERS:
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NEIL H. BLUMENTHAL, AS TRUSTEE OF THE NEIL H. BLUMENTHAL 2011 FAMILY TRUST, UNDER A TRUST AGREEMENT DATED DECEMBER 30, 2011
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By:
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/s/ Neil Blumenthal
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Name:
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Neil Blumenthal
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Title:
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Trustee
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NEIL H. BLUMENTHAL, AS TRUSTEE OF THE NEIL H. BLUMENTHAL 2017 GRAT
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By:
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/s/ Neil Blumenthal
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Name:
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Neil Blumenthal
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Title:
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Trustee
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JEFFREY J. RAIDER, AS TRUSTEE OF THE JEFFREY J. RAIDER 2011 FAMILY TRUST, UNDER A TRUST AGREEMENT DATED DECEMBER 30, 2011
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By:
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/s/ Jeffrey J. Raider
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Name:
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Jeffrey J. Raider
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Title:
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Trustee
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DAVID A. GILBOA, AS TRUSTEE OF THE DAVID A. GILBOA 2012 FAMILY TRUST, UNDER A TRUST AGREEMENT DATED JUNE 30, 2012
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By:
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/s/ David A. Gilboa
|
|
|
Name:
|
David A. Gilboa
|
|
|
Title:
|
Trustee
|
SIGNATURE PAGE TO EIGHTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT
OF JAND, INC.
IN WITNESS WHEREOF, the parties have executed this Eighth Amended and Restated Investors’ Rights Agreement as of the date first above written.
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COMMON HOLDERS:
|
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NHB WP HOLDINGS LLC
|
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By:
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/s/ David P. Marks
|
|
|
Name:
|
David P. Marks
|
|
|
Title:
|
Manager
|
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JJR WP HOLDINGS LLC
|
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By:
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/s/ Jeffrey J. Raider
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|
Name:
|
Jeffrey J. Raider
|
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Title:
|
Manager
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DAG WP HOLDINGS LLC
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By:
|
/s/ David A. Gilboa
|
|
|
Name:
|
David A. Gilboa
|
|
|
Title:
|
Manager
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AMH WP HOLDINGS LLC
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By:
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/s/ Andrew M. Hunt II
|
|
|
Name:
|
Andrew M. Hunt II
|
|
|
Title:
|
Manager
|
SIGNATURE PAGE TO EIGHTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT
OF JAND, INC.
IN WITNESS WHEREOF, the parties have executed this Eighth Amended and Restated Investors’ Rights Agreement as of the date first above written.
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COMMON HOLDERS:
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NHB DELAWARE WP HOLDINGS LLC
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By:
|
/s/ David P. Marks
|
|
|
Name:
|
David P. Marks
|
|
|
Title:
|
Manager
|
SIGNATURE PAGE TO EIGHTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT
OF JAND, INC.
IN WITNESS WHEREOF, the parties have executed this Eighth Amended and Restated Investors’ Rights Agreement as of the date first above written.
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COMMON HOLDERS:
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JJR DELAWARE WP HOLDINGS LLC
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By:
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/s/ Ann M. Raider
|
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Name:
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Ann M. Raider
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Title:
|
Manager
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JJR CHARITABLE TRUST
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By:
|
/s/ Erica Schwedel
|
|
|
Name:
|
Erica Schwedel
|
|
|
Title:
|
Trustee
|
SIGNATURE PAGE TO EIGHTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT
OF JAND, INC.
IN WITNESS WHEREOF, the parties have executed this Eighth Amended and Restated Investors’ Rights Agreement as of the date first above written.
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COMMON HOLDERS:
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DAG DELAWARE WP HOLDINGS LLC
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By:
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/s/ Dahlia Levin
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Name:
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Dahlia Levin
|
|
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Title:
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Manager
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DAG CHARITABLE TRUST
|
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By:
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/s/ Joey Zwillinger
|
|
|
Name:
|
Joey Zwillinger
|
|
|
Title:
|
Trustee
|
SIGNATURE PAGE TO EIGHTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT
OF JAND, INC.
IN WITNESS WHEREOF, the parties have executed this Eighth Amended and Restated Investors’ Rights Agreement as of the date first above written.
|
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COMMON HOLDERS:
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B CHARITABLE TRUST
|
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|
|
By:
|
/s/ Joey Zwillinger
|
|
|
Name:
|
Joey Zwillinger
|
|
|
Title:
|
Trustee
|
SIGNATURE PAGE TO EIGHTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT
OF JAND, INC.
IN WITNESS WHEREOF, the parties have executed this Eighth Amended and Restated Investors’ Rights Agreement as of the date first above written.
|
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COMMON HOLDERS:
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BEACH PLUM WP HOLDINGS LLC
|
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By:
|
/s/ Kevin Hunt
|
|
|
Name:
|
Kevin Hunt
|
|
|
Title:
|
Manager
|
SIGNATURE PAGE TO EIGHTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT
OF JAND, INC.
IN WITNESS WHEREOF, the parties have executed this Eighth Amended and Restated Investors’ Rights Agreement as of the date first above written.
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|
INVESTORS AND COMMON HOLDERS:
|
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|
T. Rowe Price New Horizons Fund, Inc.
T. Rowe Price New Horizons Trust
T. Rowe Price U.S. Equities Trust
MassMutual Select Funds - MassMutual Select T. Rowe Price Small and Mid Cap Blend Fund
Each fund, severally and not jointly
|
|
|
|
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|
By: T. Rowe Price Associates, Inc., Investment Adviser or Subadviser, as applicable
|
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By:
|
/s/ Andrew Baek
|
|
|
|
|
|
|
Name:
|
Andrew Baek
|
|
|
|
|
|
|
Title:
|
Vice President
|
|
|
|
|
|
|
|
|
|
|
Address:
|
|
|
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, MD 21202
Attn: Matthew Dow, Vice President
Phone: [***-***-****]
E-mail: [***********]@troweprice.com
|
SIGNATURE PAGE TO EIGHTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT
OF JAND, INC.
IN WITNESS WHEREOF, the parties have executed this Eighth Amended and Restated Investors’ Rights Agreement as of the date first above written.
|
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|
INVESTORS AND COMMON HOLDERS:
|
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|
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|
|
T. Rowe Price Small-Cap Stock Fund, Inc.
T. Rowe Price Institutional Small-Cap Stock Fund
T. Rowe Price Personal Strategy Income Fund
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Balanced Portfolio
U.S. Small-Cap Stock Trust
VALIC Company I - Small Cap Fund
TD Mutual Funds - TD U.S. Small-Cap Equity Fund
T. Rowe Price U.S. Small-Cap Core Equity Trust
Minnesota Life Insurance Company
Costco 401(k) Retirement Plan
MassMutual Select Funds - MassMutual Select T. Rowe Price Small and Mid Cap Blend Fund
Each fund, severally and not jointly
|
|
|
|
|
|
|
By: T. Rowe Price Associates, Inc., Investment Adviser or Subadviser, as applicable
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ Andrew Baek
|
|
|
|
|
|
|
Name:
|
Andrew Baek
|
|
|
|
|
|
|
Title:
|
Vice President
|
|
|
|
|
|
|
|
|
|
|
Address:
|
|
|
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, MD 21202
Attn: Matthew Dow, Vice President
Phone: [***-***-****]
E-mail: [***********]@troweprice.com
|
SIGNATURE PAGE TO EIGHTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT
OF JAND, INC.
IN WITNESS WHEREOF, the parties have executed this Eighth Amended and Restated Investors’ Rights Agreement as of the date first above written.
|
|
|
|
|
|
|
|
|
|
|
|
INVESTORS AND COMMON HOLDERS:
|
|
|
|
|
|
|
|
|
|
|
T. Rowe Price Small-Cap Value Fund, Inc.
T. Rowe Price U.S. Small-Cap Value Equity Trust
T. Rowe Price U.S. Equities Trust
MassMutual Select Funds - MassMutual Select T. Rowe Price Small and Mid Cap Blend Fund
Each fund, severally and not jointly
|
|
|
|
|
|
|
By: T. Rowe Price Associates, Inc., Investment Adviser or Subadviser, as applicable
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ Andrew Baek
|
|
|
|
|
|
|
Name:
|
Andrew Baek
|
|
|
|
|
|
|
Title:
|
Vice President
|
|
|
|
|
|
|
|
|
|
|
Address:
|
|
|
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, MD 21202
Attn: Matthew Dow, Vice President
Phone: [***-***-****]
E-mail: [***********]@troweprice.com
|
SIGNATURE PAGE TO EIGHTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT
OF JAND, INC.
IN WITNESS WHEREOF, the parties have executed this Eighth Amended and Restated Investors’ Rights Agreement as of the date first above written.
|
|
|
|
|
|
|
|
|
|
|
|
INVESTORS AND COMMON HOLDERS:
|
|
|
|
|
|
|
|
|
|
|
T. Rowe Price Health Sciences Fund, Inc.
TD Mutual Funds - TD Health Sciences Fund
VALIC Company I - Health Sciences Fund
T. Rowe Price Health Sciences Portfolio
Each fund, severally and not jointly
|
|
|
|
|
|
|
By: T. Rowe Price Associates, Inc., Investment Adviser or Subadviser, as applicable
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ Andrew Baek
|
|
|
|
|
|
|
Name:
|
Andrew Baek
|
|
|
|
|
|
|
Title:
|
Vice President
|
|
|
|
|
|
|
|
|
|
|
Address:
|
|
|
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, MD 21202
Attn: Matthew Dow, Vice President
Phone: [***-***-****]
E-mail: [***********]@troweprice.com
|
SIGNATURE PAGE TO EIGHTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT
OF JAND, INC.
IN WITNESS WHEREOF, the parties have executed this Eighth Amended and Restated Investors’ Rights Agreement as of the date first above written.
|
|
|
|
|
|
|
|
|
|
|
|
INVESTORS AND COMMON HOLDERS:
|
|
|
|
|
|
|
|
|
|
|
T. Rowe Price Science & Technology Fund. Inc.
VALIC Company I - Science & Technology Fund
Each fund, severally and not jointly
|
|
|
|
|
|
|
By: T. Rowe Price Associates, Inc., Investment Adviser or Subadviser, as applicable
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ Andrew Baek
|
|
|
|
|
|
|
Name:
|
Andrew Baek
|
|
|
|
|
|
|
Title:
|
Vice President
|
|
|
|
|
|
|
|
|
|
|
Address:
|
|
|
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, MD 21202
Attn: Matthew Dow, Vice President
Phone: [***-***-****]
E-mail: [***********]@troweprice.com
|
SIGNATURE PAGE TO EIGHTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT
OF JAND, INC.
IN WITNESS WHEREOF, the parties have executed this Eighth Amended and Restated Investors’ Rights Agreement as of the date first above written.
|
|
|
|
|
|
|
|
|
|
|
|
INVESTORS AND COMMON HOLDERS:
|
|
|
|
|
|
|
GENERAL CATALYST GROUP V, L.P.
|
|
|
|
|
|
|
By:
|
General Catalyst Partners V, L.P.
|
|
|
|
its General Partner
|
|
|
|
|
|
|
By:
|
General Catalyst GP V, LLC
|
|
|
|
its General Partner
|
|
|
|
|
|
|
By:
|
/s/ Chris McCain
|
|
|
|
|
|
|
Name:
|
Chris McCain
|
|
|
|
|
|
|
Title:
|
General Counsel
|
|
|
|
|
|
|
|
|
|
|
GC ENTREPRENEURS FUND V, L.P.
|
|
|
|
|
|
|
By:
|
General Catalyst Partners V, L.P.
|
|
|
|
its General Partner
|
|
|
|
|
|
|
By:
|
General Catalyst GP V, LLC
|
|
|
|
its General Partner
|
|
|
|
|
|
|
By:
|
/s/ Chris McCain
|
|
|
|
|
|
|
Name:
|
Chris McCain
|
|
|
|
|
|
|
Title:
|
General Counsel
|
SIGNATURE PAGE TO EIGHTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT
OF JAND, INC.
IN WITNESS WHEREOF, the parties have executed this Eighth Amended and Restated Investors’ Rights Agreement as of the date first above written.
|
|
|
|
|
|
|
|
|
|
|
|
INVESTORS AND COMMON HOLDERS:
|
|
|
|
|
|
|
GENERAL CATALYST GROUP V SUPPLEMENTAL, L.P.
|
|
|
|
|
|
|
By:
|
General Catalyst Partners V, L.P.
|
|
|
|
its Manager
|
|
|
|
|
|
|
By:
|
General Catalyst GP V, LLC
|
|
|
|
its General Partner
|
|
|
|
|
|
|
By:
|
/s/ Chris McCain
|
|
|
|
|
|
|
Name:
|
Chris McCain
|
|
|
|
|
|
|
Title:
|
General Counsel
|
|
|
|
|
|
|
|
|
|
|
INVESTORS:
|
|
|
|
|
|
|
GC VENTURE V, LLC
|
|
|
|
|
|
|
By:
|
GC Venture V Manager, LLC
|
|
|
|
its Manager
|
|
|
|
|
|
|
By:
|
General Catalyst Group Management, LLC
|
|
|
|
its Manager
|
|
|
|
|
|
|
By:
|
/s/ Chris McCain
|
|
|
|
|
|
|
Name:
|
Chris McCain
|
|
|
|
|
|
|
Title:
|
General Counsel
|
SIGNATURE PAGE TO EIGHTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT
OF JAND, INC.
IN WITNESS WHEREOF, the parties have executed this Eighth Amended and Restated Investors’ Rights Agreement as of the date first above written.
|
|
|
|
|
|
|
|
|
|
|
|
INVESTORS AND COMMON HOLDERS:
|
|
|
|
|
|
|
GC VENTURE V-B, LLC
|
|
|
|
|
|
|
By:
|
GC Venture V Manager, LLC
|
|
|
|
its Manager
|
|
|
|
|
|
|
By:
|
General Catalyst Group Management, LLC
|
|
|
|
its Manager
|
|
|
|
|
|
|
By:
|
/s/ Chris McCain
|
|
|
|
|
|
|
Name:
|
Chris McCain
|
|
|
|
|
|
|
Title:
|
General Counsel
|
SIGNATURE PAGE TO EIGHTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT
OF JAND, INC.
IN WITNESS WHEREOF, the parties have executed this Eighth Amended and Restated Investors’ Rights Agreement as of the date first above written.
|
|
|
|
|
|
|
|
|
|
|
|
INVESTORS AND COMMON HOLDERS:
|
|
|
|
|
|
|
LFX TRUST, L.L.C.
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ Lee Fixel
|
|
|
|
|
|
|
Name:
|
Lee Fixel
|
|
|
|
|
|
|
Title:
|
Manager
|
SIGNATURE PAGE TO EIGHTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT
OF JAND, INC.
IN WITNESS WHEREOF, the parties have executed this Eighth Amended and Restated Investors’ Rights Agreement as of the date first above written.
|
|
|
|
|
|
|
|
|
|
|
|
INVESTORS:
|
|
|
|
|
|
|
ADDITION PARTNERS III LLC
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ Lee Fixel
|
|
|
|
|
|
|
Name:
|
Lee Fixel
|
|
|
|
|
|
|
Title:
|
Manager
|
SIGNATURE PAGE TO EIGHTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT
OF JAND, INC.
IN WITNESS WHEREOF, the parties have executed this Eighth Amended and Restated Investors’ Rights Agreement as of the date first above written.
|
|
|
|
|
|
|
|
|
|
|
|
INVESTORS:
|
|
|
|
|
|
|
BAILLIE GIFFORD US GROWTH TRUST PLC
|
|
|
|
|
|
|
Executed for and on behalf of Baillie Gifford US Growth Trust plc, acting through its agent, Baillie Gifford & Co
|
|
|
|
|
|
|
By:
|
/s/ Peter Singlehurst
|
|
|
|
|
|
|
Name:
|
Peter Singlehurst
|
|
|
|
|
|
|
Title:
|
Authorised Signatory
|
|
|
|
|
|
|
|
|
|
|
THE SCHIEHALLION FUND LIMITED
|
|
|
|
|
|
|
Executed for and on behalf of The Schiehallion Fund Limited, acting through its agent, Baillie Gifford Overseas Limited
|
|
|
|
|
|
|
By:
|
/s/ Peter Singlehurst
|
|
|
|
|
|
|
Name:
|
Peter Singlehurst
|
|
|
|
|
|
|
Title:
|
Authorised Signatory
|
SIGNATURE PAGE TO EIGHTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT
OF JAND, INC.
IN WITNESS WHEREOF, the parties have executed this Eighth Amended and Restated Investors’ Rights Agreement as of the date first above written.
|
|
|
|
|
|
|
|
|
|
|
|
INVESTOR:
|
|
|
|
|
|
|
D1 MASTER HOLDCO I LLC
|
|
|
|
|
|
|
By:
|
D1 Capital Partners Master LP
|
|
|
|
its Managing Member
|
|
|
|
|
|
|
By:
|
D1 Capital Partners GP Sub LLC
|
|
|
|
its General Partner
|
|
|
|
|
|
|
By:
|
/s/ Dan Sundheim
|
|
|
|
|
|
|
Name:
|
Dan Sundheim
|
|
|
|
|
|
|
Title:
|
Authorized Signatory
|
SIGNATURE PAGE TO EIGHTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT
OF JAND, INC.
IN WITNESS WHEREOF, the parties have executed this Eighth Amended and Restated Investors’ Rights Agreement as of the date first above written.
|
|
|
|
|
|
|
|
|
|
|
|
INVESTORS AND COMMON HOLDERS:
|
|
|
|
|
|
|
|
|
|
|
DURABLE CAPITAL MASTER FUND LP
|
|
|
|
|
|
|
By: Durable Capital Associates LLC, its general partner
|
|
|
|
|
|
|
By:
|
/s/ Michael Blandino
|
|
|
Name:
|
Michael Blandino
|
|
|
Title:
|
Authorized Person
|
|
|
|
|
|
|
Address:
|
|
|
c/o Durable Capital
5425 Wisconsin Avenue
Suite 802
Chevy Chase, MD 20815
Attn: Julie Jack, General Counsel
|
SIGNATURE PAGE TO EIGHTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT
OF JAND, INC.
IN WITNESS WHEREOF, the parties have executed this Eighth Amended and Restated Investors’ Rights Agreement as of the date first above written.
|
|
|
|
|
|
|
|
|
|
|
|
INVESTORS AND COMMON HOLDERS:
|
|
|
|
|
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TIGER GLOBAL PRIVATE INVESTMENT PARTNERS VII, L.P.
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By:
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Tiger Global PIP Performance VII, L.P
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Its:
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General Partner
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By:
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Tiger Global PIP Management VII, Ltd.
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Its:
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General Partner
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By:
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/s/ Steven Boyd
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Name:
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Steven Boyd
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Title:
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General Counsel
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TIGER GLOBAL PRIVATE INVESTMENT PARTNERS VI, L.P.
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By:
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Tiger Global PIP Performance VII, L.P
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Its:
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General Partner
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By:
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Tiger Global PIP Management VII, Ltd.
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Its:
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General Partner
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By:
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/s/ Steven Boyd
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Name:
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Steven Boyd
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Title:
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General Counsel
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SIGNATURE PAGE TO EIGHTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT
OF JAND, INC.
IN WITNESS WHEREOF, the parties have executed this Eighth Amended and Restated Investors’ Rights Agreement as of the date first above written.
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INVESTORS AND COMMON HOLDERS:
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TIGER GLOBAL PIP 6 HOLDINGS, L.P.
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By:
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Tiger Global PIP Performance VI, L.P
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Its:
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General Partner
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By:
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Tiger Global PIP Management VI, Ltd.
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Its:
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General Partner
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By:
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/s/ Steven Boyd
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Name:
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Steven Boyd
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Title:
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General Counsel
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TIGER GLOBAL PIP VII HOLDINGS, L.P.
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By:
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Tiger Global PIP Performance VII, L.P
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Its:
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General Partner
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By:
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Tiger Global PIP Management VII, Ltd.
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Its:
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General Partner
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By:
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/s/ Steven Boyd
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Name:
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Steven Boyd
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Title:
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General Counsel
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SIGNATURE PAGE TO EIGHTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT
OF JAND, INC.
INVESTORS AND COMMON HOLDERS:
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SCOTTISH MORTGAGE INVESTMENT TRUST PLC
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PLUMBING PENSIONS (U.K.) LIMITED
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Executed for and on behalf of Scottish Mortgage Investment Trust PLC, acting through its agent, Baillie Gifford & Co.
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Executed for and on behalf of Plumbing Pensions (U.K.) Limited, acting through its agent, Baillie Gifford & Co.
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By:
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/s/ Peter Singlehurst
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By:
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/s/ Peter Singlehurst
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Name:
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Peter Singlehurst
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Name:
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Peter Singlehurst
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Title:
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Partner of Baillie Gifford & Co.
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Title:
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Partner of Baillie Gifford & Co.
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THE STATES OF JERSEY PUBLIC EMPLOYEES CONTRIBUTORY RETIREMENT SCHEME
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WARMAN INVESTMENTS PTY LIMITED
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Executed for and on behalf of The States of Jersey Public Employees Contributory Retirement Scheme, acting through its agent, Baillie Gifford & Co.
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Executed for and on behalf of Warman Investments Pty Limited, acting through its agent, Baillie Gifford Overseas Limited
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By:
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/s/ Peter Singlehurst
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By:
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/s/ Peter Singlehurst
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Name:
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Peter Singlehurst
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Name:
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Peter Singlehurst
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Title:
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Partner of Baillie Gifford & Co.
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Title:
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Director of Baillie Gifford Overseas Limited
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THE BOARD OF TRUSTEES OF THE SASKATCHEWAN HEALTHCARE EMPLOYEES’ PENSION PLAN
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VISION SUPER PTY LTD
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Executed for and on behalf of The Board of Trustees of the Saskatchewan Healthcare Employees’ Pension Plan, acting through its agent, Baillie Gifford Overseas Limited
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Executed for and on behalf of Pooled Super Pty Ltd, acting through its agent, Baillie Gifford Overseas Limited
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By:
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/s/ Peter Singlehurst
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By:
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/s/ Peter Singlehurst
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Name:
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Peter Singlehurst
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Name:
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Peter Singlehurst
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Title:
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Director of Baillie Gifford Overseas Limited
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Title:
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Director of Baillie Gifford Overseas Limited
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INTERVENTURE EQUITY INVESTMENTS LIMITED
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HOST-PLUS PTY LIMITED
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Executed for and on behalf of Interventure Equity Investments Limited, acting through its agent, Baillie Gifford Overseas Limited
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Executed for and on behalf of Host-Plus Pty Limited, acting through its agent, Baillie Gifford Overseas Limited
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By:
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/s/ Peter Singlehurst
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By:
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/s/ Peter Singlehurst
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Name:
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Peter Singlehurst
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Name:
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Peter Singlehurst
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Title:
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Director of Baillie Gifford Overseas Limited
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Title:
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Director of Baillie Gifford Overseas Limited
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SIGNATURE PAGE TO EIGHTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT
OF JAND, INC.
Schedule A
Investors
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General Catalyst Group V, L.P.
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GC Entrepreneurs Fund V, L.P.
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General Catalyst Group V Supplemental, L.P.
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Spark Capital III, L.P.
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Spark Capital Founders’ Fund III, L.P.
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Tiger Global Private Investment Partners VI, L.P.
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Tiger Global Private Investment Partners VII, L.P.
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Lerer Media Ventures, LP
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Kevin M. Hunt
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Aviv Nevo
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First Round Capital III, LP, as nominee
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SV Angel III, L.P.
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Montauk TMT Ventures LLC
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Andrew K. Boszhardt, Jr.
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J. David Chute
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Forerunner Partners I, LLC
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TG Warbyparker LLC
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Charles Rappaport
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Evan Rappaport
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H. Andrew Schwedel
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Gavin Steinberg
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William B. Blumenthal
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Jeffrey Raider
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Martin Gilboa and Ruth Gilboa
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Thrive Capital Partners II, L.P.
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NewJphone L.L.C.
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Anton Levy
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MentorTech Ventures III, LP
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Richard Quincy
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Diane P. Blumenthal
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T.R. Newcomb
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Red Swan Ventures, LLC
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David Eisenberg
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Trevor Ashley
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Debra H. Bravman
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William Hofstetter
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Eileen Hofstetter
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Davis Smith
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Kimball Thomas
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Blake Campbell
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Andrew B. Armstrong
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Charles Towers
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Michael Gilbane
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WME Investments, LLC
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A Grade Investments, LLC
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HMSK Holdings, L.P.
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G&H Partners
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Menlo Ventures XI, L.P.
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MMEF XI, L.P.
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AF Square LLC
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The 2012 Drexler Family GST Trust f/b/o Alexander Drexler
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The 2012 Drexler Family GST Trust f/b/o Katherine Drexler
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RW Investments, LLC
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Eric Korman
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Ian Montone, trustee of the Ian Montone Revocable Trust U/T/A 4/3/2008
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SAMNAT LLC
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Forerunner Partners I, L.P.
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Allen & Company, LLC
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Salima Vahabzadeh
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Eggplant Rodeo LLC
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Philippe Lanier
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PMEH LLC
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Red Swan Ventures II, L.P.
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Felicis Ventures III, L.P.
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David Marks
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Ann Sagalyn
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Daniel Penchina
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The Diane Siegel Revocable Trust
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Adam P. Nemser
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Jesse Derris
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Christopher Dixon
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B R Family LLC
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Consigliere Brand Capital Warby Parker Investment LLC
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P&C Management Services Ltd.
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NBT Capital, LLC
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Randall Poster
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James W. Buffett
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JHB Investments LLC
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Suffolk Equity Partners Fund I, LP
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American Express Travel Related Services Company, Inc.
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Evan Feinberg
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G LTP LLC
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G ERP LLC
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G JBD LLC
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G HSP LLC
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Iconiq Strategic Partners, L.P.
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Iconiq Strategic Partners-B, L.P.
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The Conway Family Partnership, LP
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TC 2011 Declaration of Trust
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Daniel A Conway Trust
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Box Group LLC
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Alex Von Furstenberg
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Gil Weisblum
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Winkelried Investment Partners, LP
T. Rowe Price Health Sciences Fund, Inc.*
TD Mutual Funds - TD Health Sciences Fund*
VALIC Company I - Health Sciences Fund*
T. Rowe Price Health Sciences Portfolio*
John Hancock Variable Insurance Trust - Health Sciences Trust*
John Hancock Funds II - Health Sciences Fund*
T. Rowe Price New Horizons Fund, Inc.*
T. Rowe Price New Horizons Trust*
T. Rowe Price U.S. Equities Trust*
MassMutual Select Funds - MassMutual Select T. Rowe Price Small and Mid Cap Blend Fund*
T. Rowe Price Small-Cap Stock Fund, Inc.*
T. Rowe Price Institutional Small-Cap Stock Fund*
T. Rowe Price Spectrum Conservative Allocation Fund (formerly known as T. Rowe Price Personal Strategy Income Fund)*
T. Rowe Price Spectrum Moderate Allocation Fund (formerly known as T. Rowe Price Personal Strategy Balanced Fund)*
T. Rowe Price Spectrum Moderate Growth Allocation Fund (formerly known as T. Rowe Price Personal Strategy Growth Fund)*
T. Rowe Price Moderate Allocation Portfolio (formerly known as T. Rowe Price Personal Strategy Balanced Portfolio)*
U.S. Small-Cap Stock Trust*
VALIC Company I - Small Cap Fund*
TD Mutual Funds - TD U.S. Small-Cap Equity Fund*
T. Rowe Price U.S. Small-Cap Core Equity Trust*
Minnesota Life Insurance Company*
Costco 401(k) Retirement Plan*
T. Rowe Price Small-Cap Value Fund, Inc.*
T. Rowe Price U.S. Small-Cap Value Equity Trust*
T. Rowe Price Science & Technology Fund. Inc.*
VALIC Company I - Science & Technology Fund*
Global Multi-Strategy Fund**
Alpha Opportunities Trust**
Hartford Global Capital Appreciation Fund**
Alpha Opportunities Fund**
The Hartford Capital Appreciation Fund**
Mid Cap Stock Trust**
Hartford Disciplined Equity HLS Fund**
Mid Cap Stock Fund**
The Hartford Growth Opportunities Fund**
Rock Springs Capital Master Fund LP
TAO INVEST LLC
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James Fayed
Sammy Fayed
Liam Fayed
CR Parker, LLC
Quincy Family GC Trust
LFX Trust, L.L.C.
WME Ventures Holdings I, LLC
Willowtree Venture Fund, LP
Scottish Mortgage Investment Trust PLC***
Plumbing Pensions (U.K.) Limited***
The States of Jersey Public Employees Contributory Retirement Scheme***
Warman Investment Pty Limited***
The Board of Trustees of the Saskatchewan Healthcare Employees’ Pension Plan***
Vision Super Pty Ltd***
Interventure Equity Investments Limited***
Host-Plus Pty Limited***
Adam Grant
Tao Invest IV LLC
Jeffrey G. Fluhr Revocable Trust, dated November 8, 2005
Addition Partners III LLC
EWP Group LLC
Nore Trust
Baillie Gifford US Growth Trust PLC***
The Schiehallion Fund Limited***
Tiger Global PIP 6 Holdings, L.P.
GC Venture V, LLC
GC Venture V-B, LLC
Durable Capital Master Fund LP
D1 Master Holdco I LLC
T. Rowe Price Mid-Cap Growth Fund, Inc.*
T. Rowe Price Institutional Mid-Cap Equity Growth Fund*
T. Rowe Price Mid-Cap Growth Portfolio*
Great-West Funds, Inc. - Great-West T. Rowe Price Mid Cap Growth Fund*
TD Mutual Funds - TD U.S. Mid-Cap Growth Fund*
MassMutual Select Funds - MassMutual Select Mid Cap Growth Fund*
MML Series Investment Fund - MML Mid Cap Growth Fund*
Brighthouse Funds Trust I - T. Rowe Price Mid Cap Growth Portfolio*
Marriott International, Inc. Pooled Investment Trust for Participant Directed Accounts*
T. Rowe Price U.S. Mid-Cap Growth Equity Trust*
L'Oreal USA, Inc. Employee Retirement Savings Plan*
T. Rowe Price Diversified Mid-Cap Growth Fund, Inc.*
Bunting Family III, LLC*
T. Rowe Price Tax-Efficient Equity Fund*
Jeffrey LLC*
Seasons Series Trust - SA Multi-Managed Mid Cap Growth Portfolio*
Lincoln Variable Insurance Products Trust - LVIP T. Rowe Price Structured Mid-Cap Growth Fund*
Voya Partners, Inc. - VY T. Rowe Price Diversified Mid Cap Growth Portfolio*
Lincoln Variable Insurance Products Trust – LVIP Blended Mid Cap Managed Volatility Fund*
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* T. Rowe Price Investors. The stock certificates representing the shares that this Investor holds are registered in the name of its nominee.
**Wellington Investors. The stock certificates representing the shares that this Investor holds are registered in the name of its nominee.
***Baillie Gifford Investors.
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Schedule B
List of Common Holders
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Neil Blumenthal
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Neil H. Blumenthal, as Trustee of The Neil H. Blumenthal 2011 Family Trust, under a Trust Agreement dated December 30, 2011
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Neil H. Blumenthal, as Trustee of The Neil H. Blumenthal 2017 GRAT
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NHB Delaware WP Holdings LLC
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NHB WP Holdings LLC
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Rachel Blumenthal and William B. Blumenthal, as Trustees of the Blumenthal Generation Trust
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David Gilboa
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David A. Gilboa, as Trustee of the David A. Gilboa 2012 Family Trust, Under a Trust Agreement Dated June 1, 2012
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DAG Delaware WP Holdings LLC
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DAG WP Holdings LLC
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Ruth Gilboa 2017 GST-Exempt Trust
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Andrew Hunt
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AMH WP Holdings
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Jeffrey Raider
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Jeffrey J. Raider, as Trustee of The Jeffrey J. Raider 2011 Family Trust, under a Trust Agreement dated December 30, 2011
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JJR Delaware WP Holdings LLC
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JJR WP Holdings LLC
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|
Thrive Capital Partners II, L.P.
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General Catalyst Group V, L.P.
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|
GC Entrepreneurs Fund V, L.P.
|
|
General Catalyst Group V Supplemental, L.P.
|
|
Spark Capital III, L.P.
|
|
Spark Capital Founders’ Fund III, L.P.
|
|
Menlo Ventures XI, L.P.
|
|
MMEF XI, L.P.
|
|
The 2012 Drexler Family GST Trust f/b/o Alexander Drexler
|
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The 2012 Drexler Family GST Trust f/b/o Katherine Drexler
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RW Investments, LLC
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|
Eric Korman
|
|
Ian Montone, trustee of the Ian Montone Revocable Trust U/T/A 4/3/2008
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SAMNAT LLC
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|
G LTP LLC
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G ERP LLC
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G JBD LLC
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|
G HSP LLC
|
|
Salima Vahabzadeh
|
|
Allen & Company, LLC
|
|
Eggplant Rodeo LLC
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|
Philippe Lanier
|
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PMEH LLC
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|
Charles Towers
|
|
Andrew Armstrong
|
|
Blake Campbell
|
|
Michael Gilbane
|
|
Montauk TMT Ventures LLC
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Red Swan Ventures II, L.P.
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Felicis Ventures III, L.P.
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Charles Rappaport
|
|
Evan Rappaport
|
|
David Marks
|
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Ann Sagalyn
|
|
Daniel Penchina
|
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The Diane Siegel Revocable Trust
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Adam P. Nemser
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Jesse Derris
|
|
Christopher Dixon
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B R Family LLC
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Consigliere Brand Capital Warby Parker Investment LLC
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P&C Management Services Ltd.
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|
NBT Capital, LLC
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|
G&H Partners
|
|
MentorTech Ventures III, LP
|
|
JHB Investments LLC
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|
Suffolk Equity Partners Fund I, LP
|
|
Randall Poster
|
|
James W. Buffett
|
|
Evan Feinberg
|
|
Iconiq Strategic Partners, L.P.
|
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Iconiq Strategic Partners-B, L.P.
|
|
The Conway Family Partnership, LP
|
|
TC 2011 Declaration of Trust
|
|
Daniel A Conway Trust
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Box Group LLC
|
|
Alex Von Furstenberg
|
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Gil Weisblum
|
|
Winkelried Investment Partners, LP
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First Round Capital III, L.P., as nominee
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WME Investments, LLC
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T. Rowe Price Health Sciences Fund, Inc.*
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TD Mutual Funds - TD Health Sciences Fund*
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VALIC Company I - Health Sciences Fund*
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T. Rowe Price Health Sciences Portfolio*
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John Hancock Variable Insurance Trust - Health Sciences Trust*
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John Hancock Funds II - Health Sciences Fund*
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T. Rowe Price New Horizons Fund, Inc.*
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T. Rowe Price New Horizons Trust*
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T. Rowe Price U.S. Equities Trust*
|
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MassMutual Select Funds - MassMutual Select T. Rowe Price Small and Mid Cap Blend Fund*
|
|
T. Rowe Price Small-Cap Stock Fund, Inc.*
|
|
T. Rowe Price Institutional Small-Cap Stock Fund*
|
|
T. Rowe Price Personal Strategy Income Fund*
|
|
T. Rowe Price Personal Strategy Balanced Fund*
|
|
T. Rowe Price Personal Strategy Growth Fund*
|
|
T. Rowe Price Personal Strategy Balanced Portfolio*
|
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U.S. Small-Cap Stock Trust*
|
|
VALIC Company I - Small Cap Fund*
|
|
TD Mutual Funds - TD U.S. Small-Cap Equity Fund*
|
|
T. Rowe Price U.S. Small-Cap Core Equity Trust*
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Minnesota Life Insurance Company*
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Costco 401(k) Retirement Plan*
|
|
T. Rowe Price Small-Cap Value Fund, Inc.*
|
|
T. Rowe Price U.S. Small-Cap Value Equity Trust*
|
|
T. Rowe Price Science & Technology Fund. Inc.*
|
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VALIC Company I - Science & Technology Fund*
|
|
Global Multi-Strategy Fund**
|
|
Alpha Opportunities Trust**
|
|
Hartford Global Capital Appreciation Fund**
|
|
Alpha Opportunities Fund**
|
|
The Hartford Capital Appreciation Fund**
|
|
Mid Cap Stock Trust**
|
|
Hartford Disciplined Equity HLS Fund**
|
|
Mid Cap Stock Fund**
|
|
The Hartford Growth Opportunities Fund**
|
|
Rock Springs Capital Master Fund LP
|
|
TAO INVEST LLC
|
|
James Fayed
|
|
Sammy Fayed
|
|
Liam Fayed
|
|
CR Parker, LLC
|
|
LFX Trust, L.L.C.
|
|
Willowtree Venture Fund, LP
|
|
Scottish Mortgage Investment Trust PLC***
|
|
Plumbing Pensions (U.K.) Limited***
|
|
The States of Jersey Public Employees Contributory Retirement Scheme***
|
|
Warman Investment Pty Limited***
|
|
|
|
|
|
The Board of Trustees of the Saskatchewan Healthcare Employees’ Pension Plan***
|
|
Vision Super Pty Ltd***
|
|
Interventure Equity Investments Limited***
|
|
Host-Plus Pty Limited***
|
|
Tiger Global PIP 6 Holdings, L.P.
|
|
Tiger Global PIP VII Holdings, L.P.
|
|
GC Venture V-B, LLC
|
|
Durable Capital Master Fund LP
|
|
B Charitable Trust
|
|
DAG Charitable Trust
|
|
JJR Charitable Trust
|
|
Beach Plum WP Holdings LLC
|
|
D1 Master Holdco I LLC
|
|
T. Rowe Price Mid-Cap Growth Fund, Inc.*
|
|
T. Rowe Price Institutional Mid-Cap Equity Growth Fund*
|
|
T. Rowe Price Mid-Cap Growth Portfolio*
|
|
Great-West Funds, Inc. - Great-West T. Rowe Price Mid Cap Growth Fund*
|
|
TD Mutual Funds - TD U.S. Mid-Cap Growth Fund*
|
|
MassMutual Select Funds - MassMutual Select Mid Cap Growth Fund*
|
|
MML Series Investment Fund - MML Mid Cap Growth Fund*
|
|
Brighthouse Funds Trust I - T. Rowe Price Mid Cap Growth Portfolio*
|
|
Marriott International, Inc. Pooled Investment Trust for Participant Directed Accounts*
|
|
T. Rowe Price U.S. Mid-Cap Growth Equity Trust*
|
|
L'Oreal USA, Inc. Employee Retirement Savings Plan*
|
|
T. Rowe Price Diversified Mid-Cap Growth Fund, Inc.*
|
|
Bunting Family III, LLC*
|
|
T. Rowe Price Tax-Efficient Equity Fund*
|
|
Jeffrey LLC*
|
|
Seasons Series Trust - SA Multi-Managed Mid Cap Growth Portfolio*
|
|
Lincoln Variable Insurance Products Trust - LVIP T. Rowe Price Structured Mid-Cap Growth Fund*
|
|
Voya Partners, Inc. - VY T. Rowe Price Diversified Mid Cap Growth Portfolio*
|
|
Lincoln Variable Insurance Products Trust – LVIP Blended Mid Cap Managed Volatility Fund*
|
* T. Rowe Price Investors. The stock certificates representing the shares that this Investor holds are registered in the name of its nominee.
**Wellington Investors. The stock certificates representing the shares that this Investor holds are registered in the name of its nominee.
***Baillie Gifford Investors.
Exhibit 10.1
Execution Version
JAND, INC.,
WARBY PARKER RETAIL, INC.,
AND THE OTHER CO-BORROWERS
PARTY HERETO FROM TIME TO TIME
LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT (this “Agreement”) is entered into as of August 13, 2013, by and among COMERICA BANK (“Bank”) and JAND, INC., a Delaware corporation (“Parent”) and WARBY PARKER RETAIL, INC., a Delaware corporation (“WPRI”; or together with Parent each a “Borrower” and collectively the “Borrowers”).
RECITALS
A. Borrowers wish to obtain credit from time to time from Bank, and Bank desires to extend credit to Borrowers.
B. Borrowers are engaged in an interrelated business enterprise with an identity of interests, furnish goods or services to other Borrowers, purchase or acquire goods or services from other Borrowers, have a direct or indirect corporate or business relationship with one another, and accordingly the financing provided hereunder will directly and indirectly benefit each Borrower.
C. This Agreement sets forth the terms on which Bank will advance credit to Borrowers, and Borrowers will repay the amounts owing to Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 Definitions. As used in this Agreement, all capitalized terms shall have the definitions set forth on Exhibit A. Any term used in the Code and not defined herein shall have the meaning given to the term in the Code.
1.2 Accounting Terms. Any accounting term not specifically defined on Exhibit A shall be construed in accordance with GAAP and all calculations shall be made in accordance with GAAP. The term “financial statements” shall include the accompanying notes and schedules.
2. LOAN AND TERMS OF PAYMENT.
2.1 Credit Extensions.
(a) Promise to Pay; Use of Proceeds. Each Borrower promises, jointly and severally, to pay to Bank, in lawful money of the United States of America, the aggregate unpaid principal amount of all Credit Extensions made by Bank to any Borrower, together with interest on the unpaid principal amount of such Credit Extensions at rates in accordance with the terms hereof. Borrowers shall use the proceeds of the Credit Extensions solely as working capital, and to fund their respective general business requirements and not for personal, family, household or agricultural purposes.
(b) Advances Under Revolving Line.
(i) Amount. Subject to and upon the terms and conditions of this Agreement, Borrowers may request Advances in an aggregate outstanding amount not to exceed the lesser of (A) the Revolving Line or (B) the Borrowing Base, in each case less the aggregate face amount of Letters of Credit issued under the Letter of Credit Sublimit, and the aggregate limits of the corporate credit cards issued to any Borrower and merchant credit card processing reserves under the Credit Card Services Sublimit. Except as set forth in the Pricing Addendum amounts borrowed pursuant to this Section 2.1(b) may be repaid and reborrowed at any time without penalty or premium prior to the Revolving Maturity Date, at which time all Advances under this Section 2.1(b) shall be immediately due and payable.
(ii) Form of Request. Whenever a Borrower desires an Advance, such Borrower, or Parent as agent for such Borrower, will notify Bank by facsimile transmission or telephone no later than 3:00 p.m. Eastern Time (12:00 p.m. Eastern Time for wire transfers), on the Business Day that the Advance is to be made. Each such notification shall be promptly confirmed by a Payment/Advance Form in substantially the form of Exhibit C. Bank is authorized to make Advances under this Agreement, based upon instructions received from a Responsible Officer or a designee of a Responsible Officer, or without instructions if in Bank’s discretion such Advances are necessary to meet Obligations which have become due and remain unpaid. Bank shall be entitled to rely on any facsimile or telephonic notice given by a person who Bank reasonably believes to be a Responsible Officer or a designee thereof, and Borrowers shall indemnify and hold Bank harmless for any damages or loss suffered by Bank as a result of such reliance. Bank will credit the amount of Advances made under this Section 2.1(b) to any Borrower’s deposit account.
(iii) Letter of Credit Sublimit. Subject to the availability under the Revolving Line, and in reliance on the representations and warranties of Borrowers set forth herein, at any time and from time to time from the date hereof through the Business Day immediately prior to the Revolving Maturity Date, Bank shall issue for the account of Borrowers such Letters of Credit as Borrowers may request by delivering to Bank a duly executed letter of credit application on Bank’s standard form; provided, however, that the outstanding and undrawn amounts under all such Letters of Credit (i) shall not at any time exceed the Letter of Credit Sublimit, and (ii) shall be deemed to constitute Advances for the purpose of calculating availability under the Revolving Line. Any drawn but unreimbursed amounts under any Letters of Credit shall be charged as Advances against the Revolving Line. All Letters of Credit shall be in form and substance acceptable to Bank in its sole discretion and shall be subject to the terms and conditions of Bank’s form application and letter of credit agreement. Borrowers will pay to Bank a Letter of Credit fee equal to one and three quarters of one percent (1.75%) per annum of the face amount of each Letter of Credit outstanding under the Letter of Credit Sublimit, payable annually in advance (the “Letter of Credit Fee”), and will pay any other standard issuance and other fees that Bank notifies Borrowers it will charge for issuing and processing Letters of Credit; provided that the Letter of Credit Fee for any Letters of Credit issued by Bank that are cash-secured on terms satisfactory to Bank shall be one percent (1.00%). If, on the Revolving Maturity Date, there are any outstanding Letters of Credit, then on such date Borrowers shall provide to Bank cash collateral in an amount equal to 105% of the face amount of all such Letters of Credit plus all interest, fees, and costs due or to become due in connection therewith
(as estimated by Bank in its good faith business judgment), to secure all of the Obligations relating to said Letters of Credit.
(iv) Credit Card Services Sublimit. Subject to the terms and conditions of this Agreement, Borrowers may request corporate credit cards and standard and e-commerce merchant account services from Bank (collectively, the “Credit Card Services”). The aggregate limit of the corporate credit cards and merchant credit card processing reserves shall not exceed the Credit Card Services Sublimit, provided that availability under the Revolving Line shall be reduced by the aggregate limits of the corporate credit cards issued to Borrowers and merchant credit card processing reserves. In addition, Bank may, in its sole discretion, charge as Advances any amounts that become due or owing to Bank in connection with the Credit Card Services. The terms and conditions (including repayment and fees) of such Credit Card Services shall be subject to the terms and conditions of the Bank’s standard forms of application and agreement for the Credit Card Services, which each Borrower hereby agrees to execute.
(v) [Reserved].
(vi) [Reserved].
(vii) Collateralization of Obligations Extending Beyond Maturity. If Borrower has not secured to Bank’s satisfaction its obligations with respect to any Letters of Credit or Credit Card Services that may extend beyond the Revolving Maturity Date, then, effective as of the Revolving Maturity Date, the balance in any deposit accounts held by Bank and the certificates of deposit or time deposit accounts issued by Bank in any Borrower’s name (and any interest paid thereon or proceeds thereof, including any amounts payable upon the maturity or liquidation of such certificates or accounts), shall automatically secure such obligations to the extent of the then continuing or outstanding and undrawn Letters of Credit, or Credit Card Services; provided, however, that if there are insufficient balances in such accounts to secure such obligations, Borrowers shall immediately deposit such additional funds as are necessary to fully secure such obligations. Each Borrower authorizes Bank to hold such balances in pledge and to decline to honor any drafts thereon or any requests by any Borrower or any other Person to pay or otherwise transfer any part of such balances for so long as the Letters of Credit or Credit Card Services are outstanding or continue.
(c) Growth Capital Advances.
(i) Availability. Subject to and upon the terms and conditions of this Agreement, Bank agrees to make Growth Capital Advances to Borrowers. Borrowers may request Growth Capital Advances from the date hereof through Growth Capital Availability End Date. The aggregate amount of Growth Capital Advances shall not exceed the Growth Capital Line. Each Growth Capital Advance shall be in a minimum amount of $250,000.
(ii) Repayment. Interest shall accrue from the date of each Growth Capital Advance at the rate specified in the Pricing Addendum, and shall be payable in accordance with Section 2.3(b) and on the terms set forth in the Pricing Addendum. Borrowers shall make monthly payments of interest-only, commencing on September 1, 2013, and
continuing on the first day of each successive month thereafter through the Growth Capital Availability End Date. Any Growth Capital Advances that are outstanding on the Growth Capital Availability End Date shall be payable in thirty-six (36) equal monthly installments of principal, plus all accrued interest, beginning on September 1, 2014, and continuing on the same day of each month thereafter until paid in full. Growth Capital Advances, once repaid, may not be reborrowed. Except as set forth in the Pricing Addendum, Borrowers may prepay any Growth Capital Advances without penalty or premium.
(iii) Procedures for Borrowing. When Borrowers desire to obtain a Growth Capital Advance, Borrowers shall notify Bank (which notice shall be irrevocable) by facsimile transmission to be received no later than 3:00 p.m. Eastern Time three (3) Business Days before the day on which the Growth Capital Advance is to be made. Such notice shall be substantially in the form of Exhibit C. The notice shall be signed by a Responsible Officer or its designee. Bank shall be entitled to rely on any facsimile or telephonic notice given by a person who Bank reasonably believes to be a Responsible Officer or a designee thereof, and Borrowers shall indemnify and hold Bank harmless for any damages or loss suffered by Bank as a result of such reliance.
2.2 Overadvances. If at any time the aggregate amount of the outstanding Advances exceeds the lesser of (y) the Revolving Line or (z) the Borrowing Base, in each case, minus any amounts outstanding under the Letter of Credit Sublimit and minus the aggregate limits of the corporate credit cards issued to Borrowers and merchant credit card processing reserves under the Credit Card Services Sublimit, Borrowers shall immediately pay to Bank, in cash, the amount of such excess. In addition, if at any time (a) the amount equal to the sum of the outstanding face amount of all Letters of Credit plus the aggregate limits of the corporate credit cards issued to Borrowers and merchant credit card processing reserves under the Credit Card Services Sublimit, exceeds (b) Seven Million Dollars ($7,000,000), Borrowers shall immediately provide to Bank cash collateral in an amount equal to 105% of the amount of such excess, to secure such Obligations.
2.3 Interest Rates, Payments, and Calculations.
(a) Interest Rates.
(i) Advances. The Advances shall bear interest, on the outstanding daily balance thereof, on the terms set forth in the Pricing Addendum.
(ii) Growth Capital Advances. The Growth Capital Advances shall bear interest, on the outstanding daily balance thereof, on the terms set forth in the Pricing Addendum.
(b) Payments. Bank shall, at its option, charge such interest, all Bank Expenses, and all Periodic Payments against any of Borrowers’ respective deposit accounts or against the Revolving Line, in which case those amounts shall thereafter accrue interest at the rate then applicable hereunder. Any interest not paid when due shall be compounded by becoming a part of the Obligations, and such interest shall thereafter accrue interest at the rate then applicable hereunder. All payments shall be free and clear of any taxes, withholdings,
duties, impositions or other charges, to the end that Bank will receive the entire amount of any Obligations payable hereunder, regardless of source of payment.
2.4 Crediting Payments. Prior to the occurrence of an Event of Default, Bank shall credit a wire transfer of funds, check or other item of payment to such deposit account or Obligation as a Borrower specifies. After the occurrence and during the continuance of an Event of Default, Bank shall have the right, in its sole discretion, to immediately apply any wire transfer of funds, check, or other item of payment Bank may receive to conditionally reduce Obligations, but such applications of funds shall not be considered a payment on account unless such payment is of immediately available federal funds or unless and until such check or other item of payment is honored when presented for payment. Notwithstanding anything to the contrary contained herein, any wire transfer or payment received by Bank after 12:00 noon Eastern Time shall be deemed to have been received by Bank as of the opening of business on the immediately following Business Day. Whenever any payment to Bank under the Loan Documents would otherwise be due (except by reason of acceleration) on a date that is not a Business Day, such payment shall instead be due on the next Business Day, and additional fees or interest, as the case may be, shall accrue and be payable for the period of such extension.
2.5 Fees. Borrower shall pay to Bank the following:
(a) Facility Fee. On the Closing Date, a facility fee equal to Twenty-Five Thousand Dollars ($25,000), which shall be fully-earned and nonrefundable; and
(b) Bank Expenses. On the Closing Date, all Bank Expenses incurred through the Closing Date, and, after the Closing Date, all Bank Expenses, as and when they become due; provided, that Borrower’s liability for Bank Expenses incurred prior to the Closing Date in connection with the negotiation and documentation of the Loan Documents shall be limited to Twenty Thousand Dollars ($20,000) provided there is a customary level of negotiation of the Loan Documents.
2.6 Term. This Agreement shall become effective on the Closing Date and, subject to Section 13.8, shall continue in full force and effect for so long as any Obligations remain outstanding or Bank has any obligation to make Credit Extensions under this Agreement or any other Loan Document. Notwithstanding the foregoing, Bank shall have the right to terminate its obligation to make Credit Extensions under this Agreement immediately and without notice upon the occurrence and during the continuance of an Event of Default.
3. CONDITIONS OF LOANS.
3.1 Conditions Precedent to Initial Credit Extension. The obligation of Bank to make the initial Credit Extension is subject to the condition precedent that Bank shall have received, in form and substance satisfactory to Bank, the following:
(a) this Agreement, duly executed by each Borrower;
(b) an officer’s certificate of each Borrower with respect to incumbency and resolutions authorizing the execution and delivery of this Agreement and the other Loan Documents;
(c) the Pricing Addendum, duly executed by each Borrower;
(d) a financing statement (Form UCC-1) for each Borrower;
(e) the certificate for the Shares, together with Assignment(s) Separate from Certificate, duly executed in blank;
(f) agreement to furnish insurance, duly executed by each Borrower;
(g) payment of the fees and Bank Expenses then due specified in Section 2.5;
(h) current SOS Reports indicating that except for Permitted Liens, there are no other security interests or Liens of record in the Collateral;
(i) current financial statements, including company prepared financial statements for Borrowers’ most recently ended fiscal year, company prepared consolidated and consolidating balance sheets and income statements for the most recently ended month in accordance with Section 6.2, and such other updated financial information as Bank may reasonably request;
(j) current Compliance Certificate in accordance with Section 6.2;
(k) a Warrant in form and substance satisfactory to Bank, duly executed by Parent;
(l) Collateral Information Certificates, duly executed by each Borrower;
(m) duly executed Collateral Access Agreements for each location where Eligible Inventory may be located (other than HTO Inventory);
(n) securities and/or deposit account control agreements with respect to any accounts permitted hereunder to be maintained outside Bank;
(o) an Automatic Loan Payment Authorization; and
(p) such other documents, instruments and certificates, and completion of such other matters, as Bank may reasonably deem necessary or appropriate.
3.2 Conditions Precedent to all Credit Extensions. The obligation of Bank to make each Credit Extension, including the initial Credit Extension, is further subject to the following conditions:
(a) timely receipt by Bank of the Payment/Advance Form as provided in Section 2.1; and
(b) the representations and warranties contained in the Loan Documents shall be true and correct in all material respects on and as of the date of such
Payment/Advance Form and on the effective date of each Credit Extension as though made at and as of each such date, and no Event of Default shall have occurred and be continuing, or would exist after giving effect to such Credit Extension (provided, however, that those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of such date, and provided further, that that such materiality qualifiers shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof). The making of each Credit Extension shall be deemed to be a representation and warranty by each Borrower on the date of such Credit Extension as to the accuracy of the facts referred to in this Section 3.2; and
(c) no event or circumstance shall exist or have occurred that has had or could reasonably be expected to have a Material Adverse Effect.
4. CREATION OF SECURITY INTEREST.
4.1 Grant of Security Interest. Each Borrower grants and pledges to Bank a continuing security interest in the Collateral to secure prompt repayment of any and all Obligations and to secure prompt performance by each Borrower of each of its covenants and duties under the Loan Documents. Except as set forth in the Schedule and subject only to Permitted Liens of the type described in clause (c) of the definition of Permitted Liens that may have superior priority to Bank’s Lien under this Agreement, such security interest constitutes a valid, first priority security interest in the presently existing Collateral, and will constitute a valid, first priority security interest in later-acquired Collateral. Each Borrower also hereby agrees not to sell, transfer, assign, mortgage, pledge, lease, grant a security interest in, or encumber, or allow a Lien on, any of its Intellectual Property, except in connection with Liens of the type described in clauses (b) and (e) of the definition of Permitted Liens and Permitted Transfers. Notwithstanding any termination of this Agreement, Bank’s Lien on the Collateral shall remain in effect for so long as any Obligations are outstanding or Bank has any obligation to make Credit Extensions under this Agreement or any other Loan Document.
4.2 Perfection of Security Interest. Each Borrower authorizes Bank to file at any time financing statements, continuation statements, and amendments thereto that (i) either specifically describe the Collateral or describe the Collateral as all assets of each Borrower of the kind pledged hereunder, and (ii) contain any other information required by the Code for the sufficiency of filing office acceptance of any financing statement, continuation statement, or amendment, including whether such Borrower is an organization, the type of organization and any organizational identification number issued to such Borrower, if applicable. Any such financing statements may be filed by Bank at any time in any jurisdiction whether or not Division 9 of the Code is then in effect in that jurisdiction. Each Borrower shall from time to time endorse and deliver to Bank, at the request of Bank, all Negotiable Collateral and other documents that Bank may reasonably request, in form satisfactory to Bank, to perfect and continue perfection of Bank’s security interests in the Collateral and in order to fully consummate all of the transactions contemplated under the Loan Documents. Each Borrower shall have possession of the Collateral, except where expressly otherwise provided in this Agreement or where Bank chooses, in its sole but good faith discretion, to perfect its security interest by possession in addition to the filing of a financing statement. Where Collateral is in possession of a third party bailee, each Borrower shall take such steps as Bank reasonably
requests for Bank to (i) obtain an acknowledgment, in form and substance satisfactory to Bank, of the bailee that the bailee holds such Collateral for the benefit of Bank, and (ii) obtain “control” of any Collateral consisting of investment property, deposit accounts, securities accounts, letter-of-credit rights or electronic chattel paper (as such items and the term “control” are defined in Division 9 of the Code) by causing the securities intermediary or depositary institution or issuing bank to execute a control agreement in form and substance satisfactory to Bank. No Borrower will create any chattel paper without placing a legend on the chattel paper acceptable to Bank indicating that Bank has a security interest in the chattel paper. Borrowers from time to time may deposit with Bank specific cash collateral to secure specific Obligations; each Borrower authorizes Bank to hold such specific balances in pledge and to decline to honor any drafts thereon or any request by any Borrower or any other Person to pay or otherwise transfer any part of such balances for so long as the specific Obligations are outstanding.
4.3 Right to Inspect. Bank (through any of its officers, employees, or agents) shall have the right, upon reasonable prior notice, from time to time during Borrowers’ usual business hours but no more than twice each year (unless an Event of Default has occurred and is continuing), to inspect each Borrower’s Books and to make copies thereof and to check, test, and appraise the Collateral in order to verify each Borrower’s financial condition or the amount, condition of, or any other matter relating to, the Collateral.
4.4 Pledge of Collateral. Each Borrower hereby pledges, assigns and grants to Bank a security interest in all the Shares, together with all proceeds and substitutions thereof, all cash, stock and other moneys and property paid thereon, all rights to subscribe for securities declared or granted in connection therewith, and all other cash and noncash proceeds of the foregoing, as security for the performance of the Obligations. On the Closing Date, the certificate or certificates for the Shares in WPRI will be delivered to Bank, accompanied by an instrument of assignment duly executed in blank by Parent. To the extent required by the terms and conditions governing the Shares, Borrowers shall cause the books of each entity whose Shares are part of the Collateral and any transfer agent to reflect the pledge of the Shares. Upon the occurrence and during the continuance of an Event of Default hereunder, Bank may effect the transfer of any securities included in the Collateral (including but not limited to the Shares) into the name of Bank and cause new certificates representing such securities to be issued in the name of Bank or its transferee. Borrowers will execute and deliver such documents, and take or cause to be taken such actions, as Bank may reasonably request to perfect or continue the perfection of Bank’s security interest in the Shares. Unless an Event of Default shall have occurred and be continuing, Borrowers shall be entitled to exercise any voting rights with respect to the Shares and to give consents, waivers and ratifications in respect thereof, provided that no vote shall be cast or consent, waiver or ratification given or action taken which would be inconsistent with any of the terms of this Agreement or which would constitute or create any violation of any of such terms. All such rights to vote and give consents, waivers and ratifications shall terminate upon the occurrence and continuance of an Event of Default.
5. REPRESENTATIONS AND WARRANTIES.
Each Borrower, jointly and severally, represents and warrants as follows:
5.1 Due Organization and Qualification. Borrower and each Subsidiary is an entity duly existing under the laws of the jurisdiction in which it is organized and qualified and licensed to do business in any state in which the conduct of its business or its ownership of property requires that it be so qualified, except where the failure to do so could not reasonably be expected to cause a Material Adverse Effect.
5.2 Due Authorization; No Conflict. The execution, delivery, and performance of the Loan Documents are within Borrower’s powers, have been duly authorized, and are not in conflict with nor constitute a breach of any provision contained in Borrower’s organizational documents, nor will they constitute an event of default under any material agreement by which Borrower is bound. Borrower is not in default under any agreement by which it is bound, except to the extent such default would not reasonably be expected to cause a Material Adverse Effect.
5.3 Collateral. Borrower has rights in or the power to transfer the Collateral, and its title to the Collateral is free and clear of Liens, adverse claims, and restrictions on transfer or pledge except for Permitted Liens. All Collateral is located solely in the Collateral States at the locations specified in the Collateral Information Certificate, and at such other locations as may be timely disclosed in writing to Bank pursuant to Section 7.2. The Accounts are bona fide existing obligations of the account debtors. No licenses or agreements giving rise to any Accounts is with any Prohibited Territory or with any Person organized under or doing business in a Prohibited Territory. All Inventory is in all material respects of good and merchantable quality, free from all material defects, except for Inventory for which adequate reserves have been made. All Eligible Inventory meets all standards imposed by any Governmental Authority having regulatory authority over it or its use and/or sale and is not obsolete and is either currently usable or currently salable in the normal course of Borrower’s business. Except as set forth in the Schedule or as disclosed in writing from time to time with respect to accounts maintained outside of Bank to the extent expressly permitted under Section 6.6, none of the Collateral consisting of deposit, investment or securities accounts is maintained or invested with a Person other than Bank or Bank’s Affiliates.
5.4 Intellectual Property. Borrower is the sole owner of the Intellectual Property, except for non-exclusive licenses granted by Borrower to its customers and other third parties in the ordinary course of business. To the best of Borrower’s knowledge, each of the Copyrights, Trademarks and Patents (other than applications) is valid and enforceable, and no part of the Intellectual Property has been judged invalid or unenforceable, in whole or in part, and no claim has been made to Borrower that any part of the Intellectual Property violates the rights of any third party except to the extent such invalidity, unenforceability or claim could not reasonably be expected to cause a Material Adverse Effect. Borrower’s rights as a licensee of intellectual property (including trademarks), other than off-the-shelf or shrink-wrap licenses, do not give rise to more than five percent (5%) of its gross revenue in any given month, including without limitation revenue derived from the sale, licensing, rendering or disposition of any product or service.
5.5 Name; Location of Chief Executive Office; Location of Inventory and Equipment. Except as disclosed in the Schedule, Borrower has not done business during the five (5) years prior to the Closing Date, under any name other than that specified on the signature page hereof, and its exact legal name is as set forth in the first paragraph of this Agreement. The
chief executive office of Borrower is located in the Chief Executive Office State at the address indicated in Section 10 hereof or at such other location as to which Borrower has provided timely written notice in accordance with Section 7.2 hereof. Except as disclosed in the Schedule, all Inventory and Equipment of Borrower is located at the address indicated in Section 10 hereof, or at such other location as to which Borrower has provided timely written notice in accordance with Section 7.10 hereof.
5.6 Actions, Suits, Litigation, or Proceedings. Except as set forth in the Schedule, there are no actions, suits, litigation or proceedings, at law or in equity, pending by or against Borrower or any Subsidiary before any court, administrative agency, or arbitrator which could reasonably be expected to have a Material Adverse Effect.
5.7 No Material Adverse Change in Financial Statements. All consolidated and consolidating financial statements related to Borrower and any Subsidiary that are delivered by Borrower to Bank fairly present in all material respects Borrower’s consolidated and consolidating financial condition as of the date thereof and Borrower’s consolidated and consolidating results of operations for the period then ended. There has not been a material adverse change in the consolidated or in the consolidating financial condition of Borrower since the date of the most recent of such financial statements submitted to Bank.
5.8 Solvency, Payment of Debts. Borrower is able to pay its debts (including trade debts) as they mature; the fair saleable value of Borrower’s assets (including goodwill minus disposition costs) exceeds the fair value of its liabilities; and Borrower is not left with unreasonably small capital after the transactions contemplated by this Agreement.
5.9 Compliance with Laws and Regulations. Borrower and each Subsidiary have met the minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA. No event has occurred resulting from Borrower’s failure to comply with ERISA that is reasonably likely to result in Borrower’s incurring any liability that could reasonably be expected to have a Material Adverse Effect. Borrower is not an “investment company” or a company “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940. Borrower is not engaged principally, or as one of the important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulations T, U, and X of the Board of Governors of the Federal Reserve System). Borrower has complied in all material respects with all the provisions of the Federal Fair Labor Standards Act. Borrower is in compliance with all environmental laws, regulations and ordinances except where the failure to comply is not reasonably likely to have a Material Adverse Effect. Borrower has not violated any statutes, laws, ordinances or rules applicable to it, the violation of which could reasonably be expected to have a Material Adverse Effect. Borrower and each Subsidiary have filed or caused to be filed all tax returns required to be filed, and have paid, or have made adequate provision for the payment of, all taxes reflected therein except those being contested in good faith with adequate reserves under GAAP or where the failure to file such returns or pay such taxes could not reasonably be expected to have a Material Adverse Effect.
5.10 Subsidiaries. Borrower does not own any stock, partnership interest or other equity securities of any Person, except for Permitted Investments. Except as set forth on the Schedule, Borrower has no Subsidiaries.
5.11 Government Consents. Borrower and each Subsidiary have obtained all consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all governmental authorities that are necessary for the continued operation of Borrower’s business as currently conducted, except where the failure to do so would not reasonably be expected to cause a Material Adverse Effect.
5.12 Restricted Agreements. Except as disclosed on the Schedule or as timely disclosed in writing to Bank pursuant to Section 6.9, Borrower is not a party to, nor is bound by, any Restricted Agreement.
5.13 Shares. Borrower has full power and authority to create a first lien on the Shares and no disability or contractual obligation exists that would prohibit Borrower from pledging the Shares pursuant to this Agreement. To Borrower’s knowledge, there are no subscriptions, warrants, rights of first refusal or other restrictions on transfer relative to, or options exercisable with respect to the Shares. The Shares have been and will be duly authorized and validly issued, and are fully paid and non-assessable. To Borrower’s knowledge, the Shares are not the subject of any present or threatened suit, action, arbitration, administrative or other proceeding, and Borrower knows of no reasonable grounds for the institution of any such proceedings.
5.14 Full Disclosure. No representation, warranty or other statement made by Borrower in any certificate or written statement furnished to Bank taken together with all such certificates and written statements furnished to Bank contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained in such certificates or statements not misleading, it being recognized by Bank that the projections and forecasts provided by Borrower in good faith and based upon reasonable assumptions are not to be viewed as facts and that actual results during the period or periods covered by any such projections and forecasts may differ from the projected or forecasted results.
6. AFFIRMATIVE COVENANTS.
Each Borrower covenants, jointly and severally, that, until payment and satisfaction in full of all outstanding Obligations, and for so long as Bank may have any commitment to make a Credit Extension hereunder, Borrower shall, and shall cause each Subsidiary to, do all of the following:
6.1 Good Standing and Government Compliance. Borrower shall maintain its corporate existence and good standing in the Borrower State and shall cause each of its Subsidiaries to maintain their respective organizational existence and good standing in their respective jurisdictions of organization, shall maintain qualification and good standing in each other jurisdiction in which the failure to so qualify could reasonably be expected to have a Material Adverse Effect, and shall furnish to Bank the organizational identification number issued to Borrower or any Subsidiary by the authorities of the jurisdiction in which Borrower or
any Subsidiary is organized, if applicable. Borrower shall meet, and shall cause each Subsidiary to meet, the minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA. Borrower shall comply in all material respects with all applicable Environmental Laws, and maintain all material permits, licenses and approvals required thereunder where the failure to do so could reasonably be expected to have a Material Adverse Effect. Borrower shall comply, and shall cause each Subsidiary to comply, with all statutes, laws, ordinances and government rules and regulations to which it is subject, and shall maintain, and shall cause each of its Subsidiaries to maintain, in force all licenses, approvals and agreements, the loss of which or failure to comply with which could reasonably be expected to have a Material Adverse Effect.
6.2 Financial Statements, Reports, Certificates. Borrower shall deliver the following to Bank:
(a) (i) as soon as available, but in any event within thirty (30) days after the end of each calendar month, a company prepared consolidated and consolidating balance sheet and income statement covering Borrowers’ operations during such period prepared in accordance with GAAP (subject to normal year-end adjustments and without all required footnotes), in a form reasonably acceptable to Bank and certified by a Responsible Officer; (ii) as soon as available, but in any event within one hundred eighty (180) days after the end of Borrowers’ fiscal year, audited consolidated and consolidating financial statements of Borrowers prepared in accordance with GAAP, consistently applied, together with an opinion which is unqualified (including no going concern comment or qualification) or otherwise consented to in writing by Bank on such financial statements of an independent certified public accounting firm reasonably acceptable to Bank (provided that the audited financial statements for fiscal year 2012 shall be delivered by August 31, 2013); (iii) if applicable, copies of all statements, reports and notices sent or made available generally by any Borrower to its security holders or to any holders of Subordinated Debt and all reports on Forms 10-K and 10-Q filed with the Securities and Exchange Commission; (iv) promptly upon receipt of notice thereof, a report of any legal actions pending or threatened against any Borrower or any Subsidiary that could result in damages or costs to any Borrower or any Subsidiary of Three Hundred Thousand Dollars ($300,000) or more; (v) promptly upon receipt, each management letter prepared by any Borrower’s independent certified public accounting firm regarding such Borrower’s management control systems; (vi) as soon as available, but in any event not later than sixty (60) days after the last day of each fiscal year, Borrowers’ financial and business projections and budget for the immediately following fiscal year (with monthly detail), with evidence of approval thereof by Parent’s board of directors; and (vii) such budgets, sales projections, operating plans or other financial information as Bank may reasonably request from time to time.
(b) Within thirty (30) days after the last day of each month (the “Eligible Inventory Test Date”), Borrowers shall deliver to Bank a Borrowing Base Certificate signed by a Responsible Officer in substantially the form of Exhibit D hereto, together with a detailed Inventory report. For the sake of clarity, the Borrowing Base Certificate shall state the values of Eligible Inventory as of last day of the month immediately preceding the date on which the Borrowing Base Certificate is submitted, and shall state the value of all Cash at Bank as of the date that it is submitted to Bank.
(c) Within thirty (30) days after the last day of each month, Borrowers shall deliver to Bank with the monthly financial statements a Compliance Certificate certified as of the last day of the applicable month and signed by a Responsible Officer in substantially the form of Exhibit E hereto.
(d) As soon as possible, and in any event within two (2) Business Days, after becoming aware of the occurrence or existence of an Event of Default hereunder, a written statement of a Responsible Officer setting forth details of the Event of Default, and the action which each Borrower has taken or proposes to take with respect thereto.
(e) Bank shall have a right from time to time hereafter to audit Borrowers’ Accounts and appraise Collateral at Borrower’s expense, provided that such audits will be conducted no more often than every six (6) months unless an Event of Default has occurred and is continuing.
Borrowers may deliver to Bank on an electronic basis any certificates, reports or information required pursuant to this Section 6.2, and Bank shall be entitled to rely on the information contained in the electronic files, provided that Bank in good faith believes that the files were delivered by a Responsible Officer. If a Borrower delivers this information electronically, it shall also deliver to Bank by U.S. Mail, reputable overnight courier service, hand delivery, facsimile or .pdf file within five (5) Business Days of submission of the unsigned electronic copy the certification of monthly financial statements, the Borrowing Base Certificate and the Compliance Certificate, each bearing the physical signature of the Responsible Officer.
6.3 Inventory; Returns. Borrower shall keep all Inventory in good and merchantable condition, free from all material defects except for Inventory for which adequate reserves have been made. Returns and allowances, if any, as between Borrower and its account debtors shall be on the same basis and in accordance with the usual customary practices of Borrower, as they exist on the Closing Date. Borrower shall promptly notify Bank of all returns and recoveries (other than typical product returns in the ordinary course of business from retail customers in accordance with Borrower’s standard return policy) and of all disputes and claims involving more than One Hundred Thousand Dollars ($100,000) of inventory.
6.4 Taxes. Borrower shall make, and cause each Subsidiary to make, due and timely payment or deposit of all material federal, state, and local taxes, assessments, or contributions required of it by law, including, but not limited to, those laws concerning income taxes, F.I.C.A., F.U.T.A. and state disability, and will execute and deliver to Bank, on demand, proof satisfactory to Bank indicating that Borrower or a Subsidiary has made such payments or deposits and any appropriate certificates attesting to the payment or deposit thereof; provided that Borrower or a Subsidiary need not make any payment if the amount or validity of such payment is contested in good faith by appropriate proceedings and is reserved against (to the extent required by GAAP) by Borrower.
6.5 Insurance.
(a) Borrower, at its expense, shall keep the Collateral insured against loss or damage by fire, theft, explosion, sprinklers, and all other hazards and risks, and in such
amounts, as ordinarily insured against by other owners in similar businesses conducted in the locations where Borrower’s business is conducted on the date hereof. Borrower shall also maintain liability and other insurance in amounts and of a type that are customary to businesses similar to Borrower’s.
(b) All such policies of insurance shall be in such form, with such companies, and in such amounts as are reasonably satisfactory to Bank. All policies of property insurance shall contain a lender’s loss payable endorsement, in a form satisfactory to Bank, showing Bank as an additional loss payee, and all liability insurance policies shall show Bank as an additional insured and specify that the insurer must give at least thirty (30) days’ notice to Bank before canceling or not renewing its policy for any reason. Upon Bank’s request, Borrower shall deliver to Bank certified copies of the policies of insurance and evidence of all premium payments. If no Event of Default has occurred and is continuing, proceeds payable under any casualty policy will, at Borrower’s option, be payable to Borrower to replace the property subject to the claim, provided that any such replacement property shall be deemed Collateral in which Bank has been granted a first priority security interest. If an Event of Default has occurred and is continuing, all proceeds payable under any such policy shall, at Bank’s option, be payable to Bank to be applied on account of the Obligations.
6.6 Accounts. Borrower shall maintain all its, and shall cause all of its Subsidiaries to maintain their, depository, operating, cash management accounts with Bank and all of its and their primary investment and securities accounts with Bank; provided, however, that (a) so long as Borrowers at all times maintain at least Twelve Million Dollars ($12,000,000) in deposit accounts with Bank, Borrowers shall have until one hundred twenty (120) days after the Closing Date (the “Transition Period”) to complete the transfer to Bank of their account balances maintained at the other banks and financial institutions in the accounts identified on the Schedule and to close all such accounts, so long as the aggregate amount on deposit in such accounts at no time exceeds Eighteen Million Dollars ($18,000,000), and during such Transition Period, no account control agreements shall be required with respect to such accounts; and (b) in addition, Borrower may maintain local deposit accounts, identified in writing to Bank, for specific retail locations so long as the aggregate amount on deposit in such accounts at no time exceeds Two Million Dollars ($2,000,000).
6.7 Financial Covenant-Liquidity. Borrower shall at all times maintain Liquidity of not less than Two Million Dollars ($2,000,000). Borrower authorizes Bank to decline to honor any drafts thereon or any requests by Borrower or any other party to pay or otherwise transfer any part of such balances if doing so would result in a violation of this Section 6.7.
6.8 Registration of Intellectual Property Rights.
(a) Borrower shall register or cause to be registered on an expedited basis (to the extent not already registered) with the United States Patent and Trademark Office or the United States Copyright Office, as the case may be, those registrable intellectual property rights now owned or hereafter developed or acquired by Borrower, to the extent that Borrower, in its reasonable business judgment, deems it appropriate to so protect such intellectual property rights.
(b) Borrower shall promptly give Bank written notice of any applications or registrations of intellectual property rights filed with the United States Patent and Trademark Office, including the date of such filing and the registration or application numbers, if any.
(c) Borrower shall give Bank prompt written notice of the filing of any applications or registrations with the United States Copyright Office, including the title of such intellectual property rights to be registered, as such title will appear on such applications or registrations, and the date such applications or registrations will be filed.
(d) Borrower shall (i) protect, defend and maintain the validity and enforceability of the Intellectual Property, (ii) use commercially reasonable efforts to detect infringements of the Intellectual Property and promptly advise Bank in writing of material infringements detected and (iii) not allow any material Intellectual Property to be abandoned, forfeited or dedicated to the public without the written consent of Bank, which shall not be unreasonably withheld.
6.9 Restricted Agreement Consents. Prior to entering into or becoming bound by any Restricted Agreement, Borrower shall: (i) provide written notice to Bank of the material terms of such license or agreement with a description of its likely impact on Borrower’s business or financial condition; and (ii) in good faith take such actions as Bank may reasonably request to obtain the consent of, or waiver by, any person whose consent or waiver is necessary for (A) Borrower’s interest in such licenses or contract rights to be deemed Collateral and for Bank to have a security interest in such license or contract right, and to have the power to assign such license or contract rights in connection with an enforcement of remedies, that might otherwise be restricted by the terms of the applicable license or agreement, whether now existing or entered into in the future, and (B) Bank to have the ability in the event of a liquidation of any Collateral to dispose of such Collateral in accordance with Bank’s rights and remedies under this Agreement and the other Loan Documents.
6.10 Creation/Acquisition of Subsidiaries. Without limiting the generality of any other provision hereof, in the event Borrower or any Subsidiary creates or acquires any Subsidiary, Borrower and such Subsidiary shall promptly notify Bank of the creation or acquisition of such new Subsidiary and take all such action as may be reasonably required by Bank to cause such Subsidiary to guarantee the Obligations of Borrower under the Loan Documents and grant a continuing pledge and security interest in and to the collateral of such Subsidiary (substantially as described on Exhibit B hereto), and Borrower shall grant and pledge to Bank a perfected security interest in the Equity Interests of such Subsidiary.
6.11 Further Assurances. At any time and from time to time Borrower shall execute and deliver such further instruments and take such further action as may reasonably be requested by Bank to effect the purposes of this Agreement.
7. NEGATIVE COVENANTS.
Each Borrower covenants and agrees, jointly and severally, that, so long as any credit hereunder shall be available and until the outstanding Obligations are paid and satisfied in full or
for so long as Bank may have any commitment to make any Credit Extension, Borrower will not, and will not permit any Subsidiary to, do any of the following without Bank’s prior written consent:
7.1 Dispositions. Convey, sell, lease, license, transfer or otherwise dispose of (collectively, to “Transfer”), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, or subject to Section 6.6 of this Agreement, move cash balances on deposit with Bank to accounts opened at another financial institution, other than Permitted Transfers.
7.2 Change in Name, Location, Executive Office, or Executive Management; Change in Business; Change in Fiscal Year; Change in Control. Change its name or the Borrower State or relocate its chief executive office without thirty (30) days prior written notification to Bank ; without at least thirty (30) days’ prior written notice to Bank, add any new offices or business or Collateral locations (other than locations of HTO Inventory and Inventory in transit in the ordinary course of business) unless such new offices or locations contain, in the aggregate, less than Fifty Thousand Dollars ($50,000) in Borrower’s or such Subsidiaries’ assets or property; replace its chief executive officer or chief financial officer without thirty (30) days prior written notification to Bank; engage in any business, or permit any of its Subsidiaries to engage in any business, other than or reasonably related or incidental to the businesses currently engaged in by Borrower; change its fiscal year end; have a Change in Control. For the sake of clarity, the consent referenced in the preamble of Article 7 shall not be required for the actions referenced in this Section 7.2 that require only a notice to Bank, provided that Borrowers provide to Bank the notices as, and within the periods, set forth in this Section 7.2.
7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with or into any other business organization (other than mergers or consolidations of a Subsidiary into another Subsidiary or into Borrower), or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person, or enter into any agreement to do any of the same. Notwithstanding the foregoing, a Change in Control shall not result in a violation of Sections 7.2 or 7.3 if prior to or concurrent with such Change in Control, the Obligations are indefeasibly paid in full in cash, Bank’s obligation to extend credit or provide credit accommodations to any Borrower or any of their respective Subsidiaries has been terminated to the satisfaction of Bank, and this Agreement and the other Loan Documents have terminated.
7.4 Indebtedness. Create, incur, assume, guarantee or be or remain liable with respect to any Indebtedness, or permit any Subsidiary to do so, other than Permitted Indebtedness, or prepay any Indebtedness or take any actions which impose on Borrower an obligation to prepay any Indebtedness, except Indebtedness to Bank.
7.5 Encumbrances. Create, incur, assume or allow any Lien with respect to any of its property, or assign or otherwise convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries to do so, except for (a) with respect to Intellectual Property, Permitted Liens of the type described in clauses (b) and (e) of the definition of Permitted Liens, and (b) with respect to other property, Permitted Liens, or covenant to any other Person that Borrower in the future will refrain from creating, incurring, assuming or allowing any Lien with respect to any of Borrower’s property, or permit any Subsidiary to do so.
7.6 Distributions. Pay any dividends or make any other distribution or payment on account of or in redemption, retirement or purchase of any Equity Interests, except that, subject to the last sentence of this Section 7.6, Parent may pay up to Seven Hundred Fifty Thousand Dollars ($750,000) in the aggregate in any fiscal year to repurchase outstanding capital stock issued by Parent as required pursuant to customary stock repurchase agreements approved by Parent’s Board of Directors, from former officers, directors, employees or consultants (who are individuals) upon the death, disability or termination or cessation of employment or service of such officers, directors, employees or consultants. Notwithstanding the foregoing, Borrowers shall be permitted to make such repurchases only if, at the time of such repurchase, and immediately after giving effect thereto: (i) no Event of Default, or any event or circumstance that with the giving of notice or the passage of time (or both) could result in an Event of Default, exists or could reasonably be expected to occur, (ii) each Borrower is solvent, and (iii) such distribution is permitted under and is made in compliance with applicable law, including Sections 170 and 173 of the Delaware General Corporation Law.
7.7 Investments. Directly or indirectly acquire or own, or make any Investment in or to any Person, or permit any of its Subsidiaries to do so, other than Permitted Investments, or maintain or invest any of its property with a Person other than Bank or Bank’s Affiliates or permit any Subsidiary to do so except as expressly permitted under Section 6.6, or suffer or permit any Subsidiary to be a party to, or be bound by, an agreement that restricts such Subsidiary from paying dividends or otherwise distributing property to Borrower. Further, Borrower shall not enter into, or permit any Subsidiary or Affiliate to enter into, any license or agreement with any Prohibited Territory or with any Person organized under or doing business in a Prohibited Territory.
7.8 Transactions with Affiliates. Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrower except for: (a) transactions that are in the ordinary course of Borrower’s business, upon fair and reasonable terms that are no less favorable to Borrower than would be obtained in an arm’s length transaction with a non-affiliated Person, and (b) transactions by Parent constituting bona fide rounds of preferred stock financing (or “bridge” convertible Subordinated Debt financing primarily with venture capital or private equity investors) for capital raising purposes, provided that such transactions are approved by Parent’s Board of Directors, including all disinterested directors, do not cause a Change in Control and are otherwise permitted hereunder.
7.9 Subordinated Debt. Make any payment in respect of any Subordinated Debt, or permit any of its Subsidiaries to make any such payment, except in compliance with the terms of such Subordinated Debt and the terms of the subordination agreement relating to such Subordinated Debt, or amend any provision of any document evidencing such Subordinated Debt, except in compliance with the terms of the subordination agreement relating to such Subordinated Debt, or amend any provision affecting Bank’s rights contained in any documentation relating to the Subordinated Debt without Bank’s prior written consent.
7.10 Inventory and Equipment. Store, or cause or permit any Subsidiary to store, any Inventory or the Equipment, valued, individually or in the aggregate, in excess of Fifty Thousand Dollars ($50,000), with a bailee, warehouseman, or similar third party (other than HTO Inventory and Inventory in transit in the ordinary course of business) unless (a) Borrower
shall promptly thereafter give Bank written notice thereof identifying the names and addresses of such third parties and briefly describing the Inventory or Equipment in the possession of such third parties; and (b) other than with respect to Optical Lab Inventory, the third party has been notified of Bank’s security interest and Bank (i) shall have received a duly executed Collateral Access Agreement, including an acknowledgment from the third party that it is holding or will hold the Inventory or Equipment for Bank’s benefit, or (ii) is in possession of the warehouse receipt, where negotiable, covering such Inventory or Equipment. Except for such locations as Bank may approve in writing, Borrower shall keep, and shall cause each of its Subsidiaries to keep, its Inventory (other than HTO Inventory and Inventory in transit in the ordinary course of business) and Equipment, valued, individually or in the aggregate, in excess of Fifty Thousand Dollars ($50,000), only at the locations set forth in the Schedule delivered by Borrower to Bank prior to the Closing Date, and at such other locations of which Borrower gives Bank prior written notice as required under Section 7.2 and as to which Bank files Security Instruments where needed to perfect its security interests and liens in such Inventory and Equipment and as to which (x) other than with respect to Optical Lab Inventory (which shall not be deemed Eligible Inventory) Bank has received a Collateral Access Agreement, and (y) Borrower has taken such actions as Bank reasonably requests to perfect and maintain the perfection and priority of Bank’s Lien on the Collateral.
7.11 No Investment Company; Margin Regulation. Become or be controlled by an “investment company,” within the meaning of the Investment Company Act of 1940, or become principally engaged in, or undertake as one of its important activities, the business of extending credit for the purpose of purchasing or carrying margin stock, or use the proceeds of any Credit Extension for such purpose.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an Event of Default by Borrower under this Agreement:
8.1 Payment Default. If any Borrower fails to pay any of the Obligations when due;
8.2 Covenant Default.
(a) If any Borrower fails to perform any obligation under Article 6 or violates any of the covenants contained in Article 7 of this Agreement; or
(b) If any Borrower fails or neglects to perform or observe any other term, provision, condition, covenant contained in this Agreement, in any of the Loan Documents, or in any other present or future agreement between or among any one or more Borrowers and Bank and as to any default under such other term, provision, condition or covenant that can be cured, has failed to cure such default within ten (10) days after any Borrower receives notice thereof or any officer of any Borrower becomes aware thereof; provided, however, that if the default cannot by its nature be cured within the ten (10) day period or cannot after diligent attempts by Borrowers be cured within such ten (10) day period, and such default is likely to be cured within a reasonable time, then Borrowers shall have an additional reasonable period
(which shall not in any case exceed thirty (30) days) to attempt to cure such default, so long as each Borrower continues to diligently attempt to cure such default, and within such reasonable time period the failure to have cured such default shall not be deemed an Event of Default but no Credit Extensions will be made;
8.3 Material Adverse Effect. (a) If there occurs any circumstance or circumstances that could reasonably be expected to have a Material Adverse Effect; or (b) If Bank shall receive at any time following the Closing Date an SOS Report indicating that except for Permitted Liens, Bank’s security interest in the Collateral is not prior to all other security interests or Liens of record reflected in such SOS Report;
8.4 Attachment. If any material portion of any Borrower’s and/or its Subsidiaries assets is attached, seized, subjected to a writ or distress warrant, or is levied upon, or comes into the possession of any trustee, receiver or person acting in a similar capacity and such attachment, seizure, writ or distress warrant or levy has not been removed, discharged or rescinded within five (5) days, or if any Borrower and/or its Subsidiaries is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or any material part of its business affairs, or if a judgment or other claim becomes a lien or encumbrance upon any material portion of any Borrower’s and/or its Subsidiaries assets, or if a notice of lien, levy, or assessment is filed of record with respect to any of any Borrower’s and/or its Subsidiaries assets by the United States Government, or any department, agency, or instrumentality thereof, or by any state, county, municipal, or governmental agency, and the same is not paid within five (5) days after any Borrower and/or its Subsidiaries receives notice thereof, provided that none of the foregoing shall constitute an Event of Default where such action or event is stayed or an adequate bond has been posted pending a good faith contest by Borrowers and/or its Subsidiaries (provided that no Credit Extensions will be made during such cure period);
8.5 Insolvency. If any Borrower and/or its Subsidiaries becomes insolvent, or if an Insolvency Proceeding is commenced by any Borrower and/or its Subsidiaries, or if an Insolvency Proceeding is commenced against any Borrower and/or its Subsidiaries and is not dismissed or stayed within thirty (30) days (provided that no Credit Extensions will be made prior to the dismissal of such Insolvency Proceeding);
8.6 Other Agreements. If there is a default or other failure to perform in any agreement to which any Borrower and/or its Subsidiaries is a party with a third party or parties resulting in a right by such third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an amount in excess of Three Hundred Thousand Dollars ($300,000) or that could reasonably be expected to have a Material Adverse Effect;
8.7 Subordinated Debt. If any Borrower and/or its Subsidiaries makes any payment on account of Subordinated Debt, except to the extent the payment is allowed under any subordination agreement entered into with Bank;
8.8 Judgments; Settlements. If one or more (a) judgments, orders, decrees or arbitration awards requiring any Borrower and/or its Subsidiaries to pay an aggregate amount of Three Hundred Thousand Dollars ($300,000) or greater shall be rendered against any Borrower and/or its Subsidiaries and the same shall not have been vacated or stayed within ten (10) days
thereafter (provided that no Credit Extensions will be made prior to such matter being vacated or stayed); or (b) settlements is agreed upon by any Borrower and/or its Subsidiaries for the payment by any Borrower and/or its Subsidiaries of an aggregate amount of Three Hundred Thousand Dollars ($300,000) or greater or that could reasonably be expected to have a Material Adverse Effect.
8.9 Misrepresentations. If any material misrepresentation or material misstatement exists now or hereafter in any warranty or representation set forth herein or in any certificate delivered to Bank by any Responsible Officer pursuant to this Agreement or to induce Bank to enter into this Agreement or any other Loan Document.
8.10 Guaranty. If any guaranty of all or a portion of the Obligations (a “Guaranty”) ceases for any reason to be in full force and effect, or any guarantor fails to perform any obligation under any Guaranty or a security agreement securing any Guaranty (collectively, the “Guaranty Documents”), or any event of default occurs under any Guaranty Document or any guarantor revokes or purports to revoke a Guaranty, or any material misrepresentation or material misstatement exists now or hereafter in any warranty or representation set forth in any Guaranty Document or in any certificate delivered to Bank in connection with any Guaranty Document, or if any of the circumstances described in Sections 8.3 through 8.9 occur with respect to any guarantor.
9. BANK’S RIGHTS AND REMEDIES.
9.1 Rights and Remedies. Upon the occurrence and during the continuance of an Event of Default, Bank may, at its election, without notice of its election and without demand, do any one or more of the following, all of which are authorized by each Borrower:
(a) Declare all Obligations, whether evidenced by this Agreement, by any of the other Loan Documents, or otherwise, immediately due and payable (provided that upon the occurrence of an Event of Default described in Section 8.5 (Insolvency), all Obligations shall become immediately due and payable without any action by Bank);
(b) Demand that Borrowers (i) deposit cash with Bank in an amount equal to the amount of any Letters of Credit remaining undrawn or outstanding Credit Card Services, as collateral security for the repayment of any future drawings under such Letters of Credit and outstanding Credit Card Services, and (ii) pay in advance all Letter of Credit fees scheduled to be paid or payable over the remaining term of the Letters of Credit and Credit Card Services fees, and Borrowers shall promptly deposit and pay such amounts;
(c) Cease advancing money or extending credit to or for the benefit of any Borrower under this Agreement or under any other agreement between or among any one or more Borrowers and Bank;
(d) Settle or adjust disputes and claims directly with account debtors for amounts, upon terms and in whatever order that Bank reasonably considers advisable;
(e) Make such payments and do such acts as Bank considers necessary or reasonable to protect its security interest in the Collateral. Each Borrower agrees to assemble
the Collateral if Bank so requires, and to make the Collateral available to Bank as Bank may designate. Each Borrower authorizes Bank to enter the premises where the Collateral is located, to take and maintain possession of the Collateral, or any part of it, and to pay, purchase, contest, or compromise any encumbrance, charge, or lien which in Bank’s determination appears to be prior or superior to its security interest and to pay all expenses incurred in connection therewith. With respect to any of a Borrower’s owned premises, each Borrower hereby grants Bank a license to enter into possession of such premises and to occupy the same, without charge, in order to exercise any of Bank’s rights or remedies provided herein, at law, in equity, or otherwise;
(f) Set off and apply to the Obligations any and all (i) balances and deposits of Borrowers held by Bank, and (ii) indebtedness at any time owing to or for the credit or the account of Borrowers held by Bank;
(g) Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell (in the manner provided for herein) the Collateral. Bank is hereby granted a license or other right, solely pursuant to the provisions of this Section 9.1, to use, without charge, each Borrower’s labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks, service marks, and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and, in connection with Bank’s exercise of its rights under this Section 9.1, each Borrower’s rights under all licenses and all franchise agreements shall inure to Bank’s benefit;
(h) Sell the Collateral at either a public or private sale, or both, by way of one or more contracts or transactions, for cash or on terms, in such manner and at such places (including each Borrower’s premises) as Bank determines is commercially reasonable, and apply any proceeds to the Obligations in whatever manner or order Bank deems appropriate. Bank may sell the Collateral without giving any warranties as to the Collateral. Bank may specifically disclaim any warranties of title or the like. This procedure will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral. If Bank sells any of the Collateral upon credit, Borrowers will be credited only with payments actually made by the purchaser, received by Bank, and applied to the indebtedness of the purchaser. If the purchaser fails to pay for the Collateral, Bank may resell the Collateral and Borrowers shall be credited with the proceeds of the sale;
(i) Bank may credit bid and purchase at any public sale;
(j) Apply for the appointment of a receiver, trustee, liquidator or conservator of the Collateral, without notice and without regard to the adequacy of the security for the Obligations and without regard to the solvency of any Borrower, any guarantor or any other Person liable for any of the Obligations; and
(k) Any deficiency that exists after disposition of the Collateral as provided above will be paid immediately by Borrowers.
Bank may comply with any applicable state or federal law requirements in connection with a disposition of the Collateral and compliance will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral.
9.2 Power of Attorney. Each Borrower hereby irrevocably appoints Bank (and any of Bank’s designated officers, or employees) as such Borrower’s true and lawful attorney, with full power of substitution, to: (a) send requests for verification of Accounts or notify account debtors of Bank’s security interest and Liens in the Accounts, Inventory and other Collateral; (b) endorse such Borrower’s name on any checks or other forms of payment or security that may come into Bank’s possession; (c) sign such Borrower’s name on any invoice or bill of lading relating to any Account, drafts against account debtors, schedules and assignments of Accounts, verifications of Accounts, and notices to account debtors; (d) during the continuance of an Event of Default, (i) dispose of any Collateral; (ii) make, settle, and adjust all claims under and decisions with respect to such Borrower’s policies of insurance; (iii) settle and adjust disputes and claims respecting the accounts directly with account debtors, for amounts and upon terms which Bank determines to be reasonable; (iv) transfer all or any part of the Collateral into the name of Bank or a third party to the extent permitted under the Code; (e) file, in its sole discretion, one or more financing or continuation statements and amendments thereto, relative to any of the Collateral without the signature of such Borrower where permitted by law; (f) to execute and do all such assurances, acts and things which such Borrower is required, but fails to do under the covenants and provisions of the Loan Documents; (g) to take any and all such actions as Bank may reasonably determine to be necessary or advisable for the purpose of maintaining, preserving or protecting the Collateral or any of the rights, remedies, powers or privileges of Bank under this Agreement or the other Loan Documents; and (h) to sign such Borrower’s name on any documents or Security Instruments necessary to perfect or continue the perfection of, or maintain the priority of, Bank’s security interest in the Collateral. The appointment of Bank as each Borrower’s attorney in fact, and each and every one of Bank’s rights and powers, being coupled with an interest, is irrevocable until all of the Obligations have been fully repaid and performed and Bank’s obligation to provide advances hereunder is terminated.
9.3 Accounts Collection. At any time after the occurrence and during the continuation of an Event of Default, Bank may notify any Person owing funds to any Borrower of Bank’s security interest in such funds and verify the amount of such Account. Each Borrower shall collect all amounts owing to such Borrower for Bank, receive in trust all payments as Bank’s trustee, and immediately deliver such payments to Bank in their original form as received from the account debtor, with proper endorsements for deposit.
9.4 Bank Expenses. If any Borrower fails to pay any amounts or furnish any required proof of payment due to third persons or entities, as required under the terms of this Agreement, then Bank may do any or all of the following after reasonable notice to Borrowers: (a) make payment of the same or any part thereof; (b) set up such reserves under the Revolving Line as Bank deems necessary to protect Bank from the exposure created by such failure; or (c) obtain and maintain insurance policies of the type discussed in Section 6.5 of this Agreement, and take any action with respect to such policies as Bank deems prudent. Any amounts so paid or deposited by Bank shall constitute Bank Expenses, shall be immediately due and payable, and shall bear interest at the then applicable rate hereinabove provided, and shall be secured by the
Collateral. Any payments made by Bank shall not constitute an agreement by Bank to make similar payments in the future or a waiver by Bank of any Event of Default under this Agreement.
9.5 Bank’s Liability for Collateral. Bank has no obligation to clean up or otherwise prepare the Collateral for sale. All risk of loss, damage or destruction of the Collateral shall be borne by Borrowers.
9.6 No Obligation to Pursue Others. Bank has no obligation to attempt to satisfy the Obligations by collecting them from any other Person liable for them and Bank may release, modify or waive any collateral provided by any other Person to secure any of the Obligations, all without affecting Bank’s rights against any Borrower. Each Borrower waives any right it may have to require Bank to pursue any other Person for any of the Obligations.
9.7 Remedies Cumulative. Bank’s rights and remedies under this Agreement, the Loan Documents, and all other agreements shall be cumulative. Bank shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law, or in equity. No exercise by Bank of one right or remedy shall be deemed an election, and no waiver by Bank of any Event of Default on any Borrower’s part shall be deemed a continuing waiver. No delay by Bank shall constitute a waiver, election, or acquiescence by it. No waiver by Bank shall be effective unless made in a written document signed on behalf of Bank and then shall be effective only in the specific instance and for the specific purpose for which it was given. Each Borrower expressly agrees that this Section 9.7 may not be waived or modified by Bank by course of performance, conduct, estoppel or otherwise.
9.8 Demand; Protest. Except as otherwise provided in this Agreement, each Borrower waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment and any other notices relating to the Obligations.
10. NOTICES.
Unless otherwise provided in this Agreement, all notices or demands by any party relating to this Agreement or any other agreement entered into in connection herewith shall be in writing and (except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be personally delivered or sent by a recognized overnight delivery service, certified mail, postage prepaid, return receipt requested, or by telefacsimile to Borrowers or to Bank, as the case may be, at its addresses set forth below:
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If to Borrowers:
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c/o JAND, INC., on behalf of all Borrowers
295 Lafayette Street, Suite 501
New York, NY 10012
Attn: Chief Financial Officer
FAX: [(***) ***-****]
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with a copy to:
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Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP
220 West 42nd Street, 17th Floor
New York, NY 10036
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Attn: [**************]
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If to Bank:
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Comerica Bank
M/C 7578
39200 Six Mile Rd.
Livonia, MI 48152
Attn: National Documentation Services
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with a copy to:
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Comerica Bank
100 Federal Street, 28th Floor
Boston, MA 02110
Attn: [********************]
FAX: [(***) ***-****]
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Notwithstanding the foregoing, however, the failure by the Bank to deliver a copy of a notice or demand to Borrowers’ counsel shall not affect the validity or efficacy of such notice or demand if otherwise sent to Borrowers in accordance with this Section 10. The parties hereto may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other.
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of California, without regard to principles of conflicts of law. Each Borrower and Bank hereby submits to the exclusive jurisdiction of the State and Federal courts located in the Count of Santa Clara, State of California. THE UNDERSIGNED ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED UNDER CERTAIN CIRCUMSTANCES. TO THE EXTENT PERMITTED BY LAW, EACH PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF ITS, HIS OR HER CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THE MUTUAL BENEFIT OF ALL PARTIES, WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OTHER DOCUMENT, INSTRUMENT OR AGREEMENT BETWEEN OR AMONG ANY ONE OR MORE BORROWER AND BANK.
12. REFERENCE PROVISION.
12.1 In the event the Jury Trial Waiver set forth above is not enforceable, the parties elect to proceed under this Judicial Reference Provision.
12.2 With the exception of the items specified in Section 12.3, below, any controversy, dispute or claim (each, a “Claim”) among the parties arising out of or relating to this Agreement or any other document, instrument or agreement between or among any one or more Borrower and Bank (collectively in this Section, the “Comerica Documents”), will be resolved by a reference proceeding in California in accordance with the provisions of Sections 638 et seq. of the California Code of Civil Procedure (“CCP”), or their successor sections, which shall constitute the exclusive remedy for the resolution of any Claim, including whether the Claim is subject to the reference proceeding. Except as otherwise provided in the Comerica Documents,
venue for the reference proceeding will be in the Superior Court in the County where the real property involved in the action, if any, is located or in a County where venue is otherwise appropriate under applicable law (the “Court”).
12.3 The matters that shall not be subject to a reference are the following: (i) foreclosure of any security interests in real or personal property, (ii) exercise of self-help remedies (including, without limitation, set-off), (iii) appointment of a receiver and (iv) temporary, provisional or ancillary remedies (including, without limitation, writs of attachment, writs of possession, temporary restraining orders or preliminary injunctions). This Agreement does not limit the right of any party to exercise or oppose any of the rights and remedies described in clauses (i) and (ii) or to seek or oppose from a court of competent jurisdiction any of the items described in clauses (iii) and (iv). The exercise of, or opposition to, any of those items does not waive the right of any party to a reference pursuant to this Agreement.
12.4 The referee shall be a retired Judge or Justice selected by mutual written agreement of the parties. If the parties do not agree within ten (10) days of a written request to do so by any party, then, upon request of any party, the referee shall be selected by the Presiding Judge of the Court (or his or her representative). A request for appointment of a referee may be heard on an ex parte or expedited basis, and the parties agree that irreparable harm would result if ex parte relief is not granted.
12.5 The parties agree that time is of the essence in conducting the reference proceedings.
Accordingly, the referee shall be requested, subject to change in the time periods specified herein for good cause shown, to (i) set the matter for a status and trial-setting conference within fifteen (15) days after the date of selection of the referee, (ii) if practicable, try all issues of law or fact within one hundred twenty (120) days after the date of the conference and (iii) report a statement of decision within twenty (20) days after the matter has been submitted for decision.
12.6 The referee will have power to expand or limit the amount and duration of discovery.
The referee may set or extend discovery deadlines or cutoffs for good cause, including a party’s failure to provide requested discovery for any reason whatsoever. Unless otherwise ordered based upon good cause shown, no party shall be entitled to “priority” in conducting discovery, depositions may be taken by either party upon seven (7) days written notice, and all other discovery shall be responded to within fifteen (15) days after service. All disputes relating to discovery which cannot be resolved by the parties shall be submitted to the referee whose decision shall be final and binding.
12.7 Except as expressly set forth in this Agreement, the referee shall determine the manner in which the reference proceeding is conducted including the time and place of hearings, the order of presentation of evidence, and all other questions that arise with respect to the course of the reference proceeding. 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, and the
referee will be provided a courtesy copy of the transcript. The party making such a request shall have the obligation to arrange for and pay the court reporter. Subject to the referee’s power to award costs to the prevailing party, the parties will equally share the cost of the referee and the court reporter at trial.
12.8 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, enter equitable orders that will be binding on the parties and rule on any motion which would be authorized in a court proceeding, including without limitation motions for summary judgment or summary adjudication. The referee shall issue a decision at the close of the reference proceeding which disposes of all claims of the parties that are the subject of the reference. Pursuant to CCP § 644, such decision shall be entered by the Court as a judgment or an order in the same manner as if the action had been tried by the Court and any such decision will be final, binding and conclusive. The parties reserve the right to appeal from the final judgment or order or from any appealable decision or order entered by the referee. The parties reserve the right to findings of fact, conclusions of laws, a written statement of decision, and the right to move for a new trial or a different judgment, which new trial, if granted, is also to be a reference proceeding under this provision.
12.9 If the enabling legislation which provides for appointment of a referee is repealed (and no successor statute is enacted), any dispute among the parties that would otherwise be determined by reference procedure will be resolved and determined by arbitration. The arbitration will be conducted by a retired judge or Justice, in accordance with the California Arbitration Act §1280 through §1294.2 of the CCP as amended from time to time. The limitations with respect to discovery set forth above shall apply to any such arbitration proceeding.
12.10 THE PARTIES RECOGNIZE AND AGREE THAT ALL CONTROVERSIES, DISPUTES AND CLAIMS RESOLVED UNDER THIS REFERENCE PROVISION WILL BE DECIDED BY A REFEREE AND NOT BY A JURY. AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF ITS, HIS OR HER OWN CHOICE, EACH PARTY KNOWINGLY AND VOLUNTARILY, AND FOR THE MUTUAL BENEFIT OF ALL PARTIES, AGREES THAT THIS REFERENCE PROVISION WILL APPLY TO ANY CONTROVERSY, DISPUTE OR CLAIM BETWEEN OR AMONG THEM ARISING OUT OF OR IN ANY WAY RELATED TO, THIS AGREEMENT OR THE OTHER COMERICA DOCUMENTS.
13. GENERAL PROVISIONS.
13.1 Successors and Assigns. This Agreement shall bind and inure to the benefit of the respective successors and permitted assigns of each of the parties and shall bind all Persons who become bound as a debtor to this Agreement; provided, however, that neither this Agreement nor any rights hereunder may be assigned by any Borrower without Bank’s prior written consent, which consent may be granted or withheld in Bank’s sole discretion. Bank shall have the right without the consent of or notice to any Borrower to sell, transfer, negotiate, or
grant participation in all or any part of, or any interest in, Bank’s obligations, rights and benefits hereunder.
13.2 Indemnification. Each Borrower shall, jointly and severally, defend, indemnify and hold harmless Bank and its officers, employees, and agents against: (a) all obligations, demands, claims, and liabilities claimed or asserted by any other party in connection with the Collateral or the transactions contemplated by this Agreement and/or the other Loan Documents; and (b) all losses or Bank Expenses in any way suffered, incurred, or paid by Bank, its officers, employees and agents as a result of or in any way arising out of, following, or consequential to transactions between or among Bank and Borrowers whether under this Agreement, or otherwise (including without limitation reasonable attorneys’ fees and expenses), except for losses caused by Bank’s gross negligence or willful misconduct.
13.3 Time of Essence. Time is of the essence for the performance of all obligations set forth in this Agreement.
13.4 Severability of Provisions. Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision.
13.5 Correction of Loan Documents. Bank may correct patent errors and fill in any blanks in this Agreement and the other Loan Documents consistent with the agreement of the parties.
13.6 Amendments in Writing, Integration. All amendments to or terminations of this Agreement or the other Loan Documents must be in writing signed by the parties. All prior agreements, understandings, representations, warranties, and negotiations between the parties hereto with respect to the subject matter of this Agreement and the other Loan Documents, if any, are merged into this Agreement and the Loan Documents.
13.7 Counterparts. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement.
13.8 Survival. All covenants, representations and warranties made in this Agreement shall continue in full force and effect so long as any Obligations remain outstanding or Bank has any obligation to make any Credit Extension to any Borrower. The obligations of Borrowers to indemnify Bank with respect to the expenses, damages, losses, costs and liabilities described in Section 13.2 shall survive until all applicable statute of limitations periods with respect to actions that may be brought against Bank have run.
13.9 Confidentiality. In handling any confidential information, Bank and all employees and agents of Bank shall exercise the same degree of care that Bank exercises with respect to its own proprietary information of the same types to maintain the confidentiality of any non-public information thereby received or received pursuant to this Agreement except that disclosure of such information may be made (i) to the subsidiaries or Affiliates of Bank in connection with their present or prospective business relations with any Borrower, (ii) to
prospective transferees, participants, or purchasers of any interest in the Obligations (provided, however, Bank shall use its commercially reasonable efforts to obtain such prospective transferee’s or purchaser’s to the terms of this provision or to a confidentiality agreement with Bank with terms no less restrictive than those contained herein), (iii) as required by law, regulations, rule or order, subpoena, judicial order or similar order, (iv) as may be required in connection with the examination, audit or similar investigation of Bank, (v) to Bank’s accountants, auditors and regulators, (vi) as Bank may determine in connection with the enforcement of any remedies under any of the Loan Documents, and (vii) to third-party service providers of Bank so long as such service providers have executed a confidentiality agreement with Bank with terms no less restrictive than those contained herein. Confidential information hereunder shall not include information that either: (a) is in the public domain or in the knowledge or possession of Bank when disclosed to Bank, or becomes part of the public domain after disclosure to Bank through no fault of Bank; or (b) is disclosed to Bank by a third party, provided Bank does not have actual knowledge that such third party is prohibited from disclosing such information.
14. CO-BORROWER PROVISIONS.
14.1 Primary Obligation. This Agreement is a primary and original obligation of each Borrower and shall remain in effect notwithstanding future changes in conditions, including any change of law or any invalidity or irregularity in the creation or acquisition of any Obligations or in the execution or delivery of any agreement between Bank and any Borrower. Each Borrower shall be liable for existing and future Obligations as fully as if all of all Credit Extensions were advanced to such Borrower. Bank may rely on any certificate or representation made by any Borrower as made on behalf of, and binding on, all Borrowers, including without limitation Disbursement Request Forms, Borrowing Base Certificates and Compliance Certificates. Furthermore, the successful operation of each Borrower is dependent on the continued successful performance of the integrated group of Borrowers, such that each Borrower will benefit from any Credit Extensions Bank makes to another Borrower.
14.2 Enforcement of Rights. Borrowers are jointly and severally liable for the Obligations and Bank may proceed against one or more of the Borrowers to enforce the Obligations without waiving its right to proceed against any of the other Borrowers.
14.3 Borrowers as Agents. Each Borrower appoints the other Borrower as its agent with all necessary power and authority to give and receive notices, certificates or demands for and on behalf of both Borrowers, to act as disbursing agent for receipt of any Credit Extensions on behalf of each Borrower and to apply to Bank on behalf of each Borrower for Credit Extensions, any waivers and any consents. This authorization cannot be revoked, and Bank need not inquire as to each Borrower’s authority to act for or on behalf of any other Borrower.
14.4 Subrogation and Similar Rights. Notwithstanding any other provision of this Agreement or any other Loan Document, each Borrower irrevocably waives all rights that it may have at law or in equity (including, without limitation, any law subrogating the Borrower to the rights of Bank under the Loan Documents) to seek contribution, indemnification, or any other form of reimbursement from any other Borrower, or any other Person now or hereafter primarily
or secondarily liable for any of the Obligations, for any payment made by the Borrower with respect to the Obligations in connection with the Loan Documents or otherwise and all rights that it might have to benefit from, or to participate in, any security for the Obligations as a result of any payment made by the Borrower with respect to the Obligations in connection with the Loan Documents or otherwise. Any agreement providing for indemnification, reimbursement or any other arrangement prohibited under this Section 14.4 shall be null and void. If any payment is made to a Borrower in contravention of this Section 14.4, such Borrower shall hold such payment in trust for Bank and such payment shall be promptly delivered to Bank for application to the Obligations, whether matured or unmatured.
14.5 Waivers of Notice. Except as otherwise provided in this Agreement, each Borrower waives notice of acceptance hereof; notice of the existence, creation or acquisition of any of the Obligations; notice of an Event of Default; notice of the amount of the Obligations outstanding at any time; notice of intent to accelerate; notice of acceleration; notice of any adverse change in the financial condition of any other Borrower or of any other fact that might increase the Borrower’s risk; presentment for payment; demand; protest and notice thereof as to any instrument; default; and all other notices and demands to which the Borrower would otherwise be entitled. Each Borrower waives any defense arising from any defense of any other Borrower, or by reason of the cessation from any cause whatsoever of the liability of any other Borrower. Bank’s failure at any time to require strict performance by any Borrower of any provision of the Loan Documents shall not waive, alter or diminish any right of Bank thereafter to demand strict compliance and performance therewith. Nothing contained herein shall prevent Bank from foreclosing on the Lien of any deed of trust, mortgage or other security instrument, or exercising any rights available thereunder, and the exercise of any such rights shall not constitute a legal or equitable discharge of any Borrower. Each Borrower also waives any defense arising from any act or omission of Bank that changes the scope of the Borrower’s risks hereunder.
14.6 Subrogation Defenses. Each Borrower hereby waives any defense based on impairment or destruction of its subrogation or other rights against any other Borrower and waives all benefits which might otherwise be available to it under California Civil Code Sections 2799, 2808, 2809, 2810, 2815, 2819, 2820, 2821, 2822, 2838, 2839, 2845, 2847, 2848, 2849, 2850, 2899 and 3433 and California Code of Civil Procedure Sections 580a, 580b, 580d and 726, as those statutory provisions are now in effect and hereafter amended, and under any other similar statutes now and hereafter in effect.
14.7 Right to Settle, Release.
(a) The liability of Borrowers hereunder shall not be diminished by (i) any agreement, understanding or representation that any of the Obligations is or was to be guaranteed by another Person or secured by other property, or (ii) any release or unenforceability, whether partial or total, of rights, if any, which Bank may now or hereafter have against any other Person, including another Borrower, or property with respect to any of the Obligations.
(b) Without affecting the liability of any Borrower hereunder, Bank may (i) compromise, settle, renew, extend the time for payment, change the manner or terms of payment, discharge the performance of, decline to enforce, or release all or any of the
Obligations with respect to a Borrower, (ii) grant other indulgences to a Borrower in respect of the Obligations, (iii) modify in any manner any documents relating to the Obligations with respect to a Borrower, (iv) release, surrender or exchange any deposits or other property securing the Obligations, whether pledged by a Borrower or any other Person, or (v) compromise, settle, renew, or extend the time for payment, discharge the performance of, decline to enforce, or release all or any obligations of any guarantor, endorser or other Person who is now or may hereafter be liable with respect to any of the Obligations.
14.8 Subordination. All indebtedness of a Borrower now or hereafter arising held by another Borrower is subordinated to the Obligations and the Borrower holding the indebtedness shall take all actions reasonably requested by Lender to effect, to enforce and to give notice of such subordination.
[Remainder of Page Left Blank]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written.
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JAND, INC.
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By:
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/s/ Steve Miller
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Name:
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Steve Miller
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Title:
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CFO
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WARBY PARKER RETAIL, INC.
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By:
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/s/ Steve Miller
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Name:
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Steve Miller
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Title:
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CFO
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COMERICA BANK
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By:
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/s/ Paula J. Howell
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Name:
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Paula J. Howell
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Title:
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SVP
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EXHIBIT A
DEFINITIONS
“Accounts” means all presently existing and hereafter arising accounts, contract rights, payment intangibles and all other forms of obligations owing to any Borrower arising out of the sale or lease of goods (including, without limitation, the licensing of software and other technology), the licensing, sale or other transfer of any intellectual property of a Borrower or any of its Subsidiaries, or the rendering of services by any Borrower, whether or not earned by performance, and including, without limitation, all accounts, contract rights and payment intangibles of any Borrower under or in respect of term license agreements, subscription license agreements and maintenance contracts, and also including all accounts, payment intangibles and other forms of obligations owing to any Borrower under any and all credit insurance, guaranties, and other security therefor, as well as all merchandise returned to or reclaimed by any Borrower and each Borrower’s Books relating to any of the foregoing.
“Advance” or “Advances” means a cash advance or cash advances under the Revolving Line.
“Affiliate” means, with respect to any Person, any Person that owns or controls directly or indirectly such Person, any Person that controls or is controlled by or is under common control with such Person, and each of such Person’s senior executive officers, directors, and partners.
“Bank Expenses” means all costs or expenses of Bank, or any other holder or owner of the Loan Documents (including, without limit, court costs, legal expenses and reasonable attorneys’ fees and expenses, whether generated in-house or by outside counsel, whether or not suit is instituted, and, if suit is instituted, whether at trial court level, appellate court level, in a bankruptcy, probate or administrative proceeding or otherwise) incurred in connection with the preparation, negotiation, execution, delivery, amendment, administration, performance and enforcement of the Loan Documents, or incurred in collecting, attempting to collect under the Loan Documents or the Obligations, or incurred in defending the Loan Documents, or incurred in any other matter or proceeding relating to the Loan Documents or the Obligations; and reasonable Collateral audit fees, in each case whether incurred before, during and after an Insolvency Proceeding.
“Borrower State” means Delaware, the state under whose laws each Borrower is organized.
“Borrower’s Books” means all of each Borrower’s books and records including: ledgers; records concerning such Borrower’s assets or liabilities, the Collateral, business operations or financial condition; and all computer programs, or tape files, and the equipment, containing such information.
“Borrowing Base” means an amount equal to the sum of (a) the Non-Formula Amount, plus (b) the least of (i) one-hundred percent (100%) of Eligible Inventory, valued at cost determined in accordance with GAAP, (ii) eighty-five percent (85%) of the orderly liquidation value of Eligible Inventory, and (iii) Five Million Dollars ($5,000,000), plus (c) the amount by
which Borrowers’ Cash at Bank exceeds Two Million Five Hundred Thousand Dollars ($2,500,000), all as determined by Bank with reference to the most recent Borrowing Base Certificate delivered by Borrowers; less such reserves as may be established by Bank in its good faith credit judgment, from time to time, including reserves for slow-moving, damaged or obsolete items; provided, that (A) the amount included in clause (c) above in the calculation of the Borrowing Base may be adjusted by Bank from time to time based on actual Cash balances maintained with Bank, (B) no Eligible Inventory shall be included in clause (b) in the calculation of the Borrowing Base until Bank has completed its initial audit and examination of the Collateral, the results of which shall be satisfactory to Bank; and (C) the advance rate for Eligible Inventory above is subject to adjustment by Bank after the Closing Date, in its good faith credit judgment, based on its initial audit and examination of the Collateral.
“Business Day” means any day that is not a Saturday, Sunday, or other day on which banks in the State of California are authorized or required to close.
“Cash” means unrestricted cash and cash equivalents.
“Change in Control” means (a) any transaction or series of related transactions in which any “person” or “group” (within the meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) becomes the “beneficial owner” (as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of a sufficient number of shares of all classes of Equity Interests then outstanding of Parent ordinarily entitled to vote in the election of directors, empowering such “person” or “group” to elect a majority of the Board of Directors of Parent, who did not have such power before such transaction, (b) Parent’s existing stockholders ceasing to own and control a majority of the voting power of all classes of Borrower’s Equity Interests entitled to vote for the election of directors, or (c) Parent ceasing to own and control one hundred percent (100%) of all classes of Equity Interests of each other Borrower.
“Chief Executive Office State” means New York, where each Borrower’s chief executive office is located.
“Closing Date” means the date of this Agreement.
“Code” means the California Uniform Commercial Code as amended or supplemented from time to time.
“Collateral” means the property described on Exhibit B attached hereto and all Negotiable Collateral to the extent not described on Exhibit B; except to the extent any such property (i) is nonassignable by its terms without the consent of the licensor thereof or another party (but only to the extent such prohibition on transfer is enforceable under applicable law, including, without limitation, Sections 9406 and 9408 of the Code), or (ii) the granting of a security interest therein is contrary to applicable law, provided that upon the cessation of any such restriction or prohibition, such property shall automatically become part of the Collateral.
“Collateral Access Agreement” means an agreement in form and substance satisfactory to Bank in its sole discretion, pursuant to which a mortgagee or lessor of real property on which Collateral is stored or otherwise located, or a warehouseman, processor, contract manufacturer, fulfillment center, equipment holder, co-location facility or other bailee of Inventory, Equipment
or other property owned by Borrower, that acknowledges the Liens of Bank and waives any Liens held by such Person on such Inventory, Equipment or other property and, includes such other agreements with respect to the Collateral, including agreements relating to access to the Collateral, as Bank may require in its sole discretion, as the same may be amended, restated or otherwise modified from time to time.
“Collateral State” means the state or states where the Collateral is located, which are New York and Texas.
“Contingent Obligation” means, as applied to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to (i) any indebtedness, lease, dividend, letter of credit or other obligation of another, including, without limitation, any such obligation directly or indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by that Person, or in respect of which that Person is otherwise directly or indirectly liable; (ii) any obligations with respect to undrawn letters of credit, corporate credit cards or merchant services issued for the account of that Person; and (iii) all obligations arising under any interest rate, currency or commodity swap agreement, interest rate cap agreement, interest rate collar agreement, or other agreement or arrangement designed to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; provided, however, that the term “Contingent Obligation” shall not include endorsements for collection or deposit in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determined amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by such Person in good faith; provided, however, that such amount shall not in any event exceed the maximum amount of the obligations under the guarantee or other support arrangement.
“Copyrights” means any and all copyright rights, copyright applications, copyright registrations and like protections in each work or authorship and derivative work thereof, whether published or unpublished and whether or not the same also constitutes a trade secret, now or hereafter existing, created, acquired or held.
“Credit Card Services Sublimit” means a sublimit for corporate credit cards and e-commerce or merchant account services under the Revolving Line not to exceed Seven Million Dollars ($7,000,000) less any amounts outstanding under the Letter of Credit Sublimit.
“Credit Extension” means each Advance, Growth Capital Advance or any other extension of credit by Bank to or for the benefit of any Borrower hereunder.
“Eligible Inventory” means Borrowers’ finished goods Inventory consisting of eyeglass frames and sunglasses, as may be adjusted by Bank, in Bank’s discretion, for age and seasonally or other factors affecting the value of such Inventory, and that have been validly pledged to Bank and in which Bank has a perfected, first-priority security interest and strictly complies with all of Borrowers’ warranties and representations to Bank; but Eligible Inventory shall not include the following: (a) supplies (e.g. packaging), raw materials, tools or parts not in saleable form or not held for resale; (b) work in process, samples or prototypes; (c) Inventory consigned to sales representatives or sold by a Borrower on a bill-and-hold basis, or consigned to a Borrower by a
vendor; (d) finished goods with no liquidation value; (e) Inventory located or stored with a bailee, warehouseman or other third party (other than the HTO Inventory), including Texas Warehouse Inventory, unless a Collateral Access Agreement and any documents required in accordance with Sections 6.5 and 7.10 of this Agreement are in place; (f) Inventory in possession of a Borrower that is not located on real property owned or leased by such Borrower (provided that if such Inventory is located on real property leased by a Borrower, the landlord of such real property shall have executed and delivered to Bank, a Collateral Access Agreement satisfactory to Bank); (g) Inventory located outside of the United States; (h) in-transit Inventory (other than HTO Inventory in transit from a Borrower to customers in the ordinary course of business consistent with past practice); (i) defective Inventory or Inventory under repair; (j) Inventory not insured by a policy naming Bank as lender loss payee; (k) Optical Lab Inventory, (l) Inventory not located at an address set forth in the Schedule or otherwise disclosed as required under the terms of this Agreement; (m) Inventory subject to the Lien of any other Person, including without limitation Inventory covered under a supplier’s purchase money security interest; (n) Inventory evidenced by or subject to any negotiable document of title unless delivered to Bank, with endorsements satisfactory to Bank and (o) all other Inventory deemed ineligible by Bank in its good faith credit judgment. Any “seconds” or scrap Inventory shall be valued at scrap value. Notwithstanding the foregoing, no Inventory shall be deemed Eligible Inventory unless Bank has determined in its sole discretion that it may sell, liquidate or otherwise dispose of such Inventory in accordance with the terms of this Agreement and the other Loan Documents without infringing upon, or incurring liability for infringing upon, the rights of another Person or violating any contract with any other Person, including the owner of any trademark licensed to a Borrower.
“Environmental Laws” means all laws, rules, regulations, orders and the like issued by any federal state, local foreign or other governmental or quasi-governmental authority or any agency pertaining to the environment or to any hazardous materials or wastes, toxic substances, flammable, explosive or radioactive materials, asbestos or other similar materials.
“Equipment” means all present and future machinery, equipment, tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments in which any Borrower has any interest.
“Equity Interests” means, with respect to any Person, any of the shares of capital stock of (or other ownership, membership or profit interests in) such Person, any of the warrants, options or other rights for the purchase or acquisition from such Person of shares of capital stock of (or other ownership, membership or profit interests in) such Person, any of the securities convertible into or exchangeable for shares of capital stock of (or other ownership, membership or profit interests in) such Person or warrants, rights or options for the purchase or acquisition from such Person of such shares (or such other interests), and any of the other ownership, membership or profit interests in such Person (including partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are outstanding on any date of determination.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the regulations thereunder.
“Event of Default” has the meaning assigned in Article 8.
“GAAP” means generally accepted accounting principles, consistently applied, as in effect from time to time in the United States of America.
“Governmental Authority” means the Government of Canada, the United States of America, any State thereof or the District of Columbia, any other nation or any political subdivision thereof, whether provincial, state, territorial or local, and any agency, authority, instrumentality, regulatory body, court, central bank, fiscal or monetary authority or other authority regulating financial institutions, and any other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government, including the Bank Committee on Banking Regulation and Supervisory Practices of the Bank of International Settlements.
“Growth Capital Advance(s)” means a cash advance or cash advances under the Growth Capital Line.
“Growth Capital Availability End Date” means August __, 2014.
“Growth Capital Line” means a Credit Extension of up to Three Million Dollars ($3,000,000).
“Growth Capital Maturity Date” means August 1, 2017.
“HTO Inventory” means Inventory shipped to Borrower’s customers for a period not to exceed 180 days under its “home-try-on” program in the ordinary course of business and consistent with past practice, including Borrower holding the unqualified right to charge a valid customer credit card for the purchase price for such Inventory if it is not returned as required under such program.
“Indebtedness” means (a) all indebtedness for borrowed money or the deferred purchase price of property or services, including without limitation reimbursement and other obligations with respect to surety bonds and letters of credit, (b) all obligations evidenced by notes, bonds, debentures or similar instruments, (c) all capital lease obligations, (d) all Contingent Obligations, and (e) all obligations arising under the Credit Card Services Sublimit, if any.
“Insolvency Proceeding” means any proceeding commenced by or against any Person or entity under any provision of the United States Bankruptcy Code, as amended, or under any other bankruptcy or insolvency law, including assignments for the benefit of creditors, formal or informal moratoria, compositions, extension generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief.
“Intellectual Property” means all of each Borrower’s Copyrights, Patents, Trademarks, servicemarks and applications therefor, now owned or hereafter acquired, and any claims for damages by way of any past, present and future infringement of any of the foregoing.
“Inventory” means all present and future inventory in which a Borrower has any interest, including any returns upon any accounts or other proceeds, including insurance proceeds, resulting from the sale or disposition of any of the foregoing and any documents of title representing any of the above, and Borrower’s Books relating to any of the foregoing.
“Investment” means any beneficial ownership of (including stock, partnership or limited liability company interest or other securities) any Person, or any loan, advance or capital contribution to any Person.
“IRC” means the Internal Revenue Code of 1986, as amended, and the regulations thereunder.
“Letter of Credit” means a commercial or standby letter of credit or similar undertaking issued by Bank at any Borrower’s request.
“Letter of Credit Sublimit” means a sublimit for Letters of Credit under the Revolving Line not to exceed Seven Million Dollars ($7,000,000) minus any amounts outstanding under the Credit Card Services Sublimit.
“Lien” means any mortgage, lien, deed of trust, charge, pledge, security interest or other encumbrance.
“Liquidity” means the sum of Borrower’s Cash plus the net amount of unused availability under the Revolving Line.
“Loan Documents” means, collectively, this Agreement, any note or notes executed by Borrower, and any other document, instrument or agreement entered into in connection with this Agreement, all as amended or extended from time to time.
“Material Adverse Effect” means (i) a material adverse change in any Borrower’s business or financial condition, or (ii) a material impairment in the prospect of repayment of all or any portion of the Obligations or in otherwise performing any Borrower’s obligations under the Loan Documents, or (iii) a material impairment in the perfection, value or priority of Bank’s security interests in the Collateral or any security provided by any guarantor.
“Non-Formula Amount” means Two Million Dollars ($2,000,000).
“Negotiable Collateral” means all of each Borrower’s present and future letters of credit of which it is a beneficiary, drafts, instruments (including promissory notes), securities, documents of title, and chattel paper, and each Borrower’s Books relating to any of the foregoing.
“Obligations” means all debt, principal, interest, Bank Expenses and other amounts owed to Bank by any Borrower pursuant to this Agreement or any other agreement, whether absolute or contingent, due or to become due, now existing or hereafter arising, including any interest that accrues after the commencement of an Insolvency Proceeding and including any debt, liability, or obligation owing from any Borrower to others that Bank may have obtained by assignment or otherwise, but excluding any Warrant.
“Optical Lab Inventory” means Inventory located with, or in transit to or from, optical labs.
“Patents” means all patents, patent applications and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same.
“Periodic Payments” means all installments or similar recurring payments that Borrowers may now or hereafter become obligated to pay to Bank pursuant to the terms and provisions of any instrument, or agreement now or hereafter in existence between or among Borrowers and Bank.
“Permitted Indebtedness” means:
(a) Indebtedness of Borrowers in favor of Bank arising under this Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and disclosed in the Schedule;
(c) Indebtedness of Borrowers not to exceed Two Million Dollars ($2,000,000) in the aggregate outstanding at any time secured by a lien described in clause (c) of the defined term “Permitted Liens,” provided such Indebtedness does not exceed the lesser of the cost or fair market value of the equipment financed with such Indebtedness;
(d) Indebtedness of Borrowers not to exceed Five Hundred Thousand Dollars ($500,000) in the aggregate outstanding at any time to financial institutions in connection with the provision of merchant services by such financial institutions to Borrowers;
(e) Subordinated Debt;
(f) Indebtedness to trade creditors incurred in the ordinary course of business; and
(g) Extensions, refinancings and renewals of any items of Permitted Indebtedness described in clauses (a) through (c) above, provided that the principal amount is not increased or the terms modified to impose more burdensome terms upon any Borrower or its Subsidiary, as the case may be.
“Permitted Investment” means:
(a) Investments existing on the Closing Date disclosed in the Schedule;
(b) (i) Marketable direct obligations issued or unconditionally guaranteed by the United States of America or any agency or any State thereof maturing within one (1) year from the date of acquisition thereof, (ii) commercial paper maturing no more than one (1) year from the date of creation thereof and currently having rating of at least A-2 or P-2 from either Standard & Poor’s Rating Services or Moody’s Investors Service, Inc., (iii) Bank’s certificates of deposit maturing no more than one (1) year from the date of investment therein, and (iv) Bank’s money market accounts;
(c) Repurchases of stock from former employees or directors of Parent under the terms of customary board-approved stock repurchase agreements to the extent permitted under Section 7.6;
(d) Investments accepted in connection with Permitted Transfers;
(e) (i) Investments by Parent in WPRI in the ordinary course of business in an aggregate amount not to exceed Five Hundred Thousand Dollars in any fiscal year; (ii) Investments of wholly-owned Subsidiaries in or to other wholly-owned Subsidiaries or Borrowers in the ordinary course of business and (iii) Investments by Borrowers in other wholly-owned Subsidiaries that have complied with Section 6.10, including the execution and delivery of an unconditional guaranty and security agreement in favor of Bank in form satisfactory to Bank, not to exceed One Hundred Thousand Dollars ($100,000) in the aggregate in any fiscal year;
(f) Investments consisting of (i) travel advances and employee relocation loans and other employee loans and advances in the ordinary course of business not to exceed Two Hundred Thousand Dollars ($200,000) in the aggregate in any fiscal year, and (ii) loans to employees, officers or directors relating to the purchase of equity securities of Parent pursuant to employee stock purchase plan agreements approved by Parent’s Board of Directors not to exceed Seven Hundred Fifty Thousand Dollars ($750,000) in the aggregate in any fiscal year provided that such loans are cashless (other than cash payments to Parent by the obligor in repayment of such loans);
(g) Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of Borrowers’ business;
(h) Investments consisting of notes receivable of, or prepaid royalties and other credit extensions, to customers and suppliers who are not Affiliates, in the ordinary course of business, provided that this subparagraph (h) shall not apply to Investments of Borrower in any Subsidiary; and
(i) Joint ventures or strategic alliances with non-Affiliated third parties in the ordinary course of Borrowers’ business consisting of the non-exclusive licensing of technology, the development of technology or the providing of technical support, provided that any cash Investments by Borrowers do not exceed Five Hundred Thousand Dollars ($500,000) in the aggregate in any fiscal year.
“Permitted Liens” means the following:
(a) Any Liens existing on the Closing Date and disclosed in the Schedule (excluding Liens to be satisfied with the proceeds of the Credit Extensions) or arising under this Agreement or the other Loan Documents;
(b) Liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings and for which
Borrowers maintain adequate reserves, provided the same have no priority over any of Bank’s security interests;
(c) Liens securing Permitted Indebtedness not to exceed Two Million Dollars ($2,000,000) in aggregate principal amount outstanding at any time (i) upon or in any Equipment (other than Equipment financed by Bank) acquired or held by a Borrower or any of its Subsidiaries to secure the purchase price of such Equipment or indebtedness incurred solely for the purpose of financing the acquisition or lease of such Equipment, or (ii) existing on such Equipment at the time of its acquisition, provided that the Lien is confined solely to the property so acquired and improvements thereon, and the proceeds of such Equipment;
(d) Liens incurred in connection with the extension, renewal or refinancing of the indebtedness secured by Liens of the type described in clauses (a) through (c) above, provided that any extension, renewal or replacement Lien shall be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness being extended, renewed or refinanced does not increase;
(e) Liens on cash collateral or letters of credit in respect of Indebtedness permitted by, and in favor of financial institutions referenced in, clause (d) of the definition of “Permitted Indebtedness” in an amount not to exceed the amount of such indebtedness at any time;
(f) Liens arising from judgments, decrees or attachments in circumstances not constituting an Event of Default under Sections 8.4 (Attachment) or 8.8 (Judgments; Settlements); and
(g) Liens in favor of other financial institutions arising in connection with Borrowers’ deposit accounts held at such institutions to secured standard fees for deposit services charged by, but not financing made available by such institutions, provided that Bank has a perfected, first-priority security interest in the amounts held in such deposit accounts and each Borrower is in compliance with the requirements of Section 6.6 with respect to such accounts.
“Permitted Transfer” means the conveyance, sale, lease, transfer or disposition by Borrower or any Subsidiary of:
(a) Inventory in the ordinary course of business;
(b) Non-exclusive licenses for the use of the Intellectual Property of Borrower or its Subsidiaries in the ordinary course of business which do not interfere in any material respect with the business of Borrower and its Subsidiaries taken as a whole;
(c) Worn-out or obsolete Equipment not financed by Bank;
(d) Transfers of cash that constitute Permitted Investments; or
(e) Other assets of Borrowers or their Subsidiaries (other than Intellectual Property) that do not in the aggregate exceed Three Hundred Thousand Dollars ($300,000) during any fiscal year.
“Person” means any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or governmental agency.
“Pricing Addendum” means that certain Prime Referenced Rate Addendum to Loan and Security Agreement, dated as of the Closing Date, by and among Borrowers and Bank, as the same may be amended, modified, supplemented, extended of restated from time to time.
“Prohibited Territory” means any person or country listed by the Office of Foreign Assets Control of the United States Department of Treasury as to which transactions between a United States Person and that territory are prohibited.
“Responsible Officer” means each of the Chief Executive Officer, the Chief Operating Officer, the Chief Financial Officer and the Controller of each Borrower.
“Restricted Agreement” is any material license or other material agreement (other than over-the-counter software that is commercially available to the public) to which any Borrower is a party or under which any Borrower is bound (including licenses and agreements under which a Borrower is the licensee): (a) that prohibits or otherwise restricts any Borrower from assigning to Bank, or granting to Bank a Lien in, a Borrower’s interest in such license or agreement, the rights arising thereunder or any other property, or (b) for which a default under or termination of such license or contract could interfere with the Bank’s right to use, license, sell or collect any Collateral or otherwise exercise its rights and remedies with respect to the Collateral under the Loan Documents or applicable law.
“Revolving Line” means a Credit Extension of up to Ten Million Dollars ($10,000,000) (inclusive of the aggregate face amount of Letters of Credit issued under the Letter of Credit Sublimit, and the aggregate limits of the corporate credit cards issued to any Borrower and merchant credit card processing reserves under the Credit Card Services Sublimit.
“Revolving Maturity Date” means February __, 2015.
“Schedule” means the schedule of exceptions attached hereto and approved by Bank, if any.
“Security Instrument” means any security agreement, assignment, pledge agreement, financing or other similar statement or notice, continuation statement, other agreement or instrument, or any amendment or supplement to any thereof, creating, governing or providing for, evidencing or perfecting or maintaining the priority of any security interest or Lien.
“Shares” means one hundred percent (100%) of the issued and outstanding capital stock, membership units or other securities owned or held of record by any Borrower in any Subsidiary of such Borrower.
“SOS Reports” means the official reports from the Secretaries of State of each Collateral State, Chief Executive Office State and the Borrower State and other applicable federal, state or local government offices identifying all current security interests filed in the Collateral and Liens of record as of the date of such report.
“Subordinated Debt” means Indebtedness incurred by any Borrower or any of its Subsidiaries that is subordinated in writing to the Obligations owing by Borrowers and such Subsidiaries to Bank on terms reasonably satisfactory to Bank (and identified as being such by Borrowers and Bank), including without limiting the generality of the foregoing, subordination (other than solely by conversion to equity) of such Indebtedness in right of payment to the prior indefeasible payment in full, in cash, of the Obligations, the subordination of the priority of any Lien at any time securing such Indebtedness to Bank’s Lien, and prohibitions on the exercise of any rights or remedies of the holder of such Indebtedness against Borrowers, any of their Subsidiaries or any of Borrowers’ or their Subsidiaries’ property pursuant to a written subordination agreement executed and delivered by Bank.
“Subsidiary” means, with respect to any Person, any corporation, partnership or, limited liability company or joint venture in which (i) any general partnership interest or (ii) more than fifty percent (50%) of the stock, limited liability company interest, joint venture interest or other Equity Interest of which by the terms thereof has the ordinary voting power to elect the Board of Directors, managers, trustees or similar governing body of the entity, at the time as of which any determination is being made, is owned or controlled by such Person, either directly or through an Affiliate. Unless otherwise stated, references herein to a “Subsidiary” are to Subsidiaries of Borrowers.
“Texas Warehouse Inventory” means Inventory located in the ordinary course of business at the warehouse facility and fulfillment center located with NAVARRE LOGISTICAL SERVICES, INC. at 10300 Sanden Drive, Dallas TX 75238.
“Trademarks” means any trademark and servicemark rights, whether registered or not, applications to register and registrations of the same and like protections.
“Warrant” means that certain Warrant to Purchase Stock issued on the Closing Date by Parent to Bank.
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DEBTORS:
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JAND, INC. and
WARBY PARKER RETAIL, INC.
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SECURED PARTY:
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COMERICA BANK
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EXHIBIT B
COLLATERAL DESCRIPTION ATTACHMENT TO LOAN AND SECURITY AGREEMENT
All personal property of Borrowers (herein referred to as “Borrower” or “Debtor”) whether presently existing or hereafter created or acquired, and wherever located, including, but not limited to:
(a) all accounts (including health-care-insurance receivables), chattel paper (including tangible and electronic chattel paper), deposit accounts, documents (including negotiable documents), equipment (including all accessions and additions thereto), financial assets, general intangibles (including payment intangibles and software), goods (including fixtures), instruments (including promissory notes), inventory (including all goods held for sale or lease or to be furnished under a contract of service, and including returns and repossessions), investment property (including securities and securities entitlements), letter of credit rights, money, and all of Debtor’s books and records with respect to any of the foregoing, and the computers and equipment containing said books and records; and
(b) any and all cash proceeds and/or noncash proceeds of any of the foregoing, including, without limitation, insurance proceeds, and all supporting obligations and the security therefor or for any right to payment. All terms above have the meanings given to them in the California Uniform Commercial Code, as amended or supplemented from time to time.
Notwithstanding the foregoing, the Collateral shall not include the Intellectual Property; provided, however, that the Collateral shall include all accounts and general intangibles that consist of rights to payment or proceeds from the sale, licensing or disposition of all or any part of, or rights in, the Intellectual Property (the “Rights to Payment”). Notwithstanding the foregoing, if a judicial authority (including a U.S. Bankruptcy Court) holds that a security interest in the underlying Intellectual Property is necessary to have a security interest in the Rights to Payment, then the Collateral shall automatically, and effective as of August __, 2013, include the Intellectual Property to the extent necessary to permit perfection of Bank’s security interest in the Rights to Payment.
EXHIBIT C
TECHNOLOGY & LIFE SCIENCES DIVISION
LOAN ANALYSIS
LOAN ADVANCE/PAYDOWN REQUEST FORM
[See Attached]
EXHIBIT D
BORROWING BASE CERTIFICATE
[See Attached]
EXHIBIT E
COMPLIANCE CERTIFICATE
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Please send all Required Reporting to:
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Comerica Bank
Technology & Life Sciences Division
Loan Analysis Department
250 Lytton Avenue, 3rd Floor, Mail Code 4240
Palo Alto, CA 94301
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Phone: [(***) ***-****
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Fax: [(***) ***-****
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FROM: JAND, INC., for and on behalf of all co-Borrowers
The undersigned authorized Officer of JAND, INC. (“Borrower”), for an on behalf of all Borrowers under the Agreement (as defined below), hereby certifies that in accordance with the terms and conditions of the Loan and Security Agreement among Borrower, the other Borrowers and Bank (the “Agreement”), (i) each Borrower is in complete compliance for the period ending ________________ with all required covenants, including without limitation the ongoing registration of intellectual property rights in accordance with Section 6.8, except as noted below and (ii) all representations and warranties of each Borrower stated in the Agreement are true and correct in all material respects on and as of the date hereof as though made at and as of each such date (provided, however, that those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of such date). Attached herewith are the required documents supporting the above certification. The Officer further certifies that these are prepared in accordance with Generally Accepted Accounting Principles (GAAP) and are consistently applied from one period to the next except as explained in an accompanying letter or footnotes.
Please indicate compliance status by circling Yes/No under “Complies” or “Applicable” column.
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REPORTING COVENANTS
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REQUIRED
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COMPLIES
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Company Prepared Monthly F/S
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Monthly, within 30 days
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YES
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NO
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Compliance Certificate
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Monthly, within 30 days
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YES
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NO
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CPA Audited, Unqualified F/S
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Annually, within 180 days of FYE*
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YES
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NO
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Borrowing Base Cert., A/R & A/P Agings
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Monthly, within 30 days
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YES
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NO
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Annual Business Plan (incl. operating budget)
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Annually, within 60 days of FYE
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YES
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NO
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Audit
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Semi-annual
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YES
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NO
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If Public:
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10-Q
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Quarterly, within 5 days of SEC filing (50 days)
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YES
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NO
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10-K
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Annually, within 5 days of SEC filing (95 days)
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YES
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NO
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Total amount of Borrowers’ cash and investments
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Amount: $_______________
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YES
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NO
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Total amount of Borrowers’ cash and investments maintain with Bank
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Amount: $_______________
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YES
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NO
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* August 31, 2013 for fiscal year 2012 financial statements.
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DESCRIPTION
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APPLICABLE
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Legal Action > $300,000
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Notify promptly upon notice _______
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YES
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NO
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Inventory Disputes > $100,000
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Notify promptly upon notice _______
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YES
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NO
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Cross default with other agreements > $300,000
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Notify promptly upon notice _______
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YES
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NO
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Judgment > $300,000
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Notify promptly upon notice _______
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YES
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NO
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FINANCIAL COVENANTS
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REQUIRED
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ACTUAL
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COMPLIES
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TO BE TESTED MONTHLY, UNLESS OTHERWISE NOTED:
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Minimum Liquidity
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>$2,000,000
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$____________
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YES
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NO
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OTHER COVENANTS
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REQUIRED
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ACTUAL
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COMPLIES
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Permitted Indebtedness for equipment leases
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<$2,000,000
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_____________
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YES
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NO
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Permitted Investments for stock repurchase
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<$750,000
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_____________
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YES
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NO
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Permitted Investments for subsidiaries
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<$500,000
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_____________
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YES
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NO
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Permitted Investments for employee loans(cashless)
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<$750,000
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_____________
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YES
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NO
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Permitted Investments for joint ventures
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<$500,000
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_____________
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YES
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NO
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Permitted Liens for equipment leases
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<$2,000,000
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_____________
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YES
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NO
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Permitted Transfers
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<$300,000
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_____________
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YES
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NO
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Please Enter Below Comments Regarding Violations:
The Officer further acknowledges that at any time any Borrower is not in compliance with all the terms set forth in the Agreement, including, without limitation, the financial covenants, no credit extensions will be made.
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Very truly yours,
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Authorized Signer
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Name:
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Title:
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SCHEDULE OF EXCEPTIONS
TO LOAN AND SECURITY AGREEMENT
Permitted Indebtedness (Exhibit A)
Certain guaranties by Parent in connection with real property leases held by the WPRI incurred in the ordinary course of business.
Corporate credit cards issued by financial institutions other than Bank with maximum credit limits up to $500,000 to facilitate payment of ordinary course operating expenses. Such credit cards will be closed and cancelled within 90 days after the Closing Date.
Parent’s contingent reimbursement obligations under that certain letter of credit in the amount of $175,135.64, issued by Silicon Valley Bank relating to the deposit for Borrower’s retail store:
Beneficiary: SOHO Company LLC, C/O Yassky Properties, 424 Madison Ave, 16th Floor, NY, NY 10017
Cash Collateral: $175,135.64 (Silicon Valley Bank, 3003 Tasman Drive, Santa Clara, CA 95054, COLLATERAL MMA, 3300911044, JAND, Inc.)
Permitted Investments (Exhibit A)
None.
Permitted Liens (Exhibit A)
Pledge of cash collateral in the amount of $175,135.64 in favor or Silicon Valley Bank to secure Parent’s reimbursement obligation under the letter of credit specified above (Silicon Valley Bank, 3003 Tasman Drive, Santa Clara, CA 95054, COLLATERAL MMA, 3300911044, JAND, Inc.)
Collateral (Section 5.3)
The Company maintains inventory reserves based on assumptions regarding shrinkage, damage, and obsolescence. Inventory utilized for the Home Try-On (“HTO”) program is often recycled through the process several times, each time carefully inspected for quality and cleaned before re-entering circulation. HTO inventory may carry minimal signs of wear, which are incurred in the normal course of the HTO cycle over time.
Intellectual Property (Section 5.4)
The Company does not currently derive any revenues from the licensure of intellectual property. However, the Company is continually investing in technology infrastructure and best-in-class technological tools to facilitate its core business operations.
Prior Names (Section 5.5)
Parent has done business under the name Warby Parker since inception (JAND, Inc. dba Warby Parker). Additionally, Parent has a fully-owned retail subsidiary, WPRI.
Inventory or Equipment Locations (Section 5.5)
The Company is in the process of transitioning headquarter-office locations and will be operating in multiple locations during an interim period. The Company will notify the Lender of formal headquarter office changes expected during the transition period but will maintain operations at two primary locations, both located in the Soho area of New York City.
Other than optical labs and inventory in circulation to customers as part of the HTO program, the Company maintains inventory at the following locations:
Jand, Inc., 295 Lafayette St, Suite 501, New York, NY 10012 (owned by: New Puck, LLC); Chief Executive Office
Navarre Corporation, 10300 Sanden Dr, Dallas TX 75238, Third Party Warehouse,
Hoya Vision Care, 651 E. Corporation Dr, Lewisville, TX 75057, Third Party Optical Lab
Classic Optical, 3710 Belmont Ave, Youngstown, OH 44505, Third Party Optical Lab
Tri-Supreme Optical, LLC, 91 Carolyn Blvd, Farmingdale, NY 11735, Third Party Optical Lab
Warby Parker Retail, Inc., 121 Greene St, NY, NY 10012, Wholly Owned Retail Store
Warby Parker Retail, Inc., 83 Newbury St, Boston, MA 02116, Wholly Owned Retail Store
Warby Parker Retail, Inc., 819 Washington St, NY, NY 10013, Wholly Owned Retail Store
Confederacy, 4661 Hollywood Blvd, Los Angeles, California 90027, Showroom
The Standard, 550 South Flower Street, Los Angeles, CA 90071, Showroom
The Perish Trust, 728 Divisadero Street, San Francisco, CA 94117, Showroom
Art in the Ages, 116 N 3rd St, Philadelphia, PA 19106, Showroom
Shop Good, 3 Northwest 9th Street, Oklahoma City, OK 73102, Showroom
Apartment Number 9 1804 N Damen Ave. Chicago, Il 60647, Showroom
The Standard Spa, Miami Beach, 40 Island Avenue, Miami Beach, FL, Showroom
Indigo & Cotton, 79 Cannon Street, Charleston, SC 29401, Showroom
Imogene + Willie, 2601 12th Avenue South, Nashville, TN 37204, Showroom
Need Supply, 3100 West Cary Street, Richmond, VA 23221, Showroom
Inventory is primarily located with the Company’s third party logistics partner in Dallas, TX; however the Company also maintains smaller amounts of inventory and records at
various Company-owned retail locations, third-party showrooms, third-party optical labs, as well as inventory that is in circulation with customers as part of the HTO program at any given time.
Litigation (Section 5.6)
None.
Compliance with Laws and Regulations (Section 5.9)
The Company maintains a robust sales tax accrual which is booked monthly and determined as a percentage of sales revenue. The accrual is sufficient to cover all historical sales tax obligations. The Company, in consultation with tax attorneys, is currently evaluating which states the Company will need to file in for tax purposes, based on current operations. Additionally, the Company is preparing to implement a third-party technology which will allow the capture and remission of sales tax on transactions in the appropriately determined jurisdictions. The Company has filed income tax paperwork in all necessary jurisdictions and is currently in good standing with the IRS.
Subsidiaries (Section 5.10)
Jand, Inc. owns 100% of the all equity in Warby Parker Retail, Inc., a Delaware corporation
Restricted Agreements (Section 5.12)
None.
Deposit and Securities Accounts (Section 6.6)
TD Bank, 1032 Chestnut Street, Philadelphia, PA 19107 , Business Convenience Checking, [************], JAND INC dba Warby Parker
CitiBank, PO Box 769018, San Antonio, TX 78245, CitiBusiness Flexible Checking, [************], JAND, INC dba Warby Parker
CitiBank, PO Box 769018, San Antonio, TX 78245, CitiBusiness Flexible Checking, [************], JAND, INC dba Warby Parker
CitiBank, PO Box 769018, San Antonio, TX 78245, CitiBusiness Flexible Checking, [************], JAND, INC dba Warby Parker
CitiBank, PO Box 769018, San Antonio, TX 78245, CitiBusiness Saving, [************], JAND, INC dba Warby Parker
Silicon Valley Bank, 3003 Tasman Drive, Santa Clara, CA 95054, COLLATERAL MMA, [************], JAND, Inc.; Amount on deposit: $175,135.64
Corporation Resolutions and Incumbency Certification Authority to Procure Loans
I certify that I am the duly elected and qualified Secretary of JAND, INC., a Delaware corporation (the “Corporation”); that the Corporation’s exact legal name is set forth above; that the Corporation is a corporation duly organized, existing and in good standing under the laws of the State of Delaware; that the following is a true and correct copy of resolutions duly adopted by the Board of Directors of the Corporation in accordance with its bylaws and applicable statutes.
Copy of Resolutions:
Be it Resolved, That:
1. Any one (1) of the Chief Executive Officer, Chief Financial Officer, President, Secretary or Treasurer of the Corporation are/is authorized, for, on behalf of, and in the name of the Corporation to:
(a) Negotiate and procure loans, letters of credit and other credit or financial accommodations from Comerica Bank (“Bank”), a Texas banking association, from time to time, including without limitation that certain Loan and Security Agreement dated as of August __, 2013, as may be subsequently amended, modified, supplemented, extended or restated from time to time (the “Loan Agreement”).
(b) Discount with the Bank, commercial or other business paper belonging to the Corporation made or drawn by or upon third parties, without limit as to amount;
(c) Purchase, sell, exchange, assign, endorse for transfer and/or deliver certificates and/or instruments representing stocks, bonds, evidences of Indebtedness (as defined in the Loan Agreement) or other securities owned by the Corporation, whether or not registered in the name of the Corporation;
(d) Give security for any liabilities of the Corporation to the Bank by grant, security interest, assignment, lien, deed of trust or mortgage upon any real or personal property, tangible or intangible of the Corporation;
(e) Issue a warrant or warrants to purchase the Corporation’s capital stock; and
(f) Execute and deliver in form and content as may be required by the Bank any and all notes, evidences of Indebtedness, applications for letters of credit, guaranties, subordination agreements, loan and security agreements, financing statements, assignments, liens, deeds of trust, mortgages, trust receipts and other agreements, instruments or documents to carry out the purposes of these resolutions, and any and all amendments or modifications thereto, any or all of which may relate to all or to substantially all of the Corporation’s property and assets.
2. Said Bank be and it is authorized and directed to pay the proceeds of any such loans or discounts as directed by the persons so authorized to sign, whether so payable to the order
of any of said persons in their individual capacities or not, and whether such proceeds are deposited to the individual credit of any of said persons or not;
3. Any and all agreements, instruments and documents previously executed and acts and things previously done to carry out the purposes of these resolutions are ratified, confirmed and approved as the act or acts of the Corporation.
4. These resolutions shall continue in force, and the Bank may consider the holders of said offices and their signatures to be and continue to be as set forth in a certified copy of these resolutions delivered to the Bank, until notice to the contrary in writing is duly served on the Bank (such notice to have no effect on any action previously taken by the Bank in reliance on these resolutions).
5. Any person, corporation or other legal entity dealing with the Bank may rely upon a certificate signed by an officer of the Bank to effect that these resolutions and any agreement, instrument or document executed pursuant to them are still in full force and effect and binding upon the Corporation.
6. The Bank may consider the holders of the offices of the Corporation and their signatures, respectively, to be and continue to be as set forth in the Certificate of the Secretary of the Corporation until notice to the contrary in writing is duly served on the Bank.
I further certify that the above resolutions are in full force and effect as of the date of this Certificate; that these resolutions and any borrowings or financial accommodations under these resolutions have been properly noted in the corporate books and records, and have not been rescinded, annulled, revoked or modified; that neither the foregoing resolutions nor any actions to be taken pursuant to them are or will be in contravention of any provision of the certificate of incorporation or bylaws of the Corporation or of any agreement, indenture or other instrument to which the Corporation is a party or by which it is bound; and that neither the certificate of incorporation nor bylaws of the Corporation nor any agreement, indenture or other instrument to which the Corporation is a party or by which it is bound require the vote or consent of shareholders of the Corporation to authorize any act, matter or thing described in the foregoing resolutions.
I further certify that the following named persons have been duly elected to the offices set opposite their respective names, that they continue to hold these offices at the present time, and that the signatures which appear below are the genuine, original signatures of each respectively:
(PLEASE SUPPLY GENUINE SIGNATURES OF AUTHORIZED SIGNERS BELOW)
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NAME (Type or Print)
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TITLE
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SIGNATURE
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I further certify that attached as Exhibit A hereto is a true, correct and complete copy of the Corporation’s Certificate of Incorporation (including amendments), as filed with the Delaware Secretary of State. Such Certificate of Incorporation has not been amended, annulled, rescinded, revoked or supplemented, and remains in full force and effect as of the date hereof.
I further certify that attached as Exhibit B hereto is a true, correct and complete copy of Borrower’s By-Laws (including amendments). Such By-Laws have not been amended, annulled, rescinded, revoked or supplemented, and remain in full force and effect as of the date hereof.
In Witness Whereof, I have affixed my name as Secretary and have caused the corporate seal (where available) of said Corporation to be affixed on August __, 2013.
***
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The Above Statements are Correct.
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SIGNATURE OF OFFICER OR DIRECTOR OR, IF NONE, A SHAREHOLDER OTHER THAN SECRETARY WHEN SECRETARY IS AUTHORIZED TO SIGN ALONE.
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Failure to complete the above when the Secretary is authorized to sign alone shall constitute a certification by the Secretary that the Secretary is the sole Shareholder, Director and Officer of the Corporation.
Corporation Resolutions and Incumbency Certification
Authority to Procure Loans
I certify that I am the duly elected and qualified Secretary of WARBY PARKER RETAIL, INC., a Delaware corporation (the “Corporation”); that the Corporation’s exact legal name is set forth above; that the Corporation is a corporation duly organized, existing and in good standing under the laws of the State of Delaware; that the following is a true and correct copy of resolutions duly adopted by the Board of Directors of the Corporation in accordance with its bylaws and applicable statutes.
Copy of Resolutions:
Be it Resolved, That:
1. Any one (1) of the President, Secretary or Treasurer of the Corporation are/is authorized, for, on behalf of, and in the name of the Corporation to:
(a) Negotiate and procure loans, letters of credit and other credit or financial accommodations from Comerica Bank (“Bank”), a Texas banking association, from time to time, including without limitation that certain Loan and Security Agreement dated as of August __, 2013, as may be subsequently amended, modified, supplemented, extended or restated from time to time (the “Loan Agreement”.
(b) Discount with the Bank, commercial or other business paper belonging to the Corporation made or drawn by or upon third parties, without limit as to amount;
(c) Purchase, sell, exchange, assign, endorse for transfer and/or deliver certificates and/or instruments representing stocks, bonds, evidences of Indebtedness (as defined in the Loan Agreement) or other securities owned by the Corporation, whether or not registered in the name of the Corporation;
(d) Give security for any liabilities of the Corporation to the Bank by grant, security interest, assignment, lien, deed of trust or mortgage upon any real or personal property, tangible or intangible of the Corporation; and
(e) Execute and deliver in form and content as may be required by the Bank any and all notes, evidences of Indebtedness, applications for letters of credit, guaranties, subordination agreements, loan and security agreements, financing statements, assignments, liens, deeds of trust, mortgages, trust receipts and other agreements, instruments or documents to carry out the purposes of these resolutions, and any and all amendments or modifications thereto, any or all of which may relate to all or to substantially all of the Corporation’s property and assets.
2. Said Bank be and it is authorized and directed to pay the proceeds of any such loans or discounts as directed by the persons so authorized to sign, whether so payable to the order of any of said persons in their individual capacities or not, and whether such proceeds are deposited to the individual credit of any of said persons or not;
3. Any and all agreements, instruments and documents previously executed and acts and things previously done to carry out the purposes of these resolutions are ratified, confirmed and approved as the act or acts of the Corporation.
4. These resolutions shall continue in force, and the Bank may consider the holders of said offices and their signatures to be and continue to be as set forth in a certified copy of these resolutions delivered to the Bank, until notice to the contrary in writing is duly served on the Bank (such notice to have no effect on any action previously taken by the Bank in reliance on these resolutions).
5. Any person, corporation or other legal entity dealing with the Bank may rely upon a certificate signed by an officer of the Bank to effect that these resolutions and any agreement, instrument or document executed pursuant to them are still in full force and effect and binding upon the Corporation.
6. The Bank may consider the holders of the offices of the Corporation and their signatures, respectively, to be and continue to be as set forth in the Certificate of the Secretary of the Corporation until notice to the contrary in writing is duly served on the Bank.
I further certify that the above resolutions are in full force and effect as of the date of this Certificate; that these resolutions and any borrowings or financial accommodations under these resolutions have been properly noted in the corporate books and records, and have not been rescinded, annulled, revoked or modified; that neither the foregoing resolutions nor any actions to be taken pursuant to them are or will be in contravention of any provision of the certificate of incorporation or bylaws of the Corporation or of any agreement, indenture or other instrument to which the Corporation is a party or by which it is bound; and that neither the certificate of incorporation nor bylaws of the Corporation nor any agreement, indenture or other instrument to which the Corporation is a party or by which it is bound require the vote or consent of shareholders of the Corporation to authorize any act, matter or thing described in the foregoing resolutions.
I further certify that the following named persons have been duly elected to the offices set opposite their respective names, that they continue to hold these offices at the present time, and that the signatures which appear below are the genuine, original signatures of each respectively:
(PLEASE SUPPLY GENUINE SIGNATURES OF AUTHORIZED SIGNERS BELOW)
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NAME (Type or Print)
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TITLE
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SIGNATURE
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I further certify that attached as Exhibit A hereto is a true, correct and complete copy of the Corporation’s Certificate of Incorporation (including amendments), as filed with the Delaware Secretary of State. Such Certificate of Incorporation has not been amended, annulled, rescinded, revoked or supplemented, and remains in full force and effect as of the date hereof.
I further certify that attached as Exhibit B hereto is a true, correct and complete copy of Borrower’s By-Laws (including amendments). Such By-Laws have not been amended, annulled, rescinded, revoked or supplemented, and remain in full force and effect as of the date hereof.
In Witness Whereof, I have affixed my name as Secretary and have caused the corporate seal (where available) of said Corporation to be affixed on August __, 2013.
***
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The Above Statements are Correct.
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SIGNATURE OF OFFICER OR DIRECTOR OR, IF NONE, A SHAREHOLDER OTHER THAN SECRETARY WHEN SECRETARY IS AUTHORIZED TO SIGN ALONE.
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Failure to complete the above when the Secretary is authorized to sign alone shall constitute a certification by the Secretary that the Secretary is the sole Shareholder, Director and Officer of the Corporation.
COMERICA BANK
Member FDIC
ITEMIZATION OF AMOUNT FINANCED
DISBURSEMENT INSTRUCTIONS
(Growth Capital Advances)
Name(s): JAND, INC. and WARBY PARKER RETAIL, INC. Date: August __, 2013
$ credited to deposit account No. __________ when Advances are requested or disbursed to Borrower by cashiers check or wire transfer
Amounts paid to others on your behalf:
$ to Comerica Bank for Facility Fee
$ to Bank counsel fees and expenses
$ to _______________
$ to _______________
$ TOTAL (AMOUNT FINANCED)
Upon consummation of this transaction, this document will also serve as the authorization for Comerica Bank to disburse the loan proceeds as stated above.
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JAND, INC.
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WARBY PARKER RETAIL, INC.
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Signature
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Signature
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COMERICA BANK
Member FDIC
ITEMIZATION OF AMOUNT FINANCED
DISBURSEMENT INSTRUCTIONS
(Revolver)
Name(s): JAND, INC. and WARBY PARKER RETAIL, INC. Date: August __, 2013
$ credited to deposit account No. _________ when Advances are requested or disbursed to Borrower by cashiers check or wire transfer
Amounts paid to others on your behalf:
$ to Comerica Bank for Facility Fee
$ to Comerica Bank for accounts receivable audit (estimate)
$ to Bank counsel fees and expenses
$ to _______________
$ to _______________
$ TOTAL (AMOUNT FINANCED)
Upon consummation of this transaction, this document will also serve as the authorization for Comerica Bank to disburse the loan proceeds as stated above.
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JAND, INC.
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WARBY PARKER RETAIL, INC.
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Signature
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Signature
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Agreement to Furnish Insurance to Loan and Security Agreement
(Herein called “Bank”)
Borrower(s): JAND, INC. AND WARBY PARKER REATAIL, INC.
I understand that the Loan and Security Agreement or Deed of Trust which I executed in connection with this transaction requires me to provide a physical damage insurance policy including a Lenders Loss Payable Endorsement in favor of the Bank as shown below, within ten (10) days from the date of this agreement.
The following minimum insurance must be provided according to the terms of the security documents.
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☐ AUTOMOBILES, TRUCKS, RECREATIONAL VEHICLES
Comprehensive & Collision
Lender’s Loss Payable Endorsement
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x MACHINERY & EQUIPMENT: MISCELLANEOUS PERSONAL PROPERTY
Fire & Extended Coverage
Lender’s Loss Payable Endorsement
☐ Breach of Warranty Endorsement
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☐ BOATS
All Risk Hull Insurance
Lender’s Loss Payable Endorsement
☐ Breach of Warranty Endorsement
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☐ AIRCRAFT
All Risk Ground & Flight Insurance
Lender’s Loss Payable Endorsement
☐ Breach of Warranty Endorsement
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☐ MOBILE HOMES
Fire, Theft & Combined Additional Coverage
Lender’s Loss Payable Endorsement
☐ Earthquake
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☐ REAL PROPERTY
Fire & Extended Coverage
Lender’s Loss Payable Endorsement
☐ All Risk Coverage
☐ Special Form Risk Coverage
☐ Earthquake
☐ Other
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x INVENTORY
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x OTHER Borrower, at its expense, shall keep the Collateral insured against loss or damage by fire, theft, explosion, sprinklers, and all other hazards and risks, and in such amounts, as ordinarily insured against by other owners in similar businesses conducted in the locations where Borrower’s business is conducted on the date hereof. Borrower shall also maintain liability and other insurance in amounts and of a type that are customary to businesses similar to Borrower’s.
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I may obtain the required insurance from any company that is acceptable to the Bank, and will deliver proof of such coverage with an effective date of August __, 2013 or earlier.
I understand and agree that if I fail to deliver proof of insurance to the Bank at the address below, or upon the lapse or cancellation of such insurance, the Bank may procure Lender’s Single Interest Insurance or other similar coverage on the property. If the Bank procures insurance to protect its interest in the property described in the security documents, the cost for the insurance will be added to my indebtedness as provided in the security documents. Lender’s Single Interest Insurance shall cover only the Bank’s interest as a secured party, and shall become effective at the earlier of the funding date of this transaction or the date my insurance was canceled or expired. I UNDERSTAND THAT LENDER’S SINGLE INTEREST INSURANCE WILL PROVIDE ME WITH ONLY LIMITED PROTECTION AGAINST PHYSICAL DAMAGE TO THE COLLATERAL, UP TO THE BALANCE OF THE LOAN, HOWEVER, MY EQUITY IN THE PROPERTY WILL NOT BE INSURED. FURTHER, THE INSURANCE WILL NOT PROVIDE MINIMUM PUBLIC LIABILITY OR PROPERTY DAMAGE INDEMNIFICATION AND DOES NOT MEET THE REQUIREMENTS OF THE FINANCIAL RESPONSIBILITY LAW.
CALIFORNIA CIVIL CODE SECTION 2955.5. HAZARD INSURANCE DISCLOSURE: No lender shall require a borrower, as a condition of receiving or maintaining a loan secured by real property, to provide hazard insurance coverage against risks to the improvements on that real property in an amount exceeding the replacement value of the improvements on the property.
Bank Address for Insurance Documents:
Comerica Bank – Collateral Operations,
Mail Code 6514
1508 W. Mockingbird Lane
Dallas, Texas 75235
I acknowledge having read the provisions of this agreement, and agree to its terms. I authorize the Bank to provide to any person (including any insurance agent or company) any information necessary to obtain the insurance coverage required.
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OWNER(S) OF COLLATERAL:
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DATED: August __, 2013
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JAND, INC.
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WARBY PARKER RETAIL, INC.
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Print Name:
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Print Name:
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Title:
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Title:
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INSURANCE VERIFICATION
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Date
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Phone
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Agents Name
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Person Talked To
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Agents Address
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Insurance Company
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Policy Number(s)
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Effective Dates:
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From
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To:
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Deductible $
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Comments:
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AUTOMATIC LOAN PAYMENT AUTHORIZATION
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Date:
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August, 2013
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Obligor Name:
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JAND, INC.
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Obligor Number:
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Lender’s Cost Center #:
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Address:
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295 Lafayette Street, Suite 501, New York, New York 10012
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The undersigned hereby authorizes Comerica Bank (“Bank”) to charge the account designated below for the payments due on the loan(s) as designated below and all renewals, extensions, modifications and/or substitutions thereof. This authorization will remain in effect unless the undersigned requests a modification that is agreed to by the Bank in writing. The undersigned remains fully responsible for all amounts outstanding to Bank if the designated account is insufficient for repayment.
x Automatic Payment Authorization for all payments on all current and future borrowings, as and when such payments come due (which payments include, without limitation, principal, interest, fees, costs, and expenses).
☐ Automatic Payment Authorization for all payments on only the specific borrowing identified below, as and when such payments come due (which payments include, without limitation, principal, interest, fees, costs, and expenses).
Specific Obligation Number: ____________________________________
☐ Automatic Payment Authorization for less than all payments on only the specific borrowing identified below, as and when such payments come due.
Specific Obligation Number: ____________________________________
☐ Principal and Interest payments only
☐ Principal payments only I I Interest payments only
☐ SPECIAL INSTRUCTIONS/IRREGULAR PAYMENT INSTRUCTIONS
______________________________________________________________________________
______________________________________________________________________________
Payment Due Date: Your loan payments will be charged to your account as indicated above on the dates such payments become due (or on a date thereafter when there are available funds) unless that day is a Saturday, Sunday, or Bank holiday in which case such payments will be charged on the following business day, with interest to accrue during this extension as provided under the loan documents.
Account to be Charged:
Account No. ____________________________________
Transit No. ____________________________________
Number of lead days to issue billing ___________________
(Charges to account are withdrawals pursuant to account resolution)
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BORROWER:
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JAND, INC.
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By:
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Name:
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Title:
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AUTOMATIC LOAN PAYMENT AUTHORIZATION
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Date:
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August, 2013
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Obligor Name:
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WARBY PARKER RETAIL, INC.
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Obligor Number:
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Lender’s Cost Center #:
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Address:
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295 Lafayette Street, Suite 501, New York, New York 10012
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The undersigned hereby authorizes Comerica Bank (“Bank”) to charge the account designated below for the payments due on the loan(s) as designated below and all renewals, extensions, modifications and/or substitutions thereof. This authorization will remain in effect unless the undersigned requests a modification that is agreed to by the Bank in writing. The undersigned remains fully responsible for all amounts outstanding to Bank if the designated account is insufficient for repayment.
x Automatic Payment Authorization for all payments on all current and future borrowings, as and when such payments come due (which payments include, without limitation, principal, interest, fees, costs, and expenses).
☐ Automatic Payment Authorization for all payments on only the specific borrowing identified below, as and when such payments come due (which payments include, without limitation, principal, interest, fees, costs, and expenses).
Specific Obligation Number: ____________________________________
☐ Automatic Payment Authorization for less than all payments on only the specific borrowing identified below, as and when such payments come due.
Specific Obligation Number: ____________________________________
☐ Principal and Interest payments only
☐ Principal payments only I I Interest payments only
☐ SPECIAL INSTRUCTIONS/IRREGULAR PAYMENT INSTRUCTIONS
______________________________________________________________________________
______________________________________________________________________________
Payment Due Date: Your loan payments will be charged to your account as indicated above on the dates such payments become due (or on a date thereafter when there are available funds) unless that day is a Saturday, Sunday, or Bank holiday in which case such payments will be charged on the following business day, with interest to accrue during this extension as provided under the loan documents.
Account to be Charged:
Account No. ____________________________________
Transit No. ____________________________________
Number of lead days to issue billing ___________________
(Charges to account are withdrawals pursuant to account resolution)
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BORROWER:
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WARBY PARKER RETAIL, INC.
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By:
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Name:
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Title:
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USA PATRIOT ACT
NOTICE
OF
CUSTOMER IDENTIFICATION
IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT
To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account.
WHAT THIS MEANS FOR YOU: when you open an account, we will ask your name, address, date of birth, and other information that will allow us to identify you. We may also ask to see your driver’s license or other identifying documents.
COMERICA BANK
COMERICA BANK
CLIENT AUTHORIZATION
Fax
General Authorization
I hereby authorize Comerica Bank to use my company name, logo, and information relating to our banking relationship in its marketing and advertising campaigns which is intended for Comerica Bank’s customers, prospects and shareholders.
Comerica Bank will forward any advertising or article including client for prior review and approval.
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Signature
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Printed Name
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Title
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Company
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Mailing Address
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City, State, Zip Code
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Phone Number
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Fax Number
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E-Mail
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August __, 2013
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DEBTOR:
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JAND, INC.
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SECURED PARTY:
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COMERICA BANK
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EXHIBIT A to UCC Financing Statement
COLLATERAL DESCRIPTION ATTACHMENT TO UCC NATIONAL FINANCING FORM
All personal property of JAND, INC., a Delaware corporation (herein referred to as “Borrower” or “Debtor”) whether presently existing or hereafter created or acquired, and wherever located, including, but not limited to:
(a) all accounts (including health-care-insurance receivables), chattel paper (including tangible and electronic chattel paper), deposit accounts, documents (including negotiable documents), equipment (including all accessions and additions thereto), financial assets, general intangibles (including payment intangibles and software), goods (including fixtures), instruments (including promissory notes), inventory (including all goods held for sale or lease or to be furnished under a contract of service, and including returns and repossessions), investment property (including securities and securities entitlements), letter of credit rights, money, and all of Debtor’s books and records with respect to any of the foregoing, and the computers and equipment containing said books and records; and
(b) any and all cash proceeds and/or noncash proceeds of any of the foregoing, including, without limitation, insurance proceeds, and all supporting obligations and the security therefor or for any right to payment. All terms above have the meanings given to them in the California Uniform Commercial Code, as amended or supplemented from time to time.
Notwithstanding the foregoing, the Collateral shall not include the Intellectual Property; provided, however, that the Collateral shall include all accounts and general intangibles that consist of rights to payment and proceeds from the sale, licensing or disposition of all or any part of, or rights in, the Intellectual Property (the “Rights to Payment”). Notwithstanding the foregoing, if a judicial authority (including a U.S. Bankruptcy Court) holds that a security interest in the underlying Intellectual Property is necessary to have a security interest in the Rights to Payment, then the Collateral shall automatically, and effective as of August __, 2013, include the Intellectual Property to the extent necessary to permit perfection of Bank’s security interest in the Rights to Payment.
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DEBTOR:
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WARBY PARKER RETAIL, INC.
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SECURED PARTY:
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COMERICA BANK
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EXHIBIT A to UCC Financing Statement
COLLATERAL DESCRIPTION ATTACHMENT TO UCC NATIONAL FINANCING FORM
All personal property of WARBY PARKER RETAIL, INC., a Delaware corporation (herein referred to as “Borrower” or “Debtor”) whether presently existing or hereafter created or acquired, and wherever located, including, but not limited to:
(a) all accounts (including health-care-insurance receivables), chattel paper (including tangible and electronic chattel paper), deposit accounts, documents (including negotiable documents), equipment (including all accessions and additions thereto), financial assets, general intangibles (including payment intangibles and software), goods (including fixtures), instruments (including promissory notes), inventory (including all goods held for sale or lease or to be furnished under a contract of service, and including returns and repossessions), investment property (including securities and securities entitlements), letter of credit rights, money, and all of Debtor’s books and records with respect to any of the foregoing, and the computers and equipment containing said books and records; and
(b) any and all cash proceeds and/or noncash proceeds of any of the foregoing, including, without limitation, insurance proceeds, and all supporting obligations and the security therefor or for any right to payment. All terms above have the meanings given to them in the California Uniform Commercial Code, as amended or supplemented from time to time.
Notwithstanding the foregoing, the Collateral shall not include the Intellectual Property; provided, however, that the Collateral shall include all accounts and general intangibles that consist of rights to payment and proceeds from the sale, licensing or disposition of all or any part of, or rights in, the Intellectual Property (the “Rights to Payment”). Notwithstanding the foregoing, if a judicial authority (including a U.S. Bankruptcy Court) holds that a security interest in the underlying Intellectual Property is necessary to have a security interest in the Rights to Payment, then the Collateral shall automatically, and effective as of August __, 2013, include the Intellectual Property to the extent necessary to permit perfection of Bank’s security interest in the Rights to Payment.
FIRST AMENDMENT
TO LOAN AND SECURITY AGREEMENT
This First Amendment to Loan and Security Agreement (this “Amendment”) is entered into as of November 13, 2014, by and among COMERICA BANK (“Bank”), JAND, INC., a Delaware corporation (“Parent”) and WARBY PARKER RETAIL, INC., a Delaware corporation (“WPRI”; or together with Parent each a “Borrower” and collectively the “Borrowers”).
RECITALS
A. Borrowers and Bank are parties to that certain Loan and Security Agreement dated as of August 13, 2013, as amended, modified, supplemented, extended or restated from time to time (collectively, the “Agreement”).
B. Borrowers have requested that Bank amend certain provisions of the Agreement, and, while Bank is under no obligation to do so. Bank is willing to amend the Agreement in accordance with and subject to the terms and conditions of this Amendment.
NOW, THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows:
1. Exhibit A to the Agreement is hereby amended by adding or amending and restating the following defined terms to read as follows:
“Borrowing Base” means, as applicable, (1) during a Limited Reporting Period, an amount equal to the Revolving Line then in effect, and (2) at all other times, an amount equal to the sum of (a) the Non-Formula Amount, plus (b) the least of (i) one-hundred percent (100%) of Eligible Inventory, valued at cost determined in accordance with GAAP, (ii) eighty-five percent (85%) of the orderly liquidation value of Eligible Inventory, and (iii) Five Million Dollars ($5,000,000), plus (c) the amount by which Borrowers’ Cash at Bank exceeds Two Million Five Hundred Thousand Dollars ($2,500,000), all as determined by Bank with reference to the most recent Borrowing Base Certificate delivered by Borrowers; less such reserves as may be established by Bank in its good faith credit judgment, from time to time, including reserves for slow-moving, damaged or obsolete items; provided, that (A) the amount included in clause (c) above in the calculation of the Borrowing Base may be adjusted by Bank from time to time based on actual Cash balances maintained with Bank, (B) no Eligible Inventory shall be included in clause (b) in the calculation of the Borrowing Base until Bank has completed its initial audit and examination of the Collateral, the results of which shall be satisfactory to Bank; and (C) the advance rate for Eligible Inventory above is subject to adjustment by Bank after the Closing Date, in its good faith credit judgment, based on its initial audit and examination of the Collateral.
“First Amendment Closing Date” means November 13, 2014.
“Growth Capital Availability End Date” means May 13, 2016.
“Growth Capital Line” means a Credit Extension of up to Ten Million Dollars ($10,000,000).
“Growth Capital Maturity Date” means May 1, 2019.
“Letter of Credit Sublimit” means a sublimit for Letters of Credit under the Revolving Line not to exceed Ten Million Dollars ($10,000,000), minus any amounts outstanding under the Credit Card Services Sublimit.
“Limited Reporting Period” means any period during which Borrowers continuously maintain at least Ten Million Dollars ($10,000,000) of Net Cash and no Event of Default is continuing; provided, however, if Borrowers’ Net Cash is less than Ten Million Dollars ($10,000,000) on any day, a Limited Reporting Period shall not resume until such time as Bank confirms that Borrowers’ Net Cash has been greater than or equal to Ten Million Dollars ($10,000,000) at all times from the first day of the immediately preceding calendar month through such time of determination. A Limited Reporting Period (other than one commencing on the First Amendment Closing Date) may only commence on the first (1st) day of a calendar month.
“Net Cash” means, as of any date of determination, the amount equal to (a) Borrowers’ unrestricted cash on deposit with Bank on such date minus (b) the aggregate outstanding amount of the Obligations (including amounts outstanding under sublimits under the Revolving Line) as of such date.
“Pricing Addendum” means that certain Prime Referenced Rate Addendum to Loan and Security Agreement, dated as of the First Amendment Closing Date, by and among Borrowers and Bank, as the same may be amended, modified, supplemented, extended or restated from time to time.
“Revolving Maturity Date” means March 31, 2016.
2. Section 2.1(b)(iii) of the Agreement is hereby amended and restated in its entirety to read as follows:
(iii) Letter of Credit Sublimit. Subject to the availability under the Revolving Line, and in reliance on the representations and warranties of Borrowers set forth herein, at any time and from time to time from the date hereof through the Business Day immediately prior to the Revolving Maturity Date, Bank shall issue for the account of Borrowers such Letters of Credit as Borrowers may request by delivering to Bank a duly executed letter of credit application on Bank’s standard form; provided, however, that the outstanding and undrawn amounts under all such Letters of Credit (i) shall not at any time exceed the Letter of Credit Sublimit, and (ii) shall be deemed to constitute Advances for the purpose of calculating availability under the Revolving Line. Any drawn but unreimbursed amounts under any Letters of Credit shall be charged as Advances against the Revolving Line. All Letters of Credit shall be in form and substance acceptable to Bank in its sole discretion and shall be subject to the terms and conditions of Bank’s form application and letter of credit agreement. Borrowers will pay to Bank a Letter of Credit fee equal to one percent (1.00%) per annum of the face amount of each
Letter of Credit outstanding under the Letter of Credit Sublimit, payable annually in advance (the “Letter of Credit Fee”), and will pay any other standard issuance and other fees that Bank notifies Borrowers it will charge for issuing and processing Letters of Credit; provided that the Letter of Credit Fee for any Letters of Credit issued by Bank that are cash-secured on terms satisfactory to Bank shall be one percent (1.00%). If, on the Revolving Maturity Date, there are any outstanding Letters of Credit, then on such date Borrowers shall provide to Bank cash collateral in an amount equal to 105% of the face amount of all such Letters of Credit plus all interest, fees, and costs due or to become due in connection therewith (as estimated by Bank in its good faith business judgment), to secure all of the Obligations relating to said Letters of Credit.
3. Section 2.1(c) of the Agreement is hereby amended and restated in its entirely to read as follows:
(c) Growth Capital Advances.
(i) Availability. Subject to and upon the terms and conditions of this Agreement, Bank agrees to make Growth Capital Advances to Borrowers. Borrowers may request Growth Capital Advances from the First Amendment Closing Date through Growth Capital Availability End Date. The aggregate amount of Growth Capital Advances shall not exceed the Growth Capital Line. Each Growth Capital Advance shall be in a minimum amount of $250,000.
(ii) Repayment. Interest shall accrue from the date of each Growth Capital Advance at the rate specified in the Pricing Addendum, and shall be payable in accordance with Section 2.3(b) and on the terms set forth in the Pricing Addendum. Borrowers shall make monthly payments of interest-only on the outstanding principal amount of the Growth Capital Advances, commencing on December 1, 2014, and continuing on the first day of each successive month thereafter through the Growth Capital Availability End Date. Any Growth Capital Advances that are outstanding on the Growth Capital Availability End Date shall be payable in thirty-six (36) equal monthly installments of principal, plus all accrued interest, beginning on June 1, 2016, and continuing on the same day of each month thereafter until paid in full. Growth Capital Advances, once repaid, may not be reborrowed. Except as set forth in the Pricing Addendum, Borrowers may prepay any Growth Capital Advances without penalty or premium.
(iii) Procedures for Borrowing. When Borrowers desire to obtain a Growth Capital Advance, Borrowers shall notify Bank (which notice shall be irrevocable) by facsimile transmission to be received no later than 3:00 p.m. Eastern Time three (3) Business Days before the day on which the Growth Capital Advance is to be made. Such notice shall be substantially in the form of Exhibit C. The notice shall be signed by a Responsible Officer or its designee. Bank shall be entitled to rely on any facsimile or telephonic notice given by a person who Bank reasonably believes to be a Responsible Officer or a designee thereof, and Borrowers shall indemnify and hold Bank harmless for any damages or loss suffered by Bank as a result of such reliance.
4. Section 2.2 of the Agreement is hereby amended and restated in its entirety to read as follows:
2.2 Overadvances. If at any time the aggregate amount of the outstanding Advances exceeds the lesser of (y) the Revolving Line or (z) the Borrowing Base, in each case, minus any amounts outstanding under the Letter of Credit Sublimit and minus the aggregate limits of the corporate credit cards issued to Borrowers and merchant credit card processing reserves under the Credit Card Services Sublimit, Borrowers shall immediately pay to Bank, in cash, the amount of such excess. In addition, if at any time (a) the amount equal to the sum of the outstanding face amount of all Letters of Credit plus the aggregate limits of the corporate credit cards issued to Borrowers and merchant credit card processing reserves under the Credit Card Services Sublimit, exceeds (b) Ten Million Dollars ($10,000,000), Borrowers shall immediately provide to Bank cash collateral in an amount equal to 105% of the amount of such excess, to secure such Obligations.
5. Section 3.2 of the Agreement is hereby deleting the word “and” at the end of sub-section (b) thereof; renumbering sub-section (c) as sub-section (d) and inserting a new sub-section (c) to read as follows:
(c) with respect to any Advance requested outside of a Limited Reporting Period. Bank shall have received, not less than three (3) Business Days prior to the requested Advance, a Borrowing Base Certificate and inventory report as of the last day of the two immediately preceding calendar months;
6. Sections 6.2(a), (b) and (c) of the Agreement are hereby amended and restated in their entirety to read as follows:
(a) (i) (A) during a Limited Reporting Period, as soon as available, but in any event within thirty (30) days after the end of each calendar quarter, a company prepared consolidated and consolidating balance sheet and income statement covering Borrowers’ operations during such period prepared in accordance with GAAP (subject to normal year-end adjustments and without all required footnotes), in a form reasonably acceptable to Bank and certified by a Responsible Officer; and (B) at all other times, as soon as available, but in any event within thirty (30) days after the end of each calendar month, a company prepared consolidated and consolidating balance sheet and income statement covering Borrowers’ operations during such period prepared in accordance with GAAP (subject to normal year-end adjustments and without all required footnotes), in a form reasonably acceptable to Bank and certified by a Responsible Officer; (ii) as soon as available, but in any event by August 31 of each year, annual audited consolidated and consolidating financial statements of Borrowers for the immediately preceding fiscal year, prepared in accordance with GAAP, consistently applied, together with an opinion which is unqualified (including no going concern comment or qualification) or otherwise consented to in writing by Bank on such financial statements of an independent certified public accounting firm reasonably acceptable to Bank; (iii) if applicable, copies of all statements, reports and notices sent or made available generally by any Borrower to its security holders or to any holders of Subordinated Debt and all reports on Forms 10-K and 10-Q filed with the Securities and Exchange Commission; (iv) promptly upon receipt of
notice thereof, a report of any legal actions pending or threatened against any Borrower or any Subsidiary that could result in damages or costs to any Borrower or any Subsidiary of Three Hundred Thousand Dollars ($300,000) or more; (v) promptly upon receipt, each management letter prepared by any Borrower’s independent certified public accounting firm regarding such Borrower’s management control systems; (vi) as soon as available, but in any event not later than March 15 of each year, Borrowers’ financial and business projections and budget for such fiscal year (with monthly detail), with evidence of approval thereof by Parent’s board of directors; and (vii) such budgets, sales projections, operating plans or other financial information as Bank may reasonably request from time to time.
(b) Within thirty (30) days after the last day of each month. Borrowers shall deliver to Bank a Borrowing Base Certificate signed by a Responsible Officer in substantially the form of Exhibit D hereto, together with a detailed Inventory report; provided however, Borrowers shall not be required to deliver a monthly Borrowing Base Certificate and inventory report for any month during which a Limited Reporting Period has at all times been in effect. For the sake of clarity, the Borrowing Base Certificate shall state the values of Eligible Inventory as of last day of the month immediately preceding the date on which the Borrowing Base Certificate is submitted, and shall state the value of all Cash at Bank as of the date that it is submitted to Bank.
(c) Within thirty (30) days after the last day of each month, Borrowers shall deliver to Bank with the monthly financial statements a Compliance Certificate certified as of the last day of the applicable month and signed by a Responsible Officer in substantially the form of Exhibit E hereto; provided however. Borrowers shall not be required to deliver a monthly Compliance Certificate for any month during which a Limited Reporting Period has at all times been in effect, and instead Compliance Certificates shall be due quarterly within thirty (30) days after the last day of each calendar quarter during a Limited Reporting Period.
7. Exhibit E to the Agreement is hereby amended and restated and replaced with Exhibit E attached hereto.
8. No course of dealing on the part of Bank or its officers, nor any failure or delay in the exercise of any right by Bank, shall operate as a waiver thereof, and any single or partial exercise of any such right shall not preclude any later exercise of any such right. Bank’s failure at any time to require strict performance by Borrowers of any provision shall not affect any right of Bank thereafter to demand strict compliance and performance. Any suspension or waiver of a right must be in writing signed by an officer of Bank.
9. Unless otherwise defined, all initially capitalized terms in this Amendment shall be as defined in the Agreement. The Agreement, as amended hereby, shall be and remain in full force and effect in accordance with its terms and hereby is ratified and confirmed in all respects. Except as expressly set forth herein, the execution, delivery, and performance of this Amendment shall not operate as a waiver of, or as an amendment of, any right, power, or remedy of Bank under the Agreement, as in effect prior to the date hereof. Each Borrower ratifies and reaffirms the continuing effectiveness of all promissory notes, guaranties, security agreements, mortgages, deeds of trust, environmental agreements, and all other instruments, documents and agreements
entered into in connection with the Agreement. Each Borrower hereby further affirms its absolute and unconditional promise to pay to Bank the Advances. Growth Capital Advances, other Credit Extensions and all other amounts due under the Letters of Credit and the other Loan Documents (including, without limitation, the Obligations), at the times and in the amounts provided for therein. Each Borrower confirms and agrees that the obligations of each Borrower to Bank under the Agreement as supplemented hereby are secured by and entitled to the benefits of the Loan Documents. The parties agree that this Amendment shall be deemed to be one of the Loan Documents under the Agreement. Nothing in this Amendment shall constitute a satisfaction of any of Borrowers’ Obligations.
10. In order to induce Bank to enter into this Amendment, each Borrower hereby represents and warrants to Bank as follows:
10.1 The representations and warranties contained in the Agreement and the other Loan Documents were true and correct in all material respects when made and continue to be true and correct in all material respects as of the date of this Amendment (provided, however, that those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of such date).
10.2 Both before and immediately after giving effect to this Amendment and the other transactions contemplated hereby, no Event of Default, or other event or circumstance that with the giving of notice or the passage of time could become an Event of Default, has occurred and is continuing.
10.3 The execution, delivery, and performance by Borrowers of this Amendment and the other documents, instruments and agreements delivered or to be delivered to Bank in connection herewith (i) are within the corporate powers of each Borrower and have been duly authorized by all necessary corporate action on the part of Borrower, (ii) do not require any governmental or third party consents, except those which have been duly obtained and are in full force and effect, (iii) do not and will not conflict with any requirement of law, any Borrower’s articles or certificate of incorporation, bylaws, partnership agreement, operating agreement, minutes or resolutions, (iv) after giving effect to this Amendment, do not result in any breach of or constitute a default under any agreement or instrument to which any Borrower or any of their Subsidiaries is a party or by which any Borrower or any of their Subsidiaries or their respective properties are bound, and (v) do not result in or require the creation or imposition of any mortgage, deed of trust, pledge, lien, security interest or other charge or encumbrance of any nature upon any of the assets or properties of any Borrower, other than those in favor of Bank.
10.4 This Amendment and the other instruments and agreements delivered or to be delivered to Bank in connection herewith have been duly executed and delivered by each Borrower and constitute the legal, valid, and binding obligation of each Borrower, enforceable against Borrower in accordance with their respective terms, except to the extent that (i) enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws of general application affecting the rights and remedies of creditors, (ii) enforcement may be subject to general principles of equity, and (iii) the availability of the remedies of specific performance and injunctive relief may be subject to the discretion of the court before which any proceedings for such remedies may be brought.
10.5 No Borrower has any right of offset, defense, counterclaim, dispute or disagreement of any kind or nature whatsoever with respect to any of its liabilities, obligations or indebtedness arising under or in connection with any Loan Document.
11. As a condition to the effectiveness of this Amendment, Bank shall have received, in form and substance satisfactory to Bank, the following:
(a) this Amendment, duly executed by each Borrower:
(b) an amendment fee in the amount of $10,000, which may be debited from any of Borrower’s accounts;
(c) all Bank Expenses incurred through the date of this Amendment, which may be debited from any of Borrower’s accounts; and
(d) such other documents, instruments and certificates and completion of such other matters, as Bank may reasonably deem necessary or appropriate.
12. This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument.
[Remainder of Page Left Blank]
EXHIBIT E
COMPLIANCE CERTIFICATE
Please send all Required Reporting to: Comerica Bank
Technology & Life Sciences Division Loan
Analysis Department 250 Lytton Avenue, 3rd Floor,
Mail Code 4240 Palo Alto, CA 94301
Phone: [(***) ***-****]
Fax: [(***) ***-****]
FROM: JAND, INC., for and on behalf of all co-Borrowers
The undersigned authorized Officer of JAND, INC. (“Borrower”), for an on behalf of all Borrowers under the Agreement (as defined below), hereby certifies that in accordance with the terms and conditions of the Loan and Security Agreement among Borrower, the other Borrowers and Bank (the “Agreement”), (i) each Borrower is in complete compliance for the period ending _______________________ with all required covenants, including without limitation the ongoing registration of intellectual property rights in accordance with Section 6.8, except as noted below and (ii) all representations and warranties of each Borrower stated in the Agreement are true and correct in all material respects on and as of the date hereof as though made at and as of each such date (provided, however, that those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of such date). Attached herewith are the required documents supporting the above certification. The Officer further certifies that these are prepared in accordance with Generally Accepted Accounting Principles (GAAP) and are consistently applied from one period to the next except as explained in an accompanying letter or footnotes.
Please indicate compliance status by circling Yes/No under “Complies” or “Applicable” column.
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REPORTING COVENANTS
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REQUIRED
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COMPLIES
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Company Prepared F/S
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Monthly, within 30 days*
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YES
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NO
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Compliance Certificate
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Monthly, within 30 days*
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YES
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NO
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CPA Audited, Unqualified F/S
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Annually, by August 31 for prior FY
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YES
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NO
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Borrowing Base Cert., and inventory report
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Monthly, within 30 days**
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YES
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NO
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Annual Business Plan (incl. operating budget)
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Annually, by March 15 of each FY
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YES
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NO
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Audit
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Semi-annual
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YES
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NO
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If Public:
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10-Q
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Quarterly, within 5 days of SEC filing (50 days)
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YES
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NO
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10-K
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Annually, within 5 days of SEC filing (95 days)
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YES
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NO
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Total amount of Borrower’s cash and investments
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Amount $ ____________________________
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YES
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NO
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Total amount of Borrower’s cash and investments maintained with Bank
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Amount $ ____________________________
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YES
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NO
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* quarterly w/in 30 days during Limited Reporting Period
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** not required during Limited Reporting Period.
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DESCRIPTION
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APPLICABLE
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Legal Action > $300,000
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Notify promptly upon notice ____________
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YES
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NO
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Inventory Disputes > $100,000
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Notify promptly upon notice ____________
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YES
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NO
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Cross default with other agreements >$300,000
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Notify promptly upon notice ____________
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YES
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NO
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Judgment > $300,000
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Notify promptly upon notice ____________
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YES
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NO
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FINANCIAL COVENANTS
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REQUIRED
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ACTUAL
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COMPLIES
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TO BE TESTED MONTHLY, UNLESS OTHERWISE NOTED:
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YES
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NO
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Minimum Liquidity
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>$2,000,000
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$___________________
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YES
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NO
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OTHER COVENANTS
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REQUIRED
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ACTUAL
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COMPLIES
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Permitted Indebtedness for equipment leases
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<$2,000,000
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____________________
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YES
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NO
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Permitted Investments for stock repurchase
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<$750,000
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____________________
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YES
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NO
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Permitted Investments for subsidiaries
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<$500,000
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____________________
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YES
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NO
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Permitted Investments for employee loans (cashless)
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<$750,000
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____________________
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YES
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NO
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Permitted Investments for joint ventures
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<$500,000
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____________________
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YES
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NO
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Permitted Liens for equipment leases
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<$2,000,000
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____________________
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YES
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NO
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Permitted Transfers
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<$300,000
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____________________
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YES
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NO
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Please Enter Below Comments Regarding Violations:
The Officer further acknowledges that at any time any Borrower is not in compliance with all the terms set forth in the Agreement, including, without limitation, the financial covenants, no credit extensions will be made.
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Very truly yours,
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Authorized Signer
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Name:
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Title:
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IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the first date above written.
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JAND, INC.
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By:
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/s/ Steve Miller
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Title:
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Steve Miller, CFO
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WARBY PARKER RETAIL, INC.
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By:
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/s/ Neil Blumenthal
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Title:
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Neil Blumenthal, CEO
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COMERICA BANK
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By:
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/s/ Jason Pan
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Title:
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Jason Pan, Vice President
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[Signature Page to First Amendment to Loan and Security Agreement]
SECOND AMENDMENT
TO LOAN AND SECURITY AGREEMENT
This Second Amendment to Loan and Security Agreement (this “Amendment”) is entered into as of March 31, 2016, by and among COMERICA BANK (“Bank”), JAND, INC., a Delaware corporation (“Parent”) and WARBY PARKER RETAIL, INC., a Delaware corporation (“WPRI”; or together with Parent each a “Borrower” and collectively the “Borrowers”).
RECITALS
A. Borrowers and Bank are parties to that certain Loan and Security Agreement dated as of August 13, 2013, as amended, modified, supplemented, extended or restated from time to time including by that certain First Amendment to Loan and Security Agreement dated as of November 13, 2014 (collectively, the “Agreement”).
B. Borrowers have requested that Bank amend certain provisions of the Agreement, and, while Bank is under no obligation to do so, Bank is willing to amend the Agreement in accordance with and subject to the terms and conditions of this Amendment.
NOW, THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows:
1. Exhibit A to the Agreement is hereby amended by adding or amending and restating the following defined terms to read as follows:
“Credit Card Services Sublimit” means a sublimit for corporate credit cards and e-commerce or merchant account services under the Revolving Line not to exceed Fifteen Million Dollars ($15,000,000) minus any amounts outstanding under the Letter of Credit Sublimit.
“Growth Capital Availability End Date” means May 13, 2017.
“Growth Capital Line” means a Credit Extension of up to Five Million Dollars ($5,000,000).
“Growth Capital Maturity Date” means May 1, 2020.
“Letter of Credit Sublimit” means a sublimit for Letters of Credit under the Revolving Line not to exceed Fifteen Million Dollars ($15,000,000), minus any amounts outstanding under the Credit Card Services Sublimit.
“Revolving Line” means a Credit Extension of up to Fifteen Million Dollars ($15,000,000) (inclusive of the aggregate face amount of Letters of Credit issued under the Letter of Credit Sublimit, and the aggregate limits of the corporate credit cards issued to any Borrower and merchant credit card processing reserves under the Credit Card Services Sublimit).
“Revolving Line Extension Conditions” means the occurrence of each of the following events, in each case, in form and substance satisfactory to Bank: (a) Borrower’s Net Cash as of March 31, 2018 is greater than Thirty Five Million Dollars ($35,000,000), (b) no Event of Default, or event, condition or circumstance that, with the giving of notice or the passage of time could become an Event of Default, shall have occurred and be continuing as of March 31, 2018, and (c) Borrower’s Chief Financial Officer shall have delivered to Bank a certificate certifying compliance with the items referenced in (a) and (b), with reasonable supporting detail.
“Revolving Maturity Date” means March 31, 2018; provided, however, so long as Revolving Line Extension Conditions have occurred and been satisfied by and as of March 31, 2018, the Revolving Maturity Date shall be extended to March 31, 2019.
2. Section 2.1(c)(ii) of the Agreement is hereby amended and restated in its entirety to read as follows:
(ii) Repayment. Interest shall accrue from the date of each Growth Capital Advance at the rate specified in the Pricing Addendum, and shall be payable in accordance with Section 2.3(b) and on the terms set forth in the Pricing Addendum. Borrowers shall make monthly payments of interest-only on the outstanding principal amount of the Growth Capital Advances, commencing on first day of the first month immediately following the funding of the initial Growth Capital Advance, and continuing on the first day of each successive month thereafter through the Growth Capital Availability End Date. Any Growth Capital Advances that are outstanding on the Growth Capital Availability End Date shall be payable in thirty-six (36) equal monthly installments of principal, plus all accrued interest, beginning on June 1, 2017, and continuing on the same day of each month thereafter until paid in full. Growth Capital Advances, once repaid, may not be reborrowed. Except as set forth in the Pricing Addendum, Borrowers may prepay any Growth Capital Advances without penalty or premium.
3. Section 2.2 of the Agreement is hereby amended and restated in its entirety to read as follows:
2.2 Overadvances. If at any time the aggregate amount of the outstanding Advances exceeds the lesser of (y) the Revolving Line or (z) the Borrowing Base, in each case, minus any amounts outstanding under the Letter of Credit Sublimit and minus the aggregate limits of the corporate credit cards issued to Borrowers and merchant credit card processing reserves under the Credit Card Services Sublimit, Borrowers shall immediately pay to Bank, in cash, the amount of such excess. In addition, if at any time (a) the amount equal to the sum of the outstanding face amount of all Letters of Credit plus the aggregate limits of the corporate credit cards issued to Borrowers and merchant credit card processing reserves under the Credit Card Services Sublimit, exceeds (b) Fifteen Million Dollars ($15,000,000), Borrowers shall immediately provide to Bank cash collateral in an amount equal to 105% of the amount of such excess, to secure such Obligations.
4. Section 3.2 of the Agreement is hereby deleting the word “and” at the end of sub-section (b) thereof; renumbering sub-section (c) as sub-section (d) and inserting a new sub-section (c) to read as follows:
(c) with respect to any Advance requested outside of a Limited Reporting Period, Bank shall have received, not less than three (3) Business Days prior to the requested Advance, a Borrowing Base Certificate and inventory report as of the last day of the two immediately preceding calendar months;
5. No course of dealing on the part of Bank or its officers, nor any failure or delay in the exercise of any right by Bank, shall operate as a waiver thereof, and any single or partial exercise of any such right shall not preclude any later exercise of any such right. Bank’s failure at any time to require strict performance by Borrowers of any provision shall not affect any right of Bank thereafter to demand strict compliance and performance. Any suspension or waiver of a right must be in writing signed by an officer of Bank.
6. Unless otherwise defined, all initially capitalized terms in this Amendment shall be as defined in the Agreement. The Agreement, as amended hereby, shall be and remain in full force and effect in accordance with its terms and hereby is ratified and confirmed in all respects. Except as expressly set forth herein, the execution, delivery, and performance of this Amendment shall not operate as a waiver of, or as an amendment of, any right, power, or remedy of Bank under the Agreement, as in effect prior to the date hereof. Each Borrower ratifies and reaffirms the continuing effectiveness of all promissory notes, guaranties, security agreements, mortgages, deeds of trust, environmental agreements, and all other instruments, documents and agreements entered into in connection with the Agreement. Each Borrower hereby further affirms its absolute and unconditional promise to pay to Bank the Advances, Growth Capital Advances, other Credit Extensions and all other amounts due under the Letters of Credit and the other Loan Documents (including, without limitation, the Obligations), at the times and in the amounts provided for therein. Each Borrower confirms and agrees that the obligations of each Borrower to Bank under the Agreement as supplemented hereby are secured by and entitled to the benefits of the Loan Documents. The parties agree that this Amendment shall be deemed to be one of the Loan Documents under the Agreement. Nothing in this Amendment shall constitute a satisfaction of any of Borrowers’ Obligations.
7. In order to induce Bank to enter into this Amendment, each Borrower hereby represents and warrants to Bank as follows:
7.1 The representations and warranties contained in the Agreement and the other Loan Documents were true and correct in all material respects when made and continue to be true and correct in all material respects as of the date of this Amendment (provided, however, that those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of such date).
7.2 Both before and immediately after giving effect to this Amendment and the other transactions contemplated hereby, no Event of Default, or other event or circumstance that with the giving of notice or the passage of time could become an Event of Default, has occurred and is continuing.
7.3 The execution, delivery, and performance by Borrowers of this Amendment and the other documents, instruments and agreements delivered or to be delivered to Bank in connection herewith (i) are within the corporate powers of each Borrower and have been duly authorized by all necessary corporate action on the part of Borrower, (ii) do not require any governmental or third party consents, except those which have been duly obtained and are in full force and effect, (iii) do not and will not conflict with any requirement of law, any Borrower’s articles or certificate of incorporation, bylaws, partnership agreement, operating agreement, minutes or resolutions, (iv) after giving effect to this Amendment, do not result in any breach of or constitute a default under any agreement or instrument to which any Borrower or any of their Subsidiaries is a party or by which any Borrower or any of their Subsidiaries or their respective properties are bound, and (v) do not result in or require the creation or imposition of any mortgage, deed of trust, pledge, lien, security interest or other charge or encumbrance of any nature upon any of the assets or properties of any Borrower, other than those in favor of Bank.
7.4 This Amendment and the other instruments and agreements delivered or to be delivered to Bank in connection herewith have been duly executed and delivered by each Borrower and constitute the legal, valid, and binding obligation of each Borrower, enforceable against Borrower in accordance with their respective terms, except to the extent that (i) enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws of general application affecting the rights and remedies of creditors, (ii) enforcement may be subject to general principles of equity, and (iii) the availability of the remedies of specific performance and injunctive relief may be subject to the discretion of the court before which any proceedings for such remedies may be brought.
7.5 No Borrower has any right of offset, defense, counterclaim, dispute or disagreement of any kind or nature whatsoever with respect to any of its liabilities, obligations or indebtedness arising under or in connection with any Loan Document.
8. As a condition to the effectiveness of this Amendment, Bank shall have received, in form and substance satisfactory to Bank, the following:
(a) this Amendment, duly executed by each Borrower;
(b) a certificate of the Secretary of each Borrower with respect to resolutions and incumbency;
(c) all Bank Expenses incurred through the date of this Amendment, which may be debited from any of Borrower’s accounts; and
(d) such other documents, instruments and certificates and completion of such other matters, as Bank may reasonably deem necessary or appropriate.
9. This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument.
[Remainder of Page Left Blank]
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the first date above written.
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|
JAND, INC.
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|
|
|
|
|
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By:
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/s/ Steve Miller
|
|
|
Title:
|
CFO
|
|
|
|
|
|
|
WARBY PARKER RETAIL, INC.
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|
|
|
|
|
|
By:
|
/s/ Steve Miller
|
|
|
Title:
|
CFO
|
|
|
|
|
|
|
COMERICA BANK
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|
|
|
|
|
|
By:
|
/s/ Jason Pan
|
|
|
Title:
|
Vice President
|
[Signature Page to Second Amendment to Loan and Security Agreement]
THIRD AMENDMENT TO
LOAN AND SECURITY AGREEMENT
This Third Amendment to Loan and Security Agreement (this “Amendment”) is entered into as of August 10, 2017, by and among COMERICA BANK (“Bank”), JAND, INC., a Delaware corporation (“Parent”) and WARBY PARKER RETAIL, INC., a Delaware corporation (“WPRI”; or together with Parent each a “Borrower” and collectively the “Borrowers”).
RECITALS
A. Borrowers and Bank are parties to that certain Loan and Security Agreement dated as of August 13, 2013, as amended, modified, supplemented, extended or restated from time to time including by that certain First Amendment to Loan and Security Agreement dated as of November 13, 2014 and that certain Second Amendment to Loan and Security Agreement dated as of March 31, 2016 (collectively, the “Agreement”).
B. Borrowers have requested that Bank amend certain provisions of the Agreement, and, while Bank is under no obligation to do so, Bank is willing to amend the Agreement in accordance with and subject to the terms and conditions of this Amendment.
NOW, THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows:
1. Exhibit A to the Agreement is hereby amended by adding or amending and restating the following defined terms to read as follows:
“Pricing Addendum” means that certain Prime Referenced Rate Addendum to Loan and Security Agreement, by and between Bank and Borrower, dated as of the Third Amendment Closing Date, as amended, modified, supplemented or restated from time to time.
“Responsible Officer” means each of the Authorized Signers set forth in the most recent Corporation Resolutions and Incumbency Certificate - Authority to Procure Loans delivered to Bank.
“Third Amendment Closing Date” means August 10, 2017.
2. Exhibit A to the Agreement is hereby further amended by amending and restating clause (f) of the definition of “Permitted Investments” to read as follows:
(f) Investments consisting of (i) travel advances and employee relocation loans and other employee loans and advances in the ordinary course of business not to exceed Five Hundred Thousand Dollars ($500,000) in the aggregate in any fiscal year, and (ii) loans to employees, officers or directors relating to the purchase of equity securities of Parent pursuant to employee stock purchase plan agreements approved by Parent’s Board of Directors or any committee thereof not to exceed Two Million Dollars ($2,000,000) in the aggregate in any fiscal year provided that such loans are cashless (other than cash payments to Parent by the obligor in repayment of such loans);
3. Section 2.1 (b)(ii) of the Agreement is hereby amended and restated in its entirety as follows:
(ii) Form of Request. Whenever a Borrower desires an Advance, such Borrower, or Parent as agent for such Borrower, will notify Bank (which notice shall be irrevocable) no later than 3:00 p.m. Eastern time, on the Business Day that the Advance is to be made. Each such notice shall be made in accordance with the Pricing Addendum. Bank is authorized to make Advances under this Agreement, based upon instructions received from a Responsible Officer, or without instructions if in Bank’s discretion such Advances are necessary to meet Obligations which have become due and remain unpaid. The notice shall be signed by a Responsible Officer. Bank will credit the amount of Advances made under this Section 2.1(b) to any Borrower’s deposit account.
4. The Agreement is hereby amended by replacing the words “Payment/Advance Form” with “Loan Advance/Paydown Request Form” where they appear.
5. Section 6.5 of the Agreement is hereby amended and restate in its entirety to read as follows:
6.5 Insurance. Borrowers will keep the Collateral in good condition and will protect it from loss, damage, or deterioration from any cause. Borrowers have and will maintain at all times (a) with respect to the Collateral, insurance under an “all risk” policy against fire and other risks customarily insured against, and (b) public liability insurance and other insurance as may be required by law or reasonably required by Bank. All personal property and hazard insurance policies shall be in amount, form and content, and written by companies as may be satisfactory to Bank, and shall contain a lender’s loss payable endorsement in favor of and acceptable to Bank. All real property insurance policies shall be in amount, form and content, and written by companies as may be satisfactory to Bank, and shall contain a mortgagee clause in favor of and acceptable to Bank. All general liability insurance policies shall be in amount, form and content, and written by companies as may be satisfactory to Bank, and shall show Bank as an additional insured. All such policies shall contain a provision whereby they may not be canceled except upon thirty (30) days’ prior written notice to Bank. Each Borrower will promptly deliver to Bank, at Bank’s request, evidence satisfactory to Bank that such insurance has been so procured and, with respect to casualty insurance, made payable to Bank. Each Borrower hereby appoints Bank, or any employee or agent of Bank, as Borrower’s attorney-in-fact, which appointment is coupled with an interest and irrevocable, and authorizes Bank, or any employee or agent of Bank, on behalf of each Borrower, to adjust and compromise any loss under said insurance and to endorse any check or draft payable to any Borrower in connection with returned or unearned premiums on said insurance or the proceeds of said insurance, and any amount so collected may be applied toward satisfaction of the Obligations; provided, however, that Bank shall not be required hereunder so to act. If any Borrower fails to maintain satisfactory insurance, Bank has the option (but not the obligation) to do so and each Borrower agrees to repay all amounts so expended to Bank immediately upon demand, together with interest at the highest lawful default rate which could be charged by Bank on any Obligations. Such amounts so expended by Bank shall constitute Obligations secured by this Agreement.
6. Section 6.6 of the Agreement is hereby amended and restate in its entirety to read as follows:
6.6 Accounts. Borrower shall maintain all its, and shall cause all of its Subsidiaries to maintain their, depository, operating, cash management accounts with Bank and all of its and their investment and securities accounts with Bank; provided, however, that so long as Borrowers at all times maintain at least Fifty Million Dollars ($50,000,000) in deposit accounts with Bank, Borrowers may maintain up to Thirty Million Dollars ($30,000,000) in deposit and investment balances in accounts outside of Bank, and, so long as no Event of Default exists, no account control agreements shall be required with respect to such accounts. Upon request of Bank Borrower shall promptly, and in any event within two (2) Business Days of request by Bank, provide Bank with a true, correct and complete listing of all deposit and securities accounts maintained outside of Bank by Borrower or any of its Subsidiaries.
7. Section 11 of the Agreement is hereby amended and restate in its entirety to read as follows:
11. CHOICE OF LAW, VENUE, AND JURISDICTION; JURY TRIAL WAIVER.
11.1 CHOICE OF LAW, VENUE, AND JURISDICTION. THE PARTIES HEREBY AGREE THAT THIS AGREEMENT AND ALL OTHER LOAN DOCUMENTS, INSTRUMENTS AND AGREEMENTS RELATED TO THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO ITS CONFLICTS OF LAW PROVISIONS. BORROWERS AND BANK EACH HEREBY IRREVOCABLY AND UNCONDITIONALLY (I) CONSENTS AND SUBMITS TO THE SOLE AND EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE STATE OF CALIFORNIA, AND ANY APPELLATE COURT THEREOF, (II) AGREES THAT ALL ACTIONS AND PROCEEDINGS BASED UPON, ARISING OUT OF, RELATING TO OR OTHERWISE CONCERNING THIS AGREEMENT OR ANY OTHER DOCUMENT, INSTRUMENT OR AGREEMENT RELATED TO THIS AGREEMENT, INCLUDING ALL CLAIMS FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, SHALL SOLELY AND EXCLUSIVELY BE BROUGHT, HEARD, AND DETERMINED (LITIGATED) IN SUCH COURTS, (III) ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, THE SOLE AND EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS, (IV) WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED UPON THE GROUNDS OF FORUM NON CONVENIENS, THAT IT MAY NOW OR HEREAFTER HAVE TO BRINGING OR MAINTAINING ANY SUCH ACTION OR PROCEEDING IN SUCH JURISDICTION, AND (V) AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT, OR ANY SUCH OTHER DOCUMENT, INSTRUMENT OR AGREEMENT. NOTHING HEREIN SHALL LIMIT THE RIGHT OF BANK TO BRING ANY ACTION OR PROCEEDING AGAINST BORROWER OR ITS PROPERTIES IN THE COURTS OF ANY OTHER JURISDICTION IN
CONNECTION WITH THE ENFORCEMENT OF ANY LIENS OR SECURITY INTERESTS IN FAVOR OF BANK ON ANY OF BORROWER’S PROPERTIES OR ASSETS.
11.2 JURY TRIAL WAIVER. THE UNDERSIGNED ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED UNDER CERTAIN CIRCUMSTANCES. TO THE EXTENT PERMITTED BY LAW, EACH PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF ITS, HIS OR HER CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THE MUTUAL BENEFIT OF ALL PARTIES, WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OTHER DOCUMENT, INSTRUMENT OR AGREEMENT BETWEEN THE UNDERSIGNED PARTIES.
8. Section 12 of the Agreement is hereby amended and restate in its entirety to read as follows:
12. JUDICIAL REFERENCE PROVISION.
12.1 In the event the Jury Trial Waiver set forth above is not enforceable, the parties elect to proceed under this Judicial Reference Provision.
12.2 With the exception of the items specified in Section 12.3, below, any controversy, dispute or claim (each, a “Claim”) between the parties arising out of or relating to this Agreement or any other document, instrument or agreement between any one or more Borrowers and Bank (collectively in this Section, the “Loan Documents”), will be resolved by a reference proceeding in California in accordance with the provisions of Sections 638 et seq. of the California Code of Civil Procedure (“CCP”), or their successor sections, which shall constitute the exclusive remedy for the resolution of any Claim, including whether the Claim is subject to the reference proceeding. Except as otherwise provided in the Loan Documents, venue for the reference proceeding will be in the state or federal court in the county or district where the real property involved in the action, if any, is located or in the state or federal court in the county or district where venue is otherwise appropriate under applicable law (the “Court”).
12.3 The matters that shall not be subject to a reference are the following: (i) foreclosure of any security interests in real or personal property, (ii) exercise of self-help remedies (including, without limitation, set-off), (iii) appointment of a receiver and (iv) temporary, provisional or ancillary remedies (including, without limitation, writs of attachment, writs of possession, temporary restraining orders or preliminary injunctions). This Judicial Reference Provision does not limit the right of any party to exercise or oppose any of the rights and remedies described in clauses (i) and (ii) or to seek or oppose from a court of competent jurisdiction any of the items described in clauses (iii) and (iv). The exercise of, or opposition to, any of those items does not waive the right of any party to a reference proceeding pursuant to this Judicial Reference Provision as provided herein.
12.4 The referee shall be a retired judge or justice selected by mutual written agreement of the parties. If the parties do not agree within ten (10) days of a written request to do so by any party, then, upon request of any party, the referee shall be selected by the Presiding Judge of the Court (or his or her representative). A request for appointment of a referee may be heard on an ex parte or expedited basis, and the parties agree that irreparable harm would result if ex parte relief is not granted. Pursuant to CCP § 170.6, each party shall have one peremptory challenge to the referee selected by the Presiding Judge of the Court (or his or her representative).
12.5 The parties agree that time is of the essence in conducting the reference proceedings. Accordingly, the referee shall be requested, subject to change in the time periods specified herein for good cause shown, to (i) set the matter for a status and trial-setting conference within fifteen (15) days after the date of selection of the referee, (ii) if practicable, try all issues of law or fact within one hundred twenty (120) days after the date of the conference and (iii) report a statement of decision within twenty (20) days after the matter has been submitted for decision.
12.6 The referee will have power to expand or limit the amount and duration of discovery. The referee may set or extend discovery deadlines or cutoffs for good cause, including a party’s failure to provide requested discovery for any reason whatsoever. Unless otherwise ordered based upon good cause shown, no party shall be entitled to “priority” in conducting discovery, depositions may be taken by either party upon seven (7) days written notice, and all other discovery shall be responded to within fifteen (15) days after service. All disputes relating to discovery which cannot be resolved by the parties shall be submitted to the referee whose decision shall be final and binding.
12.7 Except as expressly set forth herein, the referee shall determine the manner in which the reference proceeding is conducted including the time and place of hearings, the order of presentation of evidence, and all other questions that arise with respect to the course of the reference proceeding. 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, and the referee will be provided a courtesy copy of the transcript. The party making such a request shall have the obligation to arrange for and pay the court reporter. Subject to the referee’s power to award costs to the prevailing party, the parties will equally share the cost of the referee and the court reporter at trial.
12.8 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, enter equitable orders that will be binding on the parties and rule on any motion which would be authorized in a court proceeding, including without limitation motions for summary judgment or summary adjudication. The referee shall issue a decision at the close of the reference proceeding which disposes of all claims of the parties that are the subject of the reference. Pursuant to CCP § 644, such decision shall be entered by the Court as a judgment or an order in the same manner as if the action had been tried by the Court and
any such decision will be final, binding and conclusive. The parties reserve the right to appeal from the final judgment or order or from any appealable decision or order entered by the referee. The parties reserve the right to findings of fact, conclusions of laws, a written statement of decision, and the right to move for a new trial or a different judgment, which new trial, if granted, is also to be a reference proceeding under this provision.
12.9 If the enabling legislation which provides for appointment of a referee is repealed (and no successor statute is enacted), any dispute between the parties that would otherwise be determined by reference procedure will be resolved and determined by arbitration. The arbitration will be conducted by a retired judge or justice, in accordance with the California Arbitration Act §1280 through §1294.2 of the CCP as amended from time to time. The limitations with respect to discovery set forth above shall apply to any such arbitration proceeding.
12.10 THE PARTIES RECOGNIZE AND AGREE THAT ALL CONTROVERSIES, DISPUTES AND CLAIMS RESOLVED UNDER THIS JUDICIAL REFERENCE PROVISION WILL BE DECIDED BY A REFEREE AND NOT BY A JURY. AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF ITS, HIS OR HER OWN CHOICE, EACH PARTY KNOWINGLY AND VOLUNTARILY, AND FOR THE MUTUAL BENEFIT OF ALL PARTIES, AGREES THAT THIS JUDICIAL REFERENCE PROVISION WILL APPLY TO ANY CONTROVERSY, DISPUTE OR CLAIM BETWEEN OR AMONG THEM ARISING OUT OF OR IN ANY WAY RELATED TO, THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS.
9. Section 13.2 of the Agreement is hereby amended and restated in its entirety to read as follows:
13.2 INDEMNIFICATION AND HOLD HARMLESS. WITHOUT LIMITING ANY OTHER PROVISIONS OF THIS AGREEMENT, EACH BORROWER AGREES TO INDEMNIFY AND HOLD BANK HARMLESS FROM AND AGAINST ALL LOSSES, COSTS, DAMAGES, LIABILITIES AND EXPENSES, INCLUDING, WITHOUT LIMITATION, IN-HOUSE AND OUTSIDE ATTORNEYS’ FEES AND DISBURSEMENTS, INCURRED BY BANK IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR ANY LOANS OR TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY OR BY REASON OF ANY DEFAULT OR EVENT OF DEFAULT, OR ENFORCING THE OBLIGATIONS OF ANY BORROWER OR ANY LOAN PARTY UNDER THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, AS APPLICABLE, OR IN EXERCISING ANY RIGHTS OR REMEDIES OF BANK OR IN THE PROSECUTION OR DEFENSE OF ANY ACTION OR PROCEEDING CONCERNING ANY MATTER GROWING OUT OF OR CONNECTED WITH THIS AGREEMENT OR ANY OF THE LOAN DOCUMENTS; PROVIDED, HOWEVER, THAT THE FOREGOING SHALL NOT BE APPLICABLE, AND BORROWERS SHALL NOT BE LIABLE FOR ANY SUCH LOSSES, COSTS, DAMAGES, LIABILITIES OR EXPENSES, TO THE EXTENT (BUT ONLY TO THE EXTENT) THE SAME ARISE OR RESULT FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF BANK OR ANY OF ITS AGENTS
OR EMPLOYEES. THE PROVISIONS OF THIS SECTION SHALL SURVIVE REPAYMENT OF THE INDEBTEDNESS AND SATISFACTION OF ALL OBLIGATIONS OF EACH BORROWER TO BANK AND TERMINATION OF THIS AGREEMENT.
10. Section 13.9 of the Agreement is hereby amended and restated in its entirety to read as follows:
13.9 Confidentiality. In handling any confidential information, Bank and all employees and agents of Bank shall exercise the same degree of care that Bank exercises with respect to its own proprietary information of the same types to maintain the confidentiality of any non-public information thereby received or received pursuant to this Agreement except that disclosure of such information may be made (i) to the parent, subsidiaries, or Affiliates of Bank and the service providers of Bank in connection with their present or prospective business relations with any Borrower, (ii) to prospective transferees, participants, or purchasers of any interest in the Obligations (provided, however, Bank shall use its commercially reasonable efforts to obtain such prospective transferee’s or purchaser’s to the terms of this provision or to a confidentiality agreement with Bank with terms no less restrictive than those contained herein), (iii) as required by law, regulations, rule or order, subpoena, judicial order or similar order, (iv) as may be required in connection with the examination, audit or similar investigation of Bank, (v) to Bank’s accountants, auditors and regulators, and (vi) as Bank may determine in connection with the enforcement of any remedies under any of the Loan Documents, and (vii) to third-party service providers of Bank so long as such service providers have executed a confidentiality agreement with Bank with terms no less restrictive than those contained herein. Confidential information hereunder shall not include information that either: (a) is in the public domain or in the knowledge or possession of Bank when disclosed to Bank, or becomes part of the public domain after disclosure to Bank through no fault of Bank; or (b) is disclosed to Bank by a third party, provided Bank does not have actual knowledge that such third party is prohibited from disclosing such information.
11. Exhibit C to the Agreement is hereby deleted in its entirety.
12. Exhibit E to the Agreement is hereby amended and restated and replaced with Exhibit E attached hereto.
13. The Pricing Addendum is hereby amended and restated, in its entirety, and replaced with the Pricing Addendum attached hereto as Exhibit F.
14. No course of dealing on the part of Bank or its officers, nor any failure or delay in the exercise of any right by Bank, shall operate as a waiver thereof, and any single or partial exercise of any such right shall not preclude any later exercise of any such right. Bank’s failure at any time to require strict performance by Borrowers of any provision shall not affect any right of Bank thereafter to demand strict compliance and performance. Any suspension or waiver of a right must be in writing signed by an officer of Bank.
15. Unless otherwise defined, all initially capitalized terms in this Amendment shall be as defined in the Agreement. The Agreement, as amended hereby, shall be and remain in full force and effect in accordance with its terms and hereby is ratified and confirmed in all respects. Except as expressly set forth herein, the execution, delivery, and performance of this Amendment shall not operate as a waiver of, or as an amendment of, any right, power, or remedy of Bank under the Agreement, as in effect prior to the date hereof. Each Borrower ratifies and reaffirms the continuing effectiveness of all promissory notes, guaranties, security agreements, mortgages, deeds of trust, environmental agreements, and all other instruments, documents and agreements entered into in connection with the Agreement. Each Borrower hereby further affirms its absolute and unconditional promise to pay to Bank the Advances, Growth Capital Advances, other Credit Extensions and all other amounts due under the Letters of Credit and the other Loan Documents (including, without limitation, the Obligations), at the times and in the amounts provided for therein. Each Borrower confirms and agrees that the obligations of each Borrower to Bank under the Agreement as supplemented hereby are secured by and entitled to the benefits of the Loan Documents. The parties agree that this Amendment shall be deemed to be one of the Loan Documents under the Agreement. Nothing in this Amendment shall constitute a satisfaction of any of Borrowers’ Obligations.
16. In order to induce Bank to enter into this Amendment, each Borrower hereby represents and warrants to Bank as follows:
16.1 The representations and warranties contained in the Agreement and the other Loan Documents were true and correct in all material respects when made and continue to be true and correct in all material respects as of the date of this Amendment (provided, however, that those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of such date).
16.2 Both before and immediately after giving effect to this Amendment and the other transactions contemplated hereby, no Event of Default, or other event or circumstance that with the giving of notice or the passage of time could become an Event of Default, has occurred and is continuing.
16.3 The execution, delivery, and performance by Borrowers of this Amendment and the other documents, instruments and agreements delivered or to be delivered to Bank in connection herewith (i) are within the corporate powers of each Borrower and have been duly authorized by all necessary corporate action on the part of Borrower, (ii) do not require any governmental or third party consents, except those which have been duly obtained and are in full force and effect, (iii) do not and will not conflict with any requirement of law, any Borrower’s articles or certificate of incorporation, bylaws, partnership agreement, operating agreement, minutes or resolutions, (iv) after giving effect to this Amendment, do not result in any breach of or constitute a default under any agreement or instrument to which any Borrower or any of their Subsidiaries is a party or by which any Borrower or any of their Subsidiaries or their respective properties are bound, and (v) do not result in or require the creation or imposition of any mortgage, deed of trust, pledge, lien, security interest or other charge or encumbrance of any nature upon any of the assets or properties of any Borrower, other than those in favor of Bank.
16.4 This Amendment and the other instruments and agreements delivered or to be delivered to Bank in connection herewith have been duly executed and delivered by each Borrower and constitute the legal, valid, and binding obligation of each Borrower, enforceable against Borrower in accordance with their respective terms, except to the extent that (i) enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws of general application affecting the rights and remedies of creditors, (ii) enforcement may be subject to general principles of equity, and (iii) the availability of the remedies of specific performance and injunctive relief may be subject to the discretion of the court before which any proceedings for such remedies may be brought.
16.5 No Borrower has any right of offset, defense, counterclaim, dispute or disagreement of any kind or nature whatsoever with respect to any of its liabilities, obligations or indebtedness arising under or in connection with any Loan Document.
17. As a condition to the effectiveness of this Amendment, Bank shall have received, in form and substance satisfactory to Bank, the following:
(a) this Amendment, duly executed by each Borrower;
(b) a certificate of the Secretary of each Borrower with respect to resolutions and incumbency;
(c) all Bank Expenses incurred through the date of this Amendment, which may be debited from any of Borrower’s accounts; and
(d) such other documents, instruments and certificates and completion of such other matters, as Bank may reasonably deem necessary or appropriate.
18. This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument.
[Remainder of Page Left Blank]
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the first date above written.
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JAND, INC.
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By:
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/s/ Steve Miller
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Title:
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CFO
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WARBY PARKER RETAIL, INC.
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By:
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/s/ Steve Miller
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Title:
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CFO
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COMERICA BANK
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By:
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/s/ Jason Pan
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Title:
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Vice President
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[Signature Page to Third Amendment to Loan and Security Agreement]
EXHIBIT E
COMPLIANCE CERTIFICATE
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Please send all Required Reporting to:
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Comerica Bank
Technology & Life Sciences Division
Loan Analysis Department
1800 Bering Drive
San Jose, CA 95112
Fax: [(***) ***-****]
Email: Jason Pan: [******]@comerlca.com
[*************]@comerlca.com
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FROM: JAND, INC., for and on behalf of all co-Borrowers
The undersigned authorized Officer of JAND, INC. (“Borrower”), for an on behalf of all Borrowers under the Agreement (as defined below), hereby certifies that in accordance with the terms and conditions of the Loan and Security Agreement among Borrower, the other Borrowers and Bank (the “Agreement”), (i) each Borrower is in complete compliance for the period ending ___________________________________ with all required covenants, including without limitation the ongoing registration of intellectual property rights in accordance with Section 6.8, except as noted below and (ii) all representations and warranties of each Borrower stated in the Agreement are true and correct in all material respects on and as of the date hereof as though made at and as of each such date (provided, however, that those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of such date). Attached herewith are the required documents supporting the above certification. The Officer further certifies that these are prepared in accordance with Generally Accepted Accounting Principles (GAAP) and are consistently applied from one period to the next except as explained in an accompanying letter or footnotes.
Please indicate compliance status by circling Yes/No under “Complies” or “Applicable” column.
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REPORTING COVENANTS
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REQUIRED
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COMPLIES
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Company Prepared F/S
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Monthly, within 30 days*
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YES
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NO
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Compliance Certificate
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Monthly, within 30 days*
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YES
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NO
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CPA Audited, Unqualified F/S
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Annually, by August 31 for prior FY
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YES
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NO
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Borrowing Base Cert., and inventory report
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Monthly, within 30 days**
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YES
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NO
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Annual Business Plan (incl. operating budget)
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Annually, by March 15 of each FY
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YES
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NO
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Audit
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Semi-annual
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YES
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NO
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If Public:
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10-Q
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Quarterly, within 5 days of SEC filing (50 days)
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YES
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NO
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10-K
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Annually, within 5 days of SEC filing (95 days)
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YES
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NO
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Total amount of Borrowers’ cash and investments
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Amount: $____________________
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YES
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NO
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Total amount of Borrowers’ cash and investments maintain with Bank
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Amount: $____________________
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YES
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NO
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* quarterly w/in 30 days during Limited Reporting Period
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** not required during Limited Reporting Period.
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DESCRIPTION
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APPLICABLE
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Legal Action > $300,000
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Notify promptly upon notice ________________
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YES
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NO
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Inventory Disputes > $100,000
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Notify promptly upon notice ________________
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YES
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NO
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Cross default with other agreements >$300,000
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Notify promptly upon notice ________________
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YES
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NO
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Judgments > $3,000,000
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Notify promptly upon notice ________________
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YES
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NO
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FINANCIAL COVENANTS
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REQUIRED
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ACTUAL
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COMPLIES
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TO BE TESTED MONTHLY, UNLESS OTHERWISE NOTED:
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Minimum Liquidity
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>$2,000,000
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$_________________________
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YES
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NO
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OTHER COVENANTS
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REQUIRED
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ACTUAL
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COMPLIES
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Permitted Indebtedness for equipment leases
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<$2,000,000
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__________________________
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YES
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NO
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Permitted Investments for stock repurchase
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<$750,000
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__________________________
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YES
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NO
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Permitted Investments for subsidiaries
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<$500,000
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__________________________
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YES
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NO
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Permitted Investments for employee loans (cashless)
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<$2,000,000
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__________________________
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YES
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NO
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Permitted Investments for joint ventures
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<$500,000
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__________________________
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YES
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NO
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Permitted Liens for equipment leases
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<$2,000,000
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__________________________
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YES
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NO
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Permitted Transfers
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<$300,000
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__________________________
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YES
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NO
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Please Enter Below Comments Regarding Violations:
The Officer further acknowledges that at any time Borrower is not in compliance with all the terms set forth in the Agreement, including, without limitation, the financial covenants, no credit extensions will be made.
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Very truly yours,
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Authorized Signer
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Name:
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Title:
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FOURTH AMENDMENT AND WAIVER
TO LOAN AND SECURITY AGREEMENT
This Fourth Amendment and Waiver to Loan and Security Agreement (this “Amendment”) is entered into as of September 10, 2018, by and among COMERICA BANK (“Bank”), JAND, INC., a Delaware corporation (“Parent”) and WARBY PARKER RETAIL, INC., a Delaware corporation (“WPRI”; or together with Parent each a “Borrower” and collectively the “Borrowers”).
RECITALS
A. Borrowers and Bank are parties to that certain Loan and Security Agreement dated as of August 13, 2013, as amended, modified, supplemented, extended or restated from time to time including by that certain First Amendment to Loan and Security Agreement dated as of November 13, 2014, that certain Second Amendment to Loan and Security Agreement dated as of March 31, 2016 and that certain Third Amendment to Loan and Security Agreement dated as of August 10, 2017 (collectively, the “Agreement”).
B. Borrowers have notified Bank that certain Events of Default have occurred and are continuing under the Agreement arising from violations of Section 7.7 of the Agreement due to Borrower’s extension of loans after August 1, 2017 and prior to the date of this Amendment, to employees, officers or directors relating to the purchase of equity securities of Parent pursuant to employee stock purchase plan agreements in excess of the aggregate amount permitted under clause (f) of the definition of Permitted Investments in the Agreement (the “Existing Defaults”). The Existing Defaults entitle Bank immediately to enforce any and all the remedies set forth in the Agreement and applicable law.
C. Borrowers have requested that Bank waive the Existing Defaults and amend certain provisions of the Agreement, and, while Bank is under no obligation to do so, Bank is willing to grant such waiver and to amend the Agreement in accordance with and subject to the terms and conditions of this Amendment.
NOW, THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows:
1. Section 8.8 of the Agreement is hereby amended and restated in its entirety to read as follows:
8.8 Judgments: Settlements. If one or more (a) judgments, orders, decrees or arbitration awards requiring any Borrower and/or its Subsidiaries to pay an aggregate amount of Three Million Dollars ($3,000,000) or greater shall be rendered against any Borrower and/or its Subsidiaries and the same shall not have been vacated or stayed within ten (10) days thereafter (provided that no Credit Extensions will be made prior to such matter being vacated or stayed); or (b) settlements is agreed upon by any Borrower and/or its Subsidiaries for the payment by any Borrower and/or its Subsidiaries of an aggregate
amount of Three Million Dollars ($3,000,000) or greater or that could reasonably be expected to have a Material Adverse Effect.
2. Exhibit A to the Agreement is hereby amended by amending and restating clause (f) of the definition of “Permitted Investments” to read as follows:
(f) Investments consisting of (i) travel advances and employee relocation loans and other employee loans and advances in the ordinary course of business not to exceed Five Hundred Thousand Dollars ($500,000) in the aggregate in any fiscal year, and (ii) loans to employees, officers or directors relating to the purchase of equity securities of Parent pursuant to employee stock purchase plan agreements approved by Parent’s Board of Directors or any committee thereof not to exceed Ten Million Dollars ($10,000,000) in the aggregate in any fiscal year provided that such loans are cashless (other than cash payments to Parent by the obligor in repayment of such loans);
3. Exhibit E to the Agreement is hereby amended and restated and replaced with Exhibit E attached hereto.
4. Limited Waiver.
4.1 Borrowers hereby acknowledge, and subject to and on the terms set forth herein, Bank hereby waives, the Existing Defaults (the “Default Waiver”). Each Borrower acknowledges and agrees that, but for the Default Waiver, the Existing Defaults would have entitled Bank to exercise all the remedies available to Bank under the Agreement and applicable law. Each Borrower waives all notices of default and rights to cure that are otherwise provided in the Agreement or applicable law, including, but not limited to, rights to notice and redemption under California Uniform Commercial Code sections 9611, 9620 and 9623. Each Borrower further waives any claim that a sale or other disposition by Bank of the Collateral is not commercially reasonable because Bank disclaims any warranties with respect to such sale or other disposition, including, without limitation, disclaimers of warranties relating to title, possession, quiet enjoyment, or the like.
4.2 Notwithstanding the foregoing, the Default Waiver: (a) in no way shall be deemed to be a waiver by Bank of, or an agreement by Bank to waive, any covenant, liability or obligation of any Borrower or any other Person or to waive any right, power, or remedy of Bank, except as expressly set forth herein; (b) shall not limit or impair Bank’s right to demand strict performance of any Borrower’s liabilities and obligations to Bank and the Obligations under the Agreement at all times following the date hereof, including Section 7.7 the Agreement; (c) in no way shall obligate Bank to make any future waivers, consents or modifications to the Agreement or any other Loan Document; and (d) is not a continuing waiver with respect to any failure to perform any Obligation. Each Borrower acknowledges and agrees that: (i) Bank does not waive any other failure by Borrower to perform its Obligations under the Loan Documents, and Bank does not waive the requirements Section 7.7 of the Agreement other than with respect to the Existing Defaults for instances and the periods of time expressly specified above, and (ii) Bank is relying upon each Borrower’s representations, warranties and agreements, as set forth herein and in the Loan Documents in granting the foregoing waiver.
5. No course of dealing on the part of Bank or its officers, nor any failure or delay in the exercise of any right by Bank, shall operate as a waiver thereof, and any single or partial exercise of any such right shall not preclude any later exercise of any such right. Bank’s failure at any time to require strict performance by Borrowers of any provision shall not affect any right of Bank thereafter to demand strict compliance and performance. Any suspension or waiver of a right must be in writing signed by an officer of Bank.
6. Unless otherwise defined, all initially capitalized terms in this Amendment shall be as defined in the Agreement. The Agreement, as amended hereby, shall be and remain in full force and effect in accordance with its terms and hereby is ratified and confirmed in all respects. Except as expressly set forth herein, the execution, delivery, and performance of this Amendment shall not operate as a waiver of, or as an amendment of, any right, power, or remedy of Bank under the Agreement, as in effect prior to the date hereof. Each Borrower ratifies and reaffirms the continuing effectiveness of all promissory notes, guaranties, security agreements, mortgages, deeds of trust, environmental agreements, and all other instruments, documents and agreements entered into in connection with the Agreement. Each Borrower hereby further affirms its absolute and unconditional promise to pay to Bank the Advances, Growth Capital Advances, other Credit Extensions and all other amounts due under the Letters of Credit and the other Loan Documents (including, without limitation, the Obligations), at the times and in the amounts provided for therein. Each Borrower confirms and agrees that the obligations of each Borrower to Bank under the Agreement as supplemented hereby are secured by and entitled to the benefits of the Loan Documents. The parties agree that this Amendment shall be deemed to be one of the Loan Documents under the Agreement. Nothing in this Amendment shall constitute a satisfaction of any of Borrowers’ Obligations.
7. Release.
7.1 Each Borrower acknowledges that Bank would not enter into this Amendment, including the Default Waiver, without such Borrower’s assurance hereunder. Each Borrower hereby absolutely discharges and releases Bank, any person or entity that has obtained any interest from Bank under the Agreement and each of Bank’s and such entity’s former and present partners, stockholders, officers, directors, employees, successors, assignees, agents and attorneys from any known claims which any Borrower now has against Bank of any nature, whether founded in contract, in tort or pursuant to any other theory of liability, including but not limited to any claims arising out of or related to the Agreement or the transactions contemplated thereby.
7.2 [Reserved].
7.3 The provisions, waivers and releases set forth in this section are binding upon each Borrower and each Borrower’s stockholders, agents, employees, assigns and successors in interest. The provisions, waivers and releases of this section shall inure to the benefit of Bank and its agents, employees, officers, directors, assigns and successors in interest.
7.4 Each Borrower warrants and represents that Borrower is the sole and lawful owner of all right, title and interest in and to all of the claims released hereby and no Borrower has heretofore voluntarily, by operation of law or otherwise, assigned or transferred or purported to
assign or transfer to any person any such claim or any portion thereof. Each Borrower shall indemnify and hold harmless Bank from and against any claim, demand, damage, debt, liability (including payment of attorneys’ fees and costs actually incurred whether or not litigation is commenced) based on or arising out of any assignment or transfer.
7.5 The provisions of this section shall survive payment in full of the Obligations, full performance of all the terms of this Amendment and the Agreement, and/or Bank’s actions to exercise any remedy available under the Agreement or otherwise.
8. In order to induce Bank to enter into this Amendment, each Borrower hereby represents and warrants to Bank as follows:
8.1 The representations and warranties contained in the Agreement and the other Loan Documents were true and correct in all material respects when made and continue to be true and correct in all material respects as of the date of this Amendment (provided, however, that those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of such date).
8.2 Both before and immediately after giving effect to this Amendment and the other transactions contemplated hereby, no Event of Default (other than the Existing Defaults), or other event or circumstance that with the giving of notice or the passage of time could become an Event of Default, has occurred and is continuing.
8.3 The execution, delivery, and performance by Borrowers of this Amendment and the other documents, instruments and agreements delivered or to be delivered to Bank in connection herewith (i) are within the corporate powers of each Borrower and have been duly authorized by all necessary corporate action on the part of Borrower, (ii) do not require any governmental or third party consents, except those which have been duly obtained and are in full force and effect, (iii) do not and will not conflict with any requirement of law, any Borrower’s articles or certificate of incorporation, bylaws, partnership agreement, operating agreement, minutes or resolutions, (iv) after giving effect to this Amendment, do not result in any breach of or constitute a default under any agreement or instrument to which any Borrower or any of their Subsidiaries is a party or by which any Borrower or any of their Subsidiaries or their respective properties are bound, and (v) do not result in or require the creation or imposition of any mortgage, deed of trust, pledge, lien, security interest or other charge or encumbrance of any nature upon any of the assets or properties of any Borrower, other than those in favor of Bank.
8.4 This Amendment and the other instruments and agreements delivered or to be delivered to Bank in connection herewith have been duly executed and delivered by each Borrower and constitute the legal, valid, and binding obligation of each Borrower, enforceable against Borrower in accordance with their respective terms, except to the extent that (i) enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws of general application affecting the rights and remedies of creditors, (ii) enforcement may be subject to general principles of equity, and (iii) the availability of the remedies of specific performance and injunctive relief may be subject to the discretion of the court before which any proceedings for such remedies may be brought.
8.5 No Borrower has any right of offset, defense, counterclaim, dispute or disagreement of any kind or nature whatsoever with respect to any of its liabilities, obligations or indebtedness arising under or in connection with any Loan Document.
9. As a condition to the effectiveness of this Amendment, Bank shall have received, in form and substance satisfactory to Bank, the following:
(a) this Amendment, duly executed by each Borrower;
(b) a certificate of the Secretary of each Borrower with respect to resolutions and incumbency;
(c) all Bank Expenses incurred through the date of this Amendment, which may be debited from any of Borrower’s accounts; and
(d) such other documents, instruments and certificates and completion of such other matters, as Bank may reasonably deem necessary or appropriate.
10. This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument.
[Remainder of Page Left Blank]
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the first date above written.
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JAND, INC.
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By:
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/s/ Steve Miller
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Title:
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CFO
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WARBY PARKER RETAIL, INC.
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By:
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/s/ Steve Miller
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Title:
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CFO
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COMERICA BANK
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By:
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/s/ Jason Pan
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Title:
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Vice President
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[Signature Page to Fourth Amendment and Waiver to Loan and Security Agreement]
EXHIBIT E
COMPLIANCE CERTIFICATE
Please send all Required Reporting to: Comerica Bank
Technology & Life Sciences Division
Loan Analysis Department
1800 Bering Drive
San Jose, CA 95112
Fax: [(***) ***-****]
Email: Jason Pan: ****@comerica.com
***************@comerica.com
FROM: JAND, INC., for and on behalf of all co-Borrowers
The undersigned authorized Officer of JAND, INC. (“Borrower”), for an on behalf of all Borrowers under the Agreement (as defined below), hereby certifies that in accordance with the terms and conditions of the Loan and Security Agreement among Borrower, the other Borrowers and Bank (the “Agreement”), (i) each Borrower is in complete compliance for the period ending ________________ with all required covenants, including without limitation the ongoing registration of intellectual property rights in accordance with Section 6.8, except as noted below and (ii) all representations and warranties of each Borrower stated in the Agreement are true and correct in all material respects on and as of the date hereof as though made at and as of each such date (provided, however, that those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of such date). Attached herewith are the required documents supporting the above certification. The Officer further certifies that these are prepared in accordance with Generally Accepted Accounting Principles (GAAP) and are consistently applied from one period to the next except as explained in an accompanying letter or footnotes.
Please indicate compliance status by circling Yes/No under “Complies” or “Applicable” column.
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REPORTING COVENANTS
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REQUIRED
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COMPLIES
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Company Prepared F/S
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Monthly, within 30 days*
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YES
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NO
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Compliance Certificate
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Monthly, within 30 days*
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YES
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NO
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CPA Audited, Unqualified F/S
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Annually, by August 31 for prior FY
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YES
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NO
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Borrowing Base Cert., and inventory report
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Monthly, within 30 days**
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YES
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NO
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Annual Business Plan (incl. operating budget)
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Annually, by March 15 of each FY
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YES
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NO
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Audit
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Semi-annual
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YES
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NO
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If Public:
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10-Q
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Quarterly, within 5 days of SEC filing (50 days)
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YES
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NO
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10-K
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Annually, within 5 days of SEC filing (95 days)
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YES
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NO
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Total amount of Borrowers’ cash and investments
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Amount: $ _________________________
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YES
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NO
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Total amount of Borrowers’ cash and investments
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Amount: $ _________________________
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YES
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NO
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maintain with Bank
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* quarterly w/in 30 days during Limited Reporting Period
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** not required during Limited Reporting Period.
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DESCRIPTION
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APPLICABLE
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Legal Action > $300,000
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Notify promptly upon notice ____________
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YES
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NO
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Inventory Disputes > $100,000
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Notify promptly upon notice ____________
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YES
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NO
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Cross default with other agreements >$3,000,000
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Notify promptly upon notice ____________
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YES
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NO
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Judgment > $3,000,000
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Notify promptly upon notice ____________
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YES
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NO
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FINANCIAL COVENANTS
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REQUIRED
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ACTUAL
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COMPLIES
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TO BE TESTED MONTHLY, UNLESS OTHERWISE NOTED:
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Minimum Liquidity
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>$2,000,000
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$_____________
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YES
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NO
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OTHER COVENANTS
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REQUIRED
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ACTUAL
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COMPLIES
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Permitted Indebtedness for equipment leases
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<$2,000,000
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_____________
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YES
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NO
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Permitted Investments for stock repurchase
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<$750,000
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_____________
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YES
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NO
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Permitted Investments for subsidiaries
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<$500,000
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_____________
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YES
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NO
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Permitted Investments for employee loans(cashless)
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<$10,000,000
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_____________
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YES
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NO
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Permitted Investments for joint ventures
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<$500,000
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_____________
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YES
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NO
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Permitted Liens for equipment leases
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<$2,000,000
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_____________
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YES
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NO
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Permitted Transfers
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<$300,000
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_____________
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YES
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NO
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Please Enter Below Comments Regarding Violations:
The Officer further acknowledges that at any time any Borrower is not in compliance with all the terms set forth in the Agreement, including, without limitation, the financial covenants, no credit extensions will be made.
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Very truly yours.
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/s/ Steve Miller
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Authorized Signer
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Name:
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STEVE MILLER
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Title:
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CFO
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Corporation Resolutions and Incumbency Certification
Authority to Procure Loans
I certify that I am the duly elected and qualified Secretary of JAND, INC., a Delaware corporation (the “Corporation”); that the Corporation’s exact legal name is set forth above; that the Corporation is a corporation duly organized, existing and in good standing under the laws of the State of Delaware; that the following is a true and correct copy of resolutions duly adopted by the Board of Directors of the Corporation in accordance with its bylaws and applicable statutes.
Copy of Resolutions:
Be it Resolved, That:
1. Any one (1) of the Chief Executive Officer, Chief Financial Officer, President, Secretary or Treasurer of the Corporation are/is authorized, for, on behalf of, and in the name of the Corporation to:
(a) Negotiate and procure loans, letters of credit and other credit or financial accommodations from Comerica Bank (“Bank”), a Texas banking association, from time to time, including without limitation that certain Loan and Security Agreement dated as of August 13, 2013, as may be subsequently amended, modified, supplemented, extended or restated from time to time (the “Loan Agreement”).
(b) Discount with the Bank, commercial or other business paper belonging to the Corporation made or drawn by or upon third parties, without limit as to amount;
(c) Purchase, sell, exchange, assign, endorse for transfer and/or deliver certificates and/or instruments representing stocks, bonds, evidences of Indebtedness (as defined in the Loan Agreement) or other securities owned by the Corporation, whether or not registered in the name of the Corporation;
(d) Give security for any liabilities of the Corporation to the Bank by grant, security interest, assignment, lien, deed of trust or mortgage upon any real or personal property, tangible or intangible of the Corporation;
(e) Issue a warrant or warrants to purchase the Corporation’s capital stock;
(f) Execute and deliver in form and content as may be required by the Bank any and all notes, evidences of Indebtedness, applications for letters of credit, guaranties, subordination agreements, loan and security agreements, financing statements, assignments, liens, deeds of trust, mortgages, trust receipts and other agreements, instruments or documents to carry out the purposes of these resolutions, and any and all amendments or modifications thereto, any or all of which may relate to all or to substantially all of the Corporation’s property and assets; and
(g) Appoint, delegate and authorize such other person(s) (the “Delegated Person(s)”) as may be designated in writing from time to time by the above referenced Authorized Signer(s), or any one or more of them, to (i) request loans, advances
and/or letters of credit under any line of credit, loan or other credit or financial accommodation made available by Bank to or in favor of the Corporation, and to execute and/or deliver unto Bank, in form and content as may be required by the Bank, such agreements, instruments and documents as may be necessary or required to carry out such purposes, (ii) make loan payments for and on behalf of the Corporation, and (iii) execute and certify borrowing base certificates, account agings, inventory reports and collateral reports (together with any other documents, reports and certificates required to be delivered in connection with any of the foregoing) for and on behalf of the Corporation.
2. Said Bank be and it is authorized and directed to pay the proceeds of any such loans or discounts as directed by the Authorized Signer(s) or Delegated Person(s) (if any), whether so payable to the order of any of said Authorized Signer(s) or Delegated Person(s) (if any) in their individual capacities or not, and whether such proceeds are deposited to the individual credit of any of said Authorized Signer(s) or Delegated Person(s) (if any) or not.
3. Any and all agreements, instruments and documents previously executed and acts and things previously done to carry out the purposes of these Resolutions are ratified, confirmed and approved as the act or acts of the Corporation.
4. These Resolutions shall continue in force, and the Bank may consider the holders of said offices and their signatures to be and continue to be as set forth in a certified copy of these Resolutions delivered to the Bank, until notice to the contrary in writing is duly served on the Bank (such notice to have no effect on any action previously taken by the Bank in reliance on these Resolutions).
5. Any person, corporation or other legal entity dealing with the Bank may rely upon a certificate signed by an officer of the Bank to effect that these Resolutions and any agreement, instrument or document executed pursuant to them are still in full force and effect and binding upon the Corporation.
6. The Bank may consider the holders of the offices of the Corporation and their signatures, respectively, to be and continue to be as set forth in the Certificate of the Secretary of the Corporation until notice to the contrary in writing is duly served on the Bank.
I further certify that the above Resolutions are in full force and effect as of the date of this Certificate; that these Resolutions and any borrowings or financial accommodations under these Resolutions have been properly noted in the corporate books and records, and have not been rescinded, annulled, revoked or modified; that neither the foregoing Resolutions nor any actions to be taken pursuant to them are or will be in contravention of any provision of the Certificate of incorporation or bylaws of the Corporation or of any agreement, indenture or other instrument to which the Corporation is a party or by which it is bound; and that neither the Certificate of incorporation nor bylaws of the Corporation nor any agreement, indenture or other instrument to which the Corporation is a party or by which it is bound require the vote or consent of shareholders of the Corporation to authorize any act, matter or thing described in the foregoing Resolutions.
I further certify that the following named persons (“Authorized Persons”) have been duly elected to the offices set opposite their respective names, that they continue to hold these offices at the present time, and that the signatures which appear below are the genuine, original signatures of each respectively. I acknowledge and agree that the Authorized Persons may sign this certificate in multiple counterparts, each of which shall be deemed an original instrument, and all of which shall constitute a single certificate, and that the signature of any Authorized Signer to any counterpart shall be deemed certified by me in accordance with this certification. I or the Bank may assemble the signatures from one or more counterparts and attach them to any other counterpart for the purpose of having a single document containing all the signatures of the Authorized Signers. Delivery of an executed counterpart of a signature to this certificate by telecopy, emailed portable document format (“pdf’), or tagged image file format (“tiff”) or any other electronic means that reproduces an image of the actual executed signature of the Authorized Signer shall be effective as delivery of an original executed counterpart of this certificate. I or the party sending an executed counterpart of his/her signature to this certificate by telecopy, pdf, tiff or any other electronic means shall also send the original thereof to Bank within five (5) days thereafter, but failure to do so shall not affect my certification of such signature and incumbency of such party.
(PLEASE SUPPLY GENUINE SIGNATURES OF AUTHORIZED SIGNERS BELOW)
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NAME (Type or Print)
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TITLE
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SIGNATURE
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Steve Miller
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CFO
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/s/ Steve Miller
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I further certify that attached as Exhibit A hereto is a true, correct and complete copy of the Corporation’s Certificate of Incorporation (including amendments), as filed with the Delaware Secretary of State. Such Certificate of Incorporation has not been amended, annulled, rescinded, revoked or supplemented, and remains in full force and effect as of the date hereof.
I further certify that attached as Exhibit B hereto is a true, correct and complete copy of Borrower’s By-Laws (including amendments). Such By-Laws have not been amended, annulled, rescinded, revoked or supplemented, and remain in full force and effect as of the date hereof.
In Witness Whereof, I have affixed my name as Secretary and have caused the corporate seal (where available) of said Corporation to be affixed on June 29, 2018.
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/s/ David Gilboa
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Secretary
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***
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The Above Statements are Correct.
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/s/ Steve Miller
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SIGNATURE OF OFFICER OR DIRECTOR OR, IF NONE A SHAREHOLDER OTHER THAN SECRETARY WHEN SECRETARY IS AUTHORIZED TO SIGN ALONE.
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Failure to complete the above when the Secretary is authorized to sign alone shall constitute a certification by the Secretary that the Secretary is the sole Shareholder, Director and Officer of the Corporation.
Corporation Resolutions and Incumbency Certification
Authority to Procure Loans
I certify that I am the duly elected and qualified Secretary of WARBY PARKER RETAIL, INC., a Delaware corporation (the “Corporation”); that the Corporation’s exact legal name is set forth above; that the Corporation is a corporation duly organized, existing and in good standing under the laws of the State of Delaware; that the following is a true and correct copy of resolutions duly adopted by the Board of Directors of the Corporation in accordance with its bylaws and applicable statutes.
Copy of Resolutions:
Be it Resolved, That:
1. Any one (1) of the President, Secretary or Treasurer of the Corporation are/is authorized, for, on behalf of, and in the name of the Corporation to:
(a) Negotiate and procure loans, letters of credit and other credit or financial accommodations from Comerica Bank (“Bank”), a Texas banking association, from time to time, including without limitation that certain Loan and Security Agreement dated as of August 13, 2013, as may be subsequently amended, modified, supplemented, extended or restated from time to time (the “Loan Agreement”.
(b) Discount with the Bank, commercial or other business paper belonging to the Corporation made or drawn by or upon third parties, without limit as to amount;
(c) Purchase, sell, exchange, assign, endorse for transfer and/or deliver certificates and/or instruments representing stocks, bonds, evidences of Indebtedness (as defined in the Loan Agreement) or other securities owned by the Corporation, whether or not registered in the name of the Corporation;
(h) Give security for any liabilities of the Corporation to the Bank by grant, security interest, assignment, lien, deed of trust or mortgage upon any real or personal property, tangible or intangible of the Corporation;
(i) Execute and deliver in form and content as may be required by the Bank any and all notes, evidences of Indebtedness, applications for letters of credit, guaranties, subordination agreements, loan and security agreements, financing statements, assignments, liens, deeds of trust, mortgages, trust receipts and other agreements, instruments or documents to carry out the purposes of these resolutions, and any and all amendments or modifications thereto, any or all of which may relate to all or to substantially all of the Corporation’s property and assets; and
(j) Appoint, delegate and authorize such other person(s) (the “Delegated Person(s)”) as may be designated in writing from time to time by the above referenced Authorized Signer(s), or any one or more of them, to (i) request loans, advances and/or letters of credit under any line of credit, loan or other credit or financial accommodation made available by Bank to or in favor of the Corporation, and to
execute and/or deliver unto Bank, in form and content as may be required by the Bank, such agreements, instruments and documents as may be necessary or required to carry out such purposes, (ii) make loan payments for and on behalf of the Corporation, and (iii) execute and certify borrowing base certificates, account agings, inventory reports and collateral reports (together with any other documents, reports and certificates required to be delivered in connection with any of the foregoing) for and on behalf of the Corporation..
2. Said Bank be and it is authorized and directed to pay the proceeds of any such loans or discounts as directed by the persons so authorized to sign, whether so payable to the order of any of said persons in their individual capacities or not, and whether such proceeds are deposited to the individual credit of any of said persons or not;
3. Any and all agreements, instruments and documents previously executed and acts and things previously done to carry out the purposes of these Resolutions are ratified, confirmed and approved as the act or acts of the Corporation.
4. These Resolutions shall continue in force, and the Bank may consider the holders of said offices and their signatures to be and continue to be as set forth in a certified copy of these Resolutions delivered to the Bank, until notice to the contrary in writing is duly served on the Bank (such notice to have no effect on any action previously taken by the Bank in reliance on these Resolutions).
5. Any person, corporation or other legal entity dealing with the Bank may rely upon a certificate signed by an officer of the Bank to effect that these Resolutions and any agreement, instrument or document executed pursuant to them are still in full force and effect and binding upon the Corporation.
6. The Bank may consider the holders of the offices of the Corporation and their signatures, respectively, to be and continue to be as set forth in the Certificate of the Secretary of the Corporation until notice to the contrary in writing is duly served on the Bank.
I further certify that the above Resolutions are in full force and effect as of the date of this Certificate; that these Resolutions and any borrowings or financial accommodations under these Resolutions have been properly noted in the corporate books and records, and have not been rescinded, annulled, revoked or modified; that neither the foregoing Resolutions nor any actions to be taken pursuant to them are or will be in contravention of any provision of the Certificate of incorporation or bylaws of the Corporation or of any agreement, indenture or other instrument to which the Corporation is a party or by which it is bound; and that neither the Certificate of incorporation nor bylaws of the Corporation nor any agreement, indenture or other instrument to which the Corporation is a party or by which it is bound require the vote or consent of shareholders of the Corporation to authorize any act, matter or thing described in the foregoing Resolutions.
I further certify that the following named persons (“Authorized Persons”) have been duly elected to the offices set opposite their respective names, that they continue to hold these offices at the present time, and that the signatures which appear below are the genuine, original signatures of each respectively. I acknowledge and agree that the Authorized Persons may sign this certificate
in multiple counterparts, each of which shall be deemed an original instrument, and all of which shall constitute a single certificate, and that the signature of any Authorized Signer to any counterpart shall be deemed certified by me in accordance with this certification. I or the Bank may assemble the signatures from one or more counterparts and attach them to any other counterpart for the purpose of having a single document containing all the signatures of the Authorized Signers. Delivery of an executed counterpart of a signature to this certificate by telecopy, emailed portable document format (“pdf’), or tagged image file format (“tiff’) or any other electronic means that reproduces an image of the actual executed signature of the Authorized Signer shall be effective as delivery of an original executed counterpart of this certificate. I or the party sending an executed counterpart of his/her signature to this certificate by telecopy, pdf, tiff or any other electronic means shall also send the original thereof to Bank within five (5) days thereafter, but failure to do so shall not affect my certification of such signature and incumbency of such party.
(PLEASE SUPPLY GENUINE SIGNATURES OF AUTHORIZED SIGNERS BELOW)
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NAME (Type or Print)
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TITLE
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SIGNATURE
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David Gilboa
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Co-CEO
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/s/ David Gilboa
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I further certify that attached as Exhibit A hereto is a true, correct and complete copy of the Corporation’s Certificate of Incorporation (including amendments), as filed with the Delaware Secretary of State. Such Certificate of Incorporation has not been amended, annulled, rescinded, revoked or supplemented, and remains in full force and effect as of the date hereof.
I further certify that attached as Exhibit B hereto is a true, correct and complete copy of Borrower’s By-Laws (including amendments). Such By-Laws have not been amended, annulled, rescinded, revoked or supplemented, and remain in full force and effect as of the date hereof.
In Witness Whereof, I have affixed my name as Secretary and have caused the corporate seal (where available) of said Corporation to be affixed on June 29, 2018.
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/s/ David Gilboa
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Secretary
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***
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The Above Statements are Correct.
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/s/ Steve Miller
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SIGNATURE OF OFFICER OR DIRECTOR OR, IF NONE A SHAREHOLDER OTHER THAN SECRETARY WHEN SECRETARY IS AUTHORIZED TO SIGN ALONE.
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Failure to complete the above when the Secretary is authorized to sign alone shall constitute a certification by the Secretary that the Secretary is the sole Shareholder, Director and Officer of the Corporation.
FIFTH AMENDMENT AND WAIVER
TO LOAN AND SECURITY AGREEMENT
This Fifth Amendment and Waiver to Loan and Security Agreement (this “Amendment”) is entered into as of March 29, 2019, by and among COMERICA BANK (“Bank”), JAND, INC., a Delaware corporation (“Parent”) and WARBY PARKER RETAIL, INC., a Delaware corporation (“WPRI”; or together with Parent each a “Borrower” and collectively the “Borrowers”).
RECITALS
A. Borrowers and Bank are parties to that certain Loan and Security Agreement dated as of August 13, 2013, as amended, modified, supplemented, extended or restated from time to time including by that certain First Amendment to Loan and Security Agreement dated as of November 13, 2014, that certain Second Amendment to Loan and Security Agreement dated as of March 31, 2016, that certain Third Amendment to Loan and Security Agreement dated as of August 10, 2017 and that certain Fourth Amendment to Loan and Security Agreement dated as of September 10, 2018 (collectively, the “Agreement”).
B. Borrowers have notified Bank that certain Events of Default have occurred and are continuing under the Agreement arising from violations of Section 7.6 of the Agreement due to Borrower’s repurchases of outstanding capital stock issued by Parent in 2018 in excess of the limit permitted under the Agreement (the “Existing Defaults”). The Existing Defaults entitle Bank immediately to enforce any and all the remedies set forth in the Agreement and applicable law.
C. Borrowers have requested that Bank waive the Existing Defaults and amend certain provisions of the Agreement, and, while Bank is under no obligation to do so, Bank is willing to grant such waiver and to amend the Agreement in accordance with and subject to the terms and conditions of this Amendment.
NOW, THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows:
1. Section 7.6 of the Agreement is hereby amended and restated in its entirety to read as follows:
7.6 Distributions. Pay any dividends or make any other distribution or payment on account of or in redemption, retirement or purchase of any Equity Interests, except that, subject to the last sentence of this Section 7.6, Parent may pay up to Fifty Million Dollars ($50,000,000) in the aggregate from and after the Fifth Amendment Effective Date, to repurchase outstanding capital stock issued by Parent as approved by Parent’s Board of Directors. Notwithstanding the foregoing, Borrowers shall be permitted to make such repurchases only if, at the time of such repurchase, and immediately after giving effect thereto: (i) no Event of Default, or any event or circumstance that with the giving of notice or the passage of time (or both) could result in an Event of Default, exists or could reasonably be expected to occur, (ii) each Borrower is solvent, (iii) the aggregate amount
of Net Cash of Borrowers on deposit with Bank is not less than $50,000,000 both before and immediately after giving effect to each such dividend, distribution or repurchase, (iv) such dividend, distribution or repurchase would not trigger a Change in Control, and (v) such dividend, distribution or repurchase is permitted under and is made in compliance with applicable law, including Sections 170 and 173 of the Delaware General Corporation Law.
2. Exhibit A to the Agreement is hereby amended by amending and restating in their entirety clause (c) and clause (f) of the definition of “Permitted Investment” to read as follows:
(c) Repurchases of stock of Parent as approved by Parent’s Board of Directors to the extent permitted under Section 7.6;
(f) Investments consisting of (i) travel advances and employee relocation loans and other employee loans and advances in the ordinary course of business not to exceed Five Hundred Thousand Dollars ($500,000) in the aggregate in any fiscal year, and (ii) loans to employees, officers or directors relating to the purchase of equity securities of Parent pursuant to employee stock purchase plan agreements approved by Parent’s Board of Directors or any committee thereof not to exceed Fifteen Million Dollars ($15,000,000) in the aggregate in any fiscal year provided that such loans are cashless (other than cash payments to Parent by the obligor in repayment of such loans);
3. Exhibit A to the Agreement is hereby further amended by adding, amending and restating in their entirety the following defined terms to read as follows:
“Fifth Amendment Effective Date” means March 29, 2019.
“Revolving Line” means a Credit Extension of up to Twenty Million Dollars ($20,000,000) (inclusive of the aggregate face amount of Letters of Credit issued under the Letter of Credit Sublimit, and the aggregate limits of the corporate credit cards issued to any Borrower and merchant credit card processing reserves under the Credit Card Services Sublimit).
“Revolving Line Extension Conditions” means the occurrence of each of the following events, in each case, in form and substance satisfactory to Bank: (a) Borrower’s Net Cash as of March 31, 2021 is greater than Thirty Five Million Dollars ($35,000,000), (b) no Event of Default, or event, condition or circumstance that, with the giving of notice or the passage of time could become an Event of Default, shall have occurred and be continuing as of March 31, 2021, and (c) Borrower’s Chief Financial Officer shall have delivered to Bank a certificate certifying compliance with the items referenced in (a) and (b), with reasonable supporting detail.
“Revolving Maturity Date” means March 31, 2021; provided, however, so long as Revolving Line Extension Conditions have occurred and been satisfied by and as of March 31, 2021, the Revolving Maturity Date shall be extended to March 31, 2022.
4. Exhibit E to the Agreement is hereby amended, restated and replaced with Exhibit E attached hereto.
5. Limited Waiver.
5.1 Borrowers hereby acknowledge, and subject to and on the terms set forth herein, Bank hereby waives, the Existing Defaults (the “Default Waiver”). Each Borrower acknowledges and agrees that, but for the Default Waiver, the Existing Defaults would have entitled Bank to exercise all the remedies available to Bank under the Agreement and applicable law. Each Borrower waives all notices of default and rights to cure that are otherwise provided in the Agreement or applicable law, including, but not limited to, rights to notice and redemption under California Uniform Commercial Code sections 9611, 9620 and 9623. Each Borrower further waives any claim that a sale or other disposition by Bank of the Collateral is not commercially reasonable because Bank disclaims any warranties with respect to such sale or other disposition, including, without limitation, disclaimers of warranties relating to title, possession, quiet enjoyment, or the like.
5.2 Notwithstanding the foregoing, the Default Waiver: (a) in no way shall be deemed to be a waiver by Bank of, or an agreement by Bank to waive, any covenant, liability or obligation of any Borrower or any other Person or to waive any right, power, or remedy of Bank, except as expressly set forth herein; (b) shall not limit or impair Bank’s right to demand strict performance of any Borrower’s liabilities and obligations to Bank and the Obligations under the Agreement at all times following the date hereof, including Section 7.6 the Agreement; (c) in no way shall obligate Bank to make any future waivers, consents or modifications to the Agreement or any other Loan Document; and (d) is not a continuing waiver with respect to any failure to perform any Obligation. Each Borrower acknowledges and agrees that: (i) Bank does not waive any other failure by Borrower to perform its Obligations under the Loan Documents, and Bank does not waive the requirements Section 7.6 of the Agreement other than with respect to the Existing Defaults for instances and the periods of time expressly specified above, and (ii) Bank is relying upon each Borrower’s representations, warranties and agreements, as set forth herein and in the Loan Documents in granting the foregoing waiver.
6. No course of dealing on the part of Bank or its officers, nor any failure or delay in the exercise of any right by Bank, shall operate as a waiver thereof, and any single or partial exercise of any such right shall not preclude any later exercise of any such right. Bank’s failure at any time to require strict performance by Borrowers of any provision shall not affect any right of Bank thereafter to demand strict compliance and performance. Any suspension or waiver of a right must be in writing signed by an officer of Bank.
7. Unless otherwise defined, all initially capitalized terms in this Amendment shall be as defined in the Agreement. The Agreement, as amended hereby, shall be and remain in full force and effect in accordance with its terms and hereby is ratified and confirmed in all respects. Except as expressly set forth herein, the execution, delivery, and performance of this Amendment shall not operate as a waiver of, or as an amendment of, any right, power, or remedy of Bank under the Agreement, as in effect prior to the date hereof. Each Borrower ratifies and reaffirms the continuing effectiveness of all promissory notes, guaranties, security agreements, mortgages, deeds of trust, environmental agreements, and all other instruments, documents and agreements entered into in connection with the Agreement. Each Borrower hereby further affirms its absolute and unconditional promise to pay to Bank the Advances, Growth Capital Advances, other Credit Extensions and all other amounts due under the Letters of Credit and the other Loan Documents
(including, without limitation, the Obligations), at the times and in the amounts provided for therein. Each Borrower confirms and agrees that the obligations of each Borrower to Bank under the Agreement as supplemented hereby are secured by and entitled to the benefits of the Loan Documents. The parties agree that this Amendment shall be deemed to be one of the Loan Documents under the Agreement. Nothing in this Amendment shall constitute a satisfaction of any of Borrowers’ Obligations.
8. Release.
8.1 Each Borrower acknowledges that Bank would not enter into this Amendment, including the Default Waiver, without such Borrower’s assurance hereunder. Each Borrower hereby absolutely discharges and releases Bank, any person or entity that has obtained any interest from Bank under the Agreement and each of Bank’s and such entity’s former and present partners, stockholders, officers, directors, employees, successors, assignees, agents and attorneys from any known claims which any Borrower now has against Bank of any nature, whether founded in contract, in tort or pursuant to any other theory of liability, including but not limited to any claims arising out of or related to the Agreement or the transactions contemplated thereby.
8.2 [Reserved].
8.3 The provisions, waivers and releases set forth in this section are binding upon each Borrower and each Borrower’s stockholders, agents, employees, assigns and successors in interest. The provisions, waivers and releases of this section shall inure to the benefit of Bank and its agents, employees, officers, directors, assigns and successors in interest.
8.4 Each Borrower warrants and represents that Borrower is the sole and lawful owner of all right, title and interest in and to all of the claims released hereby and no Borrower has heretofore voluntarily, by operation of law or otherwise, assigned or transferred or purported to assign or transfer to any person any such claim or any portion thereof. Each Borrower shall indemnify and hold harmless Bank from and against any claim, demand, damage, debt, liability (including payment of attorneys’ fees and costs actually incurred whether or not litigation is commenced) based on or arising out of any assignment or transfer.
8.5 The provisions of this section shall survive payment in full of the Obligations, full performance of all the terms of this Amendment and the Agreement, and/or Bank’s actions to exercise any remedy available under the Agreement or otherwise.
9. In order to induce Bank to enter into this Amendment, each Borrower hereby represents and warrants to Bank as follows:
9.1 The representations and warranties contained in the Agreement and the other Loan Documents were true and correct in all material respects when made and continue to be true and correct in all material respects as of the date of this Amendment (provided, however, that those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of such date).
9.2 Both before and immediately after giving effect to this Amendment and the other transactions contemplated hereby, no Event of Default (other than the Existing Defaults), or other event or circumstance that with the giving of notice or the passage of time could become an Event of Default, has occurred and is continuing.
9.3 The execution, delivery, and performance by Borrowers of this Amendment and the other documents, instruments and agreements delivered or to be delivered to Bank in connection herewith (i) are within the corporate powers of each Borrower and have been duly authorized by all necessary corporate action on the part of Borrower, (ii) do not require any governmental or third party consents, except those which have been duly obtained and are in full force and effect, (iii) do not and will not conflict with any requirement of law, any Borrower’s articles or certificate of incorporation, bylaws, partnership agreement, operating agreement, minutes or resolutions, (iv) after giving effect to this Amendment, do not result in any breach of or constitute a default under any agreement or instrument to which any Borrower or any of their Subsidiaries is a party or by which any Borrower or any of their Subsidiaries or their respective properties are bound, and (v) do not result in or require the creation or imposition of any mortgage, deed of trust, pledge, lien, security interest or other charge or encumbrance of any nature upon any of the assets or properties of any Borrower, other than those in favor of Bank.
9.4 This Amendment and the other instruments and agreements delivered or to be delivered to Bank in connection herewith have been duly executed and delivered by each Borrower and constitute the legal, valid, and binding obligation of each Borrower, enforceable against Borrower in accordance with their respective terms, except to the extent that (i) enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws of general application affecting the rights and remedies of creditors, (ii) enforcement may be subject to general principles of equity, and (iii) the availability of the remedies of specific performance and injunctive relief may be subject to the discretion of the court before which any proceedings for such remedies may be brought.
9.5 No Borrower has any right of offset, defense, counterclaim, dispute or disagreement of any kind or nature whatsoever with respect to any of its liabilities, obligations or indebtedness arising under or in connection with any Loan Document.
10. As a condition to the effectiveness of this Amendment, Bank shall have received, in form and substance satisfactory to Bank, the following:
(a) this Amendment, duly executed by each Borrower;
(b) a certificate of the Secretary of each Borrower with respect to resolutions and incumbency;
(c) all Bank Expenses incurred through the date of this Amendment, which may be debited from any of Borrower’s accounts; and
(d) such other documents, instruments and certificates and completion of such other matters, as Bank may reasonably deem necessary or appropriate.
11. This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument.
[Remainder of Page Left Blank]
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the first date above written.
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JAND, INC.
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By:
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/s/ Steve Miller
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Title:
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CFO
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WARBY PARKER RETAIL, INC.
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By:
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/s/ Steve Miller
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Title:
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CFO
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COMERICA BANK
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By:
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/s/ Jason Pan
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Title:
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Vice President
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[Signature Page to Fifth Amendment and Waiver to Loan and Security Agreement]
EXHIBIT E
COMPLIANCE CERTIFICATE
Please send all Required Reporting to: Comerica Bank
Technology & Life Sciences Division Loan
Analysis Department 1800 Bering Drive
San Jose, CA 95112 Fax: [(***)***-****]
Email: [********]: [****]@comerica.com
[******************]@comerica.com
Phone: [(***)***-****]
Fax: [(***)***-****]
FROM: JAND, INC., for and on behalf of all co-Borrowers
The undersigned authorized Officer of JAND, INC. (“Borrower”), for an on behalf of all Borrowers under the Agreement (as defined below), hereby certifies that in accordance with the terms and conditions of the Loan and Security Agreement among Borrower, the other Borrowers and Bank (the “Agreement”), (i) each Borrower is in complete compliance for the period ending _________________________ with all required covenants, including without limitation the ongoing registration of intellectual property rights in accordance with Section 6.8, except as noted below and (ii) all representations and warranties of each Borrower stated in the Agreement are true and correct in all material respects on and as of the date hereof as though made at and as of each such date (provided, however, that those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of such date). Attached herewith are the required documents supporting the above certification. The Officer further certifies that these are prepared in accordance with Generally Accepted Accounting Principles (GAAP) and are consistently applied from one period to the next except as explained in an accompanying letter or footnotes.
Please indicate compliance status by circling Yes/No under “Complies” or “Applicable” column.
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REPORTING COVENANTS
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REQUIRED
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COMPLIES
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Company Prepared F/S
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Monthly, within 30 days*
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YES
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NO
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Compliance Certificate
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Monthly, within 30 days*
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YES
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NO
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CPA Audited, Unqualified F/S
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Annually, by August 31 for prior FY
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YES
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NO
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Borrowing Base Cert., and inventory report
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Monthly, within 30 days**
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YES
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NO
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Annual Business Plan (incl. operating budget)
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Annually, by March 15 of each FY
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YES
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NO
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Audit
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Semi-annual
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YES
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NO
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If Public:
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10-Q
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Quarterly, within 5 days of SEC filing (50 days)
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YES
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NO
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10-K
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Annually, within 5 days of SEC filing (95 days)
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YES
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NO
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Total amount of Borrower’s cash and investments
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Amount $ __________________________
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YES
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NO
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Total amount of Borrower’s cash and investments maintained with Bank
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Amount $ __________________________
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YES
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NO
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* quarterly w/in 30 days during Limited Reporting Period
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** not required during Limited Reporting Period.
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DESCRIPTION
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APPLICABLE
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Legal Action > $300,000
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Notify promptly upon notice ____________
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YES
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NO
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Inventory Disputes > $100,000
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Notify promptly upon notice ____________
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YES
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NO
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Cross default with other agreements >$3,000,000
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Notify promptly upon notice ____________
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YES
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NO
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Judgment > $3,000,000
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Notify promptly upon notice ____________
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YES
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NO
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FINANCIAL COVENANTS
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REQUIRED
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ACTUAL
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COMPLIES
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TO BE TESTED MONTHLY, UNLESS OTHERWISE NOTED:
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YES
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NO
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Minimum Liquidity
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>$2,000,000
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$___________________
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YES
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NO
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OTHER COVENANTS
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REQUIRED
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ACTUAL
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COMPLIES
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Permitted Indebtedness for equipment leases
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<$2,000,000
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____________________
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YES
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NO
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Permitted Investments for stock repurchase
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<$50,000,000
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____________________
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YES
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NO
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Permitted Investments for subsidiaries
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<$500,000
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____________________
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YES
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NO
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Permitted Investments for employee loans (cashless)
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<$15,000,000
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____________________
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YES
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NO
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Permitted Investments for joint ventures
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<$500,000
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____________________
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YES
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NO
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Permitted Liens for equipment leases
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<$2,000,000
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____________________
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YES
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NO
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Permitted Transfers
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<$300,000
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____________________
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YES
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NO
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Please Enter Below Comments Regarding Violations:
The Officer further acknowledges that at any time any Borrower is not in compliance with all the terms set forth in the Agreement, including, without limitation, the financial covenants, no credit extensions will be made.
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Very truly yours,
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/s/ Steve Miller
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Authorized Signer
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Name:
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Steve Miller
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Title:
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CFO
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Corporation Resolutions and Incumbency Certification
Authority to Procure Loans
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I certify that I am the duly elected and qualified Secretary of JAND, INC., a Delaware corporation (the “Corporation”); that the Corporation’s exact legal name is set forth above; that the Corporation is a corporation duly organized, existing and in good standing under the laws of the State of Delaware; that the following is a true and correct copy of resolutions duly adopted by the Board of Directors of the Corporation in accordance with its bylaws and applicable statutes.
Copy of Resolutions:
Be it Resolved, That:
1. Any one (1) of the Chief Executive Officer, Chief Financial Officer, President, Secretary or Treasurer of the Corporation are/is authorized, for, on behalf of, and in the name of the Corporation to:
(a) Negotiate and procure loans, letters of credit and other credit or financial accommodations from Comerica Bank (“Bank”), a Texas banking association, from time to time, including without limitation that certain Loan and Security Agreement dated as of August 13, 2013, as may be subsequently amended, modified, supplemented, extended or restated from time to time (the “Loan Agreement”).
(b) Discount with the Bank, commercial or other business paper belonging to the Corporation made or drawn by or upon third parties, without limit as to amount;
(c) Purchase, sell, exchange, assign, endorse for transfer and/or deliver certificates and/or instruments representing stocks, bonds, evidences of Indebtedness (as defined in the Loan Agreement) or other securities owned by the Corporation, whether or not registered in the name of the Corporation;
(d) Give security for any liabilities of the Corporation to the Bank by grant, security interest, assignment, lien, deed of trust or mortgage upon any real or personal property, tangible or intangible of the Corporation;
(e) Issue a warrant or warrants to purchase the Corporation’s capital stock;
(f) Execute and deliver in form and content as may be required by the Bank any and all notes, evidences of Indebtedness, applications for letters of credit, guaranties, subordination agreements, loan and security agreements, financing statements, assignments, liens, deeds of trust, mortgages, trust receipts and other agreements, instruments or documents to carry out the purposes of these resolutions, and any and all amendments or modifications thereto, any or all of which may relate to all or to substantially all of the Corporation’s property and assets; and
(g) Appoint, delegate and authorize such other person(s) (the “Delegated Person(s)”) as may be designated in writing from time to time by the above referenced
Authorized Signer(s), or any one or more of them, to (i) request loans, advances and/or letters of credit under any line of credit, loan or other credit or financial accommodation made available by Bank to or in favor of the Corporation, and to execute and/or deliver unto Bank, in form and content as may be required by the Bank, such agreements, instruments and documents as may be necessary or required to carry out such purposes, (ii) make loan payments for and on behalf of the Corporation, and (iii) execute and certify borrowing base certificates, account agings, inventory reports and collateral reports (together with any other documents, reports and certificates required to be delivered in connection with any of the foregoing) for and on behalf of the Corporation.
2. Said Bank be and it is authorized and directed to pay the proceeds of any such loans or discounts as directed by the Authorized Signer(s) or Delegated Person(s) (if any), whether so payable to the order of any of said Authorized Signer(s) or Delegated Person(s) (if any) in their individual capacities or not, and whether such proceeds are deposited to the individual credit of any of said Authorized Signer(s) or Delegated Person(s) (if any) or not.
3. Any and all agreements, instruments and documents previously executed and acts and things previously done to carry out the purposes of these Resolutions are ratified, confirmed and approved as the act or acts of the Corporation.
4. These Resolutions shall continue in force, and the Bank may consider the holders of said offices and their signatures to be and continue to be as set forth in a certified copy of these Resolutions delivered to the Bank, until notice to the contrary in writing is duly served on the Bank (such notice to have no effect on any action previously taken by the Bank in reliance on these Resolutions).
5. Any person, corporation or other legal entity dealing with the Bank may rely upon a certificate signed by an officer of the Bank to effect that these Resolutions and any agreement, instrument or document executed pursuant to them are still in full force and effect and binding upon the Corporation.
6. The Bank may consider the holders of the offices of the Corporation and their signatures, respectively, to be and continue to be as set forth in the Certificate of the Secretary of the Corporation until notice to the contrary in writing is duly served on the Bank.
I further certify that the above Resolutions are in full force and effect as of the date of this Certificate; that these Resolutions and any borrowings or financial accommodations under these Resolutions have been properly noted in the corporate books and records, and have not been rescinded, annulled, revoked or modified; that neither the foregoing Resolutions nor any actions to be taken pursuant to them are or will be in contravention of any provision of the Certificate of incorporation or bylaws of the Corporation or of any agreement, indenture or other instrument to which the Corporation is a party or by which it is bound; and that neither the Certificate of incorporation nor bylaws of the Corporation nor any agreement, indenture or other instrument to which the Corporation is a party or by which it is bound require the vote or consent of shareholders of the Corporation to authorize any act, matter or thing described in the foregoing Resolutions.
I further certify that the following named persons (“Authorized Persons”) have been duly elected to the offices set opposite their respective names, that they continue to hold these offices at the present time, and that the signatures which appear below are the genuine, original signatures of each respectively. I acknowledge and agree that the Authorized Persons may sign this certificate in multiple counterparts, each of which shall be deemed an original instrument, and all of which shall constitute a single certificate, and that the signature of any Authorized Signer to any counterpart shall be deemed certified by me in accordance with this certification. I or the Bank may assemble the signatures from one or more counterparts and attach them to any other counterpart for the purpose of having a single document containing all the signatures of the Authorized Signers. Delivery of an executed counterpart of a signature to this certificate by telecopy, emailed portable document format (“pdf”), or tagged image file format (“tiff”) or any other electronic means that reproduces an image of the actual executed signature of the Authorized Signer shall be effective as delivery of an original executed counterpart of this certificate. I or the party sending an executed counterpart of his/her signature to this certificate by telecopy, pdf, tiff or any other electronic means shall also send the original thereof to Bank within five (5) days thereafter, but failure to do so shall not affect my certification of such signature and incumbency of such party.
(PLEASE SUPPLY GENUINE SIGNATURES OF AUTHORIZED SIGNERS BELOW)
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NAME (Type or Print)
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TITLE
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SIGNATURE
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Steve Miller
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CFO
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/s/ Steve Miller
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I further certify that attached as Exhibit A hereto is a true, correct and complete copy of the Corporation’s Certificate of Incorporation (including amendments), as filed with the Delaware Secretary of State. Such Certificate of Incorporation has not been amended, annulled, rescinded, revoked or supplemented, and remains in full force and effect as of the date hereof.
I further certify that attached as Exhibit B hereto is a true, correct and complete copy of Borrower’s By-Laws (including amendments). Such By-Laws have not been amended, annulled, rescinded, revoked or supplemented, and remain in full force and effect as of the date hereof.
In Witness Whereof, I have affixed my name as Secretary and have caused the corporate seal (where available) of said Corporation to be affixed on March 29, 2019.
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/s/ David Gilboa
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Secretary
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***
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The Above Statements are Correct.
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/s/ Steve Miller
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SIGNATURE OF OFFICER OR DIRECTOR OR, IF NONE, A SHAREHOLDER OTHER THAN SECRETARY WHEN SECRETARY IS AUTHORIZED TO SIGN ALONE.
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Failure to complete the above when the Secretary is authorized to sign alone shall constitute a certification by the Secretary that the Secretary is the sole Shareholder, Director and Officer of the Corporation.
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Corporation Resolutions and Incumbency Certification
Authority to Procure Loans
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I certify that I am the duly elected and qualified Secretary of WARBY PARKER RETAIL, INC., a Delaware corporation (the “Corporation”); that the Corporation’s exact legal name is set forth above; that the Corporation is a corporation duly organized, existing and in good standing under the laws of the State of Delaware; that the following is a true and correct copy of resolutions duly adopted by the Board of Directors of the Corporation in accordance with its bylaws and applicable statutes.
Copy of Resolutions:
Be it Resolved, That:
1. Any one (1) of the President, Secretary or Treasurer of the Corporation are/is authorized, for, on behalf of, and in the name of the Corporation to:
(a) Negotiate and procure loans, letters of credit and other credit or financial accommodations from Comerica Bank (“Bank”), a Texas banking association, from time to time, including without limitation that certain Loan and Security Agreement dated as of August 13, 2013, as may be subsequently amended, modified, supplemented, extended or restated from time to time (the “Loan Agreement”).
(b) Discount with the Bank, commercial or other business paper belonging to the Corporation made or drawn by or upon third parties, without limit as to amount;
(c) Purchase, sell, exchange, assign, endorse for transfer and/or deliver certificates and/or instruments representing stocks, bonds, evidences of Indebtedness (as defined in the Loan Agreement) or other securities owned by the Corporation, whether or not registered in the name of the Corporation;
(d) Give security for any liabilities of the Corporation to the Bank by grant, security interest, assignment, lien, deed of trust or mortgage upon any real or personal property, tangible or intangible of the Corporation;
(e) Execute and deliver in form and content as may be required by the Bank any and all notes, evidences of Indebtedness, applications for letters of credit, guaranties, subordination agreements, loan and security agreements, financing statements, assignments, liens, deeds of trust, mortgages, trust receipts and other agreements, instruments or documents to carry out the purposes of these resolutions, and any and all amendments or modifications thereto, any or all of which may relate to all or to substantially all of the Corporation’s property and assets; and
(f) Appoint, delegate and authorize such other person(s) (the “Delegated Person(s)”) as may be designated in writing from time to time by the above referenced Authorized Signer(s), or any one or more of them, to (i) request loans, advances and/or letters of credit under any line of credit, loan or other credit or financial
accommodation made available by Bank to or in favor of the Corporation, and to execute and/or deliver unto Bank, in form and content as may be required by the Bank, such agreements, instruments and documents as may be necessary or required to carry out such purposes, (ii) make loan payments for and on behalf of the Corporation, and (iii) execute and certify borrowing base certificates, account agings, inventory reports and collateral reports (together with any other documents, reports and certificates required to be delivered in connection with any of the foregoing) for and on behalf of the Corporation.
2. Said Bank be and it is authorized and directed to pay the proceeds of any such loans or discounts as directed by the persons so authorized to sign, whether so payable to the order of any of said persons in their individual capacities or not, and whether such proceeds are deposited to the individual credit of any of said persons or not;
3. Any and all agreements, instruments and documents previously executed and acts and things previously done to carry out the purposes of these Resolutions are ratified, confirmed and approved as the act or acts of the Corporation.
4. These Resolutions shall continue in force, and the Bank may consider the holders of said offices and their signatures to be and continue to be as set forth in a certified copy of these Resolutions delivered to the Bank, until notice to the contrary in writing is duly served on the Bank (such notice to have no effect on any action previously taken by the Bank in reliance on these Resolutions).
5. Any person, corporation or other legal entity dealing with the Bank may rely upon a certificate signed by an officer of the Bank to effect that these Resolutions and any agreement, instrument or document executed pursuant to them are still in full force and effect and binding upon the Corporation.
6. The Bank may consider the holders of the offices of the Corporation and their signatures, respectively, to be and continue to be as set forth in the Certificate of the Secretary of the Corporation until notice to the contrary in writing is duly served on the Bank.
I further certify that the above Resolutions are in full force and effect as of the date of this Certificate; that these Resolutions and any borrowings or financial accommodations under these Resolutions have been properly noted in the corporate books and records, and have not been rescinded, annulled, revoked or modified; that neither the foregoing Resolutions nor any actions to be taken pursuant to them are or will be in contravention of any provision of the Certificate of incorporation or bylaws of the Corporation or of any agreement, indenture or other instrument to which the Corporation is a party or by which it is bound; and that neither the Certificate of incorporation nor bylaws of the Corporation nor any agreement, indenture or other instrument to which the Corporation is a party or by which it is bound require the vote or consent of shareholders of the Corporation to authorize any act, matter or thing described in the foregoing Resolutions.
I further certify that the following named persons (“Authorized Persons”) have been duly elected to the offices set opposite their respective names, that they continue to hold these offices at the present time, and that the signatures which appear below are the genuine, original signatures of
each respectively. I acknowledge and agree that the Authorized Persons may sign this certificate in multiple counterparts, each of which shall be deemed an original instrument, and all of which shall constitute a single certificate, and that the signature of any Authorized Signer to any counterpart shall be deemed certified by me in accordance with this certification. I or the Bank may assemble the signatures from one or more counterparts and attach them to any other counterpart for the purpose of having a single document containing all the signatures of the Authorized Signers. Delivery of an executed counterpart of a signature to this certificate by telecopy, emailed portable document format (“pdf”), or tagged image file format (“tiff”) or any other electronic means that reproduces an image of the actual executed signature of the Authorized Signer shall be effective as delivery of an original executed counterpart of this certificate. I or the party sending an executed counterpart of his/her signature to this certificate by telecopy, pdf, tiff or any other electronic means shall also send the original thereof to Bank within five (5) days thereafter, but failure to do so shall not affect my certification of such signature and incumbency of such party.
(PLEASE SUPPLY GENUINE SIGNATURES OF AUTHORIZED SIGNERS BELOW)
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NAME (Type or Print)
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TITLE
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SIGNATURE
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Steve Miller
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CFO
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/s/ Steve Miller
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I further certify that attached as Exhibit A hereto is a true, correct and complete copy of the Corporation’s Certificate of Incorporation (including amendments), as filed with the Delaware Secretary of State. Such Certificate of Incorporation has not been amended, annulled, rescinded, revoked or supplemented, and remains in full force and effect as of the date hereof.
I further certify that attached as Exhibit B hereto is a true, correct and complete copy of Borrower’s By-Laws (including amendments). Such By-Laws have not been amended, annulled, rescinded, revoked or supplemented, and remain in full force and effect as of the date hereof.
In Witness Whereof, I have affixed my name as Secretary and have caused the corporate seal (where available) of said Corporation to be affixed on March 29, 2019.
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/s/ David Gilboa
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Secretary
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***
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The Above Statements are Correct.
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/s/ Steve Miller
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SIGNATURE OF OFFICER OR DIRECTOR OR, IF NONE,
A SHAREHOLDER OTHER THAN SECRETARY WHEN
SECRETARY IS AUTHORIZED TO SIGN ALONE.
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Failure to complete the above when the Secretary is authorized to sign alone shall constitute a certification by the Secretary that the Secretary is the sole Shareholder, Director and Officer of the Corporation.
SIXTH AMENDMENT TO
LOAN AND SECURITY AGREEMENT
This Sixth Amendment to Loan and Security Agreement (this “Amendment”) is entered into as of June 18, 2019, by and among COMERICA BANK (“Bank”), JAND, INC., a Delaware corporation (“Parent”) and WARBY PARKER RETAIL, INC., a Delaware corporation (“WPRI”; or together with Parent each a “Borrower” and collectively the “Borrowers”).
RECITALS
A. Borrowers and Bank are parties to that certain Loan and Security Agreement dated as of August 13, 2013, as amended, modified, supplemented, extended or restated from time to time including by that certain First Amendment to Loan and Security Agreement dated as of November 13, 2014, that certain Second Amendment to Loan and Security Agreement dated as of March 31, 2016, that certain Third Amendment to Loan and Security Agreement dated as of August 10, 2017, that certain Fourth Amendment to Loan and Security Agreement dated as of September 10, 2018 and that certain Fifth Amendment and Waiver to Loan and Security Agreement dated as of March 29, 2019 (collectively, the “Agreement”).
B. Borrowers have requested that Bank amend certain provisions of the Agreement, and, while Bank is under no obligation to do so, Bank is willing to amend the Agreement in accordance with and subject to the terms and conditions of this Amendment.
NOW, THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows:
1. Section 6.6 of the Agreement is hereby amended and restated in its entirety to read as follows:
6.6 Accounts. Borrower shall maintain all its, and shall cause all of its Subsidiaries to maintain their, depository, operating, cash management accounts with Bank and all of its and their investment and securities accounts with Bank; provided, however, that so long as Borrowers at all times maintain at least Thirty-Five Million Dollars ($35,000,000) in deposit accounts with Bank, Borrowers may maintain up to Thirty Million Dollars ($30,000,000) in deposit and investment balances in accounts outside of Bank, and, so long as no Event of Default exists, no account control agreements shall be required with respect to such accounts. Upon request of Bank Borrower shall promptly, and in any event within two (2) Business Days of request by Bank, provide Bank with a true, correct and complete listing of all deposit and securities accounts maintained outside of Bank by Borrower or any of its Subsidiaries.
2. Section 7.6 of the Agreement is hereby amended and restated in its entirety to read as follows:
7.6 Distributions. Pay any dividends or make any other distribution or payment on account of or in redemption, retirement or purchase of any Equity Interests, except that, subject to the last sentence of this Section 7.6, Parent may pay up to Eighty-Five Million Dollars
($85,000,000) in the aggregate from and after the Fifth Amendment Effective Date, to repurchase outstanding capital stock issued by Parent as approved by Parent’s Board of Directors. Notwithstanding the foregoing, Borrowers shall be permitted to make such repurchases only if, at the time of such repurchase, and immediately after giving effect thereto: (i) no Event of Default, or any event or circumstance that with the giving of notice or the passage of time (or both) could result in an Event of Default, exists or could reasonably be expected to occur, (ii) each Borrower is solvent, (iii) the aggregate amount of Net Cash of Borrowers on deposit with Bank is not less than Thirty-Five Million Dollars ($35,000,000) both before and immediately after giving effect to each such dividend, distribution or repurchase, (iv) such dividend, distribution or repurchase would not trigger a Change in Control, and (v) such dividend, distribution or repurchase is permitted under and is made in compliance with applicable law, including Sections 170 and 173 of the Delaware General Corporation Law.
3. Exhibit E to the Agreement is hereby amended, restated and replaced with Exhibit E attached hereto.
4. [Reserved].
5. Release.
5.1 Each Borrower acknowledges that Bank would not enter into this Amendment without such Borrower’s assurance hereunder. Each Borrower hereby absolutely discharges and releases Bank, any person or entity that has obtained any interest from Bank under the Agreement and each of Bank’s and such entity’s former and present partners, stockholders, officers, directors, employees, successors, assignees, agents and attorneys from any known claims which any Borrower now has against Bank of any nature, whether founded in contract, in tort or pursuant to any other theory of liability, including but not limited to any claims arising out of or related to the Agreement or the transactions contemplated thereby.
5.2 [Reserved].
5.3 The provisions, waivers and releases set forth in this section are binding upon each Borrower and each Borrower’s stockholders, agents, employees, assigns and successors in interest. The provisions, waivers and releases of this section shall inure to the benefit of Bank and its agents, employees, officers, directors, assigns and successors in interest.
5.4 Each Borrower warrants and represents that Borrower is the sole and lawful owner of all right, title and interest in and to all of the claims released hereby and no Borrower has heretofore voluntarily, by operation of law or otherwise, assigned or transferred or purported to assign or transfer to any person any such claim or any portion thereof. Each Borrower shall indemnify and hold harmless Bank from and against any claim, demand, damage, debt, liability (including payment of attorneys’ fees and costs actually incurred whether or not litigation is commenced) based on or arising out of any assignment or transfer.
5.5 The provisions of this section shall survive payment in full of the Obligations, full performance of all the terms of this Amendment and the Agreement, and/or Bank’s actions to exercise any remedy available under the Agreement or otherwise.
6. In order to induce Bank to enter into this Amendment, each Borrower hereby represents and warrants to Bank as follows:
6.1 The representations and warranties contained in the Agreement and the other Loan Documents were true and correct in all material respects when made and continue to be true and correct in all material respects as of the date of this Amendment (provided, however, that those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of such date).
6.2 Both before and immediately after giving effect to this Amendment and the other transactions contemplated hereby, no Event of Default, or other event or circumstance that with the giving of notice or the passage of time could become an Event of Default, has occurred and is continuing.
6.3 The execution, delivery, and performance by Borrowers of this Amendment and the other documents, instruments and agreements delivered or to be delivered to Bank in connection herewith (i) are within the corporate powers of each Borrower and have been duly authorized by all necessary corporate action on the part of Borrower, (ii) do not require any governmental or third party consents, except those which have been duly obtained and are in full force and effect, (iii) do not and will not conflict with any requirement of law, any Borrower’s articles or certificate of incorporation, bylaws, partnership agreement, operating agreement, minutes or resolutions, (iv) after giving effect to this Amendment, do not result in any breach of or constitute a default under any agreement or instrument to which any Borrower or any of their Subsidiaries is a party or by which any Borrower or any of their Subsidiaries or their respective properties are bound, and (v) do not result in or require the creation or imposition of any mortgage, deed of trust, pledge, lien, security interest or other charge or encumbrance of any nature upon any of the assets or properties of any Borrower, other than those in favor of Bank.
6.4 This Amendment and the other instruments and agreements delivered or to be delivered to Bank in connection herewith have been duly executed and delivered by each Borrower and constitute the legal, valid, and binding obligation of each Borrower, enforceable against Borrower in accordance with their respective terms, except to the extent that (i) enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws of general application affecting the rights and remedies of creditors, (ii) enforcement may be subject to general principles of equity, and (iii) the availability of the remedies of specific performance and injunctive relief may be subject to the discretion of the court before which any proceedings for such remedies may be brought.
6.5 No Borrower has any right of offset, defense, counterclaim, dispute or disagreement of any kind or nature whatsoever with respect to any of its liabilities, obligations or indebtedness arising under or in connection with any Loan Document.
7. As a condition to the effectiveness of this Amendment, Bank shall have received, in form and substance satisfactory to Bank, the following:
(a) this Amendment, duly executed by each Borrower;
(b) all Bank Expenses incurred through the date of this Amendment, which may be debited from any of Borrower’s accounts; and
(c) such other documents, instruments and certificates and completion of such other matters, as Bank may reasonably deem necessary or appropriate.
8. This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument.
[Remainder of Page Left Blank]
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the first date above written.
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JAND, INC.
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By:
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/s/ Steve Miller
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Title:
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CFO
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WARBY PARKER RETAIL, INC.
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By:
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/s/ Steve Miller
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Title:
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CFO
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COMERICA BANK
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By:
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/s/ Jason Pan
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Title:
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Vice President
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[Signature Page to Sixth Amendment to Loan and Security Agreement]
EXHIBIT E
COMPLIANCE CERTIFICATE
Please send all Required Reporting to: Comerica Bank
Technology & Life Sciences Division
Loan Analysis Department
1800 Bering Drive San Jose, CA 95112
Fax: [(***) ***-****]
Email: Jason Pan: [******]@comerica.com
[******************]@comerica.com
FROM: JAND, INC., for and on behalf of all co-Borrowers
The undersigned authorized Officer of JAND, INC. (“Borrower”), for an on behalf of all Borrowers under the Agreement (as defined below), hereby certifies that in accordance with the terms and conditions of the Loan and Security Agreement among Borrower, the other Borrowers and Bank (the “Agreement”), (i) each Borrower is in complete compliance for the period ending ___________ with all required covenants, including without limitation the ongoing registration of intellectual property rights in accordance with Section 6.8, except as noted below and (ii) all representations and warranties of each Borrower stated in the Agreement are true and correct in all material respects on and as of the date hereof as though made at and as of each such date (provided, however, that those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of such date). Attached herewith are the required documents supporting the above certification. The Officer further certifies that these are prepared in accordance with Generally Accepted Accounting Principles (GAAP) and are consistently applied from one period to the next except as explained in an accompanying letter or footnotes.
Please indicate compliance status by circling Yes/No under “Complies” or “Applicable” column.
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REPORTING COVENANTS
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REQUIRED
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COMPLIES
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Company Prepared F/S
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Monthly, within 30 days*
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YES
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NO
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Compliance Certificate
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Monthly, within 30 days*
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YES
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NO
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CPA Audited, Unqualified F/S
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Annually, by August 31 for prior FY
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YES
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NO
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Borrowing Base Cert., and inventory report
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Monthly, within 30 days**
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YES
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NO
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Annual Business Plan (incl. operating budget)
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Annually, by March 15 of each FY
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YES
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NO
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Audit
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Semi-annual
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YES
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NO
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If Public:
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10-Q
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Quarterly, within 5 days of SEC filing (50 days)
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YES
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NO
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10-K
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Annually, within 5 days of SEC filing (95 days)
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YES
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NO
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Total amount of Borrowers’ cash and investments
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Amount: $___________________
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YES
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NO
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Total amount of Borrowers’ cash and investments maintain with Bank
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Amount: $___________________
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YES
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NO
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* quarterly w/in 30 days during Limited Reporting Period
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** not required during Limited Reporting Period.
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DESCRIPTION
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APPLICABLE
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Legal Action > $300,000
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Notify promptly upon notice _______________
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YES
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NO
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Inventory Disputes > $100,000
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Notify promptly upon notice _______________
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YES
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NO
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Cross default with other
agreements > $3,000,000
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Notify promptly upon notice _______________
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YES
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NO
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Judgment > $3,000,000
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Notify promptly upon notice _______________
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YES
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NO
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FINANCIAL COVENANTS
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REQUIRED
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ACTUAL
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COMPLIES
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TO BE TESTED MONTHLY, UNLESS
OTHERWISE NOTED:
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Minimum Liquidity
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>$2,000,000
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$____________________
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YES
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NO
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OTHER COVENANTS
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REQUIRED
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ACTUAL
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COMPLIES
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Permitted Indebtedness for equipment leases
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<$2,000,000
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_____________________
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YES
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NO
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Permitted Investments for stock repurchase
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<$85,000,000
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$____________________
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YES
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NO
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Permitted Investments for subsidiaries
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<$500,000
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$____________________
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YES
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NO
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Permitted Investments for employee loans (cashless)
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<$15,000,000
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$____________________
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YES
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NO
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Permitted Investments for joint ventures
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<$500,000
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$____________________
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YES
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NO
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Permitted Liens for equipment leases
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<$2,000,000
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$____________________
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YES
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NO
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Permitted Transfers
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<$300,000
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$____________________
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YES
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NO
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Please Enter Below Comments Regarding Violations:
The Officer further acknowledges that at any time any Borrower is not in compliance with all the terms set forth in the Agreement, including, without limitation, the financial covenants, no credit extensions will be made.
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Very truly yours,
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Authorized Signer
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Name:
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Title:
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SEVENTH AMENDMENT TO
LOAN AND SECURITY AGREEMENT
This Seventh Amendment to Loan and Security Agreement (this “Amendment”) is entered into as of October 22, 2019, by and among COMERICA BANK (“Bank”), JAND, INC., a Delaware corporation (“Parent”) and WARBY PARKER RETAIL, INC., a Delaware corporation (“WPRI”; or together with Parent each a “Borrower” and collectively the “Borrowers”).
RECITALS
A. Borrowers and Bank are parties to that certain Loan and Security Agreement dated as of August 13, 2013, as amended, modified, supplemented, extended or restated from time to time including by that certain First Amendment to Loan and Security Agreement dated as of November 13, 2014, that certain Second Amendment to Loan and Security Agreement dated as of March 31, 2016, that certain Third Amendment to Loan and Security Agreement dated as of August 10, 2017, that certain Fourth Amendment to Loan and Security Agreement dated as of September 10, 2018, that certain Fifth Amendment and Waiver to Loan and Security Agreement dated as of March 29, 2019 and that certain Sixth Amendment to Loan and Security Agreement dated as of June 18, 2019 (collectively, the “Agreement”).
B. Borrowers have requested that Bank amend certain provisions of the Agreement, and, while Bank is under no obligation to do so, Bank is willing to amend the Agreement in accordance with and subject to the terms and conditions of this Amendment.
NOW, THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows:
1. Section 6.6 of the Agreement is hereby amended and restated in its entirety to read as follows:
6.6 Accounts. Borrower shall maintain all its, and shall cause all of its Subsidiaries to maintain their, depository, operating, cash management accounts with Bank and all of its and their investment and securities accounts with Bank; provided, however, that so long as Borrowers at all times maintain at least Ten Million Dollars ($10,000,000) in Net Cash in deposit accounts with Bank, Borrowers may maintain up to Thirty Million Dollars ($30,000,000) in deposit and investment balances in accounts outside of Bank, and, so long as no Event of Default exists, no account control agreements shall be required with respect to such accounts. Upon request of Bank Borrower shall promptly, and in any event within two (2) Business Days of request by Bank, provide Bank with a true, correct and complete listing of all deposit and securities accounts maintained outside of Bank by Borrower or any of its Subsidiaries.
2. Section 7.6 of the Agreement is hereby amended and restated in its entirety to read as follows:
7.6 Distributions. Pay any dividends or make any other distribution or payment on account of or in redemption, retirement or purchase of any Equity Interests, except that, subject to the last sentence of this Section 7.6, Parent may pay up to One Hundred Thirty-Five Million Dollars ($135,000,000) in the aggregate from and after the Fifth Amendment Effective Date, to repurchase outstanding capital stock issued by Parent as approved by Parent’s Board of Directors. Notwithstanding the foregoing, Borrowers shall be permitted to make such repurchases only if, at the time of such repurchase, and immediately after giving effect thereto: (i) no Event of Default, or any event or circumstance that with the giving of notice or the passage of time (or both) could result in an Event of Default, exists or could reasonably be expected to occur, (ii) each Borrower is solvent, (iii) the aggregate amount of Net Cash of Borrowers on deposit with Bank is not less than Ten Million Dollars ($10,000,000) both before and immediately after giving effect to each such dividend, distribution or repurchase, (iv) such dividend, distribution or repurchase would not trigger a Change in Control, and (v) such dividend, distribution or repurchase is permitted under and is made in compliance with applicable law, including Sections 170 and 173 of the Delaware General Corporation Law.
3. Release.
3.1 Each Borrower acknowledges that Bank would not enter into this Amendment without such Borrower’s assurance hereunder. Each Borrower hereby absolutely discharges and releases Bank, any person or entity that has obtained any interest from Bank under the Agreement and each of Bank’s and such entity’s former and present partners, stockholders, officers, directors, employees, successors, assignees, agents and attorneys from any known claims which any Borrower now has against Bank of any nature, whether founded in contract, in tort or pursuant to any other theory of liability, including but not limited to any claims arising out of or related to the Agreement or the transactions contemplated thereby.
3.2 [Reserved],
3.3 The provisions, waivers and releases set forth in this section are binding upon each Borrower and each Borrower’s stockholders, agents, employees, assigns and successors in interest. The provisions, waivers and releases of this section shall inure to the benefit of Bank and its agents, employees, officers, directors, assigns and successors in interest.
3.4 Each Borrower warrants and represents that Borrower is the sole and lawful owner of all right, title and interest in and to all of the claims released hereby and no Borrower has heretofore voluntarily, by operation of law or otherwise, assigned or transferred or purported to assign or transfer to any person any such claim or any portion thereof. Each Borrower shall indemnify and hold harmless Bank from and against any claim, demand, damage, debt, liability (including payment of attorneys’ fees and costs actually incurred whether or not litigation is commenced) based on or arising out of any assignment or transfer.
3.5 The provisions of this section shall survive payment in full of the Obligations, full performance of all the terms of this Amendment and the Agreement, and/or Bank’s actions to exercise any remedy available under the Agreement or otherwise.
4. In order to induce Bank to enter into this Amendment, each Borrower hereby represents and warrants to Bank as follows:
4.1 The representations and warranties contained in the Agreement and the other Loan Documents were true and correct in all material respects when made and continue to be true and correct in all material respects as of the date of this Amendment (provided, however, that those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of such date).
4.2 Both before and immediately after giving effect to this Amendment and the other transactions contemplated hereby, no Event of Default, or other event or circumstance that with the giving of notice or the passage of time could become an Event of Default, has occurred and is continuing.
4.3 The execution, delivery, and performance by Borrowers of this Amendment and the other documents, instruments and agreements delivered or to be delivered to Bank in connection herewith (i) are within the corporate powers of each Borrower and have been duly authorized by all necessary corporate action on the part of Borrower, (ii) do not require any governmental or third party consents, except those which have been duly obtained and are in full force and effect, (iii) do not and will not conflict with any requirement of law, any Borrower’s articles or certificate of incorporation, bylaws, partnership agreement, operating agreement, minutes or resolutions, (iv) after giving effect to this Amendment, do not result in any breach of or constitute a default under any agreement or instrument to which any Borrower or any of their Subsidiaries is a party or by which any Borrower or any of their Subsidiaries or their respective properties are bound, and (v) do not result in or require the creation or imposition of any mortgage, deed of trust, pledge, lien, security interest or other charge or encumbrance of any nature upon any of the assets or properties of any Borrower, other than those in favor of Bank.
4.4 This Amendment and the other instruments and agreements delivered or to be delivered to Bank in connection herewith have been duly executed and delivered by each Borrower and constitute the legal, valid, and binding obligation of each Borrower, enforceable against Borrower in accordance with their respective terms, except to the extent that (i) enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws of general application affecting the rights and remedies of creditors, (ii) enforcement may be subject to general principles of equity, and (iii) the availability of the remedies of specific performance and injunctive relief may be subject to the discretion of the court before which any proceedings for such remedies may be brought.
4.5 No Borrower has any right of offset, defense, counterclaim, dispute or disagreement of any kind or nature whatsoever with respect to any of its liabilities, obligations or indebtedness arising under or in connection with any Loan Document.
5. As a condition to the effectiveness of this Amendment, Bank shall have received, in form and substance satisfactory to Bank, the following:
(a) this Amendment, duly executed by each Borrower;
(b) all Bank Expenses incurred through the date of this Amendment, which may be debited from any of Borrower’s accounts; and
(c) such other documents, instruments and certificates and completion of such other matters, as Bank may reasonably deem necessary or appropriate.
6. This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument.
[Remainder of Page Left Blank]
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the first date above written.
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JAND, INC.
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By:
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/s/ Steve Miller
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Title:
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CFO
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WARBY PARKER RETAIL, INC.
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By:
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/s/ Steve Miller
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Title:
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CFO
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COMERICA BANK
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By:
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/s/ Jason Pan
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Title:
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Vice President
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[Signature Page to Seventh Amendment to Loan and Security Agreement]
EIGHTH AMENDMENT TO
LOAN AND SECURITY AGREEMENT
This Eighth Amendment to Loan and Security Agreement (this “Amendment”) is entered into as of December 23, 2019, by and among COMERICA BANK (“Bank”), JAND, INC., a Delaware corporation (“Parent”) and WARBY PARKER RETAIL, INC., a Delaware corporation (“WPRI”; or together with Parent each a “Borrower” and collectively the “Borrowers”).
RECITALS
A. Borrowers and Bank are parties to that certain Loan and Security Agreement dated as of August 13, 2013, as amended, modified, supplemented, extended or restated from time to time including by that certain First Amendment to Loan and Security Agreement dated as of November 13, 2014, that certain Second Amendment to Loan and Security Agreement dated as of March 31, 2016, that certain Third Amendment to Loan and Security Agreement dated as of August 10, 2017, that certain Fourth Amendment to Loan and Security Agreement dated as of September 10, 2018, that certain Fifth Amendment and Waiver to Loan and Security Agreement dated as of March 29, 2019, that certain Sixth Amendment to Loan and Security Agreement dated as of June 18, 2019 and that certain Seventh Amendment to Loan and Security Agreement dated as of October 22, 2019 (collectively, the “Agreement”).
B. Borrowers have requested that Bank amend certain provisions of the Agreement, and, while Bank is under no obligation to do so, Bank is willing to amend the Agreement in accordance with and subject to the terms and conditions of this Amendment.
NOW, THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows:
1. Exhibit A to the Agreement is hereby amended by (i) deleting the following definitions: “Borrowing Base,” “Eligible Inventory,” “Growth Capital Advance.” “Growth Capital Availability End Date,” “Growth Capital Line,” “Growth Capital Maturity Date,” “Liquidity,” “Non-Formula Amount,” “Revolving Line Extension Conditions” and “Texas Warehouse Inventory,” and (ii) adding, or amending and restating the following defined terms to read as follows:
“CEA” means the Commodity Exchange Act.
“Consolidated Net Income (or Deficit)” means the consolidated net income (or deficit) of any Person and its Subsidiaries, after deduction of all expenses, taxes, and other proper charges, determined in accordance with GAAP, after eliminating therefrom all extraordinary nonrecurring items of income.
“Consolidated Total Interest Expense” means with respect to any Person for any period, the aggregate amount of interest required to be paid or accrued by such Person and its Subsidiaries during such period on all Indebtedness of such Person and its Subsidiaries outstanding during all or any part of such period, whether such interest was or is required
to be reflected as an item of expense or capitalized, including payments consisting of interest in respect of any capitalized lease or any synthetic lease, and including commitment fees, agency fees, facility fees, balance deficiency fees and similar fees or expenses in connection with the borrowing of money.
“Credit Extension” means each Advance or any other extension of credit by Bank to or for the benefit of any Borrower hereunder.
“EBITDA” means with respect to any fiscal period an amount equal to the sum of (a) Consolidated Net Income of Borrowers and their Subsidiaries for such fiscal period, plus (b) in each case to the extent deducted in the calculation of the Borrowers’ Consolidated Net Income and without duplication, (i) depreciation and amortization for such period, plus (ii) income tax expense for such period, plus (iii) Consolidated Total Interest Expense paid during such period, plus (iv) non-cash stock compensation expense, including expense associated with equity awards (including but not limited to stock options and restricted stock units) or resulting from the sale of stock in Borrower, plus (v) non-cash rental expense relating to changes in Borrowers’ deferred rent liabilities (provided however, for the avoidance of doubt, there shall be no add-back for cash rent expense paid during such period), and minus, (c) to the extent added in the calculation of Consolidated Net Income, and without duplication, (i) any non-cash income or gains relating to changes to Borrowers’ deferred rent liabilities, plus (ii) all extraordinary and non-recurring revenue and gains outside of Borrower’s normal course of business (including income tax benefits) for such period, all as determined in accordance with GAAP.
“Eighth Amendment Closing Date” means December 23, 2019.
“Excluded Swap Obligation” means, with respect to any given Borrower, any Swap Obligation, if, and to the extent that, all or a portion of the guarantee of by such Borrower of, the grant by such Borrower of a security interest to secure, or such Borrower being jointly and severally liable (or acting as a co-borrower hereunder) with respect to, such Swap Obligation (or any guarantee thereof) is or becomes illegal under the CEA, 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 Borrower’s failure for any reason to constitute an “eligible contract participant,” as defined in Section 1a(18) of the CEA and the regulations thereunder, at the time such guarantee, joint and several liability, co-borrower status, or such security interest grant becomes effective with respect to such related Swap Obligation (such determination being made after giving effect to any applicable keepwell, support, or other agreement for the benefit of the applicable Borrower). If any such Swap Obligation arises under a master agreement governing more than one swap, the foregoing exclusion shall apply only to those Swap Obligations that are attributable to swaps in respect of which such other Borrower’s guaranteeing of, or such other Borrower’s granting of a security interest or lien to secure, or such other Borrower being a co-borrower or jointly and severally liable with respect to, such swaps is or becomes illegal.
“Obligations” means all debt, principal, interest, Bank Expenses and other amounts owed to Bank by any Borrower pursuant to this Agreement or any other agreement,
whether absolute or contingent, due or to become due, now existing or hereafter arising, including any interest that accrues after the commencement of an Insolvency Proceeding and including any debt, liability, or obligation owing from any Borrower to others that Bank may have obtained by assignment or otherwise, but excluding any Warrant. The term “Obligations” as applied to any particular Borrower shall not include any Excluded Swap Obligation with respect to such Borrower.
“Pricing Addendum” means that certain LIBOR/Prime Referenced Rate Addendum to Loan and Security Agreement, by and between Bank and Borrowers, dated as of the Eighth Amendment Closing Date, as amended, modified, supplemented or restated from time to time.
“Qualified Borrower” means, at any time, each Borrower with total assets exceeding $10,000,000 or that qualifies at such time as an “eligible contract participant” under the CEA and can cause another Person to qualify as an “eligible contract participant” at such time under Section 1a(18)(A)(v)(II) of the CEA.
“Revolving Line” means a Credit Extension of up to Fifty Million Dollars ($50,000,000) (inclusive of the aggregate face amount of Letters of Credit issued under the Letter of Credit Sublimit, and the aggregate limits of the corporate credit cards issued to any Borrower and merchant credit card processing reserves under the Credit Card Services Sublimit).
“Revolving Maturity Date” means December 23, 2022.
“Specified Borrower” means any Borrower that is not then an “eligible contract participant” under the CEA (determined prior to giving effect to Section 14.9).
“Specified Hedging Agreement” means any agreement or other documentation between the Borrower (or any of them) and Bank providing for an interest rate swap that does not provide for a minimum rate of zero percent (0%) with respect to determinations of the Daily Adjusting LIBOR Rate, for the purposes of such interest rate swap (e.g., determines the floating amount by using the “negative interest method” rather than the “zero interest rate method” in the case of any such interest rate swap made under any master agreement or other documentation published by the International Swaps and Derivatives Association, Inc.).
“Swap Obligation” means, with respect to any Borrower, 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 CEA.
2. Exhibit A to the Agreement is hereby amended by amending and restating in their entirety clause (e) and clause (f) of the definition of “Permitted Investment” to read as follows:
(e) (i) Investments by Parent in WPRI in the ordinary course of business in an aggregate amount not to exceed Five Hundred Thousand Dollars ($500,000) in any fiscal year; (ii) Investments of wholly-owned Subsidiaries in or to other wholly-owned Subsidiaries or Borrowers in the ordinary course of business and (iii) Investments by
Borrowers in other wholly-owned Subsidiaries that have complied with Section 6.10, including the execution and delivery of an unconditional guaranty and security agreement in favor of Bank in form reasonably satisfactory to Bank, in an aggregate amount (taken together with Investments under clause (i) above) not to exceed Five Hundred Thousand Dollars ($500,000) in the aggregate in any fiscal year;
(f) Investments consisting of (i) travel advances and employee relocation loans and other employee loans and advances in the ordinary course of business not to exceed Five Hundred Thousand Dollars ($500,000) in the aggregate in any fiscal year, and (ii) loans to employees, officers or directors relating to the purchase of equity securities of Parent pursuant to employee stock purchase plan agreements approved by Parent’s Board of Directors or any committee thereof not to exceed Thirty Million Dollars ($30,000,000) in the aggregate in any fiscal year provided that such loans are cashless (other than cash payments to Parent by the obligor in repayment of such loans);
3. Section 2.1(b)(i) of the Agreement is hereby amended and restated in its entirety to read as follows:
(i) Amount. Subject to and upon the terms and conditions of this Agreement, Borrowers may request Advances in an aggregate outstanding amount not to exceed the Revolving Line, less the aggregate face amount of Letters of Credit issued under the Letter of Credit Sublimit, and the aggregate limits of the corporate credit cards issued to any Borrower and merchant credit card processing reserves under the Credit Card Services Sublimit. Except as set forth in the Pricing Addendum amounts borrowed pursuant to this Section 2.1(b) may be repaid and reborrowed at any time without penalty or premium prior to the Revolving Maturity Date, at which time all Advances under this Section 2.1(b) shall be immediately due and payable.
4. Section 2.1(c) of the Agreement is hereby amended and restated in its entirety to read as follows:
(c) [Reserved].
5. Section 2.2 of the Agreement is hereby amended and restated in its entirety to read as follows:
2.2 Overadvances. If at any time the aggregate amount of the outstanding Advances exceeds the amount equal to the Revolving Line minus the aggregate face amount of Letters of Credit issued under the Letter of Credit Sublimit and minus the aggregate limits of the corporate credit cards issued to Borrowers and merchant credit card processing reserves under the Credit Card Services Sublimit, Borrowers shall immediately pay to Bank, in cash, the amount of such excess. In addition, if at any time (a) the amount equal to the sum of the outstanding face amount of all Letters of Credit plus the aggregate limits of the corporate credit cards issued to Borrowers and merchant credit card processing reserves under the Credit Card Services Sublimit, exceeds (b) Fifteen Million Dollars ($15,000,000), Borrowers shall immediately provide to Bank cash collateral in an amount equal to 105% of the amount of such excess, to secure such Obligations.
6. Section 2.3(a) of the Agreement is hereby amended and restated in its entirety to read as follows:
(a) Interest Rates.
(i) Advances. The Advances shall bear interest, on the outstanding daily balance thereof, on the terms set forth in the Pricing Addendum.
7. Section 2.5 of the Agreement is hereby amended by renumbering clause (b) as clause (c), and inserting a new Section 2.5(b) to read as follows:
(b) Unused Facility Fee. A quarterly Unused Facility Fee equal to twenty hundredths of one percent (0.20%) per annum of the difference between (i) the Revolving Line and (ii) the average daily outstanding principal balance of the Advances (inclusive of sublimit utilization) during the applicable quarter (or partial quarter), which fee shall be payable in arrears within five (5) Business Days of the last day of each such quarter (or on the Revolving Maturity Date or date of termination of the Revolving Line for the partial quarter then ended) and shall be nonrefundable; provided that the Unused Facility Fee shall not accrue and be payable for any quarter during which the aggregate average daily outstanding principal amount of the Advances (inclusive of sublimit utilization) exceeds Fifteen Million ($15,000,000); and
8. Section 3.2(c) of the Agreement is hereby amended and restated in its entirety to read as follows:
(c) [Reserved]; and
9. Section 5.3 of the Agreement is hereby amended and restated in its entirety to read as follows:
5.3 Collateral. Each Borrower has rights in or the power to transfer the Collateral, and its title to the Collateral is free and clear of Liens, adverse claims, and restrictions on transfer or pledge except for Permitted Liens. All Collateral is located solely in the Collateral States at the locations specified in the Collateral Information Certificate, and at such other locations as may be timely disclosed in writing to Bank pursuant to Section 7.2. The Accounts are bona fide existing obligations of the account debtors. No licenses or agreements giving rise to any Accounts is with any Prohibited Territory or with any Person organized under or doing business in a Prohibited Territory. All Inventory is in all material respects of good and merchantable quality, free from all material defects, except for Inventory for which adequate reserves have been made. Except as set forth in the Schedule or as disclosed in writing from time to time with respect to accounts maintained outside of Bank to the extent expressly permitted under Section 6.6, none of the Collateral consisting of deposit, investment or securities accounts is maintained or invested with a Person other than Bank or Bank’s Affiliates.
10. Section 6.2(b) of the Agreement is hereby amended and restated in its entirety to read as follows:
(b) [reserved];
11. The last paragraph of Section 6.2 of the Agreement is hereby amended and restated in its entirety to read as follows:
Borrowers may deliver to Bank on an electronic basis any certificates, reports or information required pursuant to this Section 6.2, and Bank shall be entitled to rely on the information contained in the electronic files, provided that Bank in good faith believes that the files were delivered by a Responsible Officer. If any Borrower delivers this information electronically, it shall also deliver to Bank by U.S. Mail, reputable overnight courier service, hand delivery, facsimile or.pdf file within five (5) Business Days of submission of the unsigned electronic copy the certification of monthly financial statements, and the Compliance Certificate, each bearing the physical signature of the Responsible Officer.
12. Section 6.6 of the Agreement is hereby amended and restated in its entirety to read as follows:
6.6 Borrower shall maintain all its, and shall cause all of its Subsidiaries to maintain their, depository, operating, cash management accounts with Bank and all of its and their investment and securities accounts with Bank; provided, however, that so long as Borrowers at all times maintain at least Ten Million Dollars ($10,000,000) in Net Cash in deposit accounts with Bank or Bank’s affiliates covered by account control agreement(s) in a form satisfactory to Bank, Borrowers may maintain up to Thirty Million Dollars ($30,000,000) in deposit and investment balances in accounts outside of Bank, and, so long as no Event of Default exists, no account control agreements shall be required with respect to such accounts. Upon request of Bank Borrower shall promptly, and in any event within two (2) Business Days of request by Bank, provide Bank with a true, correct and complete listing of all deposit and securities accounts maintained outside of Bank by Borrower or any of its Subsidiaries.
13. Section 6.7 of the Agreement is hereby amended and restated in its entirety to read as follows:
6.7 Financial Covenants. At all times following the date on which the aggregate outstanding amount of the Obligations first exceeds Thirty Five Million Dollars ($35,000,000) (including amounts outstanding under the Letter of Credit Sublimit and Credit Card Sublimit), Borrowers shall achieve and maintain EBITDA, tested as of the last day of each calendar quarter, for the twelve month period ending on such date, of not less than the following amounts:
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Twelve Month Period Ending
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EBITDA
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December 31, 2019
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$12,500,000
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March 31, 2020
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$12,500,000
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June 30, 2020
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$12,500,000
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September 30, 2020
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$12,500,000
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December 31, 2020
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$12,500,000
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March 31, 2021
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$15,000,000
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June 30, 2021
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$15,000,000
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September 30, 2021
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$15,000,000
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December 31, 2021
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$15,000,000
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March 31, 2022
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$17,500,000
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June 30, 2022
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$17,500,000
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September 30, 2022
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$17,500,000
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December 31, 2022
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$17,500,000
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For the avoidance of doubt no financial covenants under this Section 6.7 shall apply at any time prior to the date on which the aggregate outstanding amount of the Obligations first exceeds Thirty Five Million Dollars ($35,000,000) (including amounts outstanding under the Letter of Credit Sublimit and Credit Card Sublimit).
14. Section 7.3 of the Agreement is hereby amended and restated in its entirety to read as follows:
7.3 Mergers or Acquisitions. Merge, divide or consolidate, or permit any of its Subsidiaries to merge, divide or consolidate, with or into any other business organization (other than mergers or consolidations of a Subsidiary into another Subsidiary or into Borrower), or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the Equity Interests or property of another Person, or enter into any agreement to do any of the same. Notwithstanding the foregoing, a Change in Control shall not result in a violation of Sections 7.2 or 7.3 if prior to or concurrent with such Change in Control, the Obligations are indefeasibly paid in full in cash, Bank’s obligation to extend credit or provide credit accommodations to any Borrower or any of their respective Subsidiaries has been terminated to the satisfaction of Bank, and this Agreement and the other Loan Documents have terminated.
15. Section 7.10 of the Agreement is hereby amended by deleting the words “(which shall not be deemed Eligible Inventory)” from clause (x) in the last sentence thereof.
16. Section 9.1(f) of the Agreement is hereby amended and restated in its entirety to read as follows:
(f) Set off and apply to the Obligations any and all (i) payments received by Bank, (ii) balances and deposits of Borrower held by Bank, and (iii) indebtedness at any time owing to or for the credit or the account of Borrower held by Bank;
17. Section 12.6 of the Agreement is hereby amended and restated in its entirety to read as follows:
12.6 The referee will have power to expand or limit the amount and duration of discovery. The referee may set or extend discovery deadlines or cutoffs for good cause, including a party’s failure to provide requested discovery for any reason whatsoever. Unless otherwise ordered based upon good cause shown, no party shall be entitled to “priority” in conducting discovery, depositions may be taken by either party upon seven (7) days written notice, and all other discovery shall be responded to within fifteen (15) days after service. All disputes relating to discovery which cannot be resolved by the parties shall be submitted to the referee whose decision shall be final and binding.
18. New Section 13.10 is hereby added to the Agreement, as follows:
13.10 Final Agreement. This Agreement, together with the Loan Documents, entered into by and between Bank and Borrowers with respect to the subject matter contained herein constitutes the entire understanding among the parties with respect to the subject matter hereof. This Agreement supersedes any and all prior oral or written agreements relating to the subject matter hereof.
19. Section 14.1 of the Agreement is hereby amended and restated in its entirety to read as follows:
14.1 Primary Obligation. This Agreement is a primary and original obligation of each Borrower and shall remain in effect notwithstanding future changes in conditions, including any change of law or any invalidity or irregularity in the creation or acquisition of any Obligations or in the execution or delivery of any agreement between Bank and any Borrower. Each Borrower shall be liable for existing and future Obligations as fully as if all of all Credit Extensions were advanced to such Borrower. Bank may rely on any certificate or representation made by any Borrower as made on behalf of, and binding on, all Borrowers, including without limitation Disbursement Request Forms, and Compliance Certificates. Furthermore, the successful operation of each Borrower is dependent on the continued successful performance of the integrated group of Borrowers, such that each Borrower will benefit from any Credit Extensions Bank makes to another Borrower.
20. A new Section 14.9 is hereby added to the Agreement, as follows:
14.9 Keepwell. Each Borrower that is a Qualified Borrower at the time the guaranty, co-Borrower status (or incurrence of joint and several liability), or the grant of a Lien under the Loan Documents, in each case, by any Specified Borrower becomes effective with respect to any Swap Obligation, hereby jointly and severally, absolutely, unconditionally and irrevocably undertakes to provide such funds or other support to each Specified Borrower with respect to such Swap Obligation as may be needed by such Specified Borrower from time to time to honor all of its obligations under the Loan Documents in respect of such Swap Obligation (but, in each case, only up to the maximum amount of such liability that can be hereby incurred without rendering such Qualified Borrower’s obligations and undertakings under this Section 14 voidable under applicable law relating to fraudulent conveyance or fraudulent transfer, and not for any greater amount). The obligations and undertakings of each Qualified Borrower under this Section shall remain in full force and effect until the Obligations have been indefeasibly
paid and performed in full in cash. Each Borrower intends this Section to constitute, and this Section shall be deemed to constitute, a guarantee of the obligations of, and a “keepwell, support, or other agreement” for the benefit of, each Specified Borrower for all purposes of the CEA.
21. Exhibit D to the Agreement is hereby deleted in its entirety.
22. Exhibit E to the Agreement is hereby amended, restated and replaced with Exhibit E attached hereto.
23. Release.
23.1 Each Borrower acknowledges that Bank would not enter into this Amendment without such Borrower’s assurance hereunder. Each Borrower hereby absolutely discharges and releases Bank, any person or entity that has obtained any interest from Bank under the Agreement and each of Bank’s and such entity’s former and present partners, stockholders, officers, directors, employees, successors, assignees, agents and attorneys from any known claims which any Borrower now has against Bank of any nature, whether founded in contract, in tort or pursuant to any other theory of liability, including but not limited to any claims arising out of or related to the Agreement or the transactions contemplated thereby.
23.2 [Reserved].
23.3 The provisions, waivers and releases set forth in this section are binding upon each Borrower and each Borrower’s stockholders, agents, employees, assigns and successors in interest. The provisions, waivers and releases of this section shall inure to the benefit of Bank and its agents, employees, officers, directors, assigns and successors in interest.
23.4 Each Borrower warrants and represents that Borrower is the sole and lawful owner of all right, title and interest in and to all of the claims released hereby and no Borrower has heretofore voluntarily, by operation of law or otherwise, assigned or transferred or purported to assign or transfer to any person any such claim or any portion thereof. Each Borrower shall indemnify and hold harmless Bank from and against any claim, demand, damage, debt, liability (including payment of attorneys’ fees and costs actually incurred whether or not litigation is commenced) based on or arising out of any assignment or transfer.
23.5 The provisions of this section shall survive payment in full of the Obligations, full performance of all the terms of this Amendment and the Agreement, and/or Bank’s actions to exercise any remedy available under the Agreement or otherwise.
24. In order to induce Bank to enter into this Amendment, each Borrower hereby represents and warrants to Bank as follows:
24.1 The representations and warranties contained in the Agreement and the other Loan Documents were true and correct in all material respects when made and
continue to be true and correct in all material respects as of the date of this Amendment (provided, however, that those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of such date).
24.2 Both before and immediately after giving effect to this Amendment and the other transactions contemplated hereby, no Event of Default, or other event or circumstance that with the giving of notice or the passage of time could become an Event of Default, has occurred and is continuing.
24.3 The execution, delivery, and performance by Borrowers of this Amendment and the other documents, instruments and agreements delivered or to be delivered to Bank in connection herewith (i) are within the corporate powers of each Borrower and have been duly authorized by all necessary corporate action on the part of Borrower, (ii) do not require any governmental or third party consents, except those which have been duly obtained and are in full force and effect, (iii) do not and will not conflict with any requirement of law, any Borrower’s articles or certificate of incorporation, bylaws, partnership agreement, operating agreement, minutes or resolutions, (iv) after giving effect to this Amendment, do not result in any breach of or constitute a default under any agreement or instrument to which any Borrower or any of their Subsidiaries is a party or by which any Borrower or any of their Subsidiaries or their respective properties are bound, and (v) do not result in or require the creation or imposition of any mortgage, deed of trust, pledge, lien, security interest or other charge or encumbrance of any nature upon any of the assets or properties of any Borrower, other than those in favor of Bank.
24.4 This Amendment and the other instruments and agreements delivered or to be delivered to Bank in connection herewith have been duly executed and delivered by each Borrower and constitute the legal, valid, and binding obligation of each Borrower, enforceable against Borrower in accordance with their respective terms, except to the extent that (i) enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws of general application affecting the rights and remedies of creditors, (ii) enforcement may be subject to general principles of equity, and (iii) the availability of the remedies of specific performance and injunctive relief may be subject to the discretion of the court before which any proceedings for such remedies may be brought.
24.5 No Borrower has any right of offset, defense, counterclaim, dispute or disagreement of any kind or nature whatsoever with respect to any of its liabilities, obligations or indebtedness arising under or in connection with any Loan Document.
25. As a condition to the effectiveness of this Amendment, Bank shall have received, in form and substance satisfactory to Bank, the following:
(a) this Amendment, duly executed by each Borrower;
(b) the Pricing Addendum, duly executed by each Borrower;
(c) an officer’s certificate of each Borrower with respect to incumbency and resolutions authorizing the execution and delivery of this Amendment;
(d) all Bank Expenses incurred through the date of this Amendment, which may be debited from any of Borrower’s accounts; and
(e) such other documents, instruments, and certificates and completion of such other matters, as Bank may reasonably deem necessary or appropriate.
26. This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument.
[Remainder of Page Left Blank]
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the first date above written.
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JAND, INC.
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By:
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/s/ Steve Miller
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Title:
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CFO
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WARBY PARKER RETAIL, INC.
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By:
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/s/ Steve Miller
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Title:
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CFO
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COMERICA BANK
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By:
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Title:
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[Signature Page to Eighth Amendment to Loan and Security Agreement]
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the first date above written.
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JAND, INC.
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By:
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Title:
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WARBY PARKER RETAIL, INC.
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By:
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Title:
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COMERICA BANK
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By:
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/s/ Jason Pan
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Title:
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Vice President
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[Signature Page to Eighth Amendment to Loan and Security Agreement]
EXHIBIT E
COMPLIANCE CERTIFICATE
Please send all Required Reporting to: Comerica Bank
Technology & Life Sciences Division Loan
Analysis Department 250 Lytton Avenue, 3rd Floor,
Mail Code 4240 Palo Alto, CA 94301
Phone: [(***) ***-****]
Fax: [(***) ***-****]
FROM: JAND, INC., for and on behalf of all co-Borrowers
The undersigned authorized Officer of JAND, INC. (“Borrower”), for an on behalf of all Borrowers under the Agreement (as defined below), hereby certifies that in accordance with the terms and conditions of the Loan and Security Agreement among Borrower, the other Borrowers and Bank (the “Agreement”), (i) each Borrower is in complete compliance for the period ending ___________________________________ with all required covenants, including without limitation the ongoing registration of intellectual property rights in accordance with Section 6.8, except as noted below and (ii) all representations and warranties of each Borrower stated in the Agreement are true and correct in all material respects on and as of the date hereof as though made at and as of each such date (provided, however, that those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of such date). Attached herewith are the required documents supporting the above certification. The Officer further certifies that these are prepared in accordance with Generally Accepted Accounting Principles (GAAP) and are consistently applied from one period to the next except as explained in an accompanying letter or footnotes.
Please indicate compliance status by circling Yes/No under “Complies” or “Applicable” column.
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MONTHLY REPORTING COVENANTS
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REQUIRED
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Not Limited Reporting Period
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Company Prepared Monthly
F/S
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Monthly, within 30 days
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YES
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NO
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Compliance Certificate
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Monthly, within 30 days
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YES
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NO
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Limited Reporting Period
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Company Prepared Monthly
F/S
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Quarterly, within 30 days
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Compliance Certificate
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Quarterly, within 30 days
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PERIODIC REPORTING COVENANTS
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REQUIRED
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Annual Business Plan (incl. operating budget)
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By March 15 of each year
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NOT IN EFFECT THIS PERIOD
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YES
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NO
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CPA Audited, Unqualified F/S
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By August 31 of each year
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NOT IN EFFECT THIS PERIOD
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YES
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NO
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Audit
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Semi-annual
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YES
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NO
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This section only to be required and filled out if Public:
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10-Q
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Quarterly, within 5 days of SEC filing (50 days)
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YES
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NO
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10-K
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Annually, within 5 days of SEC filing (95 days)
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YES
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NO
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ACCOUNTS 6.6
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REQUIRED
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ACTUAL VALVES TO BE ENTERED BELOW
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Total amount of Borrower’s cash and investments
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See Loan Agreement
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Amount: $____________________
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YES
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NO
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Total amount of Borrower’s cash and investments maintained with Bank
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See Loan Agreement
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Amount: $____________________
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YES
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NO
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DESCRIPTION
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APPLICABLE
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Legal Action > $300,000
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Notify promptly upon notice
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__________________________
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YES
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NO
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Inventory Disputes > $100,000
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Notify promptly upon notice
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__________________________
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YES
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NO
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Cross default with other agreements >$300,000
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Notify promptly upon notice
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__________________________
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YES
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NO
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Judgments; Settlements > $3,000,000
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Notify promptly upon notice
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__________________________
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YES
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NO
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FINANCIAL COVENANTS
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REQUIRED
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ACTUAL
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COMPLIES
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TO BE TESTED MONTHLY, UNLESS OTHERWISE NOTED:
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YES
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NO
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Minimum EBITDA
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See Section 6.7
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$_________________________
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YES
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NO
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OTHER COVENANTS
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REQUIRED
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ACTUAL
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COMPLIES
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Permitted Indebtedness for equipment leases
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<$2,000,000
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__________________________
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YES
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NO
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Permitted Investments for stock repurchase
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<$135,000,000
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__________________________
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YES
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NO
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Permitted Investments for subsidiaries
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<$500,000
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__________________________
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YES
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NO
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Permitted Investments for travel advances
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<$500,000
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__________________________
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YES
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NO
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Permitted Investments for employee loans (cashless)
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<$30,000,000
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__________________________
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YES
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NO
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Permitted Investments for joint ventures
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<$500,000
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__________________________
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YES
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NO
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Permitted Liens for equipment leases
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<$2,000,000
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__________________________
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YES
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NO
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Permitted Transfers
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<$300,000
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__________________________
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YES
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NO
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Please Enter Below Comments Regarding Violations:
The Officer further acknowledges that at any time Borrower is not in compliance with all the terms set forth in the Agreement, including, without limitation, the financial covenants, no credit extensions will be made.
Very truly yours,
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/s/ Steve Miller
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Authorized Signer
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Name:
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Steve Miller
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Title:
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CFO
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NINTH AMENDMENT TO
LOAN AND SECURITY AGREEMENT
This Ninth Amendment to Loan and Security Agreement (this “Amendment”) is entered into as of March 1, 2021, by and among COMERICA BANK (“Bank”), JAND, INC., a Delaware corporation (“Parent”) and WARBY PARKER RETAIL, INC., a Delaware corporation (“WPRI”; or together with Parent each a “Borrower” and collectively the “Borrowers”).
RECITALS
A. Borrowers and Bank are parties to that certain Loan and Security Agreement dated as of August 13, 2013, as amended, modified, supplemented, extended or restated from time to time including by that certain First Amendment to Loan and Security Agreement dated as of November 13, 2014, that certain Second Amendment to Loan and Security Agreement dated as of March 31, 2016, that certain Third Amendment to Loan and Security Agreement dated as of August 10, 2017, that certain Fourth Amendment to Loan and Security Agreement dated as of September 10, 2018, that certain Fifth Amendment and Waiver to Loan and Security Agreement dated as of March 29, 2019, that certain Sixth Amendment to Loan and Security Agreement dated as of June 18, 2019, that certain Seventh Amendment to Loan and Security Agreement dated as of October 22, 2019 and that certain Eight Amendment to Loan and Security Agreement, dated as of December 23, 2019 (collectively, the “Agreement”).
B. Borrowers have requested that Bank amend certain provisions of the Agreement, and, while Bank is under no obligation to do so, Bank is willing to amend the Agreement in accordance with and subject to the terms and conditions of this Amendment.
NOW, THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows:
1. Exhibit A to the Agreement is hereby amended by amending and restating in its entirety clause (f) of the definition of “Permitted Investment” to read as follows:
(f) Investments consisting of (i) travel advances and employee relocation loans and other employee loans and advances in the ordinary course of business not to exceed Five Hundred Thousand Dollars ($500,000) in the aggregate in any fiscal year, and (ii) loans to employees, officers or directors relating to the purchase of equity securities of Parent pursuant to employee stock purchase plan agreements approved by Parent’s Board of Directors or any committee thereof provided that such loans are cashless (other than cash payments to Parent by the obligor in repayment of such loans);
2. New Section 13.11 is hereby added to the Agreement to read as follows:
13.11 Electronic Signatures. The parties agree that this Agreement may be executed by electronic signatures. The parties further agree that the electronic signature of a party to this Agreement shall be as valid as an original manually executed signature of such party and shall be effective to bind such party to this Agreement, and that any
electronically signed document (including this Agreement) shall be deemed (i) to be “written” or “in writing,” and (ii) to have been “signed” or “duly executed”. For purposes hereof, “electronic signature” means a manually-signed original signature that is then transmitted by electronic means or a signature through an electronic signature technology platform. Notwithstanding the foregoing, Bank may require original manually executed signatures.
3. Exhibit E to the Agreement is hereby amended, restated and replaced with Exhibit E attached hereto.
4. Release.
4.1 Each Borrower acknowledges that Bank would not enter into this Amendment without such Borrower’s assurance hereunder. Each Borrower hereby absolutely discharges and releases Bank, any person or entity that has obtained any interest from Bank under the Agreement and each of Bank’s and such entity’s former and present partners, stockholders, officers, directors, employees, successors, assignees, agents and attorneys from any known claims which any Borrower now has against Bank of any nature, whether founded in contract, in tort or pursuant to any other theory of liability, including but not limited to any claims arising out of or related to the Agreement or the transactions contemplated thereby.
4.2 [Reserved].
4.3 The provisions, waivers and releases set forth in this section are binding upon each Borrower and each Borrower’s stockholders, agents, employees, assigns and successors in interest. The provisions, waivers and releases of this section shall inure to the benefit of Bank and its agents, employees, officers, directors, assigns and successors in interest.
4.4 Each Borrower warrants and represents that Borrower is the sole and lawful owner of all right, title and interest in and to all of the claims released hereby and no Borrower has heretofore voluntarily, by operation of law or otherwise, assigned or transferred or purported to assign or transfer to any person any such claim or any portion thereof. Each Borrower shall indemnify and hold harmless Bank from and against any claim, demand, damage, debt, liability (including payment of attorneys’ fees and costs actually incurred whether or not litigation is commenced) based on or arising out of any assignment or transfer.
4.5 The provisions of this section shall survive payment in full of the Obligations, full performance of all the terms of this Amendment and the Agreement, and/or Bank’s actions to exercise any remedy available under the Agreement or otherwise.
5. In order to induce Bank to enter into this Amendment, each Borrower hereby represents and warrants to Bank as follows:
5.1 The representations and warranties contained in the Agreement and the other Loan Documents were true and correct in all material respects when made and continue to be true and correct in all material respects as of the date of this Amendment (provided, however, that those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of such date).
5.2 Both before and immediately after giving effect to this Amendment and the other transactions contemplated hereby, no Event of Default, or other event or circumstance that with the giving of notice or the passage of time could become an Event of Default, has occurred and is continuing.
5.3 The execution, delivery, and performance by Borrowers of this Amendment and the other documents, instruments and agreements delivered or to be delivered to Bank in connection herewith (i) are within the corporate powers of each Borrower and have been duly authorized by all necessary corporate action on the part of Borrower, (ii) do not require any governmental or third party consents, except those which have been duly obtained and are in full force and effect, (iii) do not and will not conflict with any requirement of law, any Borrower’s articles or certificate of incorporation, bylaws, partnership agreement, operating agreement, minutes or resolutions, (iv) after giving effect to this Amendment, do not result in any breach of or constitute a default under any agreement or instrument to which any Borrower or any of their Subsidiaries is a party or by which any Borrower or any of their Subsidiaries or their respective properties are bound, and (v) do not result in or require the creation or imposition of any mortgage, deed of trust, pledge, lien, security interest or other charge or encumbrance of any nature upon any of the assets or properties of any Borrower, other than those in favor of Bank.
5.4 This Amendment and the other instruments and agreements delivered or to be delivered to Bank in connection herewith have been duly executed and delivered by each Borrower and constitute the legal, valid, and binding obligation of each Borrower, enforceable against Borrower in accordance with their respective terms, except to the extent that (i) enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws of general application affecting the rights and remedies of creditors, (ii) enforcement may be subject to general principles of equity, and (iii) the availability of the remedies of specific performance and injunctive relief may be subject to the discretion of the court before which any proceedings for such remedies may be brought.
5.5 No Borrower has any right of offset, defense, counterclaim, dispute or disagreement of any kind or nature whatsoever with respect to any of its liabilities, obligations or indebtedness arising under or in connection with any Loan Document.
6. As a condition to the effectiveness of this Amendment, Bank shall have received, in form and substance satisfactory to Bank, the following:
(a) this Amendment, duly executed by each Borrower;
(b) an officer’s certificate of each Borrower with respect to incumbency and resolutions authorizing the execution and delivery of this Amendment;
(c) all Bank Expenses incurred through the date of this Amendment, which may be debited from any of Borrower’s accounts; and
(d) such other documents, instruments, and certificates and completion of such other matters, as Bank may reasonably deem necessary or appropriate.
7. The parties agree that this Amendment may be executed by electronic signatures. The parties further agree that the electronic signature of a party to this Amendment shall be as valid as an original manually executed signature of such party and shall be effective to bind such party to this Amendment, and that any electronically signed document (including this Amendment) shall be deemed (i) to be “written” or “in writing,” and (ii) to have been “signed” or “duly executed”. For purposes hereof, “electronic signature” means a manually-signed original signature that is then transmitted by electronic means or a signature through an electronic signature technology platform. Notwithstanding the foregoing, Bank may require original manually executed signatures.
8. This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument.
[Remainder of Page Left Blank]
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the first date above written. Borrower acknowledges and agrees that Borrower’s electronic signature below indicates Borrower’s agreement to, and intention to be legally bound by, all of the terms and conditions of this Amendment.
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JAND, INC.
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By:
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/s/ Hyung Bak
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Name:
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Hyung Bak
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Title:
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Secretary
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WARBY PARKER RETAIL, INC.
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By:
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/s/ Hyung Bak
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Name:
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Hyung Bak
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Title:
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Secretary
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COMERICA BANK
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By:
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/s/ Jason Pan
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Name:
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Jason Pan
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Title:
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Senior Vice President
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[Signature Page to Ninth Amendment to Loan and Security Agreement]
EXHIBIT E
COMPLIANCE CERTIFICATE
Please send all Required Reporting to: Comerica Bank
Technology & Life Sciences Division
Loan Analysis Department
250 Lytton Avenue, 3rd Floor, Mail Code 4240
Palo Alto, CA 94301
Phone: [(***) ***-****]
Fax: [(***) ***-****]
FROM: JAND, INC., for and on behalf of all co-Borrowers
The undersigned authorized Officer of JAND, INC. (“Borrower”), for an on behalf of all Borrowers under the Agreement (as defined below), hereby certifies that in accordance with the terms and conditions of the Loan and Security Agreement among Borrower, the other Borrowers and Bank (the “Agreement”), (i) each Borrower is in complete compliance for the period ending ________________________ with all required covenants, including without limitation the ongoing registration of intellectual property rights in accordance with Section 6.8, except as noted below and (ii) all representations and warranties of each Borrower stated in the Agreement are true and correct in all material respects on and as of the date hereof as though made at and as of each such date (provided, however, that those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of such date). Attached herewith are the required documents supporting the above certification. The Officer further certifies that these are prepared in accordance with Generally Accepted Accounting Principles (GAAP) and are consistently applied from one period to the next except as explained in an accompanying letter or footnotes.
Please indicate compliance status by circling Yes/No under “Complies” or “Applicable” column.
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MONTHLY REPORTING COVENANTS
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REQUIRED
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Not Limited Reporting Period
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Company Prepared F/S
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Monthly, within 30 days*
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☐ YES
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☐ NO
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Compliance Certificate
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Monthly, within 30 days*
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☐ YES
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☐ NO
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Limited Reporting Period
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Company Prepared F/S
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Quarterly, within 30 days*
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☐ YES
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☐ NO
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Compliance Certificate
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Quarterly, within 30 days*
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☐ YES
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☐ NO
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PERIODIC REPORTING COVENANTS
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REQUIRED
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Annual Business Plan (incl. operating budget)
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By March 15 of each year
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☐ NOT IN EFFECT THIS PERIOD
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☐ YES
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☐ NO
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CPA Audited, Unqualified F/S
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By August 31 of each year
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☐ NOT IN EFFECT THIS PERIOD
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☐ YES
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☐ NO
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Audit
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Semi-annual
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☐ YES
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☐ NO
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This section only to be required and filled out if Public:
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10-Q
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Quarterly, within 5 days of SEC filing (50 days)
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☐ YES
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☐ NO
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10-K
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Annually, within 5 days of SEC filing (95 days)
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☐ YES
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☐ NO
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ACCOUNTS 6.6
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REQUIRED
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ACTUAL VALUES TO BE ENTERED BELOW
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Total amount of Borrower’s cash and investments
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See Loan Agreement
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Amount: $ __________
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☐ YES
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☐ NO
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Total amount of Borrower’s cash and investments maintained with Bank
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See Loan Agreement
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Amount: $ __________
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☐ YES
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☐ NO
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DESCRIPTION
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APPLICABLE
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Legal Action > $300,000
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Notify promptly upon notice
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__________________
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☐ YES
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☐ NO
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Inventory Disputes > $100,000
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Notify promptly upon notice
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__________________
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☐ YES
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☐ NO
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Cross default with other agreements>$300,000
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Notify promptly upon notice
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__________________
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☐ YES
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☐ NO
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Judgments; Settlements > $3,000,000
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Notify promptly upon notice
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__________________
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☐ YES
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☐ NO
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FINANCIAL COVENANTS
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REQUIRED
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ACTUAL
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COMPLIES
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TO BE TESTED MONTHLY, UNLESS OTHERWISE NOTED:
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Minimum EBITDA
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See Section 6.7
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$_________________
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☐ YES
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☐ NO
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OTHER COVENANTS
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REQUIRED
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ACTUAL
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COMPLIES
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Permitted Indebtedness for equipment leases
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<$2,000,000
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__________________
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☐ YES
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☐ NO
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Permitted Investments for stock repurchase
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<$135,000,000
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__________________
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☐ YES
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☐ NO
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Permitted Investments for subsidiaries
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<$500,000
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__________________
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☐ YES
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☐ NO
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Permitted Investments for travel advances
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<$500,000
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__________________
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☐ YES
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☐ NO
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Permitted Investments for employee loans (cashless)
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No limit
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__________________
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☐ YES
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☐ NO
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Permitted Investments for joint ventures
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<$500,000
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__________________
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☐ YES
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☐ NO
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Permitted Liens for equipment leases
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<$2,000,000
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__________________
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☐ YES
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☐ NO
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Permitted Transfers
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<$300,000
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__________________
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☐ YES
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☐ NO
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Please Enter Below Comments Regarding Violations:
The Officer further acknowledges that at any time Borrower is not in compliance with all the terms set forth in the Agreement, including, without limitation, the financial covenants, no credit extensions will be made. The Officer further acknowledges and agrees that his/her electronic
signature below constitutes a true certification of the matters indicated in this Compliance Certificate.
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Very truly yours,
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Authorized Signer
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Name:
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Title:
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CORPORATION RESOLUTIONS AND INCUMBENCY CERTIFICATION
AUTHORITY TO PROCURE LOANS
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I certify that I am the duly elected and qualified Secretary of JAND, INC., a Delaware corporation (the “Corporation”), and the keeper of the records of the Corporation; that the following is a true and correct copy of resolutions duly adopted by the Board of Directors of the Corporation in accordance with its bylaws and applicable statutes.
Copy of Resolutions:
Be it Resolved, that:
1. Any (insert number required to sign) one (1) of the following (insert titles only) Chief Executive Officer, Chief Financial Officer, President, Secretary or Treasurer of the Corporation (the “Authorized Signer(s)”) are/is authorized, for, on behalf of, and in the name of the Corporation to:
(a) Negotiate and procure loans, letters of credit and other credit or financial accommodations from Comerica Bank (the “Bank”), up to an amount not exceeding $______________, in aggregate (if left blank, then unlimited), including, without limitation, that by that certain Ninth Amendment to Loan and Security Agreement dated as of March 1, 2021, which amends and modifies that certain Loan and Security Agreement dated as of August 13, 2013, as may be subsequently amended, modified, supplemented, extended or restated from time to time;
(b) Discount with the Bank, commercial or other business paper belonging to the Corporation made or drawn by or upon third parties, without limit as to amount;
(c) Purchase, sell, exchange, assign, endorse for transfer and/or deliver certificates and/or instruments representing stocks, bonds, evidences of Indebtedness or other securities owned by the Corporation, whether or not registered in the name of the Corporation;
(d) Give security for any liabilities of the Corporation to the Bank by grant, security interest, assignment, lien, deed of trust or mortgage upon any real or personal property, tangible or intangible of the Corporation;
(e) Issue and/or execute one or more warrants for the purchase of the Corporation’s capital stock to Bank;
(f) Execute and deliver in form and content as may be required by the Bank any and all notes, evidences of Indebtedness, applications for letters of credit, guaranties, subordination agreements, loan and security agreements, financing statements, assignments, liens, deeds of trust, mortgages, trust receipts and other agreements, instruments or documents to carry out the purposes of these Resolutions, any or all of which may relate to all or to substantially all of the Corporation’s property and assets; and
(g) Appoint, delegate and authorize such other person(s) (the “Delegated Person(s)”) as may be designated in writing from time to time by the above referenced Authorized Signer(s), or any one or more of them, to (i) request loans, advances and/or letters of credit under any line of credit, loan or other credit or financial accommodation made available by Bank to or in favor of the Corporation, and to execute and/or deliver unto Bank, in form and content as may be required by the Bank, such agreements, instruments and documents as may be necessary or required to carry out such purposes, (ii) make loan payments for and on behalf of the Corporation, and (iii) execute and certify borrowing base certificates, account agings, inventory reports and collateral reports (together with any other documents, reports and certificates required to be delivered in connection with any of the foregoing) for and on behalf of the Corporation.
2. Said Bank be and it is authorized and directed to pay the proceeds of any such loans or discounts as directed by the Authorized Signer(s) or Delegated Person(s) (if any), whether so payable to the order of any of said Authorized Signer(s) or Delegated Person(s) (if any) in their individual capacities or not, and whether such proceeds are deposited to the individual credit of any of said Authorized Signer(s) or Delegated Person(s) (if any) or not.
3. Any and all agreements, instruments and documents previously executed and acts and things previously done to carry out the purposes of these Resolutions are ratified, confirmed and approved as the act or acts of the Corporation.
4. These Resolutions shall continue in force, and the Bank may consider the holders of said offices and their signatures to be and continue to be as set forth in a certified copy of these Resolutions delivered to the Bank, until notice to the contrary in writing is duly served on the Bank (such notice to have no effect on any action previously taken by the Bank in reliance on these Resolutions).
5. Any person, corporation or other legal entity dealing with the Bank may rely upon a certificate signed by an officer of the Bank to effect that these Resolutions and any agreement, instrument or document executed pursuant to them are still in full force and effect and binding upon the Corporation.
6. The Bank may consider the holders of the offices of the Corporation and their signatures, respectively, to be and continue to be as set forth in the Certificate of the Secretary of the Corporation until notice to the contrary in writing is duly served on the Bank.
I further certify that the following named persons (“Authorized Persons”) have been duly elected to the offices set opposite their respective names, that they continue to hold these offices at the present time and that the signatures which appear below are the genuine signatures of each respectively. I acknowledge and agree that the Authorized Persons may sign this certificate in multiple counterparts, each of which shall be deemed an original instrument, and all of which shall constitute a single certificate, and that the signature of any Authorized Signer to any counterpart shall be deemed certified by me in accordance with this certification. I or the Bank may assemble the signatures from one or more counterparts and attach them to any other counterpart for the purpose of having a single document containing all the signatures of the Authorized Signers.
Delivery of an executed counterpart of a signature to this certificate by telecopy, emailed portable document format (“pdf”), or tagged image file format (“tiff”) or any other electronic means that reproduces an image of the actual executed signature of the Authorized Signer shall be effective as delivery of an original manually executed counterpart of this certificate. I or the party sending an executed counterpart of his/her signature to this certificate by telecopy, pdf, tiff or any other electronic means shall, upon request by Bank, also send the manual original signature to Bank within five (5) days following the request, but failure to do so shall not affect my certification of such signature and incumbency of such party.
(PLEASE SUPPLY GENUINE SIGNATURES OF AUTHORIZED SIGNERS BELOW)
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NAME (Type or Print)
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TITLE
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SIGNATURE
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Hyung Bak
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Secretary
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/s/ Hyung Bak
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Steve Miller
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Chief Financial Officer
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/s/ Steve Miller
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I further certify that attached as Exhibit A hereto is a true, correct and complete copy of the Corporation’s Certificate of Incorporation (including amendments), as filed with the Delaware Secretary of State. Such Certificate of Incorporation has not been amended, annulled, rescinded, revoked or supplemented, and remains in full force and effect as of the date hereof.
I further certify that attached as Exhibit B hereto is a true, correct and complete copy of Borrower’s By-Laws (including amendments). Such Bylaws have not been amended, annulled, rescinded, revoked or supplemented, and remain in full force and effect as of the date hereof.
In Witness Whereof, I have affixed my name as Secretary on March 1, 2021.
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/s/ Hyung Bak
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Hyung Bak, Secretary
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The Above Statements are Correct.
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SIGNATURE OF OFFICER OR DIRECTOR OR, IF NONE, A SHAREHOLDER OTHER THAN THE SECRETARY WHEN THE SECRETARY IS THE SOLE AUTHORIZED SIGNER SET FORTH ABOVE
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Failure to complete the above when the Secretary is the sole Authorized Signer set forth above, shall constitute a certification by the Secretary that the Secretary is the sole Shareholder, Director and Officer of the Corporation.
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CORPORATION RESOLUTIONS AND INCUMBENCY CERTIFICATION
AUTHORITY TO PROCURE LOANS
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I certify that I am the duly elected and qualified Secretary of WARBY PARKER RETAIL, INC., a Delaware corporation (the “Corporation”), and the keeper of the records of the Corporation; that the following is a true and correct copy of resolutions duly adopted by the Board of Directors of the Corporation in accordance with its bylaws and applicable statutes.
Copy of Resolutions:
Be it Resolved, that:
1. Any (insert number required to sign) one (1) of the following (insert titles only) Chief Executive Officer, Chief Financial Officer, President, Secretary or Treasurer of the Corporation (the “Authorized Signer(s)”) are/is authorized, for, on behalf of, and in the name of the Corporation to:
(a) Negotiate and procure loans, letters of credit and other credit or financial accommodations from Comerica Bank (the “Bank”), up to an amount not exceeding $ ________________, in aggregate (if left blank, then unlimited), including, without limitation, that by that certain Ninth Amendment to Loan and Security Agreement dated as of March 1, 2021, which amends and modifies that certain Loan and Security Agreement dated as of August 13, 2013, as may be subsequently amended, modified, supplemented, extended or restated from time to time;
(b) Discount with the Bank, commercial or other business paper belonging to the Corporation made or drawn by or upon third parties, without limit as to amount;
(c) Purchase, sell, exchange, assign, endorse for transfer and/or deliver certificates and/or instruments representing stocks, bonds, evidences of Indebtedness or other securities owned by the Corporation, whether or not registered in the name of the Corporation;
(d) Give security for any liabilities of the Corporation to the Bank by grant, security interest, assignment, lien, deed of trust or mortgage upon any real or personal property, tangible or intangible of the Corporation;
(e) Issue and/or execute one or more warrants for the purchase of the Corporation’s capital stock to Bank;
(f) Execute and deliver in form and content as may be required by the Bank any and all notes, evidences of Indebtedness, applications for letters of credit, guaranties, subordination agreements, loan and security agreements, financing statements, assignments, liens, deeds of trust, mortgages, trust receipts and other agreements, instruments or documents to carry out the purposes of these Resolutions, any or all
of which may relate to all or to substantially all of the Corporation’s property and assets; and
(g) Appoint, delegate and authorize such other person(s) (the “Delegated Person(s)”) as may be designated in writing from time to time by the above referenced Authorized Signer(s), or any one or more of them, to (i) request loans, advances and/or letters of credit under any line of credit, loan or other credit or financial accommodation made available by Bank to or in favor of the Corporation, and to execute and/or deliver unto Bank, in form and content as may be required by the Bank, such agreements, instruments and documents as may be necessary or required to carry out such purposes, (ii) make loan payments for and on behalf of the Corporation, and (iii) execute and certify borrowing base certificates, account agings, inventory reports and collateral reports (together with any other documents, reports and certificates required to be delivered in connection with any of the foregoing) for and on behalf of the Corporation.
2. Said Bank be and it is authorized and directed to pay the proceeds of any such loans or discounts as directed by the Authorized Signer(s) or Delegated Person(s) (if any), whether so payable to the order of any of said Authorized Signer(s) or Delegated Person(s) (if any) in their individual capacities or not, and whether such proceeds are deposited to the individual credit of any of said Authorized Signer(s) or Delegated Person(s) (if any) or not.
3. Any and all agreements, instruments and documents previously executed and acts and things previously done to carry out the purposes of these Resolutions are ratified, confirmed and approved as the act or acts of the Corporation.
4. These Resolutions shall continue in force, and the Bank may consider the holders of said offices and their signatures to be and continue to be as set forth in a certified copy of these Resolutions delivered to the Bank, until notice to the contrary in writing is duly served on the Bank (such notice to have no effect on any action previously taken by the Bank in reliance on these Resolutions).
5. Any person, corporation or other legal entity dealing with the Bank may rely upon a certificate signed by an officer of the Bank to effect that these Resolutions and any agreement, instrument or document executed pursuant to them are still in full force and effect and binding upon the Corporation.
6. The Bank may consider the holders of the offices of the Corporation and their signatures, respectively, to be and continue to be as set forth in the Certificate of the Secretary of the Corporation until notice to the contrary in writing is duly served on the Bank.
I further certify that the following named persons (“Authorized Persons”) have been duly elected to the offices set opposite their respective names, that they continue to hold these offices at the present time and that the signatures which appear below are the genuine signatures of each respectively. I acknowledge and agree that the Authorized Persons may sign this certificate in multiple counterparts, each of which shall be deemed an original instrument, and all of which shall constitute a single certificate, and that the signature of any Authorized Signer to any counterpart
shall be deemed certified by me in accordance with this certification. I or the Bank may assemble the signatures from one or more counterparts and attach them to any other counterpart for the purpose of having a single document containing all the signatures of the Authorized Signers. Delivery of an executed counterpart of a signature to this certificate by telecopy, emailed portable document format (“pdf”), or tagged image file format (“tiff”) or any other electronic means that reproduces an image of the actual executed signature of the Authorized Signer shall be effective as delivery of an original manually executed counterpart of this certificate. I or the party sending an executed counterpart of his/her signature to this certificate by telecopy, pdf, tiff or any other electronic means shall, upon request by Bank, also send the manual original signature to Bank within five (5) days following the request, but failure to do so shall not affect my certification of such signature and incumbency of such party.
(PLEASE SUPPLY GENUINE SIGNATURES OF AUTHORIZED SIGNERS BELOW)
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NAME (Type or Print)
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TITLE
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SIGNATURE
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Hyung Bak
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Secretary
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/s/ Hyung Bak
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Steve Miller
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Chief Financial Officer
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/s/ Steve Miller
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I further certify that attached as Exhibit A hereto is a true, correct and complete copy of the Corporation’s Certificate of Incorporation (including amendments), as filed with the Delaware Secretary of State. Such Certificate of Incorporation has not been amended, annulled, rescinded, revoked or supplemented, and remains in full force and effect as of the date hereof.
I further certify that attached as Exhibit B hereto is a true, correct and complete copy of Borrower’s By-Laws (including amendments). Such Bylaws have not been amended, annulled, rescinded, revoked or supplemented, and remain in full force and effect as of the date hereof.
In Witness Whereof, I have affixed my name as Secretary on March 1, 2021.
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/s/ Hyung Bak
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Hyung Bak, Secretary
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The Above Statements are Correct.
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SIGNATURE OF OFFICER OR DIRECTOR OR, IF NONE, A SHAREHOLDER OTHER THAN THE SECRETARY WHEN THE SECRETARY IS THE SOLE AUTHORIZED SIGNER SET FORTH ABOVE
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Failure to complete the above when the Secretary is the sole Authorized Signer set forth above, shall constitute a certification by the Secretary that the Secretary is the sole Shareholder, Director and Officer of the Corporation.
JAND, INC.
2010 EQUITY INCENTIVE PLAN
SECTION 1. Purpose; Definitions. The purposes of the JAND, Inc. 2010 Equity Incentive Plan (the “Plan”) are to enable JAND, Inc., a Delaware corporation (the “Company”), (i) to recruit and retain highly qualified employees, directors, consultants and other service providers, (ii) to provide those employees, directors, consultants and other service providers with an incentive for productivity and (iii) to provide those employees, directors, consultants and other service providers with an opportunity to share in the growth and value of the Company.
For purposes of the Plan, the following initially capitalized words and phrases will be defined as set forth below:
(a) “Affiliate” means any Person that directly or indirectly controls, or is controlled by, or is under common control with the Company (or its successors).
(b) “Award” means a grant of Options, SARs, Restricted Stock, or Restricted Stock Units pursuant to the provisions of the Plan.
(c) “Award Agreement” means, with respect to any particular Award, the written document that sets forth the terms of that particular Award.
(d) “Board” means the Board of Directors of the Company, as constituted from time to time; provided, however, that if the Board appoints a Committee to perform some or all of the Board’s administrative functions hereunder pursuant to Section 2, references in the Plan to the “Board” will be deemed to also refer to that Committee in connection with matters to be performed by that Committee.
(e) “Cause” means (i) conviction of, or the entry of a plea of guilty or no contest to, a felony or any other crime that causes the Company or its Affiliates public disgrace or disrepute, or adversely affects the Company’s or its Affiliates’ operations or financial performance or the relationship the Company has with its Affiliates, (ii) gross negligence or willful misconduct with respect to the Company or any of its Affiliates, including, without limitation, fraud, embezzlement, theft or proven dishonesty in the course of his employment; (iii) alcohol abuse or abuse of controlled drugs other than in accordance with a physician’s prescription; (iv) refusal, failure or inability to perform any material obligation or fulfill any duty (other than any duty or obligation of the type described in clause (vi) below) to the Company or any of its Affiliates (other than due to a Disability), which failure, refusal or inability is not cured within 10 days after delivery of notice thereof; (v) material breach of any agreement with or duty owed to the Company or any of its Affiliates; or (vi) any breach of any obligation or duty to the Company or any of its Affiliates (whether arising by statute, common law, contract or otherwise) relating to confidentiality, noncompetition, nonsolicitation or proprietary rights. Notwithstanding the foregoing, if a Participant and the Company (or any of its Affiliates) have entered into an employment agreement, consulting agreement or other agreement that specifically defines “cause,” then with respect to such Participant, “Cause” shall have the meaning defined in that employment agreement, consulting agreement or other agreement.
(f) “Change in Control” means the occurrence of any of the following, in one transaction or a series of related transactions: (i) the sale, transfer, assignment or other disposition (including by merger or consolidation) of more than 50% of the voting power represented by the then outstanding capital stock of the Company, except pursuant to the issuance of shares directly from the Company in future financings, (ii) the sale or other disposition of all or substantially all the assets of the Company, (iii) the liquidation or dissolution of the Company, or (iv) any other similar transaction or event deemed by the Board to constitute a Change in Control for purposes of this Plan.
(g) “Code” means the Internal Revenue Code of 1986, as amended from time to time, and any successor thereto.
(h) “Committee” means a committee appointed by the Board in accordance with Section 2 of the Plan.
(i) “Common Stock” means the common stock of the Company, par value $0.0001 per share.
(j) “Director” means a member of the Board.
(k) “Disability” means a condition rendering a Participant Disabled.
(l) “Disabled” will have the same meaning set forth in Section 22(e)(3) of the Code.
(m) “Exchange Act” means the Securities Exchange Act of 1934, as amended.
(n) “Fair Market Value” means, as of any date: (i) if the Shares are not publicly traded, the value of such Shares on that date, as determined by the Board in its sole and absolute discretion; or (ii) if the Shares are publicly traded, the closing price for a Share on that date on the principal national securities exchange on which the Shares are listed or admitted to trading or, if the Shares are not listed or admitted to trading on any national securities exchange, but are traded in the over-the-counter market, the closing sale price of a Share or, if no sale is publicly reported, the average of the closing bid and asked prices on that date, as furnished by two members of the Financial Industry Regulatory Authority (FINRA) who make a market in the Shares selected from time to time by the Company for that purpose.
(o) “Incentive Stock Option” means any Option intended to be and designated as an “Incentive Stock Option” within the meaning of Section 422 of the Code.
(p) “Non-Employee Director” will have the meaning set forth in Rule 16b-3(b)(3)(i) promulgated by the Securities and Exchange Commission under the Exchange Act, or any successor definition adopted by the Securities and Exchange Commission; provided, however, that the Board or the Committee may, to the extent that it deems necessary to comply with Section 162(m) of the Code or regulations thereunder, require that each “Non-Employee Director” also be an “outside director” as that term is defined in regulations under Section 162(m) of the Code.
(q) “Non-Qualified Stock Option” means any Option that is not an Incentive Stock Option,
(r) “Option” means any option to purchase Shares (including Restricted Stock, if the Board so specifies in the applicable Award Agreement) granted pursuant to Section 5 hereof.
(s) “Parent” means, in respect of the Company, a “parent corporation” as defined in Section 424(e) of the Code.
(t) “Participant” means an employee, consultant, Director, or other service provider of or to the Company or any of its Affiliates to whom an Award is granted.
(u) “Person” means an individual, partnership, corporation, limited liability company, trust, joint venture, unincorporated association, or other entity or association.
(v) “Restricted Stock” means Shares that are subject to restrictions pursuant to Section 8 hereof.
(w) “Restricted Stock Unit” means a right granted under and subject to restrictions pursuant to Section 9 hereof.
(x) “SAR” means a stock appreciation right granted under the Plan and described in Section 6 hereof.
(y) “Stockholders’ Agreement” means the Stockholders’ Agreement by and among the Company and its stockholders, as the same may be amended from time to time.
(z) “Shares” means shares of the Company’s Common Stock subject to the Plan and subject to substitution or adjustment as provided in Section 3 hereof
(aa) “Subsidiary” means, in respect of the Company, a subsidiary company, whether now or hereafter existing, as defined in Sections 424(f) and (g) of the Code.
SECTION 2. Administration. The Plan will be administered by the Board; provided, however, that the Board may at any time appoint a Committee to perform some or all of the Board’s administrative functions hereunder; and provided further, that the authority of any Committee appointed pursuant to this Section 2 will be subject to such terms and conditions as the Board may prescribe and will be coextensive with, and not in lieu of, the authority of the Board hereunder.
Subject to the requirements of the Company’s by-laws, certificate of incorporation and any other agreement that governs the appointment of Board committees, any Committee established under this Section 2 will be composed of not fewer than two members, each of whom will serve for such period of time as the Board determines; provided, however, that if the Company has a class of securities required to be registered under Section 12 of the Exchange Act, all members of any Committee established pursuant to this Section 2 will be Non-Employee Directors. From time to time the Board may increase the size of the Committee and appoint additional members thereto, remove members (with or without cause) and appoint new members
in substitution therefor, fill vacancies however caused, or remove all members of the Committee and thereafter directly administer the Plan.
Directors who are eligible for Awards or have received Awards may vote on any matters affecting the administration of the Plan or the grant of Awards, except that no such member will act upon the grant of an Award to himself or herself, but any such member may be counted in determining the existence of a quorum at any meeting of the Board during which action is taken with respect to the grant of Awards to himself or herself.
The Board will have full authority to grant Awards under this Plan. In particular, subject to the terms of the Plan, the Board will have the authority:
(a) to select the Persons to whom Awards may from time to time be granted hereunder (consistent with the eligibility conditions set forth in Section 4);
(b) to determine the type of Award to be granted to any Person hereunder;
(c) to determine the number of Shares, if any, to be covered by each Award;
(d) to establish the terms and conditions of each Award Agreement;
(e) to adopt, alter and repeal such administrative rules, guidelines and practices governing the Plan as it, from time to time, deems advisable;
(f) to interpret the terms and provisions of the Plan and any Award issued under the Plan (and any Award Agreement);
(g) to correct any defect, supply any omission or reconcile any inconsistency in the Plan or in any Award Agreement in the manner and to the extent it deems necessary to carry out the intent of the Plan; and
(h) to otherwise supervise the administration of the Plan.
All decisions made by the Board pursuant to the provisions of the Plan will be final and binding on all persons, including the Company and Participants. No Director will be liable for any good faith determination, act or omission in connection with the Plan or any Award.
SECTION 3. Shares Subject to the Plan.
(a) Shares Subject to the Plan. The Shares to be subject to or related to Awards under the Plan will be authorized and unissued Shares of the Company. The maximum number of Shares that may be subject to Awards under the Plan is 56,548. All Shares subject to the Plan may be issued in respect of Incentive Stock Options. The Company will reserve for the purposes of the Plan, out of its authorized and unissued Shares, such number of Shares.
(b) Effect of the Expiration or Termination of Awards. If and to the extent that an Option or SAR expires, terminates or is canceled or forfeited for any reason without having been exercised in full, the Shares associated with that Option or SAR will again become available for grant under the Plan. Similarly, if any Restricted Stock or Restricted Stock Unit is
canceled, forfeited or repurchased for any reason, the Shares subject to that Award will again become available for grant under the Plan. In addition, if any Share is tendered or the delivery of any Share is withheld in settlement of a tax withholding obligation associated with an Award, or in satisfaction of the exercise price payable upon exercise of an Option, that Share will again become available for grant under the Plan. Finally, if any Award is settled for cash, the Shares subject thereto will again become available for grant under the Plan.
(c) Other Adjustment. In the event of any recapitalization, reclassification, reorganization, merger, consolidation, stock split or combination, stock dividend or other similar event or transaction affecting the Shares, substitutions or adjustments will be made by the Board to (i) the aggregate number, class and/or issuer of the securities that may be issued under the Plan, (ii) to the number, class and/or issuer of securities subject to outstanding Awards, and (iii) to the exercise price of outstanding Options or SARs, in each case in a manner that reflects equitably the effects of such event or transaction; provided, however, that no such adjustment will be made if such adjustment would give rise to any tax under Section 409A of the Code.
(d) Change in Control. Notwithstanding anything to the contrary set forth in the Plan, upon or in anticipation of any Change in Control of the Company or any of its Affiliates, the Board may, in its sole and absolute discretion and without the need for the consent of any Participant, take one or more of the following actions contingent upon the occurrence of that Change in Control:
(i) cause any or all outstanding Options or SARs to become vested and immediately exercisable, in whole or in part;
(ii) cause any or all outstanding Restricted Stock or Restricted Stock Units to become non-forfeitable, in whole or in part;
(iii) after providing reasonable advance notice of the Change in Control, cancel any or all vested Options and SARs upon closing of the Change in Control to the extent not exercised prior to the closing of the Change in Control;
(iv) cancel any Option or SAR in exchange for a substitute award in a manner consistent with the requirements of Treas. Reg. § 1.424-1(a) or any successor rule or regulation (notwithstanding the fact that the original Award may never have been intended to satisfy the requirements for treatment as an Incentive Stock Option);
(v) cancel any Restricted Stock or Restricted Stock Units in exchange for restricted stock or restricted stock units with respect to the capital stock of any successor corporation or its parent;
(vi) cancel any Option or SAR in exchange for cash and/or other substitute consideration with a value equal to: (A) the number of Shares subject to that Option or SAR, multiplied by (B) the difference, if any, between the Fair Market Value per Share on the date of the Change in Control and the exercise price of that Option or SAR; provided, that if the Fair Market Value per Share on the date of the Change in Control does not exceed the exercise price of any such Option or SAR, the Board may cancel that Option or SAR without any payment of consideration therefor; and/or
(vii) redeem any share of Restricted Stock or any Restricted Stock Unit in exchange for cash and/or other substitute consideration with a value equal to the Fair Market Value per Share on the date of the Change in Control.
In the discretion of the Board, any cash or substitute consideration payable upon cancellation or redemption of an Award may be subjected to (i) vesting terms substantially identical to those that applied to the to the original Award immediately prior to the Change in Control, or (ii) earn out, escrow, holdback or similar arrangements, to the extent such arrangements are applicable to any consideration paid in connection with the Company.
SECTION 4. Eligibility. Employees, Directors, consultants, and other individuals who provide services to the Company or its Affiliates are eligible to be granted Awards under the Plan; provided, however, that only employees of the Company, its Parent or a Subsidiary are eligible to be granted Incentive Stock Options.
SECTION 5. Options. Options granted under the Plan may be Incentive Stock Options or Non-Qualified Stock Options. Any Option granted under the Plan will be in such form as the Board may at the time of such grant approve.
The Award Agreement evidencing any Option will incorporate the following terms and conditions and will contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Board deems appropriate in its sole and absolute discretion:
(a) Option Price. The exercise price per Share purchasable under an Option will be determined by the Board and will not be less than 100% of the Fair Market Value of a Share on the date of the grant. However, any Incentive Stock Option granted to any Participant who, at the time the Option is granted, owns more than 10% of the voting power of all classes of shares of the Company, its Parent or of a Subsidiary will have an exercise price per Share of not less than 110% of Fair Market Value per Share on the date of the grant.
(b) Option Term. The term of each Option will be fixed by the Board, but no Incentive Stock Option will be exercisable more than 10 years after the date the Option is granted. However, any Incentive Stock Option granted to any Participant who, at the time such Option is granted, owns more than 10% of the voting power of all classes of shares of the Company, its Parent or of a Subsidiary may not have a term of more than five years. No Option may be exercised by any Person after expiration of the term of the Option.
(c) Exercisability. Options will vest and be exercisable at such time or times and subject to such terms and conditions as determined by the Board at the time of grant. If the Board provides, in its discretion, that any Option is exercisable only in installments, the Board may waive such installment exercise provisions at any time at or after grant, in whole or in part, based on such factors as the Board determines, in its sole and absolute discretion.
(d) Method of Exercise. Subject to the provisions of Section 5(c) and the termination provisions set forth in Section 7 and the termination and exercisability provisions of the applicable Award Agreement, Options may be exercised in whole or in part at any time and from time to time during the term of the Option, by the delivery of written notice of exercise by the Participant to the Company specifying the number of Shares to be purchased. Such notice
will be accompanied by payment in full of the purchase price, either by certified or bank check, or such other means as the Board may accept. As determined by the Board in its sole discretion on or after the date of grant, payment in full or in part of the exercise price of an Option issued to a Participant may be made in the form of previously acquired Shares based on the Fair Market Value of the Shares on the date the Option is exercised; provided, however, that, in the case of an Incentive Stock Option, the right to make a payment in the form of previously acquired Shares may be authorized only at the time the Option is granted.
No Shares will be issued upon exercise of an Option until full payment therefor has been made. A Participant will not have the right to distributions or dividends or any other rights of a stockholder with respect to Shares subject to the Option until the Participant has given written notice of exercise, has paid in full for such Shares, if requested, has given the representation described in Section 11(a) hereof and fulfills such other conditions as may be set forth in the applicable Award Agreement.
(e) Incentive Stock Option Limitations. In the case of an Incentive Stock Option, the aggregate Fair Market Value (determined as of the time of grant) of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Participant during any calendar year under the Plan and/or any other plan of the Company, its Parent or any Subsidiary will not exceed $100,000. For purposes of applying the foregoing limitation, Incentive Stock Options will be taken into account in the order granted. To the extent any Option does not meet such limitation, that Option will be treated for all purposes as a Non-Qualified Stock Option.
(f) Termination of Service. Unless otherwise specified in the Award Agreement, Options will be subject to the terms of Section 7 with respect to exercise upon or following termination of employment or other service.
(g) Transferability of Options. Except as may otherwise be specifically determined by the Board with respect to a particular Option, no Option will be transferable by the Participant other than by will or by the laws of descent and distribution, and all Options will be exercisable, during the Participant’s lifetime, only by the Participant or, in the event of his Disability, by his personal representative.
SECTION 6. Stock Appreciation Rights.
(a) Nature of Award. Upon the exercise of a SAR, its holder will be entitled to receive an amount equal to the excess (if any) of: (i) the Fair Market Value of the Shares covered by such SAR as of the date such SAR is exercised, over (ii) the Fair Market Value of the Shares covered by such SAR as of the date such SAR was granted (subject to adjustment in accordance with Section 3(c)). Such amount may be paid in either cash and/or Shares, as determined by the Board in its sole and absolute discretion.
(b) Terms and Conditions. The Award Agreement evidencing any SAR will incorporate the following terms and conditions and will contain such additional terms and
conditions, not inconsistent with the terms of the Plan, as the Board deems appropriate in its sole and absolute discretion:
(i) Term of SAR. Unless otherwise specified in the Award Agreement, the term of a SAR will be ten years.
(ii) Exercisability. SARs will vest and become exercisable at such time or times and subject to such terms and conditions as will be determined by the Board at the time of grant.
(iii) Method of Exercise. Subject to the exercisability and termination provisions set forth herein and in the applicable Award Agreement, SARs may be exercised in whole or in part from time to time during their term by delivery of written notice to the Company specifying the portion of the SAR to be exercised.
(iv) Termination of Service. Unless otherwise specified in the Award Agreement, SARs will be subject to the terms of Section 7 with respect exercise upon termination of employment or other service.
(v) Non-Transferability. Except as may otherwise be specifically determined by the Board with respect to a particular SAR: (A) SARs may not be sold, pledged, assigned, hypothecated, gifted, transferred or disposed of in any manner either voluntarily or involuntarily by operation of law, other than by will or by the laws of descent or distribution, and (B) during the Participant’s lifetime, SARs will be exercisable only by the Participant (or, in the event of the Participant’s Disability, by his personal representative).
SECTION 7. Termination of Service. Unless otherwise specified by the Board with respect to a particular Option or SAR, any portion of an Option or SAR that is not exercisable upon termination of service (whether as an employee, consultant, independent contractor or any other capacity in which the Participant provides services to the Company) will expire immediately and automatically upon such termination and any portion of an Option or SAR that is exercisable upon termination of service will expire on the date it ceases to be exercisable in accordance with this Section 7.
(a) Termination by Reason of Death. If a Participant’s service with the Company or any Affiliate terminates by reason of death, any Option or SAR held by such Participant may thereafter be exercised, to the extent it was exercisable at the time of his or her death or on such accelerated basis as the Board may determine, at or after grant, by the legal representative of the estate or by the legatee of the Participant under the will of the Participant, for a period ending (i) at such time as may be specified by the Board at or after the time of grant, or (ii) if not specified by the Board, then 12 months from the date of death, or (iii) if sooner than the applicable period specified under (i) or (ii) above, then upon the expiration of the stated term of such Option or SAR.
(ii) Termination by Reason of Disability. If a Participant’s service with the Company or any Affiliate terminates by reason of Disability, any Option or SAR held by such Participant may thereafter be exercised by the Participant or his personal representative, to the extent it was exercisable at the time of termination, or on such accelerated basis as the Board
may determine at or after grant, for a period ending (i) at such time as may be specified by the Board at or after the time of grant, or (ii) if not specified by the Board, then 12 months from the date of termination of service, or (iii) if sooner than the applicable period specified under (i) or (ii) above, then upon the expiration of the stated term of such Option or SAR.
(b) Cause. If a Participant’s service with the Company or any Affiliate is terminated for Cause: (i) any Option or SAR not already exercised will be immediately and automatically forfeited as of the date of such termination, and (ii) any Shares for which the Company has not yet delivered share certificates will be immediately and automatically forfeited and the Company will refund to the Participant the Option exercise price paid for such Shares, if any.
(c) Other Termination. If a Participant’s service with the Company or any Affiliate terminates for any reason other than death, Disability or Cause, any Option or SAR held by such Participant may thereafter be exercised by the Participant, to the extent it was exercisable at the time of such termination, or on such accelerated basis as the Board may determine at or after grant, for a period ending (i) at such time as may be specified by the Board at or after the time of grant, or (ii) if not specified by the Board, then 90 days from the date of termination of service (irrespective of the manner or timing of the termination and without regard to whether the service has been terminated with reasonable notice of termination), or (iii) if sooner than the applicable period specified under (i) or (ii) above, then upon the expiration of the stated term of such Option or SAR.
SECTION 8. Restricted Stock.
(a) Issuance. Restricted Stock may be issued either alone or in conjunction with other Awards. The Board will determine the time or times within which Restricted Stock may be subject to forfeiture, and all other conditions of such Awards.
(b) Awards and Certificates. The Award Agreement evidencing the grant of any Restricted Stock will contain such terms and conditions, not inconsistent with the terms of the Plan, as the Board deems appropriate in its sole and absolute discretion. The prospective recipient of an Award of Restricted Stock will not have any rights with respect to such Award, unless and until such recipient has delivered to the Company an executed Award Agreement and has otherwise complied with the applicable terms and conditions of such Award. The purchase price for Restricted Stock may, but need not, be zero.
Any share certificate issued in connection with an Award of Restricted Stock will be registered in the name of the Participant receiving the Award, and will bear the following legend and/or any other legend required by this Plan, the Award Agreement, the Stockholders’ Agreement or by applicable law:
THE TRANSFERABILITY OF THIS CERTIFICATE AND THE SHARES REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND CONDITIONS OF THE JAND, INC. 2010 EQUITY INCENTIVE PLAN AND AN AGREEMENT ENTERED INTO BETWEEN THE PARTICIPANT AND
JAND, INC. (WHICH TERMS AND CONDITIONS MAY INCLUDE, WITHOUT LIMITATION, CERTAIN TRANSFER RESTRICTIONS, REPURCHASE RIGHTS AND FORFEITURE CONDITIONS). COPIES OF THAT PLAN AND AGREEMENT ARE ON FILE IN THE PRINCIPAL OFFICES OF JAND, INC. AND WILL BE MADE AVAILABLE TO THE HOLDER OF THIS CERTIFICATE WITHOUT CHARGE UPON REQUEST TO THE SECRETARY OF THE COMPANY.
Share certificates evidencing Restricted Stock will be held in custody by the Company or in escrow by an escrow agent until the restrictions thereon have lapsed. As a condition to any Restricted Stock award, the Participant may be required to deliver to the Company a share power, endorsed in blank, relating to the Shares covered by such Award.
(c) Restrictions and Conditions. The Restricted Stock awarded pursuant to this Section 8 will be subject to the following restrictions and conditions, and any other restrictions and conditions set forth in the applicable Award Agreement.
(i) During a period commencing with the date of an Award of Restricted Stock and ending at such time or times as specified by the Board (the “Restriction Period”), the Participant will not be permitted to sell, transfer, pledge, assign or otherwise encumber Restricted Stock awarded under the Plan. The Board may condition the lapse of restrictions on Restricted Stock upon the continued employment or service of the recipient, the attainment of specified individual or corporate performance goals, or such other factors as the Board may determine, in its sole and absolute discretion.
(ii) Except as provided in this Paragraph (ii) or the applicable Award Agreement, the Participant will have, with respect to the Restricted Stock, all of the rights of a stockholder of the Company, including the right to vote the Shares, and the right to receive any cash distributions or dividends. The Board, in its sole discretion, may require cash distributions or dividends to be subjected to the same Restriction Period as is applicable to the Restricted Stock with respect to which such amounts are paid, or, if the Board so determines, reinvested in additional Restricted Stock to the extent Shares are available under Section 3(a) of the Plan. Any distributions or dividends paid in the form of securities with respect to Restricted Stock will be subject to the same terms and conditions as the Restricted Stock with respect to which they were paid, including, without limitation, the same Restriction Period.
(iii) Subject to the applicable provisions of the Award Agreement, if a Participant’s service with the Company and its Affiliates terminates prior to the expiration of the Restriction Period, all of that Participant’s Restricted Stock which then remain subject to forfeiture will then be forfeited automatically.
(iv) If and when the Restriction Period expires without a prior forfeiture of the Restricted Stock subject to such Restriction Period (or if and when the restrictions applicable to Restricted Stock are removed pursuant to Section 3(d) or otherwise), any certificates for such Shares will be replaced with new certificates, without the restrictive
legend applicable to such lapsed restrictions, and such new certificates will be promptly delivered to the Participant, the Participant’s representative (if the Participant has suffered a Disability), or the Participant’s estate or heir (if the Participant has died).
SECTION 9. Restricted Stock Units. Subject to the other terms of the Plan, the Board may grant Restricted Stock Units to eligible individuals and may impose conditions on such units as it may deem appropriate. Each Restricted Stock Unit shall be evidenced by an Award Agreement in the form that is approved by the Board and that is not inconsistent with the terms and conditions of the Plan. Each Restricted Stock Unit shall entitle the Participant to whom it is granted a distribution from the Company in an amount equal to the Fair Market Value (at the time of the distribution) of one Share. Distributions may be made in cash and/or Shares. All other terms governing Restricted Stock Units, such as vesting, time and form of payment and termination of units shall be set forth in the Award Agreement.
SECTION 10. Amendments and Termination. The Board may amend, alter or discontinue the Plan at any time, provided that no amendment, alteration or discontinuation will be made which would impair the rights of a Participant with respect to an Award, without that Participant’s consent, or which without the approval of such amendment within one year (365 days) of its adoption by the Board, by the Company’s stockholders in a manner consistent with Treas. Reg. § 1.422-3 (or any successor provision), would: (i) increase the total number of Shares reserved for the purposes of the Plan (except as otherwise provided in Section 3), or (ii) change the Persons or class of Persons eligible to receive Awards.
SECTION 11. General Provisions.
(a) The Board may require each Participant to represent to and agree with the Company in writing that the Participant is acquiring securities of the Company for investment purposes and without a view to distribution thereof and as to such other matters as the Board believes are appropriate. The certificate evidencing any Award and any securities issued pursuant thereto may include any legend which the Board deems appropriate to reflect any restrictions on transfer and compliance with applicable securities laws.
(b) All certificates for Shares or other securities delivered under the Plan will be subject to such share-transfer orders and other restrictions as the Board may deem advisable under the rules, regulations, and other requirements of any stock exchange upon which the Shares are then listed and any applicable securities laws, and the Board may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.
(c) Nothing contained in the Plan will prevent the Board from adopting other or additional compensation arrangements, subject to stockholder approval if such approval is required; and such arrangements may be either generally applicable or applicable only in specific cases.
(d) Neither the adoption of the Plan nor the execution of any document in connection with the Plan will: (i) confer upon any employee of the Company or an Affiliate any right to continued employment or engagement with the Company or such Affiliate, or (ii)
interfere in any way with the right of the Company or such Affiliate to terminate the employment of any of its employees at any time.
(e) No later than the date as of which an amount first becomes includible in the gross income of the Participant for federal income tax purposes with respect to any Award under the Plan, the Participant will pay to the Company, or make arrangements satisfactory to the Board regarding the payment of, taxes of any kind required by law to be withheld with respect to such amount. The obligations of the Company under the Plan will be conditioned on such payment or arrangements and the Company will have the right to deduct any such taxes from any payment of any kind otherwise due to the Participant. Unless otherwise determined by the Board, the minimum required withholding obligation with respect to an Award may be settled in Shares, including the Shares that are subject to that Award.
SECTION 12. Effective Date of Plan. The Plan was approved by the Company’s stockholders on July 21, 2010. The Plan is effective as of such date.
SECTION 13. Term of Plan. The Plan will continue in effect until terminated in accordance with Section 10; provided, however, that no Incentive Stock Option will be granted hereunder on or after July 21, 2020; but provided further, that Incentive Stock Options granted prior to July 21, 2020 may extend beyond that date.
SECTION 14. Invalid Provisions. In the event that any provision of this Plan is found to be invalid or otherwise unenforceable under any applicable law, such invalidity or unenforceability will not be construed as rendering any other provisions contained herein as invalid or unenforceable, and all such other provisions will be given full force and effect to the same extent as though the invalid or unenforceable provision was not contained herein.
SECTION 15. Governing Law. The Plan and all Awards granted hereunder will be governed by and construed in accordance with the laws of the State of Delaware, without regard to the application of the principles of conflicts of laws.
SECTION 16. Board Action. Notwithstanding anything to the contrary set forth in the Plan, any and all actions of the Board or Committee, as the case may be, taken under or in connection with the Plan and any agreements, instruments, documents, certificates or other writings entered into, executed, granted, issued and/or delivered pursuant to the terms hereof, will be subject to and limited by any and all votes, consents, approvals, waivers or other actions of all or certain stockholders of the Company or other Persons required by:
(a) the Company’s Certificate of Incorporation (as the same may be amended and/or restated from time to time);
(b) the Company’s Bylaws (as the same may be amended and/or restated from time to time); and
(c) any other agreement, instrument, document or writing now or hereafter existing, between or among the Company and its stockholders or other Persons (as the same may be amended from time to time).
SECTION 17. Notices. Any notice to be given to the Company pursuant to the provisions of the Plan shall be given by registered or certified mail, postage prepaid, and, addressed, if to the Company to its principal executive office to the attention of its Chief Business Officer (or such other Person as the Company may designate in writing from time to time), and, if to a Participant, to the address contained in the Company’s personnel records, or to such other address as that Participant may hereafter designate in writing to the Company. Any such notice shall be deemed given or delivered three days after the date of mailing.
* * * * *
AMENDED AND RESTATED
INCENTIVE STOCK OPTION AGREEMENT
UNDER THE
JAND, INC. 2010 INCENTIVE PLAN
THIS INCENTIVE STOCK OPTION AGREEMENT (this “Agreement”) is made as of this [ ] day of [ , ], between JAND, INC. (the “Company”) and [ ] (the “Optionee”).
WHEREAS, the Company maintains the JAND, Inc. 2010 Incentive Plan (the “Plan”) for the benefit of the key employees, directors and consultants of the Company and its subsidiaries;
WHEREAS, the Plan permits the award of Incentive Stock Options to purchase shares of the Company’s Common Stock, par value $0.0001 (the “Common Stock”), subject to the terms of the Plan;
WHEREAS, to compensate the Optionee for his service to the Company and its subsidiaries and to further align the Optionee’s personal financial interests with those of the Company’s stockholders, on February 10, 2011, the Company awarded to the Optionee an option to purchase shares of the Company’s Common Stock, subject to the restrictions and on the terms and conditions contained in the Plan and the Incentive Stock Option Agreement between the Optionee and the Company dated as of February 10, 2011;
WHEREAS, Section 5(c) of the Plan permits the Board to waive, in its absolute discretion, installment exercise provisions at any time at or after the grant of an option; and
WHEREAS, the Board has determined that the option originally granted to the Optionee on February 10, 2011 shall be immediately exercisable for all of the Option Shares (as defined below), subject to the vesting, repurchase and other provisions set forth in this Agreement.
NOW, THEREFORE, in consideration of these premises and the agreements set forth herein and intending to be legally bound hereby, the parties agree as follows:
1. Award of Option. This Agreement evidences the grant to the Optionee of an option (the “Option”) to purchase [ ( )] shares of Common Stock (after giving effect to a stock split effective May 17, 2011) (the “Option Shares”). The Option is subject to the terms set forth herein, and in all respects is subject to the terms and provisions of the Plan applicable to Incentive Stock Options, which terms and provisions are incorporated herein by this reference. Except as otherwise specified herein or unless the context herein requires otherwise, the terms defined in the Plan will have the same meanings herein.
2. Nature of the Option. The Option is intended to be an incentive stock option as described by Section 422 of the Code. The Optionee acknowledges that the Company does not warrant that the grant of this Option, or the purchase or sale of the Option Shares, will be entitled to any particular tax treatment.
3. Date of Grant; Term of Option. The Option was granted on [ ] (the “Effective Date”) and may not be exercised later than the date that is ten (10) years after that date, subject to earlier termination in accordance with this Agreement and the Plan.
4. Option Exercise Price. The per share exercise price of the Option is [ ] (the “Exercise Price”).
5. Exercise of Option. The Option will become exercisable only in accordance with the terms and provisions of the Plan and this Agreement, as follows:
(a) Right to Exercise. The Option may be exercised at any time after the Effective Date for all or any number of the Option Shares. Option Shares purchased by exercising this Option will be subject to the Right of Repurchase under Section 6 until vested in accordance with this Section 5(a). Provided the Optionee remains in continuous service to the Company (whether as an employee, consultant, independent contractor or any other capacity in which he provides services to the Company) through the applicable vesting dates, the Option will become vested with respect to _______________ [_____] of the Option Shares on the first anniversary of January 1, 2011 and with respect to ____________ [_____] of the remaining Option Shares on the last day of each subsequent month after the first anniversary of January 1, 2011. Solely for purposes of this Agreement, service with the Company will be deemed to include service with any Subsidiary or Affiliate of the Company (for only so long as such entity remains a Subsidiary or Affiliate).
(b) Cessation of Service. Upon a cessation of the Optionee’s service with the Company, the Option will be exercisable only to the extent specified in this Section 5(b):
(1) Cessation of Service by Reason of Death. If the Optionee’s service with the Company terminates by reason of death, the Option may thereafter be exercised, to the extent then exercisable pursuant to Section 5(a) above, or on such accelerated basis as the Board may determine, by the legal representative of the estate or by the legatee of the Optionee under the will of the Optionee, for a period expiring 12 months from the date of death, or, if sooner, upon the expiration of the term described in Section 3 above.
(2) Cessation of Service by Reason of Disability. If the Optionee’s service with the Company terminates by reason of Disability, the Option may thereafter be exercised by the Optionee or his personal representative, to the extent it was exercisable pursuant to Section 5(a) above at the time of termination, or on such accelerated basis as the Board may determine, for a period expiring 12 months from the date of termination of service, or, if sooner, upon the expiration of the term described in Section 3 above.
(3) Cause. If the Optionee’s service with the Company is terminated for Cause: (i) the portion of the Option not already exercised will be immediately and automatically forfeited as of the date of such termination, and (ii) any Option Shares for which the Company has not yet delivered share certificates will be immediately and automatically forfeited and the Company will refund to the Optionee the Option Exercise Price paid for such Option Shares, if any.
(4) Other Cessation. If the Optionee’s service with the Company ceases for any reason other than death, Disability or Cause, the Option may thereafter be exercised by the Optionee, to the extent it was exercisable pursuant to Section 5(a) above at the time of such cessation, or on such accelerated basis as the Board may determine, for a period expiring 90 days from the date of termination of service (irrespective of the manner or timing of the cessation and without regard to whether the service has ceased with reasonable notice of termination), or, if sooner, upon the expiration of the term described in Section 3 above.
(c) Method of Exercise. The Optionee may exercise the Option by providing written notice to the Company stating the election to exercise the Option, and making such additional representations and agreements as to the Optionee’s investment intent with respect to the Option Shares as may be required by the Company hereunder or pursuant to the provisions of the Plan. Such written notice shall be signed by the Optionee and shall be delivered in person or by certified mail to the Secretary of the Company or such other person as may be designated by the Company, and shall be accompanied by payment of the Exercise Price. Payment of the Exercise Price shall be by check or such other consideration and method of payment as may be authorized by the Company’s Board pursuant to the Plan..
(d) Additional Documents. The written exercise notice must also be accompanied by:
(1) an executed counterpart to the Stockholders’ Agreement; and
(2) an executed “Consent of Spouse” (if applicable), attached as Exhibit A.
The Optionee also agrees upon request to execute any further documents or instruments necessary or desirable to carry out the purposes or intent of this Agreement.
(e) Share Legends. The following legend will be placed on any certificate evidencing an Option Share, in addition to any other legend that may be required pursuant to applicable law, the Plan, the Stockholders’ Agreement or otherwise:
THE TRANSFERABILITY OF THIS CERTIFICATE AND THE SHARES REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND CONDITIONS OF AN INCENTIVE STOCK OPTION AGREEMENT ENTERED INTO BETWEEN [OPTIONEE] AND JAND, INC. (WHICH TERMS AND CONDITIONS MAY INCLUDE, WITHOUT LIMITATION, CERTAIN FORFEITURE CONDITIONS, TRANSFER RESTRICTIONS, AND REPURCHASE RIGHTS). A COPY OF THAT AGREEMENT IS ON FILE IN THE PRINCIPAL OFFICES OF JAND, INC. AND WILL BE MADE AVAILABLE TO THE HOLDER OF THIS CERTIFICATE WITHOUT CHARGE UPON REQUEST TO THE SECRETARY OF JAND, INC.
(f) Partial Exercise. The Option may be exercised in whole or in part; provided, however, that any exercise may apply only with respect to a whole number of Option Shares.
(g) Restrictions on Exercise. The Option may not be exercised, and any purported exercise will be void, if the issuance of the Option Shares upon such exercise would constitute a violation of any applicable federal or state securities laws or other laws or regulations. In addition, as a further condition to the exercise of the Option, the Company may require the Optionee to make any representation or warranty to the Company as may be required by or advisable under any applicable law or regulation.
6. Right of Repurchase.
(a) Scope of Repurchase Right. Until they vest in accordance with the Section 5(a), the Option Shares acquired under this Agreement shall be subject to the Company’s right of repurchase as described in this Section 6 (such right, the “Right of Repurchase”) and such Option Shares, “Restricted Shares”). The Company, however, may decline to exercise its Right of Repurchase or may exercise its Right of Repurchase only with respect to a portion of the Restricted Shares. The Company may exercise its Right of Repurchase only during the 90-day period following the termination of the Optionee’s service with the Company for any reason, but the Right of Repurchase may be exercised automatically under Subsection (d) below. If the Right of Repurchase is exercised, the Company shall pay the Optionee an amount equal to the lower of (i) the Exercise Price of each Restricted Share being repurchased or (ii) the Fair Market Value of such Restricted Share at the time the Right of Repurchase is exercised.
(a) Lapse of Repurchase Right. The Right of Repurchase shall lapse with respect to the Restricted Shares in accordance with the vesting schedule set forth in the Section 5(a).
(b) Escrow. Upon issuance, the certificate(s) for Restricted Shares shall be deposited in escrow with the Company to be held in accordance with the provisions of this Agreement. Any additional or exchanged securities or other property described in Subsection (f) below shall immediately be delivered to the Company to be held in escrow. All ordinary cash dividends on Restricted Shares (or on other securities held in escrow) shall be paid directly to the Optionee and shall not be held in escrow. Restricted Shares, together with any other assets held in escrow under this Agreement, shall be (i) surrendered to the Company for repurchase upon exercise of the Right of Repurchase or (ii) released to the Optionee upon his or her request to the extent that the Option Shares have ceased to be Restricted Shares (but not more frequently than once every six months). In any event, all Option Shares that have ceased to be Restricted Shares, together with any other vested assets held in escrow under this Agreement, shall be released within 90 days after the termination of the Optionee’s Service.
(c) Exercise of Repurchase Right. The Company shall be deemed to have exercised its Right of Repurchase automatically for all Restricted Shares as of the commencement of the Repurchase Period, unless the Company during the Repurchase Period notifies the holder of the Restricted Shares, either by personal delivery or by mail to the Optionee at the address on file with the Company, that it will not exercise its Right of Repurchase for some
or all of the Restricted Shares. The Company shall pay to the holder of the Restricted Shares the purchase price determined under Subsection (a) above for the Restricted Shares being repurchased. Payment shall be made in cash or cash equivalents and/or by canceling indebtedness to the Company incurred by the Optionee in the purchase of the Restricted Shares. The certificate(s) representing the Restricted Shares being repurchased shall be delivered to the Company.
(d) Termination of Rights as Stockholder. If the Right of Repurchase is exercised in accordance with this Section 6 and the Company makes available the consideration for the Restricted Shares being repurchased, then the person from whom the Restricted Shares are repurchased shall no longer have any rights as a holder of the Restricted Shares (other than the right to receive payment of such consideration). Such Restricted Shares shall be deemed to have been repurchased pursuant to this Section 6, whether or not the certificate(s) for such Restricted Shares have been delivered to the Company or the consideration for such Restricted Shares has been accepted.
(e) Additional or Exchanged Securities and Property. In the event of a merger or consolidation of the Company, a sale of all or substantially all of the Company’s stock or assets, any other corporate reorganization, a stock split, the declaration of a stock dividend, the declaration of an extraordinary dividend payable in a form other than stock, a spin off, an adjustment in conversion ratio, a recapitalization or a similar transaction affecting the Company’s outstanding securities, any securities or other property (including cash or cash equivalents) that are by reason of such transaction exchanged for, or distributed with respect to, any Restricted Shares shall immediately be subject to the Right of Repurchase. Appropriate adjustments to reflect the exchange or distribution of such securities or property shall be made to the number and/or class of the Restricted Shares. Appropriate adjustments shall also be made to the price per share to be paid upon the exercise of the Right of Repurchase, provided that the aggregate purchase price payable for the Restricted Shares shall remain the same. In the event of a merger or consolidation of the Company with or into another entity or any other corporate reorganization, the Right of Repurchase may be exercised by the Company’s successor.
(f) Transfer of Restricted Shares. The Optionee shall not transfer, assign, encumber or otherwise dispose of any Restricted Shares without the Company’s written consent, except as provided in the following sentence. The Optionee may transfer Restricted Shares to one or more members of the Optionee’s immediate family or to a trust established by the Optionee for the benefit of the Optionee and/or one or more members of the Optionee’s immediate family, provided in either case that the Transferee agrees in writing on a form prescribed by the Company to be bound by all provisions of this Agreement. If the Optionee transfers any Restricted Shares, then this Agreement shall apply to the Transferee to the same extent as to the Optionee.
(g) Assignment of Repurchase Right. The Board of Directors may freely assign the Company’s Right of Repurchase, in whole or in part. Any person who accepts an assignment of the Right of Repurchase from the Company shall assume all of the Company’s rights and obligations under this Section 6.
7. Investment Representations. The Optionee represents and warrants to the Company that he is acquiring the Option (and upon exercise of the Option, will be acquiring the Option Shares) for investment for his own account, not as a nominee or agent, and not with a view to, or for resale in connection with, any distribution thereof.
8. Non-Transferability of Option. The Option may not be sold, pledged, assigned, hypothecated, gifted, transferred or disposed of in any manner either voluntarily or involuntarily by operation of law, other than by will or by the laws of descent or distribution. During the Optionee’s lifetime, the Option is exercisable only by the Optionee. Subject to the foregoing and the terms of the Plan, the terms of the Option will be binding upon the executors, administrators and heirs of the Optionee.
9. Tax Consequences. The Optionee acknowledges that the Company has not advised the Optionee regarding his income tax liability in connection with the exercise of the Option or the vesting of the Option Shares. The Optionee has reviewed with the Optionee’s own tax advisors the federal, state, local and foreign tax consequences of this investment and the transactions contemplated by this Agreement. The Optionee is relying solely on such advisors and not on any statements or representations of the Company or any of its subsidiaries. The Optionee understands that he (not the Company) will be responsible for his own tax liabilities arising in connection with this award or the transactions contemplated by this Agreement.
10. No Continuation of Service. Neither the Plan nor this Option will confer upon the Optionee any right to continue in the service of the Company or any of its subsidiaries, or limit in any respect the right of the Company or its subsidiaries to discharge the Optionee at any time, with or without Cause and with or without notice.
11. Withholding. The Company is hereby authorized to withhold from any consideration payable or property transferable to the Optionee any taxes required to be withheld by federal, state or local law in connection with the grant or exercise of this Option or the vesting or disposition of the Option Shares.
12. The Plan. The Optionee has received a copy of the Plan (a copy of which is attached hereto), has read the Plan and is familiar with its terms, and hereby accepts the Option subject to the terms and provisions of the Plan, as amended from time to time. Pursuant to the Plan, the Board is authorized to interpret the Plan and to adopt rules and regulations not inconsistent with the Plan as it deems appropriate. The Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board with respect to questions arising under the Plan or any award agreement.
13. Market Stand-Off. The Optionee agrees, in connection with any public offering by the Company of its equity securities pursuant to a registration statement filed under the Securities Act of 1933, as amended, not to sell, make any short sale of, loan, hypothecate, pledge, grant any option for the purchase of or otherwise dispose of any Option Shares without the prior written consent of the Company or its underwriters, for such period of time before or after the effective date of such registration as may be requested by the Company or such underwriters.
14. Notice of Disqualifying Disposition. Without limiting any condition applicable to the disposition of Option Shares, the Optionee agrees that if he or she disposes of any Option Shares within one year after that Option Share was transferred to him or her or within two years after the Effective Date, the Optionee will notify the Company in writing within thirty days of the date of such disposition.
15. Entire Agreement. This Agreement, together with the Plan and any other exhibits attached hereto, represents the entire agreement between the parties and supersedes any prior agreement, written or otherwise, relating to the subject matter hereof.
16. Governing Law. This Agreement will be construed in accordance with the laws of the State of Delaware, without regard to the application of the principles of conflicts of laws.
17. Execution. This Agreement may be executed, including execution by facsimile signature, in one or more counterparts, each of which will be deemed an original, and all of which together shall be deemed to be one and the same instrument.
[signature page follows]
IN WITNESS WHEREOF, this Agreement has been executed by the parties on the ___ day of __________, ____.
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JAND, INC.
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By:
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Title:
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OPTIONEE
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Signature
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Address
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THIS OPTION AND THE SECURITIES WHICH MAY BE PURCHASED UPON EXERCISE OF THIS OPTION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES HAVE NOT BEEN ACQUIRED WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD, ASSIGNED, EXCHANGED, MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED OR DISPOSED OF, BY GIFT OR OTHERWISE, OR IN ANY WAY ENCUMBERED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY APPLICABLE STATE SECURITIES LAWS, OR A SATISFACTORY OPINION OF COUNSEL SATISFACTORY TO JAND, INC. THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT AND UNDER APPLICABLE STATE SECURITIES LAWS.
EXHIBIT A
Consent of Spouse
I, , spouse of the Optionee, have read and approve the foregoing Amended and Restated Incentive Stock Option Agreement (the “Agreement”). In consideration of the shares of JAND, Inc. (“Company”) that will be awarded to my spouse as set forth in the Agreement, I hereby appoint my spouse as my attorney-in-fact in respect to the exercise of any rights under the Agreement and agree to be bound by the provisions of the Agreement insofar as I may have any rights in said Agreement or any shares issued pursuant thereto under the community property laws or similar laws relating to marital property.
In addition, I am aware that, among other things, under the Agreement my spouse agrees to sell certain of his/her shares of the capital stock of the Company, including my community property or other interest therein (if any), upon certain events and that transfer of such shares is otherwise restricted. I hereby consent to such sale and to such restrictions, approve of the provisions of the Agreement, and agree that if I predecease my spouse, the successors of my community property or other interest (if any) in such shares will hold such shares subject to the provisions of the Agreement.
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Dated:
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__________________________,_____
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(SIGNATURE OF SPOUSE)
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(PRINTED NAME)
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JAND, INC.
2011 STOCK PLAN
ADOPTED ON MAY 17, 2011
TABLE OF CONTENTS
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Page
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SECTION 1.
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ESTABLISHMENT AND PURPOSE
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1
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SECTION 2.
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ADMINISTRATION
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1
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(a)
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Committees of the Board of Directors
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1
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(b)
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Authority of the Board of Directors
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1
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SECTION 3.
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ELIGIBILITY
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1
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(a)
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General Rule
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1
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(b)
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Ten-Percent Stockholders
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1
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SECTION 4.
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STOCK SUBJECT TO PLAN
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2
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(a)
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Basic Limitation
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2
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(b)
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Additional Shares
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2
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SECTION 5.
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TERMS AND CONDITIONS OF AWARDS OR SALES
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2
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(a)
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Stock Grant or Purchase Agreement
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2
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(b)
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Duration of Offers and Nontransferability of Rights
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2
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(c)
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Purchase Price
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3
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SECTION 6.
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TERMS AND CONDITIONS OF OPTIONS
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3
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(a)
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Stock Option Agreement
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3
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(b)
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Number of Shares
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3
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(c)
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Exercise Price
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3
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(d)
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Exercisability
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3
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(e)
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Basic Term
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3
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(f)
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Termination of Service (Except by Death)
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3
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(g)
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Leaves of Absence
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4
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(h)
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Death of Optionee
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4
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(i)
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Pre-Exercise Restrictions on Transfer of Options or Shares
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5
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(j)
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No Rights as a Stockholder
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5
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(k)
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Modification, Extension and Assumption of Options
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5
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(l)
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Company’s Right to Cancel Certain Options
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5
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SECTION 7.
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PAYMENT FOR SHARES
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6
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(a)
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General Rule
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6
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(b)
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Services Rendered
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6
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(c)
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Promissory Note
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6
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(d)
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Surrender of Stock
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6
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(e)
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Exercise/Sale
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6
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(f)
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Net Exercise
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6
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(g)
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Other Forms of Payment
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6
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SECTION 8.
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ADJUSTMENT OF SHARES
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7
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(a)
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General
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7
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(b)
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Corporate Transactions
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7
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(c)
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Reservation of Rights
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8
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SECTION 9.
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PRE-EXERCISE INFORMATION REQUIREMENT
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9
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(a)
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Application of Requirement
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9
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(b)
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Scope of Requirement
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9
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SECTION 10.
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MISCELLANEOUS PROVISIONS
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9
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(a)
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Securities Law Requirements
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9
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(b)
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No Retention Rights
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9
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(c)
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Treatment as Compensation
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9
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(d)
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Governing Law
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9
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(e)
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Conditions and Restrictions on Shares
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9
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(f)
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Tax Matters
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10
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SECTION 11.
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DURATION AND AMENDMENTS; STOCKHOLDER APPROVAL
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11
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(a)
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Term of the Plan
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11
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(b)
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Right to Amend or Terminate the Plan
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11
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(c)
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Effect of Amendment or Termination
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11
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(d)
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Stockholder Approval
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11
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SECTION 12.
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DEFINITIONS
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11
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JAND, INC. 2011 STOCK PLAN
SECTION 1. ESTABLISHMENT AND PURPOSE.
The purpose of this Plan is to offer persons selected by the Company an opportunity to acquire a proprietary interest in the success of the Company, or to increase such interest, by acquiring Shares of the Company’s Stock. The Plan provides both for the direct award or sale of Shares and for the grant of Options to purchase Shares. Options granted under the Plan may be ISOs intended to qualify under Code Section 422 or Nonstatutory Options which are not intended to so qualify.
Capitalized terms are defined in Section 12.
SECTION 2. ADMINISTRATION.
(a) Committees of the Board of Directors. The Plan may be administered by one or more Committees. Each Committee shall consist, as required by applicable law, of one or more members of the Board of Directors who have been appointed by the Board of Directors. Each Committee shall have such authority and be responsible for such functions as the Board of Directors has assigned to it. If no Committee has been appointed, the entire Board of Directors shall administer the Plan. Any reference to the Board of Directors in the Plan shall be construed as a reference to the Committee (if any) to whom the Board of Directors has assigned a particular function.
(b) Authority of the Board of Directors. Subject to the provisions of the Plan, the Board of Directors shall have full authority and discretion to take any actions it deems necessary or advisable for the administration of the Plan. Notwithstanding anything to the contrary in the Plan, with respect to the terms and conditions of awards granted to Participants outside the United States, the Board of Directors may vary from the provisions of the Plan to the extent it determines it necessary and appropriate to do so; provided that it may not vary from those Plan terms requiring stockholder approval pursuant to Section 11(d) below. All decisions, interpretations and other actions of the Board of Directors shall be final and binding on all Purchasers, all Optionees and all persons deriving their rights from a Purchaser or Optionee.
SECTION 3. ELIGIBILITY.
(a) General Rule. Only Employees, Outside Directors and Consultants shall be eligible for the grant of Nonstatutory Options or the direct award or sale of Shares. Only Employees shall be eligible for the grant of ISOs.
(b) Ten-Percent Stockholders. A person who owns more than 10% of the total combined voting power of all classes of outstanding stock of the Company, its Parent or any of its Subsidiaries shall not be eligible for the grant of an ISO unless (i) the Exercise Price is at least 110% of the Fair Market Value of a Share on the Date of Grant and (ii) such ISO by its terms is not exercisable after the expiration of five years from the Date of Grant. For purposes of this Subsection (b), in determining stock ownership, the attribution rules of Code Section 424(d) shall be applied.
SECTION 4. STOCK SUBJECT TO PLAN.
(a) Basic Limitation. Not more than 38,953 Shares may be issued under the Plan, subject to Subsection (b) below and Section 8(a). All of these Shares may be issued upon the exercise of ISOs. The number of Shares that are subject to Options or other rights outstanding at any time under the Plan may not exceed the number of Shares that then remain available for issuance under the Plan. The Company, during the term of the Plan, shall at all times reserve and keep available sufficient Shares to satisfy the requirements of the Plan. Shares offered under the Plan may be authorized but unissued Shares or treasury Shares.
(b) Additional Shares. In the event that Shares previously issued under the Plan are reacquired by the Company, such Shares shall be added to the number of Shares then available for issuance under the Plan. In the event that Shares that otherwise would have been issuable under the Plan are withheld by the Company in payment of the Purchase Price, Exercise Price or withholding taxes, such Shares shall remain available for issuance under the Plan. In the event that an outstanding Option or other right for any reason expires or is canceled, the Shares allocable to the unexercised portion of such Option or other right shall be added to the number of Shares then available for issuance under the Plan.
SECTION 5. TERMS AND CONDITIONS OF AWARDS OR SALES.
(a) Stock Grant or Purchase Agreement. Each award of Shares under the Plan shall be evidenced by a Stock Grant Agreement between the Grantee and the Company. Each sale of Shares under the Plan (other than upon exercise of an Option) shall be evidenced by a Stock Purchase Agreement between the Purchaser and the Company. Such award or sale shall be subject to all applicable terms and conditions of the Plan and may be subject to any other terms and conditions which are not inconsistent with the Plan and which the Board of Directors deems appropriate for inclusion in a Stock Grant Agreement or Stock Purchase Agreement. The provisions of the various Stock Grant Agreements and Stock Purchase Agreements entered into under the Plan need not be identical.
(b) Duration of Offers and Nontransferability of Rights. Any right to purchase Shares under the Plan (other than an Option) shall automatically expire if not exercised by the Purchaser within 30 days (or such other period as may be specified in the Award Agreement) after the grant of such right was communicated to the Purchaser by the Company. Such right is not transferable and may be exercised only by the Purchaser to whom such right was granted.
(c) Purchase Price. The Board of Directors shall determine the Purchase Price of Shares to be offered under the Plan at its sole discretion. The Purchase Price shall be payable in a form described in Section 7.
SECTION 6. TERMS AND CONDITIONS OF OPTIONS.
(a) Stock Option Agreement. Each grant of an Option under the Plan shall be evidenced by a Stock Option Agreement between the Optionee and the Company. The Option shall be subject to all applicable terms and conditions of the Plan and may be subject to any other terms and conditions that are not inconsistent with the Plan and that the Board of
Directors deems appropriate for inclusion in a Stock Option Agreement. The provisions of the various Stock Option Agreements entered into under the Plan need not be identical.
(b) Number of Shares. Each Stock Option Agreement shall specify the number of Shares that are subject to the Option and shall provide for the adjustment of such number in accordance with Section 8. The Stock Option Agreement shall also specify whether the Option is an ISO or a Nonstatutory Option.
(c) Exercise Price. Each Stock Option Agreement shall specify the Exercise Price. The Exercise Price of an Option shall not be less than 100% of the Fair Market Value of a Share on the Date of Grant, and in the case of an ISO a higher percentage may be required by Section 3(b). Subject to the preceding sentence, the Exercise Price shall be determined by the Board of Directors at its sole discretion. The Exercise Price shall be payable in a form described in Section 7. This Subsection (c) shall not apply to an Option granted pursuant to an assumption of, or substitution for, another option in a manner that complies with Code Section 424(a) (whether or not the Option is an ISO).
(d) Exercisability. Each Stock Option Agreement shall specify the date when all or any installment of the Option is to become exercisable. No Option shall be exercisable unless the Optionee (i) has delivered an executed copy of the Stock Option Agreement to the Company or (ii) otherwise agrees to be bound by the terms of the Stock Option Agreement. The Board of Directors shall determine the exercisability provisions of the Stock Option Agreement at its sole discretion.
(e) Basic Term. The Stock Option Agreement shall specify the term of the Option. The term shall not exceed 10 years from the Date of Grant, and in the case of an ISO, a shorter term may be required by Section 3(b). Subject to the preceding sentence, the Board of Directors at its sole discretion shall determine when an Option is to expire.
(f) Termination of Service (Except by Death). If an Optionee’s Service terminates for any reason other than the Optionee’s death, then the Optionee’s Options shall expire on the earliest of the following dates:
(i) The expiration date determined pursuant to Subsection (e) above;
(ii) The date three months after the termination of the Optionee’s Service for any reason other than Disability, or such earlier or later date as the Board of Directors may determine (but in no event earlier than 30 days after the termination of the Optionee’s Service); or
(iii) The date six months after the termination of the Optionee’s Service by reason of Disability, or such later date as the Board of Directors may determine.
The Optionee may exercise all or part of the Optionee’s Options at any time before the expiration of such Options under the preceding sentence, but only to the extent that such Options had become exercisable before the Optionee’s Service terminated (or became exercisable as a result
of the termination) and the underlying Shares had vested before the Optionee’s Service terminated (or vested as a result of the termination). The balance of such Options shall lapse when the Optionee’s Service terminates. In the event that the Optionee dies after the termination of the Optionee’s Service but before the expiration of the Optionee’s Options, all or part of such Options may be exercised (prior to expiration) by the executors or administrators of the Optionee’s estate or by any person who has acquired such Options directly from the Optionee by beneficiary designation, bequest or inheritance, but only to the extent that such Options had become exercisable before the Optionee’s Service terminated (or became exercisable as a result of the termination) and the underlying Shares had vested before the Optionee’s Service terminated (or vested as a result of the termination).
(g) Leaves of Absence. For purposes of Subsection (f) above, Service shall be deemed to continue while the Optionee is on a bona fide leave of absence, if such leave was approved by the Company in writing and if continued crediting of Service for this purpose is expressly required by the terms of such leave or by applicable law (as determined by the Company).
(h) Death of Optionee. If an Optionee dies while the Optionee is in Service, then the Optionee’s Options shall expire on the earlier of the following dates:
(i) The expiration date determined pursuant to Subsection (e) above; or
(ii) The date 12 months after the Optionee’s death, or such earlier or later date as the Board of Directors may determine (but in no event earlier than six months after the Optionee’s death).
All or part of the Optionee’s Options may be exercised at any time before the expiration of such Options under the preceding sentence by the executors or administrators of the Optionee’s estate or by any person who has acquired such Options directly from the Optionee by beneficiary designation, bequest or inheritance, but only to the extent that such Options had become exercisable before the Optionee’s death (or became exercisable as a result of the death) and the underlying Shares had vested before the Optionee’s death (or vested as a result of the Optionee’s death). The balance of such Options shall lapse when the Optionee dies.
(i) Pre-Exercise Restrictions on Transfer of Options or Shares. An Option shall be transferable by the Optionee only by (i) a beneficiary designation, (ii) a will or (iii) the laws of descent and distribution, except as provided in the next sentence. If the applicable Stock Option Agreement so provides, a Nonstatutory Option shall also be transferable by gift or domestic relations order to a Family Member of the Optionee. An ISO may be exercised during the lifetime of the Optionee only by the Optionee or by the Optionee’s guardian or legal representative. In addition, an Option shall comply with all conditions of Rule 12h-1(f)(1) under the Exchange Act until the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act. Such conditions include, without limitation, the transferability restrictions set forth in Rule 12h-1(f)(1)(iv) and (v) under the Exchange Act, which shall apply to an Option and, prior to exercise, to the Shares to be issued upon exercise of such Option during the period commencing on the Date of Grant and ending on
the earlier of (i) the date when the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act or (ii) the date when the Company makes a determination that it will cease to rely on the exemption afforded by Rule 12h-1(f)(1) under the Exchange Act. During such period, an Option and, prior to exercise, the Shares to be issued upon exercise of such Option shall be restricted as to any pledge, hypothecation or other transfer by the Optionee, including any short position, any “put equivalent position” (as defined in Rule 16a-1(h) under the Exchange Act) or any “call equivalent position” (as defined in Rule 16a-1(b) under the Exchange Act).
(j) No Rights as a Stockholder. An Optionee, or a transferee of an Optionee, shall have no rights as a stockholder with respect to any Shares covered by the Optionee’s Option until such person becomes entitled to receive such Shares by filing a notice of exercise and paying the Exercise Price pursuant to the terms of such Option.
(k) Modification, Extension and Assumption of Options. Within the limitations of the Plan, the Board of Directors may modify, extend or assume outstanding Options or may accept the cancellation of outstanding Options (whether granted by the Company or another issuer) in return for the grant of new Options or a different type of award for the same or a different number of Shares and at the same or a different Exercise Price (if applicable). The foregoing notwithstanding, no modification of an Option shall, without the consent of the Optionee, impair the Optionee’s rights or increase the Optionee’s obligations under such Option.
(l) Company’s Right to Cancel Certain Options. Any other provision of the Plan or a Stock Option Agreement notwithstanding, the Company shall have the right at any time to cancel an Option that was not granted in compliance with Rule 701 under the Securities Act. Prior to canceling such Option, the Company shall give the Optionee not less than 30 days’ notice in writing. If the Company elects to cancel such Option, it shall deliver to the Optionee consideration with an aggregate Fair Market Value equal to the excess of (i) the Fair Market Value of the Shares subject to such Option as of the time of the cancellation over (ii) the Exercise Price of such Option. The consideration may be delivered in the form of cash or cash equivalents, in the form of Shares, or a combination of both. If the consideration would be a negative amount, such Option may be cancelled without the delivery of any consideration.
SECTION 7. PAYMENT FOR SHARES.
(a) General Rule. The entire Purchase Price or Exercise Price of Shares issued under the Plan shall be payable in cash or cash equivalents at the time when such Shares are purchased, except as otherwise provided in this Section 7. In addition, the Board of Directors in its sole discretion may also permit payment through any of the methods described in (b) through (g) below:
(b) Services Rendered. Shares may be awarded under the Plan in consideration of services rendered to the Company, a Parent or a Subsidiary prior to the award.
(c) Promissory Note. All or a portion of the Purchase Price or Exercise Price (as the case may be) of Shares issued under the Plan may be paid with a full-recourse promissory note. The Shares shall be pledged as security for payment of the principal amount of the
promissory note and interest thereon. The interest rate payable under the terms of the promissory note shall not be less than the minimum rate (if any) required to avoid the imputation of additional interest under the Code. Subject to the foregoing, the Board of Directors (at its sole discretion) shall specify the term, interest rate, amortization requirements (if any) and other provisions of such note.
(d) Surrender of Stock. All or any part of the Exercise Price may be paid by surrendering, or attesting to the ownership of, Shares that are already owned by the Optionee. Such Shares shall be surrendered to the Company in good form for transfer and shall be valued at their Fair Market Value as of the date when the Option is exercised.
(e) Exercise/Sale. If the Stock is publicly traded, all or part of the Exercise Price and any withholding taxes may be paid by the delivery (on a form prescribed by the Company) of an irrevocable direction to a securities broker approved by the Company to sell Shares and to deliver all or part of the sales proceeds to the Company.
(f) Net Exercise. An Option may permit exercise through a “net exercise” arrangement pursuant to which the Company will reduce the number of Shares issued upon exercise by the largest whole number of Shares having an aggregate Fair Market Value (determined by the Board of Directors as of the exercise date) that does not exceed the aggregate Exercise Price or the sum of the aggregate Exercise Price plus all or a portion of the minimum amount required to be withheld under applicable tax law (with the Company accepting from the Optionee payment of cash or cash equivalents to satisfy any remaining balance of the aggregate Exercise Price and, if applicable, any additional withholding obligation not satisfied through such reduction in Shares); provided that to the extent Shares subject to an Option are withheld in this manner, the number of Shares subject to the Option following the net exercise will be reduced by the sum of the number of Shares withheld and the number of Shares delivered to the Optionee as a result of the exercise.
(g) Other Forms of Payment. To the extent that an Award Agreement so provides, the Purchase Price or Exercise Price of Shares issued under the Plan may be paid in any other form permitted by the Delaware General Corporation Law, as amended.
SECTION 8. ADJUSTMENT OF SHARES.
(a) General. In the event of a subdivision of the outstanding Stock, a declaration of a dividend payable in Shares, a combination or consolidation of the outstanding Stock into a lesser number of Shares, a reclassification, or any other increase or decrease in the number of issued shares of Stock effected without receipt of consideration by the Company, proportionate adjustments shall automatically be made in each of (i) the number and kind of Shares available for future grants under Section 4, (ii) the number and kind of Shares covered by each outstanding Option and any outstanding and unexercised right to purchase Shares that has not yet expired pursuant to Section 5(b), (iii) the Exercise Price under each outstanding Option and the Purchase Price applicable to any unexercised stock purchase right described in clause (ii) above, and (iv) any repurchase price that applies to Shares granted under the Plan pursuant to the terms of a Company repurchase right under the applicable Award Agreement. In the event of a declaration of an extraordinary dividend payable in a form other than Shares in an amount that
has a material effect on the Fair Market Value of the Stock, a recapitalization, a spin-off, or a similar occurrence, the Board of Directors at its sole discretion may make appropriate adjustments in one or more of the items listed in clauses (i) through (iv) above; provided, however, that the Board of Directors shall in any event make such adjustments as may be required by Section 25102(o) of the California Corporations Code. No fractional Shares shall be issued under the Plan as a result of an adjustment under this Section 8(a), although the Board of Directors in its sole discretion may make a cash payment in lieu of fractional Shares.
(b) Corporate Transactions. In the event that the Company is a party to a merger or consolidation, or in the event of a sale of all or substantially all of the Company’s stock or assets, all Shares acquired under the Plan and all Options and other Plan awards outstanding on the effective date of the transaction shall be treated in the manner described in the definitive transaction agreement (or, in the event the transaction does not entail a definitive agreement to which the Company is party, in the manner determined by the Board of Directors in its capacity as administrator of the Plan, with such determination having final and binding effect on all parties), which agreement or determination need not treat all Options and awards (or all portions of an Option or an award) in an identical manner. The treatment specified in the transaction agreement may include (without limitation) one or more of the following with respect to each outstanding Option or award:
(i) Continuation of the Option or award by the Company (if the Company is the surviving corporation).
(ii) Assumption of the Option by the surviving corporation or its parent in a manner that complies with Code Section 424(a) (whether or not the Option is an ISO).
(iii) Substitution by the surviving corporation or its parent of a new option for the Option in a manner that complies with Code Section 424(a) (whether or not the Option is an ISO).
(iv) Cancellation of the Option and a payment to the Optionee with respect to each Share subject to the portion of the Option that is vested as of the transaction date equal to the excess of (A) the value, as determined by the Board of Directors in its absolute discretion, of the property (including cash) received by the holder of a share of Stock as a result of the transaction, over (B) the per-Share Exercise Price of the Option (such excess, the “Spread”). Such payment shall be made in the form of cash, cash equivalents, or securities of the surviving corporation or its parent having a value equal to the Spread. In addition, any escrow, holdback, earn-out or similar provisions in the transaction agreement may apply to such payment to the same extent and in the same manner as such provisions apply to the holders of Stock. If the Spread applicable to an Option is zero or a negative number, then the Option may be cancelled without making a payment to the Optionee.
(v) Cancellation of the Option without the payment of any consideration; provided that the Optionee shall be notified of such treatment and
given an opportunity to exercise the Option (to the extent the Option is vested or becomes vested as of the effective date of the transaction) during a period of not less than five (5) business days preceding the effective date of the transaction, unless (A) a shorter period is required to permit a timely closing of the transaction and (B) such shorter period still offers the Optionee a reasonable opportunity to exercise the Option. Any exercise of the Option during such period may be contingent upon the closing of the transaction.
(vi) Suspension of the Optionee’s right to exercise the Option during a limited period of time preceding the closing of the transaction if such suspension is administratively necessary to permit the closing of the transaction.
(vii) Termination of any right the Optionee has to exercise the Option prior to vesting in the Shares subject to the Option (i.e., “early exercise”), such that following the closing of the transaction the Option may only be exercised to the extent it is vested.
For the avoidance of doubt, the Board of Directors has discretion to accelerate, in whole or part, the vesting and exercisability of an Option or other Plan award in connection with a corporate transaction covered by this Section 8(b).
(c) Reservation of Rights. Except as provided in this Section 8, a Participant shall have no rights by reason of (i) any subdivision or consolidation of shares of stock of any class, (ii) the payment of any dividend or (iii) any other increase or decrease in the number of shares of stock of any class. Any issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or Exercise Price of Shares subject to an Option. The grant of an Option pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure, to merge or consolidate or to dissolve, liquidate, sell or transfer all or any part of its business or assets.
SECTION 9. PRE-EXERCISE INFORMATION REQUIREMENT.
(a) Application of Requirement. This Section 9 shall apply only during a period that (i) commences when the Company begins to rely on the exemption described in Rule 12h-1(f)(1) under the Exchange Act, as determined by the Company in its sole discretion, and (ii) ends on the earlier of (A) the date when the Company ceases to rely on such exemption, as determined by the Company in its sole discretion, or (B) the date when the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act. In addition, this Section 9 shall in no event apply to an Optionee after he or she has fully exercised all of his or her Options.
(b) Scope of Requirement. The Company shall provide to each Optionee the information described in Rule 701(e)(3), (4) and (5) under the Securities Act. Such information shall be provided at six-month intervals, and the financial statements included in such information shall not be more than 180 days old. The foregoing notwithstanding, the Company
shall not be required to provide such information unless the Optionee has agreed in writing, on a form prescribed by the Company, to keep such information confidential.
SECTION 10. MISCELLANEOUS PROVISIONS.
(a) Securities Law Requirements. Shares shall not be issued under the Plan unless, in the opinion of counsel acceptable to the Board of Directors, the issuance and delivery of such Shares comply with (or are exempt from) all applicable requirements of law, including (without limitation) the Securities Act, the rules and regulations promulgated thereunder, state securities laws and regulations, and the regulations of any stock exchange or other securities market on which the Company’s securities may then be traded. The Company shall not be liable for a failure to issue Shares as a result of such requirements.
(b) No Retention Rights. Nothing in the Plan or in any right or Option granted under the Plan shall confer upon the Participant any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Company (or any Parent or Subsidiary employing or retaining the Participant) or of the Participant, which rights are hereby expressly reserved by each, to terminate his or her Service at any time and for any reason, with or without cause.
(c) Treatment as Compensation. Any compensation that an individual earns or is deemed to earn under this Plan shall not be considered a part of his or her compensation for purposes of calculating contributions, accruals or benefits under any other plan or program that is maintained or funded by the Company, a Parent or a Subsidiary.
(d) Governing Law. The Plan and all awards, sales and grants under the Plan shall be governed by, and construed in accordance with, the laws of the State of Delaware, as such laws are applied to contracts entered into and performed in such State.
(e) Conditions and Restrictions on Shares. Shares issued under the Plan shall be subject to such forfeiture conditions, rights of repurchase, rights of first refusal, other transfer restrictions and such other terms and conditions as the Board of Directors may determine. Such conditions and restrictions shall be set forth in the applicable Award Agreement and shall apply in addition to any restrictions that may apply to holders of Shares generally. In addition, Shares issued under the Plan shall be subject to conditions and restrictions imposed either by applicable law or by Company policy, as adopted from time to time, designed to ensure compliance with applicable law or laws with which the Company determines in its sole discretion to comply including in order to maintain any statutory, regulatory or tax advantage.
(f) Tax Matters.
(i) As a condition to the award, grant, issuance, vesting, purchase, exercise or transfer of any award, or Shares issued pursuant to any award, granted under this Plan, the Participant shall make such arrangements as the Board of Directors may require or permit for the satisfaction of any federal, state, local or foreign withholding tax obligations that may arise in connection with such event.
(ii) Unless otherwise expressly set forth in an Award Agreement, it is intended that awards granted under the Plan shall be exempt from Code Section 409A, and any ambiguity in the terms of an Award Agreement and the Plan shall be interpreted consistently with this intent. To the extent an award is not exempt from Code Section 409A (any such award, a “409A Award”), any ambiguity in the terms of such award and the Plan shall be interpreted in a manner that to the maximum extent permissible supports the award’s compliance with the requirements of that statute. Notwithstanding anything to the contrary permitted under the Plan, in no event shall a modification of an Award not already subject to Code Section 409A be given effect if such modification would cause the Award to become subject to Code Section 409A unless the parties explicitly acknowledge and consent to the modification as one having that effect. A 409A Award shall be subject to such additional rules and requirements as specified by the Board of Directors from time to time in order for it to comply with the requirements of Code Section 409A. In this regard, if any amount under a 409A Award is payable upon a “separation from service” to an individual who is considered a “specified employee” (as each term is defined under Code Section 409A), then no such payment shall be made prior to the date that is the earlier of (i) six months and one day after the Participant’s separation from service or (ii) the Participant’s death, but only to the extent such delay is necessary to prevent such payment from being subject to Section 409A(a)(1). In addition, if a transaction subject to Section 8(b) constitutes a payment event with respect to any 409A Award, then the transaction with respect to such award must also constitute a “change in control event” as defined in Treasury Regulation Section 1.409A-3(i)(5) to the extent required by Code Section 409A.
(iii) Neither the Company nor any member of the Board of Directors shall have any liability to a Participant in the event an award held by the Participant fails to achieve its intended characterization under applicable tax law.
SECTION 11. DURATION AND AMENDMENTS; STOCKHOLDER APPROVAL.
(a) Term of the Plan. The Plan, as set forth herein, shall become effective on the date of its adoption by the Board of Directors, subject to approval of the Company’s stockholders under Subsection (d) below. The Plan shall terminate automatically 10 years after the later of (i) the date when the Board of Directors adopted the Plan or (ii) the date when the Board of Directors approved the most recent increase in the number of Shares reserved under Section 4 that was also approved by the Company’s stockholders. The Plan may be terminated on any earlier date pursuant to Subsection (b) below.
(b) Right to Amend or Terminate the Plan. Subject to Subsection (d) below, the Board of Directors may amend, suspend or terminate the Plan at any time and for any reason.
(c) Effect of Amendment or Termination. No Shares shall be issued or sold and no Option granted under the Plan after the termination thereof, except upon exercise of an Option (or any other right to purchase Shares) granted under the Plan prior to such termination.
The termination of the Plan, or any amendment thereof, shall not affect any Share previously issued or any Option previously granted under the Plan.
(d) Stockholder Approval. To the extent required by applicable law, the Plan will be subject to approval of the Company’s stockholders within 12 months of its adoption date. To the extent required by applicable law, any amendment of the Plan will be subject to the approval of the Company’s stockholders within 12 months of the amendment date if it (i) increases the number of Shares available for issuance under the Plan (except as provided in Section 8), or (ii) materially changes the class of persons who are eligible for the grant of ISOs. In addition, an amendment effecting any other material change to the Plan terms will be subject to approval of the Company’s stockholder only if required by applicable law. Stockholder approval shall not be required for any other amendment of the Plan.
SECTION 12. DEFINITIONS.
(a) “Award Agreement” means a Stock Grant Agreement, Stock Option Agreement or Stock Purchase Agreement.
(b) “Board of Directors” means the Board of Directors of the Company, as constituted from time to time.
(c) “Code” means the Internal Revenue Code of 1986, as amended.
(d) “Committee” means a committee of the Board of Directors, as described in Section 2(a).
(e) “Company” means JAND, Inc., a Delaware corporation.
(f) “Consultant” means a person, excluding Employees and Outside Directors, who performs bona fide services for the Company, a Parent or a Subsidiary as a consultant or advisor and who qualifies as a consultant or advisor under Rule 701(c)(1) of the Securities Act or under Instruction A.1.(a)(1) of Form S-8 under the Securities Act.
(g) “Date of Grant” means the date of grant specified in the applicable Stock Option Agreement, which date shall be the later of (i) the date on which the Board of Directors resolved to grant the Option or (ii) the first day of the Optionee’s Service.
(h) “Disability” means that the Optionee is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment.
(i) “Employee” means any individual who is a common-law employee of the Company, a Parent or a Subsidiary.
(j) “Exchange Act” means the Securities Exchange Act of 1934, as amended.
(k) “Exercise Price” means the amount for which one Share may be purchased upon exercise of an Option, as specified by the Board of Directors in the applicable Stock Option Agreement.
(l) “Fair Market Value” means the fair market value of a Share, as determined by the Board of Directors in good faith. Such determination shall be conclusive and binding on all persons.
(m) “Family Member” means (i) any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law, including adoptive relationships, (ii) any person sharing the Optionee’s household (other than a tenant or employee), (iii) a trust in which persons described in Clause (i) or (ii) have more than 50% of the beneficial interest, (iv) a foundation in which persons described in Clause (i) or (ii) or the Optionee control the management of assets and (v) any other entity in which persons described in Clause (i) or (ii) or the Optionee own more than 50% of the voting interests.
(n) “Grantee” means a person to whom the Board of Directors has awarded Shares under the Plan.
(o) “ISO” means an Option that qualifies as an incentive stock option as described in Code Section 422(b). Notwithstanding its designation as an ISO, an Option that does not qualify as an ISO under applicable law shall be treated for all purposes as a Nonstatutory Option.
(p) “Nonstatutory Option” means an Option that does not qualify as an incentive stock option as described in Code Section 422(b) or 423(b).
(q) “Option” means an ISO or Nonstatutory Option granted under the Plan and entitling the holder to purchase Shares.
(r) “Optionee” means a person who holds an Option.
(s) “Outside Director” means a member of the Board of Directors who is not an Employee.
(t) “Parent” means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if each of the corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A corporation that attains the status of a Parent on a date after the adoption of the Plan shall be considered a Parent commencing as of such date.
(u) “Participant” means a Grantee, Optionee or Purchaser.
(v) “Plan” means this JAND, Inc. 2011 Stock Plan.
(w) “Purchase Price” means the consideration for which one Share may be acquired under the Plan (other than upon exercise of an Option), as specified by the Board of Directors.
(x) “Purchaser” means a person to whom the Board of Directors has offered the right to purchase Shares under the Plan (other than upon exercise of an Option).
(y) “Securities Act” means the Securities Act of 1933, as amended.
(z) “Service” means service as an Employee, Outside Director or Consultant.
(aa) “Share” means one share of Stock, as adjusted in accordance with Section 8 (if applicable).
(bb) “Stock” means the Series B Common Stock of the Company.
(cc) “Stock Grant Agreement” means the agreement between the Company and a Grantee who is awarded Shares under the Plan that contains the terms, conditions and restrictions pertaining to the award of such Shares.
(dd) “Stock Option Agreement” means the agreement between the Company and an Optionee that contains the terms, conditions and restrictions pertaining to the Optionee’s Option.
(ee) “Stock Purchase Agreement” means the agreement between the Company and a Purchaser who purchases Shares under the Plan that contains the terms, conditions and restrictions pertaining to the purchase of such Shares.
(ff) “Subsidiary” means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A corporation that attains the status of a Subsidiary on a date after the adoption of the Plan shall be considered a Subsidiary commencing as of such date.
EXHIBIT A
SCHEDULE OF SHARES RESERVED FOR ISSUANCE UNDER THE PLAN
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Date of Board Approval
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Date of Stockholder Approval
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Number of
Shares Added
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Cumulative Number of Shares
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May 17, 2011
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May 17, 2011
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Not Applicable
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38,953
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**
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**
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May 17, 2011 – 100:1 stock split
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3,895,300
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December 16, 2013
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December 16, 2013
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88,144
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3,983,444
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September 4, 2014
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September 30, 2014
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2,507,182
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6,490,626
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JAND, INC. 2011 STOCK PLAN
NOTICE OF STOCK OPTION GRANT (EARLY EXERCISE)
The Optionee has been granted the following option to purchase shares of the Common Stock of JAND, Inc.:
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Name of Optionee:
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As described on eShares
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Total Number of Shares:
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As described on eShares
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Type of Option:
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As described on eShares (Incentive Stock Option (ISO) / Nonstatutory Stock Option (NSO))
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Exercise Price per Share:
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As described on eShares
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Date of Grant:
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As described on eShares
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Date Exercisable:
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This option may be exercised at any time after the Date of Grant for all or any part of the Shares subject to this option.
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Vesting Commencement Date:
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As described on eShares
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Vesting Schedule:
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As described on eShares
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Expiration Date:
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As described on eShares. This option expires earlier if the Optionee’s Service terminates earlier, as provided in Section 6 of the Stock Option Agreement, or if the Company engages in certain corporate transactions, as provided in Section 8(b) of the Plan.
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By signing below, the Optionee and the Company agree that this option is granted under, and governed by the terms and conditions of, the 2011 Stock Plan and the Stock Option Agreement. Both of these documents are attached to, and made a part of, this Notice of Stock Option Grant. Section 14 of the Stock Option Agreement includes important acknowledgements of the Optionee.
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OPTIONEE:
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JAND, INC.
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By:
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Title:
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THE OPTION GRANTED PURSUANT TO THIS AGREEMENT AND THE SHARES ISSUABLE UPON THE EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
JAND, INC. 2011 STOCK PLAN
STOCK OPTION AGREEMENT (EARLY EXERCISE)
SECTION 1. GRANT OF OPTION.
(a) Option. On the terms and conditions set forth in the Notice of Stock Option Grant and this Agreement, the Company grants to the Optionee on the Date of Grant the option to purchase at the Exercise Price the number of Shares set forth in the Notice of Stock Option Grant. The Exercise Price is agreed to be at least 100% of the Fair Market Value per Share on the Date of Grant (110% of Fair Market Value if this option is designated as an ISO in the Notice of Stock Option Grant and Section 3(b) of the Plan applies). This option is intended to be an ISO or an NSO, as provided in the Notice of Stock Option Grant.
(b) $100,000 Limitation. Even if this option is designated as an ISO in the Notice of Stock Option Grant, it shall be deemed to be an NSO to the extent (and only to the extent) required by the $100,000 annual limitation under Section 422(d) of the Code.
(c) Stock Plan and Defined Terms. This option is granted pursuant to the Plan, a copy of which the Optionee acknowledges having received. The provisions of the Plan are incorporated into this Agreement by this reference. Capitalized terms are defined in Section 15 of this Agreement.
SECTION 2. RIGHT TO EXERCISE.
(a) Exercisability. Subject to Subsection (b) below and the other conditions set forth in this Agreement, all or part of this option may be exercised prior to its expiration at the time or times set forth in the Notice of Stock Option Grant. Shares purchased by exercising this option may be subject to the Right of Repurchase under Section 7.
(b) Stockholder Approval. Any other provision of this Agreement notwithstanding, no portion of this option shall be exercisable at any time prior to the approval of the Plan by the Company’s stockholders.
SECTION 3. NO TRANSFER OR ASSIGNMENT OF OPTION.
Except as otherwise provided in this Agreement, this option and the rights and privileges conferred hereby shall not be sold, pledged or otherwise transferred (whether by operation of law or otherwise) and shall not be subject to sale under execution, attachment, levy or similar process.
SECTION 4. EXERCISE PROCEDURES.
(a) Notice of Exercise. The Optionee or the Optionee’s representative may exercise this option by giving written notice to the Company pursuant to Section 13(c). The notice shall specify the election to exercise this option, the number of Shares for which it is being exercised and the form of payment. The person exercising this option shall sign the notice. In the event that this option is being exercised by the representative of the Optionee, the notice shall be accompanied by proof (satisfactory to the Company) of the representative’s right to exercise this option. The Optionee or the Optionee’s representative shall deliver to the Company, at the time of giving the notice, payment in a form permissible under Section 5 for the full amount of the Purchase Price. In the event of a partial exercise of this option, Shares shall be deemed to have been purchased in the order in which they vest in accordance with the Notice of Stock Option Grant.
(b) Issuance of Shares. After receiving a proper notice of exercise, the Company shall cause to be issued one or more certificates evidencing the Shares for which this option has been exercised. Such Shares shall be registered (i) in the name of the person exercising this option, (ii) in the names of such person and his or her spouse as community property or as joint tenants with the right of survivorship or (iii) with the Company’s consent, in the name of a revocable trust. In the case of Restricted Shares, the Company shall cause such certificates to be deposited in escrow under Section 7(c). In the case of other Shares, the Company shall cause such certificates to be delivered to or upon the order of the person exercising this option.
(c) Withholding Taxes. In the event that the Company determines that it is required to withhold any tax as a result of the exercise of this option, the Optionee, as a condition to the exercise of this option, shall make arrangements satisfactory to the Company to enable it to satisfy all withholding requirements. The Optionee shall also make arrangements satisfactory to the Company to enable it to satisfy any withholding requirements that may arise in connection with the vesting or disposition of Shares purchased by exercising this option.
SECTION 5. PAYMENT FOR STOCK.
(a) Cash. All or part of the Purchase Price may be paid in cash or cash equivalents.
(b) Surrender of Stock. At the discretion of the Board of Directors, all or any part of the Purchase Price may be paid by surrendering, or attesting to the ownership of, Shares that are already owned by the Optionee. Such Shares shall be surrendered to the Company in good form for transfer and shall be valued at their Fair Market Value as of the date when this option is exercised.
(c) Exercise/Sale. All or part of the Purchase Price and any withholding taxes may be paid by the delivery (on a form prescribed by the Company) of an irrevocable direction to a securities broker approved by the Company to sell Shares and to deliver all or part of the sales proceeds to the Company. However, payment pursuant to this Subsection (c) shall
be permitted only if (i) Stock then is publicly traded and (ii) such payment does not violate applicable law.
SECTION 6. TERM AND EXPIRATION.
(a) Basic Term. This option shall in any event expire on the expiration date set forth in the Notice of Stock Option Grant, which date is 10 years after the Date of Grant (five years after the Date of Grant if this option is designated as an ISO in the Notice of Stock Option Grant and Section 3(b) of the Plan applies).
(b) Termination of Service (Except by Death). If the Optionee’s Service terminates for any reason other than death, then this option shall expire on the earliest of the following occasions:
(i) The expiration date determined pursuant to Subsection (a) above;
(ii) The date three months after the termination of the Optionee’s Service for any reason other than Disability; or
(iii) The date six months after the termination of the Optionee’s Service by reason of Disability.
The Optionee may exercise all or part of this option at any time before its expiration under the preceding sentence, but only to the extent that this option is exercisable for vested Shares on or before the date when the Optionee’s Service terminates. When the Optionee’s Service terminates, this option shall expire immediately with respect to the number of Shares for which this option is not yet exercisable and with respect to any Restricted Shares. In the event that the Optionee dies after termination of Service but before the expiration of this option, all or part of this option may be exercised (prior to expiration) by the executors or administrators of the Optionee’s estate or by any person who has acquired this option directly from the Optionee by beneficiary designation, bequest or inheritance, but only to the extent that this option was exercisable for vested Shares on or before the date when the Optionee’s Service terminated.
(c) Death of the Optionee. If the Optionee dies while in Service, then this option shall expire on the earlier of the following dates:
(i) The expiration date determined pursuant to Subsection (a) above; or
(ii) The date 12 months after the Optionee’s death.
All or part of this option may be exercised at any time before its expiration under the preceding sentence by the executors or administrators of the Optionee’s estate or by any person who has acquired this option directly from the Optionee by beneficiary designation, bequest or inheritance, but only to the extent that this option is exercisable for vested Shares on or before the date of the Optionee’s death. When the Optionee dies, this option shall expire immediately with respect to the number of Shares for which this option is not yet exercisable and with respect to any Restricted Shares.
(d) Part-Time Employment and Leaves of Absence. If the Optionee commences working on a part-time basis, then the Company may adjust the vesting schedule set forth in the Notice of Stock Option Grant. If the Optionee goes on a leave of absence, then the Company may adjust the vesting schedule set forth in the Notice of Stock Option Grant in accordance with the Company’s leave of absence policy or the terms of such leave. Except as provided in the preceding sentence, Service shall be deemed to continue for any purpose under this Agreement while the Optionee is on a bona fide leave of absence, if (i) such leave was approved by the Company in writing and (ii) continued crediting of Service for such purpose is expressly required by the terms of such leave or by applicable law (as determined by the Company). Service shall be deemed to terminate when such leave ends, unless the Optionee immediately returns to active work.
(e) Notice Concerning ISO Treatment. Even if this option is designated as an ISO in the Notice of Stock Option Grant, it ceases to qualify for favorable tax treatment as an ISO to the extent that it is exercised:
(i) More than three months after the date when the Optionee ceases to be an Employee for any reason other than death or permanent and total disability (as defined in Section 22(e)(3) of the Code);
(ii) More than 12 months after the date when the Optionee ceases to be an Employee by reason of permanent and total disability (as defined in Section 22(e)(3) of the Code); or
(iii) More than three months after the date when the Optionee has been on a leave of absence for 90 days, unless the Optionee’s reemployment rights following such leave were guaranteed by statute or by contract.
SECTION 7. RIGHT OF REPURCHASE.
(a) Scope of Repurchase Right. Until they vest in accordance with the Notice of Stock Option Grant and Subsection (b) below, the Shares acquired under this Agreement shall be Restricted Shares and shall be subject to the Company’s Right of Repurchase. The Company, however, may decline to exercise its Right of Repurchase or may exercise its Right of Repurchase only with respect to a portion of the Restricted Shares. The Company may exercise its Right of Repurchase only during the Repurchase Period following the termination of the Optionee’s Service, but the Right of Repurchase may be exercised automatically under Subsection (d) below. If the Right of Repurchase is exercised, the Company shall pay the Optionee an amount equal to the lower of (i) the Exercise Price of each Restricted Share being repurchased or (ii) the Fair Market Value of such Restricted Share at the time the Right of Repurchase is exercised.
(b) Lapse of Repurchase Right. The Right of Repurchase shall lapse with respect to the Restricted Shares in accordance with the vesting schedule set forth in the Notice of Stock Option Grant.
(c) Escrow. Upon issuance, the certificate(s) for Restricted Shares shall be deposited in escrow with the Company to be held in accordance with the provisions of this
Agreement. Any additional or exchanged securities or other property described in Subsection (f) below shall immediately be delivered to the Company to be held in escrow. All ordinary cash dividends on Restricted Shares (or on other securities held in escrow) shall be paid directly to the Optionee and shall not be held in escrow. Restricted Shares, together with any other assets held in escrow under this Agreement, shall be (i) surrendered to the Company for repurchase upon exercise of the Right of Repurchase or the Right of First Refusal or (ii) released to the Optionee upon his or her request to the extent that the Shares have ceased to be Restricted Shares (but not more frequently than once every six months). In any event, all Shares that have ceased to be Restricted Shares, together with any other vested assets held in escrow under this Agreement, shall be released within 90 days after the earlier of (i) the termination of the Optionee’s Service or (ii) the lapse of the Right of First Refusal.
(d) Exercise of Repurchase Right. The Company shall be deemed to have exercised its Right of Repurchase automatically for all Restricted Shares as of the commencement of the Repurchase Period, unless the Company during the Repurchase Period notifies the holder of the Restricted Shares pursuant to Section 13(c) that it will not exercise its Right of Repurchase for some or all of the Restricted Shares. The Company shall pay to the holder of the Restricted Shares the purchase price determined under Subsection (a) above for the Restricted Shares being repurchased. Payment shall be made in cash or cash equivalents and/or by canceling indebtedness to the Company incurred by the Optionee in the purchase of the Restricted Shares. The certificate(s) representing the Restricted Shares being repurchased shall be delivered to the Company.
(e) Termination of Rights as Stockholder. If the Right of Repurchase is exercised in accordance with this Section 7 and the Company makes available the consideration for the Restricted Shares being repurchased, then the person from whom the Restricted Shares are repurchased shall no longer have any rights as a holder of the Restricted Shares (other than the right to receive payment of such consideration). Such Restricted Shares shall be deemed to have been repurchased pursuant to this Section 7, whether or not the certificate(s) for such Restricted Shares have been delivered to the Company or the consideration for such Restricted Shares has been accepted.
(f) Additional or Exchanged Securities and Property. In the event of a merger or consolidation of the Company, a sale of all or substantially all of the Company’s stock or assets, any other corporate reorganization, a stock split, the declaration of a stock dividend, the declaration of an extraordinary dividend payable in a form other than stock, a spin-off, an adjustment in conversion ratio, a recapitalization or a similar transaction affecting the Company’s outstanding securities, any securities or other property (including cash or cash equivalents) that are by reason of such transaction exchanged for, or distributed with respect to, any Restricted Shares shall immediately be subject to the Right of Repurchase. Appropriate adjustments to reflect the exchange or distribution of such securities or property shall be made to the number and/or class of the Restricted Shares. Appropriate adjustments shall also be made to the price per share to be paid upon the exercise of the Right of Repurchase, provided that the aggregate purchase price payable for the Restricted Shares shall remain the same. In the event of a merger or consolidation of the Company with or into another entity or any other corporate reorganization, the Right of Repurchase may be exercised by the Company’s successor.
(g) Transfer of Restricted Shares. The Optionee shall not transfer, assign, encumber or otherwise dispose of any Restricted Shares without the Company’s written consent, except as provided in the following sentence. The Optionee may transfer Restricted Shares to one or more members of the Optionee’s Immediate Family or to a trust established by the Optionee for the benefit of the Optionee and/or one or more members of the Optionee’s Immediate Family, provided in either case that the Transferee agrees in writing on a form prescribed by the Company to be bound by all provisions of this Agreement. If the Optionee transfers any Restricted Shares, then this Agreement shall apply to the Transferee to the same extent as to the Optionee.
(h) Assignment of Repurchase Right. The Board of Directors may freely assign the Company’s Right of Repurchase, in whole or in part. Any person who accepts an assignment of the Right of Repurchase from the Company shall assume all of the Company’s rights and obligations under this Section 7.
SECTION 8. RIGHT OF FIRST REFUSAL.
(a) Right of First Refusal. Subject to Section 11(a) below, in the event that the Optionee proposes to sell, pledge or otherwise transfer to a third party any Shares acquired under this Agreement, or any interest in such Shares, the Company shall have the Right of First Refusal with respect to all (and not less than all) of such Shares. If the Optionee desires to transfer Shares acquired under this Agreement, the Optionee shall give a written Transfer Notice to the Company describing fully the proposed transfer, including the number of Shares proposed to be transferred, the proposed transfer price, the name and address of the proposed Transferee and proof satisfactory to the Company that the proposed sale or transfer will not violate any applicable federal, State or foreign securities laws. The Transfer Notice shall be signed both by the Optionee and by the proposed Transferee and must constitute a binding commitment of both parties to the transfer of the Shares. The Company shall have the right to purchase all, and not less than all, of the Shares on the terms of the proposal described in the Transfer Notice (subject, however, to any change in such terms permitted under Subsection (b) below) by delivery of a notice of exercise of the Right of First Refusal within 30 days after the date when the Transfer Notice was received by the Company.
(b) Transfer of Shares. If the Company fails to exercise its Right of First Refusal within 30 days after the date when it received the Transfer Notice, the Optionee may, not later than 90 days following receipt of the Transfer Notice by the Company, conclude a transfer of the Shares subject to the Transfer Notice on the terms and conditions described in the Transfer Notice, provided that any such sale is made in compliance with applicable federal, State and foreign securities laws and not in violation of any other contractual restrictions to which the Optionee is bound. Any proposed transfer on terms and conditions different from those described in the Transfer Notice, as well as any subsequent proposed transfer by the Optionee, shall again be subject to the Right of First Refusal and shall require compliance with the procedure described in Subsection (a) above. If the Company exercises its Right of First Refusal, the parties shall consummate the sale of the Shares on the terms set forth in the Transfer Notice within 60 days after the date when the Company received the Transfer Notice (or within such longer period as may have been specified in the Transfer Notice); provided, however, that
in the event the Transfer Notice provided that payment for the Shares was to be made in a form other than cash or cash equivalents paid at the time of transfer, the Company shall have the option of paying for the Shares with cash or cash equivalents equal to the present value of the consideration described in the Transfer Notice.
(c) Additional or Exchanged Securities and Property. In the event of a merger or consolidation of the Company, a sale of all or substantially all of the Company’s stock or assets, any other corporate reorganization, a stock split, the declaration of a stock dividend, the declaration of an extraordinary dividend payable in a form other than stock, a spin-off, an adjustment in conversion ratio, a recapitalization or a similar transaction affecting the Company’s outstanding securities, any securities or other property (including cash or cash equivalents) that are by reason of such transaction exchanged for, or distributed with respect to, any Shares subject to this Section 8 shall immediately be subject to the Right of First Refusal. Appropriate adjustments to reflect the exchange or distribution of such securities or property shall be made to the number and/or class of the Shares subject to this Section 8.
(d) Termination of Right of First Refusal. Any other provision of this Section 8 notwithstanding, in the event that the Stock is readily tradable on an established securities market when the Optionee desires to transfer Shares, the Company shall have no Right of First Refusal, and the Optionee shall have no obligation to comply with the procedures prescribed by Subsections (a) and (b) above.
(e) Permitted Transfers. This Section 8 shall not apply to (i) a transfer by beneficiary designation, will or intestate succession or (ii) a transfer to one or more members of the Optionee’s Immediate Family or to a trust established by the Optionee for the benefit of the Optionee and/or one or more members of the Optionee’s Immediate Family, provided in either case that the Transferee agrees in writing on a form prescribed by the Company to be bound by all provisions of this Agreement. If the Optionee transfers any Shares acquired under this Agreement, either under this Subsection (e) or after the Company has failed to exercise the Right of First Refusal, then this Agreement shall apply to the Transferee to the same extent as to the Optionee.
(f) Termination of Rights as Stockholder. If the Company makes available, at the time and place and in the amount and form provided in this Agreement, the consideration for the Shares to be purchased in accordance with this Section 8, then after such time the person from whom such Shares are to be purchased shall no longer have any rights as a holder of such Shares (other than the right to receive payment of such consideration in accordance with this Agreement). Such Shares shall be deemed to have been purchased in accordance with the applicable provisions hereof, whether or not the certificate(s) therefor have been delivered as required by this Agreement.
(g) Assignment of Right of First Refusal. The Board of Directors may freely assign the Company’s Right of First Refusal, in whole or in part. Any person who accepts an assignment of the Right of First Refusal from the Company shall assume all of the Company’s rights and obligations under this Section 8.
SECTION 9. LEGALITY OF INITIAL ISSUANCE.
No Shares shall be issued upon the exercise of this option unless and until the Company has determined that:
(a) It and the Optionee have taken any actions required to register the Shares under the Securities Act or to perfect an exemption from the registration requirements thereof;
(b) Any applicable listing requirement of any stock exchange or other securities market on which Stock is listed has been satisfied; and
(c) Any other applicable provision of federal, State or foreign law has been satisfied.
SECTION 10. NO REGISTRATION RIGHTS.
The Company may, but shall not be obligated to, register or qualify the sale of Shares under the Securities Act or any other applicable law. The Company shall not be obligated to take any affirmative action in order to cause the sale of Shares under this Agreement to comply with any law.
SECTION 11. RESTRICTIONS ON TRANSFER OF SHARES.
(a) Bylaws Restrictions. The Shares acquired under this Agreement shall be subject to the transfer restrictions in Article X of the Company’s Bylaws, as amended in addition to, and not in limitation of, the provisions of Section 8 of this Agreement.
(b) Securities Law Restrictions. Regardless of whether the offering and sale of Shares under the Plan have been registered under the Securities Act or have been registered or qualified under the securities laws of any State, the Company at its discretion may impose restrictions upon the sale, pledge or other transfer of such Shares (including the placement of appropriate legends on stock certificates or the imposition of stop-transfer instructions) if, in the judgment of the Company, such restrictions are necessary or desirable in order to achieve compliance with the Securities Act, the securities laws of any State or any other law.
(c) Market Stand-Off. In connection with any underwritten public offering by the Company of its equity securities pursuant to an effective registration statement filed under the Securities Act, including the Company’s initial public offering, the Optionee or a Transferee shall not directly or indirectly sell, make any short sale of, loan, hypothecate, pledge, offer, grant or sell any option or other contract for the purchase of, purchase any option or other contract for the sale of, or otherwise dispose of or transfer, or agree to engage in any of the foregoing transactions with respect to, any Shares acquired under this Agreement without the prior written consent of the Company or its managing underwriter. Such restriction (the “Market Stand-Off”) shall be in effect for such period of time following the date of the final prospectus for the offering as may be requested by the Company or such underwriter. In no event, however, shall such period exceed 180 days plus such additional period as may reasonably be requested by the Company or such underwriter to accommodate regulatory restrictions on (i) the publication or
other distribution of research reports or (ii) analyst recommendations and opinions, including (without limitation) the restrictions set forth in Rule 2711(f)(4) of the National Association of Securities Dealers and Rule 472(f)(4) of the New York Stock Exchange, as amended, or any similar successor rules. The Market Stand-Off shall in any event terminate two years after the date of the Company’s initial public offering. In the event of the declaration of a stock dividend, a spin-off, a stock split, an adjustment in conversion ratio, a recapitalization or a similar transaction affecting the Company’s outstanding securities without receipt of consideration, any new, substituted or additional securities which are by reason of such transaction distributed with respect to any Shares subject to the Market Stand-Off, or into which such Shares thereby become convertible, shall immediately be subject to the Market Stand-Off. In order to enforce the Market Stand-Off, the Company may impose stop-transfer instructions with respect to the Shares acquired under this Agreement until the end of the applicable stand-off period. The Company’s underwriters shall be beneficiaries of the agreement set forth in this Subsection (c). This Subsection (c) shall not apply to Shares registered in the public offering under the Securities Act.
(d) Investment Intent at Grant. The Optionee represents and agrees that the Shares to be acquired upon exercising this option will be acquired for investment, and not with a view to the sale or distribution thereof.
(e) Investment Intent at Exercise. In the event that the sale of Shares under the Plan is not registered under the Securities Act but an exemption is available that requires an investment representation or other representation, the Optionee shall represent and agree at the time of exercise that the Shares being acquired upon exercising this option are being acquired for investment, and not with a view to the sale or distribution thereof, and shall make such other representations as are deemed necessary or appropriate by the Company and its counsel.
(f) Legends. All certificates evidencing Shares purchased under this Agreement shall bear the following legends:
“THE SHARES REPRESENTED HEREBY MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN COMPLIANCE WITH THE TERMS OF A WRITTEN AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED HOLDER OF THE SHARES (OR THE PREDECESSOR IN INTEREST TO THE SHARES). SUCH AGREEMENT GRANTS TO THE COMPANY CERTAIN RIGHTS OF FIRST REFUSAL UPON AN ATTEMPTED TRANSFER OF THE SHARES AND CERTAIN REPURCHASE RIGHTS UPON TERMINATION OF SERVICE WITH THE COMPANY. THE SECRETARY OF THE COMPANY WILL UPON WRITTEN REQUEST FURNISH A COPY OF SUCH AGREEMENT TO THE HOLDER HEREOF WITHOUT CHARGE.”
“THE SHARES REPRESENTED HEREBY MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN COMPLIANCE WITH THE BYLAWS OF THE COMPANY. COPIES OF THE BYLAWS OF THE COMPANY MAY BE
OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY.”
All certificates evidencing Shares purchased under this Agreement in an unregistered transaction shall bear the following legend (and such other restrictive legends as are required or deemed advisable under the provisions of any applicable law):
“THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.”
(g) Removal of Legends. If, in the opinion of the Company and its counsel, any legend placed on a stock certificate representing Shares sold under this Agreement is no longer required, the holder of such certificate shall be entitled to exchange such certificate for a certificate representing the same number of Shares but without such legend.
(h) Administration. Any determination by the Company and its counsel in connection with any of the matters set forth in this Section 11 shall be conclusive and binding on the Optionee and all other persons.
SECTION 12. ADJUSTMENT OF SHARES.
In the event of any transaction described in Section 8(a) of the Plan, the terms of this option (including, without limitation, the number and kind of Shares subject to this option and the Exercise Price) shall be adjusted as set forth in Section 8(a) of the Plan. In the event that the Company is a party to a merger or consolidation or in the event of a sale of all or substantially all of the Company’s stock or assets, this option shall be subject to the treatment provided by the Board of Directors in its sole discretion, as provided in Section 8(b) of the Plan.
SECTION 13. MISCELLANEOUS PROVISIONS.
(a) Rights as a Stockholder. Neither the Optionee nor the Optionee’s representative shall have any rights as a stockholder with respect to any Shares subject to this option until the Optionee or the Optionee’s representative becomes entitled to receive such Shares by filing a notice of exercise and paying the Purchase Price pursuant to Sections 4 and 5.
(b) No Retention Rights. Nothing in this option or in the Plan shall confer upon the Optionee any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Company (or any Parent or Subsidiary employing or retaining the Optionee) or of the Optionee, which rights are hereby expressly reserved by each, to terminate his or her Service at any time and for any reason, with or without cause.
(c) Notice. Any notice required by the terms of this Agreement shall be given in writing. It shall be deemed effective upon (i) personal delivery, (ii) deposit with the United
States Postal Service, by registered or certified mail, with postage and fees prepaid or (iii) deposit with Federal Express Corporation, with shipping charges prepaid. Notice shall be addressed to the Company at its principal executive office and to the Optionee at the address that he or she most recently provided to the Company in accordance with this Subsection (c).
(d) Modifications and Waivers. No provision of this Agreement shall be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by the Optionee and by an authorized officer of the Company (other than the Optionee). No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time.
(e) Entire Agreement. The Notice of Stock Option Grant, this Agreement and the Plan constitute the entire contract between the parties hereto with regard to the subject matter hereof. They supersede any other agreements, representations or understandings (whether oral or written and whether express or implied) that relate to the subject matter hereof.
(f) Choice of Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, as such laws are applied to contracts entered into and performed in such State.
SECTION 14. ACKNOWLEDGEMENTS OF THE OPTIONEE.
(a) Tax Consequences. The Optionee agrees that the Company does not have a duty to design or administer the Plan or its other compensation programs in a manner that minimizes the Optionee’s tax liabilities. The Optionee shall not make any claim against the Company or its Board of Directors, officers or employees related to tax liabilities arising from this option or the Optionee’s other compensation. In particular, the Optionee acknowledges that this option is exempt from Section 409A of the Code only if the Exercise Price is at least equal to the Fair Market Value per Share on the Date of Grant. Since Shares are not traded on an established securities market, the determination of their Fair Market Value is made by the Board of Directors or by an independent valuation firm retained by the Company. The Optionee acknowledges that there is no guarantee in either case that the Internal Revenue Service will agree with the valuation, and the Optionee shall not make any claim against the Company or its Board of Directors, officers or employees in the event that the Internal Revenue Service asserts that the valuation was too low.
(b) Electronic Delivery of Documents. The Optionee agrees to accept by email all documents relating to the Company, the Plan or this option and all other documents that the Company is required to deliver to its security holders (including, without limitation, disclosures that may be required by the Securities and Exchange Commission). The Optionee also agrees that the Company may deliver these documents by posting them on a website maintained by the Company or by a third party under contract with the Company. If the Company posts these documents on a website, it shall notify the Optionee by email of their availability. The Optionee acknowledges that he or she may incur costs in connection with electronic delivery, including the cost of accessing the internet and printing fees, and that an interruption of internet access may interfere with his or her ability to access the documents. This
consent shall remain in effect until this option expires or until the Optionee gives the Company written notice that it should deliver paper documents.
(c) No Notice of Expiration Date. The Optionee agrees that the Company and its officers, employees, attorneys and agents do not have any obligation to notify him or her prior to the expiration of this option pursuant to Section 6, regardless of whether this option will expire at the end of its full term or on an earlier date related to the termination of the Optionee’s Service. The Optionee further agrees that he or she has the sole responsibility for monitoring the expiration of this option and for exercising this option, if at all, before it expires. This Subsection (c) shall supersede any contrary representation that may have been made, orally or in writing, by the Company or by an officer, employee, attorney or agent of the Company.
SECTION 15. DEFINITIONS.
(a) “Agreement” shall mean this Stock Option Agreement.
(b) “Board of Directors” shall mean the Board of Directors of the Company, as constituted from time to time or, if a Committee has been appointed, such Committee.
(c) “Code” shall mean the Internal Revenue Code of 1986, as amended.
(d) “Committee” shall mean a committee of the Board of Directors, as described in Section 2 of the Plan.
(e) “Company” shall mean JAND, Inc., a Delaware corporation.
(f) “Consultant” shall mean a person, excluding Employees and Outside Directors, who performs bona fide services for the Company, a Parent or a Subsidiary as a consultant or advisor and who qualifies as a consultant or advisor under Rule 701(c)(1) of the Securities Act or under Instruction A.1.(a)(1) of Form S-8 under the Securities Act.
(g) “Date of Grant” shall mean the date of grant specified in the Notice of Stock Option Grant, which date shall be the later of (i) the date on which the Board of Directors resolved to grant this option or (ii) the first day of the Optionee’s Service.
(h) “Disability” shall mean that the Optionee is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment.
(i) “Employee” shall mean any individual who is a common-law employee of the Company, a Parent or a Subsidiary.
(j) “Exercise Price” shall mean the amount for which one Share may be purchased upon exercise of this option, as specified in the Notice of Stock Option Grant.
(k) “Fair Market Value” shall mean the fair market value of a Share, as determined by the Board of Directors in good faith. Such determination shall be conclusive and binding on all persons.
(l) “Immediate Family” shall mean any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law and shall include adoptive relationships.
(m) “ISO” shall mean an employee incentive stock option described in Section 422(b) of the Code.
(n) “Notice of Stock Option Grant” shall mean the document so entitled to which this Agreement is attached.
(o) “NSO” shall mean a stock option not described in Section 422(b) or 423(b) of the Code.
(p) “Optionee” shall mean the person named in the Notice of Stock Option Grant.
(q) “Outside Director” shall mean a member of the Board of Directors who is not an Employee.
(r) “Parent” shall mean any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if each of the corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
(s) “Plan” shall mean the JAND, Inc. 2011 Stock Plan, as in effect on the Date of Grant.
(t) “Purchase Price” shall mean the Exercise Price multiplied by the number of Shares with respect to which this option is being exercised.
(u) “Repurchase Period” shall mean a period of 90 consecutive days commencing on the date when the Optionee’s Service terminates for any reason, including (without limitation) death or disability.
(v) “Restricted Share” shall mean a Share that is subject to the Right of Repurchase.
(w) “Right of First Refusal” shall mean the Company’s right of first refusal described in Section 8.
(x) “Right of Repurchase” shall mean the Company’s right of repurchase described in Section 7.
(y) “Securities Act” shall mean the Securities Act of 1933, as amended.
(z) “Service” shall mean service as an Employee, Outside Director or Consultant.
(aa) “Share” shall mean one share of Stock, as adjusted in accordance with Section 8 of the Plan (if applicable).
(bb) “Stock” shall mean the Series B Common Stock of the Company.
(cc) “Subsidiary” shall mean any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
(dd) “Transferee” shall mean any person to whom the Optionee has directly or indirectly transferred any Share acquired under this Agreement.
(ee) “Transfer Notice” shall mean the notice of a proposed transfer of Shares described in Section 8.
WARBY PARKER INC. 2011 STOCK PLAN
NOTICE OF RESTRICTED STOCK UNIT GRANT
Warby Parker Inc., a Delaware corporation (f/k/a JAND, Inc., the “Company”), pursuant to the Warby Parker Inc. Amended and Restated 2011 Stock Plan, as amended (the “Plan”), has granted to the Participant below a restricted stock unit award covering the number of units set forth below, each of which represents one (1) share of the Company’s Series B Common Stock (the “RSUs”). The RSUs are subject to all of the terms and conditions set forth in this Notice of Restricted Stock Unit Grant (the “Grant Notice”) and the Restricted Stock Unit Agreement (the “RSU Agreement”) and the Plan, both of which are attached hereto and incorporated herein in their entirety. Capitalized terms not explicitly defined in this Grant Notice but defined in the Plan or the RSU Agreement will have the same definitions as in the Plan or the RSU Agreement. In the event of any conflict between the terms of the Grant Notice and the Plan, the terms of the Plan will control.
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Name of Participant:
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See Carta
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Total Number of RSUs:
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See Carta
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Date of Grant:
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See Carta
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Vesting Commencement Date:
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See Carta
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Vesting Schedule:
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Upon the earlier of the completion of a Public Listing or immediately prior to the consummation of a Change in Control, that number of RSUs calculated by multiplying the Total Number of RSUs initially subject to this award times a fraction, the numerator of which is the number of whole months completed between the Vesting Commencement Date and such earlier date and the denominator of which is 48, shall vest, subject to Participant’s continuous Service through the completion of such Public Listing or Change in Control. On each monthly anniversary of the Vesting Commencement Date thereafter, an additional 1/48th of the Total Number of RSUs initially subject to this award shall vest, subject to Participant’s continuous Service through the applicable vesting date.
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Issuance Schedule:
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Shares underlying vested RSUs shall be issued to Participant on the earlier of the Specified Quarterly Date that is on or immediately follows the date of vesting for such RSUs, provided, that the Company may, to the extent determined necessary or appropriate for administrative convenience or otherwise, delay the issuance of the Shares underlying vested RSUs until a date determined by
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the Company, in its sole and absolute discretion, that is on or before the date that is 4-months following the applicable vesting date or, if earlier, the later of (A) March 15th of the year following the year in which the vesting date occurs, and (B) the 15th day of the 3rd month of the Company’s tax year following the year in which the vesting date occurs, and, provided further, that any Shares underlying vested RSUs that have not been issued as of immediately prior to a Change in Control shall thereupon be issued.
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For purposes of clarity, the Company shall not be required to settle all vested RSUs on the same date, whether subject to this Grant Notice and RSU Agreement or another agreement (vested RSUs may be settled pursuant to this subsection on the same date or different dates, as long as the RSUs are settled during the applicable periods set forth above, as determined by the Company in its sole discretion).
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Further, notwithstanding anything stated herein, in the RSU Agreement, the Plan or any other agreement applicable to the RSUs, the Company shall have the discretion to settle the RSUs prior to the time set forth herein to the extent permitted by Treasury Regulation Section 1.409A-3(j)(4).
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Prohibited Activity:
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Notwithstanding anything stated herein, in the RSU Agreement, the Plan or any other agreement applicable to the RSUs, and to the maximum extent permitted by applicable law, if the Participant engages in Prohibited Activity, whether before or after the Participant’s Service terminates, the Company shall have the right to cancel all then-outstanding but unsettled RSUs, whether vested or not vested, without any obligation to pay consideration therefor.
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Definitions:
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For purposes of this Grant Notice, the following definitions shall apply.
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“Change in Control” means (i) a sale of all or substantially all of the Company’s assets other than to an Excluded Entity, (ii) a merger, consolidation or other capital reorganization or business combination transaction of the Company with or into another corporation, limited liability company or other entity other than an Excluded Entity, or (iii) the consummation of a transaction, or series of related transactions, in which any “person” (as such
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term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of all of the Company’s then outstanding voting securities.
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Notwithstanding the foregoing, a transaction shall not constitute a Change in Control (1) unless the transaction also qualifies as a “change in control event” as defined in Treasury Regulation Section 1.409A-3(i)(5)(i), (2) unless the stock of the successor to the Company in the transaction (or the successor’s parent company, as applicable) is regularly traded on an established securities market, as determined by the Company’s Board of Directors, in its sole discretion, or (3) if its purpose is to (A) change the jurisdiction of the Company’s incorporation, or (B) create a holding company that will be owned in substantially the same proportions by the persons who hold the Company’s securities immediately before such transaction.
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An “Excluded Entity” means a corporation or other entity of which the holders of voting capital stock of the Company outstanding immediately prior to such transaction are the direct or indirect holders of voting securities representing at least a majority of the votes entitled to be cast by all of such corporation’s or other entity’s voting securities outstanding immediately after such transaction.
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“Prohibited Activity” means: (i) an activity that constitutes (or, following termination of Service, would constitute) “cause” to terminate Participant’s Service (as reasonably determined by the Company in accordance with an applicable employment agreement or another arrangement or plan that covers the Participant or, if no such arrangement defines “cause”, as reasonably determined in accordance with Company policy to the extent not prohibited by applicable law); (ii) a material breach or violation of (a) an agreement between the Participant and the Company or an affiliate of the Company, or (b) a material rule, policy or procedure of the Company or the Participant’s employer, (iii) a material breach of the Company’s Confidentiality and Inventions Agreement or otherwise disclosing, divulging, furnishing, using, or making available to any person or entity, except as necessary in the furtherance of the Participant’s responsibilities to the Company or any of its affiliates, any
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confidential or proprietary information, methods, processes, plans or materials of the Company or any of its affiliates; or (iv) any other conduct or act that the Company reasonably determines is injurious, detrimental or prejudicial to a material interest of the Company. Before a Corporate Transaction (as defined in the Plan), a decision by the Company that a Prohibited Activity has occurred shall be subject to review (e.g., by a judge or an arbitrator) only for abuse of discretion and shall not be overturned unless such decision was arbitrary and capricious. Following a Corporate Transaction, the standard of review of a decision by the Company that a Prohibited Activity has occurred shall be de novo (i.e., without regard to the Company’s initial decision). For the avoidance of doubt, underperformance or an error or omission in the course of Participant’s Service shall not be treated as a Prohibited Activity unless Participant has failed to act in good faith or otherwise has acted in a way that is grossly negligent, reckless, or a breach of fiduciary duty to the Company
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“Public Listing” means the first sale of shares of Company common stock to the general public upon the closing of an underwritten public offering pursuant to an effective registration statement filed under the Securities Act or pursuant to a direct listing that results in shares of Company common stock being regularly traded on an established securities market.
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“Specified Quarterly Date” means each March 31, June 30, September 30 and December 31.
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By accepting this grant, Participant acknowledges and agrees that (i) Participant’s rights to any Shares underlying the RSUs will vest only as Participant provides services to the Company over time and only if certain other conditions are satisfied, and (ii) the grant of the RSUs is not as consideration for services Participant rendered to the Company prior to the Date of Grant.
By accepting this grant, Participant further acknowledges and agrees that (i) Participant has reviewed the Plan, this Grant Notice and the RSU Agreement in their entirety, (ii) Participant has had an opportunity to obtain the advice of counsel prior to accepting the RSUs, (iii) Participant fully understands all provisions of the Plan, this Grant Notice and the RSU Agreement, and (iv) Participant agrees to accept as binding, conclusive and final all decisions or interpretations of the Company’s Board of Directors relating to the Plan, this Grant Notice and RSU Agreement.
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WARBY PARKER, INC.
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By:
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Title:
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CFO
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WARBY PARKER INC. 2011 STOCK PLAN
RESTRICTED STOCK UNIT AGREEMENT
Pursuant to your Notice of Restricted Stock Unit Grant (the “Grant Notice”) and this Restricted Stock Unit Agreement (the “Agreement”), Warby Parker Inc., a Delaware corporation (f/k/a JAND, Inc., the “Company”), has granted you (the “Participant”) a restricted stock unit award covering the number of units set forth in the Grant Notice, each of which represents one (1) share of the Company’s Series B Common Stock (the “RSUs”). Capitalized terms not explicitly defined in this RSU Agreement or in the Grant Notice but defined in the Warby Parker Inc. Amended and Restated 2011 Stock Plan, as amended (the “Plan”), will have the same definitions as in the Plan.
SECTION 1. NO STOCKHOLDER RIGHTS. Unless and until such time as Shares are issued pursuant to the Agreement in settlement of vested RSUs, Participant shall have no ownership of the Shares allocated to the RSUs, including, without limitation, no right to dividends (or dividend equivalents) or to vote such Shares.
SECTION 2. NO TRANSFER. The Grant Notice, this Agreement, the RSUs and any interest therein shall not be sold, assigned, transferred, pledged, hypothecated, or otherwise disposed of.
SECTION 3. TERMINATION. If Participant’s Service terminates at any time for any reason, all RSUs for which vesting is no longer possible under the terms of the Grant Notice and this Agreement shall be forfeited to the Company on the date that is 3-months following such termination of Service, and all rights of Participant to such RSUs shall immediately terminate at such time. Further, for purposes of the RSUs, Participant’s Service will be considered terminated as of the date Participant is no longer actively providing services to the Company, its Parent or Subsidiaries (the “Company Group”), regardless of the reason for such termination and whether or not later found to be invalid or in breach of employment laws in the jurisdiction where Participant is employed or the terms of Participant’s employment agreement, if any (the “Termination Date”), and, unless otherwise determined by the Company, Participant’s right to vest in the RSUs will terminate as of such date and will not be extended by any contractual notice period or any period of “garden leave” or similar notice period mandated under employment laws in the jurisdiction where Participant is employed or the terms of Participant’s employment agreement, if any. The Company shall have the exclusive discretion to determine when Participant is no longer actively providing services for purposes of the RSUs (including, subject to the terms of the Plan and applicable laws, regulations and rules (“Applicable Laws”), whether Participant may still be considered to be providing services while on a leave of absence).
If the Participant is an Employee and commences working on a part-time basis, then the Company may adjust the vesting schedule set forth in the Grant Notice. Further, if the Participant is an Employee and goes on a leave of absence, then the Company may adjust the vesting schedule set forth in the Grant Notice in accordance with the Company’s leave of absence policy or the terms of such leave. Except as provided in the preceding sentence, Service shall be deemed to continue for any purpose under this Agreement while the Participant is on a
bona fide leave of absence, if (i) such leave was approved by the Company in writing and (ii) continued crediting of Service for such purpose is expressly required by the terms of such leave or by Applicable Laws (as determined by the Company). Service shall be deemed to terminate when such leave ends, unless the Participant immediately returns to active work.
SECTION 4. RESPONSIBILITY FOR TAXES. As a condition to the grant, vesting, and settlement of the RSUs, Participant acknowledges that, regardless of any action taken by the Company or, if different, Participant’s employer (the “Employer”), the ultimate liability for all income tax, social insurance, payroll tax, fringe benefits tax, payment on account or other tax-related items or required deductions or payments legally applicable to him or her and related to the receipt, vesting, settlement or cancellation of the RSUs, the issuance or subsequent sale of the Shares allocated to the RSUs, the receipt of dividends (if any) or the participation in the Plan (“Tax-Related Items”) is and remains Participant’s responsibility and may exceed the amount actually withheld by the Company or the Employer. Participant further acknowledges and agrees that Participant is solely responsible for filing all relevant documentation that may be required in relation to the RSUs or any Tax-Related Items (other than filings or documentation that is the specific obligation of the Company or any member of the Company Group pursuant to Applicable Law), such as, but not limited to, personal income tax returns or reporting statements in relation to the receipt, vesting or settlement of the RSUs, the issuance of the Shares allocated to the RSUs, the holding of Shares or any bank or brokerage account, the subsequent sale of Shares, and the receipt of any dividends.
Participant further acknowledges that the Company and/or the Employer: (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the RSUs, including, but not limited to, the receipt, vesting or settlement of the RSUs, the issuance or subsequent sale of the Shares allocated to the RSUs and the receipt of any dividends; and (ii) do not commit to and are under no obligation to structure the terms of the grant or any aspect of the RSUs to reduce or eliminate Participant’s liability for Tax-Related Items or achieve any particular tax result. Participant also understands that Applicable Laws may require varying RSU or Share valuation methods for purposes of calculating Tax-Related Items, and the Company assumes no responsibility or liability in relation to any such valuation or for any calculation or reporting of income or Tax-Related Items that may be required of Participant under Applicable Laws.
Further, if Participant is subject to Tax-Related Items in more than one jurisdiction between the Date of Grant and the date of any relevant taxable or tax withholding event, as applicable, Participant acknowledges that the Company and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.
Prior to the relevant taxable or tax withholding event, as applicable, Participant agrees to make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all Tax-Related Items. In this regard, Participant authorizes the Company and/or the Employer, or their respective agents, at their discretion, to satisfy their tax and/or withholding obligations with regard to all Tax-Related Items by (i) withholding from Participant’s wages or other compensation paid to Participant by the Company or the Employer, (ii) withholding from
proceeds of the sale of Shares acquired pursuant to the RSUs either through a voluntary sale or through a mandatory sale arranged by the Company (on Participant’s behalf pursuant to this authorization) without further consent, (iii) withholding Shares that would otherwise be issued upon settlement of the RSUs or (iv) such other method as determined by the Company or the Employer to be in compliance with Applicable Laws.
Depending on the method of satisfying the tax and/or withholding obligations with regard to the Tax-Related Items, the Company may withhold or account for Tax-Related Items by considering applicable minimum statutory withholding amounts or other applicable tax or withholding rates, including maximum applicable rates, in which case Participant will receive a refund of any over-withheld or over-paid amount in cash and will have no entitlement to the Share equivalent.
Finally, Participant agrees to pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to pay, withhold or account for as a result of Participant’s receipt, vesting or settlement of the RSUs, the issuance or subsequent sale of the Shares allocated to the RSUs or the participation in the Plan that cannot be satisfied by the means previously described. The Company may refuse to issue or deliver the Shares or the proceeds of the sale of Shares if Participant fails to comply with his or her obligations in connection with the Tax-Related Items.
SECTION 5. NATURE OF GRANT. In accepting the RSUs, Participant acknowledges, understands and agrees that:
(a) the Plan is established voluntarily by the Company, is discretionary in nature, and may be amended, suspended or terminated by the Company at any time, to the extent permitted by the Plan;
(b) the grant of the RSUs is voluntary and occasional and does not create any contractual or other right to receive future grants of restricted stock units, or benefits in lieu of restricted stock units, even if restricted stock units have been granted in the past;
(c) all decisions with respect to future restricted stock units or other grants, if any, will be at the sole discretion of the Company;
(d) Participant is voluntarily participating in the Plan;
(e) the RSUs and the Shares allocated to the RSUs are not intended to replace any pension rights or compensation and are outside the scope of Participant’s employment contract, if any;
(f) the RSUs and the Shares allocated to the RSUs , and the income and value of same, are not part of normal or expected compensation for any purpose, including, without limitation, calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments;
(g) the future value of the Shares is unknown, indeterminable, and cannot be predicted with certainty;
(h) if the RSUs are settled and Participant receives some or all of the Shares allocated to the RSUs, the value of such Shares may increase or decrease in value;
(i) no claim or entitlement to compensation or damages shall arise from forfeiture of the RSUs resulting from the termination of Participant’s Service (for any reason whatsoever, whether or not later found to be invalid or in breach of employment laws in the jurisdiction where Participant is employed or the terms of Participant’s employment agreement, if any), and in consideration of the grant of the RSUs to which Participant is otherwise not entitled, Participant irrevocably agrees never to institute any claim against the Company Group, waives his or her ability, if any, to bring any such claim, and releases the Company Group from any such claim; if, notwithstanding the foregoing, any such claim is allowed by a court of competent jurisdiction, then, by participating in the Plan, Participant shall be deemed irrevocably to have agreed not to pursue such claim and agrees to execute and/or accept any and all documents necessary to request dismissal or withdrawal of such claim;
(j) unless otherwise provided in the Plan or by the Company in its discretion, the RSUs and the benefits evidenced by this Agreement do not create any entitlement to have the RSUs or any such benefits transferred to, or assumed by, another company nor to be exchanged, cashed out or substituted for, in connection with any corporate transaction affecting the Shares; and
(k) no entity in the Company Group shall be liable for any foreign exchange rate fluctuation between Participant’s local currency and the United States Dollar or the selection by the Company or any member of the Company Group in its sole discretion of an applicable foreign exchange rate that may affect the value of the RSUs (or the calculation of income or Tax-Related Items thereunder) or of any amounts due to Participant pursuant to the settlement of the RSUs or the subsequent sale of the Shares allocated to the RSUs.
SECTION 6. LIMITATIONS ON TRANSFER OF SHARES. In addition to any other limitation on transfer created by Applicable Laws, Article X of the Company’s Bylaws, this Agreement, the Grant Notice and the Plan, Participant shall not assign, encumber or dispose of any interest in the Shares issued pursuant to this Agreement except in compliance with Applicable Laws.
SECTION 7. INVESTMENT AND TAXATION REPRESENTATIONS. In connection with the receipt of the RSUs and the Stock upon settlement of the RSUs, Participant represents to the Company the following:
(a) Participant is aware of the Company’s business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Shares issued pursuant to this Agreement. Participant is or will be acquiring the Shares for investment for Participant’s own account only and not with a view to, or for resale in connection with, any “distribution” thereof within the meaning of the Securities Act or under any applicable provision of state law. Participant does not have any
present intention to transfer the Shares issued pursuant to this Agreement to any other person or entity.
(b) Participant understands that the Shares issued pursuant to this Agreement have not been registered under the Securities Act by reason of a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Participant’s investment intent as expressed herein.
(c) Participant further acknowledges and understands that the securities must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. Participant further acknowledges and understands that the Company is under no obligation to register the securities.
(d) Participant is familiar with the provisions of Rule 144, promulgated under the Securities Act, which, in substance, permits limited public resale of “restricted securities” acquired, directly or indirectly, from the issuer of the securities (or from an affiliate of such issuer), in a non-public offering subject to the satisfaction of certain conditions. Participant understands that the Company provides no assurances as to whether he or she will be able to resell any or all of the Shares pursuant to Rule 144, which rule requires, among other things, that the Company be subject to the reporting requirements of the Exchange Act, that resales of securities take place only after the holder of the Shares has held the Shares for certain specified time periods, and under certain circumstances, that resales of securities be limited in volume and take place only pursuant to brokered transactions. Notwithstanding this paragraph (d), Participant acknowledges and agrees to the restrictions set forth in paragraph (e) below.
(e) Participant further understands that in the event all of the applicable requirements of Rule 144 are not satisfied, registration under the Securities Act, compliance with Regulation A, or some other registration exemption will be required; and that, notwithstanding the fact that Rule 144 is not exclusive, the Staff of the Securities and Exchange Commission has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rule 144 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales, and that such persons and their respective brokers who participate in such transactions do so at their own risk.
(f) Participant understands that Participant may suffer adverse tax consequences as a result of Participant’s receipt of the RSUs, the vesting and/or settlement of the RSUs, the issuance of Shares allocated to the RSUs and/or the disposition of such Shares. Participant represents that Participant has consulted any tax consultants Participant deems advisable in connection with the receipt of the RSUs, the vesting and/or settlement of the RSUs, the issuance of Shares allocated to the RSUs and/or the disposition of such Shares and that Participant is not relying on the Company for any tax advice.
SECTION 8. SECTION 409A. All payments made and benefits provided under this Agreement are intended to be exempt from the requirements of Section 409A to the maximum extent permitted pursuant to Treasury Regulation Section 1.409A-1(b)(4) so that none of the payments or benefits will be subject to the adverse tax penalties imposed under Section 409A,
and any ambiguities herein will be interpreted to be so exempt. In no event will the Company reimburse Participant for any taxes or other penalties that may be imposed on Participant as a result of Section 409A and, by accepting the RSUs, Participant hereby indemnifies the Company for any liability that arises as a result of Section 409A.
SECTION 9. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary contained herein, Shares will not be issued pursuant to this Agreement unless the Shares are then registered under the Securities Act or, if such Shares are not then so registered, the Company has determined that such issuance would be exempt from the registration requirements of the Securities Act. The issuance of Shares pursuant to this Agreement also must comply with other Applicable Laws and regulations governing the RSUs, and the Company is not obligated, and will have no liability for failure, to issue or deliver any Shares upon settlement of the RSUs unless such issuance or delivery would comply with the Applicable Laws, with such compliance determined by the Company in consultation with its legal counsel.
SECTION 10. LOCK-UP AGREEMENT. In connection with a Public Listing and upon request of the Company or the underwriters managing such offering of the Company’s securities, Participant hereby agrees not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any securities of the Company however or whenever acquired (other than those included in the registration) without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed 180 days) from the effective date of such registration as may be requested by the Company or such managing underwriters and to execute and/or accept an agreement reflecting the foregoing as may be requested by the underwriters at the time of the Company’s Public Listing. Notwithstanding the foregoing, if during the last 17 days of the restricted period, the Company issues an earnings release or material news or a material event relating to the Company occurs, or prior to the expiration of the restricted period the Company announces that it will release earnings results during the 16-day period beginning on the last day of the restricted period, then, upon the request of the managing underwriter, to the extent required by any FINRA rules, the restrictions imposed by this subsection shall continue to apply until the end of the 3rd trading day following the expiration of the 15-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event. In no event will the restricted period extend beyond 216 days after the effective date of the registration statement.
SECTION 11. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS:
(a) Legends. Any certificate or certificates representing the Shares issued pursuant to this Agreement shall bear the following legends (as well as any legends required by the Company or applicable state and federal corporate and securities laws):
(i) “THE SHARES REPRESENTED HEREBY MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN COMPLIANCE WITH THE TERMS OF A WRITTEN AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED HOLDER OF THE SHARES (OR THE PREDECESSOR IN INTEREST TO THE SHARES). THE SECRETARY OF THE COMPANY WILL UPON WRITTEN REQUEST FURNISH A COPY OF SUCH AGREEMENT TO THE HOLDER HEREOF WITHOUT CHARGE.”
(ii) “THE SHARES REPRESENTED HEREBY MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN COMPLIANCE WITH THE BYLAWS OF THE COMPANY. COPIES OF THE BYLAWS OF THE COMPANY MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY.”
(iii) All certificates evidencing Shares purchased under this Agreement in an unregistered transaction shall bear the following legend (and such other restrictive legends as are required or deemed advisable under the provisions of any Applicable Laws):
“THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.”
(b) Stop-Transfer Notices. Participant agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue appropriate “stop transfer” instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to transfer on its books any Shares issued pursuant to this Agreement that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred.
SECTION 12. NO EMPLOYMENT RIGHTS. Nothing contained in this Agreement, the Grant Notice or the Plan is intended to constitute or create a contract of employment, nor shall it constitute or create the right to remain associated with or in the employ of the Company or any Subsidiary for any particular period of time. Nothing in this Agreement, the Grant Notice or the Plan shall affect in any manner whatsoever the right or power of the Company, or a parent, subsidiary or affiliate of the Company, to terminate Participant’s employment or consulting relationship, for any reason, with or without cause, subject to Applicable Laws.
SECTION 13. WAIVER OF STATUTORY INFORMATION RIGHTS. Participant acknowledges and understands that, but for the waiver made herein, upon delivery of any Shares issued to Participant pursuant to this Agreement, Participant would be entitled, upon written demand under oath stating the purpose thereof, to inspect for any proper purpose, and to make copies and extracts from, the Company’s stock ledger, a list of its stockholders, and its other books and records, and the books and records of subsidiaries of the Company, if any, under the circumstances and in the manner provided in Section 220 of the General Corporation Law of Delaware (any and all such rights, and any and all such other rights of Participant as may be provided for in Section 220, the “Inspection Rights”). In light of the foregoing, until a Public Listing, Participant hereby unconditionally and irrevocably waives the Inspection Rights, whether such Inspection Rights would be exercised or pursued directly or indirectly pursuant to
Section 220 or otherwise, and covenants and agrees never to directly or indirectly commence, voluntarily aid in any way, prosecute, assign, transfer, or cause to be commenced any claim, action, cause of action, or other proceeding to pursue or exercise the Inspection Rights. The foregoing waiver applies to the Inspection Rights of Participant in Participant’s capacity as a stockholder and shall not affect any rights of a director, in his or her capacity as such, under Section 220. The foregoing waiver shall not apply to any contractual inspection rights of Participant under any written agreement with the Company.
SECTION 14. NO ADVICE REGARDING GRANT. The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding Participant’s participation in the Plan, or Participant’s receipt, vesting or settlement of the RSUs or the Shares allocated thereto or the sale of such Shares. Participant is hereby advised to consult with his or her own personal tax, legal and financial advisors regarding his or her participation in the Plan and the RSUs before accepting the RSUs or otherwise taking any action related to the RSUs or the Plan.
SECTION 15. DATA PRIVACY. Participant hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of Participant’s personal data as described in this Agreement and any other Award materials by and among the entities in the Company Group for the exclusive purpose of implementing, administering and managing Participant’s participation in the Plan.
Participant understands that the Company Group may hold certain personal information about Participant, including, but not limited to, Participant’s name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any Shares or directorships held in the Company, details of all Awards, or any other entitlement to Shares awarded, canceled, exercised, vested, unvested or outstanding in Participant’s favor (“Data”), for the exclusive purpose of implementing, administering and managing the Plan.
Participant understands that Data will be transferred to such stock plan service provider as may be selected by the Company, presently or the in future, which may be assisting the Company with the implementation, administration and management of the Plan. Participant understands that the recipients of the Data may be located in the United States or elsewhere, and that the recipient’s country (e.g., the United States) may have different data privacy laws and protections than Participant’s country. Participant authorizes the Company, the stock plan service provider as may be selected by the Company, and any other possible recipients which may assist the Company, presently or in the future, with implementing, administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purposes of implementing, administering and managing Participant’s participation in the Plan. Further, Participant understands that he or she is providing the consents herein on a purely voluntary basis. If Participant does not consent, or if Participant later seeks to revoke his or her consent, his or her Service will not be adversely affected; the only adverse consequence of refusing or withdrawing Participant’s consent is that the Company would not be able to grant Participant RSUs, Awards or any other equity awards or administer or maintain such awards. Therefore, Participant understands that
refusing or withdrawing his or her consent may affect Participant’s ability to participate in the Plan. For more information on the consequences of Participant’s refusal to consent or withdrawal of consent, Participant understands that he or she may contact his or her local human resources representative.
SECTION 16. MISCELLANEOUS.
(a) Governing Law. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of Delaware, without giving effect to principles of conflicts of law.
(b) Addendum. Notwithstanding any provisions in this Agreement, the RSUs shall be subject to any special terms and conditions set forth in the Country-Specific Addendum to this Agreement, including any specific terms and conditions set forth for Participant’s country of residence. Moreover, if Participant relocates to one of the countries included in the Country-Specific Addendum, the special terms and conditions for such country will apply to Participant, to the extent the Company determines that the application of such terms and conditions is necessary or advisable for legal or administrative reasons. The Country-Specific Addendum constitutes part of this Agreement.
(c) Entire Agreement; Enforcement of Rights. This Agreement, together with the Country-Specific Addendum, the Grant Notice and the Plan, sets forth the entire agreement and understanding of the parties relating to the subject matter herein and merges all prior or contemporaneous discussions between them. Except as contemplated by the Plan, no modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, shall be effective unless in writing and executed and/or accepted by the parties to this Agreement. The failure by either party to enforce any rights under this Agreement shall not be construed as a waiver of any rights of such party.
(d) Severability. If one or more provisions of this Agreement, the Grant Notice or the Plan are held to be unenforceable under Applicable Laws, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this Agreement, the Grant Notice and the Plan, (ii) the balance of the Agreement, the Grant Notice and the Plan shall be interpreted as if such provision were so excluded and (iii) the balance of the Agreement, the Grant Notice and the Plan shall be enforceable in accordance with its terms.
(e) Language. If Participant has received this Agreement, the Grant Notice or any other document related to the RSUs and/or the Plan translated into a language other than English and if the meaning of the translated version is different than the English version, the English version will control.
(f) Imposition of Other Requirements. The Company reserves the right to impose other requirements on Participant’s participation in the Plan, on the RSUs and on any Shares allocated to the RSUs, to the extent the Company determines it is necessary or advisable
for legal or administrative reasons, and to require Participant to sign and/or accept any additional agreements or undertakings that may be necessary to accomplish the foregoing. Participant also acknowledges that the Applicable Laws of the country in which Participant is residing or working at the time of grant, vesting and settlement of the RSUs or the sale of Shares received pursuant to the RSUs (including any rules or regulations governing securities, foreign exchange, tax, labor, or other matters) may subject Participant to additional procedural or regulatory requirements that Participant is and will be solely responsible for and must fulfill. Such requirements may be outlined in but are not limited to the Country-Specific Addendum. Notwithstanding any provision herein, the RSUs and Participant’s participation in the Plan shall be subject to any applicable special terms and conditions or disclosures as set forth in the Country-Specific Addendum.
(g) Notices. Any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient when delivered personally or by overnight courier or sent by email or fax, or 48 hours after being deposited in the U.S. mail or a comparable foreign mail service, as certified or registered mail with postage or shipping charges prepaid and addressed to the party to be notified at such party’s most recent address, email or fax number set forth in the Company’s books and records.
(h) Counterparts. This Agreement may be executed and/or accepted in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument.
(i) Successors and Assigns. The rights and benefits of this Agreement shall inure to the benefit of, and be enforceable by the Company’s successors and assigns. The rights and obligations of Participant under this Agreement may only be assigned with the prior written consent of the Company.
(j) Electronic Delivery. The Company may, in its sole discretion, decide to deliver to Participant by email or any other electronic means any documents or notices related to the RSUs, the Shares allocated to the RSUs, Participant’s current or future participation in the Plan, securities of the Company or any member of the Company Group or any other matter, including documents and/or notices required to be delivered to Participant by applicable securities law or any other Applicable Laws or the Company’s Certificate of Incorporation or Bylaws. By accepting the RSUs, whether electronically or otherwise, Participant hereby consents to receive such documents and notices by such electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company, including but not limited to the use of electronic signatures or click-through electronic acceptance of terms and conditions.
COUNTRY-SPECIFIC ADDENDUM
This Country-Specific Addendum includes additional country-specific notices, disclaimers, and/or terms and conditions that apply to individuals who are working or residing in the countries listed below and that may be material to Participant’s participation in the Plan. Such notices, disclaimers, and/or terms and conditions may also apply, as from the date of grant, if the Participant moves to or otherwise is or becomes subject to the Applicable Laws or Company policies of the country listed. However, because foreign exchange regulations and other local laws are subject to frequent change, Participant is advised to seek advice from his own personal legal and tax advisor prior to accepting the RSUs or holding or selling Shares acquired under the Plan. The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding Participant’s acceptance of the RSUs or participation in the Plan. Unless otherwise noted below, capitalized terms shall have the same meaning assigned to them under the Plan, the Grant Notice, and the RSU Agreement. This Country-Specific Addendum forms part of the RSU Agreement and should be read in conjunction with the RSU Agreement and the Plan.
Securities Law Notice: Unless otherwise noted, neither the Company nor the Shares are registered with any local stock exchange or under the control of any local securities regulator outside the United States. The RSU Agreement (of which this Country-Specific Addendum is a part), the Grant Notice, the Plan, and any other communications or materials that Participant may receive regarding participation in the Plan do not constitute advertising or an offering of securities outside the United States, and the issuance of securities described in any Plan-related documents is not intended for public offering or circulation in Participant’s jurisdiction.
WARBY PARKER INC. 2011 STOCK PLAN
NOTICE OF RESTRICTED STOCK UNIT GRANT
Warby Parker Inc., a Delaware public benefit corporation (f/k/a JAND, Inc., the “Company”), pursuant to the Warby Parker Inc. Amended and Restated 2011 Stock Plan, as amended (the “Plan”), has granted to the Participant below a restricted stock unit award covering the number of units set forth below, each of which represents one (1) share of the Company’s Series B Common Stock (the “RSUs”). The RSUs are subject to all of the terms and conditions set forth in this Notice of Restricted Stock Unit Grant (the “Grant Notice”), and the Restricted Stock Unit Agreement (the “RSU Agreement”) and the Plan, both of which are attached hereto and incorporated herein in their entirety. Capitalized terms not explicitly defined in this Grant Notice but defined in the Plan or the RSU Agreement will have the same definitions as in the Plan or the RSU Agreement. In the event of any conflict between the terms of the Grant Notice and the Plan, the terms of the Plan will control.
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Name of Participant:
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See Carta
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Total Number of RSUs:
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See Carta
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Date of Grant:
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See Carta
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Vesting Schedule:
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The RSUs shall be fully vested as of the Date of Grant, and shall be settled on, or as soon as administratively practicable following, the Date of Grant.
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By accepting this grant, Participant acknowledges and agrees that (i) Participant has reviewed the Plan, this Grant Notice and the RSU Agreement in their entirety, (ii) Participant has had an opportunity to obtain the advice of counsel prior to accepting the RSUs, (iii) Participant fully understands all provisions of the Plan, this Grant Notice and the RSU Agreement, and (iv) Participant agrees to accept as binding, conclusive and final all decisions or interpretations of the Company’s Board of Directors relating to the Plan, this Grant Notice and RSU Agreement.
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WARBY PARKER INC.
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PARTICIPANT
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By:
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Name:
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Steve Miller
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Title:
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CFO
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WARBY PARKER INC. 2011 STOCK PLAN
RESTRICTED STOCK UNIT AGREEMENT
Pursuant to your Notice of Restricted Stock Unit Grant (the “Grant Notice”) and this Restricted Stock Unit Agreement (the “Agreement”), Warby Parker Inc., a Delaware public benefit corporation (f/k/a JAND, Inc., the “Company”), has granted you (the “Participant”) a restricted stock unit award covering the number of units set forth in the Grant Notice, each of which represents one (1) share of the Company’s Series B Common Stock (the “RSUs”). Capitalized terms not explicitly defined in this RSU Agreement or in the Grant Notice but defined in the Warby Parker Inc. Amended and Restated 2011 Stock Plan, as amended (the “Plan”), will have the same definitions as in the Plan.
SECTION 1. NO STOCKHOLDER RIGHTS. Unless and until such time as Shares are issued pursuant to the Agreement in settlement of vested RSUs, Participant shall have no ownership of the Shares allocated to the RSUs, including, without limitation, no right to dividends (or dividend equivalents) or to vote such Shares.
SECTION 2. NO TRANSFER. The Grant Notice, this Agreement, the RSUs and any interest therein shall not be sold, assigned, transferred, pledged, hypothecated, or otherwise disposed of. Notwithstanding the foregoing, the RSUs may be transferred to one or more members of the Participant’s Immediate Family or to a trust established by the Participant for the benefit of the Participant and/or one or more members of the Participant’s Immediate Family, provided in either case that the transferee agrees in writing on a form prescribed by the Company to be bound by all provisions of this Agreement. For the purposes hereof, “Immediate Family” means any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in- law, brother-in-law or sister-in-law and shall include adoptive relationships.
SECTION 3. RESPONSIBILITY FOR TAXES. As a condition to the grant, vesting, and settlement of the RSUs, Participant acknowledges that, regardless of any action taken by the Company, the ultimate liability for all income tax, social insurance, payroll tax, fringe benefits tax, payment on account or other tax-related items or required deductions or payments legally applicable to him or her and related to the receipt, vesting or settlement of the RSUs, the issuance or subsequent sale of the Shares allocated to the RSUs, the receipt of dividends (if any) or the participation in the Plan (“Tax-Related Items”) is and remains Participant’s responsibility. Participant acknowledges that the Company will not withhold Tax-Related Items from the RSUs or Shares. Participant further acknowledges and agrees that Participant is solely responsible for filing all relevant documentation that may be required in relation to the RSUs or any Tax-Related Items (other than filings or documentation that is the specific obligation of the Company or any member of the Company Group pursuant to Applicable Law), such as, but not limited to, personal income tax returns or reporting statements in relation to the receipt, vesting or settlement of the RSUs, the issuance of the Shares allocated to the RSUs, the holding of Shares or any bank or brokerage account, the subsequent sale of Shares, and the receipt of any dividends.
Participant further acknowledges that the Company: (i) makes no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the RSUs, including, but not limited to, the receipt, vesting or settlement of the RSUs, the issuance or subsequent sale of the Shares allocated to the RSUs and the receipt of any dividends; and (ii) does not commit to and are under no obligation to structure the terms of the grant or any aspect of the RSUs to reduce or eliminate Participant’s liability for Tax-Related Items or achieve any particular tax result. Participant also understands that Applicable Laws may require varying RSU or Share valuation methods for purposes of calculating Tax-Related Items, and the Company assumes no responsibility or liability in relation to any such valuation or for any calculation or reporting of income or Tax-Related Items that may be required of Participant under Applicable Laws.
Further, if Participant is subject to Tax-Related Items in more than one jurisdiction between the Date of Grant and the date of any relevant taxable or tax withholding event, as applicable, Participant acknowledges that Participant may be required to account for Tax-Related Items in more than one jurisdiction.
SECTION 4. NATURE OF GRANT. In accepting the RSUs, Participant acknowledges, understands and agrees that:
(a) the Plan is established voluntarily by the Company, is discretionary in nature, and may be amended, suspended or terminated by the Company at any time, to the extent permitted by the Plan;
(b) the grant of the RSUs is voluntary and occasional and does not create any contractual or other right to receive future grants of restricted stock units, or benefits in lieu of restricted stock units, even if restricted stock units have been granted in the past;
(c) all decisions with respect to future restricted stock units or other grants, if any, will be at the sole discretion of the Company;
(d) Participant is voluntarily participating in the Plan;
(e) the RSUs and the Shares allocated to the RSUs are not intended to replace any pension rights or compensation and are outside the scope of Participant’s employment contract, if any;
(f) the RSUs and the Shares allocated to the RSUs, and the income and value of same, are not part of normal or expected compensation for any purpose, including, without limitation, calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments;
(g) the future value of the Shares is unknown, indeterminable, and cannot be predicted with certainty;
(h) if the RSUs are settled and Participant receives some or all of the Shares allocated to the RSUs, the value of such Shares may increase or decrease in value;
(i) unless otherwise provided in the Plan or by the Company in its discretion, the RSUs and the benefits evidenced by this Agreement do not create any entitlement to have the RSUs or any such benefits transferred to, or assumed by, another company nor to be exchanged, cashed out or substituted for, in connection with any corporate transaction affecting the Shares; and
(j) no entity in the Company Group shall be liable for any foreign exchange rate fluctuation between Participant’s local currency and the United States Dollar or the selection by the Company or any member of the Company Group in its sole discretion of an applicable foreign exchange rate that may affect the value of the RSUs (or the calculation of income or Tax-Related Items thereunder) or of any amounts due to Participant pursuant to the settlement of the RSUs or the subsequent sale of the Shares allocated to the RSUs.
SECTION 5. LIMITATIONS ON TRANSFER OF SHARES. In addition to any other limitation on transfer created by Applicable Laws, the Company’s Bylaws, this Agreement, the Grant Notice and the Plan, Participant shall not assign, encumber or dispose of any interest in the Shares issued pursuant to this Agreement except in compliance with Applicable Laws. Without limiting the foregoing, the Participant may transfer Shares to one or more members of the Grantee’s Immediate Family or to a trust established by the Grantee for the benefit of the Grantee and/or one or more members of the Grantee’s Immediate Family, provided in either case that the Transferee agrees in writing on a form prescribed by the Company to be bound by all provisions of this Agreement.
SECTION 6. INVESTMENT AND TAXATION REPRESENTATIONS. In connection with the receipt of the RSUs and the Shares upon settlement of the RSUs, Participant represents to the Company the following:
(a) Participant is aware of the Company’s business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Shares issued pursuant to this Agreement. Participant is or will be acquiring the Shares for investment for Participant’s own account only and not with a view to, or for resale in connection with, any “distribution” thereof
within the meaning of the Securities Act or under any applicable provision of state law. Participant does not have any present intention to transfer the Shares issued pursuant to this Agreement to any other person or entity.
(b) Participant understands that the Shares issued pursuant to this Agreement have not been registered under the Securities Act by reason of a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Participant’s investment intent as expressed herein.
(c) Participant further acknowledges and understands that the securities must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. Participant further acknowledges and understands that the Company is under no obligation to register the securities.
(d) Participant is familiar with the provisions of Rule 144, promulgated under the Securities Act, which, in substance, permits limited public resale of “restricted securities” acquired, directly or indirectly, from the issuer of the securities (or from an affiliate of such issuer), in a non-public offering subject to the satisfaction of certain conditions. Participant understands that the Company provides no assurances as to whether he or she will be able to resell any or all of the Shares pursuant to Rule 144, which rule requires, among other things, that the Company be subject to the reporting requirements of the Exchange Act, that resales of securities take place only after the holder of the Shares has held the Shares for certain specified time periods, and under certain circumstances, that resales of securities be limited in volume and take place only pursuant to brokered transactions. Notwithstanding this paragraph (d), Participant acknowledges and agrees to the restrictions set forth in paragraph (e) below.
(e) Participant further understands that in the event all of the applicable requirements of Rule 144 are not satisfied, registration under the Securities Act, compliance with Regulation A, or some other registration exemption will be required; and that, notwithstanding the fact that Rule 144 is not exclusive, the Staff of the Securities and Exchange Commission has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rule 144 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales, and that such persons and their respective brokers who participate in such transactions do so at their own risk.
(f) Participant understands that Participant may suffer adverse tax consequences as a result of Participant’s receipt of the RSUs, the vesting and/or settlement of the RSUs, the issuance of Shares allocated to the RSUs and/or the disposition of such Shares. Participant represents that Participant has consulted any tax consultants Participant deems advisable in connection with the receipt of the RSUs, the vesting and/or settlement of the RSUs, the issuance of Shares allocated to the RSUs and/or the disposition of such Shares and that Participant is not relying on the Company for any tax advice.
SECTION 7. SECTION 409A. All payments made and benefits provided under this Agreement are intended to be exempt from the requirements of Section 409A and this Agreement shall be interpreted to give effect to such intent to the maximum extent permitted by Section 409A so that none of the payments or benefits will be subject to the adverse tax penalties imposed under Section 409A. In no event will the Company reimburse Participant for any taxes or other penalties that may be imposed on Participant as a result of Section 409A and, by accepting the RSUs, Participant hereby indemnifies the Company for any liability that arises as a result of Section 409A.
SECTION 8. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary contained herein, Shares will not be issued pursuant to this Agreement unless the Shares are then registered under the Securities Act or, if such Shares are not then so registered, the Company has determined that such issuance would be exempt from the registration requirements of the Securities Act. The issuance of Shares pursuant to this Agreement also must comply with other Applicable Laws and regulations governing the RSUs, and the Company is not obligated, and will have no liability for failure, to issue or deliver any Shares upon settlement of the RSUs unless such issuance or delivery would comply with the Applicable Laws, with such compliance determined by the Company in consultation with its legal counsel.
SECTION 9. LOCK-UP AGREEMENT. In connection with the first sale of Shares to the general public upon the closing of an underwritten public offering pursuant to an effective registration statement filed under the Securities Act or pursuant to a direct listing that results in Shares being regularly traded on an established securities market (a “Public Listing”) and upon request of the Company or the underwriters managing such offering of the Company’s securities, Participant hereby agrees not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any securities of the Company however or whenever acquired (other than those included in the registration) without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed 180 days) from the effective date of such registration as may be requested by the Company or such managing underwriters and to execute and/or accept an agreement reflecting the foregoing as may be requested by the underwriters at the time of the Company’s Public Listing. Notwithstanding the foregoing, if during the last 17 days of the restricted period, the Company issues an earnings release or material news or a material event relating to the Company occurs, or prior to the expiration of the restricted period the Company announces that it will release earnings results during the 16-day period beginning on the last day of the restricted period, then, upon the request of the managing underwriter, to the extent required by any FINRA rules, the restrictions imposed by this subsection shall continue to apply until the end of the 3rd trading day following the expiration of the 15-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event. In no event will the restricted period extend beyond 216 days after the effective date of the registration statement.
SECTION 10. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS:
(a) Legends. Any certificate or certificates representing the Shares issued pursuant to this Agreement shall bear the following legends (as well as any legends required by the Company or applicable state and federal corporate and securities laws):
(i) “THE SHARES REPRESENTED HEREBY MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN COMPLIANCE WITH THE TERMS OF A WRITTEN AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED HOLDER OF THE SHARES (OR THE PREDECESSOR IN INTEREST TO THE SHARES). THE SECRETARY OF THE COMPANY WILL UPON WRITTEN REQUEST FURNISH A COPY OF SUCH AGREEMENT TO THE HOLDER HEREOF WITHOUT CHARGE.”
(ii) “THE SHARES REPRESENTED HEREBY MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN COMPLIANCE WITH THE BYLAWS OF THE COMPANY. COPIES OF THE BYLAWS OF THE COMPANY MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY.”
(iii) All certificates evidencing Shares purchased under this Agreement in an unregistered transaction shall bear the following legend (and such other restrictive legends as are required or deemed advisable under the provisions of any Applicable Laws):
“THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.”
(b) Stop-Transfer Notices. Participant agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue appropriate “stop transfer” instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to transfer on its books any Shares issued pursuant to this Agreement that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred.
SECTION 11. NO SERVICE RIGHTS. Nothing contained in this Agreement, the Grant Notice or the Plan is intended to constitute or create a contract of continued services, nor shall it constitute or create the right to remain associated with or in the service of the Company or any Subsidiary for any particular period of time. Nothing in this Agreement, the Grant Notice or the Plan shall affect in any manner whatsoever the right or power of the Company, or a parent, subsidiary or affiliate of the Company, to terminate Participant’s service relationship for any reason, with or without cause, subject to Applicable Laws.
SECTION 12. WAIVER OF STATUTORY INFORMATION RIGHTS. Participant acknowledges and understands that, but for the waiver made herein, upon delivery of any Shares issued to Participant pursuant to this Agreement, Participant would be entitled, upon written demand under oath stating the purpose thereof, to inspect for any proper purpose, and to make copies and extracts from, the Company’s stock ledger, a list of its stockholders, and its other books and records, and the books and records of subsidiaries of the Company, if any, under the circumstances and in the manner provided in Section 220 of the General Corporation Law of Delaware (any and all such rights, and any and all such other rights of Participant as may be provided for in Section 220, the “Inspection Rights”). In light of the foregoing, until a Public Listing, Participant hereby unconditionally and irrevocably waives the Inspection Rights, whether such Inspection Rights would be exercised or pursued directly or indirectly pursuant to Section 220 or otherwise, and covenants and agrees never to directly or indirectly commence, voluntarily aid in any way, prosecute, assign, transfer, or cause to be commenced any claim, action, cause of action, or other proceeding to pursue or exercise the Inspection Rights. The foregoing waiver applies to the Inspection Rights of Participant in Participant’s capacity as a stockholder and shall not affect any rights of a director, in his or her capacity as such, under Section 220. The foregoing waiver shall not apply to any contractual inspection rights of Participant under any written agreement with the Company.
SECTION 13. NO ADVICE REGARDING GRANT. The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding Participant’s participation in the Plan, or Participant’s receipt, vesting or settlement of the RSUs or the Shares allocated thereto or the sale of such Shares. Participant is hereby advised to consult with his or her own personal tax, legal and financial advisors regarding his or her participation in the Plan and the RSUs before accepting the RSUs or otherwise taking any action related to the RSUs or the Plan.
SECTION 14. DATA PRIVACY. Participant hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of Participant’s personal data as described in this Agreement and any other Award materials by and among the entities in the Company Group for the exclusive purpose of implementing, administering and managing Participant’s participation in the Plan.
Participant understands that the Company Group may hold certain personal information about Participant, including, but not limited to, Participant’s name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any Shares or directorships held in the Company, details of all Awards, or any other entitlement to Shares awarded, canceled, exercised, vested, unvested or outstanding in Participant’s favor (“Data”), for the exclusive purpose of implementing, administering and managing the Plan.
Participant understands that Data will be transferred to such stock plan service provider as may be selected by the Company, presently or the in future, which may be assisting the Company with the implementation, administration and management of the Plan. Participant understands that the recipients of the Data may be located in the United States or elsewhere, and that the recipient’s country (e.g., the United States) may have different data privacy laws and protections than Participant’s country. Participant authorizes the Company, the stock plan service provider as may be selected by the Company, and any other possible recipients which may assist the Company, presently or in the future, with implementing, administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purposes of implementing, administering and managing Participant’s participation in the Plan. Further, Participant understands that he or she is providing the consents herein on a purely voluntary basis. If Participant does not consent, or if Participant later seeks to revoke his or her consent, his or her Service will not be adversely affected; the only adverse consequence of refusing or withdrawing Participant’s consent is that the Company would not be able to grant Participant RSUs, Awards or any other equity awards or administer or maintain such awards.
Therefore, Participant understands that refusing or withdrawing his or her consent may affect Participant’s ability to participate in the Plan. For more information on the consequences of Participant’s refusal to consent or withdrawal of consent, Participant understands that he or she may contact his or her local human resources representative.
SECTION 15. MISCELLANEOUS.
(a) Governing Law. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of Delaware, without giving effect to principles of conflicts of law.
(b) Entire Agreement; Enforcement of Rights. This Agreement, collectively with the Grant Notice and the Plan, sets forth the entire agreement and understanding of the parties relating to the subject matter herein and merges all prior or contemporaneous discussions between them. Except as contemplated by the Plan, no modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, shall be effective unless in writing and executed and/or accepted by the parties to this Agreement. The failure by either party to enforce any rights under this Agreement shall not be construed as a waiver of any rights of such party.
(c) Severability. If one or more provisions of this Agreement, the Grant Notice or the Plan are held to be unenforceable under Applicable Laws, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this Agreement, the Grant Notice and the Plan, (ii) the balance of the Agreement, the Grant Notice and the Plan shall be interpreted as if such provision were so excluded and (iii) the balance of the Agreement, the Grant Notice and the Plan shall be enforceable in accordance with its terms.
(d) Language. If Participant has received this Agreement, the Grant Notice or any other document related to the RSUs and/or the Plan translated into a language other than English and if the meaning of the translated version is different than the English version, the English version will control.
(e) Imposition of Other Requirements. The Company reserves the right to impose other requirements on Participant’s participation in the Plan, on the RSUs and on any Shares allocated to the RSUs, to the extent the Company determines it is necessary or advisable for legal or administrative reasons, and to require Participant to sign and/or accept any additional agreements or undertakings that may be necessary to accomplish the foregoing. Participant also acknowledges that the Applicable Laws of the country in which Participant is residing or working at the time of grant, vesting and settlement of the RSUs or the sale of Shares received pursuant to the RSUs (including any rules or regulations governing securities, foreign exchange, tax, labor, or other matters) may subject Participant to additional procedural or regulatory requirements that Participant is and will be solely responsible for and must fulfill.
(f) Notices. Any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient when delivered personally or by overnight courier or sent by email or fax, or 48 hours after being deposited in the U.S. mail or a comparable foreign mail service, as certified or registered mail with postage or shipping charges prepaid and addressed to the party to be notified at such party’s most recent address, email or fax number set forth in the Company’s books and records.
(g) Titles. Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.
(h) Counterparts. This Agreement may be executed and/or accepted in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument.
(i) Successors and Assigns. The rights and benefits of this Agreement shall inure to the benefit of, and be enforceable by the Company’s successors and assigns. The rights and obligations of Participant under this Agreement may only be assigned with the prior written consent of the Company.
(j) Electronic Delivery. The Company may, in its sole discretion, decide to deliver to Participant by email or any other electronic means any documents or notices related to the RSUs, the Shares allocated to the RSUs, Participant’s current or future participation in the Plan, securities of the Company or any member of the Company Group or any other matter, including documents and/or notices required to be delivered to Participant by applicable securities law or any other Applicable Laws or the Company’s Certificate of Incorporation or Bylaws. By accepting the RSUs, whether electronically or otherwise, Participant hereby consents to receive such documents and notices by such electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company, including but not limited to the use of electronic signatures or click-through electronic acceptance of terms and conditions.
WARBY PARKER INC. 2011 STOCK PLAN
NOTICE OF STOCK PURCHASE RIGHT GRANT
The Grantee has been granted the following right to purchase (the “Stock Purchase Right”) shares of the Series B Common Stock of Warby Parker Inc. (f/k/a JAND, Inc., the “Company” and such stock, the “Common Stock”):
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Name of Grantee:
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See Carta
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Total Number of Shares:
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See Carta
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Purchase Price per Share:
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See Carta
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Date of Grant:
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See Carta
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Vesting Schedule:
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The Stock Purchase Right and any Common Stock purchased upon exercise thereof is fully vested as of the Date of Grant.
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Expiration Date:
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90 days following the Date of Grant.
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By signing below, the Grantee and the Company agree that this Stock Purchase Right is granted under, and governed by the terms and conditions of, the Company’s Amended and Restated 2011 Stock Plan, as amended (the “Plan”) and the Stock Purchase Right Agreement. Both of these documents are attached to, and made a part of, this Notice of Stock Purchase Right Grant. Section 13 of the Stock Purchase Right Agreement includes important acknowledgements of the Grantee.
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GRANTEE:
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WARBY PARKER INC.
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By:
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Title:
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THE STOCK PURCHASE RIGHT GRANTED PURSUANT TO THIS AGREEMENT AND THE SHARES ISSUABLE UPON THE EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
WARBY PARKER INC. 2011 STOCK PLAN:
STOCK PURCHASE RIGHT AGREEMENT
SECTION 1. GRANT OF STOCK PURCHASE RIGHT.
(a) Stock Purchase Right. On the terms and conditions set forth in the Warby Parker Inc. (the “Company”) Amended and Restated 2011 Stock Plan, as amended (the “Plan”), the Notice of Stock Purchase Right Grant (the “Notice”) and this Stock Purchase Right Agreement (this “Agreement”), the Company grants to the Grantee on the Date of Grant the right to purchase (the “Stock Purchase Right”) at the Purchase Price Per Share (the “Purchase Price”) set forth in the Notice the number of shares of the Company’s Series B Common Stock (the “Shares”) set forth in the Notice.
(b) Stock Plan and Defined Terms. This Stock Purchase Right is granted pursuant to the Plan, a copy of which the Grantee acknowledges having received. The provisions of the Plan are incorporated into this Agreement by this reference. Capitalized terms are defined in Section 14 of this Agreement.
SECTION 2. RIGHT TO EXERCISE.
Subject to the conditions set forth in this Agreement, all or part of this Stock Purchase Right may be exercised at any time prior to its expiration, as set forth in the Notice.
SECTION 3. NO TRANSFER OR ASSIGNMENT OF STOCK PURCHASE RIGHT.
Except as otherwise provided in this Agreement, this Stock Purchase Right and the rights and privileges conferred hereby shall not be sold, pledged or otherwise transferred (whether by operation of law or otherwise) and shall not be subject to sale under execution, attachment, levy or similar process. Notwithstanding the foregoing, this Stock Purchase Right may be transferred to one or more members of the Grantee’s Immediate Family or to a trust established by the Grantee for the benefit of the Grantee and/or one or more members of the Grantee’s Immediate Family, provided in either case that the Transferee agrees in writing on a form prescribed by the Company to be bound by all provisions of this Agreement.
SECTION 4. EXERCISE PROCEDURES.
(a) Notice of Exercise. The Grantee or the Grantee’s representative may exercise this Stock Purchase Right by giving written notice to the Company pursuant to Section 12(c). The notice shall specify the election to exercise this Stock Purchase Right, the number of Shares for which it is being exercised and the form of payment. The person
exercising this Stock Purchase Right shall sign the notice. In the event that this Stock Purchase Right is being exercised by the representative of the Grantee, the notice shall be accompanied by proof (satisfactory to the Company) of the representative’s right to exercise this Stock Purchase Right. The Grantee or the Grantee’s representative shall deliver to the Company, at the time of giving the notice, payment in a form permissible under Section 5 for the full amount of the aggregate Purchase Price.
(b) Issuance of Shares. After receiving a proper notice of exercise, the Company shall cause to be issued one or more certificates evidencing the Shares for which this Stock Purchase Right has been exercised. Such Shares shall be registered (i) in the name of the person exercising this Stock Purchase Right, (ii) in the names of such person and his or her spouse as community property or as joint tenants with the right of survivorship or (iii) with the Company’s consent, in the name of a revocable trust. The Company shall cause such certificates to be delivered to or upon the order of the person exercising this Stock Purchase Right.
(c) Withholding Taxes. In the event that the Company determines that it is required to withhold any tax as a result of the exercise of this Stock Purchase Right, the Grantee, as a condition to the exercise of this Stock Purchase Right, shall make arrangements satisfactory to the Company to enable it to satisfy all withholding requirements.
SECTION 5. PAYMENT FOR STOCK.
All or part of the Purchase Price may be paid in cash or cash equivalents.
SECTION 6. TERM AND EXPIRATION.
This Stock Purchase Right shall expire on the expiration date set forth in the Notice of Stock Purchase Right Grant. The Grantee may exercise all or part of this Stock Purchase Right at any time before its expiration under the preceding sentence
SECTION 7. RIGHT OF FIRST REFUSAL.
(a) Right of First Refusal. Subject to Section 10(a) below, in the event that the Grantee proposes to sell, pledge or otherwise transfer to a third party any Shares acquired under this Agreement, or any interest in such Shares, the Company shall have the Right of First Refusal with respect to all (and not less than all) of such Shares. If the Grantee desires to transfer Shares acquired under this Agreement, the Grantee shall give a written Transfer Notice to the Company describing fully the proposed transfer, including the number of Shares proposed to be transferred, the proposed transfer price, the name and address of the proposed Transferee and proof satisfactory to the Company that the proposed sale or transfer will not violate any applicable federal, State or foreign securities laws. The Transfer Notice shall be signed both by the Grantee and by the proposed Transferee and must constitute a binding commitment of both parties to the transfer of the Shares. The Company shall have the right to purchase all, and not less than all, of the Shares on the terms of the proposal described in the Transfer Notice (subject, however, to any change in such terms permitted under Subsection (b) below) by delivery of a notice of exercise of the Right of First Refusal within 30 days after the date when the Transfer Notice was received by the Company.
(b) Transfer of Shares. If the Company fails to exercise its Right of First Refusal within 30 days after the date when it received the Transfer Notice, the Grantee may, not later than 90 days following receipt of the Transfer Notice by the Company, conclude a transfer of the Shares subject to the Transfer Notice on the terms and conditions described in the Transfer Notice, provided that any such sale is made in compliance with applicable federal, State and foreign securities laws and not in violation of any other contractual restrictions to which the Grantee is bound. Any proposed transfer on terms and conditions different from those described in the Transfer Notice, as well as any subsequent proposed transfer by the Grantee, shall again be subject to the Right of First Refusal and shall require compliance with the procedure described in Subsection (a) above. If the Company exercises its Right of First Refusal, the parties shall consummate the sale of the Shares on the terms set forth in the Transfer Notice within 60 days after the date when the Company received the Transfer Notice (or within such longer period as may have been specified in the Transfer Notice); provided, however, that in the event the Transfer Notice provided that payment for the Shares was to be made in a form other than cash or cash equivalents paid at the time of transfer, the Company shall have the option of paying for the Shares with cash or cash equivalents equal to the present value of the consideration described in the Transfer Notice.
(c) Additional or Exchanged Securities and Property. In the event of a merger or consolidation of the Company, a sale of all or substantially all of the Company’s stock or assets, any other corporate reorganization, a stock split, the declaration of a stock dividend, the declaration of an extraordinary dividend payable in a form other than stock, a spin-off, an adjustment in conversion ratio, a recapitalization or a similar transaction affecting the Company’s outstanding securities, any securities or other property (including cash or cash equivalents) that are by reason of such transaction exchanged for, or distributed with respect to, any Shares subject to this Section 7 shall immediately be subject to the Right of First Refusal. Appropriate adjustments to reflect the exchange or distribution of such securities or property shall be made to the number and/or class of the Shares subject to this Section 7.
(d) Termination of Right of First Refusal. Any other provision of this Section 7 notwithstanding, in the event that the Stock is readily tradable on an established securities market when the Grantee desires to transfer Shares, the Company shall have no Right of First Refusal, and the Grantee shall have no obligation to comply with the procedures prescribed by Subsections (a) and (b) above.
(e) Permitted Transfers. This Section 7 shall not apply to (i) a transfer by beneficiary designation, will or intestate succession or (ii) a transfer to one or more members of the Grantee’s Immediate Family or to a trust established by the Grantee for the benefit of the Grantee and/or one or more members of the Grantee’s Immediate Family, provided in either case that the Transferee agrees in writing on a form prescribed by the Company to be bound by all provisions of this Agreement. If the Grantee transfers any Shares acquired under this Agreement, either under this Subsection (e) or after the Company has failed to exercise the Right of First Refusal, then this Agreement shall apply to the Transferee to the same extent as to the Grantee.
(f) Termination of Rights as Stockholder. If the Company makes available, at the time and place and in the amount and form provided in this Agreement, the consideration
for the Shares to be purchased in accordance with this Section 7, then after such time the person from whom such Shares are to be purchased shall no longer have any rights as a holder of such Shares (other than the right to receive payment of such consideration in accordance with this Agreement). Such Shares shall be deemed to have been purchased in accordance with the applicable provisions hereof, whether or not the certificate(s) therefor have been delivered as required by this Agreement.
(g) Assignment of Right of First Refusal. The Board of Directors may freely assign the Company’s Right of First Refusal, in whole or in part. Any person who accepts an assignment of the Right of First Refusal from the Company shall assume all of the Company’s rights and obligations under this Section 7.
SECTION 8. LEGALITY OF INITIAL ISSUANCE.
No Shares shall be issued upon the exercise of this Stock Purchase Right unless and until the Company has determined that:
(a) It and the Grantee have taken any actions required to register the Shares under the Securities Act or to perfect an exemption from the registration requirements thereof;
(b) Any applicable listing requirement of any stock exchange or other securities market on which Stock is listed has been satisfied; and
(c) Any other applicable provision of federal, State or foreign law has been satisfied.
SECTION 9. NO REGISTRATION RIGHTS.
The Company may, but shall not be obligated to, register or qualify the sale of Shares under the Securities Act or any other applicable law. The Company shall not be obligated to take any affirmative action in order to cause the sale of Shares under this Agreement to comply with any law.
SECTION 10. RESTRICTIONS ON TRANSFER OF SHARES.
(a) Bylaws Restrictions. The Shares acquired under this Agreement shall be subject to the transfer restrictions in Article X of the Company’s Bylaws, as amended in addition to, and not in limitation of, the provisions of Section 7 of this Agreement.
(b) Securities Law Restrictions. Regardless of whether the offering and sale of Shares under the Plan have been registered under the Securities Act or have been registered or qualified under the securities laws of any State, the Company at its discretion may impose restrictions upon the sale, pledge or other transfer of such Shares (including the placement of appropriate legends on stock certificates or the imposition of stop-transfer instructions) if, in the judgment of the Company, such restrictions are necessary or desirable in order to achieve compliance with the Securities Act, the securities laws of any State or any other law.
(c) Market Stand-Off. In connection with any underwritten public offering by the Company of its equity securities pursuant to an effective registration statement filed under
the Securities Act, including the Company’s initial public offering, the Grantee or a Transferee shall not directly or indirectly sell, make any short sale of, loan, hypothecate, pledge, offer, grant or sell any option or other contract for the purchase of, purchase any option or other contract for the sale of, or otherwise dispose of or transfer, or agree to engage in any of the foregoing transactions with respect to, any Shares acquired under this Agreement without the prior written consent of the Company or its managing underwriter. Such restriction (the “Market Stand-Off”) shall be in effect for such period of time following the date of the final prospectus for the offering as may be requested by the Company or such underwriter. In no event, however, shall such period exceed 180 days plus such additional period as may reasonably be requested by the Company or such underwriter to accommodate regulatory restrictions on (i) the publication or other distribution of research reports or (ii) analyst recommendations and opinions, including (without limitation) the restrictions set forth in Rule 2711(f)(4) of the National Association of Securities Dealers and Rule 472(f)(4) of the New York Stock Exchange, as amended, or any similar successor rules. The Market Stand-Off shall in any event terminate two years after the date of the Company’s initial public offering. In the event of the declaration of a stock dividend, a spin-off, a stock split, an adjustment in conversion ratio, a recapitalization or a similar transaction affecting the Company’s outstanding securities without receipt of consideration, any new, substituted or additional securities which are by reason of such transaction distributed with respect to any Shares subject to the Market Stand-Off, or into which such Shares thereby become convertible, shall immediately be subject to the Market Stand-Off. In order to enforce the Market Stand-Off, the Company may impose stop-transfer instructions with respect to the Shares acquired under this Agreement until the end of the applicable stand-off period. The Company’s underwriters shall be beneficiaries of the agreement set forth in this Subsection (c). This Subsection (c) shall not apply to Shares registered in the public offering under the Securities Act.
(d) Investment Intent at Grant. The Grantee represents and agrees that the Shares to be acquired upon exercising this Stock Purchase Right will be acquired for investment, and not with a view to the sale or distribution thereof.
(e) Investment Intent at Exercise. In the event that the sale of Shares under the Plan is not registered under the Securities Act but an exemption is available that requires an investment representation or other representation, the Grantee shall represent and agree at the time of exercise that the Shares being acquired upon exercising this Stock Purchase Right are being acquired for investment, and not with a view to the sale or distribution thereof, and shall make such other representations as are deemed necessary or appropriate by the Company and its counsel.
(f) Legends. All certificates evidencing Shares purchased under this Agreement shall bear the following legends:
“THE SHARES REPRESENTED HEREBY MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN COMPLIANCE WITH THE TERMS OF A WRITTEN AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED HOLDER OF THE SHARES (OR THE PREDECESSOR IN INTEREST TO THE SHARES). SUCH AGREEMENT GRANTS TO THE COMPANY
CERTAIN RIGHTS OF FIRST REFUSAL UPON AN ATTEMPTED TRANSFER OF THE SHARES AND CERTAIN REPURCHASE RIGHTS UPON TERMINATION OF SERVICE WITH THE COMPANY. THE SECRETARY OF THE COMPANY WILL UPON WRITTEN REQUEST FURNISH A COPY OF SUCH AGREEMENT TO THE HOLDER HEREOF WITHOUT CHARGE.”
“THE SHARES REPRESENTED HEREBY MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN COMPLIANCE WITH THE BYLAWS OF THE COMPANY. COPIES OF THE BYLAWS OF THE COMPANY MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY.”
All certificates evidencing Shares purchased under this Agreement in an unregistered transaction shall bear the following legend (and such other restrictive legends as are required or deemed advisable under the provisions of any applicable law):
“THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.”
(g) Removal of Legends. If, in the opinion of the Company and its counsel, any legend placed on a stock certificate representing Shares sold under this Agreement is no longer required, the holder of such certificate shall be entitled to exchange such certificate for a certificate representing the same number of Shares but without such legend.
(h) Administration. Any determination by the Company and its counsel in connection with any of the matters set forth in this Section 10 shall be conclusive and binding on the Grantee and all other persons.
SECTION 11. ADJUSTMENT OF SHARES.
In the event of any transaction described in Section 7(a) of the Plan, the terms of this Stock Purchase Right (including, without limitation, the number and kind of Shares subject to this Stock Purchase Right and the Purchase Price) shall be adjusted as set forth in Section 7(a) of the Plan. In the event that the Company is a party to a merger or consolidation or in the event of a sale of all or substantially all of the Company’s stock or assets, this Stock Purchase Right shall be subject to the treatment provided by the Board of Directors in its sole discretion, as provided in Section 7(b) of the Plan.
SECTION 12. MISCELLANEOUS PROVISIONS.
(a) Rights as a Stockholder. Neither the Grantee nor the Grantee’s representative shall have any rights as a stockholder with respect to any Shares subject to this
Stock Purchase Right until the Grantee or the Grantee’s representative becomes entitled to receive such Shares by filing a notice of exercise and paying the Purchase Price pursuant to Sections 4 and 5.
(b) No Retention Rights. Nothing in this Stock Purchase Right or in the Plan shall confer upon the Grantee any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Company (or any Parent or Subsidiary employing or retaining the Grantee) or of the Grantee, which rights are hereby expressly reserved by each, to terminate his or her Service at any time and for any reason, with or without cause.
(c) Notice. Any notice required by the terms of this Agreement shall be given in writing. It shall be deemed effective upon (i) personal delivery, (ii) deposit with the United States Postal Service, by registered or certified mail, with postage and fees prepaid or (iii) deposit with Federal Express Corporation, with shipping charges prepaid. Notice shall be addressed to the Company at its principal executive office and to the Grantee at the address that he or she most recently provided to the Company in accordance with this Subsection (c).
(d) Modifications and Waivers. No provision of this Agreement shall be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by the Grantee and by an authorized officer of the Company (other than the Grantee). No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time.
(e) Entire Agreement. The Notice of Stock Purchase Right Grant, this Agreement and the Plan constitute the entire contract between the parties hereto with regard to the subject matter hereof. They supersede any other agreements, representations or understandings (whether oral or written and whether express or implied) that relate to the subject matter hereof.
(f) Choice of Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, as such laws are applied to contracts entered into and performed in such State.
SECTION 13. ACKNOWLEDGEMENTS OF THE GRANTEE.
(a) Tax Consequences. The Grantee agrees that the Company does not have a duty to design or administer the Plan or its other compensation programs in a manner that minimizes the Grantee’s tax liabilities. The Grantee shall not make any claim against the Company or its Board of Directors, officers or employees related to tax liabilities arising from this Stock Purchase Right or the Grantee’s other compensation. In particular, the Grantee acknowledges that since Shares are not traded on an established securities market, the determination of their Fair Market Value is made by the Board of Directors or by an independent valuation firm retained by the Company. The Grantee acknowledges that there is no guarantee in either case that the Internal Revenue Service will agree with the valuation, and the Grantee shall
not make any claim against the Company or its Board of Directors, officers or employees in the event that the Internal Revenue Service asserts that the valuation was too low.
(b) Electronic Delivery of Documents. The Grantee agrees to accept by email all documents relating to the Company, the Plan or this Stock Purchase Right and all other documents that the Company is required to deliver to its security holders (including, without limitation, disclosures that may be required by the Securities and Exchange Commission). The Grantee also agrees that the Company may deliver these documents by posting them on a website maintained by the Company or by a third party under contract with the Company. If the Company posts these documents on a website, it shall notify the Grantee by email of their availability. The Grantee acknowledges that he or she may incur costs in connection with electronic delivery, including the cost of accessing the internet and printing fees, and that an interruption of internet access may interfere with his or her ability to access the documents. This consent shall remain in effect until this Stock Purchase Right expires or until the Grantee gives the Company written notice that it should deliver paper documents.
SECTION 14. DEFINITIONS.
(a) “Agreement” shall mean this Stock Purchase Right Agreement.
(b) “Board of Directors” shall mean the Board of Directors of the Company, as constituted from time to time or, if a Committee has been appointed, such Committee.
(c) “Code” shall mean the Internal Revenue Code of 1986, as amended.
(d) “Committee” shall mean a committee of the Board of Directors, as described in Section 2 of the Plan.
(e) “Company” shall mean Warby Parker Inc., a Delaware corporation (f/k/a JAND, Inc.).
(f) “Consultant” shall mean a person, excluding Employees and Outside Directors, who performs bona fide services for the Company, a Parent or a Subsidiary as a consultant or advisor and who qualifies as a consultant or advisor under Rule 701(c)(1) of the Securities Act or under Instruction A.1.(a)(1) of Form S-8 under the Securities Act.
(g) “Date of Grant” shall mean the date of grant specified in the Notice of Stock Purchase Right Grant, which date shall be the later of (i) the date on which the Board of Directors resolved to grant this Stock Purchase Right or (ii) the first day of the Grantee’s Service.
(h) “Employee” shall mean any individual who is a common-law employee of the Company, a Parent or a Subsidiary.
(i) “Fair Market Value” shall mean the fair market value of a Share, as determined by the Board of Directors in good faith. Such determination shall be conclusive and binding on all persons.
(j) “Immediate Family” shall mean any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in- law, brother-in-law or sister-in-law and shall include adoptive relationships.
(k) “Notice of Stock Purchase Right Grant” shall mean the document so entitled to which this Agreement is attached.
(l) “Grantee” shall mean the person named in the Notice of Stock Purchase Right Grant.
(m) “Outside Director” shall mean a member of the Board of Directors who is not an Employee.
(n) “Parent” shall mean any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if each of the corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
(o) “Plan” shall mean the Warby Parker Inc. Amended and Restated 2011 Stock Plan, as amended and as in effect on the Date of Grant.
(p) “Purchase Price” shall mean the amount for which one Share may be purchased upon exercise of this Stock Purchase Right, as specified in the Notice of Stock Purchase Right Grant.
(q) “Right of First Refusal” shall mean the Company’s right of first refusal described in Section 7.
(r) “Securities Act” shall mean the Securities Act of 1933, as amended.
(s) “Service” shall mean service as an Employee, Outside Director or Consultant.
(t) “Share” shall mean one share of Stock, as adjusted in accordance with Section 8 of the Plan (if applicable).
(u) “Stock” shall mean the Series B Common Stock of the Company.
(v) “Subsidiary” shall mean any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
(w) “Transferee” shall mean any person to whom the Grantee has directly or indirectly transferred any Share acquired under this Agreement.
(x) “Transfer Notice” shall mean the notice of a proposed transfer of Shares described in Section 7.
JAND, INC.
2012 MILESTONE STOCK PLAN
ADOPTED ON JULY 20, 2012
TABLE OF CONTENTS
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Page
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SECTION 1.
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ESTABLISHMENT AND PURPOSE
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1
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SECTION 2.
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ADMINISTRATION
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1
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(a)
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Committees of the Board of Directors
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1
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(b)
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Authority of the Board of Directors
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1
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SECTION 3.
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ELIGIBILITY
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1
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(a)
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General Rule
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1
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(b)
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Ten-Percent Stockholders
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1
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SECTION 4.
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STOCK SUBJECT TO PLAN
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2
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(a)
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Basic Limitation
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2
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(b)
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Additional Shares
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2
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SECTION 5.
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TERMS AND CONDITIONS OF OPTIONS
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2
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(a)
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Stock Option Agreement
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2
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(b)
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Number of Shares
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2
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(c)
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Exercise Price
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2
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(d)
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Exercisability
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2
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(e)
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Basic Term
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3
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(f)
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Termination of Service (Except by Death)
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3
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(g)
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Leaves of Absence
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3
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(h)
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Death of Optionee
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4
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(i)
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Pre-Exercise Restrictions on Transfer of Options or Shares
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4
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(j)
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No Rights as a Stockholder
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4
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(k)
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Modification, Extension and Assumption of Options
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4
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(l)
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Company’s Right to Cancel Certain Options
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5
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SECTION 6.
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PAYMENT FOR SHARES
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5
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(a)
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General Rule
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5
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(b)
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Promissory Note
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5
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(c)
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Surrender of Stock
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5
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(d)
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Exercise/Sale
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5
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(e)
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Net Exercise
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5
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(f)
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Other Forms of Payment
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6
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SECTION 7.
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ADJUSTMENT OF SHARES
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6
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(a)
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General
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6
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(b)
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Corporate Transactions
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6
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(c)
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Reservation of Rights
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7
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SECTION 8.
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PRE-EXERCISE INFORMATION REQUIREMENT
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8
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(a)
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Application of Requirement
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8
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(b)
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Scope of Requirement
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8
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SECTION 9.
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MISCELLANEOUS PROVISIONS
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8
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(a)
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Securities Law Requirements
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8
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(b)
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No Retention Rights
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8
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(c)
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Treatment as Compensation
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8
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(d)
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Governing Law
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9
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(e)
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Conditions and Restrictions on Shares
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9
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(f)
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Tax Matters
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9
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SECTION 10.
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DURATION AND AMENDMENTS; STOCKHOLDER APPROVAL
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10
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(a)
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Term of the Plan
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10
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(b)
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Right to Amend or Terminate the Plan
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10
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(c)
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Effect of Amendment or Termination
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10
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(d)
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Stockholder Approval
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10
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SECTION 11.
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DEFINITIONS
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10
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JAND, INC. 2012 MILESTONE STOCK PLAN
SECTION 1. ESTABLISHMENT AND PURPOSE.
The purpose of this Plan is to offer persons selected by the Company an opportunity to acquire a proprietary interest in the success of the Company, or to increase such interest, by acquiring Shares of the Company’s Stock and to motivate the Company’s Employees and Consultants to increase the value of the Company. The Plan provides for the grant of Options to purchase Shares. Options granted under the Plan may be ISOs intended to qualify under Code Section 422 or Nonstatutory Options which are not intended to so qualify.
Capitalized terms are defined in Section 11.
SECTION 2. ADMINISTRATION.
(a) Committees of the Board of Directors. The Plan may be administered by one or more Committees. Each Committee shall consist, as required by applicable law, of one or more members of the Board of Directors who have been appointed by the Board of Directors. Each Committee shall have such authority and be responsible for such functions as the Board of Directors has assigned to it. If no Committee has been appointed, the entire Board of Directors shall administer the Plan. Any reference to the Board of Directors in the Plan shall be construed as a reference to the Committee (if any) to whom the Board of Directors has assigned a particular function.
(b) Authority of the Board of Directors. Subject to the provisions of the Plan, the Board of Directors shall have full authority and discretion to take any actions it deems necessary or advisable for the administration of the Plan. Notwithstanding anything to the contrary in the Plan, with respect to the terms and conditions of Options granted to Optionees outside the United States, the Board of Directors may vary from the provisions of the Plan to the extent it determines it necessary and appropriate to do so; provided that it may not vary from those Plan terms requiring stockholder approval pursuant to Section 10(d) below. All decisions, interpretations and other actions of the Board of Directors shall be final and binding on all Optionees and all persons deriving their rights from an Optionee.
SECTION 3. ELIGIBILITY.
(a) General Rule. Only Employees and Consultants shall be eligible for the grant of Nonstatutory Options. Only Employees shall be eligible for the grant of ISOs.
(b) Ten-Percent Stockholders. A person who owns more than 10% of the total combined voting power of all classes of outstanding stock of the Company, its Parent or any of its Subsidiaries shall not be eligible for the grant of an ISO unless (i) the Exercise Price is at least 110% of the Fair Market Value of a Share on the Date of Grant and (ii) such ISO by its terms is not exercisable after the expiration of five years from the Date of Grant. For purposes of this Subsection (b), in determining stock ownership, the attribution rules of Code Section 424(d) shall be applied.
SECTION 4. STOCK SUBJECT TO PLAN.
(a) Basic Limitation. Not more than 2,107,224 Shares may be issued under the Plan, subject to Subsection (b) below and Section 7(a).1 All of these Shares may be issued upon the exercise of ISOs. The number of Shares that are subject to Options or other rights outstanding at any time under the Plan may not exceed the number of Shares that then remain available for issuance under the Plan. The Company, during the term of the Plan, shall at all times reserve and keep available sufficient Shares to satisfy the requirements of the Plan. Shares offered under the Plan may be authorized but unissued Shares or treasury Shares.
(b) Additional Shares. In the event that Shares previously issued under the Plan are reacquired by the Company, such Shares shall be added to the number of Shares then available for issuance under the Plan. In the event that Shares that otherwise would have been issuable under the Plan are withheld by the Company in payment of the Exercise Price or withholding taxes, such Shares shall remain available for issuance under the Plan. In the event that an outstanding Option for any reason expires or is canceled, the Shares allocable to the unexercised portion of such Option shall be added to the number of Shares then available for issuance under the Plan.
SECTION 5. TERMS AND CONDITIONS OF OPTIONS.
(a) Stock Option Agreement. Each grant of an Option under the Plan shall be evidenced by a Stock Option Agreement between the Optionee and the Company. The Option shall be subject to all applicable terms and conditions of the Plan and may be subject to any other terms and conditions that are not inconsistent with the Plan and that the Board of Directors deems appropriate for inclusion in a Stock Option Agreement. The provisions of the various Stock Option Agreements entered into under the Plan need not be identical.
(b) Number of Shares. Each Stock Option Agreement shall specify the number of Shares that are subject to the Option and shall provide for the adjustment of such number in accordance with Section 7. The Stock Option Agreement shall also specify whether the Option is an ISO or a Nonstatutory Option.
(c) Exercise Price. Each Stock Option Agreement shall specify the Exercise Price. The Exercise Price of an Option shall not be less than 100% of the Fair Market Value of a Share on the Date of Grant, and in the case of an ISO a higher percentage may be required by Section 3(b). Subject to the preceding sentence, the Exercise Price shall be determined by the Board of Directors at its sole discretion. The Exercise Price shall be payable in a form described in Section 6. This Subsection (c) shall not apply to an Option granted pursuant to an assumption of, or substitution for, another option in a manner that complies with Code Section 424(a) (whether or not the Option is an ISO).
(d) Exercisability. Each Stock Option Agreement shall specify the date when all or any installment of the Option is to become exercisable and the performance measures, if any, required to become exercisable. No Option shall be exercisable unless the Optionee (i) has delivered an executed copy of the Stock Option Agreement to the Company or (ii) otherwise
1 Please refer to Exhibit A for a schedule of the initial share reserve and any subsequent increases in the reserve.
agrees to be bound by the terms of the Stock Option Agreement. The Board of Directors shall determine the exercisability provisions of the Stock Option Agreement at its sole discretion.
(e) Basic Term. The Stock Option Agreement shall specify the term of the Option. The term shall not exceed 10 years from the Date of Grant, and in the case of an ISO, a shorter term may be required by Section 3(b). Subject to the preceding sentence, the Board of Directors at its sole discretion shall determine when an Option is to expire.
(f) Termination of Service (Except by Death). If an Optionee’s Service terminates for any reason other than the Optionee’s death, then the Optionee’s Options shall expire on the earliest of the following dates:
(i) The expiration date determined pursuant to Subsection (e) above;
(ii) The date three months after the termination of the Optionee’s Service for any reason other than Disability, or such earlier or later date as the Board of Directors may determine (but in no event earlier than 30 days after the termination of the Optionee’s Service); or
(iii) The date six months after the termination of the Optionee’s Service by reason of Disability, or such later date as the Board of Directors may determine.
The Optionee may exercise all or part of the Optionee’s Options at any time before the expiration of such Options under the preceding sentence, but only to the extent that such Options had become exercisable before the Optionee’s Service terminated (or became exercisable as a result of the termination) and the underlying Shares had vested before the Optionee’s Service terminated (or vested as a result of the termination). The balance of such Options shall lapse when the Optionee’s Service terminates. In the event that the Optionee dies after the termination of the Optionee’s Service but before the expiration of the Optionee’s Options, all or part of such Options may be exercised (prior to expiration) by the executors or administrators of the Optionee’s estate or by any person who has acquired such Options directly from the Optionee by beneficiary designation, bequest or inheritance, but only to the extent that such Options had become exercisable before the Optionee’s Service terminated (or became exercisable as a result of the termination) and the underlying Shares had vested before the Optionee’s Service terminated (or vested as a result of the termination).
(g) Leaves of Absence. For purposes of Subsection (f) above, Service shall be deemed to continue while the Optionee is on a bona fide leave of absence, if such leave was approved by the Company in writing and if continued crediting of Service for this purpose is expressly required by the terms of such leave or by applicable law (as determined by the Company).
(h) Death of Optionee. If an Optionee dies while the Optionee is in Service, then the Optionee’s Options shall expire on the earlier of the following dates:
(i) The expiration date determined pursuant to Subsection (e) above; or
(ii) The date 12 months after the Optionee’s death, or such earlier or later date as the Board of Directors may determine (but in no event earlier than six months after the Optionee’s death).
All or part of the Optionee’s Options may be exercised at any time before the expiration of such Options under the preceding sentence by the executors or administrators of the Optionee’s estate or by any person who has acquired such Options directly from the Optionee by beneficiary designation, bequest or inheritance, but only to the extent that such Options had become exercisable before the Optionee’s death (or became exercisable as a result of the death) and the underlying Shares had vested before the Optionee’s death (or vested as a result of the Optionee’s death). The balance of such Options shall lapse when the Optionee dies.
(i) Pre-Exercise Restrictions on Transfer of Options or Shares. An Option shall be transferable by the Optionee only by (i) a beneficiary designation, (ii) a will or (iii) the laws of descent and distribution, except as provided in the next sentence. If the applicable Stock Option Agreement so provides, a Nonstatutory Option shall also be transferable by gift or domestic relations order to a Family Member of the Optionee. An ISO may be exercised during the lifetime of the Optionee only by the Optionee or by the Optionee’s guardian or legal representative. In addition, an Option shall comply with all conditions of Rule 12h-1(f)(1) under the Exchange Act until the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act. Such conditions include, without limitation, the transferability restrictions set forth in Rule 12h-1(f)(1)(iv) and (v) under the Exchange Act, which shall apply to an Option and, prior to exercise, to the Shares to be issued upon exercise of such Option during the period commencing on the Date of Grant and ending on the earlier of (i) the date when the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act or (ii) the date when the Company makes a determination that it will cease to rely on the exemption afforded by Rule 12h-1(f)(1) under the Exchange Act. During such period, an Option and, prior to exercise, the Shares to be issued upon exercise of such Option shall be restricted as to any pledge, hypothecation or other transfer by the Optionee, including any short position, any “put equivalent position” (as defined in Rule 16a-1(h) under the Exchange Act) or any “call equivalent position” (as defined in Rule 16a-1(b) under the Exchange Act).
(j) No Rights as a Stockholder. An Optionee, or a transferee of an Optionee, shall have no rights as a stockholder with respect to any Shares covered by the Optionee’s Option until such person becomes entitled to receive such Shares by filing a notice of exercise and paying the Exercise Price pursuant to the terms of such Option.
(k) Modification, Extension and Assumption of Options. Within the limitations of the Plan, the Board of Directors may modify, extend or assume outstanding Options or may accept the cancellation of outstanding Options (whether granted by the Company
or another issuer) in return for the grant of new Options or a different type of award for the same or a different number of Shares and at the same or a different Exercise Price (if applicable). The foregoing notwithstanding, no modification of an Option shall, without the consent of the Optionee, impair the Optionee’s rights or increase the Optionee’s obligations under such Option.
(l) Company’s Right to Cancel Certain Options. Any other provision of the Plan or a Stock Option Agreement notwithstanding, the Company shall have the right at any time to cancel an Option that was not granted in compliance with Rule 701 under the Securities Act. Prior to canceling such Option, the Company shall give the Optionee not less than 30 days’ notice in writing. If the Company elects to cancel such Option, it shall deliver to the Optionee consideration with an aggregate Fair Market Value equal to the excess of (i) the Fair Market Value of the Shares subject to such Option as of the time of the cancellation over (ii) the Exercise Price of such Option. The consideration may be delivered in the form of cash or cash equivalents, in the form of Shares, or a combination of both. If the consideration would be a negative amount, such Option may be cancelled without the delivery of any consideration.
SECTION 6. PAYMENT FOR SHARES.
(a) General Rule. The entire Exercise Price of Options issued under the Plan shall be payable in cash or cash equivalents at the time when such Options are exercised, except as otherwise provided in this Section 6. In addition, the Board of Directors in its sole discretion may also permit payment through any of the methods described in (b) through (f) below:
(b) Promissory Note. All or a portion of the Exercise Price of Options issued under the Plan may be paid with a full-recourse promissory note. The Shares shall be pledged as security for payment of the principal amount of the promissory note and interest thereon. The interest rate payable under the terms of the promissory note shall not be less than the minimum rate (if any) required to avoid the imputation of additional interest under the Code. Subject to the foregoing, the Board of Directors (at its sole discretion) shall specify the term, interest rate, amortization requirements (if any) and other provisions of such note.
(c) Surrender of Stock. All or any part of the Exercise Price may be paid by surrendering, or attesting to the ownership of, Shares that are already owned by the Optionee. Such Shares shall be surrendered to the Company in good form for transfer and shall be valued at their Fair Market Value as of the date when the Option is exercised.
(d) Exercise/Sale. If the Stock is publicly traded, all or part of the Exercise Price and any withholding taxes may be paid by the delivery (on a form prescribed by the Company) of an irrevocable direction to a securities broker approved by the Company to sell Shares and to deliver all or part of the sales proceeds to the Company.
(e) Net Exercise. An Option may permit exercise through a “net exercise” arrangement pursuant to which the Company will reduce the number of Shares issued upon exercise by the largest whole number of Shares having an aggregate Fair Market Value (determined by the Board of Directors as of the exercise date) that does not exceed the aggregate Exercise Price or the sum of the aggregate Exercise Price plus all or a portion of the minimum amount required to be withheld under applicable tax law (with the Company accepting from the
Optionee payment of cash or cash equivalents to satisfy any remaining balance of the aggregate Exercise Price and, if applicable, any additional withholding obligation not satisfied through such reduction in Shares); provided that to the extent Shares subject to an Option are withheld in this manner, the number of Shares subject to the Option following the net exercise will be reduced by the sum of the number of Shares withheld and the number of Shares delivered to the Optionee as a result of the exercise.
(f) Other Forms of Payment. To the extent that a Stock Option Agreement so provides, the Exercise Price of Options issued under the Plan may be paid in any other form permitted by the Delaware General Corporation Law, as amended.
SECTION 7. ADJUSTMENT OF SHARES.
(a) General. In the event of a subdivision of the outstanding Stock, a declaration of a dividend payable in Shares, a combination or consolidation of the outstanding Stock into a lesser number of Shares, a reclassification, or any other increase or decrease in the number of issued shares of Stock effected without receipt of consideration by the Company, proportionate adjustments shall automatically be made in each of (i) the number and kind of Shares available for future grants under Section 4, (ii) the number and kind of Shares covered by each outstanding Option, (iii) the Exercise Price under each outstanding Option, (iv) any repurchase price that applies to Shares granted under the Plan pursuant to the terms of a Company repurchase right under the applicable Stock Option Agreement and (v) if the Board of Directors deems it necessary, any performance measures applicable to any outstanding Option. In the event of a declaration of an extraordinary dividend payable in a form other than Shares in an amount that has a material effect on the Fair Market Value of the Stock, a recapitalization, a spin-off, or a similar occurrence, the Board of Directors at its sole discretion may make appropriate adjustments in one or more of the items listed in clauses (i) through (v) above; provided, however, that the Board of Directors shall in any event make such adjustments as may be required by Section 25102(o) of the California Corporations Code. No fractional Shares shall be issued under the Plan as a result of an adjustment under this Section 7(a), although the Board of Directors in its sole discretion may make a cash payment in lieu of fractional Shares.
(b) Corporate Transactions. In the event that the Company is a party to a merger or consolidation, or in the event of a sale of all or substantially all of the Company’s stock or assets, all Shares acquired under the Plan and all Options outstanding on the effective date of the transaction shall be treated in the manner described in the definitive transaction agreement (or, in the event the transaction does not entail a definitive agreement to which the Company is party, in the manner determined by the Board of Directors in its capacity as administrator of the Plan, with such determination having final and binding effect on all parties), which agreement or determination need not treat all Options (or all portions of an Option) in an identical manner. The treatment specified in the transaction agreement may include (without limitation) one or more of the following with respect to each outstanding Option:
(i) Continuation of the Option by the Company (if the Company is the surviving corporation).
(ii) Assumption of the Option by the surviving corporation or its parent in a manner that complies with Code Section 424(a) (whether or not the Option is an ISO).
(iii) Substitution by the surviving corporation or its parent of a new option for the Option in a manner that complies with Code Section 424(a) (whether or not the Option is an ISO).
(iv) Cancellation of the Option and a payment to the Optionee with respect to each Share subject to the portion of the Option that is vested as of the transaction date equal to the excess of (A) the value, as determined by the Board of Directors in its absolute discretion, of the property (including cash) received by the holder of a share of Stock as a result of the transaction, over (B) the per-Share Exercise Price of the Option (such excess, the “Spread”). Such payment shall be made in the form of cash, cash equivalents, or securities of the surviving corporation or its parent having a value equal to the Spread. In addition, any escrow, holdback, earn-out or similar provisions in the transaction agreement may apply to such payment to the same extent and in the same manner as such provisions apply to the holders of Stock. If the Spread applicable to an Option is zero or a negative number, then the Option may be cancelled without making a payment to the Optionee.
(v) Cancellation of the Option without the payment of any consideration; provided that the Optionee shall be notified of such treatment and given an opportunity to exercise the Option (to the extent the Option is vested or becomes vested as of the effective date of the transaction) during a period of not less than five (5) business days preceding the effective date of the transaction, unless (A) a shorter period is required to permit a timely closing of the transaction and (B) such shorter period still offers the Optionee a reasonable opportunity to exercise the Option. Any exercise of the Option during such period may be contingent upon the closing of the transaction.
(vi) Suspension of the Optionee’s right to exercise the Option during a limited period of time preceding the closing of the transaction if such suspension is administratively necessary to permit the closing of the transaction.
(vii) Termination of any right the Optionee has to exercise the Option prior to vesting in the Shares subject to the Option (i.e., “early exercise”), such that following the closing of the transaction the Option may only be exercised to the extent it is vested.
For the avoidance of doubt, the Board of Directors has discretion to accelerate, in whole or part, the vesting and exercisability of an Option in connection with a corporate transaction covered by this Section 7(b).
(c) Reservation of Rights. Except as provided in this Section 7, an Optionee shall have no rights by reason of (i) any subdivision or consolidation of shares of stock of any
class, (ii) the payment of any dividend or (iii) any other increase or decrease in the number of shares of stock of any class. Any issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or Exercise Price of Shares subject to an Option. The grant of an Option pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure, to merge or consolidate or to dissolve, liquidate, sell or transfer all or any part of its business or assets.
SECTION 8. PRE-EXERCISE INFORMATION REQUIREMENT.
(a) Application of Requirement. This Section 8 shall apply only during a period that (i) commences when the Company begins to rely on the exemption described in Rule 12h-1(f)(1) under the Exchange Act, as determined by the Company in its sole discretion, and (ii) ends on the earlier of (A) the date when the Company ceases to rely on such exemption, as determined by the Company in its sole discretion, or (B) the date when the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act. In addition, this Section 8 shall in no event apply to an Optionee after he or she has fully exercised all of his or her Options.
(b) Scope of Requirement. The Company shall provide to each Optionee the information described in Rule 701(e)(3), (4) and (5) under the Securities Act. Such information shall be provided at six-month intervals, and the financial statements included in such information shall not be more than 180 days old. The foregoing notwithstanding, the Company shall not be required to provide such information unless the Optionee has agreed in writing, on a form prescribed by the Company, to keep such information confidential.
SECTION 9. MISCELLANEOUS PROVISIONS.
(a) Securities Law Requirements. Shares shall not be issued under the Plan unless, in the opinion of counsel acceptable to the Board of Directors, the issuance and delivery of such Shares comply with (or are exempt from) all applicable requirements of law, including (without limitation) the Securities Act, the rules and regulations promulgated thereunder, state securities laws and regulations, and the regulations of any stock exchange or other securities market on which the Company’s securities may then be traded. The Company shall not be liable for a failure to issue Shares as a result of such requirements.
(b) No Retention Rights. Nothing in the Plan or in any Option granted under the Plan shall confer upon the Optionee any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Company (or any Parent or Subsidiary employing or retaining the Optionee) or of the Optionee, which rights are hereby expressly reserved by each, to terminate his or her Service at any time and for any reason, with or without cause.
(c) Treatment as Compensation. Any compensation that an individual earns or is deemed to earn under this Plan shall not be considered a part of his or her compensation for
purposes of calculating contributions, accruals or benefits under any other plan or program that is maintained or funded by the Company, a Parent or a Subsidiary.
(d) Governing Law. The Plan and all awards, sales and grants under the Plan shall be governed by, and construed in accordance with, the laws of the State of Delaware, as such laws are applied to contracts entered into and performed in such State.
(e) Conditions and Restrictions on Shares. Shares issued under the Plan shall be subject to such forfeiture conditions, rights of repurchase, rights of first refusal, other transfer restrictions and such other terms and conditions as the Board of Directors may determine. Such conditions and restrictions shall be set forth in the applicable Stock Option Agreement and shall apply in addition to any restrictions that may apply to holders of Shares generally. In addition, Shares issued under the Plan shall be subject to conditions and restrictions imposed either by applicable law or by Company policy, as adopted from time to time, designed to ensure compliance with applicable law or laws with which the Company determines in its sole discretion to comply including in order to maintain any statutory, regulatory or tax advantage.
(f) Tax Matters.
(i) As a condition to the award, grant, issuance, vesting, purchase, exercise or transfer of any Option, or Shares issued pursuant to any Option, granted under this Plan, the Optionee shall make such arrangements as the Board of Directors may require or permit for the satisfaction of any federal, state, local or foreign withholding tax obligations that may arise in connection with such event.
(ii) Unless otherwise expressly set forth in a Stock Option Agreement, it is intended that Options granted under the Plan shall be exempt from Code Section 409A, and any ambiguity in the terms of a Stock Option Agreement and the Plan shall be interpreted consistently with this intent. To the extent an Option is not exempt from Code Section 409A (any such Option, a “409A Option”), any ambiguity in the terms of such Option and the Plan shall be interpreted in a manner that to the maximum extent permissible supports the Option’s compliance with the requirements of that statute. Notwithstanding anything to the contrary permitted under the Plan, in no event shall a modification of an Option not already subject to Code Section 409A be given effect if such modification would cause the Option to become subject to Code Section 409A unless the parties explicitly acknowledge and consent to the modification as one having that effect. A 409A Option shall be subject to such additional rules and requirements as specified by the Board of Directors from time to time in order for it to comply with the requirements of Code Section 409A. In this regard, if any amount under a 409A Option is payable upon a “separation from service” to an individual who is considered a “specified employee” (as each term is defined under Code Section 409A), then no such payment shall be made prior to the date that is the earlier of (i) six months and one day after the Optionee’s separation from service or (ii) the Optionee’s death, but only to the extent such delay is necessary to prevent such payment from being subject to Section 409A(a)(1). In
addition, if a transaction subject to Section 7(b) constitutes a payment event with respect to any 409A Option, then the transaction with respect to such Option must also constitute a “change in control event” as defined in Treasury Regulation Section 1.409A-3(i)(5) to the extent required by Code Section 409A.
(iii) Neither the Company nor any member of the Board of Directors shall have any liability to an Optionee in the event an Option held by the Optionee fails to achieve its intended characterization under applicable tax law.
SECTION 10. DURATION AND AMENDMENTS; STOCKHOLDER APPROVAL.
(a) Term of the Plan. The Plan, as set forth herein, shall become effective on the date of its adoption by the Board of Directors, subject to approval of the Company’s stockholders under Subsection (d) below. The Plan shall terminate automatically 10 years after the later of (i) the date when the Board of Directors adopted the Plan or (ii) the date when the Board of Directors approved the most recent increase in the number of Shares reserved under Section 4 that was also approved by the Company’s stockholders. The Plan may be terminated on any earlier date pursuant to Subsection (b) below.
(b) Right to Amend or Terminate the Plan. Subject to Subsection (d) below, the Board of Directors may amend, suspend or terminate the Plan at any time and for any reason.
(c) Effect of Amendment or Termination. No Option shall be granted under the Plan after the termination thereof. The termination of the Plan, or any amendment thereof, shall not affect any Share previously issued or any Option previously granted under the Plan.
(d) Stockholder Approval. To the extent required by applicable law, the Plan will be subject to approval of the Company’s stockholders within 12 months of its adoption date. To the extent required by applicable law, any amendment of the Plan will be subject to the approval of the Company’s stockholders within 12 months of the amendment date if it (i) increases the number of Shares available for issuance under the Plan (except as provided in Section 7), or (ii) materially changes the class of persons who are eligible for the grant of ISOs. In addition, an amendment effecting any other material change to the Plan terms will be subject to approval of the Company’s stockholders only if required by applicable law. Stockholder approval shall not be required for any other amendment of the Plan.
SECTION 11. DEFINITIONS.
(a) “Board of Directors” means the Board of Directors of the Company, as constituted from time to time.
(b) “Code” means the Internal Revenue Code of 1986, as amended.
(c) “Committee” means a committee of the Board of Directors, as described in Section 2(a).
(d) “Company” means JAND, Inc., a Delaware corporation.
(e) “Consultant” means a person, excluding Employees and Outside Directors, who performs bona fide services for the Company, a Parent or a Subsidiary as a consultant or advisor and who qualifies as a consultant or advisor under Rule 701(c)(1) of the Securities Act or under Instruction A.1.(a)(1) of Form S-8 under the Securities Act.
(f) “Date of Grant” means the date of grant specified in the applicable Stock Option Agreement, which date shall be the later of (i) the date on which the Board of Directors resolved to grant the Option or (ii) the first day of the Optionee’s Service.
(g) “Disability” means that the Optionee is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment.
(h) “Employee” means any individual who is a common-law employee of the Company, a Parent or a Subsidiary.
(i) “Exchange Act” means the Securities Exchange Act of 1934, as amended.
(j) “Exercise Price” means the amount for which one Share may be purchased upon exercise of an Option, as specified by the Board of Directors in the applicable Stock Option Agreement.
(k) “Fair Market Value” means the fair market value of a Share, as determined by the Board of Directors in good faith. Such determination shall be conclusive and binding on all persons.
(l) “Family Member” means (i) any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law, including adoptive relationships, (ii) any person sharing the Optionee’s household (other than a tenant or employee), (iii) a trust in which persons described in Clause (i) or (ii) have more than 50% of the beneficial interest, (iv) a foundation in which persons described in Clause (i) or (ii) or the Optionee control the management of assets and (v) any other entity in which persons described in Clause (i) or (ii) or the Optionee own more than 50% of the voting interests.
(m) “ISO” means an Option that qualifies as an incentive stock option as described in Code Section 422(b). Notwithstanding its designation as an ISO, an Option that does not qualify as an ISO under applicable law shall be treated for all purposes as a Nonstatutory Option.
(n) “Nonstatutory Option” means an Option that does not qualify as an incentive stock option as described in Code Section 422(b) or 423(b).
(o) “Option” means an ISO or Nonstatutory Option granted under the Plan and entitling the holder to purchase Shares.
(p) “Optionee” means a person who holds an Option.
(q) “Outside Director” means a member of the Board of Directors who is not an Employee.
(r) “Parent” means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if each of the corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A corporation that attains the status of a Parent on a date after the adoption of the Plan shall be considered a Parent commencing as of such date.
(s) “Plan” means this JAND, Inc. 2012 Milestone stock plan.
(t) “Securities Act” means the Securities Act of 1933, as amended.
(u) “Service” means service as an Employee or Consultant.
(v) “Share” means one share of Stock, as adjusted in accordance with Section 7 (if applicable).
(w) “Stock” means the Series A Common Stock of the Company or the Series B Common Stock of the Company.
(x) “Stock Option Agreement” means the agreement between the Company and an Optionee that contains the terms, conditions and restrictions pertaining to the Optionee’s Option.
(y) “Subsidiary” means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A corporation that attains the status of a Subsidiary on a date after the adoption of the Plan shall be considered a Subsidiary commencing as of such date.
EXHIBIT A
SCHEDULE OF SHARES RESERVED FOR ISSUANCE UNDER THE PLAN
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Date of Board Approval
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Date of Stockholder Approval
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Number of
Shares Added
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Cumulative Number of Shares
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July 20, 2012
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August 23, 2012
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Not Applicable
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2,107,224
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February 22, 2017
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March 10, 2017
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2,132,268
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4,239,492
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JAND, Inc. 2012 Milestone Stock Plan
Notice of Stock Option Grant
The Optionee has been granted the following option to purchase shares of the Common Stock of JAND, Inc.:
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Name of Optionee:
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«Name»
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Total Number of Shares:
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«TotalShares»
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Type of Option:
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«ISO» Incentive Stock Option (ISO)
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«NSO» Nonstatutory Stock Option (NSO)
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Exercise Price per Share:
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$«PricePerShare»
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Date of Grant:
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«DateGrant»
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Date Exercisable:
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This option may be exercised at any time after the Date of Grant for all or any part of the Shares subject to this option.
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Vesting Commencement Date:
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«VestComDate»
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Vesting Schedule:
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The Right of Repurchase shall lapse with respect to the Shares subject to this option in accordance with Exhibit A to this Notice of Stock Option Grant.
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Expiration Date:
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«ExpDate». This option expires earlier if the Optionee’s Service terminates earlier, as provided in Section 6 of the Stock Option Agreement, or if the Company engages in certain corporate transactions, as provided in Section 7(b) of the Plan.
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By signing below, the Optionee and the Company agree that this option is granted under, and governed by the terms and conditions of, the 2012 Milestone Stock Plan and the Stock Option Agreement. Both of these documents are attached to, and made a part of, this Notice of Stock Option Grant. Section 14 of the Stock Option Agreement includes important acknowledgements of the Optionee.
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OPTIONEE:
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JAND, INC.
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By:
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Title:
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Exhibit A
Subject to the Optionee’s continuous Service through the occurrence of the applicable Triggering Event, the Option shall vest, if at all, in accordance with the schedule and subject to the successful completion of the performance measures set forth below on or before the expiration of the Option:
None of the Option shares will vest upon the occurrence of a Triggering Event, the Value of which is equal to or less than $500,000,000.
100% of the Option shares will vest upon the occurrence of a Triggering Event, the Value of which is at least $1,000,000,000.
Upon the occurrence of a Triggering Event in which the Value is between $500,000,000 and $1,000,000,000, the number of Option shares that vest shall be determined by linear interpolation.
The Board shall determine whether and when the vesting events listed above have been met and the Value of any Triggering Event. Such determinations by the Board shall be final and binding on all persons.
Definitions
“Equity Securities” shall mean the outstanding shares of common stock of the Company, assuming conversion of all securities convertible into common stock, exercise of all outstanding options and warrants to purchase common stock, and including, solely with respect to a Financing Event, the shares reserved or authorized for issuance under the Company’s existing stock option plan or any stock option plan to be adopted in the connection with the Financing Event (if applicable).
“Equity Value” shall mean the product of (i) the consideration paid per share of Equity Securities in the Financing Event or IPO, as applicable, and (ii) the number of Equity Securities outstanding immediately prior to the closing of the Financing Event or IPO, as applicable.
“Financing Event” shall mean the sale (or series of related sales) by the Company of its Equity Securities following the date of grant of the Option, the proceeds of which are not less than $25,000,000 in the aggregate.
“IPO” shall mean an event described in part (e) of the “Triggering Event” definition below.
“Sale Event” shall mean an event described in part (b), (c) or (d) of the “Triggering Event” definition below.
“Sale Value” shall mean shall mean the sum, without duplication of (a) any cash, and the fair market value of any securities or other property, paid or payable to the Company or any of its securityholders or affiliates at the time of the consummation of the relevant Sale Event (in their capacity as securityholders as such, and not as a director, officer or service provider), (b) the current aggregate dollar amount of all indebtedness for borrowed money assumed or to be assumed separately by the acquiror in connection with a Sale Event, (c) with respect to the Company’s stock, the amount of any extraordinary distributions, dividends, redemptions or repurchases by the Company in connection with a Sale Event, and (d) all amounts paid or other value ascribed and included in the Sale Event (including in the form of “rollover” options) in respect of issued warrants, options or other convertible securities. The fair market value of any non-cash item included within the definition of Sale Value shall be determined in good faith by the Board of Directors of the Company. To the extent the right to receive any Sale Value is contingent upon future events, paid in installments, held in escrow for distribution in the future or subject to post-closing adjustments or vesting, the calculation of that portion of the Sale Value shall made at the time of the Sale
Event, taking into consideration the likelihood of that portion of the Sale Value being received by its expected recipient and the time value of money, as determined in good faith by the Board of Directors of the Company.
“Triggering Event” shall mean:
a) the closing of two Financing Events before a Sale Event or IPO, the Values of which Financing Events are determined separately;
b) the consummation of a merger or consolidation of the Company with or into another entity, unless immediately after the merger or consolidation a majority of the voting power of the capital stock of the continuing or surviving entity, or any direct or indirect parent corporation of the continuing or surviving entity, will be owned by the persons who were the Company’s stockholders immediately prior to the merger or consolidation in substantially the same proportions as their ownership of the voting power of the Company’s capital stock immediately prior to the merger or consolidation;
c) the closing of the sale, lease, transfer or other disposition of all or substantially all of the Company’s assets in one transaction or a series of related transactions;
d) the closing of the transfer of the Company’s outstanding securities, in one transaction or a series of related transactions, to a person or group of affiliated persons if, after such closing, such person or group of affiliated persons would hold a majority of the voting power of the capital stock of the Company; or
e) the closing of the Company’s sale of its Common Stock in a firm-commitment underwritten public offering pursuant to a registration statement on Form S-1 or Form SB-2 under the Securities Act of 1933, as amended, the proceeds of which are not less than $25,000,000 in the aggregate.
For purposes of determining the Value of a Triggering Event as described in clause (a), the Value of the Triggering Event shall equal the lower of the Values of the two Financing Events. By way of example, if there is a Financing Event with a Value of $600,000,000 and a subsequent Financing Event with a Value of $700,000,000, the Value of the Triggering Event shall equal $600,000,000. For the avoidance of doubt, no Financing Event that constitutes a part of any Triggering Event shall be deemed a Financing Event for the purposes of determining if any other Triggering Event has occurred.
“Value” shall mean (i) for a Financing Event or an IPO, the Equity Value and (ii) for a Sale Event, the Sale Value.
THE OPTION GRANTED PURSUANT TO THIS AGREEMENT AND THE SHARES ISSUABLE UPON THE EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
JAND, INC. 2012 MILESTONE STOCK PLAN:
STOCK OPTION AGREEMENT
SECTION 1. GRANT OF OPTION.
(a) Option. On the terms and conditions set forth in the Notice of Stock Option Grant and this Agreement, the Company grants to the Optionee on the Date of Grant the option to purchase at the Exercise Price the number of Shares set forth in the Notice of Stock Option Grant. The Exercise Price is agreed to be at least 100% of the Fair Market Value per Share on the Date of Grant (110% of Fair Market Value if this option is designated as an ISO in the Notice of Stock Option Grant and Section 3(b) of the Plan applies). This option is intended to be an ISO or an NSO, as provided in the Notice of Stock Option Grant.
(b) $100,000 Limitation. Even if this option is designated as an ISO in the Notice of Stock Option Grant, it shall be deemed to be an NSO to the extent (and only to the extent) required by the $100,000 annual limitation under Section 422(d) of the Code.
(c) Stock Plan and Defined Terms. This option is granted pursuant to the Plan, a copy of which the Optionee acknowledges having received. The provisions of the Plan are incorporated into this Agreement by this reference. Capitalized terms are defined in Section 15 of this Agreement.
SECTION 2. RIGHT TO EXERCISE.
(a) Exercisability. Subject to Subsection (b) below and the other conditions set forth in this Agreement, all or part of this option may be exercised prior to its expiration at the time or times set forth in the Notice of Stock Option Grant. Shares purchased by exercising this option may be subject to the Right of Repurchase under Section 7.
(b) Stockholder Approval. Any other provision of this Agreement notwithstanding, no portion of this option shall be exercisable at any time prior to the approval of the Plan by the Company’s stockholders.
SECTION 3. NO TRANSFER OR ASSIGNMENT OF OPTION.
Except as otherwise provided in this Agreement, this option and the rights and privileges conferred hereby shall not be sold, pledged or otherwise transferred (whether by operation of law or otherwise) and shall not be subject to sale under execution, attachment, levy or similar process.
SECTION 4. EXERCISE PROCEDURES.
(a) Notice of Exercise. The Optionee or the Optionee’s representative may exercise this option by giving written notice to the Company pursuant to Section 13(c). The notice shall specify the election to exercise this option, the number of Shares for which it is being exercised and the form of payment. The person exercising this option shall sign the notice. In the event that this option is being
exercised by the representative of the Optionee, the notice shall be accompanied by proof (satisfactory to the Company) of the representative’s right to exercise this option. The Optionee or the Optionee’s representative shall deliver to the Company, at the time of giving the notice, payment in a form permissible under Section 5 for the full amount of the Purchase Price. In the event of a partial exercise of this option, Shares shall be deemed to have been purchased in the order in which they vest in accordance with the Notice of Stock Option Grant.
(b) Issuance of Shares. After receiving a proper notice of exercise, the Company shall cause to be issued one or more certificates evidencing the Shares for which this option has been exercised. Such Shares shall be registered (i) in the name of the person exercising this option, (ii) in the names of such person and his or her spouse as community property or as joint tenants with the right of survivorship or (iii) with the Company’s consent, in the name of a revocable trust. In the case of Restricted Shares, the Company shall cause such certificates to be deposited in escrow under Section 7(c). In the case of other Shares, the Company shall cause such certificates to be delivered to or upon the order of the person exercising this option.
(c) Withholding Taxes. In the event that the Company determines that it is required to withhold any tax as a result of the exercise of this option, the Optionee, as a condition to the exercise of this option, shall make arrangements satisfactory to the Company to enable it to satisfy all withholding requirements. The Optionee shall also make arrangements satisfactory to the Company to enable it to satisfy any withholding requirements that may arise in connection with the vesting or disposition of Shares purchased by exercising this option.
SECTION 5.PAYMENT FOR STOCK.
(a) Cash. All or part of the Purchase Price may be paid in cash or cash equivalents.
(b) Surrender of Stock. At the discretion of the Board of Directors, all or any part of the Purchase Price may be paid by surrendering, or attesting to the ownership of, Shares that are already owned by the Optionee. Such Shares shall be surrendered to the Company in good form for transfer and shall be valued at their Fair Market Value as of the date when this option is exercised.
(c) Exercise/Sale. All or part of the Purchase Price and any withholding taxes may be paid by the delivery (on a form prescribed by the Company) of an irrevocable direction to a securities broker approved by the Company to sell Shares and to deliver all or part of the sales proceeds to the Company. However, payment pursuant to this Subsection (c) shall be permitted only if (i) Stock then is publicly traded and (ii) such payment does not violate applicable law.
SECTION 6. TERM AND EXPIRATION.
(a) Basic Term. This option shall in any event expire on the expiration date set forth in the Notice of Stock Option Grant, which date is 10 years after the Date of Grant (five years after the Date of Grant if this option is designated as an ISO in the Notice of Stock Option Grant and Section 3(b) of the Plan applies).
(b) Termination of Service (Except by Death). If the Optionee’s Service terminates for any reason other than death, then this option shall expire on the earliest of the following occasions:
(i) The expiration date determined pursuant to Subsection (a) above;
(ii) The date three months after the termination of the Optionee’s Service for any reason other than Disability; or
(iii) The date six months after the termination of the Optionee’s Service by reason of Disability.
The Optionee may exercise all or part of this option at any time before its expiration under the preceding sentence, but only to the extent that this option is exercisable for vested Shares on or before the date when the Optionee’s Service terminates. When the Optionee’s Service terminates, this option shall expire immediately with respect to the number of Shares for which this option is not yet exercisable and with respect to any Restricted Shares. In the event that the Optionee dies after termination of Service but before the expiration of this option, all or part of this option may be exercised (prior to expiration) by the executors or administrators of the Optionee’s estate or by any person who has acquired this option directly from the Optionee by beneficiary designation, bequest or inheritance, but only to the extent that this option was exercisable for vested Shares on or before the date when the Optionee’s Service terminated.
(c) Death of the Optionee. If the Optionee dies while in Service, then this option shall expire on the earlier of the following dates:
(i) The expiration date determined pursuant to Subsection (a) above; or
(ii) The date 12 months after the Optionee’s death.
All or part of this option may be exercised at any time before its expiration under the preceding sentence by the executors or administrators of the Optionee’s estate or by any person who has acquired this option directly from the Optionee by beneficiary designation, bequest or inheritance, but only to the extent that this option is exercisable for vested Shares on or before the date of the Optionee’s death. When the Optionee dies, this option shall expire immediately with respect to the number of Shares for which this option is not yet exercisable and with respect to any Restricted Shares.
(d) Part-Time Employment and Leaves of Absence. If the Optionee commences working on a part-time basis, then the Company may adjust the vesting schedule set forth in the Notice of Stock Option Grant. If the Optionee goes on a leave of absence, then the Company may adjust the vesting schedule set forth in the Notice of Stock Option Grant in accordance with the Company’s leave of absence policy or the terms of such leave. Except as provided in the preceding sentence, Service shall be deemed to continue for any purpose under this Agreement while the Optionee is on a bona fide leave of absence, if (i) such leave was approved by the Company in writing and (ii) continued crediting of Service for such purpose is expressly required by the terms of such leave or by applicable law (as determined by the Company). Service shall be deemed to terminate when such leave ends, unless the Optionee immediately returns to active work.
(e) Notice Concerning ISO Treatment. Even if this option is designated as an ISO in the Notice of Stock Option Grant, it ceases to qualify for favorable tax treatment as an ISO to the extent that it is exercised:
(i) More than three months after the date when the Optionee ceases to be an Employee for any reason other than death or permanent and total disability (as defined in Section 22(e)(3) of the Code);
(ii) More than 12 months after the date when the Optionee ceases to be an Employee by reason of permanent and total disability (as defined in Section 22(e)(3) of the Code); or
(iii) More than three months after the date when the Optionee has been on a leave of absence for 90 days, unless the Optionee’s reemployment rights following such leave were guaranteed by statute or by contract.
SECTION 7. RIGHT OF REPURCHASE.
(a) Scope of Repurchase Right. Until they vest in accordance with the Notice of Stock Option Grant and Subsection (b) below, the Shares acquired under this Agreement shall be Restricted Shares and shall be subject to the Company’s Right of Repurchase. The Company, however, may decline to exercise its Right of Repurchase or may exercise its Right of Repurchase only with respect to a portion of the Restricted Shares. The Company may exercise its Right of Repurchase only during the Repurchase Period following the termination of the Optionee’s Service, but the Right of Repurchase may be exercised automatically under Subsection (d) below. If the Right of Repurchase is exercised, the Company shall pay the Optionee an amount equal to the lower of (i) the Exercise Price of each Restricted Share being repurchased or (ii) the Fair Market Value of such Restricted Share at the time the Right of Repurchase is exercised.
(b) Lapse of Repurchase Right. The Right of Repurchase shall lapse with respect to the Restricted Shares in accordance with the vesting schedule set forth in the Notice of Stock Option Grant.
(c) Escrow. Upon issuance, the certificate(s) for Restricted Shares shall be deposited in escrow with the Company to be held in accordance with the provisions of this Agreement. Any additional or exchanged securities or other property described in Subsection (f) below shall immediately be delivered to the Company to be held in escrow. All ordinary cash dividends on Restricted Shares (or on other securities held in escrow) shall be paid directly to the Optionee and shall not be held in escrow. Restricted Shares, together with any other assets held in escrow under this Agreement, shall be (i) surrendered to the Company for repurchase upon exercise of the Right of Repurchase or the Right of First Refusal or (ii) released to the Optionee upon his or her request to the extent that the Shares have ceased to be Restricted Shares (but not more frequently than once every six months). In any event, all Shares that have ceased to be Restricted Shares, together with any other vested assets held in escrow under this Agreement, shall be released within 90 days after the earlier of (i) the termination of the Optionee’s Service or (ii) the lapse of the Right of First Refusal.
(d) Exercise of Repurchase Right. The Company shall be deemed to have exercised its Right of Repurchase automatically for all Restricted Shares as of the commencement of the Repurchase Period, unless the Company during the Repurchase Period notifies the holder of the Restricted Shares pursuant to Section 13(c) that it will not exercise its Right of Repurchase for some or all of the Restricted Shares. The Company shall pay to the holder of the Restricted Shares the purchase price determined under Subsection (a) above for the Restricted Shares being repurchased. Payment shall be made in cash or cash equivalents and/or by canceling indebtedness to the Company incurred by the Optionee in the purchase of the Restricted Shares. The certificate(s) representing the Restricted Shares being repurchased shall be delivered to the Company.
(e) Termination of Rights as Stockholder. If the Right of Repurchase is exercised in accordance with this Section 7 and the Company makes available the consideration for the Restricted
Shares being repurchased, then the person from whom the Restricted Shares are repurchased shall no longer have any rights as a holder of the Restricted Shares (other than the right to receive payment of such consideration). Such Restricted Shares shall be deemed to have been repurchased pursuant to this Section 7, whether or not the certificate(s) for such Restricted Shares have been delivered to the Company or the consideration for such Restricted Shares has been accepted.
(f) Additional or Exchanged Securities and Property. In the event of a merger or consolidation of the Company, a sale of all or substantially all of the Company’s stock or assets, any other corporate reorganization, a stock split, the declaration of a stock dividend, the declaration of an extraordinary dividend payable in a form other than stock, a spin-off, an adjustment in conversion ratio, a recapitalization or a similar transaction affecting the Company’s outstanding securities, any securities or other property (including cash or cash equivalents) that are by reason of such transaction exchanged for, or distributed with respect to, any Restricted Shares shall immediately be subject to the Right of Repurchase. Appropriate adjustments to reflect the exchange or distribution of such securities or property shall be made to the number and/or class of the Restricted Shares. Appropriate adjustments shall also be made to the price per share to be paid upon the exercise of the Right of Repurchase, provided that the aggregate purchase price payable for the Restricted Shares shall remain the same. In the event of a merger or consolidation of the Company with or into another entity or any other corporate reorganization, the Right of Repurchase may be exercised by the Company’s successor.
(g) Transfer of Restricted Shares. The Optionee shall not transfer, assign, encumber or otherwise dispose of any Restricted Shares without the Company’s written consent, except as provided in the following sentence. The Optionee may transfer Restricted Shares to one or more members of the Optionee’s Immediate Family or to a trust established by the Optionee for the benefit of the Optionee and/or one or more members of the Optionee’s Immediate Family, provided in either case that the Transferee agrees in writing on a form prescribed by the Company to be bound by all provisions of this Agreement. If the Optionee transfers any Restricted Shares, then this Agreement shall apply to the Transferee to the same extent as to the Optionee.
(h) Assignment of Repurchase Right. The Board of Directors may freely assign the Company’s Right of Repurchase, in whole or in part. Any person who accepts an assignment of the Right of Repurchase from the Company shall assume all of the Company’s rights and obligations under this Section 7.
SECTION 8. RIGHT OF FIRST REFUSAL.
(a) Right of First Refusal. Subject to Section 11(a) below, in the event that the Optionee proposes to sell, pledge or otherwise transfer to a third party any Shares acquired under this Agreement, or any interest in such Shares, the Company shall have the Right of First Refusal with respect to all (and not less than all) of such Shares. If the Optionee desires to transfer Shares acquired under this Agreement, the Optionee shall give a written Transfer Notice to the Company describing fully the proposed transfer, including the number of Shares proposed to be transferred, the proposed transfer price, the name and address of the proposed Transferee and proof satisfactory to the Company that the proposed sale or transfer will not violate any applicable federal, State or foreign securities laws. The Transfer Notice shall be signed both by the Optionee and by the proposed Transferee and must constitute a binding commitment of both parties to the transfer of the Shares. The Company shall have the right to purchase all, and not less than all, of the Shares on the terms of the proposal described in the Transfer Notice (subject, however, to any change in such terms permitted under Subsection (b) below) by delivery of a notice of exercise of the Right of First Refusal within 30 days after the date when the Transfer Notice was received by the Company.
(b) Transfer of Shares. If the Company fails to exercise its Right of First Refusal within 30 days after the date when it received the Transfer Notice, the Optionee may, not later than 90 days following receipt of the Transfer Notice by the Company, conclude a transfer of the Shares subject to the Transfer Notice on the terms and conditions described in the Transfer Notice, provided that any such sale is made in compliance with applicable federal, State and foreign securities laws and not in violation of any other contractual restrictions to which the Optionee is bound. Any proposed transfer on terms and conditions different from those described in the Transfer Notice, as well as any subsequent proposed transfer by the Optionee, shall again be subject to the Right of First Refusal and shall require compliance with the procedure described in Subsection (a) above. If the Company exercises its Right of First Refusal, the parties shall consummate the sale of the Shares on the terms set forth in the Transfer Notice within 60 days after the date when the Company received the Transfer Notice (or within such longer period as may have been specified in the Transfer Notice); provided, however, that in the event the Transfer Notice provided that payment for the Shares was to be made in a form other than cash or cash equivalents paid at the time of transfer, the Company shall have the option of paying for the Shares with cash or cash equivalents equal to the present value of the consideration described in the Transfer Notice.
(c) Additional or Exchanged Securities and Property. In the event of a merger or consolidation of the Company, a sale of all or substantially all of the Company’s stock or assets, any other corporate reorganization, a stock split, the declaration of a stock dividend, the declaration of an extraordinary dividend payable in a form other than stock, a spin-off, an adjustment in conversion ratio, a recapitalization or a similar transaction affecting the Company’s outstanding securities, any securities or other property (including cash or cash equivalents) that are by reason of such transaction exchanged for, or distributed with respect to, any Shares subject to this Section 8 shall immediately be subject to the Right of First Refusal. Appropriate adjustments to reflect the exchange or distribution of such securities or property shall be made to the number and/or class of the Shares subject to this Section 8.
(d) Termination of Right of First Refusal. Any other provision of this Section 8 notwithstanding, in the event that the Stock is readily tradable on an established securities market when the Optionee desires to transfer Shares, the Company shall have no Right of First Refusal, and the Optionee shall have no obligation to comply with the procedures prescribed by Subsections (a) and (b) above.
(e) Permitted Transfers. This Section 8 shall not apply to (i) a transfer by beneficiary designation, will or intestate succession or (ii) a transfer to one or more members of the Optionee’s Immediate Family or to a trust established by the Optionee for the benefit of the Optionee and/or one or more members of the Optionee’s Immediate Family, provided in either case that the Transferee agrees in writing on a form prescribed by the Company to be bound by all provisions of this Agreement. If the Optionee transfers any Shares acquired under this Agreement, either under this Subsection (e) or after the Company has failed to exercise the Right of First Refusal, then this Agreement shall apply to the Transferee to the same extent as to the Optionee.
(f) Termination of Rights as Stockholder. If the Company makes available, at the time and place and in the amount and form provided in this Agreement, the consideration for the Shares to be purchased in accordance with this Section 8, then after such time the person from whom such Shares are to be purchased shall no longer have any rights as a holder of such Shares (other than the right to receive payment of such consideration in accordance with this Agreement). Such Shares shall be deemed to have been purchased in accordance with the applicable provisions hereof, whether or not the certificate(s) therefor have been delivered as required by this Agreement.
(g) Assignment of Right of First Refusal. The Board of Directors may freely assign the Company’s Right of First Refusal, in whole or in part. Any person who accepts an assignment of the Right of First Refusal from the Company shall assume all of the Company’s rights and obligations under this Section 8.
SECTION 9. LEGALITY OF INITIAL ISSUANCE.
No Shares shall be issued upon the exercise of this option unless and until the Company has determined that:
(a) It and the Optionee have taken any actions required to register the Shares under the Securities Act or to perfect an exemption from the registration requirements thereof;
(b) Any applicable listing requirement of any stock exchange or other securities market on which Stock is listed has been satisfied; and
(c) Any other applicable provision of federal, State or foreign law has been satisfied.
SECTION 10. NO REGISTRATION RIGHTS.
The Company may, but shall not be obligated to, register or qualify the sale of Shares under the Securities Act or any other applicable law. The Company shall not be obligated to take any affirmative action in order to cause the sale of Shares under this Agreement to comply with any law.
SECTION 11. RESTRICTIONS ON TRANSFER OF SHARES.
(a) Bylaws Restrictions. The Shares acquired under this Agreement shall be subject to the transfer restrictions in Article X of the Company’s Bylaws, as amended, in addition to, and not in limitation of, the provisions of Section 8 of this Agreement.
(b) Securities Law Restrictions. Regardless of whether the offering and sale of Shares under the Plan have been registered under the Securities Act or have been registered or qualified under the securities laws of any State, the Company at its discretion may impose restrictions upon the sale, pledge or other transfer of such Shares (including the placement of appropriate legends on stock certificates or the imposition of stop-transfer instructions) if, in the judgment of the Company, such restrictions are necessary or desirable in order to achieve compliance with the Securities Act, the securities laws of any State or any other law.
(c) Market Stand-Off. In connection with any underwritten public offering by the Company of its equity securities pursuant to an effective registration statement filed under the Securities Act, including the Company’s initial public offering, the Optionee or a Transferee shall not directly or indirectly sell, make any short sale of, loan, hypothecate, pledge, offer, grant or sell any option or other contract for the purchase of, purchase any option or other contract for the sale of, or otherwise dispose of or transfer, or agree to engage in any of the foregoing transactions with respect to, any Shares acquired under this Agreement without the prior written consent of the Company or its managing underwriter. Such restriction (the “Market Stand-Off”) shall be in effect for such period of time following the date of the final prospectus for the offering as may be requested by the Company or such underwriter. In no event, however, shall such period exceed 180 days plus such additional period as may reasonably be requested by the Company or such underwriter to accommodate regulatory restrictions on (i) the publication or other distribution of research reports or (ii) analyst recommendations and opinions,
including (without limitation) the restrictions set forth in Rule 2711(f)(4) of the National Association of Securities Dealers and Rule 472(f)(4) of the New York Stock Exchange, as amended, or any similar successor rules. The Market Stand-Off shall in any event terminate two years after the date of the Company’s initial public offering. In the event of the declaration of a stock dividend, a spin-off, a stock split, an adjustment in conversion ratio, a recapitalization or a similar transaction affecting the Company’s outstanding securities without receipt of consideration, any new, substituted or additional securities which are by reason of such transaction distributed with respect to any Shares subject to the Market Stand-Off, or into which such Shares thereby become convertible, shall immediately be subject to the Market Stand-Off. In order to enforce the Market Stand-Off, the Company may impose stop-transfer instructions with respect to the Shares acquired under this Agreement until the end of the applicable stand-off period. The Company’s underwriters shall be beneficiaries of the agreement set forth in this Subsection (c). This Subsection (c) shall not apply to Shares registered in the public offering under the Securities Act.
(d) Investment Intent at Grant. The Optionee represents and agrees that the Shares to be acquired upon exercising this option will be acquired for investment, and not with a view to the sale or distribution thereof.
(e) Investment Intent at Exercise. In the event that the sale of Shares under the Plan is not registered under the Securities Act but an exemption is available that requires an investment representation or other representation, the Optionee shall represent and agree at the time of exercise that the Shares being acquired upon exercising this option are being acquired for investment, and not with a view to the sale or distribution thereof, and shall make such other representations as are deemed necessary or appropriate by the Company and its counsel.
(f) Legends. All certificates evidencing Shares purchased under this Agreement shall bear the following legends:
“THE SHARES REPRESENTED HEREBY MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN COMPLIANCE WITH THE TERMS OF A WRITTEN AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED HOLDER OF THE SHARES (OR THE PREDECESSOR IN INTEREST TO THE SHARES). SUCH AGREEMENT GRANTS TO THE COMPANY CERTAIN RIGHTS OF FIRST REFUSAL UPON AN ATTEMPTED TRANSFER OF THE SHARES AND CERTAIN REPURCHASE RIGHTS UPON TERMINATION OF SERVICE WITH THE COMPANY. THE SECRETARY OF THE COMPANY WILL UPON WRITTEN REQUEST FURNISH A COPY OF SUCH AGREEMENT TO THE HOLDER HEREOF WITHOUT CHARGE.”
“THE SHARES REPRESENTED HEREBY MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN COMPLIANCE WITH THE BYLAWS OF THE COMPANY. COPIES OF THE BYLAWS OF THE COMPANY MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY.”
All certificates evidencing Shares purchased under this Agreement in an unregistered transaction shall bear the following legend (and such other restrictive legends as are required or deemed advisable under the provisions of any applicable law):
“THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE
REGISTRATION THEREOF UNDER SUCH ACT OR AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.”
(g) Removal of Legends. If, in the opinion of the Company and its counsel, any legend placed on a stock certificate representing Shares sold under this Agreement is no longer required, the holder of such certificate shall be entitled to exchange such certificate for a certificate representing the same number of Shares but without such legend.
(h) Administration. Any determination by the Company and its counsel in connection with any of the matters set forth in this Section 11 shall be conclusive and binding on the Optionee and all other persons.
SECTION 12. ADJUSTMENT OF SHARES.
In the event of any transaction described in Section 8(a) of the Plan, the terms of this option (including, without limitation, the number and kind of Shares subject to this option and the Exercise Price) shall be adjusted as set forth in Section 8(a) of the Plan. In the event that the Company is a party to a merger or consolidation or in the event of a sale of all or substantially all of the Company’s stock or assets, this option shall be subject to the treatment provided by the Board of Directors in its sole discretion, as provided in Section 8(b) of the Plan.
SECTION 13. MISCELLANEOUS PROVISIONS.
(a) Rights as a Stockholder. Neither the Optionee nor the Optionee’s representative shall have any rights as a stockholder with respect to any Shares subject to this option until the Optionee or the Optionee’s representative becomes entitled to receive such Shares by filing a notice of exercise and paying the Purchase Price pursuant to Sections 4 and 5.
(b) No Retention Rights. Nothing in this option or in the Plan shall confer upon the Optionee any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Company (or any Parent or Subsidiary employing or retaining the Optionee) or of the Optionee, which rights are hereby expressly reserved by each, to terminate his or her Service at any time and for any reason, with or without cause.
(c) Notice. Any notice required by the terms of this Agreement shall be given in writing. It shall be deemed effective upon (i) personal delivery, (ii) deposit with the United States Postal Service, by registered or certified mail, with postage and fees prepaid or (iii) deposit with Federal Express Corporation, with shipping charges prepaid. Notice shall be addressed to the Company at its principal executive office and to the Optionee at the address that he or she most recently provided to the Company in accordance with this Subsection (c).
(d) Modifications and Waivers. No provision of this Agreement shall be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by the Optionee and by an authorized officer of the Company (other than the Optionee). No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time.
(e) Entire Agreement. The Notice of Stock Option Grant, this Agreement and the Plan constitute the entire contract between the parties hereto with regard to the subject matter hereof.
They supersede any other agreements, representations or understandings (whether oral or written and whether express or implied) that relate to the subject matter hereof.
(f) Choice of Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, as such laws are applied to contracts entered into and performed in such State.
SECTION 14. ACKNOWLEDGEMENTS OF THE OPTIONEE.
(a) Tax Consequences. The Optionee agrees that the Company does not have a duty to design or administer the Plan or its other compensation programs in a manner that minimizes the Optionee’s tax liabilities. The Optionee shall not make any claim against the Company or its Board of Directors, officers or employees related to tax liabilities arising from this option or the Optionee’s other compensation. In particular, the Optionee acknowledges that this option is exempt from Section 409A of the Code only if the Exercise Price is at least equal to the Fair Market Value per Share on the Date of Grant. Since Shares are not traded on an established securities market, the determination of their Fair Market Value is made by the Board of Directors or by an independent valuation firm retained by the Company. The Optionee acknowledges that there is no guarantee in either case that the Internal Revenue Service will agree with the valuation, and the Optionee shall not make any claim against the Company or its Board of Directors, officers or employees in the event that the Internal Revenue Service asserts that the valuation was too low.
(b) Electronic Delivery of Documents. The Optionee agrees to accept by email all documents relating to the Company, the Plan or this option and all other documents that the Company is required to deliver to its security holders (including, without limitation, disclosures that may be required by the Securities and Exchange Commission). The Optionee also agrees that the Company may deliver these documents by posting them on a website maintained by the Company or by a third party under contract with the Company. If the Company posts these documents on a website, it shall notify the Optionee by email of their availability. The Optionee acknowledges that he or she may incur costs in connection with electronic delivery, including the cost of accessing the internet and printing fees, and that an interruption of internet access may interfere with his or her ability to access the documents. This consent shall remain in effect until this option expires or until the Optionee gives the Company written notice that it should deliver paper documents.
(c) No Notice of Expiration Date. The Optionee agrees that the Company and its officers, employees, attorneys and agents do not have any obligation to notify him or her prior to the expiration of this option pursuant to Section 6, regardless of whether this option will expire at the end of its full term or on an earlier date related to the termination of the Optionee’s Service. The Optionee further agrees that he or she has the sole responsibility for monitoring the expiration of this option and for exercising this option, if at all, before it expires. This Subsection (c) shall supersede any contrary representation that may have been made, orally or in writing, by the Company or by an officer, employee, attorney or agent of the Company.
SECTION 15. DEFINITIONS.
(a) “Agreement” shall mean this Stock Option Agreement.
(b) “Board of Directors” shall mean the Board of Directors of the Company, as constituted from time to time or, if a Committee has been appointed, such Committee.
(c) “Code” shall mean the Internal Revenue Code of 1986, as amended.
(d) “Committee” shall mean a committee of the Board of Directors, as described in Section 2 of the Plan.
(e) “Company” shall mean JAND, Inc., a Delaware corporation.
(f) “Consultant” shall mean a person, excluding Employees and Outside Directors, who performs bona fide services for the Company, a Parent or a Subsidiary as a consultant or advisor and who qualifies as a consultant or advisor under Rule 701(c)(1) of the Securities Act or under Instruction A.1.(a)(1) of Form S-8 under the Securities Act.
(g) “Date of Grant” shall mean the date of grant specified in the Notice of Stock Option Grant, which date shall be the later of (i) the date on which the Board of Directors resolved to grant this option or (ii) the first day of the Optionee’s Service.
(h) “Disability” shall mean that the Optionee is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment.
(i) “Employee” shall mean any individual who is a common-law employee of the Company, a Parent or a Subsidiary.
(j) “Exercise Price” shall mean the amount for which one Share may be purchased upon exercise of this option, as specified in the Notice of Stock Option Grant.
(k) “Fair Market Value” shall mean the fair market value of a Share, as determined by the Board of Directors in good faith. Such determination shall be conclusive and binding on all persons.
(l) “Immediate Family” shall mean any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law and shall include adoptive relationships.
(m) “ISO” shall mean an employee incentive stock option described in Section 422(b) of the Code.
(n) “Notice of Stock Option Grant” shall mean the document so entitled to which this Agreement is attached.
(o) “NSO” shall mean a stock option not described in Section 422(b) or 423(b) of the Code.
(p) “Optionee” shall mean the person named in the Notice of Stock Option Grant.
(q) “Outside Director” shall mean a member of the Board of Directors who is not an Employee.
(r) “Parent” shall mean any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if each of the corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
(s) “Plan” shall mean the JAND, Inc. 2012 Milestone Stock Plan, as in effect on the Date of Grant.
(t) “Purchase Price” shall mean the Exercise Price multiplied by the number of Shares with respect to which this option is being exercised.
(u) “Repurchase Period” shall mean a period of 90 consecutive days commencing on the date (i) when the Optionee’s Service terminates for any reason, including (without limitation) death or disability or (ii) of a Sale Event or an IPO, as applicable, in each case, as defined in the Notice of Stock Option Grant.
(v) “Restricted Share” shall mean a Share that is subject to the Right of Repurchase.
(w) “Right of First Refusal” shall mean the Company’s right of first refusal described in Section 8.
(x) “Right of Repurchase” shall mean the Company’s right of repurchase described in Section 7.
(y) “Securities Act” shall mean the Securities Act of 1933, as amended.
(z) “Service” shall mean service as an Employee or Consultant.
(aa) “Share” shall mean one share of Stock, as adjusted in accordance with Section 8 of the Plan (if applicable).
(bb) “Stock” shall mean the [Series A] Common Stock of the Company.
(cc) “Subsidiary” shall mean any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
(dd) “Transferee” shall mean any person to whom the Optionee has directly or indirectly transferred any Share acquired under this Agreement.
(ee) “Transfer Notice” shall mean the notice of a proposed transfer of Shares described in Section 8.
(ff) “Triggering Event” shall have the meaning set forth in the Notice of Stock Option Grant.
JAND, INC.
2019 FOUNDER STOCK PLAN
ADOPTED ON MAY 2, 2019
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Page
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SECTION 1.
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ESTABLISHMENT AND PURPOSE
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1
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SECTION 2.
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ADMINISTRATION
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1
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(a)
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Committees of the Board of Directors
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1
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(b)
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Authority of the Board of Directors
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1
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SECTION 3.
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ELIGIBILITY
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2
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(a)
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General Rule
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2
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(b)
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Ten-Percent Stockholders
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2
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SECTION 4.
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STOCK SUBJECT TO PLAN
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2
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(a)
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Basic Limitation
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2
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(b)
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Additional Shares
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2
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SECTION 5.
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TERMS AND CONDITIONS OF AWARDS OR SALES
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2
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(a)
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Stock Grant or Purchase Agreement
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2
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(b)
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Duration of Offers and Nontransferability of Rights
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3
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(c)
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Purchase Price
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3
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(d)
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Vesting Criteria and Repurchase Option
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3
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(e)
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Leaves of Absence
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3
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(f)
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Rights as a Stockholder
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3
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SECTION 6.
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TERMS AND CONDITIONS OF RESTRICTED STOCK UNITS
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3
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(a)
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Restricted Stock Unit Agreement
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3
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(b)
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Vesting Criteria and Other Terms
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4
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(c)
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Leaves of Absence
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4
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(d)
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Form and Timing of Settlement
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4
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(e)
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Cancellation
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4
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(f)
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No Rights as a Stockholder
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4
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SECTION 7.
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TERMS AND CONDITIONS OF OPTIONS
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4
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(a)
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Stock Option Agreement
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4
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(b)
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Number of Shares
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4
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(c)
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Exercise Price
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5
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(d)
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Vesting and Exercisability
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5
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(e)
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Basic Term
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5
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(f)
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Termination of Service (Except by Death)
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5
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(g)
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Leaves of Absence
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5
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(h)
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Death of Optionee
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6
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(i)
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Pre-Exercise Restrictions on Transfer of Options or Shares
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6
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(j)
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No Rights as a Stockholder
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6
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(k)
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Modification, Extension and Assumption of Options
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6
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(l)
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Company’s Right to Cancel Certain Options
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7
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TABLE OF CONTENTS
(Continued)
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Page
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SECTION 8.
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PAYMENT FOR SHARES
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7
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(a)
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General Rule
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7
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(b)
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Services Rendered
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7
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(c)
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Promissory Note
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7
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(d)
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Surrender of Stock
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7
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(e)
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Exercise/Sale
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7
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(f)
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Net Exercise
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7
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(g)
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Other Forms of Payment
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8
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SECTION 9.
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ADJUSTMENT OF SHARES
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8
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(a)
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General
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8
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(b)
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Corporate Transactions
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8
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(c)
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Dissolution or Liquidation
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10
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(d)
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Reservation of Rights
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10
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SECTION 10.
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PRE-EXERCISE INFORMATION REQUIREMENT
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10
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(a)
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Application of Requirement
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10
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(b)
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Scope of Requirement
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10
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SECTION 11.
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MISCELLANEOUS PROVISIONS
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10
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(a)
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Securities Law Requirements
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10
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(b)
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No Retention Rights
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11
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(c)
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Treatment as Compensation
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11
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(d)
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Governing Law
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11
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(e)
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Conditions and Restrictions on Shares
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11
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(f)
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Tax Matters
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11
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SECTION 12.
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DURATION AND AMENDMENTS; STOCKHOLDER APPROVAL
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12
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(a)
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Term of the Plan
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12
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(b)
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Right to Amend or Terminate the Plan
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12
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(c)
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Effect of Amendment or Termination
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12
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(d)
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Stockholder Approval
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12
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SECTION 13.
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DEFINITIONS
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13
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JAND, INC. 2019 FOUNDER STOCK PLAN
SECTION 1. ESTABLISHMENT AND PURPOSE.
The primary purpose of this Plan is to offer persons selected by the Company an opportunity to acquire a proprietary interest in the success of the Company, or to increase such interest, by acquiring Shares of the Company’s Stock. The Plan provides both for the direct award or sale of Shares, for the grant of Restricted Stock Units and for the grant of Options to purchase Shares. Options granted under the Plan may be ISOs intended to qualify under Code Section 422 or Nonstatutory Options which are not intended to so qualify. For purposes of clarity, the amendment and restatement of the Plan set forth herein will apply only to Awards granted under the Plan on or after the date the Plan is restated by the Board.
Capitalized terms are defined in Section 13.
SECTION 2. ADMINISTRATION.
(a) Committees of the Board of Directors. The Plan may be administered by one or more Committees. Each Committee shall consist, as required by applicable law, of one or more members of the Board of Directors who have been appointed by the Board of Directors. Each Committee shall have such authority and be responsible for such functions as the Board of Directors has assigned to it. If no Committee has been appointed, the entire Board of Directors shall administer the Plan. Any reference to the Board of Directors in the Plan shall be construed as a reference to the Committee (if any) to whom the Board of Directors has assigned a particular function.
(b) Authority of the Board of Directors. Subject to the provisions of the Plan, the Board of Directors shall have full authority and discretion to take any actions it deems necessary or advisable for the administration of the Plan. Notwithstanding anything to the contrary in the Plan, with respect to the terms and conditions of awards granted to Participants outside the United States, the Board of Directors may vary from the provisions of the Plan to the extent it determines it necessary and appropriate to do so; provided that it may not vary from those Plan terms requiring stockholder approval pursuant to Section 12(d) below. All decisions, interpretations and other actions of the Board of Directors shall be final and binding on all Participants and all persons deriving their rights from a Participant. For purposes of clarity, the Board of Directors may delegate any authority it has under the Plan, and/or any Award granted pursuant to the Plan, to the maximum extent permitted under all applicable laws, regulations and rules.
SECTION 3. ELIGIBILITY.
(a) General Rule. Only Employees, Outside Directors and Consultants shall be eligible for the grant of Nonstatutory Options, the direct award or sale of Shares or the grant of Restricted Stock Units.1 Only Employees shall be eligible for the grant of ISOs.
1 Note that special considerations apply if the Company proposes to grant awards to an Employee or Consultant of a Parent company.
(b) Ten-Percent Stockholders. A person who owns more than 10% of the total combined voting power of all classes of outstanding stock of the Company, its Parent or any of its Subsidiaries shall not be eligible for the grant of an ISO unless (i) the Exercise Price is at least 110% of the Fair Market Value of a Share on the Date of Grant and (ii) such ISO by its terms is not exercisable after the expiration of five years from the Date of Grant. For purposes of this Subsection (b), in determining stock ownership, the attribution rules of Code Section 424(d) shall be applied.
SECTION 4. STOCK SUBJECT TO PLAN.
(a) Basic Limitation. Not more than 2,200,000 Shares may be issued under the Plan, subject to Subsection (b) below and Section 9(a). All of these Shares may be issued upon the exercise of ISOs. The number of Shares that are subject to Options or other rights outstanding at any time under the Plan may not exceed the number of Shares that then remain available for issuance under the Plan. Shares offered under the Plan may be authorized but unissued Shares or treasury Shares.
(b) Additional Shares. In the event that Shares previously issued under the Plan are reacquired by the Company pursuant to a forfeiture provision (including, without limitation, any forfeiture effected by the Company’s repurchase of any Shares at the original purchase price paid to the Company for the Shares or any lesser amount), such Shares shall be added to the number of Shares then available for issuance under the Plan. In the event that Shares that otherwise would have been issuable under the Plan are withheld by the Company in payment of the Purchase Price, Exercise Price or withholding taxes, such Shares shall remain available for issuance under the Plan. In the event that an outstanding Award for any reason expires or is canceled, the unissued Shares subject thereto shall be added to the number of Shares then available for issuance under the Plan. Notwithstanding the foregoing, in no event shall the maximum aggregate number of Shares that may be issued under the Plan pursuant to ISOs exceed the number set forth in the first sentence of Section 4(a) (as adjusted from time to time by the Board of Directors or pursuant to Section 9(a)) plus, to the extent allowable under Code Section 422 and the Treasury Regulations promulgated there under, any Shares that again become available for issuance pursuant to the remaining provisions of this Section 4.
SECTION 5. TERMS AND CONDITIONS OF AWARDS OR SALES.
(a) Stock Grant or Purchase Agreement. Each award of Shares under the Plan shall be evidenced by a Stock Grant Agreement between the Grantee and the Company. Each sale of Shares under the Plan (other than upon exercise of an Option) shall be evidenced by a Stock Purchase Agreement between the Purchaser and the Company. Such award or sale shall be subject to all applicable terms and conditions of the Plan and may be subject to any other terms and conditions which are not inconsistent with the Plan and which the Board of Directors deems appropriate for inclusion in a Stock Grant Agreement or Stock Purchase Agreement. The provisions of the various Stock Grant Agreements and Stock Purchase Agreements entered into under the Plan need not be identical.
(b) Duration of Offers and Nontransferability of Rights. Any right to purchase Shares under the Plan (other than an Option) shall automatically expire if not exercised
by the Purchaser within 30 days (or such other period as may be specified in the Award Agreement) after the grant of such right was communicated to the Purchaser by the Company. Such right is not transferable and may be exercised only by the Purchaser to whom such right was granted.
(c) Purchase Price. The Board of Directors shall determine the Purchase Price of Shares to be offered under the Plan at its sole discretion. The Purchase Price shall be payable in a form described in Section 8.
(d) Vesting Criteria and Repurchase Option. The Board of Directors will set vesting criteria applicable to Shares awarded or purchased under the Plan in its discretion. The Board of Directors may set vesting criteria based upon service or the achievement of Company-wide, business unit, or individual goals (including, but not limited to, continued employment), or any other basis determined by the Board of Directors in its discretion. Unless the Board of Directors determines otherwise, the Company shall have a repurchase option on any Shares purchased under the Plan exercisable upon the voluntary or involuntary termination of the Grantee’s Service for any reason (including death or Disability) at a purchase price for the Shares equal to the original purchase price paid by Grantee to the Company for such Shares and may be paid by cancellation of indebtedness of the Grantee to the Company or by any other method deemed appropriate by the Board of Directors. The repurchase option shall generally lapse as the Shares vest as determined by the Board of Directors.
(e) Leaves of Absence. Service shall be deemed to continue while the Grantee or Purchaser is on a bona fide leave of absence, if such leave was approved by the Company in writing and if continued crediting of Service for this purpose is expressly required by the terms of such leave or by applicable law (as determined by the Company).
(f) Rights as a Stockholder. Once Shares are issued or purchased under the Plan, the Grantee shall have the rights equivalent to those of a holder of capital stock, and shall be a record holder when the Grantee’s purchase and/or issuance of the Shares is entered upon the records of the Company or a duly authorized transfer agent of the Company. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are purchased and/or issued, except as provided in Section 9 below.
SECTION 6. TERMS AND CONDITIONS OF RESTRICTED STOCK UNITS.
(a) Restricted Stock Unit Agreement. Each grant of Restricted Stock Units under the Plan shall be evidenced by a Restricted Stock Unit Agreement between the RSU Recipient and the Company. The Restricted Stock Unit shall be subject to all applicable terms and conditions of the Plan and may be subject to any other terms and conditions which are not inconsistent with the Plan and which the Board of Directors deems appropriate for inclusion in a Restricted Stock Unit Agreement. The provisions of the various Restricted Stock Unit Agreements entered into under the Plan need not be identical.
(b) Vesting Criteria and Other Terms. The Board of Directors will set vesting criteria applicable to each Award of Restricted Stock Units in its discretion, which, depending on the extent to which the criteria are met, will determine the number of Restricted
Stock Units that will be settled and, if applicable, issued to the RSU Recipient. The Board of Directors may set vesting criteria based upon service or the achievement of Company-wide, business unit, or individual goals (including, but not limited to, continued employment), or any other basis determined by the Board of Directors in its discretion.
(c) Leaves of Absence. Service shall be deemed to continue while the RSU Recipient is on a bona fide leave of absence, if such leave was approved by the Company in writing and if continued crediting of Service for this purpose is expressly required by the terms of such leave or by applicable law (as determined by the Company).
(d) Form and Timing of Settlement. Settlement of earned Restricted Stock Units will be made upon the date(s) determined by the Board of Directors and may be subject to additional conditions, if any, each as set forth in the Restricted Stock Unit Agreement. The Board of Directors, in its sole discretion, may only settle earned Restricted Stock Units in cash, Shares, or a combination of both.
(e) Cancellation. On the date set forth in the Restricted Stock Unit Agreement, all unearned Restricted Stock Units will be forfeited to the Company.
(f) No Rights as a Stockholder. An RSU Recipient shall have no rights as a stockholder with respect to any Shares covered by the RSU Recipient’s Restricted Stock Unit until the Restricted Stock Unit is settled in Shares and such person is issued such Shares (as evidenced by appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). No adjustment will be made for a dividend or other right for which the record date is prior to the date Shares are issued pursuant to the Restricted Stock Unit, except as provided in Section 9 below.
SECTION 7. TERMS AND CONDITIONS OF OPTIONS.
(a) Stock Option Agreement. Each grant of an Option under the Plan shall be evidenced by a Stock Option Agreement between the Optionee and the Company. The Option shall be subject to all applicable terms and conditions of the Plan and may be subject to any other terms and conditions that are not inconsistent with the Plan and that the Board of Directors deems appropriate for inclusion in a Stock Option Agreement. The provisions of the various Stock Option Agreements entered into under the Plan need not be identical.
(b) Number of Shares. Each Stock Option Agreement shall specify the number of Shares that are subject to the Option and shall provide for the adjustment of such number in accordance with Section 9. The Stock Option Agreement shall also specify whether the Option is an ISO or a Nonstatutory Option.
(c) Exercise Price. Each Stock Option Agreement shall specify the Exercise Price. The Exercise Price of an Option shall be determined by the Board of Directors in its sole discretion and shall be set at any price subject to compliance with all applicable laws, regulations and rules, including Code Section 409A, and in the case of an ISO not less than 100% of the Fair Market Value of a Share on the Date of Grant or any higher percentage required by Section 3(b). The Exercise Price shall be payable in a form described in Section 8. This Subsection (c) shall
not apply to an Option granted pursuant to an assumption of, or substitution for, another option in a manner that complies with Code Section 424(a) (whether or not the Option is an ISO).
(d) Vesting and Exercisability. Each Stock Option Agreement shall specify the date when all or any installment of the Option is to vest and/or become exercisable. No Option shall be exercisable unless the Optionee (i) has delivered an executed copy of the Stock Option Agreement to the Company or (ii) otherwise agrees to be bound by the terms of the Stock Option Agreement. The Board of Directors shall determine the vesting and exercisability provisions of the Stock Option Agreement at its sole discretion.
(e) Basic Term. The Stock Option Agreement shall specify the term of the Option. The term shall not exceed 10 years from the Date of Grant, and in the case of an ISO, a shorter term may be required by Section 3(b). Subject to the preceding sentence, the Board of Directors at its sole discretion shall determine when an Option is to expire.
(f) Termination of Service (Except by Death). If an Optionee’s Service terminates for any reason other than the Optionee’s death, then the Optionee’s Options shall expire on the earliest of the following dates:
(i) The expiration date determined pursuant to Subsection (e) above;
(ii) The date three months after the termination of the Optionee’s Service for any reason other than Disability, or such earlier or later date as the Board of Directors may determine (but in no event earlier than 30 days after the termination of the Optionee’s Service); or
(iii) The date six months after the termination of the Optionee’s Service by reason of Disability, or such later date as the Board of Directors may determine.
The Optionee may exercise all or part of Optionee’s vested and exercisable Options at any time before the expiration of such Options under the preceding sentence. In the event that the Optionee dies after the termination of the Optionee’s Service but before the expiration of the Optionee’s Options, all or part of Optionee’s vested and exercisable Options may be exercised (prior to expiration) by the executors or administrators of the Optionee’s estate or by any person who has acquired such Options directly from the Optionee by beneficiary designation, bequest or inheritance.
(g) Leaves of Absence. For purposes of Subsection (f) above, Service shall be deemed to continue while the Optionee is on a bona fide leave of absence, if such leave was approved by the Company in writing and if continued crediting of Service for this purpose is expressly required by the terms of such leave or by applicable law (as determined by the Company).
(h) Death of Optionee. If an Optionee dies while the Optionee is in Service, then the Optionee’s Options shall expire on the earlier of the following dates:
(i) The expiration date determined pursuant to Subsection (e) above; or
(ii) The date 12 months after the Optionee’s death, or such earlier or later date as the Board of Directors may determine (but in no event earlier than six months after the Optionee’s death).
All or part of Optionee’s vested and exercisable Options may be exercised at any time before the expiration of such Options under the preceding sentence by the executors or administrators of the Optionee’s estate or by any person who has acquired such Options directly from the Optionee by beneficiary designation, bequest or inheritance.
(i) Pre-Exercise Restrictions on Transfer of Options or Shares. An Option shall be transferable by the Optionee only by (i) a beneficiary designation, (ii) a will or (iii) the laws of descent and distribution, except as provided in the next sentence. If the applicable Stock Option Agreement so provides, a Nonstatutory Option shall also be transferable by gift or domestic relations order to a Family Member of the Optionee. An ISO may be exercised during the lifetime of the Optionee only by the Optionee or by the Optionee’s guardian or legal representative. In addition, an Option shall comply with all conditions of Rule 12h-1(f)(1) under the Exchange Act until the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act. Such conditions include, without limitation, the transferability restrictions set forth in Rule 12h-1(f)(1)(iv) and (v) under the Exchange Act, which shall apply to an Option and, prior to exercise, to the Shares to be issued upon exercise of such Option during the period commencing on the Date of Grant and ending on the earlier of (i) the date when the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act or (ii) the date when the Company makes a determination that it will cease to rely on the exemption afforded by Rule 12h-1(f)(1) under the Exchange Act. During such period, an Option and, prior to exercise, the Shares to be issued upon exercise of such Option shall be restricted as to any pledge, hypothecation or other transfer by the Optionee, including any short position, any “put equivalent position” (as defined in Rule 16a-1(h) under the Exchange Act) or any “call equivalent position” (as defined in Rule 16a-1(b) under the Exchange Act).
(j) No Rights as a Stockholder. An Optionee, or a transferee of an Optionee, shall have no rights as a stockholder with respect to any Shares covered by the Optionee’s Option until Shares are issued upon exercise of such Option (as evidenced by appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). No adjustment will be made for a dividend or other right for which the record date is prior to the date Shares are issued pursuant to the Option, except as provided in Section 9 below.
(k) Modification, Extension and Assumption of Options. Within the limitations of the Plan, the Board of Directors may modify, extend or assume outstanding Options or may accept the cancellation of outstanding Options (whether granted by the Company or another issuer) in return for the grant of new Options or a different type of award for the same or a different number of Shares and at the same or a different Exercise Price (if applicable) without the consent of the Company’s stockholders. The foregoing notwithstanding, no modification of an Option shall, without the consent of the Optionee, impair the Optionee’s rights or increase the Optionee’s obligations under such Option.
(l) Company’s Right to Cancel Certain Options. Any other provision of the Plan or a Stock Option Agreement notwithstanding, the Company shall have the right at any time to cancel an Option that was not granted in compliance with Rule 701 under the Securities Act. Prior to canceling such Option, the Company shall give the Optionee not less than 30 days’ notice in writing. If the Company elects to cancel such Option, it shall deliver to the Optionee consideration with an aggregate Fair Market Value equal to the excess of (i) the Fair Market Value of the vested and exercisable Shares subject to such Option as of the time of the cancellation over (ii) the Exercise Price of such Option. The consideration may be delivered in the form of cash or cash equivalents, in the form of Shares, or a combination of both. If the consideration would be a negative amount, such Option may be cancelled without the delivery of any consideration.
SECTION 8. PAYMENT FOR SHARES.
(a) General Rule. The entire Purchase Price or Exercise Price of Shares issued under the Plan shall be payable in cash or cash equivalents at the time when such Shares are purchased, except as otherwise provided in this Section 7. In addition, the Board of Directors in its sole discretion may also permit payment through any of the methods described in (b) through (g) below:
(b) Services Rendered. Shares may be awarded under the Plan in consideration of services rendered to the Company, a Parent or a Subsidiary prior to the award.
(c) Promissory Note. All or a portion of the Purchase Price or Exercise Price (as the case may be) of Shares issued under the Plan may be paid with a promissory note on such terms, including, without limitation, the term, interest rate, amortization requirements (if any) and other provisions of such note, as determined in the Board of Director’s sole discretion.
(d) Surrender of Stock. All or any part of the Purchase Price or Exercise Price may be paid by surrendering, or attesting to the ownership of, shares of Company stock that are already owned by the Participant. Such shares shall be surrendered to the Company in good form for transfer and shall be valued at their Fair Market Value as of the date when shares are purchased or the Option is exercised.
(e) Exercise/Sale. All or any part of the Exercise Price may be paid by the delivery (on a form prescribed by the Company) of an irrevocable direction to a securities broker or other party approved by the Company to sell Shares and to deliver all or part of the sales proceeds to the Company.
(f) Net Exercise. All or any part of the Exercise Price may be paid through a “net exercise” arrangement pursuant to which the Company will reduce the number of Shares issued upon exercise by the largest whole number of Shares having an aggregate Fair Market Value (determined by the Board of Directors as of the exercise date) that does not exceed the aggregate Exercise Price (with the Company accepting from the Optionee payment of cash or cash equivalents to satisfy any remaining balance of the aggregate Exercise Price); provided that to the extent Shares subject to an Option are withheld in this manner, the number of Shares
subject to the Option following the net exercise will be reduced by the sum of the number of Shares withheld and the number of Shares delivered to the Optionee as a result of the exercise.
(g) Other Forms of Payment. The Purchase Price or Exercise Price of Shares issued under the Plan may be paid in any other form of consideration determined to be appropriate in the Board of Directors sole discretion and permitted by all applicable laws, regulations and rules.
SECTION 9. ADJUSTMENT OF SHARES.
(a) General. In the event of a subdivision of the outstanding Stock, a declaration of a dividend payable in Shares, a combination or consolidation of the outstanding Stock into a lesser number of Shares, a reclassification, or any other increase or decrease in the number of issued shares of Stock effected without receipt of consideration by the Company, proportionate adjustments shall automatically be made in each of (i) the number and kind of Shares available for future grants under Section 4, (ii) the number and kind of Shares covered by each outstanding Option, any outstanding and unexercised right to purchase Shares that has not yet expired pursuant to Section 5(b) and any outstanding Restricted Stock Units, (iii) the Exercise Price under each outstanding Option and the Purchase Price applicable to any unexercised stock purchase right described in clause (ii) above, and (iv) any repurchase price that applies to Shares granted under the Plan pursuant to the terms of a Company repurchase right under the applicable Award Agreement. In the event of a declaration of an extraordinary dividend payable in a form other than Shares in an amount that has a material effect on the Fair Market Value of the Stock, a recapitalization, a spin-off, or a similar occurrence, the Board of Directors at its sole discretion may make appropriate adjustments in one or more of the items listed in clauses (i) through (iv) above; provided, however, that the Board of Directors shall in any event make such adjustments as may be required by Section 25102(o) of the California Corporations Code, as applicable. No fractional Shares shall be issued under the Plan as a result of an adjustment under this Section 9(a), although the Board of Directors in its sole discretion may make a cash payment in lieu of fractional Shares.
(b) Corporate Transactions. In the event of (i) a sale or transfer of all or substantially all of the Company’s stock or assets, (ii) a merger, consolidation or other capital reorganization or business combination transaction of the Company with or into another corporation, entity or person, or (iii) the consummation of a transaction, or series of related transactions, in which any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of more than 50% of the Company’s then outstanding capital stock all Shares acquired under the Plan prior to the effective date of the transaction, and all Awards outstanding on the effective date of the transaction, shall be treated in the manner described in the definitive transaction agreement (or, in the event the transaction does not entail a definitive agreement to which the Company is party, in the manner determined by the Board of Directors in its capacity as administrator of the Plan, with such determination having final and binding effect on all parties), which agreement or determination need not treat all Shares or Awards (or all portions of an Award) in an identical manner. The treatment specified in the transaction
agreement may include (without limitation) one or more of the following with respect to each outstanding Award:
(i) Continuation of the Award by the Company (if the Company is the surviving corporation).
(ii) Assumption of the Award by the surviving corporation or its parent.
(iii) Substitution by the surviving corporation or its parent of a new option or equity awards for the Award.
(iv) Cancellation of the Award and a payment to the Participant with respect to each Share subject to the portion of the Award that is vested as of the transaction date equal to the excess of (A) the value, as determined by the Board of Directors in its absolute discretion, of the property (including cash) received by the holder of a share of Stock as a result of the transaction, over (B) (i) in the case of an Option, the per-Share Exercise Price of the Option or (ii) in the case of a Restricted Stock Unit, zero (in each case (i) and (ii), such excess, the “Spread”). Such payment shall be made in the form of cash, cash equivalents, or securities of the surviving corporation or its parent having a value equal to the Spread. In addition, any escrow, holdback, earn-out or similar provisions in the transaction agreement may apply to such payment to the same extent and in the same manner as such provisions apply to the holders of Stock. If the Spread applicable to an Award is zero or a negative number, then the Award may be cancelled without making a payment to the Participant.
(v) The repurchase of Shares subject to a repurchase option at the original purchase price paid for the Shares (as adjusted pursuant to Section 9, as applicable).
(vi) Cancellation of the Award without the payment of any consideration; provided that the Participant shall be notified of such treatment and, if an Option will be cancelled, the Participant shall be given an opportunity to exercise the Option (to the extent the Option is vested or becomes vested as of the effective date of the transaction) during a period of not less than five (5) business days preceding the effective date of the transaction, unless (A) a shorter period is required to permit a timely closing of the transaction and (B) such shorter period still offers the Participant a reasonable opportunity to exercise the Option. Any exercise of the Option during such period may be contingent upon the closing of the transaction.
(vii) Suspension of the Optionee’s right to exercise the Option during a limited period of time preceding the closing of the transaction if such suspension is administratively necessary to permit the closing of the transaction.
(viii) Termination of any right the Optionee has to exercise the Option prior to vesting in the Shares subject to the Option (i.e., “early exercise”), such that following the closing of the transaction the Option may only be exercised to the extent it is vested.
For the avoidance of doubt, the Board of Directors has discretion to accelerate, in whole or part, the vesting, exercisability and settlement of an Award in connection with a corporate transaction covered by this Section 9(b).
(c) Dissolution or Liquidation. In the event of the dissolution or liquidation of the Company, each Award will terminate immediately prior to the consummation of such action, unless otherwise determined by the Board of Directors.
(d) Reservation of Rights. Except as provided in this Section 9, a Participant shall have no rights by reason of (i) any subdivision or consolidation of shares of stock of any class, (ii) the payment of any dividend or (iii) any other increase or decrease in the number of shares of stock of any class. Any issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number of Shares subject to a Restricted Stock Unit or number or Exercise Price of Shares subject to an Option. The grant of a Restricted Stock Unit or an Option pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure, to merge or consolidate or to dissolve, liquidate, sell or transfer all or any part of its business or assets.
SECTION 10. PRE-EXERCISE INFORMATION REQUIREMENT.
(a) Application of Requirement. This Section 10 shall apply only during a period that (i) commences when the Company begins to rely on the exemption described in Rule 12h-1(f)(1) under the Exchange Act, as determined by the Company in its sole discretion, and (ii) ends on the earlier of (A) the date when the Company ceases to rely on such exemption, as determined by the Company in its sole discretion, or (B) the date when the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act. In addition, this Section 10 shall in no event apply to an Optionee after he or she has fully exercised all of his or her Options.
(b) Scope of Requirement. The Company shall provide to each Optionee the information described in Rule 701(e)(3), (4) and (5) under the Securities Act. Such information shall be provided at six-month intervals, and the financial statements included in such information shall not be more than 180 days old. The foregoing notwithstanding, the Company shall not be required to provide such information unless the Optionee has agreed in writing, on a form prescribed by the Company, to keep such information confidential.
SECTION 11. MISCELLANEOUS PROVISIONS.
(a) Securities Law Requirements. Shares shall not be issued under the Plan unless, in the opinion of counsel acceptable to the Board of Directors, the issuance and delivery of such Shares comply with (or are exempt from) all applicable laws, regulations and rules, including (without limitation) the Securities Act, the rules and regulations promulgated thereunder, state securities laws and regulations, and the regulations of any stock exchange or other securities market on which the Company’s securities may then be traded. The Company shall not be liable for a failure to issue Shares as a result of such requirements.
(b) No Retention Rights. Nothing in the Plan or in any Award granted under the Plan shall confer upon the Participant any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Company (or any Parent or Subsidiary employing or retaining the Participant) or of the Participant, which rights are hereby expressly reserved by each, to terminate his or her Service at any time and for any reason, with or without cause.
(c) Treatment as Compensation. Any compensation that an individual earns or is deemed to earn under this Plan shall not be considered a part of his or her compensation for purposes of calculating contributions, accruals or benefits under any other plan or program that is maintained or funded by the Company, a Parent or a Subsidiary.
(d) Governing Law. The Plan and all Awards under the Plan shall be governed by, and construed in accordance with, the laws of the State of Delaware, as such laws are applied to contracts entered into and performed in such State.
(e) Conditions and Restrictions on Shares. Shares issued under the Plan shall be subject to such forfeiture conditions, rights of repurchase, rights of first refusal, other transfer restrictions and such other terms and conditions as the Board of Directors may determine. Such conditions and restrictions shall be set forth in the applicable Award Agreement and shall apply in addition to any restrictions that may apply to holders of Shares generally. In addition, Shares issued under the Plan shall be subject to conditions and restrictions imposed either by applicable laws, regulations or rules, or by Company policy, as adopted from time to time, designed to ensure compliance with applicable laws, regulations or rules with which the Company determines in its sole discretion to comply including in order to maintain any statutory, regulatory or tax advantage.
(f) Tax Matters.
(i) As a condition to the award, grant, issuance, vesting, purchase, exercise, settlement or transfer of any Award, or Shares issued pursuant to any Award granted under this Plan, the Participant shall make such arrangements as the Company may require or permit for the satisfaction of any U.S. federal, state, local or non-U.S. withholding tax obligations, and any other required deductions or payments, that may arise in connection with such Award or event.
(ii) Unless otherwise expressly set forth in an Award Agreement, it is intended that Awards granted under the Plan shall be exempt from Code Section 409A, and any ambiguity in the terms of an Award Agreement and the Plan shall be interpreted consistently with this intent. To the extent an Award is not exempt from Code Section 409A (any such award, a “409A Award”), any ambiguity in the terms of such Award and the Plan shall be interpreted in a manner that to the maximum extent permissible supports the award’s compliance with the requirements of that statute. Notwithstanding anything to the contrary permitted under the Plan, in no event shall a modification of an Award not already subject to Code Section 409A be given effect if such modification would cause the Award to become subject to Code Section 409A unless the parties explicitly acknowledge and consent to the modification as one having
that effect. A 409A Award shall be subject to such additional rules and requirements as specified by the Board of Directors from time to time in order for it to comply with the requirements of Code Section 409A. In this regard, if any amount under a 409A Award is payable upon a “separation from service” to an individual who is considered a “specified employee” (as each term is defined under Code Section 409A), then no such payment shall be made prior to the date that is the earlier of (i) six months and one day after the Participant’s separation from service or (ii) the Participant’s death, but only to the extent such delay is necessary to prevent such payment from being subject to Section 409A(a)(1). In addition, if a transaction subject to Section 9(b) constitutes a payment event with respect to any 409A Award, then the transaction with respect to such award must also constitute a “change in control event” as defined in Treasury Regulation Section 1.409A-3(i)(5) to the extent required by Code Section 409A.
(iii) Neither the Company nor any member of the Board of Directors shall have any liability to a Participant in the event an Award held by the Participant fails to achieve its intended characterization under applicable tax law.
SECTION 12. DURATION AND AMENDMENTS; STOCKHOLDER APPROVAL.
(a) Term of the Plan. The Plan, as set forth herein, shall become effective on the date of its adoption by the Board of Directors, subject to approval of the Company’s stockholders under Subsection (d) below. The Plan shall terminate automatically 10 years after the later of (i) the date when the Board of Directors adopted the Plan or (ii) the date when the Board of Directors approved the most recent increase in the number of Shares reserved under Section 4 that was also approved by the Company’s stockholders. The Plan may be terminated on any earlier date pursuant to Subsection (b) below.
(b) Right to Amend or Terminate the Plan. Subject to Subsection (d) below, the Board of Directors may amend, suspend or terminate the Plan at any time and for any reason.
(c) Effect of Amendment or Termination. No Shares shall be issued or sold and no Awards granted under the Plan after the termination thereof, except upon settlement of any Restricted Stock Units or exercise of an Option (or any other right to purchase Shares) granted under the Plan prior to such termination. The termination of the Plan, or any amendment thereof, shall not affect any Share previously issued, any Option previously granted under the Plan.
(d) Stockholder Approval. To the extent required by applicable laws, regulations or rules, the Plan will be subject to approval of the Company’s stockholders within 12 months of its adoption date. To the extent required by applicable laws, regulations or rules, any amendment of the Plan will be subject to the approval of the Company’s stockholders within 12 months of the amendment date if it (i) increases the number of Shares available for issuance under the Plan (except as provided in Section 9), or (ii) materially changes the class of persons who are eligible for the grant of ISOs or other Awards. In addition, an amendment effecting any other material change to the Plan terms will be subject to approval of the Company’s
stockholders only if required by applicable laws, regulations or rules. Stockholder approval shall not be required for any other amendment of the Plan.
SECTION 13. DEFINITIONS.
“Award” means ay award or sale of Shares, Option or Restricted Stock Unit under the Plan.
“Award Agreement” means a Restricted Stock Unit Agreement, Stock Grant Agreement, Stock Option Agreement or Stock Purchase Agreement.
“Board of Directors” means the Board of Directors of the Company, as constituted from time to time.
“Code” means the Internal Revenue Code of 1986, as amended.
“Committee” means a committee of the Board of Directors, as described in Section 2(a).
“Company” means JAND, Inc., a Delaware corporation.
“Consultant” means a person or entity, excluding Employees and Outside Directors, that performs or has performed bona fide services for the Company, a Parent or a Subsidiary as a consultant or advisor and is compensated for such services.
“Date of Grant” means the effective date of grant of an Option.
“Disability” means that the Optionee is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment.
“Employee” means any individual who is a common-law employee of the Company, a Parent or a Subsidiary.
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
“Exercise Price” means the amount for which one Share may be purchased upon exercise of an Option, as specified by the Board of Directors in the applicable Stock Option Agreement.
“Fair Market Value” means the fair market value of a Share, as determined by the Board of Directors in good faith. Such determination shall be conclusive and binding on all persons.
“Family Member” means (i) any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law, including adoptive relationships, (ii) any person sharing the Participant’s household (other than a tenant or employee), (iii) a trust in which persons described in Clause (i) or (ii) have more than 50% of the beneficial interest, (iv) a foundation in which persons described in Clause (i) or (ii) or the Participant control the
management of assets and (v) any other entity in which persons described in Clause (i) or (ii) or the Participant own more than 50% of the voting interests.
“Grantee” means a person to whom the Board of Directors has awarded Shares under the Plan.
“ISO” means an Option that qualifies as an incentive stock option as described in Code Section 422(b). Notwithstanding its designation as an ISO, an Option that does not qualify as an ISO under applicable law shall be treated for all purposes as a Nonstatutory Option.
“Nonstatutory Option” means an Option that does not qualify as an incentive stock option as described in Code Section 422(b) or 423(b).
“Option” means an ISO or Nonstatutory Option granted under the Plan and entitling the holder to purchase Shares.
“Optionee” means a person who holds an Option.
“Outside Director” means a member of the Board of Directors who is not an Employee.
“Parent” means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if each of the corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A corporation that attains the status of a Parent on a date after the adoption of the Plan shall be considered a Parent commencing as of such date.
“Participant” means a Grantee, Optionee, Purchaser or RSU Recipient.
“Plan” means this JAND, Inc. 2019 Founder Stock Plan.
“Purchase Price” means the consideration for which one Share may be acquired under the Plan (other than upon exercise of an Option), as specified by the Board of Directors.
“Purchaser” means a person to whom the Board of Directors has offered the right to purchase Shares under the Plan (other than upon exercise of an Option).
“Restricted Stock Unit” means a bookkeeping entry representing an amount equal to the Fair Market Value of one Share. Each Restricted Stock Unit represents an unfunded and unsecured obligation of the Company.
“Restricted Stock Unit Agreement” means the agreement between the Company and an RSU Recipient that contains the terms, conditions and restrictions pertaining to the RSU Recipient’s Restricted Stock Unit.
“RSU Recipient” means a person who holds a Restricted Stock Unit.
“Securities Act” means the Securities Act of 1933, as amended.
“Service” means service as an Employee, Outside Director or Consultant.
“Share” means one share of Stock, as adjusted in accordance with Section 9 (if applicable).
“Stock” means the Series A Common Stock of the Company.
“Stock Grant Agreement” means the agreement between the Company and a Grantee who is awarded Shares under the Plan that contains the terms, conditions and restrictions pertaining to the award of such Shares.
“Stock Option Agreement” means the agreement between the Company and an Optionee that contains the terms, conditions and restrictions pertaining to the Optionee’s Option.
“Stock Purchase Agreement” means the agreement between the Company and a Purchaser who purchases Shares under the Plan that contains the terms, conditions and restrictions pertaining to the purchase of such Shares.
“Subsidiary” means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A corporation that attains the status of a Subsidiary on a date after the adoption of the Plan shall be considered a Subsidiary commencing as of such date.
WARBY PARKER INC. 2019 FOUNDER STOCK PLAN
NOTICE OF STOCK PURCHASE RIGHT GRANT
The Grantee has been granted the following right to purchase (the “Stock Purchase Right”) shares of the Series A Common Stock of Warby Parker Inc. (f/k/a JAND, Inc., the “Company” and such stock, the “Common Stock”):
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Name of Grantee:
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See Carta
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Total Number of Shares:
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See Carta
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Purchase Price per Share:
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See Carta
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Date of Grant:
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See Carta
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Vesting Schedule:
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The Stock Purchase Right and any Common Stock purchased upon exercise thereof is fully vested as of the Date of Grant.
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Expiration Date:
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90 days following the Date of Grant.
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By signing below, the Grantee and the Company agree that this Stock Purchase Right is granted under, and governed by the terms and conditions of, the Company’s 2019 Founder Stock Plan, as amended (the “Plan”) and the Stock Purchase Right Agreement. Both of these documents are attached to, and made a part of, this Notice of Stock Purchase Right Grant. Section 13 of the Stock Purchase Right Agreement includes important acknowledgements of the Grantee.
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GRANTEE:
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WARBY PARKER INC.
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By:
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Title:
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THE STOCK PURCHASE RIGHT GRANTED PURSUANT TO THIS AGREEMENT AND THE SHARES ISSUABLE UPON THE EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
WARBY PARKER INC. 2019 FOUNDER STOCK PLAN:
STOCK PURCHASE RIGHT AGREEMENT
SECTION 1. GRANT OF STOCK PURCHASE RIGHT.
(a) Stock Purchase Right. On the terms and conditions set forth in the Warby Parker Inc. (the “Company”) 2019 Founder Stock Plan, as amended (the “Plan”), the Notice of Stock Purchase Right Grant (the “Notice”) and this Stock Purchase Right Agreement (this “Agreement”), the Company grants to the Grantee on the Date of Grant the right to purchase (the “Stock Purchase Right”) at the Purchase Price Per Share (the “Purchase Price”) set forth in the Notice the number of shares of the Company’s Series A Common Stock (the “Shares”) set forth in the Notice.
(b) Stock Plan and Defined Terms. This Stock Purchase Right is granted pursuant to the Plan, a copy of which the Grantee acknowledges having received. The provisions of the Plan are incorporated into this Agreement by this reference. Capitalized terms are defined in Section 14 of this Agreement.
SECTION 2. RIGHT TO EXERCISE.
Subject to the conditions set forth in this Agreement, all or part of this Stock Purchase Right may be exercised at any time prior to its expiration, as set forth in the Notice.
SECTION 3. NO TRANSFER OR ASSIGNMENT OF STOCK PURCHASE RIGHT.
Except as otherwise provided in this Agreement, this Stock Purchase Right and the rights and privileges conferred hereby shall not be sold, pledged or otherwise transferred (whether by operation of law or otherwise) and shall not be subject to sale under execution, attachment, levy or similar process. Notwithstanding the foregoing, this Stock Purchase Right may be transferred to one or more members of the Grantee’s Immediate Family or to a trust established by the Grantee for the benefit of the Grantee and/or one or more members of the Grantee’s Immediate Family, provided in either case that the Transferee agrees in writing on a form prescribed by the Company to be bound by all provisions of this Agreement.
SECTION 4. EXERCISE PROCEDURES.
(a) Notice of Exercise. The Grantee or the Grantee’s representative may exercise this Stock Purchase Right by giving written notice to the Company pursuant to Section 12(c). The notice shall specify the election to exercise this Stock Purchase Right, the number of Shares for which it is being exercised and the form of payment. The person exercising this Stock
Purchase Right shall sign the notice. In the event that this Stock Purchase Right is being exercised by the representative of the Grantee, the notice shall be accompanied by proof (satisfactory to the Company) of the representative’s right to exercise this Stock Purchase Right. The Grantee or the Grantee’s representative shall deliver to the Company, at the time of giving the notice, payment in a form permissible under Section 5 for the full amount of the aggregate Purchase Price.
(b) Issuance of Shares. After receiving a proper notice of exercise, the Company shall cause to be issued one or more certificates evidencing the Shares for which this Stock Purchase Right has been exercised. Such Shares shall be registered (i) in the name of the person exercising this Stock Purchase Right, (ii) in the names of such person and his or her spouse as community property or as joint tenants with the right of survivorship or (iii) with the Company’s consent, in the name of a revocable trust. The Company shall cause such certificates to be delivered to or upon the order of the person exercising this Stock Purchase Right.
(c) Withholding Taxes. In the event that the Company determines that it is required to withhold any tax as a result of the exercise of this Stock Purchase Right, the Grantee, as a condition to the exercise of this Stock Purchase Right, shall make arrangements satisfactory to the Company to enable it to satisfy all withholding requirements.
SECTION 5. PAYMENT FOR STOCK.
All or part of the Purchase Price may be paid in cash or cash equivalents.
SECTION 6. TERM AND EXPIRATION.
This Stock Purchase Right shall expire on the expiration date set forth in the Notice of Stock Purchase Right Grant. The Grantee may exercise all or part of this Stock Purchase Right at any time before its expiration under the preceding sentence
SECTION 7. RIGHT OF FIRST REFUSAL.
(a) Right of First Refusal. Subject to Section 10(a) below, in the event that the Grantee proposes to sell, pledge or otherwise transfer to a third party any Shares acquired under this Agreement, or any interest in such Shares, the Company shall have the Right of First Refusal with respect to all (and not less than all) of such Shares. If the Grantee desires to transfer Shares acquired under this Agreement, the Grantee shall give a written Transfer Notice to the Company describing fully the proposed transfer, including the number of Shares proposed to be transferred, the proposed transfer price, the name and address of the proposed Transferee and proof satisfactory to the Company that the proposed sale or transfer will not violate any applicable federal, State or foreign securities laws. The Transfer Notice shall be signed both by the Grantee and by the proposed Transferee and must constitute a binding commitment of both parties to the transfer of the Shares. The Company shall have the right to purchase all, and not less than all, of the Shares on the terms of the proposal described in the Transfer Notice (subject, however, to any change in such terms permitted under Subsection (b) below) by delivery of a notice of exercise of the Right of First Refusal within 30 days after the date when the Transfer Notice was received by the Company.
(b) Transfer of Shares. If the Company fails to exercise its Right of First Refusal within 30 days after the date when it received the Transfer Notice, the Grantee may, not later than 90 days following receipt of the Transfer Notice by the Company, conclude a transfer of the Shares subject to the Transfer Notice on the terms and conditions described in the Transfer Notice, provided that any such sale is made in compliance with applicable federal, State and foreign securities laws and not in violation of any other contractual restrictions to which the Grantee is bound. Any proposed transfer on terms and conditions different from those described in the Transfer Notice, as well as any subsequent proposed transfer by the Grantee, shall again be subject to the Right of First Refusal and shall require compliance with the procedure described in Subsection (a) above. If the Company exercises its Right of First Refusal, the parties shall consummate the sale of the Shares on the terms set forth in the Transfer Notice within 60 days after the date when the Company received the Transfer Notice (or within such longer period as may have been specified in the Transfer Notice); provided, however, that in the event the Transfer Notice provided that payment for the Shares was to be made in a form other than cash or cash equivalents paid at the time of transfer, the Company shall have the option of paying for the Shares with cash or cash equivalents equal to the present value of the consideration described in the Transfer Notice.
(c) Additional or Exchanged Securities and Property. In the event of a merger or consolidation of the Company, a sale of all or substantially all of the Company’s stock or assets, any other corporate reorganization, a stock split, the declaration of a stock dividend, the declaration of an extraordinary dividend payable in a form other than stock, a spin-off, an adjustment in conversion ratio, a recapitalization or a similar transaction affecting the Company’s outstanding securities, any securities or other property (including cash or cash equivalents) that are by reason of such transaction exchanged for, or distributed with respect to, any Shares subject to this Section 7 shall immediately be subject to the Right of First Refusal. Appropriate adjustments to reflect the exchange or distribution of such securities or property shall be made to the number and/or class of the Shares subject to this Section 7.
(d) Termination of Right of First Refusal. Any other provision of this Section 7 notwithstanding, in the event that the Stock is readily tradable on an established securities market when the Grantee desires to transfer Shares, the Company shall have no Right of First Refusal, and the Grantee shall have no obligation to comply with the procedures prescribed by Subsections (a) and (b) above.
(e) Permitted Transfers. This Section 7 shall not apply to (i) a transfer by beneficiary designation, will or intestate succession or (ii) a transfer to one or more members of the Grantee’s Immediate Family or to a trust established by the Grantee for the benefit of the Grantee and/or one or more members of the Grantee’s Immediate Family, provided in either case that the Transferee agrees in writing on a form prescribed by the Company to be bound by all provisions of this Agreement. If the Grantee transfers any Shares acquired under this Agreement, either under this Subsection (e) or after the Company has failed to exercise the Right of First Refusal, then this Agreement shall apply to the Transferee to the same extent as to the Grantee.
(f) Termination of Rights as Stockholder. If the Company makes available, at the time and place and in the amount and form provided in this Agreement, the consideration
for the Shares to be purchased in accordance with this Section 7, then after such time the person from whom such Shares are to be purchased shall no longer have any rights as a holder of such Shares (other than the right to receive payment of such consideration in accordance with this Agreement). Such Shares shall be deemed to have been purchased in accordance with the applicable provisions hereof, whether or not the certificate(s) therefor have been delivered as required by this Agreement.
(g) Assignment of Right of First Refusal. The Board of Directors may freely assign the Company’s Right of First Refusal, in whole or in part. Any person who accepts an assignment of the Right of First Refusal from the Company shall assume all of the Company’s rights and obligations under this Section 7.
SECTION 8. LEGALITY OF INITIAL ISSUANCE.
No Shares shall be issued upon the exercise of this Stock Purchase Right unless and until the Company has determined that:
(a) It and the Grantee have taken any actions required to register the Shares under the Securities Act or to perfect an exemption from the registration requirements thereof;
(b) Any applicable listing requirement of any stock exchange or other securities market on which Stock is listed has been satisfied; and
(c) Any other applicable provision of federal, State or foreign law has been satisfied.
SECTION 9. NO REGISTRATION RIGHTS.
The Company may, but shall not be obligated to, register or qualify the sale of Shares under the Securities Act or any other applicable law. The Company shall not be obligated to take any affirmative action in order to cause the sale of Shares under this Agreement to comply with any law.
SECTION 10. RESTRICTIONS ON TRANSFER OF SHARES.
(a) Bylaws Restrictions. The Shares acquired under this Agreement shall be subject to the transfer restrictions in Article X of the Company’s Bylaws, as amended in addition to, and not in limitation of, the provisions of Section 7 of this Agreement.
(b) Securities Law Restrictions. Regardless of whether the offering and sale of Shares under the Plan have been registered under the Securities Act or have been registered or qualified under the securities laws of any State, the Company at its discretion may impose restrictions upon the sale, pledge or other transfer of such Shares (including the placement of appropriate legends on stock certificates or the imposition of stop-transfer instructions) if, in the judgment of the Company, such restrictions are necessary or desirable in order to achieve compliance with the Securities Act, the securities laws of any State or any other law.
(c) Market Stand-Off. In connection with any underwritten public offering by the Company of its equity securities pursuant to an effective registration statement filed under
the Securities Act, including the Company’s initial public offering, the Grantee or a Transferee shall not directly or indirectly sell, make any short sale of, loan, hypothecate, pledge, offer, grant or sell any option or other contract for the purchase of, purchase any option or other contract for the sale of, or otherwise dispose of or transfer, or agree to engage in any of the foregoing transactions with respect to, any Shares acquired under this Agreement without the prior written consent of the Company or its managing underwriter. Such restriction (the “Market Stand-Off”) shall be in effect for such period of time following the date of the final prospectus for the offering as may be requested by the Company or such underwriter. In no event, however, shall such period exceed 180 days plus such additional period as may reasonably be requested by the Company or such underwriter to accommodate regulatory restrictions on (i) the publication or other distribution of research reports or (ii) analyst recommendations and opinions, including (without limitation) the restrictions set forth in Rule 2711(f)(4) of the National Association of Securities Dealers and Rule 472(f)(4) of the New York Stock Exchange, as amended, or any similar successor rules. The Market Stand-Off shall in any event terminate two years after the date of the Company’s initial public offering. In the event of the declaration of a stock dividend, a spin-off, a stock split, an adjustment in conversion ratio, a recapitalization or a similar transaction affecting the Company’s outstanding securities without receipt of consideration, any new, substituted or additional securities which are by reason of such transaction distributed with respect to any Shares subject to the Market Stand-Off, or into which such Shares thereby become convertible, shall immediately be subject to the Market Stand-Off. In order to enforce the Market Stand-Off, the Company may impose stop-transfer instructions with respect to the Shares acquired under this Agreement until the end of the applicable stand-off period. The Company’s underwriters shall be beneficiaries of the agreement set forth in this Subsection (c). This Subsection (c) shall not apply to Shares registered in the public offering under the Securities Act.
(d) Investment Intent at Grant. The Grantee represents and agrees that the Shares to be acquired upon exercising this Stock Purchase Right will be acquired for investment, and not with a view to the sale or distribution thereof.
(e) Investment Intent at Exercise. In the event that the sale of Shares under the Plan is not registered under the Securities Act but an exemption is available that requires an investment representation or other representation, the Grantee shall represent and agree at the time of exercise that the Shares being acquired upon exercising this Stock Purchase Right are being acquired for investment, and not with a view to the sale or distribution thereof, and shall make such other representations as are deemed necessary or appropriate by the Company and its counsel.
(f) Legends. All certificates evidencing Shares purchased under this Agreement shall bear the following legends:
“THE SHARES REPRESENTED HEREBY MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN COMPLIANCE WITH THE TERMS OF A WRITTEN AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED HOLDER OF THE SHARES (OR THE PREDECESSOR IN INTEREST TO THE SHARES). SUCH AGREEMENT GRANTS TO THE COMPANY
CERTAIN RIGHTS OF FIRST REFUSAL UPON AN ATTEMPTED TRANSFER OF THE SHARES AND CERTAIN REPURCHASE RIGHTS UPON TERMINATION OF SERVICE WITH THE COMPANY. THE SECRETARY OF THE COMPANY WILL UPON WRITTEN REQUEST FURNISH A COPY OF SUCH AGREEMENT TO THE HOLDER HEREOF WITHOUT CHARGE.”
“THE SHARES REPRESENTED HEREBY MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN COMPLIANCE WITH THE BYLAWS OF THE COMPANY. COPIES OF THE BYLAWS OF THE COMPANY MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY.”
All certificates evidencing Shares purchased under this Agreement in an unregistered transaction shall bear the following legend (and such other restrictive legends as are required or deemed advisable under the provisions of any applicable law):
“THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.”
(g) Removal of Legends. If, in the opinion of the Company and its counsel, any legend placed on a stock certificate representing Shares sold under this Agreement is no longer required, the holder of such certificate shall be entitled to exchange such certificate for a certificate representing the same number of Shares but without such legend.
(h) Administration. Any determination by the Company and its counsel in connection with any of the matters set forth in this Section 10 shall be conclusive and binding on the Grantee and all other persons.
SECTION 11. ADJUSTMENT OF SHARES.
In the event of any transaction described in Section 7(a) of the Plan, the terms of this Stock Purchase Right (including, without limitation, the number and kind of Shares subject to this Stock Purchase Right and the Purchase Price) shall be adjusted as set forth in Section 7(a) of the Plan. In the event that the Company is a party to a merger or consolidation or in the event of a sale of all or substantially all of the Company’s stock or assets, this Stock Purchase Right shall be subject to the treatment provided by the Board of Directors in its sole discretion, as provided in Section 7(b) of the Plan.
SECTION 12. MISCELLANEOUS PROVISIONS.
(a) Rights as a Stockholder. Neither the Grantee nor the Grantee’s representative shall have any rights as a stockholder with respect to any Shares subject to this
Stock Purchase Right until the Grantee or the Grantee’s representative becomes entitled to receive such Shares by filing a notice of exercise and paying the Purchase Price pursuant to Sections 4 and 5.
(b) No Retention Rights. Nothing in this Stock Purchase Right or in the Plan shall confer upon the Grantee any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Company (or any Parent or Subsidiary employing or retaining the Grantee) or of the Grantee, which rights are hereby expressly reserved by each, to terminate his or her Service at any time and for any reason, with or without cause.
(c) Notice. Any notice required by the terms of this Agreement shall be given in writing. It shall be deemed effective upon (i) personal delivery, (ii) deposit with the United States Postal Service, by registered or certified mail, with postage and fees prepaid or (iii) deposit with Federal Express Corporation, with shipping charges prepaid. Notice shall be addressed to the Company at its principal executive office and to the Grantee at the address that he or she most recently provided to the Company in accordance with this Subsection (c).
(d) Modifications and Waivers. No provision of this Agreement shall be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by the Grantee and by an authorized officer of the Company (other than the Grantee). No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time.
(e) Entire Agreement. The Notice of Stock Purchase Right Grant, this Agreement and the Plan constitute the entire contract between the parties hereto with regard to the subject matter hereof. They supersede any other agreements, representations or understandings (whether oral or written and whether express or implied) that relate to the subject matter hereof.
(f) Choice of Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, as such laws are applied to contracts entered into and performed in such State.
SECTION 13. ACKNOWLEDGEMENTS OF THE GRANTEE.
(a) Tax Consequences. The Grantee agrees that the Company does not have a duty to design or administer the Plan or its other compensation programs in a manner that minimizes the Grantee’s tax liabilities. The Grantee shall not make any claim against the Company or its Board of Directors, officers or employees related to tax liabilities arising from this Stock Purchase Right or the Grantee’s other compensation. In particular, the Grantee acknowledges that since Shares are not traded on an established securities market, the determination of their Fair Market Value is made by the Board of Directors or by an independent valuation firm retained by the Company. The Grantee acknowledges that there is no guarantee in either case that the Internal Revenue Service will agree with the valuation, and the Grantee shall
not make any claim against the Company or its Board of Directors, officers or employees in the event that the Internal Revenue Service asserts that the valuation was too low.
(b) Electronic Delivery of Documents. The Grantee agrees to accept by email all documents relating to the Company, the Plan or this Stock Purchase Right and all other documents that the Company is required to deliver to its security holders (including, without limitation, disclosures that may be required by the Securities and Exchange Commission). The Grantee also agrees that the Company may deliver these documents by posting them on a website maintained by the Company or by a third party under contract with the Company. If the Company posts these documents on a website, it shall notify the Grantee by email of their availability. The Grantee acknowledges that he or she may incur costs in connection with electronic delivery, including the cost of accessing the internet and printing fees, and that an interruption of internet access may interfere with his or her ability to access the documents. This consent shall remain in effect until this Stock Purchase Right expires or until the Grantee gives the Company written notice that it should deliver paper documents.
SECTION 14. DEFINITIONS.
(a) “Agreement” shall mean this Stock Purchase Right Agreement.
(b) “Board of Directors” shall mean the Board of Directors of the Company, as constituted from time to time or, if a Committee has been appointed, such Committee.
(c) “Code” shall mean the Internal Revenue Code of 1986, as amended.
(d) “Committee” shall mean a committee of the Board of Directors, as described in Section 2 of the Plan.
(e) “Company” shall mean Warby Parker Inc., a Delaware corporation (f/k/a JAND, Inc.).
(f) “Consultant” shall mean a person, excluding Employees and Outside Directors, who performs bona fide services for the Company, a Parent or a Subsidiary as a consultant or advisor and who qualifies as a consultant or advisor under Rule 701(c)(1) of the Securities Act or under Instruction A.1.(a)(1) of Form S-8 under the Securities Act.
(g) “Date of Grant” shall mean the date of grant specified in the Notice of Stock Purchase Right Grant, which date shall be the later of (i) the date on which the Board of Directors resolved to grant this Stock Purchase Right or (ii) the first day of the Grantee’s Service.
(h) “Employee” shall mean any individual who is a common-law employee of the Company, a Parent or a Subsidiary.
(i) “Fair Market Value” shall mean the fair market value of a Share, as determined by the Board of Directors in good faith. Such determination shall be conclusive and binding on all persons.
(j) “Immediate Family” shall mean any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law and shall include adoptive relationships.
(k) “Notice of Stock Purchase Right Grant” shall mean the document so entitled to which this Agreement is attached.
(l) “Grantee” shall mean the person named in the Notice of Stock Purchase Right Grant.
(m) “Outside Director” shall mean a member of the Board of Directors who is not an Employee.
(n) “Parent” shall mean any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if each of the corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
(o) “Plan” shall mean the Warby Parker Inc. 2019 Founder Stock Plan, as amended and as in effect on the Date of Grant.
(p) “Purchase Price” shall mean the amount for which one Share may be purchased upon exercise of this Stock Purchase Right, as specified in the Notice of Stock Purchase Right Grant.
(q) “Right of First Refusal” shall mean the Company’s right of first refusal described in Section 7.
(r) “Securities Act” shall mean the Securities Act of 1933, as amended.
(s) “Service” shall mean service as an Employee, Outside Director or Consultant.
(t) “Share” shall mean one share of Stock, as adjusted in accordance with Section 8 of the Plan (if applicable).
(u) “Stock” shall mean the Series A Common Stock of the Company.
(v) “Subsidiary” shall mean any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
(w) “Transferee” shall mean any person to whom the Grantee has directly or indirectly transferred any Share acquired under this Agreement.
(x) “Transfer Notice” shall mean the notice of a proposed transfer of Shares described in Section 7.
JAND, INC. 2019 FOUNDER STOCK PLAN
NOTICE OF STOCK OPTION GRANT (EARLY EXERCISE)
The Optionee has been granted the following option to purchase shares of the Series A Common Stock of JAND, Inc.:
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Name of Optionee:
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See Carta
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Total Number of Shares:
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See Carta
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Type of Option:
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See Carta
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Exercise Price per Share:
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See Carta
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Date of Grant:
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See Carta
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Date Exercisable:
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This option may be exercised at any time after the Date of Grant for all or any part of the Shares subject to this option.
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Vesting Commencement Date:
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See Carta
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Vesting Schedule:
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See Carta
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Expiration Date:
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See Carta. This option expires earlier if the Optionee’s Service terminates earlier, as provided in Section 6 of the Stock Option Agreement, or if the Company engages in certain corporate transactions, as provided in Section 8(b) of the Plan.
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By signing below, the Optionee and the Company agree that this option is granted under, and governed by the terms and conditions of, the 2019 Founder Stock Plan and the Stock Option Agreement. Both of these documents are attached to, and made a part of, this Notice of Stock Option Grant. Section 14 of the Stock Option Agreement includes important acknowledgements of the Optionee.
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OPTIONEE:
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JAND, INC.
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By:
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Title:
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THE OPTION GRANTED PURSUANT TO THIS AGREEMENT AND THE SHARES ISSUABLE UPON THE EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
JAND, INC. 2019 FOUNDER STOCK PLAN:
STOCK OPTION AGREEMENT (EARLY EXERCISE)
SECTION 1. GRANT OF OPTION.
(a) Option. On the terms and conditions set forth in the Notice of Stock Option Grant and this Agreement, the Company grants to the Optionee on the Date of Grant the option to purchase at the Exercise Price the number of Shares set forth in the Notice of Stock Option Grant. The Exercise Price is agreed to be at least 100% of the Fair Market Value per Share on the Date of Grant (110% of Fair Market Value if this option is designated as an ISO in the Notice of Stock Option Grant and Section 3(b) of the Plan applies). This option is intended to be an ISO or an NSO, as provided in the Notice of Stock Option Grant.
(b) $100,000 Limitation. Even if this option is designated as an ISO in the Notice of Stock Option Grant, it shall be deemed to be an NSO to the extent (and only to the extent) required by the $100,000 annual limitation under Section 422(d) of the Code.
(c) Stock Plan and Defined Terms. This option is granted pursuant to the Plan, a copy of which the Optionee acknowledges having received. The provisions of the Plan are incorporated into this Agreement by this reference. Capitalized terms are defined in Section 15 of this Agreement.
SECTION 2. RIGHT TO EXERCISE.
(a) Exercisability. Subject to Subsection (b) below and the other conditions set forth in this Agreement, all or part of this option may be exercised prior to its expiration at the time or times set forth in the Notice of Stock Option Grant. Shares purchased by exercising this option may be subject to the Right of Repurchase under Section 7.
(b) Stockholder Approval. Any other provision of this Agreement notwithstanding, no portion of this option shall be exercisable at any time prior to the approval of the Plan by the Company’s stockholders.
SECTION 3. NO TRANSFER OR ASSIGNMENT OF OPTION.
Except as otherwise provided in this Agreement, this option and the rights and privileges conferred hereby shall not be sold, pledged or otherwise transferred (whether by operation of law or otherwise) and shall not be subject to sale under execution, attachment, levy or similar process.
SECTION 4. EXERCISE PROCEDURES.
(a) Notice of Exercise. The Optionee or the Optionee’s representative may exercise this option by giving written notice to the Company pursuant to Section 13(c). The notice shall specify the election to exercise this option, the number of Shares for which it is being exercised and the form of payment. The person exercising this option shall sign the notice. In the event that this option is being exercised by the representative of the Optionee, the notice shall be accompanied by proof (satisfactory to the Company) of the representative’s right to exercise this option. The Optionee or the Optionee’s representative shall deliver to the Company, at the time of giving the notice, payment in a form permissible under Section 5 for the full amount of the Purchase Price. In the event of a partial exercise of this option, Shares shall be deemed to have been purchased in the order in which they vest in accordance with the Notice of Stock Option Grant.
(b) Issuance of Shares. After receiving a proper notice of exercise, the Company shall cause to be issued one or more certificates evidencing the Shares for which this option has been exercised. Such Shares shall be registered (i) in the name of the person exercising this option, (ii) in the names of such person and his or her spouse as community property or as joint tenants with the right of survivorship or (iii) with the Company’s consent, in the name of a revocable trust. In the case of Restricted Shares, the Company shall cause such certificates to be deposited in escrow under Section 7(c). In the case of other Shares, the Company shall cause such certificates to be delivered to or upon the order of the person exercising this option.
(c) Withholding Taxes. In the event that the Company determines that it is required to withhold any tax as a result of the exercise of this option, the Optionee, as a condition to the exercise of this option, shall make arrangements satisfactory to the Company to enable it to satisfy all withholding requirements. The Optionee shall also make arrangements satisfactory to the Company to enable it to satisfy any withholding requirements that may arise in connection with the vesting or disposition of Shares purchased by exercising this option.
SECTION 5. PAYMENT FOR STOCK.
(a) Cash. All or part of the Purchase Price may be paid in cash or cash equivalents.
(b) Surrender of Stock. At the discretion of the Board of Directors, all or any part of the Purchase Price may be paid by surrendering, or attesting to the ownership of, shares of Company stock that are already owned by the Optionee. Such shares shall be surrendered to the Company in good form for transfer and shall be valued at their Fair Market Value as of the date when this option is exercised.
(c) Exercise/Sale. All or part of the Purchase Price and any withholding taxes may be paid by the delivery (on a form prescribed by the Company) of an irrevocable direction to a securities broker approved by the Company to sell Shares and to deliver all or part of the sales proceeds to the Company. However, payment pursuant to this Subsection (c) shall be
permitted only if (i) Stock then is publicly traded and (ii) such payment does not violate applicable law.
SECTION 6. TERM AND EXPIRATION.
(a) Basic Term. This option shall in any event expire on the expiration date set forth in the Notice of Stock Option Grant, which date is 10 years after the Date of Grant (five years after the Date of Grant if this option is designated as an ISO in the Notice of Stock Option Grant and Section 3(b) of the Plan applies).
(b) Termination of Service (Except by Death). If the Optionee’s Service terminates for any reason other than death, then this option shall expire on the earliest of the following occasions:
(i) The expiration date determined pursuant to Subsection (a) above;
(ii) The date three months after the termination of the Optionee’s Service for any reason other than Disability; or
(iii) The date six months after the termination of the Optionee’s Service by reason of Disability.
The Optionee may exercise all or part of this option at any time before its expiration under the preceding sentence, but only to the extent that this option is exercisable for vested Shares. In the event that the Optionee dies after termination of Service but before the expiration of this option, all or part of this option may be exercised (prior to expiration) by the executors or administrators of the Optionee’s estate or by any person who has acquired this option directly from the Optionee by beneficiary designation, bequest or inheritance, but only to the extent that this option was exercisable for vested Shares on or before the date when the Optionee’s Service terminated.
(c) Death of the Optionee. If the Optionee dies while in Service, then this option shall expire on the earlier of the following dates:
(i) The expiration date determined pursuant to Subsection (a) above; or
(ii) The date 12 months after the Optionee’s death.
All or part of this option may be exercised at any time before its expiration under the preceding sentence by the executors or administrators of the Optionee’s estate or by any person who has acquired this option directly from the Optionee by beneficiary designation, bequest or inheritance.
(d) Part-Time Employment and Leaves of Absence. If the Optionee commences working on a part-time basis, then the Company may adjust the vesting schedule set forth in the Notice of Stock Option Grant. If the Optionee goes on a leave of absence, then the Company may adjust the vesting schedule set forth in the Notice of Stock Option Grant in
accordance with the Company’s leave of absence policy or the terms of such leave. Except as provided in the preceding sentence, Service shall be deemed to continue for any purpose under this Agreement while the Optionee is on a bona fide leave of absence, if (i) such leave was approved by the Company in writing and (ii) continued crediting of Service for such purpose is expressly required by the terms of such leave or by applicable law (as determined by the Company). Service shall be deemed to terminate when such leave ends, unless the Optionee immediately returns to active work.
(e) Notice Concerning ISO Treatment. Even if this option is designated as an ISO in the Notice of Stock Option Grant, it ceases to qualify for favorable tax treatment as an ISO to the extent that it is exercised:
(i) More than three months after the date when the Optionee ceases to be an Employee for any reason other than death or permanent and total disability (as defined in Section 22(e)(3) of the Code);
(ii) More than 12 months after the date when the Optionee ceases to be an Employee by reason of permanent and total disability (as defined in Section 22(e)(3) of the Code); or
(iii) More than three months after the date when the Optionee has been on a leave of absence for 90 days, unless the Optionee’s reemployment rights following such leave were guaranteed by statute or by contract.
SECTION 7. RIGHT OF REPURCHASE.
(a) Scope of Repurchase Right. Until they vest in accordance with the Notice of Stock Option Grant and Subsection (b) below, the Shares acquired under this Agreement shall be Restricted Shares and shall be subject to the Company’s Right of Repurchase. The Company, however, may decline to exercise its Right of Repurchase or may exercise its Right of Repurchase only with respect to a portion of the Restricted Shares. The Company may exercise its Right of Repurchase only during the Repurchase Period following the termination of the Optionee’s Service, but the Right of Repurchase may be exercised automatically under Subsection (d) below. If the Right of Repurchase is exercised, the Company shall pay the Optionee an amount equal to the lower of (i) the Exercise Price of each Restricted Share being repurchased or (ii) the Fair Market Value of such Restricted Share at the time the Right of Repurchase is exercised.
(b) Lapse of Repurchase Right. The Right of Repurchase shall lapse with respect to the Restricted Shares in accordance with the vesting schedule set forth in the Notice of Stock Option Grant.
(c) Escrow. Upon issuance, the certificate(s) for Restricted Shares shall be deposited in escrow with the Company to be held in accordance with the provisions of this Agreement. Any additional or exchanged securities or other property described in Subsection (f) below shall immediately be delivered to the Company to be held in escrow. All ordinary cash dividends on Restricted Shares (or on other securities held in escrow) shall be paid directly to the Optionee and shall not be held in escrow. Restricted Shares, together with any other assets held
in escrow under this Agreement, shall be (i) surrendered to the Company for repurchase upon exercise of the Right of Repurchase or the Right of First Refusal or (ii) released to the Optionee upon his or her request to the extent that the Shares have ceased to be Restricted Shares (but not more frequently than once every six months). In any event, all Shares that have ceased to be Restricted Shares, together with any other vested assets held in escrow under this Agreement, shall be released within 90 days after the earlier of (i) the termination of the Optionee’s Service or (ii) the lapse of the Right of First Refusal.
(d) Exercise of Repurchase Right. The Company shall be deemed to have exercised its Right of Repurchase automatically for all Restricted Shares as of the commencement of the Repurchase Period, unless the Company during the Repurchase Period notifies the holder of the Restricted Shares pursuant to Section 13(c) that it will not exercise its Right of Repurchase for some or all of the Restricted Shares. The Company shall pay to the holder of the Restricted Shares the purchase price determined under Subsection (a) above for the Restricted Shares being repurchased. Payment shall be made in cash or cash equivalents and/or by canceling indebtedness to the Company incurred by the Optionee in the purchase of the Restricted Shares. The certificate(s) representing the Restricted Shares being repurchased shall be delivered to the Company.
(e) Termination of Rights as Stockholder. If the Right of Repurchase is exercised in accordance with this Section 7 and the Company makes available the consideration for the Restricted Shares being repurchased, then the person from whom the Restricted Shares are repurchased shall no longer have any rights as a holder of the Restricted Shares (other than the right to receive payment of such consideration). Such Restricted Shares shall be deemed to have been repurchased pursuant to this Section 7, whether or not the certificate(s) for such Restricted Shares have been delivered to the Company or the consideration for such Restricted Shares has been accepted.
(f) Additional or Exchanged Securities and Property. In the event of a merger or consolidation of the Company, a sale of all or substantially all of the Company’s stock or assets, any other corporate reorganization, a stock split, the declaration of a stock dividend, the declaration of an extraordinary dividend payable in a form other than stock, a spin-off, an adjustment in conversion ratio, a recapitalization or a similar transaction affecting the Company’s outstanding securities, any securities or other property (including cash or cash equivalents) that are by reason of such transaction exchanged for, or distributed with respect to, any Restricted Shares shall immediately be subject to the Right of Repurchase. Appropriate adjustments to reflect the exchange or distribution of such securities or property shall be made to the number and/or class of the Restricted Shares. Appropriate adjustments shall also be made to the price per share to be paid upon the exercise of the Right of Repurchase, provided that the aggregate purchase price payable for the Restricted Shares shall remain the same. In the event of a merger or consolidation of the Company with or into another entity or any other corporate reorganization, the Right of Repurchase may be exercised by the Company’s successor.
(g) Transfer of Restricted Shares. The Optionee shall not transfer, assign, encumber or otherwise dispose of any Restricted Shares without the Company’s written consent, except as provided in the following sentence. The Optionee may transfer Restricted Shares to one
or more members of the Optionee’s Immediate Family or to a trust established by the Optionee for the benefit of the Optionee and/or one or more members of the Optionee’s Immediate Family, provided in either case that the Transferee agrees in writing on a form prescribed by the Company to be bound by all provisions of this Agreement. If the Optionee transfers any Restricted Shares, then this Agreement shall apply to the Transferee to the same extent as to the Optionee.
(h) Assignment of Repurchase Right. The Board of Directors may freely assign the Company’s Right of Repurchase, in whole or in part. Any person who accepts an assignment of the Right of Repurchase from the Company shall assume all of the Company’s rights and obligations under this Section 7.
SECTION 8. RIGHT OF FIRST REFUSAL.
(a) Right of First Refusal. Subject to Section 11(a) below, in the event that the Optionee proposes to sell, pledge or otherwise transfer to a third party any Shares acquired under this Agreement, or any interest in such Shares, the Company shall have the Right of First Refusal with respect to all (and not less than all) of such Shares. If the Optionee desires to transfer Shares acquired under this Agreement, the Optionee shall give a written Transfer Notice to the Company describing fully the proposed transfer, including the number of Shares proposed to be transferred, the proposed transfer price, the name and address of the proposed Transferee and proof satisfactory to the Company that the proposed sale or transfer will not violate any applicable federal, State or foreign securities laws. The Transfer Notice shall be signed both by the Optionee and by the proposed Transferee and must constitute a binding commitment of both parties to the transfer of the Shares. The Company shall have the right to purchase all, and not less than all, of the Shares on the terms of the proposal described in the Transfer Notice (subject, however, to any change in such terms permitted under Subsection (b) below) by delivery of a notice of exercise of the Right of First Refusal within 30 days after the date when the Transfer Notice was received by the Company.
(b) Transfer of Shares. If the Company fails to exercise its Right of First Refusal within 30 days after the date when it received the Transfer Notice, the Optionee may, not later than 90 days following receipt of the Transfer Notice by the Company, conclude a transfer of the Shares subject to the Transfer Notice on the terms and conditions described in the Transfer Notice, provided that any such sale is made in compliance with applicable federal, State and foreign securities laws and not in violation of any other contractual restrictions to which the Optionee is bound. Any proposed transfer on terms and conditions different from those described in the Transfer Notice, as well as any subsequent proposed transfer by the Optionee, shall again be subject to the Right of First Refusal and shall require compliance with the procedure described in Subsection (a) above. If the Company exercises its Right of First Refusal, the parties shall consummate the sale of the Shares on the terms set forth in the Transfer Notice within 60 days after the date when the Company received the Transfer Notice (or within such longer period as may have been specified in the Transfer Notice); provided, however, that in the event the Transfer Notice provided that payment for the Shares was to be made in a form other than cash or cash equivalents paid at the time of transfer, the Company shall have the option of paying for
the Shares with cash or cash equivalents equal to the present value of the consideration described in the Transfer Notice.
(c) Additional or Exchanged Securities and Property. In the event of a merger or consolidation of the Company, a sale of all or substantially all of the Company’s stock or assets, any other corporate reorganization, a stock split, the declaration of a stock dividend, the declaration of an extraordinary dividend payable in a form other than stock, a spin-off, an adjustment in conversion ratio, a recapitalization or a similar transaction affecting the Company’s outstanding securities, any securities or other property (including cash or cash equivalents) that are by reason of such transaction exchanged for, or distributed with respect to, any Shares subject to this Section 8 shall immediately be subject to the Right of First Refusal. Appropriate adjustments to reflect the exchange or distribution of such securities or property shall be made to the number and/or class of the Shares subject to this Section 8.
(d) Termination of Right of First Refusal. Any other provision of this Section 8 notwithstanding, in the event that the Stock is readily tradable on an established securities market when the Optionee desires to transfer Shares, the Company shall have no Right of First Refusal, and the Optionee shall have no obligation to comply with the procedures prescribed by Subsections (a) and (b) above.
(e) Permitted Transfers. This Section 8 shall not apply to (i) a transfer by beneficiary designation, will or intestate succession or (ii) a transfer to one or more members of the Optionee’s Immediate Family or to a trust established by the Optionee for the benefit of the Optionee and/or one or more members of the Optionee’s Immediate Family, provided in either case that the Transferee agrees in writing on a form prescribed by the Company to be bound by all provisions of this Agreement. If the Optionee transfers any Shares acquired under this Agreement, either under this Subsection (e) or after the Company has failed to exercise the Right of First Refusal, then this Agreement shall apply to the Transferee to the same extent as to the Optionee.
(f) Termination of Rights as Stockholder. If the Company makes available, at the time and place and in the amount and form provided in this Agreement, the consideration for the Shares to be purchased in accordance with this Section 8, then after such time the person from whom such Shares are to be purchased shall no longer have any rights as a holder of such Shares (other than the right to receive payment of such consideration in accordance with this Agreement). Such Shares shall be deemed to have been purchased in accordance with the applicable provisions hereof, whether or not the certificate(s) therefor have been delivered as required by this Agreement.
(g) Assignment of Right of First Refusal. The Board of Directors may freely assign the Company’s Right of First Refusal, in whole or in part. Any person who accepts an assignment of the Right of First Refusal from the Company shall assume all of the Company’s rights and obligations under this Section 8.
SECTION 9. LEGALITY OF INITIAL ISSUANCE.
No Shares shall be issued upon the exercise of this option unless and until the Company has determined that:
(a) It and the Optionee have taken any actions required to register the Shares under the Securities Act or to perfect an exemption from the registration requirements thereof;
(b) Any applicable listing requirement of any stock exchange or other securities market on which Stock is listed has been satisfied; and
(c) Any other applicable provision of federal, State or foreign law has been satisfied.
SECTION 10. NO REGISTRATION RIGHTS.
The Company may, but shall not be obligated to, register or qualify the sale of Shares under the Securities Act or any other applicable law. The Company shall not be obligated to take any affirmative action in order to cause the sale of Shares under this Agreement to comply with any law.
SECTION 11. RESTRICTIONS ON TRANSFER OF SHARES.
(a) Bylaws Restrictions. The Shares acquired under this Agreement shall be subject to the transfer restrictions in Article X of the Company’s Bylaws, as amended in addition to, and not in limitation of, the provisions of Section 8 of this Agreement.
(b) Securities Law Restrictions. Regardless of whether the offering and sale of Shares under the Plan have been registered under the Securities Act or have been registered or qualified under the securities laws of any State, the Company at its discretion may impose restrictions upon the sale, pledge or other transfer of such Shares (including the placement of appropriate legends on stock certificates or the imposition of stop-transfer instructions) if, in the judgment of the Company, such restrictions are necessary or desirable in order to achieve compliance with the Securities Act, the securities laws of any State or any other law.
(c) Market Stand-Off. In connection with any underwritten public offering by the Company of its equity securities pursuant to an effective registration statement filed under the Securities Act, including the Company’s initial public offering, the Optionee or a Transferee shall not directly or indirectly sell, make any short sale of, loan, hypothecate, pledge, offer, grant or sell any option or other contract for the purchase of, purchase any option or other contract for the sale of, or otherwise dispose of or transfer, or agree to engage in any of the foregoing transactions with respect to, any Shares acquired under this Agreement without the prior written consent of the Company or its managing underwriter. Such restriction (the “Market Stand-Off”) shall be in effect for such period of time following the date of the final prospectus for the offering as may be requested by the Company or such underwriter. In no event, however, shall such period exceed 180 days plus such additional period as may reasonably be requested by the Company or such underwriter to accommodate regulatory restrictions on (i) the publication or other distribution of research reports or (ii) analyst recommendations and opinions, including
(without limitation) the restrictions set forth in Rule 2711(f)(4) of the National Association of Securities Dealers and Rule 472(f)(4) of the New York Stock Exchange, as amended, or any similar successor rules. The Market Stand-Off shall in any event terminate two years after the date of the Company’s initial public offering. In the event of the declaration of a stock dividend, a spin-off, a stock split, an adjustment in conversion ratio, a recapitalization or a similar transaction affecting the Company’s outstanding securities without receipt of consideration, any new, substituted or additional securities which are by reason of such transaction distributed with respect to any Shares subject to the Market Stand-Off, or into which such Shares thereby become convertible, shall immediately be subject to the Market Stand-Off. In order to enforce the Market Stand-Off, the Company may impose stop-transfer instructions with respect to the Shares acquired under this Agreement until the end of the applicable stand-off period. The Company’s underwriters shall be beneficiaries of the agreement set forth in this Subsection (c). This Subsection (c) shall not apply to Shares registered in the public offering under the Securities Act.
(d) Investment Intent at Grant. The Optionee represents and agrees that the Shares to be acquired upon exercising this option will be acquired for investment, and not with a view to the sale or distribution thereof.
(e) Investment Intent at Exercise. In the event that the sale of Shares under the Plan is not registered under the Securities Act but an exemption is available that requires an investment representation or other representation, the Optionee shall represent and agree at the time of exercise that the Shares being acquired upon exercising this option are being acquired for investment, and not with a view to the sale or distribution thereof, and shall make such other representations as are deemed necessary or appropriate by the Company and its counsel.
(f) Legends. All certificates evidencing Shares purchased under this Agreement shall bear the following legends:
“THE SHARES REPRESENTED HEREBY MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN COMPLIANCE WITH THE TERMS OF A WRITTEN AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED HOLDER OF THE SHARES (OR THE PREDECESSOR IN INTEREST TO THE SHARES). SUCH AGREEMENT GRANTS TO THE COMPANY CERTAIN RIGHTS OF FIRST REFUSAL UPON AN ATTEMPTED TRANSFER OF THE SHARES AND CERTAIN REPURCHASE RIGHTS UPON TERMINATION OF SERVICE WITH THE COMPANY. THE SECRETARY OF THE COMPANY WILL UPON WRITTEN REQUEST FURNISH A COPY OF SUCH AGREEMENT TO THE HOLDER HEREOF WITHOUT CHARGE.”
“THE SHARES REPRESENTED HEREBY MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN COMPLIANCE WITH THE BYLAWS OF THE COMPANY. COPIES OF THE BYLAWS OF THE COMPANY MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY.”
All certificates evidencing Shares purchased under this Agreement in an unregistered transaction shall bear the following legend (and such other restrictive legends as are required or deemed advisable under the provisions of any applicable law):
“THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.”
(g) Removal of Legends. If, in the opinion of the Company and its counsel, any legend placed on a stock certificate representing Shares sold under this Agreement is no longer required, the holder of such certificate shall be entitled to exchange such certificate for a certificate representing the same number of Shares but without such legend.
(h) Administration. Any determination by the Company and its counsel in connection with any of the matters set forth in this Section 11 shall be conclusive and binding on the Optionee and all other persons.
SECTION 12. ADJUSTMENT OF SHARES.
In the event of any transaction described in Section 8(a) of the Plan, the terms of this option (including, without limitation, the number and kind of Shares subject to this option and the Exercise Price) shall be adjusted as set forth in Section 8(a) of the Plan. In the event that the Company is a party to a merger or consolidation or in the event of a sale of all or substantially all of the Company’s stock or assets, this option shall be subject to the treatment provided by the Board of Directors in its sole discretion, as provided in Section 8(b) of the Plan.
SECTION 13. MISCELLANEOUS PROVISIONS.
(a) Rights as a Stockholder. Neither the Optionee nor the Optionee’s representative shall have any rights as a stockholder with respect to any Shares subject to this option until the Optionee or the Optionee’s representative becomes entitled to receive such Shares by filing a notice of exercise and paying the Purchase Price pursuant to Sections 4 and 5.
(b) No Retention Rights. Nothing in this option or in the Plan shall confer upon the Optionee any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Company (or any Parent or Subsidiary employing or retaining the Optionee) or of the Optionee, which rights are hereby expressly reserved by each, to terminate his or her Service at any time and for any reason, with or without cause.
(c) Notice. Any notice required by the terms of this Agreement shall be given in writing. It shall be deemed effective upon (i) personal delivery, (ii) deposit with the United States Postal Service, by registered or certified mail, with postage and fees prepaid or (iii) deposit with Federal Express Corporation, with shipping charges prepaid. Notice shall be
addressed to the Company at its principal executive office and to the Optionee at the address that he or she most recently provided to the Company in accordance with this Subsection (c).
(d) Modifications and Waivers. No provision of this Agreement shall be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by the Optionee and by an authorized officer of the Company (other than the Optionee). No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time.
(e) Entire Agreement. The Notice of Stock Option Grant, this Agreement and the Plan constitute the entire contract between the parties hereto with regard to the subject matter hereof. They supersede any other agreements, representations or understandings (whether oral or written and whether express or implied) that relate to the subject matter hereof.
(f) Choice of Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, as such laws are applied to contracts entered into and performed in such State.
SECTION 14. ACKNOWLEDGEMENTS OF THE OPTIONEE.
(a) Tax Consequences. The Optionee agrees that the Company does not have a duty to design or administer the Plan or its other compensation programs in a manner that minimizes the Optionee’s tax liabilities. The Optionee shall not make any claim against the Company or its Board of Directors, officers or employees related to tax liabilities arising from this option or the Optionee’s other compensation. In particular, the Optionee acknowledges that this option is exempt from Section 409A of the Code only if the Exercise Price is at least equal to the Fair Market Value per Share on the Date of Grant. Since Shares are not traded on an established securities market, the determination of their Fair Market Value is made by the Board of Directors or by an independent valuation firm retained by the Company. The Optionee acknowledges that there is no guarantee in either case that the Internal Revenue Service will agree with the valuation, and the Optionee shall not make any claim against the Company or its Board of Directors, officers or employees in the event that the Internal Revenue Service asserts that the valuation was too low.
(b) Electronic Delivery of Documents. The Optionee agrees to accept by email all documents relating to the Company, the Plan or this option and all other documents that the Company is required to deliver to its security holders (including, without limitation, disclosures that may be required by the Securities and Exchange Commission). The Optionee also agrees that the Company may deliver these documents by posting them on a website maintained by the Company or by a third party under contract with the Company. If the Company posts these documents on a website, it shall notify the Optionee by email of their availability. The Optionee acknowledges that he or she may incur costs in connection with electronic delivery, including the cost of accessing the internet and printing fees, and that an interruption of internet access may interfere with his or her ability to access the documents. This consent shall remain in effect until this option expires or until the Optionee gives the Company written notice that it should deliver paper documents.
(c) No Notice of Expiration Date. The Optionee agrees that the Company and its officers, employees, attorneys and agents do not have any obligation to notify him or her prior to the expiration of this option pursuant to Section 6, regardless of whether this option will expire at the end of its full term or on an earlier date related to the termination of the Optionee’s Service. The Optionee further agrees that he or she has the sole responsibility for monitoring the expiration of this option and for exercising this option, if at all, before it expires. This Subsection (c) shall supersede any contrary representation that may have been made, orally or in writing, by the Company or by an officer, employee, attorney or agent of the Company.
SECTION 15. DEFINITIONS.
(a) “Agreement” shall mean this Stock Option Agreement.
(b) “Board of Directors” shall mean the Board of Directors of the Company, as constituted from time to time or, if a Committee has been appointed, such Committee.
(c) “Code” shall mean the Internal Revenue Code of 1986, as amended.
(d) “Committee” shall mean a committee of the Board of Directors, as described in Section 2 of the Plan.
(e) “Company” shall mean JAND, Inc., a Delaware corporation.
(a) “Consultant” shall mean a person, excluding Employees and Outside Directors, who performs bona fide services for the Company, a Parent or a Subsidiary as a consultant or advisor.
(f) “Date of Grant” shall mean the date of grant specified in the Notice of Stock Option Grant.
(g) “Disability” shall mean that the Optionee is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment.
(h) “Employee” shall mean any individual who is a common-law employee of the Company, a Parent or a Subsidiary.
(i) “Exercise Price” shall mean the amount for which one Share may be purchased upon exercise of this option, as specified in the Notice of Stock Option Grant.
(j) “Fair Market Value” shall mean the fair market value of a Share, as determined by the Board of Directors in good faith. Such determination shall be conclusive and binding on all persons.
(k) “Immediate Family” shall mean any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law and shall include adoptive relationships.
(l) “ISO” shall mean an employee incentive stock option described in Section 422(b) of the Code.
(m) “Notice of Stock Option Grant” shall mean the document so entitled to which this Agreement is attached.
(n) “NSO” shall mean a stock option not described in Section 422(b) or 423(b) of the Code.
(o) “Optionee” shall mean the person named in the Notice of Stock Option Grant.
(p) “Outside Director” shall mean a member of the Board of Directors who is not an Employee.
(q) “Parent” shall mean any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if each of the corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
(r) “Plan” shall mean the JAND, Inc. 2019 Founder Stock Plan, as in effect on the Date of Grant.
(s) “Purchase Price” shall mean the Exercise Price multiplied by the number of Shares with respect to which this option is being exercised.
(t) “Repurchase Period” shall mean a period of 90 consecutive days commencing on the date when the Optionee’s Service terminates for any reason, including (without limitation) death or disability.
(u) “Restricted Share” shall mean a Share that is subject to the Right of Repurchase.
(v) “Right of First Refusal” shall mean the Company’s right of first refusal described in Section 8.
(w) “Right of Repurchase” shall mean the Company’s right of repurchase described in Section 7.
(x) “Securities Act” shall mean the Securities Act of 1933, as amended.
(y) “Service” shall mean service as an Employee, Outside Director or Consultant.
(z) “Share” shall mean one share of Stock, as adjusted in accordance with Section 8 of the Plan (if applicable).
(aa) “Stock” shall mean the Series A Common Stock of the Company.
(bb) “Subsidiary” shall mean any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
(cc) “Transferee” shall mean any person to whom the Optionee has directly or indirectly transferred any Share acquired under this Agreement.
(dd) “Transfer Notice” shall mean the notice of a proposed transfer of Shares described in Section 8.
WARBY PARKER INC. 2019 FOUNDER STOCK PLAN
NOTICE OF RESTRICTED STOCK UNIT GRANT
Warby Parker Inc., a Delaware public benefit corporation (f/k/a JAND, Inc., the “Company”), pursuant to the Warby Parker Inc. 2019 Founder Stock Plan (the “Plan”), has granted to the Participant below a restricted stock unit award covering the number of units set forth below, each of which represents one (1) share of the Company’s Series A Common Stock (the “RSUs”). The RSUs are subject to all of the terms and conditions set forth in this Notice of Restricted Stock Unit Grant (the “Grant Notice”), and the Restricted Stock Unit Agreement (the “RSU Agreement”), including any exhibits thereto, and the Plan, both of which are attached hereto and incorporated herein in their entirety. Capitalized terms not explicitly defined in this Grant Notice but defined in the Plan or the RSU Agreement will have the same definitions as in the Plan or the RSU Agreement. In the event of any conflict between the terms of the Grant Notice and the Plan, the terms of the Plan will control.
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Name of Participant:
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See Carta
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Total Number of RSUs:
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See Carta
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Date of Grant:
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See Carta
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Vesting Schedule:
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The RSUs shall vest as set forth on Exhibit A of the RSU Agreement.
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Expiration Date:
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This Grant Notice and the RSU Agreement shall expire and have no force or effect upon the date on which all RSUs set forth herein have either been settled, forfeited, or cancelled pursuant to the terms of this Grant Notice, the RSU Agreement (including, but not limited to, Section 3 therein and Exhibit A thereto), or the Plan (the “RSU Expiration”). Upon the RSU Expiration, all RSUs shall be immediately forfeited to the Company and all rights of Participant to such RSUs shall immediately terminate.
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By accepting this grant, Participant acknowledges and agrees that (i) Participant’s rights to any Shares underlying the RSUs will vest only as Participant provides services to the Company over time and only if certain other conditions are satisfied, and (ii) the grant of the RSUs is not as consideration for services Participant rendered to the Company prior to the Date of Grant.
By accepting this grant, Participant further acknowledges and agrees that (i) Participant has reviewed the Plan, this Grant Notice and the RSU Agreement in their entirety, (ii) Participant has had an opportunity to obtain the advice of counsel prior to accepting the RSUs, (iii) Participant fully understands all provisions of the Plan, this Grant Notice and the RSU Agreement, and (iv) Participant agrees to accept as binding, conclusive and final all decisions or interpretations of the Company’s Board of Directors relating to the Plan, this Grant Notice and RSU Agreement.
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WARBY PARKER INC.
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PARTICIPANT
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By:
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Name:
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[Participant Name]
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Title:
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WARBY PARKER INC. 2019 FOUNDER STOCK PLAN
RESTRICTED STOCK UNIT AGREEMENT
Pursuant to your Notice of Restricted Stock Unit Grant (the “Grant Notice”) and this Restricted Stock Unit Agreement (the “Agreement”), Warby Parker Inc., a Delaware public benefit corporation (f/k/a JAND, Inc., the “Company”), has granted you (the “Participant”) a restricted stock unit award covering the number of units set forth in the Grant Notice, each of which represents one (1) share of the Company’s Series A Common Stock (the “RSUs”). Capitalized terms not explicitly defined in this RSU Agreement or in the Grant Notice but defined in the Warby Parker Inc. 2019 Founder Stock Plan (the “Plan”) will have the same definitions as in the Plan.
SECTION 1. NO STOCKHOLDER RIGHTS. Unless and until such time as Shares are issued pursuant to the Agreement in settlement of vested RSUs, Participant shall have no ownership of the Shares allocated to the RSUs, including, without limitation, no right to dividends (or dividend equivalents) or to vote such Shares.
SECTION 2. NO TRANSFER. The Grant Notice, this Agreement, the RSUs and any interest therein shall not be sold, assigned, transferred, pledged, hypothecated, or otherwise disposed of.
SECTION 3. TERMINATION. Except as otherwise set forth on Exhibit A attached to the Grant Notice, if Participant’s Service terminates at any time for any reason, all RSUs for which vesting is no longer possible under the terms of the Grant Notice and this Agreement (including Exhibit A) shall be forfeited to the Company on the date that is 3-months following such termination of Service, and all rights of Participant to such RSUs shall immediately terminate at such time. Further, for purposes of the RSUs, Participant’s Service will be considered terminated as of the date Participant is no longer actively providing services to the Company, its Parent or Subsidiaries (the “Company Group”), regardless of the reason for such termination and whether or not later found to be invalid or in breach of employment laws in the jurisdiction where Participant is employed or the terms of Participant’s employment agreement, if any (the “Termination Date”), and, unless otherwise determined by the Company, Participant’s right to vest in the RSUs will terminate as of such date and will not be extended by any contractual notice period or any period of “garden leave” or similar notice period mandated under employment laws in the jurisdiction where Participant is employed or the terms of Participant’s employment agreement, if any. The Company shall have the exclusive discretion to determine when Participant is no longer actively providing services for purposes of the RSUs (including, subject to the terms of the Plan and applicable laws, regulations and rules (“Applicable Laws”), whether Participant may still be considered to be providing services while on a leave of absence).
Service shall be deemed to continue for any purpose under this Agreement while Participant is on a bona fide leave of absence, if (i) such leave was approved by the Company in writing and (ii) continued crediting of Service for such purpose is expressly required by the terms of such leave or by Applicable Laws (as determined by the Company). Service shall be deemed to terminate when such leave ends, unless Participant immediately returns to active work.
SECTION 4. RESPONSIBILITY FOR TAXES. As a condition to the grant, vesting, and settlement of the RSUs, Participant acknowledges that, regardless of any action taken by the Company or, if different, Participant’s employer (the “Employer”), the ultimate liability for all income tax, social insurance, payroll tax, fringe benefits tax, payment on account or other tax-related items or required deductions or payments legally applicable to him or her and related to the receipt, vesting, settlement or cancellation of the RSUs, the issuance or subsequent sale of the Shares allocated to the RSUs, the receipt of dividends (if any) or the participation in the Plan (“Tax-Related Items”) is and remains Participant’s responsibility and may exceed the amount actually withheld by the Company or the Employer. Participant further acknowledges and agrees that Participant is solely responsible for filing all relevant documentation that may be required in relation to the RSUs or any Tax-Related Items (other than filings or documentation that is the specific obligation of the Company or any member of the Company Group pursuant to Applicable Law), such as, but not limited to, personal income tax returns or reporting statements in relation to the receipt, vesting or settlement of the RSUs, the issuance of the Shares allocated to the RSUs, the holding of Shares or any bank or brokerage account, the subsequent sale of Shares, and the receipt of any dividends.
Participant further acknowledges that the Company and/or the Employer: (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the RSUs, including, but not limited to, the receipt, vesting or settlement of the RSUs, the issuance or subsequent sale of the Shares allocated to the RSUs and the receipt of any dividends; and (ii) do not commit to and are under no obligation to structure the terms of the grant or any aspect of the RSUs to reduce or eliminate Participant’s liability for Tax-Related Items or achieve any particular tax result. Participant also understands that Applicable Laws may require varying RSU or Share valuation methods for purposes of calculating Tax-Related Items, and the Company assumes no responsibility or liability in relation to any such valuation or for any calculation or reporting of income or Tax-Related Items that may be required of Participant under Applicable Laws.
Further, if Participant is subject to Tax-Related Items in more than one jurisdiction between the Date of Grant and the date of any relevant taxable or tax withholding event, as applicable, Participant acknowledges that the Company and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.
Prior to the relevant taxable or tax withholding event, as applicable, Participant agrees to make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all Tax-Related Items. In this regard, Participant authorizes the Company and/or the Employer, or their respective agents, at their discretion, to satisfy their tax and/or withholding obligations with regard to all Tax-Related Items by (i) withholding from Participant’s wages or other compensation paid to Participant by the Company or the Employer, (ii) withholding from proceeds of the sale of Shares acquired pursuant to the RSUs either through a voluntary sale or through a mandatory sale arranged by the Company (on Participant’s behalf pursuant to this authorization) without further consent, (iii) withholding Shares that would otherwise be issued upon settlement of the RSUs or (iv) such other method as determined by the Company or the Employer to be in compliance with Applicable Laws.
Depending on the method of satisfying the tax and/or withholding obligations with regard to the Tax-Related Items, the Company may withhold or account for Tax-Related Items by considering applicable minimum statutory withholding amounts or other applicable tax or withholding rates, including maximum applicable rates, in which case Participant will receive a refund of any over-withheld or over-paid amount in cash and will have no entitlement to the Share equivalent.
Finally, Participant agrees to pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to pay, withhold or account for as a result of Participant’s receipt, vesting or settlement of the RSUs, the issuance or subsequent sale of the Shares allocated to the RSUs or the participation in the Plan that cannot be satisfied by the means previously described. The Company may refuse to issue or deliver the Shares or the proceeds of the sale of Shares if Participant fails to comply with his or her obligations in connection with the Tax-Related Items.
SECTION 5. NATURE OF GRANT. In accepting the RSUs, Participant acknowledges, understands and agrees that:
(a) the Plan is established voluntarily by the Company, is discretionary in nature, and may be amended, suspended or terminated by the Company at any time, to the extent permitted by the Plan;
(b) the grant of the RSUs is voluntary and occasional and does not create any contractual or other right to receive future grants of restricted stock units, or benefits in lieu of restricted stock units, even if restricted stock units have been granted in the past;
(c) all decisions with respect to future restricted stock units or other grants, if any, will be at the sole discretion of the Company;
(d) Participant is voluntarily participating in the Plan;
(e) the RSUs and the Shares allocated to the RSUs are not intended to replace any pension rights or compensation and are outside the scope of Participant’s employment contract, if any;
(f) the RSUs and the Shares allocated to the RSUs, and the income and value of same, are not part of normal or expected compensation for any purpose, including, without limitation, calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments;
(g) the future value of the Shares is unknown, indeterminable, and cannot be predicted with certainty;
(h) if the RSUs are settled and Participant receives some or all of the Shares allocated to the RSUs, the value of such Shares may increase or decrease in value;
(i) no claim or entitlement to compensation or damages shall arise from forfeiture of the RSUs resulting from the termination of Participant’s Service (for any reason whatsoever, whether or not later found to be invalid or in breach of employment laws in the jurisdiction where Participant is employed or the terms of Participant’s employment agreement, if any), and in consideration of the grant of the RSUs to which Participant is otherwise not entitled, Participant irrevocably agrees never to institute any claim against the Company Group, waives his or her ability, if any, to bring any such claim, and releases the Company Group from any such claim; if, notwithstanding the foregoing, any such claim is allowed by a court of competent jurisdiction, then, by participating in the Plan, Participant shall be deemed irrevocably to have agreed not to pursue such claim and agrees to execute and/or accept any and all documents necessary to request dismissal or withdrawal of such claim;
(j) unless otherwise provided in the Plan or by the Company in its discretion, the RSUs and the benefits evidenced by this Agreement do not create any entitlement to have the RSUs or any such benefits transferred to, or assumed by, another company nor to be exchanged, cashed out or substituted for, in connection with any corporate transaction affecting the Shares; and
(k) no entity in the Company Group shall be liable for any foreign exchange rate fluctuation between Participant’s local currency and the United States Dollar or the selection by the Company or any member of the Company Group in its sole discretion of an applicable foreign exchange rate that may affect the value of the RSUs (or the calculation of income or Tax-Related Items thereunder) or of any amounts due to Participant pursuant to the settlement of the RSUs or the subsequent sale of the Shares allocated to the RSUs.
SECTION 6. LIMITATIONS ON TRANSFER OF SHARES. In addition to any other limitation on transfer created by Applicable Laws, the Company’s Bylaws, this Agreement, the Grant Notice and the Plan, Participant shall not assign, encumber or dispose of any interest in the Shares issued pursuant to this Agreement except in compliance with Applicable Laws.
SECTION 7. INVESTMENT AND TAXATION REPRESENTATIONS. In connection with the receipt of the RSUs and the Stock upon settlement of the RSUs, Participant represents to the Company the following:
(a) Participant is aware of the Company’s business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Shares issued pursuant to this Agreement. Participant is or will be acquiring the Shares for investment for Participant’s own account only and not with a view to, or for resale in connection with, any “distribution” thereof within the meaning of the Securities Act or under any applicable provision of state law. Participant does not have any present intention to transfer the Shares issued pursuant to this Agreement to any other person or entity.
(b) Participant understands that the Shares issued pursuant to this Agreement have not been registered under the Securities Act by reason of a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Participant’s investment intent as expressed herein.
(c) Participant further acknowledges and understands that the securities must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. Participant further acknowledges and understands that the Company is under no obligation to register the securities.
(d) Participant is familiar with the provisions of Rule 144, promulgated under the Securities Act, which, in substance, permits limited public resale of “restricted securities” acquired, directly or indirectly, from the issuer of the securities (or from an affiliate of such issuer), in a non-public offering subject to the satisfaction of certain conditions. Participant understands that the Company provides no assurances as to whether he or she will be able to resell any or all of the Shares pursuant to Rule 144, which rule requires, among other things, that the Company be subject to the reporting requirements of the Exchange Act, that resales of securities take place only after the holder of the Shares has held the Shares for certain specified time periods, and under certain circumstances, that resales of securities be limited in volume and take place only pursuant to brokered transactions. Notwithstanding this paragraph (d), Participant acknowledges and agrees to the restrictions set forth in paragraph (e) below.
(e) Participant further understands that in the event all of the applicable requirements of Rule 144 are not satisfied, registration under the Securities Act, compliance with Regulation A, or some other registration exemption will be required; and that, notwithstanding the fact that Rule 144 is not exclusive, the Staff of the Securities and Exchange Commission has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rule 144 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales, and that such persons and their respective brokers who participate in such transactions do so at their own risk.
(f) Participant understands that Participant may suffer adverse tax consequences as a result of Participant’s receipt of the RSUs, the vesting and/or settlement of the RSUs, the issuance of Shares allocated to the RSUs and/or the disposition of such Shares. Participant represents that Participant has consulted any tax consultants Participant deems advisable in connection with the receipt of the RSUs, the vesting and/or settlement of the RSUs, the issuance of Shares allocated to the RSUs and/or the disposition of such Shares and that Participant is not relying on the Company for any tax advice.
SECTION 8. SECTION 409A. All payments made and benefits provided under this Agreement are intended to comply with the requirements of Section 409A and this Agreement shall be interpreted to give effect to such intent to the maximum extent permitted by Section 409A so that none of the payments or benefits will be subject to the adverse tax penalties imposed under Section 409A. In no event will the Company reimburse Participant for any taxes or other penalties that may be imposed on Participant as a result of Section 409A and, by accepting the RSUs, Participant hereby indemnifies the Company for any liability that arises as a result of Section 409A. Notwithstanding anything in this Agreement to the contrary, if Participant is deemed by the Company at the time of Participant’s “separation from service” within the meaning of Section 409A to be a “specified employee” for purposes of Section 409A of the Code, to the extent delayed settlement of any RSUs to which Participant is entitled under this Agreement is required in order to avoid a prohibited distribution under Section 409A of the Code, such RSUs shall not be settled prior to the earlier of (i) the expiration of the six-month period measured from the date of Participant’s “separation from service” or (ii) the date of Participant’s death. Upon the first business day following the expiration of the applicable period, all RSUs for which settlement is deferred pursuant to the preceding sentence shall be settled.
SECTION 9. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary contained herein, Shares will not be issued pursuant to this Agreement unless the Shares are then registered under the Securities Act or, if such Shares are not then so registered, the Company has determined that such issuance would be exempt from the registration requirements of the Securities Act. The issuance of Shares pursuant to this Agreement also must comply with other Applicable Laws and regulations governing the RSUs, and the Company is not obligated, and will have no liability for failure, to issue or deliver any Shares upon settlement of the RSUs unless such issuance or delivery would comply with the Applicable Laws, with such compliance determined by the Company in consultation with its legal counsel.
SECTION 10. LOCK-UP AGREEMENT. In connection with a Public Listing and upon request of the Company or the underwriters managing such offering of the Company’s securities, Participant hereby agrees not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any securities of the Company however or whenever acquired (other than those included in the registration) without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed 180 days)
from the effective date of such registration as may be requested by the Company or such managing underwriters and to execute and/or accept an agreement reflecting the foregoing as may be requested by the underwriters at the time of the Company’s Public Listing. Notwithstanding the foregoing, if during the last 17 days of the restricted period, the Company issues an earnings release or material news or a material event relating to the Company occurs, or prior to the expiration of the restricted period the Company announces that it will release earnings results during the 16-day period beginning on the last day of the restricted period, then, upon the request of the managing underwriter, to the extent required by any FINRA rules, the restrictions imposed by this subsection shall continue to apply until the end of the 3rd trading day following the expiration of the 15-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event. In no event will the restricted period extend beyond 216 days after the effective date of the registration statement.
SECTION 11. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS:
(a) Legends. Any certificate or certificates representing the Shares issued pursuant to this Agreement shall bear the following legends (as well as any legends required by the Company or applicable state and federal corporate and securities laws):
(i) “THE SHARES REPRESENTED HEREBY MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN COMPLIANCE WITH THE TERMS OF A WRITTEN AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED HOLDER OF THE SHARES (OR THE PREDECESSOR IN INTEREST TO THE SHARES). THE SECRETARY OF THE COMPANY WILL UPON WRITTEN REQUEST FURNISH A COPY OF SUCH AGREEMENT TO THE HOLDER HEREOF WITHOUT CHARGE.”
(ii) “THE SHARES REPRESENTED HEREBY MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN COMPLIANCE WITH THE BYLAWS OF THE COMPANY. COPIES OF THE BYLAWS OF THE COMPANY MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY.”
(iii) All certificates evidencing Shares purchased under this Agreement in an unregistered transaction shall bear the following legend (and such other restrictive legends as are required or deemed advisable under the provisions of any Applicable Laws):
“THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.”
(b) Stop-Transfer Notices. Participant agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue appropriate “stop transfer” instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to transfer on its books any Shares issued pursuant to this Agreement that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred.
SECTION 12. NO EMPLOYMENT RIGHTS. Nothing contained in this Agreement, the Grant Notice or the Plan is intended to constitute or create a contract of employment, nor shall it constitute or create the right to remain associated with or in the employ of the Company or any Subsidiary for any particular period of time. Nothing in this Agreement, the Grant Notice or the Plan shall affect in any manner whatsoever the right or power of the Company, or a parent, subsidiary or affiliate of the Company, to terminate Participant’s employment or consulting relationship, for any reason, with or without cause, subject to Applicable Laws.
SECTION 13. WAIVER OF STATUTORY INFORMATION RIGHTS. Participant acknowledges and understands that, but for the waiver made herein, upon delivery of any Shares issued to Participant pursuant to this Agreement, Participant would be entitled, upon written demand under oath stating the purpose thereof, to inspect for any proper purpose, and to make copies and extracts from, the Company’s stock ledger, a list of its stockholders, and its other books and records, and the books and records of subsidiaries of the Company, if any, under the circumstances and in the manner provided in Section 220 of the General Corporation Law of Delaware (any and all such rights, and any and all such other rights of Participant as may be provided for in Section 220, the “Inspection Rights”). In light of the foregoing, until a Public Listing, Participant hereby unconditionally and irrevocably waives the Inspection Rights, whether such Inspection Rights would be exercised or pursued directly or indirectly pursuant to Section 220 or otherwise, and covenants and agrees never to directly or indirectly commence, voluntarily aid in any way, prosecute, assign, transfer, or cause to be commenced any claim, action, cause of action, or other proceeding to pursue or exercise the Inspection Rights. The foregoing waiver applies to the Inspection Rights of Participant in Participant’s capacity as a stockholder and shall not affect any rights of a director, in his or her capacity as such, under Section 220. The foregoing waiver shall not apply to any contractual inspection rights of Participant under any written agreement with the Company.
SECTION 14. NO ADVICE REGARDING GRANT. The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding Participant’s participation in the Plan, or Participant’s receipt, vesting or settlement of the RSUs or the Shares allocated thereto or the sale of such Shares. Participant is hereby advised to consult with his or her own personal tax, legal and financial advisors regarding his or her participation in the Plan and the RSUs before accepting the RSUs or otherwise taking any action related to the RSUs or the Plan.
SECTION 15. DATA PRIVACY. Participant hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of Participant’s personal data as described in this Agreement and any other Award materials by and among the entities in the Company Group for the exclusive purpose of implementing, administering and managing Participant’s participation in the Plan.
Participant understands that the Company Group may hold certain personal information about Participant, including, but not limited to, Participant’s name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any Shares or directorships held in the Company, details of all Awards, or any other entitlement to Shares awarded, canceled, exercised, vested, unvested or outstanding in Participant’s favor (“Data”), for the exclusive purpose of implementing, administering and managing the Plan.
Participant understands that Data will be transferred to such stock plan service provider as may be selected by the Company, presently or the in future, which may be assisting the Company with the implementation, administration and management of the Plan. Participant understands that the recipients of the Data may be located in the United States or elsewhere, and that the recipient’s country (e.g., the United States) may have different data privacy laws and protections than Participant’s country. Participant authorizes the Company, the stock plan service provider as may be selected by the Company, and any other possible recipients which may assist the Company, presently or in the future, with implementing, administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purposes of implementing, administering and managing Participant’s participation in the Plan. Further, Participant understands that he or she is providing the consents herein on a purely voluntary basis. If Participant does not consent, or if Participant later seeks to revoke his or her consent, his or her Service will not be adversely affected; the only adverse consequence of refusing or withdrawing Participant’s consent is that the Company would not be able to grant Participant RSUs, Awards or any other equity awards or administer or maintain such awards. Therefore, Participant understands that refusing or withdrawing his or her consent may affect Participant’s ability to participate in the Plan. For more information on the consequences of Participant’s refusal to consent or withdrawal of consent, Participant understands that he or she may contact his or her local human resources representative.
SECTION 16. MISCELLANEOUS.
(a) Governing Law. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of Delaware, without giving effect to principles of conflicts of law.
(b) Entire Agreement; Enforcement of Rights. This Agreement (including any exhibits hereto), collectively with the Grant Notice and the Plan, sets forth the entire agreement and understanding of the parties relating to the subject matter herein and merges all prior or contemporaneous discussions between them. Except as contemplated by the Plan, no modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, shall be effective unless in writing and executed and/or accepted by the parties to this Agreement. The failure by either party to enforce any rights under this Agreement shall not be construed as a waiver of any rights of such party.
(c) Severability. If one or more provisions of this Agreement, the Grant Notice or the Plan are held to be unenforceable under Applicable Laws, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this Agreement, the Grant Notice and the Plan, (ii) the balance of the Agreement, the Grant Notice and the Plan shall be interpreted as if such provision were so excluded and (iii) the balance of the Agreement, the Grant Notice and the Plan shall be enforceable in accordance with its terms.
(d) Language. If Participant has received this Agreement, the Grant Notice or any other document related to the RSUs and/or the Plan translated into a language other than English and if the meaning of the translated version is different than the English version, the English version will control.
(e) Imposition of Other Requirements. The Company reserves the right to impose other requirements on Participant’s participation in the Plan, on the RSUs and on any Shares allocated to the RSUs, to the extent the Company determines it is necessary or advisable for legal or administrative reasons, and to require Participant to sign and/or accept any additional agreements or undertakings that may be necessary to accomplish the foregoing. Participant also acknowledges that the Applicable Laws of the country in which Participant is residing or working at the time of grant, vesting and settlement of the RSUs or the sale of Shares received pursuant to the RSUs (including any rules or regulations governing securities, foreign exchange, tax, labor, or other matters) may subject Participant to additional procedural or regulatory requirements that Participant is and will be solely responsible for and must fulfill.
(f) Notices. Any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient when delivered personally or by overnight courier or sent by email or fax, or 48 hours after being deposited in the U.S. mail or a comparable foreign mail service, as certified or registered mail with postage or shipping charges prepaid and addressed to the party to be notified at such party’s most recent address, email or fax number set forth in the Company’s books and records.
(g) Titles. Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.
(h) Counterparts. This Agreement may be executed and/or accepted in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument.
(i) Successors and Assigns. The rights and benefits of this Agreement shall inure to the benefit of, and be enforceable by the Company’s successors and assigns. The rights and obligations of Participant under this Agreement may only be assigned with the prior written consent of the Company.
(j) Electronic Delivery. The Company may, in its sole discretion, decide to deliver to Participant by email or any other electronic means any documents or notices related to the RSUs, the Shares allocated to the RSUs, Participant’s current or future participation in the Plan, securities of the Company or any member of the Company Group or any other matter, including documents and/or notices required to be delivered to Participant by applicable securities law or any other Applicable Laws or the Company’s Certificate of Incorporation
or Bylaws. By accepting the RSUs, whether electronically or otherwise, Participant hereby consents to receive such documents and notices by such electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company, including but not limited to the use of electronic signatures or click-through electronic acceptance of terms and conditions.
EXHIBIT A
VESTING SCHEDULE
FORM OF INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the “Agreement”) is made and entered into as of [ l ], 2021 between WARBY PARKER INC., a Delaware public benefit corporation (the “Company”), and [Name] (“Indemnitee”).
WITNESSETH THAT:
WHEREAS, highly competent persons have become more reluctant to serve publicly-held corporations as directors, officers or in other capacities unless they are provided with adequate protection through insurance or adequate indemnification against inordinate risks of claims and actions against them arising out of their service to and activities on behalf of the corporation;
WHEREAS, the Board of Directors of the Company (the “Board”) has determined that, in order to attract and retain qualified individuals, the Company will attempt to maintain on an ongoing basis, at its sole expense, liability insurance to protect persons serving the Company and its subsidiaries from certain liabilities. Although the furnishing of such insurance has been a customary and widespread practice among United States-based corporations and other business enterprises, the Company believes that, given current market conditions and trends, such insurance may be available to it in the future only at higher premiums and with more exclusions. At the same time, directors, officers, and other persons in service to corporations or business enterprises are being increasingly subjected to expensive and time-consuming litigation relating to, among other things, matters that traditionally would have been brought only against the Company or business enterprise itself. The By-laws and Certificate of Incorporation of the Company require indemnification of the officers and directors of the Company. Indemnitee may also be entitled to indemnification pursuant to the General Corporation Law of the State of Delaware (“DGCL”). The By-laws and Certificate of Incorporation and the DGCL expressly provide that the indemnification provisions set forth therein are not exclusive, and thereby contemplate that contracts may be entered into between the Company and members of the Board, officers and other persons with respect to indemnification;
WHEREAS, the uncertainties relating to such insurance and to indemnification have increased the difficulty of attracting and retaining such persons;
WHEREAS, the Board has determined that the increased difficulty in attracting and retaining such persons is detrimental to the best interests of the Company, its stockholders and those materially affected by the Company’s conduct and its public benefit and that the Company should act to assure such persons that there will be increased certainty of such protection in the future;
WHEREAS, it is reasonable, prudent and necessary for the Company contractually to obligate itself to indemnify, and to advance expenses on behalf of, such persons to the fullest extent permitted by applicable law so that they will serve or continue to serve the Company free from undue concern that they will not be so indemnified;
WHEREAS, this Agreement is a supplement to and in furtherance of the Bylaws and Certificate of Incorporation of the Company and any resolutions adopted pursuant thereto, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder; and
WHEREAS, Indemnitee does not regard the protection available under the Company’s Bylaws and Certificate of Incorporation and insurance as adequate in the present circumstances, and may not be willing to serve as an officer or director without adequate protection, and the Company desires Indemnitee to serve in such capacity. Indemnitee is willing to serve, continue to serve and to take on additional service for or on behalf of the Company on the condition that he or she be so indemnified; and
NOW, THEREFORE, in consideration of Indemnitee’s agreement to serve as a [director][officer] from and after the date hereof, the parties hereto agree as follows:
1.Indemnity of Indemnitee. The Company hereby agrees to hold harmless and indemnify Indemnitee to the fullest extent permitted by law, as such may be amended from time to time. In furtherance of the foregoing indemnification, and without limiting the generality thereof:
(a)Proceedings Other Than Proceedings by or in the Right of the Company. Indemnitee shall be entitled to the rights of indemnification provided in this Section 1(a) if, by reason of his or her Corporate Status (as hereinafter defined), the Indemnitee is, or is threatened to be made, a party to or participant in any Proceeding (as hereinafter defined) other than a Proceeding by or in the right of the Company. Pursuant to this Section 1(a), Indemnitee shall be indemnified against all Expenses (as hereinafter defined), judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by him or her, or on his or her behalf, in connection with such Proceeding or any claim, issue or matter therein, if the Indemnitee acted in good faith and in a manner the Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and with respect to any criminal Proceeding, had no reasonable cause to believe the Indemnitee’s conduct was unlawful.
(b)Proceedings by or in the Right of the Company. Indemnitee shall be entitled to the rights of indemnification provided in this Section 1(b) if, by reason of his or her Corporate Status, the Indemnitee is, or is threatened to be made, a party to or participant in any Proceeding brought by or in the right of the Company. Pursuant to this Section 1(b), Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by the Indemnitee, or on the Indemnitee’s behalf, in connection with such Proceeding if the Indemnitee acted in good faith and in a manner the Indemnitee reasonably believed to be in or not opposed to the best interests of the Company; provided, however, if applicable law so provides, no indemnification against such Expenses shall be made in respect of any claim, issue or matter in such Proceeding as to which Indemnitee shall have been adjudged to be liable to the Company unless and to the extent that the Court of Chancery of the State of Delaware shall determine that such indemnification may be made.
(c)Indemnification for Expenses of a Party Who is Wholly or Partly Successful. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his or her Corporate Status, a party to and is successful, on the merits or otherwise, in any Proceeding, he shall be indemnified to the maximum extent permitted by law, as such may be amended from time to time, against all Expenses actually and reasonably incurred by him or her or on his or her behalf in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or her or on his or her behalf in connection with each successfully resolved claim, issue or matter. For purposes of this Section and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.
2.Additional Indemnity. In addition to, and without regard to any limitations on, the indemnification provided for in Section 1 of this Agreement, the Company shall and hereby does indemnify and hold harmless Indemnitee against all Expenses, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by him or her or on his or her behalf if, by reason of his or her Corporate Status, he or she is, or is threatened to be made, a party to or participant in any Proceeding (including a Proceeding by or in the right of the Company), including, without limitation, all liability arising out of the negligence or active or passive wrongdoing of Indemnitee. The only limitation that shall exist upon the Company’s obligations pursuant to this Agreement shall be that the Company shall not be obligated to make any payment to Indemnitee that is finally determined (under the procedures, and subject to the presumptions, set forth in Sections 6 and 7 hereof) to be unlawful.
3.Contribution.
(a)Whether or not the indemnification provided in Sections 1 and 2 hereof is available, in respect of any threatened, pending or completed action, suit or proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), the Company shall pay, in the first instance, the entire amount of any judgment or settlement of such action, suit or proceeding without requiring Indemnitee to contribute to such payment and the Company hereby waives and relinquishes any right of contribution it may have against Indemnitee. The Company shall not enter into any settlement of any action, suit or proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding) unless such settlement provides for a full and final release of all claims asserted against Indemnitee.
(b)Without diminishing or impairing the obligations of the Company set forth in the preceding subparagraph, if, for any reason, Indemnitee shall elect or be required to pay all or any portion of any judgment or settlement in any threatened, pending or completed action, suit or proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), the Company shall contribute to the amount of Expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred and paid or payable by Indemnitee in proportion to the relative benefits received by the Company and
all officers, directors or employees of the Company, other than Indemnitee, who are jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), on the one hand, and Indemnitee, on the other hand, from the transaction or events from which such action, suit or proceeding arose; provided, however, that the proportion determined on the basis of relative benefit may, to the extent necessary to conform to law, be further adjusted by reference to the relative fault of the Company and all officers, directors or employees of the Company other than Indemnitee who are jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), on the one hand, and Indemnitee, on the other hand, in connection with the transaction or events that resulted in such expenses, judgments, fines or settlement amounts, as well as any other equitable considerations which applicable law may require to be considered. The relative fault of the Company and all officers, directors or employees of the Company, other than Indemnitee, who are jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), on the one hand, and Indemnitee, on the other hand, shall be determined by reference to, among other things, the degree to which their actions were motivated by intent to gain personal profit or advantage, the degree to which their liability is primary or secondary and the degree to which their conduct is active or passive.
(c)The Company hereby agrees to fully indemnify and hold Indemnitee harmless from any claims of contribution which may be brought by officers, directors or employees of the Company, other than Indemnitee, who may be jointly liable with Indemnitee.
(d)To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any claim relating to an indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order to reflect (i) the relative benefits received by the Company and Indemnitee as a result of the event(s) and/or transaction(s) giving cause to such Proceeding; and/or (ii) the relative fault of the Company (and its directors, officers, employees and agents) and Indemnitee in connection with such event(s) and/or transaction(s).
4.Indemnification for Expenses of a Witness. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his or her Corporate Status, a witness, or is made (or asked) to respond to discovery requests, in any Proceeding to which Indemnitee is not a party, he or she shall be indemnified against all Expenses actually and reasonably incurred by him or her or on his or her behalf in connection therewith.
5.Advancement of Expenses. Notwithstanding any other provision of this Agreement, the Company shall advance all Expenses incurred by or on behalf of Indemnitee in connection with any Proceeding by reason of Indemnitee’s Corporate Status within thirty (30) days after the receipt by the Company of a statement or statements from Indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by Indemnitee and shall include or be preceded or accompanied by a written undertaking by or on
behalf of Indemnitee to repay any Expenses advanced if it shall ultimately be determined that Indemnitee is not entitled to be indemnified against such Expenses. Any advances and undertakings to repay pursuant to this Section 5 shall be unsecured and interest free.
6.Procedures and Presumptions for Determination of Entitlement to Indemnification. It is the intent of this Agreement to secure for Indemnitee rights of indemnity that are as favorable as may be permitted under the DGCL and public policy of the State of Delaware. Accordingly, the parties agree that the following procedures and presumptions shall apply in the event of any question as to whether Indemnitee is entitled to indemnification under this Agreement:
(a)To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification. The Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise the Board in writing that Indemnitee has requested indemnification. Notwithstanding the foregoing, any failure of Indemnitee to provide such a request to the Company, or to provide such a request in a timely fashion, shall not relieve the Company of any liability that it may have to Indemnitee unless, and to the extent that, such failure actually and materially prejudices the interests of the Company.
(b)Upon written request by Indemnitee for indemnification pursuant to the first sentence of Section 6(a) hereof, a determination with respect to Indemnitee’s entitlement thereto shall be made in the specific case by one of the following four methods, which shall be at the election of the Board: (1) by a majority vote of the disinterested directors, even though less than a quorum, (2) by a committee of disinterested directors designated by a majority vote of the disinterested directors, even though less than a quorum, (3) if there are no disinterested directors or if the disinterested directors so direct, by independent legal counsel in a written opinion to the Board, a copy of which shall be delivered to the Indemnitee, or (4) if so directed by the Board, by the stockholders of the Company. For purposes hereof, disinterested directors are those members of the Board who are not parties to the action, suit or proceeding in respect of which indemnification is sought by Indemnitee.
(c)If the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 6(b) hereof, the Independent Counsel shall be selected as provided in this Section 6(c). The Independent Counsel shall be selected by the Board. Indemnitee may, within 10 days after such written notice of selection shall have been given, deliver to the Company a written objection to such selection; provided, however, that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of “Independent Counsel” as defined in Section 13 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the person so selected shall act as Independent Counsel. If a written objection is made and substantiated, the Independent Counsel selected may not serve as Independent Counsel unless and until such objection is withdrawn or a court has determined that such objection is without merit. If, within 20 days after submission by Indemnitee of a written
request for indemnification pursuant to Section 6(a) hereof, no Independent Counsel shall have been selected and not objected to, either the Company or Indemnitee may petition the Court of Chancery of the State of Delaware or other court of competent jurisdiction for resolution of any objection which shall have been made by the Indemnitee to the Company’s selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by the court or by such other person as the court shall designate, and the person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 6(b) hereof. The Company shall pay any and all reasonable fees and expenses of Independent Counsel incurred by such Independent Counsel in connection with acting pursuant to Section 6(b) hereof, and the Company shall pay all reasonable fees and expenses incident to the procedures of this Section 6(c), regardless of the manner in which such Independent Counsel was selected or appointed.
(d)In making a determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence. Neither the failure of the Company (including by its directors or independent legal counsel) to have made a determination prior to the commencement of any action pursuant to this Agreement that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including by its directors or independent legal counsel) that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct.
(e)Indemnitee shall be deemed to have acted in good faith if Indemnitee’s action is based on the records or books of account of the Enterprise (as hereinafter defined), including financial statements, or on information supplied to Indemnitee by the officers of the Enterprise in the course of their duties, or on the advice of legal counsel for the Enterprise or on information or records given or reports made to the Enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Enterprise. In addition, the knowledge and/or actions, or failure to act, of any director, officer, agent or employee of the Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement. Whether or not the foregoing provisions of this Section 6(e) are satisfied, it shall in any event be presumed that Indemnitee has at all times acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence.
(f)If the person, persons or entity empowered or selected under Section 6 to determine whether Indemnitee is entitled to indemnification shall not have made a determination within sixty (60) days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made and Indemnitee shall be entitled to such indemnification absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of
such indemnification under applicable law; provided, however, that such 60day period may be extended for a reasonable time, not to exceed an additional thirty (30) days, if the person, persons or entity making such determination with respect to entitlement to indemnification in good faith requires such additional time to obtain or evaluate documentation and/or information relating thereto; and provided, further, that the foregoing provisions of this Section 6(f) shall not apply if the determination of entitlement to indemnification is to be made by the stockholders pursuant to Section 6(b) of this Agreement and if (A) within fifteen (15) days after receipt by the Company of the request for such determination, the Board or the Disinterested Directors, if appropriate, resolve to submit such determination to the stockholders for their consideration at an annual meeting thereof to be held within seventyfive (75) days after such receipt and such determination is made thereat, or (B) a special meeting of stockholders is called within fifteen (15) days after such receipt for the purpose of making such determination, such meeting is held for such purpose within sixty (60) days after having been so called and such determination is made thereat.
(g)Indemnitee shall cooperate with the person, persons or entity making such determination with respect to Indemnitee’s entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. Any Independent Counsel, member of the Board or stockholder of the Company shall act reasonably and in good faith in making a determination regarding the Indemnitee’s entitlement to indemnification under this Agreement. Any costs or expenses (including attorneys’ fees and disbursements) incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitee’s entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.
(h)The Company acknowledges that a settlement or other disposition short of final judgment may be successful if it permits a party to avoid expense, delay, distraction, disruption and uncertainty. In the event that any action, claim or proceeding to which Indemnitee is a party is resolved in any manner other than by adverse judgment against Indemnitee (including, without limitation, settlement of such action, claim or proceeding with or without payment of money or other consideration) it shall be presumed that Indemnitee has been successful on the merits or otherwise in such action, suit or proceeding. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence.
(i)The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his or her conduct was unlawful.
7.Remedies of Indemnitee.
(a)In the event that (i) a determination is made pursuant to Section 6 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 5 of this Agreement, (iii) no determination of entitlement to indemnification is made pursuant to Section 6(b) of this Agreement within 90 days after receipt by the Company of the request for indemnification, (iv) payment of indemnification is not made pursuant to this Agreement within ten (10) days after receipt by the Company of a written request therefor or (v) payment of indemnification is not made within ten (10) days after a determination has been made that Indemnitee is entitled to indemnification or such determination is deemed to have been made pursuant to Section 6 of this Agreement, Indemnitee shall be entitled to an adjudication in an appropriate court of the State of Delaware, or in any other court of competent jurisdiction, of Indemnitee’s entitlement to such indemnification. Indemnitee shall commence such proceeding seeking an adjudication within 180 days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 7(a). The Company shall not oppose Indemnitee’s right to seek any such adjudication.
(b)In the event that a determination shall have been made pursuant to Section 6(b) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding commenced pursuant to this Section 7 shall be conducted in all respects as a de novo trial on the merits, and Indemnitee shall not be prejudiced by reason of the adverse determination under Section 6(b).
(c)If a determination shall have been made pursuant to Section 6(b) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding commenced pursuant to this Section 7, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s misstatement not materially misleading in connection with the application for indemnification, or (ii) a prohibition of such indemnification under applicable law.
(d)In the event that Indemnitee, pursuant to this Section 7, seeks a judicial adjudication of his or her rights under, or to recover damages for breach of, this Agreement, or to recover under any directors’ and officers’ liability insurance policies maintained by the Company, the Company shall pay on his or her behalf, in advance, any and all expenses (of the types described in the definition of Expenses in Section 13 of this Agreement) actually and reasonably incurred by him in such judicial adjudication, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advancement of expenses or insurance recovery.
(e)The Company shall be precluded from asserting in any judicial proceeding commenced pursuant to this Section 7 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court that the Company is bound by all the provisions of this Agreement. The Company shall indemnify Indemnitee against any and all Expenses and, if requested by Indemnitee, shall (within ten (10) days after receipt by the Company of a written request therefore) advance, to the extent not prohibited by law, such expenses to Indemnitee, which are incurred by Indemnitee in connection
with any action brought by Indemnitee for indemnification or advance of Expenses from the Company under this Agreement or under any directors’ and officers’ liability insurance policies maintained by the Company, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advancement of Expenses or insurance recovery, as the case may be.
(f)Notwithstanding anything in this Agreement to the contrary, no determination as to entitlement to indemnification under this Agreement shall be required to be made prior to the final disposition of the Proceeding.
8.Non-Exclusivity; Survival of Rights; Insurance; Primacy of Indemnification; Subrogation.
(a)The rights of indemnification as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Certificate of Incorporation, the By-laws, any agreement, a vote of stockholders, a resolution of directors of the Company, or otherwise. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his or her Corporate Status prior to such amendment, alteration or repeal. To the extent that a change in the DGCL, whether by statute or judicial decision, permits greater indemnification than would be afforded currently under the Certificate of Incorporation, By-laws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.
(b)To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, officers, employees, or agents or fiduciaries of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise that such person serves at the request of the Company, Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any director, officer, employee, agent or fiduciary under such policy or policies. If, at the time of the receipt of a notice of a claim pursuant to the terms hereof, the Company has directors’ and officers’ liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies.
(c)In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee (other than against the Fund Indemnitors), who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.
(d)The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise.
(e)The Company’s obligation to indemnify or advance Expenses hereunder to Indemnitee who is or was serving at the request of the Company as a director, officer, employee or agent of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise shall be reduced by any amount Indemnitee has actually received as indemnification or advancement of expenses from such other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise.
9.Exception to Right of Indemnification. Notwithstanding any provision in this Agreement, the Company shall not be obligated under this Agreement to make any indemnity in connection with any claim made against Indemnitee:
(a)for which payment has actually been made to or on behalf of Indemnitee under any insurance policy or other indemnity provision, except with respect to any excess beyond the amount paid under any insurance policy or other indemnity provision; or
(b)for an accounting of profits made from the purchase and sale (or sale and purchase) by Indemnitee of securities of the Company within the meaning of Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of state statutory law or common law; or
(c)in connection with any Proceeding (or any part of any Proceeding) initiated by Indemnitee, including any Proceeding (or any part of any Proceeding) initiated by Indemnitee against the Company or its directors, officers, employees or other indemnitees, unless (i) the Board authorized the Proceeding (or any part of any Proceeding) prior to its initiation or (ii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law.
10.Duration of Agreement. All agreements and obligations of the Company contained herein shall continue during the period Indemnitee is an officer or director of the Company (or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise) and shall continue thereafter so long as Indemnitee shall be subject to any Proceeding (or any proceeding commenced under Section 7 hereof) by reason of his or her Corporate Status, whether or not he is acting or serving in any such capacity at the time any liability or expense is incurred for which indemnification can be provided under this Agreement.
11.Security. To the extent requested by Indemnitee and approved by the Board, the Company may at any time and from time to time provide security to Indemnitee for the Company’s obligations hereunder through an irrevocable bank line of credit, funded trust or other collateral. Any such security, once provided to Indemnitee, may not be revoked or released without the prior written consent of the Indemnitee.
12.Enforcement.
(a)The Company expressly confirms and agrees that it has entered into this Agreement and assumes the obligations imposed on it hereby in order to induce Indemnitee to serve as an officer or director of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as an officer or director of the Company.
(b)This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof.
(c)The Company shall not seek from a court, or agree to, a “bar order” which would have the effect of prohibiting or limiting the Indemnitee’s rights to receive advancement of expenses under this Agreement.
13.Definitions. For purposes of this Agreement:
(a)“Corporate Status” describes the status of a person who is or was a director, officer, employee, agent or fiduciary of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise that such person is or was serving at the express written request of the Company.
(b)“Disinterested Director” means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee.
(c)“Enterprise” shall mean the Company and any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise that Indemnitee is or was serving at the express written request of the Company as a director, officer, employee, agent or fiduciary.
(d)“Expenses” shall include all reasonable attorneys’ fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, participating, or being or preparing to be a witness in a Proceeding, or responding to, or objecting to, a request to provide discovery in any Proceeding. Expenses also shall include Expenses incurred in connection with any appeal resulting from any Proceeding and any federal, state, local or foreign taxes imposed on the Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement, including without limitation the premium, security for, and other costs relating to any cost bond, supersede as bond, or other appeal bond or its equivalent. Expenses, however, shall not include amounts paid in settlement by Indemnitee or the amount of judgments or fines against Indemnitee.
(e)“Independent Counsel” means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party (other than with respect to matters concerning Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements), or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement. The Company agrees to pay the reasonable fees of the Independent Counsel referred to above and to fully indemnify such counsel against any and all Expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.
(f)“Proceeding” includes any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought by or in the right of the Company or otherwise and whether civil, criminal, administrative or investigative, in which Indemnitee was, is or will be involved as a party or otherwise, by reason of his or her Corporate Status, by reason of any action taken by him or of any inaction on his part while acting in his or her Corporate Status; in each case whether or not he is acting or serving in any such capacity at the time any liability or expense is incurred for which indemnification can be provided under this Agreement; including one pending on or before the date of this Agreement, but excluding one initiated by an Indemnitee pursuant to Section 7 of this Agreement to enforce his rights under this Agreement.
14.Severability. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision. Further, the invalidity or unenforceability of any provision hereof as to either Indemnitee or Appointing Stockholder shall in no way affect the validity or enforceability of any provision hereof as to the other. Without limiting the generality of the foregoing, this Agreement is intended to confer upon Indemnitee and Appointing Stockholder indemnification rights to the fullest extent permitted by applicable laws. In the event any provision hereof conflicts with any applicable law, such provision shall be deemed modified, consistent with the aforementioned intent, to the extent necessary to resolve such conflict.
15.Modification and Waiver. No supplement, modification, termination or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.
16.Notice By Indemnitee. Indemnitee agrees promptly to notify the Company in writing upon being served with or otherwise receiving any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification covered hereunder. The failure to so notify the Company shall
not relieve the Company of any obligation which it may have to Indemnitee under this Agreement or otherwise unless and only to the extent that such failure or delay materially prejudices the Company.
17.Notices. All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient, and if not so confirmed, then on the next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent:
(a)To Indemnitee at the address set forth below Indemnitee signature hereto.
(b)To the Company at:
Warby Parker Inc.
233 Spring Street
6th Floor East
New York, NY 10013
Attention: Chief Executive Officer
or to such other address as may have been furnished to Indemnitee by the Company or to the Company by Indemnitee, as the case may be.
18.Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same Agreement. This Agreement may also be executed and delivered by facsimile signature and in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
19.Headings. The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.
20.Governing Law and Consent to Jurisdiction. This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules. The Company and Indemnitee hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Chancery Court of the State of Delaware (the “Delaware Court”), and not in any other state or federal court in the United States of America or any court in any other country, (ii) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court, and (iv) waive, and agree not to plead or to
make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum.
SIGNATURE PAGE TO FOLLOW
IN WITNESS WHEREOF, the parties hereto have executed this Indemnification Agreement on and as of the day and year first above written.
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WARBY PARKER INC.
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By:
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Name: [ l ]
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Title: [ l ]
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INDEMNITEE
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Name: [ l ]
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Address: [ l ]
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Subsidiaries of Warby Parker Inc.
Pursuant to Item 601(b)(21)(ii) of Regulation S-K, certain subsidiaries of the Registrant which, considered in the aggregate as a single subsidiary, would not have constituted a significant subsidiary (as defined in Rule 1-02(w) of Regulation S-X) have been omitted.
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State or Other Jurisdiction of Incorporation or Organization
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WPCA Holdings, Inc.
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Canada
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Consent of Independent Registered Public Accounting Firm
We consent to the reference to our firm under the caption "Experts" and to the use of our report dated June 21, 2021, in the Registration Statement on Form S-1 and related Prospectus of Warby Parker Inc. for the registration of its Class A common stock.
/s/ Ernst & Young LLP
New York, New York
August 24, 2021
